Former bosses win key appeal ruling in Chark Fung Securities saga
Hong Kong's appeal court has struck a big blow for former bosses of collapsed Chark Fung Securities, who are taking KPMG liquidators to task over a HK$97 million lawsuit.
It is impossible to ascertain how much is owed to the company in liquidation without a full trial taking place, the judges ruled yesterday.
They thus lifted a HK$10 million obstacle hindering the executives' defence of the case.
The defendants - Ming Fung Goldsmith, a company owned by Chan Kwong-hung; and his wife Lau Miu-king had asked the appeals court to quash a ruling that they pay HK$10 million into court as a condition of their fighting the lawsuit.
It was argued that the liquidators, KPMG, had ignored key evidence showing cash payments to the brokerage that could have affected the outcome of the litigation.
This rendered the HK$97 million figure inaccurate, they contended.
Chark Fung collapsed in 1998, along with three other companies in the Ming Fung Group.
The Securities and Futures Commission filed a winding-up petition amid public-interest concerns, and KMPG liquidators were appointed.
The collapse was the largest in unified stock exchange history, with about 2,000 complaints from clients and compensation claims of up to HK$490 million.
As far as action against the former bosses is concerned, however, 'it is simply impossible on the material which has been provided to produce a clear picture of exactly how much, if anything, is owing from one party to another,' Mr Justice Anthony Rogers ruled yesterday.
The main thrust of the defendants' case is that there were continual transfers of money between the companies and the executives.
They contend that credit should be given for various transfers.
Although the transfers may not have been commercially normal, Mr Justice Rogers continued, 'it is impossible on the papers to come to any concluded view that the defendants were dishonest'.
Moreover, the liquidators have already been forced to downsize the initial sum claimed in the litigation.
'In a situation where the liquidators of the plaintiff companies have now conceded that credit should be given in every respect of very substantial sums for which credit was not previously given . . . I find it difficult to alight on any sum which can be pointed to as owing,' the judge said.
He is, moreover, 'troubled' by the decision by KPMG to start calculating the sum only at January 1997.
He noted a concern 'that the liquidators appear to have confined their attention to only some accounts and that there are clearly likely to be many other relevant vouchers and other documents which should be considered.' He urged the case to proceed immediately, taking account of the sums due, a process which would be complex, difficult and would also require oral evidence.
The court thus lifted the HK$10 million requirement and gave unconditional leave for the defendants to fight the litigation.