GE MOBILE INTERIM SOLUTIONS, LLC v. GROUP APPAREL-HE-RO FAR EAST LTD

HCMP 1841/2023

[2024] HKCFI 256

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1841 OF 2023

________________________

________________________

________________________

________________________

D E C I S I O N

________________________

A.   Introduction

1.  This is the hearing of the Plaintiff’s Originating Summons dated 18 October 2023, under which the Plaintiff applies for an order that it be registered as a member of the Defendant (the “Company”)  pursuant to section 159 of the Companies Ordinance (Cap 622)  (“CO”).  The Company was served with the Originating Summons and yet does not appear at this hearing.

B.   Factual background

B1.   The parties and the Shares

2.  The Plaintiff was at all material times and is still a limited liability company incorporated in accordance with the laws of the State of Delaware.

3.  The Company was at all material times and is a private company incorporated in Hong Kong.  As of 11 May 1997, the Company had 100 issued shares:-

(1)  90 shares (the “Shares”)  were held by The He-Ro Group Limited (“HRGL”), a private company incorporated in the State of Delaware, the United States;

(2)  the remaining 10 shares were held by N.R.T. Company, Inc.  (“NRT”), a private company incorporated in New York.  The Plaintiff was at the material times the sole legal and beneficial owner of NRT.

4.  On 12 May 1997, a special resolution of the Company was passed declaring it as dormant.  The Company has become dormant since about 30 May 1997.

5.  On 31 May 1998, HRGL changed its name to The Nahdree Group, Ltd.  (“NGL”)  through a certificate of amendment executed by Mr Hong Jun Han on 25 May 1998.  

6.  On 23 July 2012, NGL was converted into a Delaware limited liability company named The Nahdree Group, LLC (“NGLLC”).

B2.   Merger Agreement

7.  On 1 May 2016, a merger involving NGLLC, the Plaintiff and other associated companies of the General Electric Company was implemented through a merger agreement of the same date (the “Merger Agreement”).  The parties to the Merger Agreement were collectively described therein as the “Merging Companies”.  The Plaintiff was described in the Merger Agreement as the “Surviving Company”.

8.  Pursuant to the Merger Agreement, on 1 May 2016:-

(1)  In accordance with the laws of the State of Delaware, the Merging Companies shall be merged with and into the Surviving Company; and the Surviving Company shall continue to exist under its present name: see Clause 2.

(2)  All property (real, personal and mixed), debts, and causes of action belonging to the Merging Companies automatically vested in the Plaintiff as the Surviving Company, in accordance with the laws of the State of Delaware: see Clause 4.

9.  Here, the distinction between transfer and transmission is significant:- 

(1)  It is trite that transfer of shares involves a voluntary disposition of legal title to the shares brought by an act of the shareholder and requires an instrument of transfer.  

(2)  On the other hand, transmission of shares involves an automatic devolution of title which takes place by operation of law upon the occurrence of a legally significant event.  For instance, where a shareholder dies or becomes bankrupt. Transmission of shares does not require an instrument of transfer: JX Holdings Inc v. Singapore Airlines Ltd [2016] 5 SLR 988.  

(3)  In the context of a transfer, the jurisdiction can be found in ss151-152 CO; whereas ss158-159 CO apply to a failure to effect registration after a transmission of shares.

10.  In the present case, I am satisfied that the effect of the merger under the Merger Agreement would involve the transmission of the Shares to the Plaintiff by operation of law: JX Holdings (above)  at §43(d).  In the circumstances, the Plaintiff has since 1 May 2016 been entitled to the Shares through transmission under the Merger Agreement, without there being any need for a proper instrument of transfer to be prepared and delivered.

11.  In this connection, it is pertinent to note Article 39 of the Articles of Association of the Company, which reads:-

“39. Any person to whom the right to any shares in the Company has been transmitted by operation of law shall, if the directors refuse to register the transfer, be entitled to call on the directors to furnish within 28 days a statement of the reasons for the refusal.”

