PANG SIU HIN v. TAI WO TONG PHARMACEUTICAL (HONG KONG) COMPANY LTD

HCMP 2476/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2476 OF 2013

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1.  I have before me the adjourned hearing of three related originating summonses heard together for orders under section 122(1B)(a) of the Companies Ordinance, Cap 32 (“the Ordinance”) extending time retrospectively for the laying of audited accounts before the relevant company in general meeting.

2.  The three companies concerned are Tai Wo Tong Pharmaceutical (Hong Kong) Company Limited (“TWT Pharmaceutical”), Tai Wo Tong Company Limited (“TWT”) and Hin Sang Hong Company Limited (“HSH”).  They form part of the same group of companies.  The holding company is Hin Sang Group (International) Holding Company Limited (“Group Holding”), currently engaged in a listing project.

3.  The applicant is the managing director and he and his wife are and have been the sole directors of all three companies.

4.  I turn to the breaches said to have occurred.

5.  In the case of both TWT Pharmaceutical and TWT, the breaches concerned are identical.  Those companies were incorporated on 6 April 2009.  Each held its first annual general meeting some eight months later, on 30 December 2009 although there was no statutory requirement to do so in the year of the company’s incorporation: see the proviso to section 111 of the Ordinance.  As the first annual general meeting was held in the course of the first accounting year (which did not end until 31 March 2010), the accounts were obviously not yet available at that annual general meeting.

6.  In each case, accounts were prepared for the first accounting period ending 31 March 2010 and tabled and approved at the subsequent annual general meeting held on 10 December 2010.  While the 2010 Annual General Meeting was held within nine months of the end of the accounting period, section 111 required the annual general meeting for tabling the first accounts to be within 18 months of incorporation.  The 2010 Annual General Meeting was therefore two months late for the purposes of section 111.

7.  In the case of Group Holding incorporated on 13 June 1996, they involve similar breaches but in respect of earlier years.  The following table (taken from the written submissions of Mr Leung, counsel for the applicant) summarizes the position:

Accounts for financial year ended	Date on which the accounts were tabled and adopted
31/3/1997	13/6/1998
31/3/1998	13/6/1999
31/3/1999	13/6/2000
31/3/2000	13/6/2001
31/3/2001	13/6/2002

8.  It is self‑evident that the breaches in question are technical and of a minor nature.

9.  While on the evidence I am satisfied that the breaches were inadvertent and no prejudice has been caused to the shareholders, it does not automatically follow that the court should exercise its discretion to remedy such breaches.  The real question to be addressed is whether there are reasons that render it appropriate for the court to do so.  As Godfrey Lam J put it in his recent decision in Re Hong Kong Times Investments Ltd, unreported, HCMP 2301‑2304/2013, 30 January 2014 at §23, the “discretion is there to be exercised for some discernible legitimate purpose”.

10.  In this regard, a number of recent decisions (with which I respectfully agree) are pertinent.  They establish that:

(1) the reason most commonly advanced for this type of application—that otherwise the breaches would put the prospective listing in jeopardy—is not well‑founded and, in fact, is fallacious: see Re LWK & Partners (HK) Ltd, unreported, HCMP 1742/2013, 26 February 2014;

(2) the three factors summarised in Re Sanliuyidu (Hong Kong) Sports Goods Co Ltd [2009] 4 HKLRD 708 are generally but not necessarily the only matters to be looked at by the court in any given case: see Re Hong Kong Times Investments Ltd at §15;

(3) it does not follow that because those factors are satisfied that the discretion should automatically be exercised particularly where the application is retrospective and the impression that the court would grant a section 122(1B) order extending time “almost as a matter of routine” takes too narrow and mechanistic a view to the court’s approach to its statutory power: see Re Natural Corporation Ltd, unreported, HCMP 2148‑2158/2013, 9 January 2014 at §6 and Re Hong Kong Times Investments Ltd at §15;

(4) where the substantive if not the sole purpose of the extension sought under section 122(1B) of the Ordinance is to relieve a director of potential liability, the court ought also to exercise great care since an order extending time under section 122(1B) would render them immune from prosecution for the original default: Re Hong Kong Times Investments Ltd at §§20 and 22; and

(5) where there is no realistic prospect of the company or its director being prosecuted in respect of breaches under section 111 and/or section 122 once three years have expired since the date by which it/he should have taken relevant steps under those sections, an application for extending time under section 122(1B) should be refused as it would be largely academic and a waste of judicial resources: Re Modern Automobile Co Ltd, unreported, HCMP 3378/2013, 7 March 2014.

11.  In the present applications, the principles outlined in sub‑paragraphs (1), (3) and (5) above are applicable. It is to be noted that there is no evidence that the listing would be jeopardised.  At the hearing Mr Leung informed the court that his client’s impression or understanding was that the Stock Exchange would insist on there being a court order.  However he was unable to adduce any evidence in that regard.  Further, the possibility of prosecution does not arise because all the breaches in question occurred over three years ago.

12.  Since there is no discernible legitimate reason for the court to exercise its discretion in the present case, the applications are refused.

13.  I would add that in Re Natural Corporation Ltd Harris J commented (at §6) that applications for orders under section 122:

“… seem to be made on the basis that it is easier to apply to Court for orders remedying breaches than address the issue with the Stock Exchange. Unfortunately this has resulted in a massive increase in the number of such applications in the last 18 months. I understand that approximately 250 originating summonses have been issued so far this year pursuant to sections 111 and 122 representing I am told approximately 8% of all miscellaneous proceedings issued in the High Court.”

That state of affairs is wholly unsatisfactory.

14.  Approximately seven weeks later, in his Ruling in Re LWK & Partners (HK) Ltd at §20, Harris J expressed the hope:

“… that, in future, consideration will be given by the Stock Exchange, and all other interested parties, to adopting a more considered approach to the way in which infringements of sections 111 and 122 of the Companies Ordinance should be dealt with by groups of companies applying for listings in Hong Kong so the Companies Court does not continue to be subjected to a large number of largely academic applications which are taking up far too much judicial resources.”

15.  I share those sentiments and urge all interested parties to pay heed to what has been advocated in LWK when addressing infringements of sections 111 and/or 122.