LAM CHUN FUNG v. WONG WAI TUNG AND ANOTHER

HCMP 2139/2018

[2020] HKCFI 336

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCCEDINGS NO 2139 OF 2018

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D E C I S I O N

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1.  This is an application by Mr Lam Chun Fung for an order extending the time for convening the 2^nd Defendant’s (“Company”) annual general meeting for the financial year ending 31 March 2018 pending the determination of the petition in HCCW 150/2018. Mr Lam owns 50% of the Company’s shares. The 1^st Defendant, Mr Wong Wai Tung, owns the other 50%. Mr Wong opposes the application.

2.  The Company is active.  It carries on business in event planning and exhibition production.  It is solvent.  The Board consists of six directors: four nominated by Mr Lam and two by Mr Wong.  On 12 June 2018 Mr Wong presented a petition to wind up the Company, alternatively seeking a buy-out of his shares.  On 3 September 2018 Mr Lam commenced a derivative action against Mr Wong alleging that Mr Wong had diverted part of the business of the Company to another, which he controls.  Two days later Mr Wong commenced a derivative action against Mr Lam.

3.  The reason Mr Lam wishes to extend the date of the annual general meeting is this.  Article 7 of the Articles of Association provides that all the directors shall retire at an annual general meeting and shall be eligible for re-election.  Mr Lam assumes, not unreasonably because Mr Wong has not been willing to agree otherwise, that Mr Wong will vote against any resolutions that give him continued control at board level over the Company.  Mr Lam argues that particularly as the Company has a business that he is running and that Mr Wong wants to exit the business, it would detrimental to require an annual general meeting that Mr Wong wishes to use as a lever to exert pressure on Mr Lam to settle their dispute.

4.  A company is required by section 610(1) of the Companies Ordinance, Cap 622, to hold a general meeting annually in order that its members can consider various matters including approval of the audited financial statements.  Section 610(5) gives the court a discretion to extend this period.  Normally applications are made in my experience after the period (in the case of private companies generally nine months after the date of the end of the financial year) has expired.  The authorities on how this discretion should be exercised therefore develop principles that apply in these circumstances.  The principles are directed towards the prejudice that may have been caused to shareholders from the delay in the annual general meeting taking place and the explanation for the Ordinance not having been complied with.  They can be summarised as follows:

(1)     Whether the shareholders were aware of the company’s financial position and not prejudiced by it.

(2)     Whether the default was inadvertent.

(3)     Whether the court is satisfied that the company will comply with its obligations to convene an annual general meeting and lay before it the required financial statements (it often being the delay in producing audited financial statements that leads to annual general meetings taking place).

5.  Clearly none of these reasons are apposite in the present situation.  It seems to me that the position is relatively straightforward.  Mr Lam does not want to convene an annual general meeting and his reasons are unconnected with the statutory purpose for having one, which is principally to put financial statements before members.  It seems to me that in these circumstances there is no relevant reason for the court to exercise its discretion.  It is a matter for the Board of the Company to decide what to do and how to manage the consequences of that decision.  I do not think that it would be a proper exercise of the court’s discretion to grant    an extension of time in order to assist Mr Lam in retaining control of      the Board, which the operation of the Articles and the absence of a shareholders agreement that provides otherwise mean he has no right to retain.

6.  I will, therefore, extend time for 35 days in order to allow the Company to convene an annual general meeting if it wishes from the date of handing down of the decision and make a costs order nisi that Mr Lam pays Mr Wong’s costs of the application with a certificate for counsel.