Winbless Inc v. Silver Shadow Company Ltd and Others

HCCW 369/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 369 OF 2011

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D E C I S I O N

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Introduction

1.These are applications for striking out three petitions for the winding up of, respectively, Central Billion Inc (“Billion”), Welljoy Inc (“Welljoy”) and Full Benefit Property Corp (“Full Benefit”), all of which are companies incorporated in the BVI (Billion, Welljoy and Full Benefit collectively referred to as “Companies”).  The petitions were made under section 327 of the Companies Ordinance (“Ordinance”), for winding up on the ground that it is just and equitable for the court so to order.  The applications raise issues as to whether the court should invoke its jurisdiction to wind up these Companies which are neither incorporated nor registered under Part XI of the Ordinance in Hong Kong, and the extent to which the court should consider the relationship and dealings between these Companies and other corporate entities (both incorporated in Hong Kong and elsewhere), and the activities of such other entities claimed to be closely associated with the Companies, in the context of a winding up under section 327.

2.Billion and Welljoy are companies incorporated in the BVI, the shares in which are held by five siblings of the Chang family (“Siblings”), Albert, William, Charles, David and Irene, through their BVI companies (respectively Silver Shadow Company Limited (“Silver Shadow”), Fancymind Inc (“Fancymind”), Grandyear Inc (“Grandyear”), Amazing Inc (“Amazing”) and Winbless Inc (“Winbless”), the BVI companies collectively referred to as “Sibling Companies”).  Billion and Welljoy hold shares in four Hong Kong companies: Grand Textile Company Limited (“Grand Textile”), Grand International Holdings Limited (“Grand International”), International Textile Company Limited (“International Textile”), and Nam Hwa Textiles Limited (“Nam Hwa”), and a BVI company, Full Benefit.  The petitions which have been presented in Hong Kong are for the winding up of Billion, Welljoy and the companies they hold, namely, Grand Textile, Grand International, International Textile, Nam Hwa and Full Benefit.  The shares in Full Benefit are held in the names of Billion, Welljoy, and the BVI companies of Albert, William, Charles and David.

3.The petitions are made by two Sibling Companies, Fancymind and Winbless, on the ground that it is just and equitable for the relevant Companies to be wound up, by reason of the misfeasance of Albert and/or his BVI company Silver Shadow, and that the affairs of the companies have been conducted in a manner unfairly prejudicial to the members of the Companies including the petitioners.

4.Succinctly put, two of the Chang siblings, Irene and William, are petitioning to wind up Billion and Welljoy (the companies in which all the Chang siblings hold shares through the Sibling Companies), as well as the companies in which Billion and Welljoy hold shares (Full Benefit, Nam Hwa, Grand Textile, Grand International and International Textile, together referred to as “Subsidiaries”), and they have joined the respective Sibling Companies owned by their other three siblings Albert, Charles and David as respondents.  These respondents now seek to have the three petitions against the BVI companies Billion, Welljoy and Full Benefit struck out, on the ground that they disclose no reasonable cause of action, are scandalous, frivolous or vexatious, and otherwise an abuse of the process of the court.

Applicable legal principles

5.It is trite that the court should exercise its discretion to dismiss or strike out an action only in exceptional cases, where it is perfectly clear that the plea or action cannot succeed.  There should only be a striking out in plain and obvious cases.  There should not be a trial upon affidavit.  It is for the applicant seeking to strike out to demonstrate that the case is a plain and obvious one in which the claim of the party sought to be struck out is bound to fail.  The claim must be obviously unsustainable.  It must be impossible for the claim to succeed before the court will strike it out.  Disputed facts are to be taken in favor of the party sought to be struck out.  Where the legal viability of a cause of action is sensitive to the facts, an order should not be made.  The jurisdiction to strike out should not be exercised if it requires a minute and protracted examination of the documents and the facts of the case to see if the party has a cause of action. 

6.Applying these legal principles to this case, I have little reservation that the petitions in this case should not be struck out.  In arriving at this decision, I have borne in mind, as counsel for the respondents has urged me to do, that in a case of a company which is incorporated outside Hong Kong, the court is being asked to extend its territorial jurisdiction; that the winding up of a company is most appropriately dealt with by the court in the jurisdiction of the incorporation of the company, such that a sufficiently strong connection with the Hong Kong court must be established in order to justify the exercise of its extraterritorial jurisdiction.

The test to justify the exercise of jurisdiction

7.The court has power and jurisdiction under the Ordinance to wind up a foreign company, or “an unregistered company”.  Section 327 of the Ordinance provides:

“(1) Subject to the provisions of this Part, any unregistered company may be wound up under this Ordinance, and all the provisions of this Ordinance with respect to winding up shall apply to an unregistered company, with the exceptions and additions mentioned in this section.

…

(3) The circumstances in which an unregistered company may be wound up are as follows-

(a) if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;

(b) if the company is unable to pay its debts;

(c) if the court is of opinion that it is just and equitable that the company should be wound up.”

8.However, the courts have established certain constraints as regards the circumstances in which the above jurisdiction and discretion of the court will be exercised under section 327.  Three core requirements have been identified and are set out in StoczniaGdanska SA v Latreefers Inc (No 2) [2001] BCC 174, applied in Re Gottinghen Trading Limited [2012] 3 HKLRD 453. These requirements are:

(1) There must be a sufficient connection with Hong Kong which may, but does not necessarily have to, consist of assets within the jurisdiction.

