FU SHOU YUAN INTERNATIONAL GROUP LTD v. FU SHOU YUAN GROUP (HONG KONG) LTD

HCMP 2674/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2674 OF 2013

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J U D G M E N T

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1.  I have before me an application for an order pursuant to section 122(1) of the Companies Ordinance. The application relates to Fu Shou Yuan Group (Hong Kong) Limited (“the Company”). The Company is a subsidiary of an ultimate holding company which is seeking a listing on the Stock Exchange of Hong Kong Limited.

2.  This is an unusual case which raises a very narrow issue concerning the interpretation of section 122(1).  The material facts are these:

(1) The company was incorporated on 10 October 2011.

(2) It held its first annual general meeting on 1 August 2012.

(3) Its financial year is from 1 January to 31 December 2012.

(4) The company held a paper annual general meeting on 25 September 2013 and put before the Company, in general meeting through this means, its audited financial statement for the period 10 October 2011 until 31 December 2012. 

3.  The Applicant, which is a shareholder of the Company, has made the application on the assumption that it is necessary, because an annual general meeting was held on 1 August 2012, to put some form of financial statement before that annual general meeting.  The reason this view has been taken is because section 122(1) provides:

“(1) Subject to subsection (1B), the directors of every company shall lay before the company at its annual general meeting a profit and loss account or, in the case of a company not trading for profit, an income and expenditure account for the period, in the case of the first account, since the incorporation of the company, and, in any other case, since the preceding accounts. (Replaced 10 of 1987 s. 4)”

(1A)  The accounts referred to in subsection (1) shall be made up to a date falling not more than 6 months, or, in the case of a private company (other than a private company which at any time during the period to which the said accounts relate was a member of a group of companies of which a company other than a private company was a member) and a company limited by guarantee not more than 9 months, before the date of the meeting. (Added 10 of 1987 s. 4. Amended L.N. 245 of 1987)

(1B)  The court, if for any reason it thinks fit so to do, may in the case of any company and with respect to any year-

(a) substitute for the requirement in subsection (1) to lay a profit and loss account or (as the case may be) an income and expenditure account before the company at its annual general meeting a requirement to lay such account before the company at such other general meeting of the company as the court may specify; and

(b) extend the periods of 6 and 9 months referred to in subsection (1A). (Added 10 of 1987 s. 4)”

4.  The assumption is that subsection (1) means that at every annual general meeting the relevant financial statement has to be put before shareholders.  Whilst I can understand those advising the Applicant, having taken the view they did, it does not seem to me that it is correct, and in my view the Company is not in breach of section 122(1) and does not need an order.  My reasons for reaching this conclusion are as follows. 

5.  It does not seem to me that the Company was obliged by section 111(1) to have financial statements to put before the shareholders in annual general meeting on 1 August 2012.  I can see nothing improper in the Company proceeding in what I understand to be a fairly conventional form, namely to have its first audited financial statements prepared from the date of its incorporation until the end of the first complete financial year, which in the present case was 31 December 2012.

6.  In my view - although I appreciate it is arguable - the better reading of section 122(1) is that it requires the company to put before the shareholders in general meeting the financial statement that it is required by the other provisions of the Ordinance to have prepared as at the date of the annual general meeting.

7.  In nearly all cases, that will mean that at an annual general meeting for any particular calendar year, the Company will be obliged to lay before the Company in general meeting, its audited financial statements for the previous financial year.  However, in my view, the first year can be an exception.  It would, for example, have been perfectly possible for the Company to have held an annual general meeting in 2011, shortly after it was incorporated.  It probably would have achieved no purpose at all and it seems to me very difficult to construe section 111 as requiring the Company to have prepared financial statements at that particular time.  In my view, the fact that the annual general meeting was held on 1 August of the next calendar year does not alter the situation.

8.  As matters transpired in this case, an annual general meeting was held in 2013 on 25 September 2013 and a financial statement for the period from 10 October 2011 to 31 December 2012 was laid before the Company.  This was within the nine month period which applies to private companies specified in section 122(1B) and it seems to me that in proceeding as the company did, it complied with all its obligations for the period up to the end of 31 December 2012. 

9.  I therefore decline to make an order on the originating summons, but the reason is not because I consider it an inappropriate case to exercise my discretion, it is because I am not persuaded that there has been a breach of the Ordinance which requires rectification.