CHAN PUI SZE v. PERFECT STAR CREDIT LTD AND OTHERS

HCMP 1872/2020

[2021] HKCFI 674

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1872 OF 2020

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J U D G M E N T

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1.  By originating summons dated 27 October 2020 (“OS”) the Plaintiff, Ms Chan Pui Sze (“P”), applies under section 42 of the Companies Ordinance (Cap 622) (“Ordinance”)for, inter alia, the following relief:

(1)  A declaration that the documents submitted for filing on 7 May 2020 and 2 June 2020 at the Companies Registry (“CR”) in respect of Kobayashi (Hong Kong) Limited (“KHK”) set out in Schedule 1 are null and void or in any event unenforceable against P and/or KHK;

(2)  A declaration that the documents submitted for filing on 7 May 2020 at the CR in respect of Kobayashi International Limited (“International”) set out in Schedule 2 are null and void or in any event unenforceable against P and/or International;

(3)  A declaration that the documents submitted for filing on 7 May 2020 at the CR in respect of Korasta Investment Limited (“Investment”) set out in Schedule 3 are null and void or in any event unenforceable against P and/or Investment;

(4)  An injunction to restrain the 2^nd Defendant, Mr Wong Yat Hung (“D2”) from claiming to be director or shareholder of KHK or International or Investment;

(5)  An injunction to restrain the 1^st Defendant, Perfect Credit Limited (“D1”) and/or D2 from submitting any documents for filing at the CR in respect of KHK, International or Investment; and

(6)  An order that the 3^rd Defendant, the Registrar of Companies (“Registrar”) be directed to forthwith remove the documents listed in Schedules 1 to 3 (“Sch 1-3 Documents”).

A.    Irregularities

2.  At the callover hearing on 3 February 2021, this Court pointed out to Mr Roland Lau, counsel for P, that the proceedings are irregular in that P purports to seek relief in respect of KHK, International and Investment (collectively “Companies”), but only one originating summons was issued and the Companies had not been joined as parties.  Mr Lau was reminded to rectify the irregularities before the substantive hearing of the OS.

3.  These were not the only irregularities in the proceedings.  In her statement filed pursuant to s 43(2) of the Ordinance, the Registrar pointed out that amongst the Sch 1-3 Documents, items 4-8 in Schedule 1 (in respect of KHK) and items 2-6 in Schedule 3 (in respect of Investment) had not been registered on the Companies Register (collectively “Unregistered Documents”) and, therefore, could not be rectified or removed.  This is because “Companies Register” is defined in s 2 of the Ordinance as “the records kept under section 27”.  Section 27(1) provides that the Registrar must keep records of, inter alia:

“(a) the information contained in every document that is delivered to the Registrar for registration and that the Registrar decides to register under this Part;

(b) the information contained in every certificate that is issued by the Registrar under this Ordinance; and

(c) the information contained in every prospectus registered by the Registrar under section 38D or 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32)”. (underline added)

4.  The Unregistered Documents were all described as “pending” in the Document Index Search at the CR in respect of each of the Companies and, therefore, must have been known to P’s legal advisers.  When this was pointed out to Mr Lau, he confirmed that P would not seek an order to rectify or remove the Unregistered Documents. 

5.  Accordingly, the application is only concerned with the following documents registered at the CR (collectively “Impugned Documents”):

(1)  In respect of KHK: (a) the Form ND4 – Notice of Resignation of Company Secretary and Director (Reference No 22001045480); (b) Form ND2A – Notice of Change of Company Secretary and Director (Appointment/Cessation) (Reference No 22001045481); (c) Form NR2 – Notice of Location of Registers and Company Records (Reference No 22001045574);

(2)  In respect of International: (a) Form NR1 – Notice of Change of Address of Registered Office (Reference No 22001045484); (b) Form ND2A – Notice of Change of Company Secretary and Director (Appointment/Cessation) (Reference No 22001045487); (c) Form NR2 – Notice of Location of Registers and Company Records (Reference No 22001045576); and

(3)  In respect of Investment: Form NR2 – Notice of Location of Registers and Company Records (Reference No 22001045575).

