WANG ZHIHUA v. REGISTRAR OF COMPANIES AND OTHERS

HCMP 2184/2019

[2020] HKCFI 2873

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2184 OF 2019

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AND

HCMP 2185/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2185 OF 2019

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________________________

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AND

HCMP 2187/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2187 OF 2019

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(Heard Together)

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D E C I S I O N

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1.  There are before the Court 3 originating summonses issued by the plaintiff, Wang Zhihua (王志華) (“Wang”), on 26 November 2019 (“OS”) under section 42 of the Companies Ordinance (Cap 622) (“Ordinance”) for declarations that (1) the Notices of Change of Company Secretary and Director (Appointment/Cessation) dated 3 May 2019 (collectively “2019 ND2As”); and (2) the Notices of Change of Address of Registered Office dated 3 May 2019 (Form NR1) (collectively “2019 NR1s”) filed in respect of China People (Hong Kong) Limited (華漢 (香港) 有限公司) (“China People”), China Energy Utilization Limited (中華能源利用有限公司) (“China Utilization”) and China Energy Industry Development Limited (中華能源產業開發有限公司) (“China Industry”) (collectively “Companies”) at the Companies Registry (“CR”) are null and void. In the OS, Wang also seeks orders to remove the 2019 ND2As and the 2019 NR1s from the Companies Register or, alternatively, to rectify the information in the Companies Register to reflect the declarations.

2.  By orders dated 3 September 2020, I allowed the applications made by Lai Chi Keung (賴自強) (“Lai”) to be joined as 3^rd defendant in these proceedings for the purpose of opposing the relief sought in the OS.  The reasons for allowing the joinder were that (1) given the deadlock between Wang and Lai at the board of China People, no resolution could be passed by the Companies to appoint solicitors to represent them in these proceedings; (2) Lai is a director each of the Companies and a shareholder of China People which, in turn, is a shareholder of China Utilization and China Industry; and (3) it was Lai who filed the 2019 ND2As and 2019 NR1s at the CR.

A.  Background

3.  The Companies were the subject matters of 3 petitions presented by Lai, China Energy Industry Development Limited, a BVI company (“China Industry BVI”) and China Energy Utilization Limited, a BVI company (“China Utilization BVI”) (collectively “petitioners”) in HCCW 186, 187 and 188/2013 under sections 168A and 177(1)(f) of the former Companies Ordinance (Cap 32) (“Petitions”) for, inter alia, buy-out orders in respect of (1) the shares held by Wang in China People; (2) the shares held by China People in China Industry; and (3) the shares held by China Utilization BVI in China Utilization. 

4.  Prior to the events complained of in the Petitions, the Companies were owned and managed by Chen Huanghao (陳黃豪)[1] (“Chen”), Lai and Wang in that:

(1)  The directors of the Companies were:

a.  China People: Lai and Wang;

b.  China Utilization: Lai, Wang and Chen; and

c.  China Industry: Lai, Wang and Chen.

(2)  The corporate structure of the Companies and other relevant parties as at 15 May 2013 was shown in Appendix 1 to this Decision[2].

5.  On 12 May 2016, there was an allotment of 9,900 shares by China Utilization to湖北瑞博恩能源科技有限公司, a company established in the Mainland (“瑞博恩”), which diluted (1) China People’s shareholding from 75% to 0.75% and (2) China Utilization BVI’s shareholding from 25% to 0.25%.  A Return of Allotment (Form NSC1) dated 13 May 2016 was filed at the CR.  Although Lai and Chen had both questioned the propriety of the allotment to 瑞博恩, the Court did not make any findings in respect of such allotment as it was not an issue raised in the pleadings filed by the parties[3].

A1.  Findings on Purported Allotments and Purported Appointments

6.  After a full trial[4], in his Judgment dated 30 April 2019 (“Judgment”), Recorder Stewart Wong SC held that the affairs of the Companies had been conducted by Wang (with the assistance of his associates) in an unfairly prejudicial manner and ordered, inter alia, (1) Lai to buy out the 8 shares (80%) held by Wang in China People; (2) China Industry BVI to buy out the 90 shares (90%) held by China People in China Industry; and (3) China People to buy out the 25 shares[5] held by China Utilization BVI in China Utilization, all at the prices to be fixed by the valuer in accordance with §§81 to 83 of the Judgment (collectively “Buy-out Orders”).

