CHEUNG SHUI KAM AND ANOTHER v. THE REGISTRAR OF COMPANIES

HCAL 2808/2019

[2020] HKCFI 2947

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 2808 OF 2019

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JUDGMENT

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INTRODUCTION

1.  This is an application for judicial review of the decision (“the Decision”) of the Registrar of Companies made on or about 11 July 2019 to reject the Applicants’ application under s 290A(6) of the former Companies Ordinance, Cap 32, to restore Group Hero International Limited (英群國際有限公司) (“the Company”) to the register of companies maintained by the Registrar.  In what follows, unless the context indicates otherwise, references to “Section” or “s” shall be to the former Companies Ordinance.

2.  The principal issues which arise for determination are:

(1)  whether, upon the true construction of s 290A, the Registrar has no power to entertain an application for the restoration of a company which has been struck off the register under that section once the statutory period of 20 years for making an application has expired; and

(2)  whether ss 290A and 290B are constitutionally valid.

BASIC FACTS

(i)      Background

3.  The Applicants were at all material times ordinary residents in Guangzhou, PRC.  In around late 1993 to early 1994, the Applicants decided to acquire a property in Hong Kong for occupation by the 1^st Applicant’s sister (“Ms Cheung”), who was planning to pursue her secondary and tertiary education in Hong Kong.  They were advised by a friend (“Mr So”) to use a Hong Kong limited company to acquire and hold the property.

4.  The Company was incorporated in Hong Kong on 14 September 1993, with a share capital of HK$2 divided into 2 shares of HK$1 each.

5.  On 28 January 1994, the Applicants entered into a preliminary sale and purchase agreement in the name of the Company to purchase the property known as Flat E, 5/F, Block 1, Yuet Ming Building, 52 Yuet Wah Street, Kowloon, Hong Kong (“the Property”) at the price of HK$1.18 million.

6.  On 2 February 1994, the Applicants formally became the only directors and shareholders of the Company, each holding 1 share, and the 1^st Applicant became the secretary of the Company. Since they did not, at that time, own any immovable property in Hong Kong, they decided to use the address of a property known as 3/F, A, Sui Cheong House, 269-273 Cheung Sha Wan Road, Kowloon, Hong Kong (“the Sui Cheung House Property”), then owned by the sister (“Ms Mak”) of a friend of Mr So, as the registered office of the Company.

7.  On 2 February 1994, the 1^st Applicant on behalf of the Company gave notice to the Registrar that the Company’s registered office was situated at the address of the Sui Cheong House Property.  Also, in the return of first directors and secretary of the Company and in each of the Applicants’ acceptance of appointment as director of the Company, they gave the address of the Sui Cheong House Property as their address/residential address.

8.  On 18 February 1994, the Company entered into a formal sale and purchase agreement to purchase the Property.  On 31 March 1994, the formal sale and purchase agreement was completed, and the Property was assigned to the Company.  Thereafter, the Property was occupied by Ms Cheung and/or some other relatives of the Applicants.  They also visited and stayed in the Property occasionally.

9.  On 5 June 1996, Ms Mak sold the Sui Cheong House Property.  According to the Applicants, Ms Mak did so without informing them, and they were unaware of the sale of the Sui Cheong House Property until early September 2019[1]. For this reason, the Sui Cheong House Property continued to be the registered office of the Company up the time when the Company was struck off on 9 January 1998.

(ii)     The striking off of the Company

10.  The Company did not file any annual return with the Registrar after its incorporation in 1993.

11.  Sometime in 1997, the Registrar sent by registered post to the registered office of the Company letters notifying the Company and the Applicants of the Company’s failure to file the annual return for 2 consecutive years pursuant to s 290A(1).  Although the relevant letters have not been produced as evidence in these proceedings, the Applicants do not dispute that such letters were sent[2].

12.  On 12 September 1997, the Registrar published in the Gazette a notice (“the s 290A(2) Notice”) stating that -

“Pursuant to Section 290A(2) of the Companies Ordinance, at the expiration of three months from the date of the above Gazette Notice, unless the Registrar has received all overdue annual returns, the annual registration fee payable on delivery of such annual return under Eighth Schedule of the Companies Ordinance, and additional fee of HK$500 and a penalty of HK$5,000, the name of the [Company] will be struck off the Register and [the Company] will be dissolved.”