6.  P has not exhibited copies of the Impugned Documents and the same are not available to the Court.  Nevertheless, at the substantive hearing, Mr Lau confirms that the Impugned Documents were all filed at the CR on 7 May 2020.  Although §1 of the OS referred to documents filed at the CR on 2 June 2020, such documents are “Form NM1 – Statement of Particulars of Charge” and the “Instrument” (items 7-8 in Schedule 1) and both remain “pending”.  Mr Ronald Pang, counsel for D1-D2, does not take issue with what is said by Mr Lau. 

7.  According to the Registrar, the changes contained in the Impugned Documents are as follows[2]:

(1)  KHK: P ceased to be a director on 7 May 2020; D2 was appointed as a director and SWT (as defined in §17 below) was appointed as secretary with effect from 26 March 2020.

(2)  International: P and Ho ceased to be directors on 7 May 2020; D2 was appointed as a director and SWT was appointed as secretary with effect from 26 March 2020.  The registered office was also changed to another address with effect from 26 March 2020.

8.  Also at the callover hearing, I observed that according to the documents filed at the CR (including the Unregistered Documents), the shares in the Companies were stated to have been transferred to D2 with effect from 25 April 2020, that is, before the due date for repayment of the “2^nd Loan” (as defined in §19 below).  Thus, unless D1-D2 are able to show that such transfers had been approved by resolutions passed by the Companies and, thereafter, resolutions were passed by the Companies to change their directors and secretary, the Impugned Documents are invalid and should be rectified or removed from the CR.  It would be a waste of time and costs for D1-D2 to oppose the application.  Time was given to Mr Pang to take instructions as to whether there were such resolutions passed by the Companies. 

9.  After taking instructions, Mr Pang informed this Court that according to D1-D2, on the date the Share Mortgage was executed (26 March 2020), resolutions were passed to the effect that upon an event of default, the Companies would approve transfers and registration of the shares covered by the Share Mortgage to D1 (or its nominee) and changes of directors. D1-D2 would produce such resolutions in an affirmation to be filed in opposition to the OS.  It was only on the basis of what Mr Pang had said that this Court adjourned the OS for substantive arguments with directions for the parties to file further evidence.  As will be seen further below, no such resolution has been produced by D1-D2.

B.    Background

10.  The Companies are Hong Kong companies.  KHK holds a corporate membership at Clearwater Bay Golf & Country Club (“Membership”) which is its only valuable asset. 

11.  KHK’s shares are held by Investment (75%) and International (25%).  International’s shares are held by Investment (99%) and Mr Chan Hung Kwong (“Chan Sr”) (1%), who is the father-in-law of P.  Investment is wholly owned by P, who is its sole shareholder.     

12.  At the time the Impugned Documents were filed at the CR, the directors of the Companies were P, Chan Sr, Mr Ho Wing Hong Joson (“Ho”)[3]. In addition, Investment had an additional director, Ms Chan Hiu Yee (“Chan HY”)[4]. All directors side with P. 

13.  D1 is a licensed money lender.  D2 is the sole shareholder and director of D1. 

14.  By a loan agreement dated 10 December 2019, no PS19016 entered into between KHK (as borrower) and D1 (as lender) (“1^st Loan Agreement”), D1 agreed to lend $3 million to KHK for 12 months from the date of draw down (12 December 2019) with interest at 24% p.a., to be paid monthly in the amount of $60,000 (“1^st Loan”). 

15.  As security for the 1^st Loan:

(1)  KHK was required to execute a debenture in favour of D1;

(2)  International was required to execute a share mortgage over the 25% shares it held in KHK in favour of D1; and

(3)  Investment was required to execute share mortgages over all the 75% shares it held in KHK and all the shares it held in International.

16.  The aforesaid debenture and share mortgages[5] were mentioned in the 1^st Loan Agreement, which was also signed by International and Investment qua mortgagors. 

17.  As part of the security for the 1^st Loan, the following documents were signed in blank and, together with the company kits of the Companies, were passed to Messrs S.W. Tai & Co (“SWT”):

(1)  the undated minutes of Board meeting of KHK signed by P and Ho (but not Chan Sr) (a) approving transfer of shares (with transferor, transferee and number of shares left blank); and (b) accepting the resignation of Chan Sr as director;

(2)  the undated minutes of Board meeting of International signed by P and Ho (but not Chan Sr) (a) approving the transfer of  shares (with transferor, transferee and number of shares left blank); and (b) accepting the resignation of Chan Sr as director;