(2) There must be a reasonable possibility, if a winding-up order is made, of benefit to those applying for the winding-up order.

(3) One or more persons interested in the distribution of the assets of the company must be persons over whom the court can exercise a jurisdiction.

Sufficient connection with Hong Kong?

9.Many of the arguments raised on behalf of the respondents focused, unnecessarily and erroneously in my view, on whether the Companies sought to be wound up carry on business in Hong Kong.  The test or requirement identified in StoczniaGdanska is not whether the company in question carries on a business in Hong Kong, but whether it has sufficient connection with Hong Kong. Billion and Welljoy are, at least on the evidence available at this stage, simply investment holding companies, established for the purpose of holding assets in the form of shares in various companies. 

10.The petitioners sought to argue that Billion, at least, did conduct business in Hong Kong and did manage its subsidiaries in Hong Kong.  They referred to minutes of Billion’s board meetings, at which (they say) affairs relating to the companies held by Billion were considered and decided upon (eg provisions for the companies’ losses,  charges of the assets of Full Benefit, payment of salaries of employees of the companies, were considered and approved).  The petitioners pointed out that accounts had been prepared for Billion and audited in Hong Kong from 2006 to 2011.   

11.The respondents dispute that these activities constitute any management or carrying on by Billion of any business in Hong Kong.  They dispute the content or meaning of the minutes relied upon by the petitioners.  They claim that the financial statements and audit reports were only drafts, had never been signed, and that there is no evidence to show that such statements were prepared to serve any business purpose or to enable financial dealings to be effected. 

12.It is not appropriate at the stage of a striking out application to dismiss a claim for lack of evidence.  Where facts are disputed, they are to be taken in favor of the party sought to be struck out.  Where the corporate records of the companies were kept, whether and where meetings of the Companies were held, what the minutes referred to, need not be debated at this stage.  They should be taken in favor of the petitioners, but even if the respondents are correct in saying that the petitioners cannot clearly establish, at this stage, that the Companies had carried on or established any business in Hong Kong, the Companies may still be shown, by other factors, to have the necessary and sufficient connection which is required with Hong Kong.

13.Billion and Welljoy hold shares in at least three Hong Kong companies (Grand Textile, Nan Hwa and International Textile) which have substantial assets.  Billion itself has assets in Hong Kong worth over HK$210 million, comprising its shareholding in the Subsidiaries; shares in Hutchison Whampoa, maintained in a securities account with a bank in Hong Kong, with a value of approximately HK$2.6 million; a balance exceeding HK$5 million in its bank account in Hong Kong; and shareholding in a Cook Islands company (“Lishman”) which is registered under Part XI in Hong Kong with a place of business in Hong Kong.  Welljoy has substantial assets in Hong Kong worth about HK$157 million, comprising its shareholding in the Subsidiaries and in Lishman, investment in securities worth HK$16 million, and a bank account in Hong Kong with a balance of HK$45 million.  The Subsidiaries in turn hold substantial landed properties in Hong Kong, invest in securities in Hong Kong and employ staff in Hong Kong.  The audited accounts of Billion state that its business office is at an address in Admiralty Centre in Hong Kong.  The petitioners claim that the books and records of Billion and Welljoy are kept at the Admiralty Centre premises, which premises are owned by International Textile (one of the Subsidiaries).  Billion and Welljoy receive income from their securities investment which is reflected in Billion’s audited accounts.

14.Billion pays for the expenses of and incurs liabilities for maintaining the Siblings’ mother, Madam Chang Kao Vie Tsing (“Mother”), in Hong Kong where she resides.  Albert and the respondents themselves claim that the provision for Mother is a central part of the business of the group of companies comprising Billion, Welljoy and the Subsidiaries, and a reason for not liquidating the assets of the Companies.

15.Integral to the issue of whether Billion, Welljoy and the Subsidiaries have connection with Hong Kong, and whether the jurisdiction to wind up these companies should be invoked on the basis of the complaints made by the petitioners, is the extent to which the court can consider the dealings of and acts concerning entities other than the company to which the petition relates.  For example, even if it can be said that Billion has dealings and connections with Hong Kong, would it suffice to establish Welljoy’s or Full Benefit’s connections with Hong Kong? Even if the Hong Kong Subsidiaries have assets or carry on business in Hong Kong, should Billion and Welljoy be treated as having assets or a business here?

16.The petitioners argue that the affairs of Billion, Welljoy, the Subsidiaries, and other companies which they hold (Lishman and Fako Limited, both of which are incorporated outside Hong Kong) (“Group Companies”) had been conducted as one entire group.  The directors and shareholders of Billion, Welljoy and the Subsidiaries are almost identical: namely, the Sibling Companies. 

History

17.Historically, the Siblings’ father, the late Chang Nan Chong (“Father”) had set up the Central Billion Unit Trust in 1997.  The Welljoy Unit Trust was set up at the same time by Mother.  These trusts were established for estate planning purposes, with the view to distributing amongst the Siblings the assets which Father had acquired and built up over the years. Father died in February 1998, and after his death, the Siblings agreed amongst themselves that the Group Companies would be dissolved and their assets distributed amongst themselves.

18.In January 2007, the unit trusts were in fact dissolved after the abolition of estate duty in Hong Kong.  Thereafter, the original assets of the trusts were held by Billion and Welljoy, and in turn, Billion and Welljoy were held by the Siblings through the Sibling Companies, which were also the corporate directors of Billion and Welljoy.