7.  The Buy-out Orders, if completed, would result in (1) China People and China Utilization being wholly owned by Lai; and (2) China Industry being wholly owned by Chen (through China Industry BVI).

8.  In the Judgment, the learned Recorder found that (1) the purported allotment of 8 shares of $1 each by China People to Wang on 11 June 2013 and (2) the purported allotment of 5,688 shares of $10,000 each to Wang on 26 June 2013 constituted unfairly prejudicial conducts and are invalid[6] (together “Purported Allotments”). 

9.  The learned Recorder also found that on 15 May 2013 Wang, through the use of illegitimate means which amounted to duress, obtained the signatures of Lai and Chen on various notices, notes, written resolutions or minutes for the purpose of appointing his associates as additional directors of the Companies and, consequently, the purported appointments of additional directors are all invalid[7].  The documents used by Wang included the following:

(1)  China People: documents purporting to be the written resolutions and minutes of the general meeting held on 28 April 2013 resolving to appoint Pang Guangsheng (龐廣生) (“Pang”) as director with effect from that date;

(2)  China Utilization: documents purporting to be the written resolutions and minutes of the general meeting held on 28 April 2013 resolving to appoint Pang and Dan Zhaobin (但召斌) (“Dan”) as additional directors with effect from that date; and

(3)  China Industry: documents purporting to be the written resolutions and minutes of the general meeting held on 28 April 2013 resolving to appoint Pang and Tu Han (屠寒) (“Tu”) as additional directors with effect from that date.

I refer to the above appointments as “Purported Appointments”.

10.  Despite the Buy-out Orders, neither the petitioners nor the respondents have taken any step to appoint a valuer to assess the value of the shares in question.  Taking into account the findings on the Purported Allotments, as matters now stand, the corporate structure of the Companies remains the same as that shown in Appendix 1 save that 瑞博恩 has become a shareholder of China Utilization, holding 99% of its issued shares. 

11.  As regards company secretary of the Companies, according to the Form ND2As filed at the CR, there have been a number of changes as follows:

(1)  China People:

Name	Date of Appointment	Date of Resignation / Cessation
ARSS06 Limited	14/2/2013	21/2/2013
Lau Kin Lai (劉建麗)	21/2/2013	11/6/2013
Stevensec Limited	11/6/2013	1/5/2017
Chapman Consultants Limited (卓文顧問有限公司) (“Chapman”)	1/5/2017	2/5/2019
Allied Power Corporate Advisory Limited (連益企業顧問有限公司) (“Allied Power”)	2/5/2019	--

(2)  China Utilization:

Name	Date of Appointment	Date of Resignation / Cessation
Asia Secretaries Limited	18/6/2010	26/7/2010
Wise Secretaries & Nominees Limited	26/4/2010	12/10/2011
Ka Win Services Limited (嘉穎服務有限公司)	5/2/2013 12/10/2011	26/6/2013 20/11/2012
Wong Kar Yue (黃家瑜)	20/11/2012	5/2/2013
Stevensec Limited	26/6/2013	1/5/2017
Chapman	1/5/2017	2/5/2019
Allied Power	2/5/2019	--

(3)  China Industry:

Name	Date of Appointment	Date of Resignation / Cessation
Asia Secretaries Limited	1/4/2010	26/7/2010
Wise Secretaries & Nominees Limited	26/7/2010	12/10/2011
Ka Win Services Limited (嘉穎服務有限公司)	12/10/2011	16/4/2013
Chan Man Kit (陳文傑)	16/4/2013	26/6/2013
Stevensec Limited	26/6/2013	1/5/2017
Chapman	1/5/2017	2/5/2019
Allied Power	2/5/2019	--

12.  As for registered office, in the Form NR1s dated 4 May 2017, being the latest Form NR1s filed at the CR before the 2019 NR1s, the registered office of the Companies was stated as 1123A Landmark North, 39 Lung Sum Avenue, Sheung Shui (“SS Office”). 

A2.  Conflicting Annual Returns and complaints to CR

13.  In complete disregard of the Court’s findings on the Purported Allotments and the Purported Appointments, Wang’s associates (i.e. Pang, Dan and Tu) continued to act as if they were directors of the Companies.  On 19 June 2019, Pang on behalf of China Utilization submitted a purported Annual Return for 2019 (signed by him as director) to the CR, which stated that as at 18 June 2019, the directors were Wang, Pang, Dan, Lai and Chen; the company secretary was Chapman; the shareholders were China People (75 shares) and China Utilization BVI (25 shares) and 瑞博恩 (9,900 shares); and the registered office was the SS Office (“Pang’s Purported 2019 AR”).