(3)  the undated minutes of Board meeting of Investment signed by P and Ho (but not Chan Sr or Chan HY) (a) approving the transfer of shares (with transferor, transferee and number of shares left blank); and (b) accepting the resignation of Chan Sr and Chan HY as directors,

(collectively “Undated Minutes”)

(4)  the undated letters to Collector of Stamp Duty (“Collector”), blank instruments of transfer and bought and sold notes all executed by P (a) on behalf of International to transfer 25% shares in KHK, and (b) on behalf of Investment to transfer 75% shares in KHK;

(5)  the undated letter to Collector, blank instrument of transfer and bought and sold notes all executed by P (a) on behalf of Investment to transfer 99% shares in International;

(6)  the undated letter to Collector, blank instrument of transfer and bought and sold notes all executed by P to transfer 100% shares in Investment,

(collectively “Blank Documents”).

18.  The Undated Minutes, the Blank Documents together with the signed notices relating to the resignation of Chan Sr and appointment of P were passed to SWT, and a representative of SWT signed 3 receipts dated 12 December 2019 in respect of each of the Companies to acknowledge receipt of the same (“SWT’s Receipts”).  Save for the name of the Companies, the contents of SWT’s Receipts are identical and are in these terms:

“Whole set of [sic] resignation of [Chan Sr] and Appointment of [P] and Transfer of Shares

1. ND2A (Amendment)

2. NAR1 (Amendment)

3. Director [sic] Minutes

4. ND2A

5. ND4

6. Bought and Sold note

7. Instrument of transfer

We hereby acknowledge receipt [sic] above original documents. The above documents are for security purpose. Only those documents will be executed in case of default under lender [D1] loan number PS19016” (underline added)

19.  P’s family was in need of fund and D1 agreed to lend a further sum of $1 million to KHK.  By a loan agreement dated 24 March 2020, no PS 20023 (“2^nd Loan Agreement”) executed by D1 (as lender) and KHK (as borrower), D1 agreed to lend $4 million to KHK (“2^nd Loan”) of which $3 million would be applied to repay the 1^st Loan, and the 2^nd Loan would be repaid on or before 24 May 2020 (“Due Date”).

20.  As security for the 2^nd Loan, the following documents were executed on 26 March 2020 in favour of D1:

(1)  A debenture executed by KHK whereby KHK charged all its assets, undertaking and property by way of first floating charge subject to the proviso for redemption (“Debenture”); and

(2)  A share mortgage executed by KHK, Investment and International (as Mortgagor) over the shares held by Investment (75%) and International (25%) in KHK (“Share Mortgage”).

21.  The Share Mortgage provides, inter alia, as follows:

(1)  “Event of Default” (“EOD”) is defined as any event specified in Schedule 3, and “prospective Event of Default” means “any event which with the giving of notice and/or the passage of time and/or the fulfilment of any other condition would be an Event of Default” (cl. 1.01(d));

(2)  “Secured Indebtedness” means the sums which are or may become payable under the 2^nd Loan Agreement (cl. 1.01(e));

(3)  “Security Documents” means the Share Mortgage, the Debenture and “any other document executed from time to time by whatever person as a further security for [KHK’s] obligations under the [2^nd Loan Agreement]” (cl. 1.01(f));

(4)  “Shares” means all the shares held by and registered in the names of Investment and International in KHK (cl. 1.01(g), Schedule 1);

(5)  In consideration of the 2^nd Loan Agreement, “the Mortgagor as beneficial owner hereby mortgages, charges and assigns by way of first fixed legal mortgage and charge the Shares to [D1] as a continuing security for the due payment to [D1] and discharge of the Secured Indebtedness and the due and punctual performance and observance by the Mortgagor of all other obligations of the Mortgagor contained in the [2^nd Loan Agreement] or any Security Document to which it is a party” (cl. 2.01);

(6)  “For the purpose of enabling the Shares to registered in the name of [D1] or its nominee, the Mortgagor undertakes with [D1] that any at time during the continuance of this Share Mortgage, the Mortgagor shall (a) deposit, or procure that there be deposited, with [D1] the original share certificate(s) in respect of the Shares together with instruments of transfer and contract notes in respect thereof; duly executed in blank” (cl. 2.02(a));

(7)  “The Mortgagor agrees that at any time after the date hereof and if an [EOD] shall occur [D1] may, at the cost of the Mortgagor, register the Shares in the name of [D1] or its nominee and appoint such other persons as may be nominated by [D1] to the board of directors of [KHK]” (cl. 2.03);

