SHIH MEI KI v. GREENWALKER GLOBAL LTD

HCMP 276/2021

[2021] HKCFI 3697

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 276 OF 2021

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REASONS FOR DECISION

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INTRODUCTION

1.  This is the hearing of the Plaintiff’s application pursuant to section 740 of the Companies Ordinance, Cap 622 (the “Ordinance”)  by way of Originating Summons dated 3 March 2021 (the “OS”), primarily for inspection of the Defendant’s auditor’s reports (for the years ended 31^st March 2018; 31^st March 2019; 31^st March 2020), monthly account statements from 2018 onwards and tax returns (for the years of assessment 2017/2018; 2018/2019; 2019/2020)  (the “Requested Documents/Records”)  for the purpose of supporting of her legal aid appeal.

2.  The Defendant has not filed any affirmation in opposition to this application. The Defendant has not participated in the present hearing.

3.  On 30 November 2021, this Court received a letter from a Madam Yuen, the sole director of the Defendant. By the letter, the Defendant sought to adjourn the present hearing. The reason given is that due to COVID-19, Madam Yuen is not able to travel to Hong Kong to handle this proceedings. The Plaintiff objected to any adjournment of the present hearing.

4.  I am of the view that it is not proper to adjourn the substantive hearing. First, the Defendant could have instructed a firm of solicitors to act for it to defend the present proceedings. The Defendant chose not to. Secondly, there is no certainty as to when Madam Yuen will be able to come to Hong Kong to deal with the present proceedings. Thirdly, I agree with Mr Cheng for the Plaintiff that there has been substantial delay on the part of the Defendant to allow inspection and take copies of some very basic corporate documents to which the Plaintiff, qua, shareholder, is entitled to. Any adjournment will prejudice the Plaintiff.

MATERIAL FACTS

5.  The Defendant is a Hong Kong limited company with a total of 10,000 issued shares, which are owned by 3 sisters (including the Plaintiff). The shareholding are proportioned as follows:

(1)  The Plaintiff owns 2,500 shares (representing 25% of voting rights);

(2)  Shih Mei Ling (“Shih Mei Ling”)  owns 5,000 shares (representing 50% of voting rights);

(3)  Shih Po Chuen (“Shih Po Chuen”)  owns 2,500 shares (representing 25% of voting rights).

6.  In a dispute over the beneficial ownership of a property, Shih Mei Ling commenced High Court Action No. 797 of 2018 (the “Action”)  against the Plaintiff on 10^th April 2018.

7.  The Plaintiff applied to the Legal Aid Department (the “LAD”)  for legal aid in order to defend the Action. In light of the Plaintiff’s shareholding in the Defendant, the LAD required the Plaintiff to undertake to provide, inter alia, the Requested Documents/Records for the purpose of enabling the LAD to assess whether the Plaintiff has passed the means test for eligibility to legal aid.

8.  Accordingly, on 9 June 2020, the Plaintiff issued a written request to the Defendant for copies of the Requested Documents/Records, which was refused by the Defendant on 16 June 2020. As a result, the Plaintiff was unable to submit copies of the Requested Documents/Records to the LAD by the stipulated deadlines.

9.  On 20 August 2020, the Plaintiff was informed by the LAD that her application for legal aid has been refused, one of the reasons being that the LAD was not in a position to ascertain whether the means test has been satisfied owing to the Plaintiff’s failure to submit the Requested Documents/Records.

10.  An appeal was thereafter lodged by the Plaintiff against the LAD’s decision. Pending the hearing of the appeal, the Plaintiff brought these proceedings on 3 March 2021 in order to obtain the Requested Documents/Records for the purpose of the upcoming appeal hearing.

11.  Mr Cheng for the Plaintiff drew to the attention of the Court that:

(1)  The Plaintiff’s solicitors made a demand on 5 February 2021 for the Requested Documents/Records but the Defendant never replied.

(2)  The Plaintiff’s solicitors made a further demand on 12 May 2021 for the audited financial statements for the years 2015, 2016 and 2017 but the Defendant never replied.

(3)  The Plaintiff’s solicitors made a further demand on 16 September 2021 for part of the Requested Documents/Records, i.e., the audited financial statements and reports of the directors and auditor for the years ended 31^st March 2018; 31^st March 2019; and 31^st March 2020 (the “AFS 2018, 2019 and 2020”), but the Defendant never replied.

(4)  The Plaintiff’s solicitors made another demand for the AFS 2018, 2019 and 2020 on 12^th October 2021 The Defendant yet again failed to address the request.

12.  This Court is also informed that on 15 June 2020, the Plaintiff received the Defendant’s notice of an Annual General Meeting to be held on 17 July 2020 to note the latest position of the accounts but no documents or financial statements were enclosed therewith. Thereafter, the Plaintiff was not provided with the relevant meeting minutes and the Defendant never reached out to discuss about sharing costs of preparing audited financial accounts.