13.  Notwithstanding the s 290A(2) Notice, no annual return of the Company was received by the Registrar.  Accordingly, on 9 January 1998, the Registrar published in the Gazette another notice (“the s 290A(3) Notice”) stating that -

“Pursuant to Section 290A(3) of the Companies Ordinance, the name of [the Company] has been struck off the Register. The Company is accordingly dissolved as from the date of the publication of the above Gazette Notice.”

(iii)    The Applicants’ discovery of the striking off of the Company

14.  According to the Applicants:

(1)  They had been unaware of the striking off of the Company until May 2018.  The reason was that Ms Mak, who was supposed to pass on any correspondence to the Applicants, was no longer in possession of the Sui Cheong House Property at the time when the aforesaid documents, including the letters, the s 290A(2) Notice and the s 290A(3) Notice referred to in §§11 to 13 above, were sent to the registered office of the Company.

(2)  In May 2018, the 1^st Applicant came to learn that there was a redevelopment plan by the Government in some parts of the Kwun Tong area.  That prompted the 1^st Applicant to cause a land search of the Property and a company search of the Company to be carried out. It was then that the 1^st Applicant discovered that the Company had been struck off and dissolved on 9 January 1998.

(iv)    The Applicants’ request to restore the name of the Company to the register

15.  On 12 November 2018, the Applicants issued an Originating Summons in the High Court (HCMP 1986/2018) seeking to restore the Company to the register pursuant to s 765 of the current Companies Ordinance, Cap 622 (“the Companies Ordinance”).  Pausing here, it may be noted that s 765(1) of the Companies Ordinance only applies to the situation where a company has been struck off the register under ss 291[3] or 291A[4].  It has no application to a company which has been struck off under s 290A.

16.  By a letter dated 27 December 2018 to the Applicants’ solicitors, Lau Chan & Ko (“LCK”), the Registrar drew the Applicants’ attention that the Company was struck off pursuant to s 290A(3), and an application for the restoration of the Company should be made “before the expiration of 20 years from the publication in the Gazette” of the s 290A(3) Notice.

17.  On 28 February 2019, Madam Justice Au-Yeung adjourned the hearing of the Originating Summons to another date for argument. It has so far not been restored for hearing.

18.  By a letter dated 28 February 2019 to the Registrar, LCK on behalf of the Applicant formally applied for the restoration of the Company under s 290A(6).

19.  By a letter dated 28 May 2019 to LCK, the Register stated that the 20-year time limit specified in s 290A(6) was mandatory, and the Registrar did not have power to restore a company to the register under that subsection if the application was made outside the 20-year period.  The same view was expressed by the Registrar to LCK in a further letter dated 11 July 2019.

APPLICATION FOR JUDICIAL REVIEW

20.  The Applicants made the present application for leave to apply for judicial review on 24 September 2019.  In the Form 86, the Applicants raise the following grounds of judicial review:

(1)  Ground 1: ultra vires and/or illegality, it being argued that the Registrar wrongly construed and applied s 290A that she had no power to restore the Company to the register on an application made after the expiration of the 20-year period;

(2)  Ground 2: unconstitutionality, it being argued that -

(a)  ss 290A and 290B, by striking off the Company and deeming the rights and properties of the Company immediately before its dissolution to be bona vacantia upon striking off, constitute disproportionate interference with the Applicants’ private property rights and are inconsistent with Articles 6 and/or 105 of the Basic Law (“BL 6” and “BL 105” respectively); and

(b)  s 290A(6), insofar as it imposes an absolute time limit for an application for restoration of a struck-off company, also constitutes a disproportionate interference with the Applicants’ private property rights contrary to BL 6 and/or BL 105.

SECTIONS 290A AND 290B

21.  Sections 290A and 290B were added to the former Companies Ordinance by the Companies (Amendment) Ordinance 1993 (No 10 of 1993).  They concern the striking off of a company which has failed to forward its annual return to the Registrar for 2 consecutive years.

22.  Section 290A states as follows:

“Registrar may strike off company for failure to forward annual returns

(1) Where a company has for 2 consecutive years failed to forward to the Registrar the annual return required by this Ordinance to be forwarded by it, the Registrar may send by post to the company and each of its directors and secretaries named in the last annual return forwarded to him, if any, as amended by any subsequent notice of change of particulars sent under section 158(4), a registered letter notifying them of its failure and of his powers under subsection (2).