(8)  “The Mortgagor undertakes and agrees with [D1] throughout the continuance of this Share Mortgage and so long as the Secured Indebtedness or any part thereof remains owing that the Mortgagor will, unless [D1] otherwise agrees in writing: (a) not create or attempt or agree to create or permit to arise or exist any charge over all or any part of the Shares or any interest therein or otherwise assign, deal with or dispose of all or any part of the Shares (other than to [D1])” (cl. 5(a));

(9)  “The security hereby constituted shall become enforceable upon the occurrence of an [EOD] or a prospective [EOD] (cl. 6.01);

(10)  “At any time after the security hereby constituted has become enforceable and without further notice or authority, [D1] may, in the name of the Mortgagor or in [D1]’s name or otherwise, do all or any of the following:- (a) complete, date and insert the name of [D1] or its nominee as transferee in the instrument of transfer and such other documents (if any) delivered pursuant to Clause 2.02 and register the Shares in the name of [D1] or its nominee” (cl. 6.02(a));

(11)  The Mortgagor shall “execute such further legal or other mortgages, charges or assignments and do all such transfers, assurances, acts and things as [D1] may require over or in respect of the Shares to secure all monies, obligations and liabilities hereby covenanted to be paid or hereby secured or for the purposes of perfecting and completing any assignment of [D1’s] rights, benefits or obligations hereunder and the Mortgagor shall also give all notices, orders and directions which [D1] may require” (cl. 11.01); and

(12)  “The Mortgagor irrevocably appoints [D1] by way of security to be its attorney (with full power of substitution) and in its name or otherwise on its behalf and as its act and deed to sign, seal, execute, deliver, perfect and do all deeds, instruments, acts and things which may be required or which [D1] shall think proper or expedient for carrying out any obligations imposed on the Mortgagor hereunder or for exercising any of the powers hereby conferred or for giving to [D1] the full benefit of this security” (cl. 12).

22.  Without any notice to P, on 7 May 2020, D1-D2 filed the Sch 1-3 Documents (save for items 7-8 in Schedule 1) at the CR.  The matter was discovered by P’s relative on 21 May 2020, whereupon letters were sent by the Companies to the Registrar on 21 May 2020 and 18 June 2020 to complain about the invalidity of the Sch 1-3 Documents[6]. 

23.  In response to the Registrar’s enquiries on the complaints raised by the Companies, Messrs Khoo & Co (“Khoo”) on behalf of D1-D2, informed the Registrar that the documents were filed as a result of the Companies’ breach of the terms of a loan agreement and/or share mortgage executed by the Companies whereby the entire shareholding of International and Investment had been mortgaged to D2 as securities[7]. 

24.  In their letter of 14 September 2020, Khoo stated that the Sch 1-3 Documents were filed at the Registry as a result of the default of the 2^nd Loan Agreement, the Share Mortgage and the Debenture, and reliance was placed on clauses 2.02 and 6.02 of the Share Mortgage.  Khoo also provided copies of 3 sets of transfer documents (comprising instrument of transfer and bought and sold notes) in respect of the Companies all dated 25 April 2020 and stamped on 7 May 2020[8] (collectively “Stamped Documents”).  It is not in dispute that the Stamped Documents emanated from the Blank Documents.   

C.    Discussion

25.  Section 42(1) of the Ordinance provides as follows:

“The Court may, on application by any person, by order direct the Registrar to rectify any information on the Companies Register or to remove any information from it if the Court is satisfied that -

(a) the information derives from anything that -

(i) is invalid or ineffective; or

(ii) has been done without the company’s authority; or

(b) the information -

(i) is factually inaccurate; or

(ii)   derives from anything that is factually inaccurate or forged.”

26.  Section 42(4) provides:

“The Court must not order the removal of any information from the Companies Register under subsection (1) unless it is satisfied that -

(a) even if a document showing the rectification in question is registered, the continuing presence of the information on the Companies Register will cause material damage to the company; and

(b) the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the Companies Register.”

27.  The principles governing an application under section 42 of the Ordinance have been sufficient stated by Godfrey Lam J in Re China Nice Education Research Publishing Investment and Management Co Ltd [2016] 3 HKLRD 525 at §§15-20, and may be summarised as follows:

(1)  Section 42(4) prescribes and restricts how the Court’s power to order removal of information may be exercised.  Removal is to be ordered only if (i) the plaintiff has shown that registration of a document showing the rectification is not good enough; the continuing presence of the incorrect information will cause material damage to the company; and (ii) the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the register (§§16-17).