19.In around May 1999, the Siblings reached agreement (“Shareholders’ Agreement”) at a meeting in Hong Kong that the assets of Father and Mother, which were then held by the Group Companies, would be distributed amongst the Siblings in accordance with their respective holding in each of the Group Companies.  It was agreed that Albert would be in charge of the sale of the assets and the distribution of the sale proceeds, that he would not purchase or invest in any stocks or fixed assets, would inform the Siblings and seek their approval for any major transaction, and would send a weekly stock report to William.  In an email dated 25 March 2003, Albert informed his siblings that he would slowly “dismantle” Father’s empire and distribute the money to them all. 

20.The petitioners complain that despite and in breach of the Shareholders’ Agreement, Albert failed and refused to sell the landed properties held by the Subsidiaries in Hong Kong, and failed and refused to liquidate the Group Companies, or to distribute any proceeds to the Siblings.  It is claimed that, during this interim, Albert and his BVI company Silver Shadow managed the Group Companies and their assets in such manner only to generate “commercially insensible” returns, and had exploited the assets of the Group Companies for his own interests and to the detriment of the petitioners, by incurring wrongful expenses disproportionate and unrelated to the business of the Group Companies.  The petitioners complain that they had not received any dividends from the Group Companies.   They also claim that since 1999, Albert had made all the decisions for the Group Companies without consulting the petitioners or any other directors, and had demonstrated such unreasonable and oppressive conduct in the management of the Group Companies, that the petitioners have lost their trust and confidence in Albert and Silver Shadow, and it is just and equitable for the Companies and the rest of the Subsidiaries to be wound up.

The relationship between the Group Companies

21.According to the petitioners, there was close interaction between the Group Companies.  They claim that the Shareholders’ Agreement concluded between the Siblings in May 1999 is clear evidence that the business of the Group Companies was conducted as one.  The written Memo of the meeting held on 17 and 18 May 1999 records the Siblings’ agreement, in Mother’s presence, that Welljoy and the Sibling Companies as shareholders would appoint their corporate directors for “all the companies”, that Albert and any two of Mother, William and Irene, would sign as bank signatories for “all the companies”, that Albert would not purchase or invest any fixed assets but only sell those fixed assets in “all the companies” with prior discussion and approval of the majority of the shareholders, and that all the cash in “all the companies” would be distributed to all the shareholders.

22.As the petitioners claim, the correspondence between Albert and the other Siblings reflect that the Group Companies were treated by Albert and the rest of the Siblings as one, and that the affairs of the Group Companies were conducted as one.  Albert’s email of 25 March 2003 refer to “our group of companies” owning a total of 16 units in Hong Kong Parkview, and the companies’ total loss in respect of these properties, without making any distinction between the companies which hold the units in question.  Albert’s email also referred to “the intricacies of our companies”, stating:

“(1) Constrained by each company’s tight financial situation in the past, it just so happened that the shareholdings of our companies are intertwined.

(2) This is the reason why every time dividend was declared, I had to make use of the “temporary loan” scheme because not one single company could officially declare so many dividends and so equally, on share holding basis.

…

(4)  On top of the above, our parents, via their Trusts, hold substantial shares of the companies …”

23.The written resolutions passed by the shareholders of Billion, dated 4 January 2012, were that they agreed to wind up Billion “and all its subsidiaries” voluntarily and to distribute assets to the shareholders.  Identical resolutions were passed for Welljoy. 

24.Even on the respondents’ case, the Group Companies were intricately connected and treated as one entire group, of “family companies”.  The inter-connection between the Group Companies, given by Albert as the basis for the declaration of dividends, clearly had impact on each company and the shareholders of the company concerned, at least in so far as the declaration and entitlement to dividends are concerned. 

25.In the Defence filed by the respondents in the winding up proceedings concerning International Textile, the Group Companies are treated and considered as a group.  Paragraph 13 of the Defence states as follows:

“(2) (Mother) and Albert were eager to ensure that the assets of the Group Companies would be best used and maximized so that (Father’s) and their efforts in the past would not be wasted and so that eventually, when the time was ripe for a full liquidation of the Group Companies and the consequent distribution of their assets to the Siblings equally (through their corporate vehicles), each Sibling would obtain the maximum amount possible.

(3) Further, Albert was eager to ensure that (Mother’s) living expenses and increasing medical expenses would be taken care of by the Siblings through the Group Companies.  As a matter of fact, at all material times, all the Siblings well knew that the Group Companies made (and still make) payments of such expenses.”

26.The respondents further plead in paragraph 14 of the Defence to Fancymind’s petition against International Textile, as follows:

“With regard to the demands for immediate liquidation, Albert avers that in order to achieve such maximization of value in the best interests of the respective shareholders of the Group Companies, the following factors must be taken into account:

(1) The value of the assets of the Group Companies, mainly real properties, was so low until 2010 that the sale of any of the assets would have caused the respective Group Companies owning such assets to suffer substantial loss.

(2) It would depress the selling prices of the Parkview Apartments if they were put on the market for sale simultaneously or within a short time of each other.

(3) The Group Companies had (and still have) to retain cash to maintain their operation in respect of their properties, for example, paying rates, paying (Mother’s) living and increasing medical expenses, and to financing the family’s overseas investments in Singapore (also would as at today) and in Vancouver.

