Wong Tak Ming And Another v Creative Pacific Ltd

Judgment Date04 June 2020
Neutral Citation[2020] HKCFI 973
Judgement NumberHCMP687/2019
Subject MatterMiscellaneous Proceedings
CourtCourt of First Instance (Hong Kong)
HCMP687/2019 WONG TAK MING AND ANOTHER v. CREATIVE PACIFIC LTD

HCMP 687/2019

[2020] HKCFI 973

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 687 OF 2019

____________

IN THE MATTER of Creative Pacific Limited

and

IN THE MATTER of Section 740 of the Companies Ordinance (Cap 622)

____________

BETWEEN

WONG TAK MING 1st Plaintiff
ACE LINK VENTURE CORP 2nd Plaintiff

and

CREATIVE PACIFIC LIMITED Defendant

______________

Before: Madam Recorder Yvonne Cheng, SC in Chambers

Date of Written Submissions by the Plaintiffs: 16 March 2020

Date of Written Submissions by the Defendant: 18 March 2020

Date of Written Submissions in reply by the Plaintiffs: 26 March 2020

Date of Judgment: 4 June 2020

________________

J U D G M E N T

________________


A. INTRODUCTION

A1. The application before the court

1. By an originating summons of 9 May 2019 (“Originating Summons”), the Plaintiffs applied for an order for inspection of various documents and records of the Defendant (“the Company”) pursuant to s 740 Companies Ordinance, Cap 622 (“CO”).

2. The application was originally set down for argument on 23 March 2020, but was adjourned pursuant to the general adjournment of court proceedings announced by the Judiciary by reason of public health considerations. The parties have since agreed that the application should be determined on the papers.

A2. The background

3. The Company is a limited company incorporated in Hong Kong with a total of 12,010,000 issued shares, of which the 1st Plaintiff owns 2,402,000, representing 20% of voting rights of members, and the 2nd Plaintiff owns 1,201,000, representing 10% of voting rights.

4. The sole director and shareholder of the 2nd Plaintiff is Yau Tin Sang (“Mr Yau”).

A2.1 The First Investment

5. It is the Plaintiffs’ case that in about April 2010, the sole director of the Company, Richard Lee Man Fai (“Mr Lee”), asked the 1st Plaintiff and Mr Yau to provide financial assistance to the Company, which was having financial difficulties. They say that Mr Lee said that the Company was carrying on the business of garment manufacturing and sale, including running a project/brand called “V ONE” in the garment industry. The 1st Plaintiff and Mr Yau agreed, and pursuant to Mr Lee’s request:

5.1 the 1st Plaintiff drew a cheque dated 30 April 2010 for HK$2,000,000 in favour of Wo Kee Hong Ltd (“WKH Ltd”). It is not disputed that Mr Lee was one of the five directors of WKH Ltd and held one of the two ordinary shares at the time;

5.2 Mr Yau, on behalf of the 2nd Plaintiff, drew a cheque dated 18 May 2010 for HK$1,000,000 in favour of Wo Kee Hong (Holdings) Ltd (“WKH Holdings”). It is not disputed that Mr Lee was the Executive Chairman, Chief Executive Officer and the single largest shareholder at the time.

6. The Plaintiffs say that this was their first investment into the Company (“the First Investment”). In return, on 4 June 2010, Mr Lee arranged for the transfer of 2,000 of the Company’s shares to be transferred to the 1st Plaintiff from Famous Name Holdings Limited (“Famous Name”), and 1,000 of the Company’s shares to be transferred to the 2nd Plaintiff from Victory Globe International Limited (“Victory Globe”).

7. For its part, the Company says that it was incorporated primarily to hold a PRC subsidiary 上海新概念服飾有限公司 (“the PRC Subsidiary”), which mainly engages in the business of distribution and retail of fashion apparel under its self-owned brand “V-One”.

8. The Company says that the First Investment came about not because Mr Lee made any representation that the Company was having financial difficulties or that funds would be invested into the Company, but rather, because the Plaintiffs were interested in investing in the Company. The First Investment was simply a purchase of shares by the Plaintiffs from Famous Name and Victory Globe.

9. The Company says that as Famous Name was incorporated in the BVI and did not have an operating bank account, it directed the 1st Plaintiff to draw a cheque in favour of WKH Ltd. Victory Globe directed the 2nd Plaintiff to draw a cheque in favour of WKH Holdings. The Company itself was not supposed to receive any funds from the Plaintiffs.

A2.2 The Second Investment

10. The Plaintiffs say that a few months after the First Investment, Mr Lee approached the 1st Plaintiff and Mr Yau again, seeking further investments into the Company. At Mr Lee’s request, the 1st Plaintiff drew a cheque for HK$3,600,000 in favour of WKH Ltd, comprising HK$2,400,000 from the 1st Plaintiff and HK$1,200,000 from the 2nd Plaintiff.

