RE SAFE STEEL FURNITURE FACTORY LTD

1987, M.P. No. 322

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is a motion by Safe Steel Furniture Factory Limited (the company) under Section 100 of the Companies Ordinance for the register of members of the company to be rectified by striking out the name of Wong Sum Hui (the respondent) as the holder of 200 shares of the company and by inserting in lieu the names of the personal representatives of Lee Li Shiang as the holders on the grounds that the transfer was invalid. The application is supported by the personal representatives of Lee Li Shiang.

Section 100 of the Companies Ordinance where relevant provides:-

"100(1) If -

(a)     the name of any person is, without sufficient cause, entered in or omitted from the register of members of a company; or

(b)      ....................... the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register.

(2)     Where an application is made under this section, the court may either refuse the application or may, ...................... order rectification of the register and payment by the company of any damages sustained by any party aggrieved.

(3)     .............

(4)     ............."

2. The company which is a private company was incorporated on the 29th December 1951 to carry on the business, inter alia, of the manufacture of steel furniture. The company was effectively controlled by Lee Li Shiang until his death on the 4th July 1971 when he and his wife Lee Can May (Madam Lee) were the only directors.

3. The respondent was employed as a trainee by the company in 1956 and continued to work there until he was dismissed in 1962. He was re-employed in 1968 as a sales representative and was still working for the company at the time of Lee Li Shiang's death.

4. The shareholdings at the time of Lee Li Shiang's death were Lee Li Shiang, 315 shares; Madam Lee, 210 shares; Cheng Chia An, 125 shares, although Madam Lee said that those shares had already been sold to Lee Li Shiang whilst Lai Ah Hung held 100 shares.

5. Letters of Administration to the estate of Lee Li Shiang were granted to Madam Lee and a daughter, Lai Wai Kam on the 22nd March 1972.

6. After Lee Li Shiang's death, the respondent was appointed by Madam Lee to be the manager of the company. Madam Lee also made a gift to the respondent of 200 shares in the company out of the 315 shares that were held by Lee Li Shiang whilst the other 115 shares were transferred to herself. In her affirmation made on the 17th March 1987, Madam Lee says that she did not consult her co-administratrix with regard to the transfer and made the transfer because she was unable to manage the business and regarded the gift as an incentive for the respondent.

7. A directors' meeting of the company was held on the 20th June 1973. The minutes for this meeting record that Madam Lee and her late husband Lee Li Shiang were present together with the respondent who is deseribed as attending by invitation. At the meeting of which Madam Lee was elected as the Chairman, two resolutions were passed. The first related to the transfer of the shares that were held by Lee Li Shiang and the second to the resignation of Lee Li Shiang as a director and the appointment of the respondent as a director in his place. Subsequently on the 17th Septerber 1973 bought and sold notes in respect of the sale and purchase of the shares were executed by Madam Lee signing her late husband's name and claiming to represent him.

8. Annual returns filed on the 26th March 1974 for the year ended 31st December 1973 show that 200 shares were transferred from Mr. Lee Li Shiang to the respondent on the 17th September 1973. Although there is no dispute that there was no consideration for the transfer of the shares, the bought and sold notes show that the shares were sold for $5 each, making a total $1,000.

9. Miss Yuen who appeared on behalf of the company submitted that the transfer of the shares was invalid under the Articles of Association. It is therefore necessary for me to refer to those articles which are relevant:-

3.     The Company is a Private Company within the meaning of Section 29 of the Companies Ordinance (Chapter 32) and accordingly:-

(a)     No share in the Company shall be transferred except with the previous written consent of the Directors.

(b)     ...........

(c)     ...........

14.     Unless otherwise determined by the Company in General Meeting the number of Directors shall not be less than two or more than four.

20.     Unless otherwise determined by the Directors, the quorum of a Directors' Meeting shall be two.

21.     If there shall be any vacancy in the Board of Directors the remaining Director or Directors shall call a General Meeting for the purpose of electing one or more new member or members of the Board. Every member so elected shall hold office for such period and on such terms as the Company in General Meeting may prescribe.

10. It is clear that Lee Li Shiang was dead at the time of the director's meeting with the result that the meeting was inquorate as Madam Lee was the only director who was present. Accordingly, the transfer of the shares contravened the provisions of the Articles of Association. Miss Yuen also submitted that the transfer was invalid because Madam Lee's co-administratrix Lai Wai Kam did not consent to the transfer. She referred to Article 29 of Table A of the Companies Ordinance that applies to the company, which provides that in the case of the death of a member, the survivor and the legal personal representatives of the deceased where he was a sole holder shall be the only persons recognised by the company as having any title to his interest in the shares. The shares were in fact never registered in the names of the personal representatives but were direct transfers by Madam Lee, claiming to represent her late husband, to herself and the respondent.

11. Mr. Lai, counsel for the respondent however, who appeared on behalf of the respondent placed reliance on Section 67 of the Companies Ordinance which reads:-

"A transfer of the share or other interest of a deceased member of a company made by his personal representative shall, although the personal representative is not himself a member of the company, be as valid as if he had been such a member at the time of the execution of the instrument of transfer."

12. Such a transfer was valid by Madam Lee alone without the consent of her co-administratrix having regard to the provisions of Section 54(3) of the Probate and Administration Ordinance which enables one personal representative to exercise those powers unless there is a direction to the contrary. There was no evidence that there was a direction to the contrary in this case.

13. The jurisdiction conferred by Section 100 of the Companies Ordinance is an equitable remedy so that the Court is empowered to exercise its discretion despite the invalidity of the transfer under the Articles of Association.

14. It is abundantly clear from the evidence that Madam Lee intended to make a gift of the shares to the respondent. There was no evidence of forgery nor was there any allegation that the respondent had exercised any undue influence over Madam Lee to obtain the shares. His evidence is to the effect that he and Lee Li Shiang, up to the time of his death, operated the company as a partnership and that he was entitled to a one third share. However Madam Lee denied any knowledge of this arrangement. Nevertheless, after Lee Li Shiang's death, it is apparent that the respondent effectively took control and dealt with the day to day management of the company with the consent and express wish of Madam Lee.

15. For over 13 years, the respondent has been registered as the holder of 200 shares. The company, but in reality Madam Lee, now seeks to resile from that position on the grounds that the meeting at which the resolution was passed was inquorate and thereby resulted in the transfer being invalid. It is not difficult to determine the reason for this stance having regard to the considerable increase in the net profits of the company from $142,034 in 1984 to $954,808 in 1985.

16. Like so many family companies, the company was operated in an informal manner without too much attention being paid to strict legal requirements. The meeting that was convened for the transfer of the shares and the appointment of the respondent as a director was obviously held with the intention of complying with the law, and there is no evidence to indicate that either Madam Lee or the respondent believed that the resolutions that were passed were invalid.

17. In my judgment it would be wholly inequitable to remove the respondent's name from the register, as a result of the irregularities. committed at the meeting that was held such a long time ago. However, if I am wrong, I am, nevertheless, satisfied that the transfer of the shares was validly effected by Madam Lee as the personal representative of Lee Li Shiang under the provisions of Section 67 of the Companies Ordinance. The consent of the co-administratrix to the transfer as I have said was not necessary.

18. Accordingly, the application for rectification will be refused.