HUI CHI KEUNG v. TELENT (HONG KONG) HOLDING LTD

HCMP 3062/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3062 OF 2013

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D E C I S I O N

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1.  I have before me an originating summons issued by Telent (Hong Kong) Holdings Limited seeking an extension of time pursuant to section 122 of the Companies Ordinance for laying its profit and loss accounts and balance sheet before the company in annual general meeting for its first accounting period from 10 February 2011 to 31 March 2012, and for the subsequent financial year.

2.  Although the originating summons does not seek an extension of time for the holding of an annual general meeting, it needs such an order for the following reasons.

3.  The company did hold a paper annual general meeting pursuant to section 116B and 111(6) of the Companies Ordinance Cap 32.  However, what appears to have been overlooked at the time the application was formulated is that section 111(6)(a) provides that a company is not required to hold a physical meeting if “everything that is required or intended to be done at the meeting (by resolution or otherwise) is done by a resolution or resolutions in accordancewithsection 116B”. 

4.  What that means is that in order for there to be an effective annual general meeting by a written resolution, it is necessary for section 122 to have been complied with.  If section 122 is not complied with, the purported written resolution in place of a physical annual general meeting is not effective.

5.  However, there are more fundamental problems with this application. 

6.  As is now well established, the court generally takes into account three principle factors when considering applications of this sort:

(i) whether the default was inadvertent and arose from an identifiable mistake rather than indifference;

(ii) whether the shareholders were aware of the financial position of the company in question and thus were not prejudiced by non‑compliance;

(iii) whether the court is satisfied that the company will comply with the obligation to lay audited financial statements before the annual meetings in the future: see Prime Sunlight Ltd HCMP 1445/2013, unreported judgment, 28 October 2013.

7.  The originating summons first came on before me on 10 January 2014.  At that time I was satisfied that the second and third factors that I have referred to above were met.  The application has been made in connection with a proposed listing on the Malaysian Stock Exchange, and I am satisfied that as a result of the due diligence and other associated processes that that involves, it is likely that the companies’ directors will become fully familiar with their relevant obligations under the Companies Ordinance.

8.  I was not satisfied with the evidence in relation to the first factor, namely, the question of inadvertence.  In the first affirmation of Hui Chi-keung who is the sole director of the company, the explanation for the failure to comply with section 122 is explained as follows:

“12. I wish to inform this Honourable Court that I have never received any training in legal and compliance matters during the material times. As such, I was not even aware of the requirements under Section 122 of the Companies Ordinance.

13. Admittedly, throughout the years I was under the mistaken belief that it was only necessary for a company to lay audited accounts and balance sheets at shareholders’ meetings each year if a company has day-to-day business operations and activities and is not an investment holding company.”

9.  Mr Hui filed a second affirmation on 6 January 2014 shortly before the first hearing of the originating summons. 

10.  Paragraph 3 also addressed the issue of the reason for non‑compliance.  In paragraph 3, Mr Hui does no more than repeat what he had said in his first affirmation. 

11.  I adjourned the originating summons in order to allow the company to file further evidence dealing with the inadvertence issue and the precise requirements of the Malaysian Stock Exchange. 

12.  Mr Hui filed further short affirmations and one substantial fifth affirmation. 

13.  In paragraph 6 of this fifth affirmation he says this about the circumstances in which the company came to breach section 122:

“6. I was told by the Company’s secretary that the Company shall convene an annual general meeting in each year to table its audited accounts and to re-elect the Company’s director and auditors.  However, as mentioned in paragraphs 12 and 13 of the said first affirmation of Hui Chi Keung, I have never received any training in legal and compliance matters during the material items.  I was not aware of the requirements under the Companies Ordinance.  And, I was under the mistaken belief that it was only necessary for a company to lay audited accounts and balance sheets at shareholder’s meetings each year if a company has day-to-day business operations and activities.  Therefore, no audited financial statements was tabled before the sole shareholder of the Company and no auditor was appointed during the annual general meetings which were held by virtue of the sole shareholder’s written resolutions passed on 9 February 2012 and 9 February 2013.  There is now produced and shown to me marked Exhibit “HCK-14” true copy of register of secretaries of the Company.

14.  As is clear from this paragraph, it would appear that the company secretary advised Mr Hui that it was necessary to convene an annual general meeting each year, and at it to table its audited accounts.  It appears for reasons which are manifestly not adequately explained that Mr Hui simply ignored this advice. 

15.  It does not seem to me, therefore, that the breach can properly be characterised as arising from inadvertence.  If a director of a company chooses to ignore the advice of its company secretary about an important corporate governance issue, he cannot sensibly expect to obtain an order from the court remedying the resulting breach simply by stating without more that he did not follow the advice because,

“I was under the mistaken belief that it was only necessary for a company to lay audited accounts and balance sheets at shareholders meetings each year if a company has day-to-day business operations and activities”.

16.  In conclusion, I do not think that this is an appropriate case in which to grant an order remedying the breaches, and I dismiss the originating summons.