Re So Kiu Fan

HCMP 242/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 242 OF 2005

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REASONS FOR ADJOURNMENT

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Introduction

1.This was the receiver’s application for:

(a)   the appointment of two individuals as the directors of a Hing-F Sports Co Ltd (“the sports company”);

(b)   himself to be removed from the office of a receiver.

2.At the end of the hearing, the receiver sought, and was granted, an adjournment sine die with liberty to restore.  The reasons for the adjournment appear below.

Background

3.This action was commenced in January 2005.  The original applicant was a Madam So (“So”).  She sought, and was granted, an order on 1 February 2005 appointing the receiver (with express powers incidental, or ancillary, to such office) (“the Feb 2005 order”).

4.So’s supporting affirmation sets out the reasons for this action.  They can be summarized as follows:

(1)   the sports company, located at a favourite retail spot in Mongkok, was owned and operated by So’s brother-in-law and sister (they were also the only shareholders and directors) (“the deceased couple”).  Since 1987, So worked as the chief cashier of the retail sportswear business operated by the sports company (“the said business”);

(2)   the deceased couple was unfortunately killed in a traffic accident which occurred in September 2004 while they were in the Mainland.  They left behind one surviving son (“Lau”) who was still a minor in 2005;

(3)   difficulties were encountered in the operation of the said business as the deceased couple was the only ones responsible for its management.  Further, in the absence of the only directors and shareholders, no one was legally empowered to do so (arrangements between the sports company and suppliers, banks and the landlord could not be properly or effectively handled);

(4)   upon legal advice, So applied for the appointment of a receiver to take over the management and operation of the sports company and the said business with a view to preserving its value and the interest of the estate of the deceased couple;

(5)   the receiver’s said appointment was to continue until:

(a)   the grant of administration of the deceased couple’s estate whereupon directors of the sports company could be appointed;

(b)   the appointment of appropriate persons to become the sports company’s directors;

(c)   the winding-up of the said business.

5.Among the various express powers given in the Feb 2005 order, the receiver was empowered to:

(a)   appoint director(s) of the sports company (para 2(a) thereof);

(b)   liaise with potential buyer(s) of the asset and/or the said business of the sports company (para 2(j) thereof).

This application

6.Three affirmations have been filed in support of this application: two made by the receiver and one by Lau.

7.The receiver’s affirmation (apart from summarizing some of the background set out above) states that:

(1)   Lau was 17 years old in 2005 (having been born in November 1987), and he has already attained age of majority (at 25 years old);

(2)   Lau is the sole beneficiary of the sports company;

(3)   by virtue of the above, the purpose of the receivership has been “spent”;

(4)   Lau requested the receiver in effect to make this application.

Lau’s affirmation confirms the above.

8.In response to queries raised by the court, the receiver’s second affirmation states that:

(a)   the sports company stills does not have any shareholder; nor is there a board of directors;

(b)   despite the express power conferred by the Feb 2005 order (see para 5(a) above), no procedure has been laid down therein for the appointment of directors, nor was there provision in the articles of association or the Companies Ordinance (Cap 32) to do so when the sports company has no shareholder or board of directors;

(c)   the Feb 2005 order does not empower him to transfer the shares of the sports company;

(d)   there is still no grant of representation.

The adjournment

9.Whether this application has been properly brought depends on at least two inter-related matters:

(1)   the nature of the receiver’s powers conferred upon him by the Feb 2005 order.  This is a matter of construction of that order;

(2)   whether the receiver has been acting properly in the sense that he has exercised his powers in accordance with, and with a view to achieving the objective(s) underlying, the Feb 2005 order.

10.The nature of the receiver’s powers conferred by the Feb 2005 order is not difficult to understand.  In view of the grounds advanced in So’s affirmation (see para 4 above) (see also para 5(b) above), those powers were interim in nature and were conferred with a view to preserving:

(a)   the value of the sports company; and

(b)   the interest of the estate of the deceased couple.

(from the receiver’s point of view, there should be a substantial (if not complete) overlap of the two).

11.One of the events which has been contemplated as bringing an end to the receiver’s appointment would be the grant of letter of representation (para 4(5)(a) above).  So’s affirmation estimated the time taken to obtain the grant would be not less than 2 years.  But by the time of the hearing of this application, about two months short of 9 years have lapsed (So’s affirmation was made in January 2005).

12.The grant of representation is also of importance for another reason.  While the receiver does not have the power to transfer the shares of the sports company, s 67, Cap 32 provides that:

“A transfer of the share … of a deceased member of a company made by his personal representative shall, although the personal representative is not himself a member of the company, be as valid as if he had been such a member at the time of the execution of the instrument of transfer”.

Thus, a personal representative of the estate of the deceased couple can transfer those shares (to Lau for example, who in effect is said to be the sole beneficiary (and also his nominee if necessary/appropriate)).  A personal representative can also be treated as a shareholder for the purpose of calling for general meetings: s 114B(1) and (3), Cap 32.

13.With the appropriate person(s) becoming the sports company’s shareholder, a general meeting can be convened, and a board of directors appointed if so resolved at the meeting.  This will be another event which can bring an end to the receiver’s appointment (para 4(5)(b) above). For completeness, s 114B, Cap 32 is repeated (this confers power on the court to order general meetings in certain cases).

14.Finally, as stated above, Lau has in effect been considered the sole beneficiary of the estate of the deceased couple (see for example para 4(2) above and para 3, receiver’s affirmation).  He was described as 17 years old in 2005 (para 4, receiver’s affirmation).  The age of majority is 18: s 2(1), Age of Majority (Related Provisions) Ordinance (Cap 410).  In Lau’s case, he should have attained full age in November 2005 (about 8 years earlier).

15.The above would raise various questions concerning why the receiver’s appointment should continue beyond the dates of occurrence of the above events (or, as the case may be, beyond dates on which they could reasonably have occurred).  These questions have not been addressed in the affirmations filed so far.

16.A receiver also has a duty (among others) to render an account (especially to those beneficially entitled to the assets administered by him).  This is not addressed in those affirmations either.

17.Finally, because the receiver’s appointment is very probably interim in nature, it is at least arguable his powers are to be exercised only for that purpose (para 4(5) above).  Appointing directors whose office is intended to be “permanent” (which appeared to be what this application sought) may not fall within the scope of his powers.

18.The above observations are not to be understood as necessarily criticisms, or suggestions of misconduct, of the receiver.  But it is only correct that they should be drawn to the receiver’s attention, who should also be afforded an opportunity to consider how they should be addressed.

19.For that reason, an adjournment was properly sought, and was granted.

Mr Gary Lam Chin Ching, instructed by DS Cheung & Co, for the receiver