(2) Where, within 1 month after the Registrar sends by post the letter referred to in subsection (1), he does not receive -

(a) all overdue annual returns;

(b) the annual registration fee payable on delivery of such annual return under the Eighth Schedule; and

(c) an additional fee of $500,

the Registrar may publish in the Gazette and send by post to the company and each of its directors and secretaries referred to in subsection (1), a notice that at the expiration of 3 months from the date of that notice the name of the company mentioned therein will, unless the returns and fees referred to in paragraphs (a), (b) and (c), together with the penalty specified in subsection (3), have been received by him, be struck off the register and the company will be dissolved.

(3) At the expiration of the time specified in the notice referred to in subsection (2), the Registrar may, unless he has received the returns and fees referred to in subsection (2)(a), (b) and (c), together with a penalty of $5,000, strike its name off the register, and shall publish notice thereof in the Gazette and on the publication in the Gazette of this notice the company shall be dissolved.

(6) If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register, the Registrar on an application made by the company or member or creditor before the expiration of 20 years from the publication in the Gazette of the notice under subsection (3) may, if satisfied that it is just that the company be restored to the register and a fee of not more than $20,000 as may be decided by the Registrar having regard to the circumstances of the case has been paid, publish a notice to that effect in the Gazette and upon the notice being published the company shall be deemed to have continued in existence as if its name had not been struck off; and the Registrar may in the notice give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off.

(7) A letter or notice to be sent under this section to a company may be addressed to the company at its registered office …

(8) A letter or notice to be sent under this section to a director or secretary of a company shall be addressed to him at the address given in the last annual return filed with the Registrar, if any, or in any subsequent notice of change of particulars sent to the Registrar under section 158(4).”

23.  Section 290B deals with how the properties of a company which has been struck off and dissolved under s 290A are to be disposed of.  It states, so far as relevant, as follows:

“Bona vacantia

(1) Where a company is dissolved under section 290A, all property and rights whatsoever vested in or held on trust for the company immediately before its dissolution (including leasehold property but not including property held by the company on trust for any other person) shall, subject and without prejudice to any notice which may be published by the Registrar under section 290A, be deemed to be bona vacantia and shall accordingly belong to the Crown, and shall vest and may be dealt with in the same manner as other bona vacantia accruing to the Crown.

(2)  A person claiming to be a creditor of the company dissolved under section 290A(3) or any other person who claims an interest in the bona vacantia may, within a period of 4 months from the date of dissolution of the company, apply to the Registrar for the payment of the debt owed by the company out of the bona vacantia.”

24.  The purpose of s 290A was explained by the Secretary for Monetary Affairs during the second reading of the Companies (Amendment) Bill 1992 in the Legislative Council:

“The purpose of the Bill is two-fold. First, to enable the Registrar of Companies to take effective enforcement action against companies which persistently fail in their statutory duty to submit annual returns …

Section 109 of the Companies Ordinance requires every company to deliver to the Registrar a copy of its annual return within 42 days of its annual general meeting. There are currently over 300 000 registered companies in Hong Kong. A recent survey conducted by the Registrar indicated that as many as 25% of those do not submit regular annual returns. The problem is particularly acute with moribund companies, the directors of which are not concerned about incurring late filing fees as they have no intention of filing any further documents in the future.

Although there are already procedures[5] which may be initiated by the Registrar under the Ordinance for striking companies off the register, these procedures require the Registrar to exercise his discretion in each individual case. The provisions in question, therefore, do not provide a practical means of dealing with a problem of this magnitude and, furthermore, because of the nature of many of the cases, it is difficult for the Registrar to receive the up to date information he requires to enable him to exercise his discretion properly.

It is therefore proposed that the Registrar be provided with a more effective means of dealing with cases of default by introducing a simplified procedure for striking companies off the register where they fail to submit annual returns for two consecutive years. Striking-off action will not be initiated until fair warning has been given to a company and its directors and the company has been given the opportunity to remedy the situation.

