Yeung Siu Ming v Man Lung Textiles Ltd And Others

Judgment Date30 November 2017
CourtHigh Court (Hong Kong)
Judgement NumberHCCW425/2016
Subject MatterCompanies Winding-up Proceedings
HCCW425/2016 YEUNG SIU MING v. MAN LUNG TEXTILES LTD AND OTHERS

HCCW 425/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 425 OF 2016

________________________

IN THE MATTER of section 724(1) of the Companies Ordinance (Cap 622) and section 177(1)(f) the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32)
and
IN THE MATTER of MAN LUNG TEXTILES LIMITED (萬隆紡織有限公司) (Company Registration No. 534993)

________________________

BETWEEN
YEUNG SIU MING Petitioner
and
MAN LUNG TEXTILES LIMITED 1st Respondent
TAM TAK YAM 2nd Respondent
TANG SIU CHOI 3rd Respondent

________________________

AND

HCCW 426/2016

COMPANIES (WINDING-UP) PROCEEDINGS NO 426 OF 2016

________________________

IN THE MATTER of section 724(1) of the Companies Ordinance (Cap 622) and section 177(1)(f) the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32)
and
IN THE MATTER of MAN SHING TEXTILES LIMITED (萬盛紡織有限公司) (Company Registration No. 927449)

________________________

BETWEEN
YEUNG SIU MING Petitioner
and
MAN SHING TEXTILES LIMITED 1st Respondent
TAM TAK YAM 2nd Respondent
TANG SIU CHOI 3rd Respondent

________________________

(Heard Together)


Before: Deputy High Court Judge To in Chambers
Date of Hearing: 18 July 2017
Date of Decision: 30 November 2017

______________

DECISION

______________

Introduction

1. This is the hearing of the 2nd Respondent’s application to strike out the petition on the ground that the Petitioner has no locus standi to present the petition and that the petition is an abuse of process of the court. Alternatively, the 2nd Respondent sought a validation order to allow payments made into and/or out of the bank accounts for settling debts incurred by the captioned two companies in the ordinary course of business. At the hearing on 23 March 2017, Anthony Chan J granted the validation order.

The background

2. The Petitioner was until 15 May 2014 a shareholder of the twocompanies in question, ie Man Lung Textiles Limited in HCCW 425/2016 (“Man Lung”) and Man Shing Textiles Limited in HCCW 426/2016 (“Man Shing”). Man Shing has a subsidiary in Dongguan (“Man Hei”) which serves as the manufacturing arm of the companies. On 15 May 2014, the Petitioner resigned from his directorship of the two companies. By an agreement dated 30 January 2015 (the “Agreement”), he sold all his shareholdings in the two companies to the 2nd and 3rd Respondents at a consideration of $3.39 million. The consideration was to be paid by nine instalments until 28 January 2016, leaving a sum of $390,000 (the “set off sum”) to be kept by the 2nd and 3rd Respondents and to be paid to the Petitioner or set off in the manners stipulated under clause 3.2(f) of the Agreement.

3. After the sale it had been uneventful until 4 July 2016 when the 2nd Respondent received a letter from the Petitioner’s solicitors alleging that the balance of purchase price of $1 million was still unpaid and further requested for return of the set off sum of $390,000 from the 2nd and 3rd Respondents. The 2nd Respondent denied the Petitioner’s claim and counterclaimed for a set off in the sum of $1.53 million being loss suffered by Man Hei based on the audit report. The parties’ solicitors engaged in a series of correspondence, but no settlement was reached.

4. On 25 November 2016, the Petitioner filed the petitions against the two companies, pursuant to section 177(1)(f) of the Companies(Winding Up and Miscellaneous Provisions) Ordinance. His grounds are essentially about the irregularities in the audit report on the profits and loss of Man Hei up to 20 January 2015; that he had not consented to the appointment of the auditor; that the 2nd Respondent refused his and the 3rd Respondent’s request to hold an annual general meeting to deal with the Companies’ matters and specially to appoint directors of the companies; and that the 2nd and 3rd Respondents’ conduct has prejudicially affected his interest in the companies.

Locus standi

5. The 2nd Respondent’s first ground for striking out is that, having sold his shares to the 2nd and 3rd Respondents, the Petitioner has no locus standi to present the petition. He relies on section 179(1)(a)(ii) of the Companies Ordinance which provides that only the company, its creditors, contributories or the trustee in bankruptcy or the personal representative of a contributory may present a winding up petition against the company. In addition, a contributory may not present a petition unless the shares in respect of which he is a contributory were originally allotted to him or have been held by him, and registered in his name, for at least six months during the 18 months before the commencement of the winding up, or have devolved on him through the death of a former holder. Mr Cheung, counsel for the 2nd Respondent, submitted that as the Petitioner’s shares were sold on 30 January 2015 and the petition was presented almost 22 months afterwards on 25 November 2016, he has no locus standi to present the petition.

6. Mr So, counsel for the Petitioner, disagreed. His argument is that as it is the 2nd Respondent who sought to strike out the petition, the 2nd Respondent has the burden of proving that the Petitioner is not a contributory qualified to present a petition pursuant to section 179(1). He further argued that as the 2nd Respondent had not addressed this issue or produced the register of members showing that the Petitioner’s name is not on the register, he has failed to discharge the burden of proof.

7. I respectfully disagree with Mr So’s submission. It is trite law that the burden of proof is dictated by the pleadings. The Petitioner pleaded in paragraph 5 of the petition that he once held 4,000 shares in thecompany and then in paragraph 9 that he sold them on 30 January 2015 to the 2nd and 3rd Respondents. Hence, by the time he presented the petition, he fell clearly outside section 179(1)(a)(ii). It is therefore part of the Petitioner’s case that at the time of presentation of the petition he was not a shareholder and had not held shares in the companies for at least six months during the 18 months before the commencement of the proceedings. On his pleaded case, he has no locus standi to present the petition. Thus, there is no burden on the 2nd Respondent to prove that the Petitioner was neither a current shareholder nor has held the shares in the companies for six months during the 18 months prior to his presentation of the petition. He has pleaded a defective case which is bound to be struck out. This is sufficient to dispose of this application.

8. Putting aside the actual pleading in this case, Mr So’s submission is wrong in principle. A petitioner has to plead he is entitled to present a petition under section 179. If he pleads he is a contributory, he bears the burden of proving that he comes within section 179(1)(a)(ii), including that his name has been entered in the register of members of the company at the material time. Usually, if he is entitled to present a petition, this will not be challenged. If challenged, it still remains his legal burden to prove his locus standi. This...

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