The Official Receiver v. Ng Tin Ming

HCMP 2441/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2441 OF 2007

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BETWEEN

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Coram : Before Master Levy in Court

Date of Hearing : 4 February 2008

Date of Judgment : 4 February 2008

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J U D G M E N T

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Introduction

1.This is an application by the Official Receiver brought under section 168H of the Companies Ordinance to seek a disqualification order against the director.

2.According to section 168H,

“The court is required to make a disqualification order against a director in a case where it is satisfied that the person is or has been a director of a company which has at any time become insolvent, whether while he was a director or subsequently, and that his conduct as a director of that company, either taken alone or taken together with his conduct as a director of any other company or companies, makes him unfit to be concerned in the management of a company.”

3.Prior to the making of the application, the Official Receiver has, in compliance with section 168P, sent a notice to the respondent indicating his intention to apply for a disqualification order to the respondent.

4.Subsequent to the issuance of the section 168P notice, the Official Receiver issued the originating summons to apply for the disqualification order on 6 December 2007 and was supported by the first report of the Official Receiver.

5.Prior to the hearing today, notwithstanding the fact that all the documents have been served upon the respondent, he had filed no notice of acknowledgement of service.  The respondent turned up at the hearing in person today.  He told me that he just returned from Shanghai to Hong Kong yesterday and had very little time to consider the allegations.  He asked me to give him some time.  Upon his request, I stood down the case, and Mr Mok, representing the Official Receiver, agreed to explain to the respondent the contents of the report.  Mr Ng, the respondent, indicated to me that he was content with the assistance rendered by Mr Mok.

6.When the case was resumed, Mr Ng informed me that he had been given enough time to consider the report and he understood the allegations made against him.  He further informed me that there was no need for the court to adjourn this application to give him more time.  He had enough time to deal with the matter.  He further informed me that he admitted all the allegations made against him by the Official Receiver.

Background

7.The company in which the respondent was the director was called Pacific (Wing Hong) Offset Printing Company Limited.  The company was incorporated in Hong Kong on 14 November 1980.  The company was wound up in petition No. HCCW 688 of 2005 on 16 November 2005.  Subsequently, Messrs Anthony Nedderman and Yan Miu Ping were appointed as the joint and several liquidators of the company.

8.Up to the date of the filing of the first report it was reported that the total amount of proof of debt was in the sum of $3,491,445.84 and the amount of assets realised by the liquidators is only in the sum of $39,267.

9.In the circumstances, I am satisfied that the company was insolvent within the meaning of section 168H(2)(a).

Grounds of Application

10.The Official Receiver says that the respondent is unfit to be a company director on six grounds as follows.

First Ground:  The respondent has been in breach of sections 121 and 274 of the Companies Ordinance.

11.So far as the section 121 breach is concerned, it is reported that the director has only managed to keep accounting records for the years ending 31 March 2003 and 31 March 2004.  Apart from this, no other books of account of the company have been recovered by the liquidators.  It follows therefore that the section 274 obligation has also been breached.

Second Ground:  Breach of section 190 of the Companies Ordinance.

12.The respondent has failed to perform his duty as a director to submit any statement of affairs to the liquidators.

13.Apart from these accounting offences there are other breaches, and that would form the remaining grounds of 3, 4, 5 and 6.

Third Ground:  Ground 3 is use of a bank account.

14.During the period from September 2002 to August 2005, it was discovered that the company had altogether on 143 occasions issued cheques drawn on its current account with Bank of China, all of which have been dishonoured.  The total amount of the dishonoured cheques was in the sum of $2,600,000.  Apart from dishonoured cheques drawn on the Bank of China, there were also 77 occasions when the company issued cheques drawn on its other current account with DBS Bank, which cheques were all returned dishonoured.  The amount involved was about $885,000.

15.What is significant to note is that all these dishonoured cheques were signed by the respondent as a co-signatory of those bank accounts.  The respondent, as the director of the company, had misused the company’s bank accounts by failing to ensure that when these company cheques were issued there were sufficient funds to honour the amounts stated in the cheques.

Fourth Ground:  The failure of the company in meeting the mandatory obligation of paying the MPF contributions of its employees.

16.During the period from July 2001 to May 2005 it was found that the company had an outstanding MPF payment in the sum of about $700,000, and further, the company has even been prosecuted twice on summons in May 2004 and July 2005 and the company was convicted of failing to make MPF contributions.

Fifth Ground:  Transaction to the detriment of the general creditors of the company.

17.The liquidators discovered that on about 11 May 2005, just shortly before the company was wound up, it had caused the transfer of a sum of $2 million to a company called Leader Bright Hong Kong Limited, and subsequently the reason that was given for the transfer of the money was a purported partial repayment of the loan of $3 million.  That loan of $3 million was supposedly to have owed from the company to his uncle called Mr Go, Gilbert.

18.It is significant to note that at the time when this purported partial repayment of the loan was made, the company had had outstanding wages and outstanding MPF contributions as stated above.

Sixth Ground:  Insolvent trading.

19.It is discovered that for the year ended 31 March 2003 the company had an accumulated loss in the sum of about $9 million and its liabilities exceeded its assets by about $7,800,000.  The company continued to trade, and subsequently for the year ended 31 March 2004 the company accumulated loss of $10 million, with its liabilities exceeding its assets by about $8,800,000.  The respondent, as the managing director of the company, had signed on these audited accounts, and it was submitted by the Official Receiver that he had caused the company to continue to trade during the period of the company’s insolvency.