14.  Shortly afterwards, on 28 June 2019, Allied Power on behalf of China Utilization submitted the following 2 documents signed by Lai as director:

(1)  a purported Annual Return for 2019, which stated that as at 18 June 2019, the directors were Chen, Lai and Cheng; the company secretary was Allied Power; the registered office was TST Address; the shareholders were China People (75 shares) and China Utilization BVI (25 shares) (“Lai’s Purported 2019 AR”); and

(2)  a purported amended Return of Allotment, which stated that the allotment of 9,900 shares to 瑞博恩 on 12 May 2016 had been cancelled (“Purported Amended 2016 Return of Allotment”).  

15.  The CR was concerned about the conflicting information stated in Pang’s Purported 2019 AR and Lai’s Purported 2019 AR and issued letters dated 23 July 2019 to both presentors to seek their representation and relevant supporting documents.  The CR returned the Purported Amended 2016 Return of Allotment to Allied Power as the Judgment did not make any findings in respect of the allotment of 9,900 shares by China Utilization to 瑞博恩.

16.  On 23 August 2019, Allied Power provided the CR with copies of the register of members, register of directors, register of company secretary and minutes of meetings of shareholders of China Utilization held on 15 May 2019 in support of Lai’s Purported 2019 AR and claimed that Pang’s Purported 2019 AR was unauthorised as Chapman had already resigned as company secretary on 2 May 2019.  On the other hand, Messrs Ince & Co, solicitors for Wang and Pang (“Ince”), stated that Lai’s Purported 2019 AR contained incorrect information and urged the CR not to accept it.  As Wang had already issued the OS, the CR withheld the registration of Pang’s Purported 2019 AR and Lai’s Purported 2019 AR. 

17.  Also on 23 August 2019, Allied Power relied on the Court’s findings that the Purported Allotments and the Purported Appointments were invalid and lodged (1) 2 amended Form SC1 in respect of China People, which stated that the Purported Allotments of 8 shares and 5,688 shares to Wang on 11 June 2013 and 26 June 2013 had been cancelled; and (2) an amended 2019 Annual Return of China People which amended (i) the issued shares from 5,706 shares to 10 shares and (ii) the number of shares held by Wang from 5,704 shares to 8 shares (collectively “China People’s Amended Documents”).  

18.  In their letters dated 9 September 2019 and 7 November 2019 to the CR, Ince stated that China People’s Amended Documents had been submitted without proper authority and that the OS had been issued against China People.  This led to the CR withholding China People’s Amended Documents from registration.   

19.  Similarly, in their letter dated 9 September 2019, Ince informed the CR that there were certain inaccurate filings relating to the directors, company secretary and registered office of China Industry which had not been authorised by the board or general meeting of China Industry. 

B.  Merits of application

B1.  Applicable principles

20.  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.”

21.  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.”

22.  The principles governing an application under section 42 have been 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).

B2.  Impugned Documents

23.  The 2019 ND2As and 2019 NR1s were all signed by Lai in his capacity as director of the Companies and were filed by Allied Power with the CR on 3 May 2019. 

24.  The 2019 ND2As show the following changes:

(1)  China People: Wang and Pang ceased to be directors and Cheng Chun Kit (鄭雋傑) (“Cheng”) was appointed as director, both with effect from 17 April 2019.  Chapman ceased to be company secretary on 2 May 2019 and Allied Power was appointed as company secretary on the same day.

(2)  China Utilization: Wang, Pang and Dan ceased to be directors, and Cheng was appointed as director, both with effect from 2 May 2019.  Chapman ceased to be company secretary on 2 May 2019 and Allied Power was appointed as company secretary on the same day.

(3)  China Industry: Wang, Pang and Tu ceased to be directors, and Cheng was appointed as director, both with effect from 2 May 2019.  Chapman ceased to be company secretary on 2 May 2019 and Allied Power was appointed as company secretary on the same day.

25.  As for the 2019 NR1s, they show that with effect from 2 May 2019, the registered office of the Companies was changed from the SS Office to Room 903, Tower A, New Mandarin Plaza, 14 Science Museum Road, Tsim Sha Tsui East, Kowloon (“TST Office”), which is the address of Allied Power.

