ZHAO YING v. KING BILLION CORPORATION LTD

HCMP 714/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 714 OF 2014

____________________

____________________

________________

D E C I S I O N

________________

1.  I have before me two originating summonses issued on 27 March 2014 seeking orders pursuant to Section 122 of the Companies Ordinance, Cap 32, extending time for the companies to lay their profit and loss account and balance sheets before the companies at annual general meetings for the years ending 31 December 2007 to 31 December 2012 and 31 December 2006 to 31 December 2012 respectively.

2.  Mr Leung, who appeared for the applicant who is the beneficial owner of the companies, accepted at the outset of the application that because there was no risk of prosecution in respect of the years ending 31 December 2006 to 31 December 2010 there was no basis for the court to exercise its discretion and extend time.  There are two financial years, 2011 and 2012, where there is at least a theoretical risk of the companies and their directors being prosecuted for breaches of Section 122. 

3.  The principles by reference to which the court assesses applications of this sort have been, during the course of the last 18 months, considered in a large number of authorities.  They have been most recently summarised in Re Tai Wo Tong Pharmaceutical (Hong Kong) Company Limited [2014] 3 HKLRD 218: see paragraph 10 of the judgment of Le Pichon DHCJ.

4.  In the present case the evidence which is contained in the affirmation of the applicant, Ms Zhao Ying, explains that Ms Zhao holds the company through BVI companies.  She explains that the breaches of Section 122 has come to light during the course of due diligence for a prospective listing of the group of which the company forms part on The Stock Exchange of Hong Kong Limited.  In paragraphs 11 and 12 of her affirmation she says this:

“11. As the ultimate beneficial owner of the Company, I am concerned that all of the Company’s statutory obligations are met according to the laws of Hong Kong. I am a resident in Mainland China and I hold the passport of Saint Christopher (St. Kitts) and Nevis. I have little understanding about the laws of Hong Kong and have relied on the corporate secretary to deal with the company secretarial works for the Company.

12. The Company has appointed professional company secretarial companies to act as its corporate secretary to handle company secretarial matters since incorporation. From 2007 to 2012, H & L Secretarial Services Limited had been the Company’s appointed corporate secretary. From 2013 onwards, T.L.N. Co. Ltd had been the Company’s appointed corporate secretary.”

What this does not explain is precisely what advice Ms Zhao took concerning the requirements of the Companies Ordinance and the regulatory matters that had to be addressed and dealt with by the directors of the company.

5.  The fact that a company secretarial firm was retained in order to file the necessary annual return each year falls short, in my view, of demonstrating that Ms Zhao had adopted an appropriate approach to corporate governance. 

6.  As I have previously explained in other decisions, in order to demonstrate that an application arises from an inadvertent oversight on the part of a company’s directors rather than indifference, it is necessary for it to be demonstrated that the directors obtained at least the minimum sort of advice that a court would reasonably expect a responsible director to obtain.  The type of advice I would expect to see would be evidenced by instructions to lawyers, accounting firms or secretarial service providers and written advice or guidance as to what the directors needed to do each year.  I would normally expect it to be possible to demonstrate that an appropriate level of advice had been obtained by the company adducing fee notes showing that a material level of advice had been obtained. 

7.  Absent this type of evidence, it does not seem to me that the court can sensibly conclude that a failure to comply with Section 122 has arisen as a result of inadvertence. It seems to me that in cases of this sort the court is faced with applications by companies whose directors in reality had simply been indifferent to compliance with the Hong Kong statutory regime for the regulation of companies.  I will therefore dismiss the applications.