20.These above number of allegations against the respondent took place while the respondent acted as the director of the company.

Evidence

21.The Official Receiver has submitted two reports and filed the affidavit of the Treasury accountant in support of the application.

22.According to Rule 4(2) of the Companies (Disqualification of Directors Proceedings) Rules, the reports of the Official Receiver shall be prima facie evidence of the matters contained in them.

23.As I have stated above, the respondent only appeared today and therefore he has not filed any evidence.  He has submitted a brief mitigation orally.  Notwithstanding the respondent’s admissions of the charges, I shall still assess whether the evidence relied on by the Official Receiver factually substantiates the grounds as alleged by him.

24.In an application of this nature, a civil standard of proof shall be applied, which is proof on the balance of probabilities.  I should therefore consider if the grounds submitted by the respondent have been established to warrant a conclusion that the respondent is unfit to be a company director or someone involved in the management of a company.  Should I so find, I shall determine the appropriate period of disqualification.

Discussion

25.In assessing the evidence I would need to consider the reports of the Official Receiver and the evidence filed by him.  I have also considered the oral mitigation made by the respondent this morning.

26.According to the respondent, he said so far as the accounting offences were concerned, he was not clear as to what happened to the company’s accounts.  He stated that some of the company’s employees took away some of the company’s accounts.  I do not regard this explanation in any way militates against the allegations made against him, because as a director, he had a duty to ensure that all the company’s accounts not just be properly kept, they should also be kept in a proper place.  The respondent further submitted that at the time when the company was insolvent the company’s employees had requested him to carry on trading.  I do not accept what Mr Ng says, because if that were indeed the case that he did it upon the request of the employees, there would not be the subsequent enforcement actions issued by the company’s former employees.  I would also have misgivings of what Mr Ng had told me bearing in mind that there is clear evidence that the employees did not receive the protection of having their MPF contributions paid by the company.

27.After having considered all the evidence of the Official Receiver and everything that was said by Mr Ng to me this morning, I am satisfied that all the grounds relied on by the Official Receiver are proved.  I further find that the respondent was a director while the company was clearly insolvent.

28.It is very important to bear in mind that as the director of a company he has a very important duty to strictly comply with the accounting duties imposed on him.  It is because without sufficient accounting records, any directors cannot act responsibly in making decisions whether to continue trading  In my view, it is likely that it is as a result of the respondent’s failure to keep proper accounts that led to the commission of the other misconduct such as insolvent trading.  When the company failed, these company records would allow liquidators to identify and recover the company’s assets.  In this case, the liquidator’s task was clearly hampered as a result of the absence of records.

29.As to the other misconducts, they are also equally serious if not more serious.  In this case, as a result of those other misconducts, the company’s employees clearly lost the protection which the law has given to them.

30.Having found these grounds proved, I would next consider whether the respondent is unfit to be a director.  From the facts I find proved I find the respondent is not competent to act as a director or engage in the management of a company.  In coming to this conclusion that the respondent is unfit as a director, I have considered all the factors submitted by the Official Receiver, the factors listed in Schedule 15 of the Companies Ordinance, and have not just confined myself to any one factor but took all the relevant circumstances into consideration.

31.As I have mentioned, the respondent’s mitigation was brief.  I have given allowance of the fact that the respondent was not legally represented and he was acting in person.  However, as I have said, his explanation was not sufficient to militate against the allegations made against him.

32.Once I come to the view that the respondent is unable to handle corporate affairs in any responsible or law-abiding manner, I am statutory bound by section 168H to make a disqualification order against him.

Period of Disqualification

33.Subject to the minimum and maximum disqualification period as specified in section 168H(4) of the Ordinance, the length of disqualification is left to my discretion.  It is now settled that so far as guidelines for the length of disqualification period are concerned, there are altogether three brackets.  Of course, the three different brackets really depend on the seriousness of the allegations made against the director.  We have the top bracket, middle bracket and minimum bracket.

34.In this case the Official Receiver submits that it should fall within the minimum bracket of between 1 to 5 years.  Mr Mok submitted that a period of 5 years’ disqualification is appropriate.

35.I take the respondent’s conduct seriously.  In this case I take the view that there are two aggravating features.  First, the non-payment by the company in paying the MPF contributions.  The respondent, as a director of the company, had the duty to ensure that payments of MPF contributions were up to date.  The non-payment of MPF contributions clearly adversely affects the future welfare of the employees whom the law has intended to protect.  Secondly, the making of an unfair preference in the sum of $2 million by the company to the connected company of the respondent’s uncle has made the enforcement action by the company’s former employees unfruitful.

36.Having considered the matter as a whole, I accept that the facts of this case as submitted by Mr Mok justify disqualification at the minimum bracket.  I further consider the mitigation submitted by the respondent, which mitigation in my view is not really valid mitigation.

37.I take the view that a period of 4½ years is appropriate.  I therefore make an order in terms of paragraph 1 of the Originating Summons, and so the commencement period would be from the beginning of the 21st day after the date on which the order is made.

Mr F Mok, of the Official Receiver’s Office, for the Applicant

Mr Ng Tin Ming, Respondent, appearing in person