B3.  China People’s 2019 ND2A and 2019 NR1

26.  According to Lai, since May 2013 he has not been able to contact Wang.  In his notice dated 8 March 2019, Lai referred to the notice of shareholders’ meeting of “Huainan Energy” (as defined in Appendix 1) to discuss its inability to commence construction of the energy project for over 2 years and the risk of compulsory resumption of the land without compensation.  In view of the urgency of the matter, a board meeting of China People would be held on 15 March 2019 to discuss the same.  The notice was sent by registered post to the address of Wang in the Mainland, which is the same address stated in the OS. 

27.  At the board meeting held on 15 March 2019 attended by Lai alone, it was resolved that an annual general meeting would be held on 30 March 2019 (“30/3/2019 AGM”). 

28.  As Wang had not come to Hong Kong to discharge his duty as director and had not attended any board meeting for over 6 months, Lai believed that pursuant to regulation 90 of Table A (which applies to China People), Wang’s appointment as director was terminated.  At the 30/3/2019 AGM attended by Lai alone, it was resolved that:

(1)  Lai be authorised to represent China People at the general meeting of China Industry and Huainan Energy;

(2)  in view of the prolonged absence of Wang, and in accordance with the relevant regulations in Table A and the Articles of Association (“CP AA”), Wang would be removed as director;

(3)  Pang be removed as director as his appointment was invalid; and

(4)  Lai be authorised to appoint 1 to 2 directors amongst third parties or professionals so as to facilitate the proper operation of China People (collectively “30/3/2019 Resolutions”).

29.  To ensure that China People could continue to function, on 17 April 2019, Lai appointed Cheng as director pursuant to article 12 of CP AA.

30.  Ms Jacquelyn Ng, counsel for Wang, submits that the 30/3/2019 Resolutions are invalid for the following reasons.

31.  First, Wang has not been terminated as director.  Regulation 90 of Table A provides that the office of director shall be vacated if the director “for more than 6 months have been absent without permission of the directors from meetings of the directors held during that period”.  It is not in dispute that no board meeting has been convened or held from mid-2017 to 30 March 2019.  In the absence of any board meeting until the meeting on 15 March 2019, it cannot be said that Wang has been absent from any meeting (Cheung Hing v Wah Fung Forest Resources Ltd [2018] HKCFI 1623, §8, per DHCJ Maurellet SC).

32.  Second, the 30/3/2019 AGM and the 30/3/2019 Resolutions are invalid for the following reasons:

(1)  The 30/3/2019 AGM was inquorate.  Article 23 provides that quorum for all general meeting shall be 2 members but the meeting was only attended by Lai. 

(2)  Section 462(4) of the Ordinance provides that “special notice” is required for a resolution to remove a director.  A special notice, to be effective, must be given to the company at least 28 days before the meeting at which it is moved (see section 578).  Under section 463, once the company receives notice of a resolution to remove a director, it must forthwith notify the director concerned so that he may make representations at the general meeting at which the resolution is moved. 

(3)  It is clear from the 30/3/2019 Resolutions and Lai’s memo on losing contact with Wang dated 30 March 2019 that it was only at the 30/3/2019 AGM that the resolution to remove Wang was proposed.  As no special notice had been given to Wang prior to the 30/3/2019 AGM, the resolution to remove Wang is ineffective. 

33.  At the hearing, Lai claims that in October 2018, he tried to contact Wang and requested him to attend meeting to discuss the affairs of China People but was unable to find him at any of the addresses previously provided by Wang.  I note that this assertion was not mentioned in any of Lai’s affirmations or, indeed, any documents exhibited to his affirmations. I do not accept Lai’s assertion which is only raised for the first time at the hearing. 

34.  As to lack of special notice, Lai contends that in the notice convening the 30/3/2019 AGM, there was a reference to “any other business”.  Lai admits that he has not done enough or complied with all the rules governing removal of directors, but says that this was owing to the urgent need to deal with the risk of resumption of land held by Huainan Energy.

35.  In my view, the 30/3/2019 Resolutions, insofar as they purported to remove Wang as director of China People, were invalid given that (1) the 30/3/2019 AGM was inquorate, such that no valid resolution could be passed at the meeting; and (2) no special notice, as required by section 462(4) of the Ordinance, had been given to Wang prior to the 30/3/2019 AGM. 

