The Official Receiver v. Carsten Manfred Hans-martin-frank

HCMP 4868/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4868 OF 2003

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BETWEEN

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Coram: Master J. Wong in Court

Date of Hearing: 18 October 2005

Date of Handing Down Judgment: 3 November 2005

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J U D G M E N T

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Application

1.This is an application by the Official Receiver (“OR”), under 168H of the Companies Ordinance (Cap 32) (“CO”) for a disqualification order against the Respondent as a director of Lung Electronics (HK) Limited (the “Company”) at the material times.

Background

2.The Company was incorporated in Hong Kong on 1 September 1989 for carrying on business of trading in computer hardware and electronic products.  The Respondent was the director of the Company times from 1 November 1989 to 28 June 1999.

3.On 9 November 1999, the Company commenced a voluntary winding up upon itself.  A liquidator was appointed and, upon investigations, she reported to the OR that the Respondent was responsible for the insolvency of the Company.  It was said that the Respondent had misapplied the funds of the Company on 3 occasions:

“(1)  On 9 February 1998, the Company advanced DEM700,000 to Yakumo Electronics Limited (“Yakumo HK”) which further advanced the same sum ot its subsidiary in Germany, Yakumo Electronics GmbH (“Yakumo GmbH”).  At that time, the Respondent had beneficial interest in Yakumo HK.  Full provision for this advance was subsequently made in the accounts of the Company.

(2)    On 10 February 1998, the Company advanced DEM1,962,651 to Micro Computer Dos GmbH (“MC Dos”) for repayment of MC Dos’ debt due to Frank & Walter Computer GmbH (“Frank & Walter”) in which the Respondent had beneficial interest.  Since then, no repayment was made by MC Dos to the Company.  It was later found by the Liquidator that both MC Dos and Frank & Walter had bankrupt.

(3)    When the Company was put into liquidation, an amount of HK$734, 483 was due to the Company by Powerful Rich Limited (“Powerful Rich”).  The Respondent was at that time a director of Powerful Rich and has beneficial interest therein.  Despite various reminders were sent to the Respondent before and after the Company was put into liquidation, no repayment was made.  Full amount together with judgment interest were recovered after legal action was taken by the Liquidator. 

(para. 12 of the 1st Report of OR)”

4.On 17 September 2003, the OR wrote to the Respondent asking for explanations.  The Respondent did not respond.  The OR reminded him on 24 October 2003 but there was still no reply.

5.Failing to obtain any response, the OR issued the present proceedings and application on 5 November 2003.  It appears that the Respondent does oppose the same although he only turned up once before this court at a call-over hearing on 29 July 2004.  He filed an affidavit of opposition on 16 August 2004 but failed to answer the interrogatories (“the Interrogatories”) dated 16 September 2004 and served upon him by the OR.  The Respondent further failed to attend the hearing before me on 18 October 2005 despite due notice had been served on him by letter as well as by oral confirmation over phone.

6.Ms. Tsui, Acting Senior Solicitor, appeared for the OR.  Upon hearing from her, I adjourned the matter for judgment to be handed down at a later date.

Ruling

7.Upon careful consideration of the evidence authorities and submissions before me, I have come to a decision that the Respondent should be disqualified for five years.  I say so for the following reasons.

(a) The division of the 15-year disqualification period into 3 brackets, as per Dillion J in Re Sevenoaks Stationers (Retail) Ltd [1996] BCC 765 CA has been followed in Hong Kong:

“I would for my part endorse the division of the potential 15-year disqualification period into three brackets, ……

1. The top bracket of disqualification for periods over ten years should be reserved for particularly serious cases.  These may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again.

2. The minimum bracket of two to five years’ disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious.

3. The middle bracket of disqualification for from six to ten years should apply for serious cases which do not merit the top bracket. (page 771 to page 772 of the judgment)”

(b) Useful guidance can be found in Re Westmind Packing Services Ltd (No. 3) [1998] BCC 836, at page 837-838:

“The following should be taken as general guidance as to what is relevant and admissible evidence for the purpose of determining the length of a disqualification period ……

1. It was of the greatest importance that any individual who undertakes the statutory and fiduciary obligations of being a company director should realize that these are inescapable personal responsibilities.

