LOHAS HOLDING LTD v. THE REGISTRAR OF COMPANIES AND ANOTHER

HCMP 97/2022

[2022] HKCFI 3358

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 97 OF 2022

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J U D G M E N T

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1.  There are 2 applications before the court. They concern two Form ND2A filed at the Companies Registry (“CR”) in respect of the appointment of Ms Chien Yu Mei (“Chien”) as director of Lohas Holding Limited (“Company”):

(1)  By Originating Summons dated 20 January 2022 (“OS”), the Company applies for an order to remove or rectify the Form ND2A filed by Chien on 20 September 2021 (“1^st Form”).

(2)  By counterclaim made pursuant to leave granted by Peter Ng J on 4 May 2022 (“Counterclaim”), Chien seeks an order to remove or rectify the amended Form ND2A filed by the Company on 18 November 2021 which crossed out the entire contents of the 1^st Form (“2^nd Form”).

2.  The Company contends that the purported appointment of Chien as director was invalid in that no notice had been given to the shareholders in respect of the proposed appointment, and no resolution was passed at the extraordinary general meeting held on 1 December 2020 (“1^st EGM”) to appoint her as director.

3.  Chien does not dispute that the notice convening the 1^st EGM did not refer to the proposed appointment of director. She argues that “an overwhelming majority of all shareholders of the Company” voted at the 1^st EGM to appoint her as a director. Further, the irregularity principle applies to cure any alleged procedural defect of the 1^st EGM.

Factual Background

4.  The Company was incorporated on 29 April 2011. Its paid up capital is US$38,000,000 divided into 3,800 shares. The Company is an investment holding company and holds 86.67% equity in a company established in the Mainland (“Subsidiary”) which engages in real estate development project in Fushun in the Mainland.

5.  Since 2020, the Company has 13 shareholders of which 8 are corporate shareholders. The names of the shareholders, their usual representatives and shareholdings are as follows:

Shareholder	Usual representative	Shareholding
Superior View Development Ltd	Yok Cheng Yi (郁正儀) (“Yok”)	32.55%
V Holding Ltd	Han Guo Fu (韓國福) (“Han”)	10.53%
Shih Ming Te (施明德) (“Shih”)	--	8.34%
Chou Chung Hsiao (周忠孝)	--	5.26%
Metro Shine Group Ltd	Chang Shun Chi (張順吉)	5.26%
Dai Ming (戴銘)	--	2.63%
Network Development Ltd	Yok Mu Ming (郁慕明) (“Yok Senior”)	2.63%
H&T Capital Ltd	Yok Senior	2.63%
Sub-total		69.83%
Goalrich Holdings Ltd	陳銀欉	7.89%
Winner Logistics & Shipping Agencies (HK) Ltd	Chang Te-Ling (張德齡) (“Chang”)	7.89%
Top Mission International Corp.	Chien	7.89%
Chen Hong Ming   (陳鴻明)	--	2.63%
Yu Ming Way (于銘衞)	--	3.84%

6.  It is Chien’s case that amongst the shareholders, Yok Senior, his daughter (Yok) and godson (Shih) “all along acted in concert as a friendly camp”, while Chang and her are “independent”.

7.  Chang was the sole director of the Company from 9 September 2018 until he resigned on 1 December 2020. Chang was assisted by his sister, Ms Chang Mei-Yu, Vivian.[1]

8.  Prior to the 1^st EGM, the following events took place:

(1)  On 30 October 2020, Yok (through her company) requisitioned an extraordinary general meeting pursuant to s.566 of the Companies Ordinance (Cap. 622) (“CO”) for the purpose of considering resolutions to remove Chang as director, and appoint Shih, Yok and Han as directors without any remuneration. Special notice was given to Chang on the same day.[2]

(2)  On 2 November 2020, the requisition was revised to remove the proposal to appoint Han as director as he no longer wanted to become a director for personal reasons.[3]

(3)  On 17 November 2020, Chang caused notice to be given to the shareholders that at the 1^st EGM the shareholders would consider (a) the report from Yok (and 3 other persons) on accounting reconciliation; and (b) any other proposed resolutions (“1^st EGM Notice”).[4]

