RE GT GROUP HOLDINGS LTD

HCMP 907/2021

[2022] HKCFI 2054

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 907 OF 2021

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REASONS FOR DECISION

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Application and Background

1.  On 25 February 2022, I made an order pursuant to the Company’s application by its ex parte originating summons filed on 29 June 2021 (the “Originating Summons”) for an order that the time for holding the Company’s annual general meeting (“AGM”) and laying financial statements for the year ended 31 December 2020 be extended to 31 December 2022.

2.  I gave my brief reasons for the decision on 25 February 2022. I now give my full reasons.

3.  The Company, GT Group Holdings Ltd, is a holding company listed on the Main Board of the Hong Kong Stock Exchange (stock code: 263). The Company’s subsidiaries (together with the Company, the “Group”) are principally engaged in trading, property development and financial businesses in China and Hong Kong).

4.  On 6 January 2021, the Company engaged Pan-China (HK) CPA Ltd (“Pan-China”) as its auditor for the purpose of producing the annual report for the year ended 31 December 2020).

5.  However, the audit procedure has taken longer than anticipated. This is mainly because certain audit evidence of two of the Company’s associate companies, Multi-Fame Group Ltd (“Multi-Fame”) and China Sky Holdings Ltd (“China Sky”), has yet to be provided by their auditor, CCT & Partners CPA Ltd (“CCT”)).

6.  One of the subsidiaries of the Group has been involved in legal proceedings in Mainland China. This has hindered the audit procedure of that associate company by creating uncertainty as to the impact of the litigation on the liabilities of the subsidiary.

7.  Without the outstanding audit evidence for Multi-Fame and China Sky, Pan-China could only produce a qualified opinion in relation to the disclosures of the associate companies’ financial information.

8.  As a result of the Company’s failure to announce its annual results for 2020 on the Stock Exchange by 31 March 2021, trading in its shares has been suspended since 1 April 2021.

9.  This Court was informed that the Company had been making active efforts to obtain the audit evidence from its associate companies and CCT. The Company estimates that it will produce its audited financial statements by September 2022 and convene its AGM on 7 November 2022.

Legal Principles

10.  The Court’s jurisdiction to extend the time limit for holding the AGM and laying the financial statements of the Company before the AGM stems respectively from sections 610(5) and 431(1)(b)(i) of the Companies Ordinance (Cap 622):

(1)  Section 610(5) provides that the Court may extend the period for holding an AGM “if for any reason the Court thinks fit to do so”.

(2)  Section 431(1)(b)(i) provides that the period for laying financial statements is 6 months after the end of the relevant accounting reference period “or any longer period directed by the Court”.

11.  The Court’s discretion is unfettered. The types of factors to which the Court will have regard include, but are not limited to:

(1)  Whether the shareholders were aware of the financial position of the company in question and thus were not prejudiced by non-compliance;

(2)  Whether the default was inadvertent; and

(3)  Whether the Court is satisfied that the company will comply with its obligation in the future.

See: Re Sanliuyidu (Hong Kong) Sports Goods Co Ltd [2009] 4 HKLRD 708 at §5 per Kwan J (as she then was); Re Hong Kong Times Investments Ltd [2014] 2 HKLRD 29 at §§13-14 per Godfrey Lam J (as he then was).

12.  Even if one or more of these conditions are not satisfied, that does not necessarily mean that the Court will necessarily refuse to extend time. For example, it has been said that the Court should be “slow” to grant the application in cases where the default arose from indifference (as opposed to inadvertence). The Court may still grant the application if it thinks fit: Re Natural Corporation Ltd (unrep., HCMP 2148/2013, 9 January 2014) at §3 per Harris J. This is consistent with the unfettered nature of the Court’s discretion.

