R. v. SIN LOK WAH & OTHERS

IN THE SUPREME COURT OF HONG KONG

(Appellate Jurisdiction)

MAGISTRACY CRIMINAL APPEAL NO. 541 OF 1995

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J U D G M E N T

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Hon Yang, CJ:

1. The appellants were each convicted of a summons couched in similar terms, viz.,

" Information having been laid that between 29 December 1989 and 18 September 1991 SIN Lok-wah being a director of Princeton Jewelry Factory Limited permitted default to be made by the company in that the company failed to preserve all its accounting records. Contrary to Section 121(1)(3A) and (4) and Section 351(1A) Companies Ordinance.

Information having been laid that between 29 December 1989 and 18 September 1991 SIN Chuk-fun Dennis being a director of Princeton Jewelry Factory Limited permitted default to be made by the company in that the company failed to preserve all its accounting records. Contrary to Section 121(1)(3A) and (4) and Section 351(1A) Companies Ordinance."

2. They now appeal against the convictions.

3. There are two issues which call for consideration.

4. First, whether or not they had failed to preserve all the company's accounting records.

5. Second, whether the defence in section 121(4)(a) of the Companies Ordinance is available to them.

6. In order to answer the first question, the evidence has to be examined.

7. The Senior Treasury Accountant of the Official Receiver's Office examined all the books and records produced by the company. In his view the company did not keep the necessary books of accounts from its incorporation and commencement of winding up to explain the transactions of the company throughout the period. In his opinion some important books were not available e.g. the general ledger and other documents specified in a list of documents exhibited to the court below.

8. The Certified Public Accountant employed in a firm of accounts prepared a statement of affairs for the Official Receiver's Office. He received an indication from a director of the company that accounts of the company were not available; he was therefore unable to provide full details of the company's financial dealings because of the absence of material books of account.

9. On the evidence the trial magistrate was entitled to draw the conclusion that the appellants had failed to preserve the books of account. But what about subsection (4)?

10. The true question here is whether section 121(4)(a) applies.

11. The subsection reads:

"121(4) If any person being a director of a company fails to take all reasonable steps to secure compliance by the company with the requirements of his section, or has by his own wilful act been the cause of any default by the company thereunder, he shall, in respect of each offence, be liable to imprisonment and a fine: (Amended 7 of 1990 s.2)

Provided that -

(a) in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company with the requirements of this section, it shall be a defence to prove that he had reasonable ground to believe and did believe that a competent and reliable person was charged with the duty of seeing that those requirements were complied with and was in a position to discharge that duty; and

(b) a person shall not be sentenced to imprisonment for such an offence unless, in the opinion of the court dealing with the case, the offence was committed wilfully."

12. The appellants recruited K K Yeung's management consultant company as a "rescuer" of the company and K K Yeung "took over" the company (I take it that Mr Yeung took charge of the company). The Crown argued that Mr Yeung as a "rescuer" was not necessarily involved in the preservation of accounts. But Mr Yeung (as it appears at the hearing of the appeal but not in the court below) was a Certified Public Accountant. He together with two others from his company checked the accounts of the appellants' company. Mr Yeung took control of all the company's accounts and money spending. The appellants retained the right to "sack" Mr Yeung at any time. In the circumstances the magistrate's finding that the appellants had totally "abdicated their responsibility for preserving the company's books and records" could not stand.

13. Taking all the evidence together my view is that the appellants were entitled to rely on section 121(4)(a). It is for this reason that the appeals succeed.

14. Appeals allowed. Convictions quashed. Sentences set aside.