36.  Although the same points can be said of the 30/3/2019 Resolutions which concern the removal of Pang, in view of the Court’s findings that the Purported Appointments were invalid, Pang should be treated as not having been appointed as director of China People from the date of his appointment (i.e. 15 May 2013). 

37.  As Lai’s authority to appoint Cheng as additional director derived from the 30/3/2019 Resolutions, which were passed at an inquorate meeting, it follows that the purported appointment of Cheng as director was invalid. 

38.  In relation to the changes in company secretary and registered office, there is no suggestion by Lai that any resolution has been passed to change the company secretary or registered office of China People.  In any event, it is clear that Lai, acting alone, could not usurp the power of the board or pass any board resolution as article 11 of CP AA provides that 2 directors shall constitute a quorum.

39.  It follows that the 2019 ND2A and the 2019 NR1 filed on behalf of China People at the CR on 3 May 2019 were invalid.   

B4.  China Utilization’s 2019 ND2A and 2019 NR1

40.  Lai produced 3 sets of documents in support of the changes made to China Utilization. 

41.  First, in respect of the appointment of Cheng as director, Lai relies on article 14 of the articles of association of China Utilization (“CU AA”), which provides that the directors shall have power to appoint a person as an additional director.  Lai exercised this power by signing an appointment letter dated 2 May 2019 to appoint Cheng as additional director from 2 May 2019 until the next general meeting.  The letter referred to the Court’s findings on the Purported Appointments, the inability to contact Wang for year and the need to protect China Utilization’s interest and stated that in accordance with CU AA. 

42.  Second, as regards removal of Wang as director and appointment of Cheng as director, Lai relies on the resolutions passed at an extraordinary general meeting held on 15 May 2019 (“15/5/2019 EGM”).  According to the documents he produced:

(1)  A notice dated 23 April 2019 was issued to convene the 15/5/2019 EGM for the purpose of discussing (1) the return of shares from 瑞博恩 to China Utilization; (2) the development of “Yulin Energy” (as defined in Appendix 1); and (3) any other business. 

(2)  Lai signed a “written resolution of all directors” of China People dated 14 May 2019 to appoint himself as representative of China People to attend the Annual General Meeting of China Utilization and to sign the related document.

(3)  At the 15/5/2019 EGM attended by Lai (on behalf of China People) and Chen (on behalf China Utilization BVI), it was resolved that:

a.  In view of the Court’s holding on the Purported Appointments, (i) the allotment of 9,900 shares to 瑞博恩, which had been made by the directors whose appointments were invalid, was invalid, and 瑞博恩 should return the 9,900 shares to China Utilization; (ii) Pang and Dan’s appointments as directors be revoked; and (iii) the appointments of representatives to Yulin Energy were invalid, and Lai, Lau Kin Lai and Tang Shiu Shiu be appointed as directors of Yulin Energy; and

b.  Wang had not appeared for a long period which exceeded the time stipulated in CU AA and he was removed as director.

43.  Third, Lai relies on the resolutions said to have been passed at an extraordinary general meeting held on 30 May 2019 (“30/5/2019 EGM”) and produced the following documents in support:

(1)  A notice dated 9 May 2019 was issued by Allied Power to convene the 30/5/2019 EGM for the purpose of discussing the appointment of Cheng as director.

(2)  At the 30/5/2019 EGM attended by China Utilization BVI (represented by Chen) and China People (represented by Lai), it was resolved that Cheng be appointed as director with effect from 30 May 2019.

44.  Ms Ng contends that the resolutions relied on by Lai were invalid or ineffective, for the following reasons:

(1)  Lai had no authority to act on behalf of China People in attending the 15/5/2019 EGM or 30/5/2019 EGM, given that the 30/3/2019 Resolutions purportedly passed at China People’s 30/3/2019 AGM were invalid;

(2)  The 15/5/2019 EGM or 30/5/2019 EGM were inquorate.  Article 23 of CU AA provides that the quorum for all general meeting shall be 2 members holding at least 51% of the paid-up capital of China Utilization.  As the Court did not make any finding on the validity of the allotment to 瑞博恩, there was no basis to disregard the 99% shareholding held by 瑞博恩.  In the absence of 瑞博恩, no valid general meeting could have been held.

(3)  No special notice had been issued to Wang prior to the 15/5/2019 EGM at which he was purportedly removed. 

