KWAN WING LOK MICHAEL AND ANOTHER v. TAI TAU TSAI ENVIRONMENTAL ENGINEERING LTD

HCMP 210/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 210 OF 2013

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BETWEEN

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D E C I S I O N

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1.  This is an application by originating summons seeking an order under section 122(1B) of the Companies Ordinance that the period for laying the profit and loss accounts for the financial years ended 31 March 1994 and 31 March 1995 before the members of Tai Tau Tsai Environmental Engineering Limited (“the Company”) be extended beyond nine months and that the balance sheets for those two financial years be laid before the Company in two extraordinary general meetings which had already been held, albeit after the period prescribed in section 122 had expired.

2.  The Company was incorporated in Hong Kong on 25 May 1993 and has carried on the business of providing contracted engineering works and sale of scrap material.

3.  The Company has at present an authorised share capital of $1,000,000 divided into 1,000,000 ordinary shares of $1 each, of which 100,000 have been issued and are credited as fully paid up.  90,000 issued shares are held by Wing Lok Group Limited, a company incorporated in the British Virgin Islands, and 5,000 shares are held by each of the applicants.

4.  The applicants are a husband and wife who appear also to have been in control of Wing Lok Group Limited, the holding company. They have at all material times been the only two directors of the Company, and were also its only two shareholders at the time in the mid 1990s, Wing Lok Group Limited having been brought into the picture only in 2012.

5.  The reasons for the present application are as follows.  Section 122(1) of the Companies Ordinance, read together with section 122(1A), requires that the profit and loss account of a company must be laid before the company at an annual general meeting held, in the case of a private company, not more than 9 months after the period covered by the account. 

6.  Section 122(2) requires that the balance sheet as at the date to which the profit and loss account is made up be laid before the company at its annual general meeting held not more than 9 months of that date. 

7.  Section 122(1B) gives the Court the power to extend the specified period of time.

8.  In addition, section 129C provides that the financial statements that are required to be laid before the company in general meeting have to be audited.  Section 129D requires the directors’ report to be attached to the balance sheet. 

9.  The Company’s audited financial statements for the financial year ended 31 March 1994 were only produced and dated on 28 April 1995 and laid before the Company in an extraordinary general meeting on 29 April 1995, more than 9 months after the end of the financial year covered by those accounts.  There was actually a prior annual general meeting held on 24 November 1994 but, as the audited accounts had not been produced by then, the meeting resolved that once the audited accounts were available, the directors should convene an extraordinary general meeting for consideration and adoption of the accounts.

10.  Similarly, the Company’s audited financial statements for the financial year ended 31 March 1995 were only produced and dated on 30 April 1996 and laid before the Company in an extraordinary general meeting on 1 May 1996, again more than 9 months after the end of the financial year covered by those accounts.  As in 1994, there was a prior annual general meeting held on 30 December 1995 at which it was resolved that once the audited accounts were available, the directors should convene an extraordinary general meeting for consideration and adoption of the accounts.

11.  There was therefore non-compliance with section 122 in relation to the accounts for those two financial years. According to the applicants, this was discovered during the due diligence exercise carried out in connection with the proposed listing of Wing Lok International Holdings Limited (“Wing Lok International”) on the Growth Enterprise Market of The Stock Exchange of Hong Kong, Limited, the Company being a subsidiary of Wing Lok International.

12.  The statutory provisions in question seek to ensure that there is a timely opportunity for the members of a company to be provided with and consider audited financial statements and the directors’ report showing the relatively recent financial performance and position of the company, including matters that are required to be stated in the directors’ report. They are an important part of the requirements of good corporate governance. The statute however also confers a power on the court to extend the relevant period of time.  The matters which the Court takes into account in deciding whether to exercise that discretionary power are not limited, but typically include whether the members were aware of the financial position of the company in question and thus not prejudiced by the non-compliance; whether the non-compliance was inadvertent; and whether the Court is satisfied that there will be proper compliance with the relevant statutory requirements in future: Re Sanliuyidu (Hong Kong) Sports Goods Co Ltd [2009] 4 HKLRD 708.

13.  In the present case, I take account of the fact that the applicants were in 1994 and 1995 the only two members of the Company as well as its only two directors and thus likely to have been familiar with its financial affairs at all material times.  The default, which occurred a long time ago and shortly after the incorporation of the Company, was followed by many years of proper compliance with the statute. The applicants have confirmed that the non-compliance was inadvertent and caused in part by their mistaken belief, in the absence of advice from the accountants, that the adoption of the financial statements in a subsequent extraordinary general meeting held beyond the prescribed period was sufficient. 

14.  The applicants who are the directors of the Company also assure the Court that they will ensure future compliance with the relevant statutory requirements.  In particular, they have taken director’s training provided by the legal advisers of Wing Lok International.  If Wing Lok International is successfully listed, there will of course be independent directors and an audit committee on its board to oversee the financial reporting of the group of which the Company forms part.

15.  The only member of the Company other than the applicants, namely, Wing Lok Group Limited, has given its consent to the application.

16.  In these circumstances I am satisfied that it is an appropriate case in which to exercise the discretion conferred on the Court by section 122(1B) and I make an order accordingly, on the applicants’ undertaking, as required by Harris J in Head Park Group Limited v Asiafair International Limited, HCMP 1435/2010, 31 August 2010, to the effect that they will procure that the order herein and the reasons for seeking it are brought to the attention of The Stock Exchange of Hong Kong Limited in connection with the proposed listing of Wing Lok International or any other company of which the Company is a subsidiary and are referred to in any prospectus for such listing.