(2)  The fact that the information is incorrect, or relates to an invalid or ineffective transaction, or has been filed without proper authority of the company in question or that a document is a nullity or is one that should never have been registered, is not in itself a sufficient reason for removing it as opposed to rectifying it (§18).

(3)  The order made by the Court is to be registered, so that the basis of the rectification (or removal) ought to be apparent from an inspection of the record (§20).

28.  In Re Fully Hong Kong Limited [2021] HKCFI 299, §§31-39, I hold that a person having a legitimate interest in the relief sought has locus to make an application under s 42 of the Ordinance, and the Court has power to grant declarations as to the validity or invalidity of the corporate actions the subject matters of the documents filed at the CR. 

29.  As pointed out by the Registrar[9]:

(1)  the effective date of change of particulars of the Companies (i.e. directors, secretary and registered office), as stated in the Sch 1-3 Documents, was 26 March 2020, that is, before the first (possible) date of default under the 2^nd Loan Agreement;

(2)  the date of the Stamped Documents was 25 April 2020, before the Due Date for repayment of the 2^nd Loan[10]; and

(3)  the Due Date of the 2^nd Loan was 24 May 2020. 

30.  This calls into question as to the validity of (1) the transfers of the shares in the Companies to D2, and (2) the changes of directors, secretary and registered office of the Companies as stated in the Impugned Documents. 

31.  D1-D2 rely on the “minutes” of the Companies as the authority for approving the transfers of the shares in the Companies and the changes of their directors.  These “minutes” emanated from the Undated Minutes save that the details such as the date of the “minutes”, the names of the transferors, the transferees and the number of shares were inserted by D1-D2.  It is indisputable that as at 12 December 2019, being the date inserted in the “minutes”, there was no breach of the Share Mortgage or the Debenture, as they only came into existence 3 months later. 

32.  Mr Pang opposes the application on the following grounds:

(1)  The irregularities identified by this Court (see §2 above) have not been rectified by P.  The undertaking offered by P to commence separate legal proceedings on behalf of the Companies “should the Court consider it more appropriate” to do so would only give rise to confusion and debate as to whether res judicata and issue estoppel apply to the subsequent proceedings[11] (Irregularities Issue).

(2)  There is substantial factual dispute between the parties as to whether there was default under the 2^nd Loan Agreement and it is inappropriate for the Court to determine the dispute summarily in these proceedings.  Such dispute should be resolved in HCA 1569/2020 commenced by D1 against the Companies (Factual Dispute Issue).

(3)  P’s attempts to sell the shares in the Companies without reference to D1 constituted a breach of the 2^nd Loan Agreement and/or the Share Mortgage, which entitled D1 to perfect its title over the Shares and register the Impugned Documents at the CR (Attempts to Sell Issue).

(4)  As legal mortgagee of the Shares, D1 is the “absolute owner” of the Shares and the Companies/P “merely have an equitable right to redeem”, citing Cousins on the Law of Mortgages, 4^th ed, 2017, §21-83.  In his oral submissions, Mr Pang goes so far as to say that D1 has the right to have the Shares be transferred to it in the absence of any EOD (Legal Mortgage Issue). 

(5)  Even if the Impugned Documents are factually incorrect and/or registered without proper authority of the Companies, the Court should not disturb the same as the 2^nd Loan remains due and owing by KHK to D1.  As “major beneficial owner” of the Shares, D1 is entitled to have the Shares be transferred to it whereupon steps can be taken to rectify the incorrect date stated in the Impugned Documents.  As such, the irregularity principle discussed in Re Fully Hong Kong Limited, §19, applies (Rectification Issue).

(6)  In any event, the injunction sought by P is unnecessary as there is nothing to suggest that D1 has acted as director of the Companies and the Companies do not have any operation (Injunction Issue).

