RE LILANG (HONG KONG) INTERNATIONAL CO LTD

HCMP 146/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 146 OF 2008

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D E C I S I O N

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1.    This is an originating summons issued by Lilang (Hong Kong) International Co Ltd (“the Company”), pursuant to section 122(1B) of the Companies Ordinance, Cap. 32.  The Company seeks an order to substitute the requirement in section 122(1) to lay the profit and loss accounts before the Company at its annual general meetings with respect to the periods ended 31 December 2004, 31 December 2005 and 31 December 2006 a requirement to lay such accounts before the Company by resolution in writing signed by all the shareholders on 23 January 2008 pursuant to section 116B in lieu of a general meeting.

2.    The Company was incorporated under its former name on 23 March 2004.  There were two shareholders initially.  As at present, the Company has eleven shareholders. 

3.    The Company is a private company used as an investment vehicle with no business activity in Hong Kong.  From the date of incorporation to 31 March 2007, being the date of its 3^rd general meeting, the Company has two wholly owned subsidiaries in China. 

4.    No audited accounts of the Company were prepared since incorporation.  The directors had failed to lay before the Company at three of its annual general meetings held on 23 September 2005, 23 September 2006 and 31 March 2007 the profit and loss accounts.  The object of this application is to seek relief under section 122(1B) and to comply with the law. 

5.    The omission was discovered in these circumstances.  The Company is to undergo a corporate re-organisation by which it will become an indirect wholly owned subsidiary of China Lilang Ltd (“China Lilang”), a company incorporated in the Cayman Islands.  China Lilang is expected to apply for listing of its shares in the main board of The Stock Exchange of Hong Kong Ltd in February 2008.  To prepare for the listing, the Company passed the corporate records and documents to the reporting accountant of China Lilang, KPMG.  KPMG discovered that the Company had not observed the requirement under section 122(1). 

6.    The company secretary who is also a director since the incorporation has made an affirmation deposing that he has no professional knowledge and not much knowledge of compliance requirements.  When he received the first tax filing from the Inland Revenue Department, he instructed an accountant’s firm to file a return to the effect that the Company was inactive.  He asked whether the Company needed to prepare any audited accounts and was told this was generally unnecessary and he relied on that advice.  Thereafter, the Company has not received any tax filing return from the Inland Revenue Department.

7.    The two operating subsidiaries of the Company have prepared audited accounts and these were submitted annually to the Company from time to time.  All of the then shareholders of the Company had access to the financial documents of the two subsidiaries as they were also directors of the subsidiaries.

8.    After the omission was discovered, the Company has instructed KPMG to prepare its audited accounts from incorporation to 31 December 2006.  The audited accounts were adopted by all the shareholders by written resolution in lieu of an annual general meeting on 23 January 2008.  These shareholders included those who were shareholders at the material time.

9.   All the current directors of the Company have by a letter of undertaking to the court promised that they would comply with the statutory requirements in future.  They have appointed solicitors to give professional corporate secretarial services to the Company and to advise the Company on the compliance of the statutory requirements.  KPMG has been appointed auditor of the Company.

10.    Prior to the listing, independent non-executive directors with professional knowledge will be appointed to the board of China Lilang.  They will establish an audit committee in compliance with the Listing Rules to oversee the financial reporting and internal control procedures of China Lilang and its subsidiaries, including the Company, to enhance corporate governance and ensure compliance with the statutory requirements.

11.    There is no wilful default of the Company.  I am satisfied no prejudice has been caused to the shareholders.  Measures have been taken by the Company to ensure that there would be compliance with the statutory requirements in future.

12.    It is appropriate to exercise my discretion and grant relief under section 122(1B).  I will make an order in terms of the originating summons with no order as to the cost of this application.