45.  In my view, the purported appointment of Cheng as director, whether on 2 May 2019, 15 May 2019 or 30 May 2019, was invalid for the following reasons:

(1)  The power under article 14 of CU AA is conferred on the directors, which must be exercised by the directors at a properly convened board meeting or in the form of written resolution.  There is no evidence to suggest that Lai has convened any board meeting or procured any written resolution to be passed by the board before he purported to appoint Cheng as director on 2 May 2019.

(2)  The 15/5/2019 EGM and the 30/5/2019 EGM were inquorate, given that China People and China Utilization BVI together only held 1% of the issued capital of China Utilization.  No valid resolution could have been passed at either meeting. 

(3)  In any event, Lai had not been properly authorised by China People to attend either the 15/5/2019 EGM or the 30/5/2019 EGM.  The so-called “written resolution of all directors” of China People dated 14 May 2019 is plainly invalid, as it was only signed by Lai, but not Wang and Chen, who remained directors of China Utilization. 

46.  The removal of Wang as director at the 15/5/2019 EGM was invalid, given that no special notice had been given to Wang prior to the 15/5/2019 EGM; and (2) for the same reasons stated in §45(2)-(3) above, no valid resolution could have been passed at the 15/5/2019 EGM.  As no board meeting had been held in the 6 months prior to the 15/5/2019 EGM, no reliance can be placed on regulation 90 of Table A. 

47.  In relation to the changes in company secretary and registered office, there is no suggestion by Lai that any resolution has been passed to change the company secretary or registered office of China Utilization. Lai, acting alone, could not usurp the power of the board or pass any board resolution as article 11 of CU AA provides that 2 directors shall constitute a quorum.

48.  It follows that the 2019 ND2A and the 2019 NR1 filed on behalf of China Utilization at the CR on 3 May 2019 were invalid.   

B5.  China Industry’s 2019 ND2A and 2019 NR1

49.  Lai relies on an appointment letter dated 2 May 2019 signed by him as the source of authority to appoint Cheng as director with effect from 2 May 2019 until the next general meeting.  The letter referred to the Court’s findings on the Purported Appointments, the inability to contact Wang for years and the need to protect China Industry’s interest and stated that in accordance with the Articles of Association of China Industry (“CI AA”).

50.  In addition, Lai relies on the resolutions said to have been passed at an extraordinary general meeting held on 30 May 2019 (“30 May EGM”) and produced the following documents in support:

(1)  A notice dated 9 May 2019 issued by Allied Power to convene the 30 May EGM for the purpose of discussing the appointment of Cheng as director.

(2)  Lai signed a “written resolution of all directors” of China People dated 14 May 2019 to appoint himself as representative of China People to attend the Annual General Meeting of China Industry and sign the related document.

(3)  At the 30 May EGM attended by China Industry BVI (represented by Chen) and China People (represented by Lai), it was resolved that Cheng be appointed as director with effect from 30 May 2019.

51.  I do not think that the appointment of Cheng as director, whether on 2 May 2019 or 30 May 2019, was valid for the following reasons:

(1)  The power under article 14 of CI AA is conferred on the directors, which must be exercised by the directors at a properly convened board meeting or in the form of written resolution.  There is no evidence to suggest that Lai has convened any board meeting or procured any written resolution to be passed by the board before he purported to appoint Cheng as director on 2 May 2019.

(2)  Lai had not been properly authorised by China People to attend the 30 May EGM.  The so-called “written resolution of all directors” of China People dated 14 May 2019 is plainly invalid, as it was only signed by Lai, but not Wang and Chen, who were directors of China Industry.

52.  In relation to the removal of Wang as director and the changes in company secretary and registered office, there is no suggestion by Lai that any resolution has been passed to effect the changes.  Lai could not usurp the power of the board or pass any board resolution as article 11 of CI AA provides that 2 directors shall constitute a quorum.

53.  It follows that the 2019 ND2A and the 2019 NR1 filed on behalf of China Industry at the CR on 3 May 2019 were invalid.