(4)  By notice dated 23 November 2020, Chang convened another extraordinary general meeting to be held on 19 December 2020 (“2^nd EGM”) to consider the proposed resolutions to remove Chang as director and to appoint Yok and Shih as directors without any remuneration.[5]

(5)  On 25 November 2020, Yok (through her corporate vehicle) sent a letter to all the shareholders through their WeChat group (“WeChat Group”) [6] questioning Chang’s decision to convene 2 separate EGMs within a short time for the shareholders to consider the proposed resolutions when all the proposed resolutions could be considered at the same time. [7]

9.  The 1^st EGM was attended by shareholders holding 86.64% of the issued shares and Chang resigned as director at the meeting. There is a dispute as to whether the resolutions appointing Yok and Shih as directors were passed at around the same time as the purported appointment of Chien.

10.  It is not in dispute that there were discussions (“Discussions”) among some shareholders regarding the appointment of Chien, Yok and Shih as directors. The parties differ on whether the Discussions took place at or after the 1^st EGM, whether any poll had been called and taken and whether any resolution was passed by the shareholders appointing Chien as director.

11.  Chien relies on the unsigned minutes of the 1^st EGM prepared by Chang’s assistant and a partial audio recording taken on 1 December 2020 in support of her case that the Discussions and the resolutions appointing Shih, Yok and her as directors took place during the 1^st EGM.

12.  On 19 December 2020, Chang sent a message in the WeChat Group stating that he thought the 2^nd EGM had been cancelled on 1 December 2020 and, as he had to deal with other matter, he would not attend the 2^nd EGM.[8]

13.  Also on 19 December 2020, the 2^nd EGM was held and attended by shareholders holding 68% of the issued shares. At the meeting, resolutions were passed to affirm the appointment of Yok and Shih as directors with effect from 1 December 2020[9].

14.  On 20 September 2021, the 1^st Form was filed at the CR. On 5 November 2021, Chien circulated a letter to the Company and the other equity holder of the Subsidiary claiming to be a director of the Company in reliance on the 1^st Form.

15.  On 18 November 2021, the Company filed the 2^nd Form which crossed out the entire contents of the 1^st Form. In the 2^nd Form, there was an annotation made by the Registrar of Companies (“Registrar”) that “This is the amended Form ND2A for the incorrect one filed on 20/09/2021 which is claimed to be incorrect and should not have been filed”.

Discussion

16.  The application is made under s.42 of the CO. Section 42(1) of the CO 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.”

17.  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.”

18.  The principles governing an application under s.42 of the CO have been stated by Godfrey Lam J (as he then was) in Re China Nice Education Research Publishing Investment and Management Co Ltd [2016] 3 HKLRD 525, §§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 (a) 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 (b) 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).

19.  In the affirmations filed by the parties, many allegations are made against the other party. However, the real issues relevant to the applications are fairly narrow:

(1)  The Company says that no valid notice was given in respect of the proposed appointment of any directors at the 1^st EGM. The Discussions took place after the conclusion of the 1^st EGM and some of the shareholders had left the meeting. In any event, the alleged poll was not made known to all the shareholders present in the Discussions and the “votes” were not unanimous.

(2)  On the other hand, Chien says that the Discussions formed part of the 1^st EGM, a poll had been called and a resolution was passed unanimously by all shareholders present to appoint her as director.

20.  In my view, no valid resolution was passed at the 1^st EGM to appoint Chien as director of the Company for the following reasons.

21.  First, no valid notice had been given to the shareholders in respect of the proposed appointment of Chien (or, indeed, any directors) at the 1^st EGM.

22.  It is well-established that a resolution passed at a general meeting would be invalid if the meeting had not been convened by a valid and regular notice issued to all the shareholders. A valid notice must (1) state the correct date, time and place of the meeting; (2) state the purpose of the meeting; (3) give notice of any special business; (4) comply with all legal rules and statutory requirements; (5) be clear and explicit in its contents; (6) be given with due and proper authority; (7) allow the correct period of time between service and the date of the meeting; and (8) be sent to all those persons who are entitled to receive it (Kosmin & Roberts, Company Meetings and Resolutions, 3^rd ed., §2.01).