If a company chooses to ignore these warnings, it may be struck off and dissolved.  All property and rights vested in it or held on trust for it immediately before its dissolution will then be deemed to be bona vacantia and to belong to the Crown.  The Bill also provides for creditors to make claims against bona vacantia.  Additionally, if, upon application by the company or any member or creditor of it, the Registrar is satisfied that there are reasonable grounds for a company to be restored onto the register, and an appropriate fee is paid, then reinstatement may be effected quickly and simply.”

25.  Section 290A has no equivalent provision in the Companies Acts of 1908, 1929, 1948 or 1985.  There is, however, a similar provision in the former Companies Ordinance, namely, s 291, which is itself derived from s 242 of the Companies (Consolidation) Act 1908, replaced subsequently by s 295 of the Companies Act 1929, s 353 of the Companies Act 1948 and s 653 of the Companies Act 1985 (see El Vince Ltd v Wu Wen Sheng [2001] 3 HKLRD 445, at §16 per Kwan J (as she then was)).

26.  Section 291 is concerned with the striking off of a company which the Registrar has reasonable cause to believe is not carrying on business or in operation (ie defunct), and states as follows:

“Registrar may strike defunct company off register

(1) Where the Registrar has reasonable cause to believe that a company is not carrying on business or in operation, he may send to the company by post a letter inquiring whether the company is carrying on business or in operation.

(2) If the Registrar does not within 1 month of sending the letter receive any answer thereto, he shall within 14 days after the expiration of the month send to the company by post a registered letter referring to the first letter, and stating that no answer thereto has been received, and that if an answer is not received to the second letter within 1 month from the date thereof, a notice will be published in the Gazette with a view to striking the name of the company off the register.

(3) If the Registrar either receives an answer to the effect that the company is not carrying on business or in operation, or does not within 1 month after sending the second letter receive any answer, he may publish in the Gazette and send to the company by post, a notice that at the expiration of 3 months from the date of that notice the name of the company mentioned therein will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved.

(6) At the expiration of the time specified in any notice referred to in subsection (3) … the Registrar may, unless cause to the contrary is previously shown, strike its name off the register, and shall publish notice thereof in the Gazette and on the publication in the Gazette of this notice the company shall be dissolved: Provided that …

(7) If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register, the court on an application made by the company or member or creditor before the expiration of 20 years from the publication in the Gazette of the notice aforesaid may, if satisfied that the company was at the time of the striking off carrying on business or in operation, or otherwise that it is just that the company be restored to the register, order the name of the company to be restored to the register, and upon an office copy of the order being delivered to the Registrar for registration the company shall be deemed to have continued in existence as if its name had not been struck off; and the court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off.”

27.  I shall return to the nature and effect of s 291(7) later in this judgment when I consider the true construction of s 290A(6).

28.  Finally, it may be noted that although s 290A was repealed in 1999, it continues to have effect in relation to a company that has been struck off under that section as if it had not been repealed, by virtue of the savings provision in s 43 of the Companies (Amendment) Ordinance 1999 (30 of 1999).

GROUND 1: ULTRA VIRES AND/OR ILLEGALITY

29.  Ground 1 of the application for judicial review raises an issue of construction of s 290A(6).  In particular, the question which requires determination is whether, upon the true construction of s 290A(6), the Registrar still has power to entertain an application for the restoration to the register of a company which has been struck off where the application is made outside the time limit of 20 years as stipulated in that section.

30.  The text of s 290A(6) has already been set out in §22 above.  For ease of reference, I shall set out the relevant parts of s 290A(6) again:

“If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register, the Registrar on an application made by the company or member or creditor before the expiration of 20 years from the publication in the Gazette of the notice under subsection (3) may, if satisfied that it is just that the company be restored to the register and a fee of not more than $20,000 as may be decided by the Registrar having regard to the circumstances of the case has been paid, publish a notice to that effect in the Gazette and upon the notice being published the company shall be deemed to have continued in existence as if its name had not been struck off …” [emphasis added]