(4)  Pending full liquidation of the Group Companies, it was in the interests of the respective shareholders of the Group Companies for the Group Companies to invest in stocks or fixed assets to generate returns for these shareholders and to cover the operational expenses of the Group Companies.”

27.Counsel for the respondents sought to argue that the term “Group Companies” was used in the Defence, simply because the companies were so defined in the Petition.  Notwithstanding that, the substance of the Defence, as pleaded, is that the affairs, interests and assets of the Group Companies were considered conjunctively when decisions concerning the companies were made.

28.The petitioners claim that “staff messing and sundries expenses” had been incurred by Albert for the Group Companies, which expenses were unrelated to the business of the Group Companies.  In answer to this claim, the Defence is that such expenses were incurred “for treating bankers to meals and taking them to entertainment such as playing golf, and the bankers are important to the Group Companies in order to maintain good business relationship with the banks for financial support if necessary”.  This is a further example of the affairs of the Group Companies being considered as one.

29.In answer to the complaint with regard to Albert’s refusal to liquidate the Group Companies despite the Shareholders’ Agreement, the Defence pleads thus:

“The Group Companies have to retain some cash and liquid investments just in case they would need the same for, for example, (Mother’s) living expenses and her increasing medical expenses and property management such as repair and club membership fees for the tenants.”

No distinction was made amongst the Group Companies in respect of the expenses required for the management of the property owned or held by the different companies, in Parkview, Admiralty Centre, Singapore, or elsewhere.

30.In answer to the complaint with regard to the non‑payment of dividends, the Defence filed in the petition against International Textile pleads as follows:

“The dividends were treated as “loans to directors/shareholders” because:

(a) the complex corporate structure of the Group Companies make it very cost ineffective and administratively difficult to distribute dividends from subsidiaries to the parent companies or related companies in such a way that ultimately the Siblings would share the dividends equally; and

(b) given that the Group Companies are family companies only, the most efficient way to distribute dividends was to distribute the same as “loans to directors/shareholders”.

31.As further evidence of the interaction between the companies in the Group, the petitioners refer to Albert’s own attempt to cause the assets of Lishman, one of the Subsidiaries, to be charged to the banks to secure facilities up to US$4.7 million for Full Benefit’s investments in accumulators in 2008.

32.On behalf of the petitioners, Mr Wong SC highlighted the fact that for the purpose of considering unfair prejudicial conduct, the affairs of holding companies can be treated as affairs of the subsidiary companies, and conversely, the affairs of the subsidiary companies can be treated as affairs of the holding companies.  He relies on the judgment of Kwan J (as she then was) in Re Step by Step Limited,HCMP 838/2007, unreported, 26 October 2007.  In that case, Kwan J was dealing with a petition based on section 168A and in that context, pointed out (in paragraph 45 of her judgment) that the conduct complained of must be conduct in the subject company’s affairs, such that an act or omission by a director or shareholder in his personal capacity would not suffice.  At paragraphs 47 and 48 of her judgment, Her Ladyship states:

“47. The way in which a parent company excises its powers as a majority shareholder of its subsidiary can constitute conduct in the affairs of its subsidiary (Scottish Co-operative Wholesale Society Limited v Meyer [1959] AC 324; Nicholas v Soundcraft Electronics Limited [1993] BCLC 360 at 363d to 365c, 367b to 371i). Conversely, the way in which the affairs of the subsidiary are conducted can constitute unfairly prejudicial conduct in respect to the parent company’s affairs (Re Citybranch Group Limited, Rackind v Gross [2005] 2 WLR 3505 at 3511C to 3515C, paras 21 to 33; In re Norvabron Pty Ltd (No 2) (1986) 11 ACLR 279 at 292; In re Dernacourt Investments Pty Limited (1990) ACSR 553 at 556, 561; Re Dartina Development Limited, HCCW No 3 of 2005, 12 October 2005, paras 30 to 37). The requisite element of de facto control by one company over the affairs of another company would normally be satisfied in the situation of the parent and subsidiary, via the control of the composition of the board of directors, or by the control of the voting power exercisable by the shareholders.

48. Where the companies are not a parent and subsidiary, it is not so clear if the conduct of the affairs of one may be regarded as that of another.  Jesner v Jarrad Properties Limited [1993] BCLC 1032 would appear to provide support for the proposition that where 2 companies had been run together as one business in effect, so that the conduct of affairs of one company would impinge on the affairs of another company, it might be proper to look at the affairs of another company to determine whether there was unfairly prejudicial conduct in the affairs of the subject company.  In that case, the shareholders of the subject company set up for property investment were members of the same family and they held shares in another company set up for a garage business.  The court looked at the entire background in which the same directors operated the two companies as one business in what they perceived to be the best interests of the family members as a whole.”

The companies’ connection with Hong Kong

33.It appears to me from the matters set out in paragraphs 21 to 31 above that the Group Companies were run together as one entire group, that the Group Companies were financially inter‑dependent and that the conduct of affairs of a company in the Group impinged on and affected the affairs of another company in the Group.  In deciding whether and when dividends should be declared and paid to the shareholders of any individual company, and whether the Parkview properties should be sold by the five Subsidiaries holding those properties: the overall expenses required for maintaining Mother; the expenses required for maintaining all the properties; and the value of the assets of the Group as a whole, were considered globally (paragraph 14 of the Defence filed in the petition against International Textile).   