C.  Relief

54.  Ms Ng seeks an order to remove the 2019 ND2As and the 2019 NR1s from the CR.  She submits that although under section 42(4), Wang has to satisfy the Court that the continued presence of the impugned documents will cause material damage to the Companies, the threshold is “fairly low” (Forever Up Holdings v Tong Yan Wa [2019] 5 HKC 478, §16, per DHCJ William Wong SC).  For this purpose, it is sufficient to show that the continued presence of the impugned documents will impede normal operations of the company and cause confusion to intended counterparties (Re China Crown Holdings Ltd [2020] HKCFI 1615 §25).  As the Companies operate in energy related business through their subsidiaries in the Mainland, the potential business counterparties will have to ascertain the identity of shareholders and directors of the Companies from time to time, and the confusion or perceived uncertainty in the identity of shareholders and directors will inevitably cause damage to the Companies.  On the other hand, the removal of the impugned documents will not affect the interest of any person.   

55.  As all the changes stated in the 2019 ND2As and the 2019 NR1s had not been properly authorised by the Companies and were invalid, it is more appropriate to remove them from the CR.  I agree with Ms Ng that to allow these impugned documents to remain in the CR will cause material damage to the Companies, given that the Companies hold valuable subsidiaries in the Mainland which, in turn, have ongoing operations and  dealings with third parties including local partners and entities involved in their business and operations. 

56.  For the above reasons, I make the following Order in each proceedings:

(1)  A declaration that the documents filed with the CR, as described in §1 of the OS, are null and void (“Impugned Documents”).

(2)  An order that the Impugned Documents be removed from the Companies Register.

57.  In view of the chequered history of the disputes between the parties and the fact that even after the Judgment, Wang (and his associates) still caused Pang’s Purported 2019 AR to be filed at the CR and even instructed Ince to object to Lai’s attempt to file China People’s Amended Documents to reflect the findings of the Court, it is necessary for this Court to make an order to rectify the information contained in all the documents previously filed by Wang (and his associates) at the CR insofar as such information related to the Purported Allotments and the Purported Appointments.

58.  In respect of China People, the documents filed at the CR which need to be rectified include:

(1)  The Return of Allotments (Form SC1) dated 11 June 2013 filed by China People at the CR on 17 June 2013, as subsequently amended by the amended Return of Allotments dated and filed on 25 June 2013[8]. 

(2)  All the Annual Returns (Form NAR1) filed by China People after June 2013 in which the number of shares held by Wang was stated as 5,704 shares, instead of 8 shares. 

59.  In respect of the Companies:

(1)  All the Notices of Change of Company Secretary and Director (Form ND2A) filed in respect of the Purported Appointments.

(2)  All the Annual Returns (Form NAR1) filed at the CR after 15 May 2013 by removing all the information which showed that  Pang, Dan and Tu were appointed or remained as directors of the Companies.

60.  To effect the rectifications described in §§58 and 59 above, I direct Wang to provide the draft amended documents with the necessary rectifications to Lai for his comments within 7 days of this Decision, and Lai to provide his comments or confirmation of his agreement to the drafts within 7 days thereafter.  The Companies shall file  the amended documents with the CR within the next 7 days thereafter.  I urge the parties to act sensibly and reasonably with a view to rectify the records filed at the CR.  Should any party fail to abide by the time table or act unreasonably which result in the Companies being unable to file the amended documents within the time limit, it is likely that he will be penalized with costs on an indemnity basis.

61.  I give liberty to the parties to apply for further order to rectify any other incorrect information, if and to the extent that there are other documents filed at the CR which need to be rectified.   

62.  As for costs, I make a costs order nisi that there be no order as to costs of and occasioned by the OS for the following reasons:

(1)  Wang was largely responsible for the incorrect information contained in the many documents filed at the CR insofar as they related to the Purported Appointments and the Purported Allotments, but he failed to take any step to rectify such incorrect information.  To the contrary, he caused Ince to oppose the filing of China People’s Amended Documents, which is wholly without basis and unjustified. 

(2)  It is wrong for Wang to only focus on removing the 2019 ND2As and the 2019 NR1s on the basis that such documents were invalid, when he knew full well that all the documents which referred to the Purported Allotments and Purported Appointments were likewise invalid.  It is incumbent upon him to bring such matters to the attention of the Court and seeks an order to remove or rectify the incorrect information contained in such documents. 

(3)  Wang must be aware that given the deadlock between him and Lai, the Companies would not be able to be represented in these proceedings.  This notwithstanding, he chose not to join Lai as a defendant. Without the joinder of Lai, the applications would be uncontested and the incorrect information pertaining to the Purported Appointments and Purported Allotments would remain in the Companies Register.  I do not think this is a correct way to go about making the applications, particularly when Wang, being a director, is under a duty to act in the best interests of the Companies. 

Appendix 1