RE STEPHEN & PARTNERS LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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DECISION

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1. This is a Notice of Motion which has been taken out by Mr. Stephen Elliot Codron and a BVI company, Brochard Investments Limited: The Notice of Motion prays first of all that the company which is Stephen & Partners Limited do forthwith allot and issue 71 ordinary shares of $10.00 to Brochard and 27 ordinary shares of $10,00 each to Vinico Limited. The second prayer in the Notice of Motion is that the register of members of the Company be rectified pursuant to Section 100, first of all to show that Brochard is the registered holder of the 72 ordinary shares $10.00, secondly, to delete the entry showing Stephen Codron is the holder of one ordinary share of $10.00 and thirdly, to show that Vinico is the registered holder of 28 ordinary shares.

2. Since there is a difficulty, there is further consequential relief sought in respect of the books of the company in effect that the Applicant's solicitors be permitted to make those alterations.

3. This relief follows what was apparently agreed at a board meeting on the 12th December 1994. There is no need to set out the resolutions here since the relief follows it and no point is taken on it.

4. At this hearing, counsel has appeared on behalf of the Defendant company. Mr. Jat, who appears on behalf of the Applicants, has raised the point that counsel on behalf of the Respondent company may not be properly instructed. The reason for that is that there are only two directors of the company and according to Mr. Jat's instructions there has been no board meeting and therefore no resolution enabling solicitors to be instructed has been passed. In any event, even if there had been a board meeting Mr. Jat's instructions are that his client would have voted against it and hence there could be no proper instructions to the solicitor's instructing counsel. In the face of that, I permitted Mr. Mo to continue to make submissions on behalf of the Company but with clear warning that his instructing solicitors may be personally responsible for the costs should it transpire that proper instructions on behalf of the Company have not been given.

5. The point taken after further instructions were given to Mr. Mo was quite simple. It was pointed out that under Article 3 of the Company's Articles, the power to allot shares was subject to Section 57B of the Companies Ordinance. Section 57B(1) provides that "notwithstanding anything in the company's memorandum or articles, the directors shall not without the prior approval of the company in general meeting exercise any power of the company to allot shares." The Section then goes on with a proviso which is unnecessary to repeat here.

6. The Company has not sought to file any evidence and no evidence has been sought to be filed on its behalf. In those circumstances, I am faced with the clear evidence of the Applicant that there was a director's resolution and I proceed upon the basis that that was a valid resolution of a valid board meeting of the directors. In my view, it is not necessary for the Applicants in this case to prove any underlying resolution of the company in general meeting. That in the absence of any challenge by credible evidence, in my view, should be assumed by the court.

7. In any event, as Mr. Jat has pointed out there then follows Section 57C of the Companies Ordinance, this provides that

"Where a company has purported to issue or allot shares and the creation, issue or allotment of those shares was invalid by reason of any provision of this or any other ordinance, or of the memorandum or articles of the company or otherwise, or the terms of issue of allotment were inconsistent with or unauthorised by any such provision, the court may, upon application made by the company or by holder or mortgagee of any of those shares or by a creditor of the company, and upon being satisfied that in all the circumstances it is just and equitable so to do make an order validating the issue or allotment of those shares or confirming the terms of issue or allotment thereof, or both, and upon an office copy of the order being lodged with the Registrar those shares shall be deemed to have been validly issued or allotted upon the terms of the issue or allotment thereof."

It seems to me that in the nature of this Company where in effect it is a two-men company it would be highly unlikely that the provisions of Section 57C would not prevail even if the point taken on behalf of the Company at today's hearing did prove on subsequent evidence to be correct. I have no hesitation in granting the relief sought in the Notice of Motion subject to an undertaking by the Applicants' solicitors to redeliver the such books as are delivered up pursuant to paragraph 3 of the Order.