31.  On the face of it, s 290A(6) lays down a clear time limit of 20 years for making an application for the restoration of a company to the register.  It is not in dispute that the application of the Company in the present case was made outside the statutory period of 20 years. The question is what is the consequence of a non-compliance with this statutory requirement as to time.  The conventional approach where there has been non-compliance with a time or other procedural requirement laid down by statute for the commencement or prosecution of proceedings is to seek to ascertain whether the requirement which has not been complied with should be categorized as “directory” or “mandatory”.  This approach has been criticized as concentrating too much “on labels” (see Re Au Kwok Hung [2001] 1 HKLRD 169, at 173J).  The modern approach for determining the consequence of such non-compliance is to treat the matter as one of statutory construction, and the court’s task is to ascertain what the legislature intends to be the consequence of the non-compliance (see FH v WB [2019] 5 HKC 99, at §§65-66 per Au-Yueng J).  In R v Secretary of State for the Home Department, ex p Jeyeanthan [2001] 1 WLR 354 at 362D-E, Lord Woolf identified three relevant questions which the court should consider:

“(1) Is the statutory requirement fulfilled if there has been substantial compliance with the requirement and, if so, has there been substantial compliance in the case in issue even though there has not been strict compliance? (The substantial compliance question.)

(2) Is the non-compliance capable of being waived, and if so, has it, or can it and should it be waived in this particular case? (The discretionary question.) I treat the grant of an extension of time for compliance as a waiver.

(3) If it is not capable of being waived or is not waived then what is the consequence of the non-compliance? (The consequences question.)”

The above approach was endorsed by the Court of Appeal in Re Au Kwok Hung [2001] 1 HKLRD 169, at 174, adding that the second and third questions could often be decided together.

32.  In respect of the substantial compliance question, the Court of Appeal in Re Au Kwok Hung said that a requirement which consisted of “doing a particular act by a particular date” could not be regarded as anything other than a requirement which has to be complied with strictly.  At 175B, the Court of Appeal pointedly observed: “Why should a requirement, which consists simply of doing something by date X, be regarded as having been complied with (albeit substantially) if it is only done by date Y?”  Further, as observed by Kwan J (as she then was) in Re Merck Sharp & Dohme Ltd [2002] 1 HKLRD 820, at §22: “in the normal situation, where a time-limit is laid down by statute and no power is given to extend it, the time-limit should be strictly observed without being dispensed with, unless the substantive requirement itself can be dispensed with altogether”.  In my view, it is clear that the requirement to make an application within the 20-year period under s 290A(6) is not fulfilled unless there has been strict compliance with the time limit.

33.  The second (discretionary) and third (consequences) questions can be taken with together.  The language of s 290A(6) is perfectly plain.  The Registrar has power to restore a company which has been struck off the register under that section if it is just to do so and an appropriate fee of not more than HK$20,000 has been paid, provided that the application for restoration is made before the expiration of 20 years from the publication in the Gazette of the relevant notice under s 290A(3).  There is nothing in s 290A, or any other provision in the former Companies Ordinance, to indicate that the non-compliance with the time requirement is capable of being waived, or the Registrar has any power to grant an extension of time for making the application.

34.  The purpose of allowing a period of 20 years for an application to be made under s 290A(6) may be gleaned from a consideration of the purpose of a similar provision in s 291(7) which allows a period of 20 years for a “defunct” company to apply to be restored to the register.  As earlier noted, s 291(7) is equivalent to s 353(6) of the Companies Act 1948, and the purpose of the latter provision was considered by Megarry J in Re Test Holdings (Clifton) Ltd [1970] Ch 285.  At 289A-D, the learned Judge contrasted between (i) the general power of the court to declare a dissolution of a company void in an application made within 2 years of the date of the dissolution under s 352(1) of the 1948 Act[6], and (ii) the specific power of the court to restore a defunct company which had been struck off in an application made before the expiration of 20 years from the publication in the Gazette of the notice of striking off under s 353(6) of the 1948 Act, and stated as follows:

“There are many contrasts between the two subsections. Two are that under section 352(1) the power is wide and short, whereas under section 353(6) it is narrow and long. Section 352(1) applies whenever a company is dissolved, for whatever cause, though it is available for only two years after the dissolution of the company. Section 353(6), on the other hand, is limited to cases where the company has been struck off the register, a process which under section 353(5) brings dissolution in its train; but it remains available for 20 years after the dissolution which, under subsection (5), occurs on publication of the notice in the Gazette which records the striking off. The marked difference in the time limits is probably accounted for, at least in part, on the footing that section 352(1) is primarily concerned with companies that have been wound up, and that this is a process which normally will bring to light all the assets of the company. Section 353(6), on the other hand, is concerned with companies which are still carrying on business despite being struck off, and so may have unknown assets which do not come to light until many years after the company has in fact been struck off and so dissolved. The discovery of outstanding assets of the company is, of course, often one of the reasons why revival is sought.”