23.  However, the court may not interfere if the challenge only goes to minor irregularities (as opposed one of substance) in the notice or if the defect in the notice could be remedied by issuing another notice and that a majority of members support the resolution that has been passed at the meeting (Kosmin & Roberts, §§2.130 & 2.132; Re Legal Costs Negotiators Ltd [1999] 1 BCLC 171 (CA); Bentley-Stevens v Jones [1974] 1 WLR 638).

24.  The 1^st EGM Notice did not refer to any proposed resolution to appoint any directors. The lack of any notice on the proposed appointment was not a mere irregularity but a substantive defect as shareholders receiving the 1^st EGM Notice were entitled to know what proposed resolutions would be put to them for consideration at the 1^st EGM. Indeed, Chang as chairman of the meeting, said that shareholders could not propose any ad hoc resolution for consideration at the meeting. It is no answer to say that a majority of the shareholders were present at the 1^st EGM as all shareholders were entitled to rely on a valid notice in deciding whether or not to attend the 1^st EGM.

25.  The Company produced the acknowledgement letters duly signed by 8 shareholders who attended the 1^st EGM by themselves or through their proxies (being the first 8 shareholders listed in the table at §5 above) which show that amongst the 11 shareholders who attended the 1^st EGM, 8 of them (representing 69.83% of issued shares) confirmed that they would not support a resolution to appoint Chien as director. As such, it cannot be said that had proper notice of the 1^st EGM been given to the shareholders, the majority would have supported a resolution to appoint Chien as director.

26.  Second, in the acknowledgement letters the 8 shareholders confirmed that (1) at the 1^st EGM, there was no discussions or proposed resolution to appoint Chien as director; and (2) they would not support the appointment of Chien. This confirms that the Discussions only took place after the conclusion of the 1^st EGM and some of the shareholders left the meeting. It follows that no resolution could have been passed at the 1^st EGM.

27.  Mr Lai Chun Ho, counsel for Chien, submits that both the Discussions and the votes on the appointment of Chien took place during the 1^st EGM, relying on 3 “critical piece of contemporaneous evidence”:

(1)  The “Acknowledgement Letter” issued in Shih’s name and circulated by Yok[10] in which it was stated that Shih, Yok and Chien had been appointed as directors of the Company during the 1^st EGM (“並通過了委任本人、郁正儀女士及簡玉美女士作為公司董事之決議”).

(2)  The draft minutes of the 1^st EGM (“1^st EGM Minutes”) circulated by Chang’s assistant on 3 December 2020 in the WeChat Group, which stated that all shareholders present at the 1^st EGM had resolved to appoint Yok, Chien and Shih as directors. No shareholder raised any objection to the accuracy of the 1^st EGM Minutes at the time or long after it was circulated.

(3)  The partial audio recording of the 1^st EGM[11], which shows that Chien was appointed as part of the same episode when Chang’s resignation and Yok and Shih’s appointments were considered. As it is the Company’s case that Chang’s resignation was resolved during the same time as the appointment of Yok and Shih at the 1^st EGM,[12] it follows that Chien’s appointment must have taken place during the 1^st EGM.

28.  I do not think that the above documents are sufficient to prove that the Discussions or the votes took place during the 1^st EGM:

(1)  At their highest, the Acknowledgement Letter and the 1^st EGM Minutes only go to show that no objection was taken by the Company or any shareholders in respect of the purported appointments of directors for same time after the 1^st EGM. This cannot be taken as the shareholders agreeing to the appointment of Chien.

(2)  As for the audio recording, at most it shows that the resolutions appointing Shih and Yok as directors were discussed at around the same time as the Discussions. Whether or not this was the case does not matter as any resolutions appointing Shih and Yok as directors passed at the 1^st EGM would be invalid for the same reasons discussed in §§21 - 24 above. No issue could be taken in respect of the appointments of Shih and Yok as resolutions were passed at the 2^nd EGM affirming their appointments. No such resolution was passed in respect of Chien.

