TSE CHIU KWAN AND ANOTHER v. ARTINI INTERNATIONAL CO LTD

HCMP 2065/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2065 OF 2007

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HCMP 2067/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2067 OF 2007

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HCMP 2068/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2068 OF 2007

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HCMP 2069/2007

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2069 OF 2007

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HCMP 2071/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2071 OF 2007

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AND

HCMP 2072/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2072 OF 2007

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(Heard together)

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D E C I S I O N

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1.  I have before me six originating summonses all issued on 25 October 2007 under section 122(1B) of the Companies Ordinance, Cap. 32 by the directors in respect of six private companies.

2.  All the companies are directly or indirectly owned by a couple, Mr Tse Chiu Kwan and his wife Madam Yip Ying Kam.  They are the only directors of each company.  The companies have been carrying on the businesses of retail of fashion jewellery, investment holding and property investment.

3.  Under sections 122, 129C and 129D, the profit and loss account and the balance sheet of a company have to be laid before the company in general meeting at stipulated intervals, and the auditors’ report and directors’ report have to be annexed to them.

4.  These applications are necessitated because of the historical instances of non-compliance with the statutory provisions.  The directors have explained they were not familiar with the detailed statutory requirements.  They had relied on the professional secretary and auditors of the companies and had delegated accounting and secretarial matters to the accounting manager.  They were not alerted to the need to prepare timely accounts.  The particulars and circumstances of non-compliances of each of the companies were set out in the supporting affirmations and helpfully summarised by Mr Godfrey Lam in his submissions.

5.  Typically, the problem was that the audited accounts were not produced by the auditors until after much time had elapsed with the result that they were not laid before the relevant company at the annual general meeting following the accounting year-end, and when they were finally laid before the company at a later annual general meeting for a subsequent year, it was more than nine months after the end of the period covered by the accounts, contrary to section 122(1A).

6.  In some instances, the directors thought that no audited accounts were necessary as during the periods in question, some of the companies did not carry out any profit-generating business and made no assessable profit.  The omissions were rectified belatedly only when new auditors were appointed.

7.  In another instance, preparation of the accounts was delayed because of the re-organisation of the group of companies owned by Mr Tse and Madam Yip.

8.  In all instances, the accounts were subsequently laid before the relevant company in general meeting, although more than nine months after the respective accounting periods.

9.  For Artini Sales Company Limited, the failure to comply with section 122 took place long ago and that company has, since 1997, fully complied with the statutory obligations.

10.  Under section 122(1B)(a) and (b), the court has power, if it thinks fit, to substitute for the requirement in section 122(1) to lay a profit and loss account before the company at its annual general meeting a requirement to lay such account before the company at such other general meeting as the company may specify, and allow the accounts to be laid at a meeting that falls beyond nine months of the accounting year-end.

11.  That power may be exercised for the purpose of regularising a meeting already held, at which accounts covering a period that ended more than nine months before the meeting were laid and approved.

12.  It was submitted in this instance there are bona fide reasons to justify the exercise of this power.  The companies had relied on professional advice and services.  There was no wilful default.  No prejudice had been occasioned to the shareholders, as the companies were and are wholly owned by Mr Tse and Madam Yip, and they were conversant of the financial position of the companies.  All the breaches were in the past.  The irregularities came to light as a result of the review of corporate compliance in late 2006 in the context of a restructuring of these companies and exploring the possibility of a public offer of shares.  The shareholders and directors genuinely wish to comply with the law.  New and reputable auditors have been appointed for all but one of the companies.  There would appear to be grounds to believe there would be compliance of the statutory obligations in future.

13.  I agree it would be appropriate in the circumstances to exercise the power under section 122(1B).  I therefore make an order in terms of each of the originating summonses.