35.  In other words, the long period of 20 years allowed for a company which has been struck off under s 353 of the Companies Act 1948 to apply to the court for its restoration to the register is to cater for the possibility that the company may have unknown assets which do not come to light until many years after the striking off.  This having been said, the legislature plainly considers that a period of 20 years would be sufficient for any “unknown assets” to come to light and for an application to be made for the restoration of the company in question.

36.  It may also be noted that in respect of both time limits for making a relevant application under s 352(1) of 1948 Act (or its equivalence) or s 353(6) of the 1948 Act (or its equivalence), there are clear authorities to the effect that strict compliance is required:

(1)  in respect of the former[7], see Re Belmont & Co Ltd [1952] Ch 10, at 13 per Wynn-Parry J; Re Cornish Manures Ltd [1967] 1 WLR 807, at 810 per Pennycuick J; and

(2)  in respect of the latter, see Gavin Trustees Ltd v The Pensions Regulator and Desmond & Others [2015] IDS Pensions Law Report 1, at §33 per Judge Herrignton; John Hammonds & Co v Registrar of Companies [1999] 3 NZLR 690, at §35 per Hammond J.

37.  In Joddrell v Peaktone Ltd [2013] 1 WLR 784, at §12, Munby LJ said that s 653 of the Companies Act 1985, and its predecessors (including s 353 of the Companies Act 1948), conferred on the court a power in defined circumstances, though exercisable for up to 20 years after dissolution, to order the restoration to the register of a company previously struck off by the registrar.  The same observation was made by H H Judge Keyser QC in Davy v Pickering [2016] BCC 50, at §28.  In short, the court’s power to restore a company to the register can only be exercised (i) in “defined circumstances” (namely, that the company was at the time of the striking off carrying on business or in operation, or otherwise that it is just that the company be restored to the register), and (ii) during the period of 20 years after dissolution.

38.  I see no reason why a similar construction should not be given to s 290A(6).  In my view, the Registrar’s power to restore a company to the register under that subsection can only be exercised (i) in circumstances where the Registrar is satisfied that it is just that the company be restored to the register and an appropriate fee of no more than HK$20,000 has been paid, and (ii) during the period of 20 years from the publication of the Gazette notice under s 290A(3).  Once the 20-year period has expired, the Registrar has no power to entertain an application for the restoration of a company under s 290A(6).

39.  On behalf of the Applicants, Mr Yim submits that the Registrar continues to have a discretionary power to deal with an application made out of time.  Mr Yim relies upon 3 matters in support of his submissions:

(1)  having regard to the purpose of s 290A(1) - (3), which is to “enable the Registrar to take effective enforcement action against companies which persistently fail in their statutory duty to submit annual returns”, s 290A(6) must have been designed to relieve the harshness of s 290A(1) - (3) and the hardship on a company and its shareholders arising from the striking off of the company;

(2)  s 290A(6) does not adopt mandatory, inflexible language which manifests an intention that the 20-year time limit must be strictly complied with, or that the Registrar has no power whatsoever to entertain an application under 290A(6) after the expiry of the 20-year period; and

(3)  s 290A(1) - (3) is penal in nature and interferes with the private property rights of a company and its shareholders. Thus, any ambiguity in s 290A(6) should be resolved in favour of the protection of private property rights and in a manner which interferes least with private property rights.

40.  My views on the 3 matters relied upon by Mr Yim are as follows:

(1)  In respect of (1), I accept that a purpose of s 290A(6) is to relieve the harshness of the consequences arising from the striking off of a company from the register.  However, the proper focus for the purpose of the present discussion should be on the purpose of the imposition of the time limit of 20 years for making an application for the restoration of the company to the register.  As earlier mentioned, the purpose of the 20-year time limit is to cater for the possibility of unknown assets only coming to light many years after the striking off.  The time allowed is generous, but it must be finite in order achieve finality once the time limit has passed.

(2)  In respect of (2), I consider the language used in s 290A(6) to be clear that strict compliance with the time limit is required.