34.Mr Joffe for the respondents argued that Step by Step and the cases cited therein are distinguishable, since they apply in the context of unfairly prejudicial conduct under section 168A of the Ordinance, and the statutory language of section 168A is wider in scope than section 327.  I cannot agree.  Section 168A refers to members of “a specified corporation” complaining that “the affairs of the specified corporation” are being conducted in a manner unfairly prejudicial to the interests of the members.  In contrast, under section 177(1)(f) and section 327(3)(c), there is no limitation in the reference to the winding up of the company on just and equitable grounds.  Under section 327, an unregistered company may be wound up, simply, “if the court is of opinion that it is just and equitable that the company should be wound up”.  There is no express requirement in the language used for the matters or affairs being complained of to be those of the specified company sought to be wound up.

35.Under section 177(1)(f) and section 327(3)(c) of the Ordinance, the jurisdiction of the court is invoked on “just and equitable” grounds.  When justice and equity are to be considered as grounds to order relief, the court will generally take into account all relevant facts and circumstances relating to the petitioner or subject concerned, and the company or object concerned.  There is no express provision in section 177(1)(f) or section 327(3)(c) to fetter or limit the court to the consideration only of the affairs of the company to which the petition relates, or to any other specific matter, and I do not agree that such limitation should apply.

36.Counsel for the petitioners have referred to Re Golden Elephant Holdings Limited, unreported, HCCW 784/2005, 15 August 2007, as support for the proposition that the court can take into account the conduct of the affairs of the subsidiary as the basis to wind up the holding company on the just and equitable ground.

37.At this stage, I only need to decide, for the purpose of striking out, whether the petitions are obviously unsustainable and unarguably bad and it is impossible, not just improbable, for the petitioners to succeed (see para 18/19/4, Hong Kong Civil Procedure and the cases cited thereunder).  Where the legal viability of a cause of action is sensitive to the facts, as I consider the present case to be, an order to strike out should not be made.  Whether there is evidence available to support the facts alleged by the petitioners is a question for trial, and whether the petitioners have pleaded that the Group Companies were managed as a group and that the conduct of the affairs of a company within the Group impacts on the affairs of other companies in the Group, is a pleading point which is capable of being rectified by amendment.

38.In Re Shun Tak Holdings Limited [2009] 5 HKLRD 743, Kwan J (as she then was) confirmed that the strike out test for winding up petitions is as set out in Re Forecast Nominee Limited [1996] 4 HKC 12, 18C‑D:

(1) the court will assume the facts alleged by the petitioners in the petition and the supporting affidavits are correct;

(2) the burden is on the applicants for striking out to establish it is plain and obvious that the petition is bound to fail and hence an abuse of the process of the court; and

(3) it would be inappropriate to strike out a petition based on pleading points if such deficiencies are capable of being cured by amendment.

39.It is not plain and obvious at this stage that the degree of interaction between the Group Companies is so clearly insufficient, that the affairs of the Group Companies cannot be considered as a whole.  In considering whether these petitions are unsustainable, and whether it is impossible for the petitioners to succeed on their claims under section 327, I am prepared to accept that the affairs of the Group Companies can be considered as a whole. 

40.I do not consider that even on the authorities of Re Gottinghen Trading Limited [2012] 3 HKLRD 453 and Re Yung Kee Holdings Limited [2012] 6 HKC 246 relied upon by the respondents, it can be said to be plain and obvious that the petitions in this case should be struck out.  In Re Gottinghen Trading Limited, Harris J struck out the petitions for winding up two unregistered companies on the just and equitable ground, on the basis that there was insufficient connection between the companies and Hong Kong.  In paragraphs 21 and 22 of his judgment, His Lordship drew the distinction between a petition to wind up a company on the basis of a debt due, when the focus is on whether or not there are assets within the jurisdiction which can be realized by a liquidator for the benefit of creditors, and a petition to wind up a company on the just and equitable ground.  In respect of the latter situation, Harris J made the following observations:

“22. The issues are materially different in the case of shareholders’ dispute giving rise to a petition on the just and equitable ground in which the Court is asked to determine a dispute between the parties over their conduct of the affairs of a solvent unregistered company. There is also the practical difference that a winding-up petition based on non-payment of the debt is generally resolved at a short hearing. The issue is normally whether or not the company has a bona fide debt on substantial grounds and the dispute is resolved by the Court on affidavit evidence. Shareholders’ disputes are commonly considerably more factually complicated. They frequently involve a painstaking assessment of the conduct of the affairs of a company by its shareholders over lengthy periods of time.

23. As I have already noted, generally the most appropriate jurisdiction in which to decide whether any company should be wound up is the jurisdiction of its incorporation. The jurisdiction conferred by s 327 (1) and its English equivalent is, to use the language of Morritt LJ, “exorbitant”: para 22 supra. In order for a Hong Kong Court to be justified in exercising this jurisdiction, a connection “sufficient to justify the Court setting in motion its winding-up procedures over a body which prima facie is beyond the limits of territoriality” must be shown: Re Real Estate Development Co, p 217d-e. The connection will generally need to be of a type relevant to the basis upon which the petition is brought and the degree of connection needs to be sufficiently strong to justify the court exercising its jurisdiction.

24. In the case of petitions brought on the grounds of insolvency the connection will commonly be the presence of assets within the jurisdiction of an amount, which justifies a winding-up in Hong Kong. In the case of a petition on the just and equitable ground and arising from a shareholders’ dispute the considerations will probably be different. The presence of assets will be a relevant consideration, but probably not as significant as in the case of a creditor’s petition.