33.  The issues raised by D1-D2 can be disposed of summarily. 

34.  As regards the Irregularities Issue, the Court has power to waive the irregularities in the proceedings.  In my view, the failure to rectify the irregularities is attributed to the fault of P’s legal advisers.  It would be unfair to P (and indeed D1-D2) to delay the determination of the application as a result of the failing of P’s legal advisers.  There is no prejudice to D1-D2 as they were fully aware of the scope of P’s application, which was intended to cover the Impugned Documents.  Indeed, no objection was raised by Mr Pang at the callover hearing on the irregularities.  It is in the circumstances appropriate for the Court to exercise the power to waive the irregularities. 

35.  The Factual Dispute Issue has already been rejected by this Court at the callover hearing, when I declined to order the OS to be heard together with HCA 1569/2020.  I did not and still do not think there is any factual dispute relevant to the determination of the OS which cannot be determined summarily. 

36.  The Attempts to Sell Issue is a non-point.

(1)  The Shares are subject to the Share Mortgage while the Membership is subject to the Debenture.  As such, P would not be able to sell the Shares or the Membership without the agreement of D1 as both of them are subject to prior encumbrances. 

(2)  Mr Pang points to some correspondence exchanged between SWT (acting for a potential purchaser) and Messrs Kong & Tang, solicitors for the Companies (“KT”), in January and February 2020 in respect of an offer to purchase all the shares in the Companies for $12 million, and submits that the attempt to sell these shares constituted a breach of cl. 5(a) of the Share Mortgage.  I disagree.  As stated in KT’s letter of 9 January 2020, nothing would be binding upon the Companies unless and until the parties signed a formal agreement.  As the parties never agreed on all the terms of the sale and purchase, it was not necessary to seek the consent of D1. 

(3)  More importantly, it is impossible to see how D1 can claim that the Companies acted in breach of the Share Mortgage, which only came into existence a month after the attempted sale.  It seems to me that the argument is no more than an after-thought created by D1-D2 in their desperate attempt to justify their act in filing the Impugned Documents.   

37.  As regards the Legal Mortgage Issue:

(1)  It is wrong to characterise D1 as the “absolute owner” of the Shares.  It is well established that a mortgage “is a transfer of ownership of the asset (or of any lesser interest held by the transferor) by way of security upon the express or implied condition that ownership will be re-transferred to the debtor on discharge of his obligation” (Goode and Gullifer on Legal problems of Credit & Security, 6^th ed, §1-54).

(2)  In any event, under clauses 2.03, 6.01 and 6.02(a) of the Share Mortgage, D1 is only entitled to complete, date and insert its name (or its nominee) as transferee of the Shares in the transfer documents after the occurrence of an EOD or a prospective EOD.  Mr Pang’s reliance on clause 12 is misplaced.  The clause only empowers D1 to act as the Mortgagor’s attorney for the purposes of carrying out any obligations imposed by the Share Mortgage or the exercising of any of the powers conferred on D1.  It does not confer an independent right on  D1 to complete the Blank Documents in the absence of an EOD. 

(3)  Mr Pang also points to some WhatsApp messages exchanged on 10 December 2019 wherein P’s husband told Dr KH Chan, the person who introduced D1 to P, “most important would be not to place M1 charge on registry”.  Again, it is impossible to see how the discussion on 10 December 2019 could constitute a breach of the Share Mortgage (or the Debenture) which only came into existence 3 months later. 

38.  As for the Rectification Issue, I do not think that D1-D2 can rely on the irregularity principle to cure the invalidity of (1) the purported transfers of the shares in the Companies to D2 and (2) the purported changes in the directors, secretary and registered office of the Companies.  This is because unless and until D1 can demonstrate that on 26 March 2020, there was an EOD, it was not entitled to complete, date and insert the name of D2 in the Blank Documents or to rely on the Undated Minutes as the source of authority in approving the transfer of the Shares to D2 (let alone the transfer of the shares in International and Investment to D2).  As D1 has failed to discharge the burden of showing that it is entitled to have the Shares be transferred to it, it cannot claim to be the majority shareholder of the Companies, which is necessary in order to invoke the irregularity principle.

D.    Relief and costs

39.  As D1-D2 fail to prove that the changes contained in the Impugned Documents were made with proper authority of the Companies, the information contained in the Impugned Documents is invalid and of no legal effect and should be rectified or removed.   

