CHAN YING LEUNG v. COLLECTORS WATCH & JEWELRY CO LTD

HCMP 2282/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2282OF 2013

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J U D G M E N T

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1.  This is an application for relief pursuant to section 122 (1B) of the Companies Ordinance to regularise instances of non-compliance by Collectors Watch & Jewellery Company Ltd (“the respondent”) with the requirements of section 122 (1) and (A).

2.  The breaches have come to light as a result of due diligence conducted in connection with a recent application by Collectors Holdings Ltd (“Holdings”) to the Stock Exchange of Hong Kong Limited for listing. Upon the completion of the corporate reorganisation envisaged,   Holdings will become the holding company of the respondent while the respondent will remain Holdings’ sole operating subsidiary.

3.  The respondent was incorporated on 9 October 2009 and started generating business in January 2010. According to its annual return dated 12 October 2010, the respondent had 5 shareholders, namely, Chan Ying Leung ("Mr Chan") who at that date was its controlling shareholder, Lee Wing Cheong ("Mr Lee") and 3 corporate shareholders, namely, Global Reliant Investment Ltd, Honor Investment Ltd and Star Apex Investment Ltd whose ultimate owners are Hong Kong listed companies.

4.  The respondent held its 1st AGM on 11 April 2011 and its 2nd AGM on 9 July 2012. While the 3 corporate shareholders remained shareholders at the date of the 2nd AGM with slightly reduced percentages, Mr Chan and Mr Lee held their interest indirectly, via a company called Ever Rich Industrial Holdings Ltd which held over 90% of the shares of the respondent on behalf of 20 individuals including Mr Chan and Mr Lee. Mr Chan was and remains the sole director of Ever Rich.

5.  The contraventions in question arise from the failure to lay audited accounts for the period from 12 October 2009 to 30 June 2010, 1 July 2010 to 30 June 2011 and 1 July 2011 to 30 June 2012 at the respondent's AGMs. Pausing here, it is to be observed that given the dates on which the 2011 and 2012 AGMs were held, even if audited accounts for the year ended 30 June 2010 had been laid at the respondent's 2011 AGM, there would still have been a breach of section 122 (1A). The same can be said of audited accounts for the year ended the 30 June 2011 had they been laid at the respondent's 2012 AGM, assuming as I do that the accounts for the year ended the 30 June 2012 would not have been ready by the time of the 2012 AGM.

6.  The applicable principles guiding the exercise of the discretion are well established. The factors usually relevant are mentioned in Re Sanliuyidu (Hong Kong) Sports Goods Company Ltd [2009] 4 HKLRD 708 at § 5, namely, whether the shareholders were conversant with the financial position of the company and thus were not prejudiced by the non-compliance; whether the default was inadvertent; and whether the court is satisfied that the company would comply with its obligations in the future.

7.  I turn to the facts.

8.  The respondent had no more than 5 shareholders during the defaulting years. It is Mr Chan’s evidence that from the time business began to be generated, unaudited management accounts were prepared monthly and circulated to all shareholders on a quarterly basis. Mr Chan as shareholder and director of the respondent and also of Ever Rich since the end of June 2012 was fully conversant with the respondent's financial position. All the shareholders support the present application.

9.  So Ka Chung was the financial controller of the respondent was responsible for the respondent's accounting and financial affairs including the preparation of its management accounts. At the time of his appointment, Mr So who holds a degree in Commerce (Accounting) as well as a Masters’ degree in accounting obtained in Australia had had 8 years of accounting, audit and finance experience in Hong Kong and overseas. In those circumstances, it was not unreasonable for the respondent to assume that Mr So would be able to handle the secretarial affairs the respondent.

10.  However it transpires that in 2011 and 2012, Mr So was labouring under the mistaken impression that the requirements of section 122 would be satisfied by presenting unaudited management accounts to the shareholders. It was also a fact that the audited accounts of the respondent for the year ended June 2010, 2011 2012 did not become finalised until the end of July 2013. The evidence is that the auditing process took appreciably longer than expected and was significantly delayed because of delays encountered in securing the suppliers' confirmation of the amount of trade payables which was necessary for completing the audited profit and loss accounts. The unavailability of audited accounts contributed to Mr So’s error.

11.  The delay in the availability of audited accounts also resulted in the failure of the respondent to submit profits tax returns on time. The Inland Revenue Department has been kept fully advised and relevant income tax provisions have been made in the audited accounts.

12.  A certified public accountant of the Hong Kong Institute of Certified Public Accountants and a member of the Association of Chartered Certified Accountants has been engaged as the company secretary of Holdings who will be responsible for handling all the secretarial work for the respondent. Deloitte Touche Komatsu are to be the auditors with effect from listing and an audit committee will be established before the listing to ensure future compliance with statutory and regulatory requirements. To that end, Mr Chan has himself attended training sessions.

13.  On those facts, I am satisfied that no prejudice has been caused to the shareholders by the contraventions which clearly were inadvertent and unintended. I am further satisfied that sufficient steps have been taken to ensure future compliance. Accordingly, I will grant the relief sought.

14.  The draft order I have been shown includes what is commonly defend to as the ‘Head Park Group undertaking’ and I am content that the aspect has been addressed.