11. The Plaintiffs say that this was their second investment into the Company (“the Second Investment”). In return, in August 2011, the 1st Plaintiff was allotted 2,400,000 shares in the Company, and the 2nd Plaintiff was allotted 1,200,000 shares in the Company.

12. The Company’s case is that its shareholders agreed to increase the share capital of the Company, and applied to subscribe for further shares. The board of directors resolved to allot 12,000,000 shares at HK$1 each, of which 2,400,000 were allotted to the 1st Plaintiff, and 1,200,000 were allotted to the 2nd Plaintiff. All of the newly allotted shares were fully paid up, and the sums received were invested into the PRC Subsidiary.

A2.3 Events giving rise to the Plaintiffs’ application

13. The Plaintiffs say that they have been kept in the dark as to the Company’s affairs. They have not been provided with the Company’s audited accounts. In 2014, Mr Lee informed the 1st Plaintiff and Mr Yau “out of the blue” that all their investments in the Company (that is, HK$6,600,000) had been lost, but without any explanation. The Plaintiffs say that they were not suspicious about this at the time, but subsequently, the Plaintiffs suspected that their investments might have been siphoned off for Mr Lee’s personal use.

14. On the Plaintiffs’ instructions, Messrs Ng and Partners issued a letter dated 19 November 2018 to the Company, asking for (inter alia) accounting records showing the receipt by the Company of the First and Second Investments.

15. By a letter of 30 November 2018, Messrs Ho & Ip, on behalf of Mr Lee and the Company, responded that the First Investment was in fact a purchase of shares by the Plaintiffs, and the Second Investment was invested into the PRC Subsidiary. It was further said that the Plaintiffs were aware that the PRC Subsidiary had recorded an accumulated loss of over RMB 25 million during the period from 2012 to 2017.

16. The only documents provided by Messrs Ho & Ip (by a letter of 2 April 2019) were a copy of the Company’s financial statements for the year ending 31 December 2014, which was described as its latest financial statements, and a copy of the written resolution of all members of the Company dated 16 August 2011, which was said to have been the only written resolution recorded in the previous ten years.

17. The Plaintiff seeks information as to the receipt and use of the First and Second Investments by the Company. They seek an order for the inspection of:

17.1 all the annual financial statements and directors’ reports of the Company since its incorporation (other than for the year ending 31 December 2014);

17.2 all accounting records including but not limited to bank statements and bank receipts and books recording or evidencing the receipt by the Company of a total sum of HK$6,600,000 from the Plaintiffs, comprising:

17.2.1 HK$2,000,000 from the 1st Plaintiff in or about April/May 2010;

17.2.2 HK$1,000,000 from the 2nd Plaintiff in or about May 2010;

17.2.3 HK$2,400,000 from the 1st Plaintiff in or about May 2011; and

17.2.4 HK$1,200,000 from the 2nd Plaintiff in or about May 2011;

17.3 all written records of the sole director’s decision for the past 10 years in relation to the use of all monies received from the Plaintiffs in the total sum of HK$6,600,000 (as set out in the previous subparagraph), in particular the use of any part of the same on the PRC subsidiary;

17.4 all of the Company’s accounting records including but not limited to bank statements, bank receipts and books recording or evidencing the Company’s investment and/or use of the total sum of HK$3,600,000 (ie the payments for the Second Investment) into the PRC Subsidiary.

18. The Company says that throughout the years, the Plaintiffs have never shown much interest in the Company. They were aware that the PRC Subsidiary had accumulated substantial losses and ceased most of its operations since 2013. It was only after Mr Lee brought legal proceedings in July 2018 against a business partner and friend of the 1st Plaintiff, Benjamin Yip Pak Keung (“Mr Yip”), that the Plaintiffs initiated the current proceedings against the Company.

B. THE PRINCIPLES APPLICABLE TO AN APPLICATION UNDER S 740 CO

19. Apart from documents to which he is entitled pursuant to the provisions of the Companies Ordinance, a shareholder generally is not entitled to inspect a company’s documents, or obtain copies of them: Re Opes Asia Development Ltd, unreported, HCMP 477/2012, 17 May 2012, at [4]. However, he can apply to court for an order for inspection under s 740 CO.

20. Section 740 CO provides as follows.

“(1) On application by a required number of a company’s members, the Court may make an order —

(a) authorizing a person who is the applicant or one of the applicants to inspect any record or document of the company; or

(b) authorizing a person who is not the applicant or one of the applicants to inspect any record or document of the company on behalf of the applicant or applicants.

(2) The Court may make an order authorizing a person to inspect a record or document if it is...

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