C.   Sections 158 and 159 of the Companies Ordinance

12.  Sections 158 and 159 CO provide as follows:-

“158. Registration or refusal of registration

(1)  This section applies if the right to shares is transmitted to a person by operation of law and the person notifies the company in writing that the person wishes to be registered as a member of the company in respect of the shares.

(2)  Within 2 months after receiving the notification, the company must either –

(a)  Register the person as a member of the company in respect of the shares; or

(b)  Send the person notice of refusal of registration.

(3)  If a company refuses registration, the person may request a statement of the reasons for the refusal.

(4)  If a person makes a request under subsection (3), the company must, within 28 days after receiving the request –

(a)  Send the person a statement of the reasons; or

(b)  Register the person as a member of the company in respect of the shares.

(5)  If a company contravenes subsection (2)  or (4), the company, and every responsible person of the company, commit an offence, and each is liable to a fine at level 4 and in the case of a continuing offence, to a further fine of $700 for each day during which the offence continues.

159. Order of Court for registration

(1)  If a company refuses registration under section 158, the person to whom the right to the shares was transmitted may apply to the Court for an order under this section.

(2)  On an application under subsection (1), the Court may order the company to register the person as a member of the company in respect of the shares, if the Court is satisfied that the application is well-founded.”

D.   The Company’s failure to register the Plaintiff as a member

13.  On 28 April 2023, in accordance with s 158(1)  CO, the Plaintiff’s solicitors wrote to the Company, requesting for the registration of the Plaintiff as a member of the Company holding the Shares.  The said letter was served upon the Company by registered post pursuant to s 827 CO.  According to s 827 CO, any document may be served on a company by leaving it at or sending it by post to the registered office of the company. 

14.  On 23 May 2023, the Plaintiff’s solicitors further issued letters to the two directors of the Company demanding for the registration of the Plaintiff as a shareholder.  They also requested the Company to state the reasons for any refusal to register.  In the said letter, a deadline to respond within two months was also stated.  One of the directors of the Company, Ms Kim, acknowledged receipt of the said letter on 26 May 2023.

15.  On 26 July 2023, the Plaintiff’s solicitors wrote again to the two directors of the Company, requesting a statement of the reasons for refusal.  Ms Kim signed acknowledging the receipt of the delivery on 28 July 2023.  Yet the Plaintiff’s solicitors received no further response from them.

16.  In the circumstances, the Company provided no notice of refusal of registration within 2 months as prescribed by s 158(2)(b)  CO.  The Company also failed to provide any reasons for its refusal upon request under ss 158(3)  and (4)  of the CO.

17.  If a company refuses registration under s 158, the person to whom the right to the shares was transmitted may apply for an order under s 159, and the Court may order the company to register the person as a member of the company in respect of the shares, if the application is well founded.

18.  In light of the Company’s failure to send any notice of refusal of registration within the 2 month period prescribed by s 158(2)(b)  of the CO and failure to provide reasons for its refusal upon request under ss 158(3)  and (4)  of the CO, I am satisfied that an obligation arises on the part of the Company to enter the Plaintiff’s name as holder of the Shares.  The Plaintiff’s application under the Originating Summons is well-founded.   

E.   Disposition

19.  In the circumstances, I allow the Plaintiff’s application and make the following order:-

(1)  The Defendant do forthwith register the Plaintiff, GE Mobile Interim Solutions, LLC, as the member of the Defendant, in respect of the 90 shares from 1 May 2016;  

(2)  Costs of and occasioned by the Originating Summons dated 18 October 2023, including the hearing on 23 November 2023, be paid by the Defendant to the Plaintiff.

20.  In the circumstances of this case, I am prepared to deal with the Plaintiff’s costs by way of summary assessment on paper.  The Plaintiff is directed to submit its skeleton bill within 7 days from the date of this decision; and I shall deal with it on paper.

21.  I thank Mr Chan-Pensley for his assistance.