13.  The Court’s discretion should be exercised for a legitimate purpose. Where the substantive if not the sole purpose of the extension is to relieve a director of potential liability, the court ought to exercise great care. It would be relevant to examine if the director has acted honestly and reasonably and ought fairly to be excused: Re Hong Kong Times Investments Ltd [2014] 2 HKLRD 29 at §§22-23 per Godfrey Lam J. (as he then was/)

14.  Finally, pursuant to O 102, r 2(2), the application should be in an expedited inter partes form.

15.  However, this may not always be practicable, and the Court has a discretion to waive the irregularity, taking into account, inter alia, the lack of prejudice to shareholders: Re 雲裔置業有限公司 (unrep., HCMP 2564/2013, 21 January 2014) at §2 per Anthony Chan J; Re Kidsloop Ltd [2021] HKCFI 1454 at §13 per DHCJ Maurellet SC.

16.  At the last hearing, this Court indicated that it would follow this pragmatic approach, provided that shareholders were made aware of the present hearing and the orders to be sought herein. I directed the Company to publish its application through the Stock Exchange so that all public shareholders would know about the present application.

Application of the law to the Present Case

17.  On 31 December 2021 and 12 January 2022, the Company made announcements on the Stock Exchange informing shareholders of the present hearing and the orders to be sought herein.

18.  Accordingly, this Court waived the procedural irregularity and allowed the application to proceed ex parte.

19.  This Court’s main concern was whether, despite the time extension granted, the Company would be able to produce the audited financial statements and the AGM within the time as the Company requested. If the Company could not do so then judicial discretion should not be exercised in vain. The Company has since filed evidence to prove that it could do so within the requested time.

20.  I made it clear to the Company that this Court granted the orders sought on the express undertaking that the Company would be able to table its audited financial statements and to have its AGM held within the requested time failing which this Court will not grant any further extension.

21.  The above discretion is exercise on the basis that:

(1)  The Company has made sure that its shareholders are fully aware of the financial position of the Company for the year 2020, in particular that it is expected to record a consolidated net loss of HK$460 million or more:

(a)  On 18 September 2020, the Company published its interim report on the Stock Exchange containing its unaudited condensed consolidated interim financial statements for the six months ended 30 June 2020. This shows a net loss of HK$247 million for the period .

(b)  On 7 January 2021, the Company published a profit warning announcement on the Stock Exchange stating that the Group was expected to record a consolidated net loss for 2020.

(c)  On 17 March 2021, the Company published a profit warning announcement on the Stock Exchange stating that the Group was expected to record a consolidated net loss of not less than HK$460 million for 2020.

(d)  On 31 December 2021, the Company published a quarterly update announcement on the Stock Exchange to inform shareholders that, in light of the losses suffered by the Company’s securities segment in 2018, 2019 and 2020, the Company will suspend the business of type 1 regulated activity of its wholly-owned subsidiary GT Capital Ltd.

(2)  The Company has not finalised its financial statements because key audit evidence from its associate companies is missing. Whilst the Company’s default was perhaps not “inadvertent” in the sense that it did not know it was contravening the statute, it was not the result of “indifference” to its statutory obligation either; rather, it was the result of a desire not to present an incomplete and potentially misleading picture to its shareholders. Notably, interests in these associates are some of the most significant assets of the Group, with the property development business carried out by China Sky being the principal business of the Group.

(3)  The Court is satisfied that the Company would  comply with its obligation in the future:

(a)  The Company has no previous history of default.

(b)  The Company has produced a timetable showing the steps that will be taken by the associate companies and the auditors towards convening the AGM and laying financial statements on 7 November 2022.

(c)  It is optimistic that the Mainland legal proceedings in relation to the associate company’s subsidiary can be concluded within the year. According to the Mainland lawyer’s legal opinion:

(i)  For the first set of proceedings, judgment was handed down on 30 July 2021.

(ii)  For the second, third and fourth sets of proceedings, judgment is expected to be handed down in March, May and June 2022 respectively.

(iii)  For the fifth set of proceedings, both sides want to settle and the Mainland lawyer’s opinion is that the likelihood of settlement is optimistic.

Disposition

22.  For the reasons given above, I made an order in terms of the draft order as presented to this Court by the Company.

23.  Finally, this Court thanks Mr Jiang for his helpful assistance.