40.  For the reasons discussed above, I hold that:

(1)  The purported transfers of the shares in the Companies from their respective shareholders to D2 pursuant to the Stamped Documents on 25 April 2020 were invalid and of no legal effect;

(2)  the purported appointments of D1 as director of KHK and International with effect from 26 March 2020 were invalid and of no legal effect;

(3)  the purported removal of P as director of KHK and International, and the purported removal of Ho as director of International with effect from 26 March 2020 were invalid and of no legal effect;

(4)  the purported changes in secretary of KHK and International with effect from 26 March 2020 were invalid and of no legal effect;

(5)  the purported change in registered office of International with effect from 26 March 2020 was invalid and of no legal effect; and

(6)  the information contained in the Impugned Documents is invalid and of no legal effect.

41.  To avoid the parties seeking to re-litigate the issues raised in these proceedings in HCA 1569/2020, it is necessary to grant declarations in terms of §40 above so as to put the matter beyond any doubt.

42.  I am satisfied that this is a case which warrants removal of the Impugned Documents from the CR for the following reasons:

(1)  The Impugned Documents were filed by D1-D2 without the authority of the Companies and, as such, are null and void.   

(2)  All the salient information contained in the Impugned Documents is incorrect.  If the Impugned Documents were allowed to remain in the CR, even with the incorrect  information crossed out or rectified, there is a real risk that the persons dealing with the Companies may question the identity of the shareholders and directors and insist that the Companies should provide further evidence to put the matter beyond doubt.  This will only add to the time and expenses of the Companies in dealing with their affairs.

(3)  The continuing presence of the incorrect information in the Impugned Documents will create uncertainty and confusion over the identity of the shareholders, directors and secretary of the Companies as well as the location of the registered office.  It will cause material damage to the Companies if they are left in such a confusing and uncertain state. 

43.  I decline to grant an injunction sought by P.  As the mortgagee of the Shares and the holder of the Debenture, D1 is entitled to rely on the terms of the Share Mortgage and the Debenture if and when there is an EOD.  There is no basis for P to seek an injunction the effect of which would be to enjoin D1 from exercising its rights and powers under the Share Mortgage and the Debenture forever, which cannot be right. 

44.  I make a costs order nisi that D1-D2 do pay to P the costs of and occasioned by the OS and the costs of the Registrar (if any) on an indemnity basis, to be assessed by way of gross sum assessment.  At the callover hearing, D1-D2 were told in clear terms that they would be penalised with costs on an indemnity basis if they cannot produce the requisite resolutions to show that changes described in the Impugned Documents had been properly approved by the Companies.     

45.  P and the Registrar shall lodge a statement of costs for gross sum assessment within 3 days of this Judgment, and D1-D2 shall provide their comments, if any, within 3 days thereafter.

Schedule 1

KOBAYASHI(HONG KONG) LIMITED (CR No. 0017520)

1.   Form ND4 – Notice of Resignation of Company Secretary and Director (Ref. No.:22001045480);

2.   Form ND2A – Notice of Change of Company Secretary and Director (Appointment/Cessation) (Ref. No.:22001045481);

3.   Form NR2 – Notice of Location of Registers and Company Records (Ref. No.:22001045574);

4.   Amended document (Ref. No.:22001045571);

5.   Amended document (Ref. No.:22001045572);

6.   Form NR1 – Notice of Change of Address of Registered Office (Ref. No.:22001045573);

7.   Form NM1 – Statement of Particulars of Change (Ref. No.:22301942118); and

8.   Instrument (Ref. No.:22301942119).

Schedule 2

KOBAYASHI INTERNATIONAL LIMITED (CR No. 0262573)

1.   Form NR1 – Notice of Change of Address of Registered Office (Ref. No.:22001045484);

2.   Form ND2A – Notice of Change of Company Secretary and Director (Appointment/Cessation) (Ref. No.:22001045487); and

3.   Form NR2 – Notice of Location of Registers and Company Records (Ref. No.:22001045576).

Schedule 3

KORASTA INVESTMENT LIMITED (CR No. 0256298)

1.   Form NR2 – Notice of Location of Registers and Company Records (Ref. No.:22001045575);

2.   Amended document (Ref. No.:22001045565);

3.   Amended document (Ref. No.:22001045567);

4.   Form NR1 – Notice of Change of Address of Registered Office (Ref. No.:22001045568);

5.   Form ND4 – Notice of Resignation of Company Secretary and Director (Ref. No.:22001045569); and

6.   Form ND2A – Notice of Change of Company Secretary and Director (Appointment/Cessation) (Ref. No.:22001045570).