2. ……

3. The primary purpose of disqualification is to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies showed them to be danger to creditors and others.  Despite the fact that the courts have said disqualification is not a ‘punishment’, in truth the exercise that is being engaged in is little different from any sentencing exercise.  The period of disqualification must reflect the gravity of the offence.  It must contain deterrent elements.  That is what sentencing is all about, and that is what fixing the appropriate period of the disqualification is all about.  In relation to the period of disqualification the facts of the offence are obviously important but many other factors ought (and in reality do) come into play.

……

7. A wide variety of matters – including the former director’s age and state of health, the length of time he has been in jeopardy, whether he has admitted the offence, his general conduct before and after the offence, and the periods of disqualification of his co-directors that may have been ordered by other courts – may be relevant and admissible in determining the appropriate period of disqualification as may any period of de facto disqualification ……

8. The appropriate period of disqualification is something which, like the passing of sentence in a criminal case, ought to be dealt with comparatively briefly and without elaborate reasoning.  It is obviously undesirable for the judge to be taken through the facts of previous cases in order to guide him as to the course he should take in the particular case before him.  The principles applicable to the court’s jurisdiction under the Act are now reasonably clear.  The application of those principles to the facts of the particular case is a matter for the trial judge.  The citation of cases as to the period of disqualification will, in the great majority of cases, be unnecessary and inappropriate.

9. ……”

(c) Although the Respondent attempted to deny the complaints of the liquidator and the OR by his affidavit in opposition, he failed me on a number of matters. 

(i) The Respondent attempted to explain that there had been merger of various companies and he was no longer involved in the matter since March 1997.  However, they were bare allegations only and he did not condescend into any particulars.

(ii) The Respondent has failed to respond to the Interrogatories served on him at all.

(iii) No contemporaneous documents have been produced before this Court to substantiate or attempt to substantiate the explanations offered.

(iv) Both the liquidator and the OR are able to produce concrete evidence to back up their complaints:

“6. The Official Receiver reiterates the following:-

(1) According to the record in the Companies Registry, the Respondent was director of the Company from 1 November 1989 to 28 June 1999. [Paragraph 6 of the 1st Report.]

(2) The Respondent had beneficial interest in Yakumo HK through nominees.  Tapman held the 249,999 shares in Yakumo HK in trust for the Respondent and acted as nominee director of Yakumo HK for the Respondent.  [Paragraph 17 of the 1st Report.]

(3) According to the Commercial Register in Germany, the Respondent was the managing director of Frank & Walter from 28 January 1997 to 9 September 1998.  [Paragraph 4 of the 3rd Report.]

(Paragraph 6 of the 4th Report of OR)”

(d) Applying the relevant legal principles to the Respondent’s “misconduct”, Miss Tsui said that it should fall within the minimum bracket.  I agree and would further suggest that it justifies the top punishment within this bracket because of the following factors.

(i) The Respondent has failed to perform not only the statutory duties but also his fiduciary obligations of being a company director.  Such failure is not simply a matter of carelessness or negligence on the part of the Respondent.  They were misapplications of substantial amount the fund of the Company.

(ii) The insolvency of the Company was caused by the misapplications of the Company’s fund.  Quite some creditors were left unpaid and had no recourse against the Company.  Such conduct is dangerous to the creditors and the society.  The public should be protected from it.

(iii) The background of the Respondent is not known to this Court.  He chose to oppose but did not follow the matter properly.  He did not attend the substantive hearing before me.  He did not choose to mitigate.  He appears not to be remorseful.  Probably, he does not care about how the Court will punish him.

7. In conclusion, I will make the following orders.

(a)	The Respondent shall not, without leave of the Court,
	(i)	be a director of a company;
	(ii)	be a liquidator of a company;
	(iii)	be a receiver or manager of a company’s property; or
	(iv)	in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company;
		for a period of 5 years effective from the 21st day after the date hereof.
(b)	There be an order nisi that the costs of the OR incidental to and of this proceedings and application be borne by the Respondent, to be taxed if not agreed.

Ms. K. Tsui for Official Receiver

Respondent being absent