13.  On 14 September 2021, the Plaintiff received the Defendant’s notice of an Annual General Meeting to be held on 8 October 2021 (the “October AGM”)  inter alia to receive and consider the AFS 2018, 2019 and 2020.  However, the AFS 2018, 2019 and 2020 were never produced to the Plaintiff.

14.  In the present application, the Plaintiff has narrowed down the scope of the Requested Documents/Records sought as follows:

(1)  the Defendant’s auditor’s reports (for the years ended 31^st March 2018; 31^st March 2019; 31^st March 2020); and

(2)  Monthly account statements from January 2018 to October 2018;
(collectively, the “Final Requested Documents/ Records”).

APPLICABLE LEGAL PRINCIPLES

15.  This Court has set out the applicable legal principles in  Wong Sau Man Samuel v Wong Kan Po Wilson [2017] 4 HKLRD 542 at §39 and I shall not repeat the same here.

16.  With regard to the burden required to be discharged by an applicant under section 740, Harris J in Wong Kar Gee Mimi v Hung Kin Sang Raymond[2011] 5 HKLRD 241 at §§24-25 said:

“24. I accept all of these propositions as being correct. In my view, s.152FA[1] affords shareholders an often overlooked yet powerful right by which to expose wrongful conduct in relation to the company's affairs. Where the shareholders and directors are at loggerheads, the right of access to corporate information is particularly important: in these circumstances, even if a member suspects that something is amiss, for example an egregious breach of fiduciary duty, he will be unable to protect his economic interest and financial investment within the company (through, for instance, a derivative action)  unless he is able to obtain sufficient information.

25. By enacting s.152FA, the Legislature provided an important new procedure for the protection of shareholder rights and interests and the community's more general interest in the maintenance of good corporate governance. Section 152FA should therefore be interpreted and applied in a manner consistent with these legislative objectives. This can be achieved through taking a generous approach to the interpretation of what constitutes an interest ‘reasonably related’ or ‘germane’ to the applicant's status as a shareholder. Given that a member's status is based entirely on his shareholding in the company, I am inclined to think that where the purpose for seeking an inspection order is founded upon the protection against a change in the value of a member's shares, that purpose is ‘germane’ to his status as a shareholder and ‘proper’ under s.152FA. Put another way, where a member seeks to protect his economic interest in the company, this should prima facie satisfy the ‘proper purpose’ requirement.” 

ANALYSIS

17.  First, it is clear that the Plaintiff has locus standi to take out the present application in light of her shareholding in the Defendant.

18.  Secondly, I am satisfied that the Plaintiff acted in good faith and she is not obtaining access to the documents for any ulterior motive other than to satisfy the requirements of the LAD and the same will be submitted to the Registrar of the High Court for the purpose of the appeal. Mr Cheng for the Plaintiff confirmed with this Court that the documents will only be used for this specific purpose.

19.  Thirdly, I am of the view that as a shareholder of the Defendant, the Plaintiff is entitled to have a copy of the audited financial statements of the Defendant. 

20.  Mr Cheng for the Plaintiff is correct that it appears that there are clear breaches of statutory responsibilities under section 435(1)  of the Ordinance, Shih Po Chuen (and then 袁桂雲)  as directors of the Defendant have repeatedly failed to produce copies of financial statements and auditor’s reports to the Plaintiff when demanded. Pursuant to sections 379 and 388 of the Ordinance, a company’s directors are required to prepare financial statements and director’s reports for each financial year. Section 394(1)  further states that an auditor must be appointed for each financial year of a company. The Defendant had admitted that no such documents had been prepared since 2014.  I agree that this renders it impossible for the Plaintiff to ascertain the financial position of the Defendant or assess the market value of her shares in the Defendant as necessary information requested by the LAD.

DISPOSITION

21.  For all the reasons stated above, I made the order in terms of the draft order submitted to the Court, namely, the Defendant do provide the following documents for the Plaintiff and/or her representatives to inspect and make copies thereof:

(1)  The Defendant’s auditor’s reports for the year ended 31 march 2018, 31 March 2019 and 31 March 2020, or if the same are not available, the Defendant’s latest auditor’s report.

(2)  The Defendant’s monthly account statements from January 2018 to October 2018.

22.  Mr Cheng for the Plaintiff asked for costs to be taxed on indemnity basis. This Court will assess the costs summarily but on party to party basis. Accordingly, I made an order that the Defendant do pay to the Plaintiff the costs of and occasioned by this application on a party to party basis.

23.  Finally, I thank Mr Cheng for the Plaintiff for his helpful assistance.