25. In the case of a shareholders’ dispute the relevant factors are likely to include where the company carries on business, the shareholders’ connection, if any, with Hong Kong and where the matters giving rise to the dispute occurred. There may be cases in which the connection is strong. A foreign company may be registered under Pt XI of the Companies Ordinance and carry on business here. Some or all of its shareholders and directors may be resident in Hong Kong. The principal complaint may concern the exclusion from management of a company’s business in Hong Kong of a Hong Kong resident shareholder. In such a case the Court may take the view that the connection is sufficiently strong for it to accept jurisdiction. …” (Emphasis added)

41.First, Harris J was properly applying the test of a substantial connection, and not a test of whether the company has a business in Hong Kong.

42.Further, in the consideration of whether there is sufficient connection with Hong Kong in the case of a shareholders’ dispute and winding up on the just and equitable ground, Harris J pointed out that the relevant factors “are likely to include” where the company carries on business, etc.  The factors identified in His Lordship’s judgment are neither exhaustive nor mandatory. 

43.Moreover, there is nothing in the judgment of Harris J to suggest that in the case of a winding up on just and equitable grounds, the presence of assets in Hong Kong cannot constitute a factor to show the company’s connection with Hong Kong.  The authorities only show that the presence of assets is a more significant consideration in the case of a creditor’s petition, and that the connection with Hong Kong may, but does not necessarily have to, consist of assets within the jurisdiction.

44.Finally, the passages in Re Yung Kee Holdings Limited (paragraphs 29, 30, 32, 33 and 38 of the judgment of Harris J) which are cited by Mr Joffe only relate to the determination of whether the company in question carries on or has established a business in Hong Kong, and not whether the company has established a connection with Hong Kong.

45.Even if it cannot be shown that Billion, Welljoy and Full Benefit carried on any business in Hong Kong, other factors such as (without limitation) the presence of their assets in Hong Kong, their shareholders’ connection with Hong Kong, and the locus in quo the matters giving rise to the dispute occurred, may together show a sufficiently strong connection to justify the exercise of the court’s jurisdiction.

46.It is not disputed that Billion, Welljoy and Full Benefit all hold substantial and valuable assets in Hong Kong, which include shares in Hong Kong companies (which in turn hold valuable landed properties in Hong Kong), share investments in a Hong Kong listed company, and bank accounts in Hong Kong with substantial credit balances.  On the petitioners’ case (to be accepted in their favor at this stage), the Companies have their central and only management in Hong Kong, maintain an office here, and keep their books and records here.  Welljoy has a bank account in Hong Kong only, and not elsewhere.  Full Benefit incurred substantial liabilities in Hong Kong, having obtained loans from Albert, William, Charles and David in a total sum of more than HK$16 million, and these individuals are residents of Hong Kong or have close connection with Hong Kong.

47.The respondents argued that the Companies only have limited activities in Hong Kong, which do not constitute carrying on or the establishment of any business in Hong Kong.  That may be so, but as Mr Wong highlighted, for the purpose of a winding up under section 327, there is no need to establish that the company ever carried on business, or had a place of business, here (see Re Compania Meerabello San Nicholas [1973] Ch 75, at 91). 

48.Mr Joffe also argued that any acts of the Companies which took place in Hong Kong were merely acts of internal corporate governance or administration.  Again, that may be so, but on the materials available at this stage, the Companies were not trading companies but were essentially investment and property holding companies.  It would be artificial to look for any business or trading activity for the purpose of establishing connection with Hong Kong, when the only activities of the Companies were acts of administration such as preparation of corporate and other documents and accounts, or the holding of meetings.  The activities of the Companies in Hong Kong may be limited or even infrequent as the respondents claim, but however limited they may be, they were the only activities of the Companies, and there is no evidence or claim of any other activities of the Companies elsewhere.  If the only activities of the Companies were in Hong Kong, they may well constitute connection with Hong Kong.

49.The location of a company’s central management and control, such as where its administration is carried out, where the company’s books are kept, where the directors with power to disapprove of the local steps or require different steps to be taken meet or are resident, the place where its chief office or company secretary is to be found, and where its most significant assets are, are all relevant circumstances to be considered by the court in determining, as a finding of fact, the residence of a limited company in respect of its liability for security for costs (Re Little Olympian Each Ways Limited [1995] 1 WLR 560, Charter View Holdings (BVI) Limited v Corona Investments Limited & Another [1998] 1 HKLRD 469, Hui Yin Sang & Ors v Tsoi Ping Kwan & Ors CACV 208/2011, unreported, 19 April 2012).  In the case of a non-trading company, the nature of its corporate activities and where it “keeps house” are accepted by the court to be important considerations of where a company’s central management and control and hence its residence is located. In my view, they are likewise relevant in the consideration of the broader concept of where the company’s connections lie, for the purpose of establishing jurisdiction.

50.Mr Joffe sought to rely at the last minute on Adams v Cape Industries PLC [1990] 1 Ch 433, a case in which the English Court of Appeal dealt with the question of a company’s residence, in the context of the court’s recognition of a foreign court judgment. As Mr Wong pointed out, it is clear from the judgment in Adams that the list of factors set out (at p 530 B - p 531) to be relevant to the question of the “presence” of a trading corporation, such as whether the trading corporation has established and maintained a fixed place of business, etc is said to be “not exhaustive, and that the answer to none of them is necessarily conclusive” (p 531 B). Findings on a company’s residence or presence are questions of fact, to be made after “a nice examination of all the facts, and inferences must be drawn from a number of facts adjusted together and contrasted” (the court at p 531 citing La Bourgogne [1899] P 1, 18, per Collins LJ). The court also pointed out (at p 524G of the reported judgment) that in the case of non-trading corporations, references to the carrying on of the corporation’s “corporate activities” should be substituted for references to the carrying on of business.