29.  Further, Mr Lai submits that the irregularity principle applies to “cure” any defect in Chien’s appointment at the 1^st EGM. The principle is not in dispute. As Mr Lai submits:

(1)  The irregularity principle enables the court to uphold the result of a general meeting despite a procedural defect, if the same result would have been obtained had the proper procedure been followed (Chen Pao Tzu v Chen Sheng Kuei [2021] 1 HKLRD 1071, §§19-20).

(2)  The burden is on the party seeking to rely on the irregularity principle to demonstrate that the principle applies, and the threshold is one of inevitability (i.e. the result will inevitably be the same had the same procedure been followed) (Chen Pao Tzu, §2).

(3)  As stated by Le Pichon J (as she then was) in Peter Yip v Asian Electronics Ltd [1998] 2 HKC 96, 102I-103C:

“The irregularity principle really comes to this: the lawfulness of a decision taken by a meeting of members or board cannot be questioned if the only facts alleged to make it unlawful is a mere informality and irregularity and the intention of the meeting is clear. This is particularly so if there is no evidence that the decision of the meeting would have been different if the correct procedure had been observed. In this connection, it is appropriate to refer to what Cotton LJ observed in Browne v Le Trinidad (1888) 37 Ch D 1 10:

‘A court of equity refuses to interfere where an irregularity has been permitted if it is within the power of the persons who have permitted it at once to correct it by calling a fresh meeting and dealing with the matter with all due formalities.’”

30.  Mr Lai points to the following matters which, he contends, show that “an overwhelming majority of all shareholders of the Company (consisting of 86.64% of all voting rights of the Company) at the 1^st EGM” had voted to appoint Chien as a director, and the appointment of Chien “as a matter of substance was acknowledged by all shareholders of the Company”[13]:

(1)  The signed attendance slip showing that the 1^st EGM was attended by 11 shareholders holding 86.64% issued shares in the Company;

(2)  The 1^st EGM Minutes which recorded the resolutions appointing Chien, Shih and Yok as directors; and

(3)  The Acknowledgment Letter.

31.  I do not think that the irregularity principle applies to cure the defects in the appointment of Chien for the following reasons:

(1)  As stated in §24 above, the lack of notice on the proposed appointment of Chien as director is not a mere irregularity but a substantive defect.

(2)  Neither the 1^st EGM Minutes nor the Acknowledgement Letter can be taken as the shareholders agreeing to the appointment of Chien as director.

(3)  To the contrary, amongst the 11 shareholders attended the 1^st EGM, 8 of them confirmed that they would not support a resolution to appoint Chien as director. Thus, even if (which is not the case here) the defect in the appointment of Chien can be said to be a mere irregularity, there is no evidence to show that the result of the 1^st EGM would inevitably be the same had the proper procedure been followed.

32.  For the above reasons, I hold that no valid resolution was passed at the 1^st EGM to appoint Chien as a director of the Company. It follows that the information set out in the 1^st Form is incorrect and should be rectified or removed.

33.  It is not in dispute that the continuing presence of the 1^st Form at the CR has caused material damage to the Company as third parties dealing with the Company in particular those in the Mainland are confused as to whether or not Chien is a director of the Company. It is in the interest of the Company to remove the 1^st Form from the CR.

34.  As regards the 2^nd Form, its purpose is to inform the public the fact that there is a dispute over the appointment of Chien as director. Once the 1^st Form is removed from the CR, it would not be necessary for the 2^nd Form to remain in the CR. It is therefore appropriate for the 2^nd Form to be removed from the CR.

35.  I make the following order:

(1)  The 1^st Form filed at the CR on 20 September 2021 be removed;

(2)  The 2^nd Form filed at the CR on 18 November 2021 be removed; and

(3)  The Counterclaim be dismissed.

36.  As for costs, I make a costs order nisi that the costs of and occasioned by the OS and the Counterclaim, including all costs reserved, be paid by Chien to the Company, to be taxed if not agreed.