Re HK Sindy Footwears Ltd [2007] 1 HKC 64

Facts

• This case concerns a Mr Hazan and a Ms Han who were a couple and lived together.
• In April 2002, Ms Han and Mr Hazan agreed to go into the shoe business together, through the entity HK Sindy Footwears Ltd (Footwears).
• Mr Hazan did not insist on the terms of their business joint venture being put in writing.
• Mr Hazan knew that there was another company called HK Sindy Group Ltd (the Group), but was told that this was done for tax reasons.
• In April 2006, Mr Hazan discovered that he had no shareholding in the Group and had no access to the bank accounts of the Group. The shares in the Group were actually held by Ms Han and her brother.
• Mr Hazan contended that he conducted himself all along on the express understanding that he owned 50% of the business operations of the Group with Ms Han.
• Ms Han, on the other hand, denied that there was any such agreement between the two, and that Mr Hazan’s status was only that of an employee.

Action Taken by Mr Hazan

1. Mr Hazan, as Petitioner, commenced an action under section 168A of the Companies Ordinance, and sought an order that his shares in HK Sindy Footwears be bought out by Ms Han, who held the balance of shares in Footwears.
2. Mr Hazan, as Plaintiff, also sought a declaration of his ownership of 50% of the shares in the Group, as well as an account of income and profits, damages, and the appointment of receivers for the Group and Footwears.

The Law

The appointment of an interim receiver is a discretionary remedy which applies the same principles as granting interlocutory injunctions. Therefore, the factors the courts will consider in the assessment of whether to appoint an interim receiver are:-

1. whether there is a serious question to be tried;
2. the alleged risks of dissipation of assets of the company;
3. alternate remedies and efficacy; and
4. the risk of damage to the company if the appointment is made, and whether it can be adequately compensated by a cross-undertaking in damages.

Application

In consideration of the above factors, the Court held that:

1. There was a serious question to be tried, Mr Hazan had shown a prima facie case of ownership of shares in the Group.
2. There was a risk of dissipation of assets. The defendant failed to provide up-to-date accounts and a proper explanation of the movement of funds from the bank accounts of Footwear.
3. Monetary compensation would be an insufficient remedy in the circumstances, given that accounting records had not been properly kept, transactions had not been recorded and assets had dissipated before the commencement of legal proceedings.
4. Independent professionals appointed as interim receivers would not do anything that would jeopardise the fulfilment of the business. In fact, the function of the interim receivers is to protect and preserve assets, pending the resolution of the disputes.

It was held, therefore, that the balance of convenience lay in favour of appointing interim receivers to investigate into the affairs and to preserve and protect the assets of both companies pending the decision as to the ownership of the shares in the Group.