51.The complaint made by the petitioners is that Albert has ousted them from the management of Billion, Welljoy and their Subsidiaries.  It is clear from the materials available at this stage that Albert was at all material times resident in and conducted the activities of the Group Companies from Hong Kong.  The complaint that Albert refused or delayed the sale of the assets of the Group Companies relates mainly to the Parkview properties in Hong Kong, their market value and whether it was in the best interests of the Siblings to sell the properties at the relevant times.  The Shareholders’ Agreement, recording the Siblings’ agreement to sell the assets of the Group Companies and to distribute the cash in the Group Companies, was made in Hong Kong.  Mother resides in Hong Kong, and on the respondents’ case, her maintenance and the provision of expenses in this regard is a central part of the business of the Group Companies, and a factor in deciding whether the assets of the Group Companies should be sold.  The matters giving rise to the dispute between the Siblings, and the petitions filed by the Sibling Companies, are clearly connected with Hong Kong, and I respectfully agree with Harris J that in a winding-up petition brought on the just and equitable ground and arising from disputes between the shareholders, the shareholders’ connection with Hong Kong and where the matters giving rise to the dispute occurred, are clearly factors which are relevant to the consideration of whether the court should invoke its jurisdiction over the company and the dispute. 

Shareholders’ connection

52.The shareholders of Billion, Welljoy and Full Benefit are the Sibling Companies, each of which is wholly owned by a Sibling.  The respondents argued that as separate BVI legal entities, it is trite that they should be kept distinct from the Siblings who are their shareholders, and the BVI Sibling Companies have no connection with Hong Kong.  Mr Joffe for the respondents also highlights the fact that as against the complaints made by the petitioners against Albert, at all material times, Albert had acted through his BVI Sibling Company, Silver Shadow.

53.Mr Wong relies on Atlantic & General v Richbell Information [2000] 2 BCLC 778, to argue that the ultimate beneficiaries of the BVI Sibling Companies should be identified and considered, and that the court should not be deterred by the intervening corporate vehicles deployed by the Siblings in their shareholding of Billion, Welljoy, and the Subsidiaries.

54.In Step by Step Limited, Kwan J observed at paragraph 51 of the judgment:

“Last but not least, it must be emphasized that section 168A(1) warrants the courts in looking at the business realities of the situation and does not confine them to a narrow legalistic view (per Lord President Cooper in Meyer v Scottish Cooperative Wholesale Society Limited [1954] SC 381 at 391, approved by the House of Lords in Scottish Cooperative Wholesale Society Limited v Meyer, supra at 343, 362 and in Nicholas v Soundcraft Electronics [1993] BCLC 360 at 368b to f).

55.In Atlantic & General v Richbell Information, supra, the court considered (in the context of a foreign company’s connection with England), amongst other things, the “ultimate owner through a series of holding companies”, and in Re A company (No 3102 of 1991), ex parte Nyckeln Finance Company Limited, the court considered (at p 541) the “man who runs the company, although not formally a director of it, but plainly the one who conducts almost the whole of its business”. 

56.In a case where the court is asked to wind up a company on the ground that it is just and equitable so to do, I consider that it is likewise appropriate to look at the realities of the situation, and not be bogged down by formalities.  Here, we are looking at members of a family historically holding and dealing with the assets and affairs of a group of “family companies” in which they have interests and which they treat as their own.  As the accounts of Full Benefit show, no distinction had been made between the Siblings individually, and their Sibling Companies through which they act as alter egos.  Although the shareholders of Full Benefit are Silver Shadow, Fancymind, Grandyear and Amazing, the management accounts of Full Benefit referred intermittently to “loan from shareholders” and “loans from Albert, William, Charles and David” individually in relation to the same debt.  The complaints now made in the petitions are that certain members of the family are managing these assets and the companies which hold them in a manner that unfairly and unreasonably excluded other members of the family, such that it is equitable for the companies to be wound up and the assets distributed.  The relief sought is that all the companies in the Group should be wound up. 

57.Bearing in mind the conclusion I have reached that section 327(3)(c) is not narrower in scope than section 168A(1), I consider that the court should be prepared to consider the directing minds behind the Sibling Companies, ie the Siblings, and their connection with Hong Kong for the purpose of establishing jurisdictional connection.  In any event, it is not clear and obvious that the court would ignore the Siblings’ connection.

58.The shareholders of Billion and Welljoy are the Sibling Companies.  It has not been disputed that Albert, the key person who managed the affairs of Billion, Welljoy and the Subsidiaries, and the beneficial owner of Silver Shadow, is resident in Hong Kong.  Each of the Siblings holds a Hong Kong permanent identity card.  Irene, the beneficial owner of Winbless, is likewise resident in Hong Kong.  William is the beneficial owner of Fancymind.  He has spent a considerable amount of time in Hong Kong in the past few years.  Charles, the beneficial owner of Grandyear, splits his time between Vancouver and Hong Kong.  I am prepared to accept that the Siblings, as the beneficial owners, directing minds and alter egos of the BVI Sibling Companies, being shareholders of Billion, Welljoy and the Subsidiaries, have close connection with Hong Kong.  I agree with Mr Wong that Gottinghen is distinguishable, since the shareholders in that case were residents of Shanghai and California, with no connection whatsoever with Hong Kong.

59.It may be that Father, Mother and the Siblings had originally intended to distance themselves from Hong Kong by the setting up of the trusts and the use of the BVI companies.  Notwithstanding that, if they had not taken sufficient steps to distance themselves and their BVI companies from Hong Kong in fact and reality, for example by keeping their corporate books and records here, by entering into transactions and holding meetings here, the petitioners should not be precluded in an appropriate case to invoke the jurisdiction of the Hong Kong court over these foreign companies, by establishing a sufficient connection with Hong Kong.

Benefit to petitioners

60.In relation to the second  requirement set out in StoczniaGdanska SA v Latreefers Inc, supra, it is not disputed by the respondents that if winding up orders are made in Hong Kong, there is a reasonable possibility of benefit to those applying for the winding up order by virtue of the presence of substantial assets in Hong Kong.

Persons interested in the distribution of assets

61.Bearing in mind the Siblings as the beneficial owners and directing minds of the BVI Sibling Companies, I am also prepared to accept that one or more persons interested in the distribution of the assets of the Companies are persons over whom the court can exercise jurisdiction.

Whether Hong Kong more appropriate jurisdiction

62.I respectfully agree with the observations made by Lloyd J in his judgment in StoczniaGdanska SA v Latreefers Inc, that in the context of the court’s consideration of the Companies’ connection with Hong Kong and the extension of the court’s jurisdiction, it is relevant to take into account whether there is a more appropriate jurisdiction to wind up the Companies in question. As Lloyd J pointed out in StoczniaGdanska :

“(Counsel for the petitioning creditor) accepts that there are connections with other jurisdictions (though almost none with the jurisdiction of incorporation) but he says that this is not the question. It seems to me that it may be relevant to consider what connections there may be with other jurisdictions in order to answer the rather ill-defined question as to the sufficiency of the connection with this jurisdiction. If there is a clear and substantial connection with some other jurisdiction, it may be that more is needed by way of a connection with England and Wales for it to suffice as the foundation of the exercise of extra-territorial jurisdiction. Thus, in the Okeanos case (1987) 3 BBC 160 at p 172; [1988] 2 Ch 210 at 226-227 Peter Gibson J considered, in this context, whether there was any more appropriate jurisdiction to wind up the company.”

63.Although Billion, Welljoy and Full Benefit are incorporated in the BVI, if the petitions for winding up these companies were commenced there, it is very likely that by virtue of the fact that the bulk of the Companies’ assets are in Hong Kong, the matters giving rise to the complaints and the breakdown of trust took place in Hong Kong, the witnesses’ presence and connections with Hong Kong, and there are petitions commenced in Hong Kong for the winding up of the Hong Kong Subsidiaries, namely Nam Hwa, Grand Textile, Grand International and International Textile in Hong Kong, on the basis of the same complaints and the close relationship between the Group Companies such that common questions of fact arise, the court would consider that Hong Kong is in fact the more appropriate forum to try the matters in dispute raised in the petitions.

Conclusion

64.Having considered all the circumstances of this case, the relationship between the Siblings and their Sibling Companies, the close connection between the Group Companies, the activities of the Group Companies in Hong Kong, and the assets held in Hong Kong by the Companies and the Subsidiaries, I am of the view that there is a sufficiently strong connection between the Companies and Hong Kong, that there is a reasonable possibility of benefit to those applying for the winding up order, and the presence of persons interested in the distribution of the assets of the Companies over whom the court can exercise jurisdiction, to justify the court invoking its jurisdiction to wind up the Companies.  Whether the court will eventually exercise its discretion to wind up the Companies, after considering the complaints and the evidence to be presented, is a matter for trial.

65.It follows from the matters set out in the preceding paragraphs that I do not consider that this is a clear and obvious case for striking out the petitions for lack of jurisdiction.

Miscellaneous matters

66.Finally, I accept that there is the need to petition for the winding up of all seven of the Subsidiaries.  The winding up of a subsidiary does not absolve the need to wind up the holding companies, and I agree with Mr Wong that there is the need for the petitioners to seek relief from the conduct over the affairs of the Group Companies, and the distribution of all the assets held by the different companies.  There is accordingly no abuse of process. 

67.In relation to the application to strike out individual paragraphs of the petitions, I do not consider that striking out is appropriate.  Factual matters in dispute, such as whether Irene had consented to Victor’s appointment as director, or whether expenses incurred were improper, are to be taken in favor of the petitioners. Whether the allegations made can be or are supported by evidence should not be investigated at this stage, before trial.  If there is exclusion from management and decision-making, there would be sufficient basis for the petitioners to complain, even if there was benefit or profit from certain investments. 

Orders made

68.The respondents’ applications for striking out are dismissed, with costs to the petitioners, with certificate for two counsel. 

Mr Wong Yan Lung SC and Mr William Wong SC, instructed by Pang & Associates, for the petitioners (in all cases)

Mr Victor Joffe and Mr Lam Chin Ching Gary, instructed by Vincent TK Cheung, Yap & Co, for the 1^st to 3^rd respondents in HCCW 369/2011 and HCCW 370/2011, and for the 3^rd to 5^th respondents in HCCW 375/2011