(3)  In respect of (3), the principle that a statute which is penal in nature, or interferes with private property rights, should be strictly construed is not absolute.  It may assist the court to determine the true construction of a statute, but cannot override the clear meaning and effect of the legislation.  Bearing in mind the generous period of 20 years allowed for a company to apply to be restored to the register, I do not consider that the said principle has much force in the determination of the true construction of s 290A(6).

41.  In all, I am of the view that the Registrar reached the correct conclusion that she had no power to restore the Company to the register because the relevant application was made outside the 20-year period under s 290A(6).

GROUND 2: UNCONSTITUTIONALITY

42.  Under this ground, the Applicants challenge the constitutionality of:

(1)  ss 290A and 290B, on the basis that the striking off of the Company and deeming the properties of the Company immediately before its dissolution to be bona vacantia upon its striking off, constitutes a disproportionate interference with the Applicants’ private property rights under BL 6 and BL 105 (referred to by Mr Yim as the “Bona Vacantia Ground”); and

(2)  s 290A(6), on the basis that the lack of discretion on the part of the Registrar to consider any application made after the expiry of the 20-year period under that section further disproportionately interferes with the Applicants’ private property rights under BL 6 and/or BL 105 (referred to by Mr Yim the “Time Limit Ground”).

43.  Although Mr Yim has attacked the constitutionality of ss 290A and 290B by looking separately at (i) the consequence of the dissolution of a company upon its striking off (in particular, deeming all its properties immediately before its dissolution as bona vacantia), and (ii) the absence of any discretion on the part of the Registrar to permit an application for restoration of a company after the expiry of the 20-year period, it seems to me that the statutory scheme under ss 290A and 290B should be considered as a whole.  In summary, they provide for a series of notices to be given to a company (and its directors and secretary) which has defaulted in forwarding to the Registrar the annual return for 2 consecutive years before action is taken to strike the company off the register and its properties are vested in the Government upon a bona vacantia:

(1)  The statutory procedure is triggered where a company has for 2 consecutive years failed to forward to the Registrar the annual return as required by law.  In such a scenario, the Registrar is first required to give notice of the default to the company and each of its directors and secretary by post under s 290A(1).

(2)  If the company fails to remedy the default within 1 month of the notice given under subsection (1), the Registrar is then required to publish in the Gazette and send by post to the company and each of its directors and secretary a notice under s 290A(2) that unless the default is remedied and an appropriate penalty is paid within 3 months, the company would be struck off the register.

(3)  If the company still fails to remedy the default and pay the penalty, the Registrar would finally strike the company off the register and publish in the Gazette a notice of the striking off of the company under s 290A(3), whereupon the company is dissolved.

(4)  Upon the dissolution of the company, all properties and rights vested in or held on trust for the company immediately before its dissolution would be deemed to be bona vacantia and belong to the Government under s 290B(1).

(5)  Nevertheless, a creditor of the company or any other person who claims an interest in the bona vacantia may, within a period of 4 months from the date of dissolution of the company, apply to the Registrar for the payment of the debt by the company out of the bona vacantia under s 290B(2).

44.  As earlier noted, Mr Yim relies upon BL 6 and BL 105 in support of the constitutional challenge to the validity of ss 290A and 290B.  BL 6 states as follows: “The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law.”

45.  BL 105(1) states as follows: “The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property.”

46.  Mr Ismail argues that BL 6 and BL 105 are not engaged because they only seek to guarantee the right to compensation for lawful deprivation of property when that deprivation constitutes expropriation of property by the state or a state agency, and there is no such expropriation of property in the present case.  I am unable to accept this submission because, as held by the Court of Appeal and endorsed by the Court of Final Appeal in Hysan Development Co Ltd v Town Planning Board (2016) 19 HKCFAR 372, at §18, “the protection conferred by art.105 extends beyond cases of deprivation without compensation to cover the rights of individuals to acquire, use, dispose of and inherit property”.  At §35, the Court of Final Appeal went on to state: “Neither does the fact that art.105 makes no provision for compensation for interference with land short of expropriation have any present relevance.  Conferment of a right to compensation in deprivation cases does not diminish the protection conferred against other forms of interference with the right to acquire, use, dispose of and inherit property.”

47.  For the purpose of the present application, I shall proceed on the basis that the rights protected by BL 6 and BL 105 are engaged, and consider whether the interference with such rights by ss 290A and 290B can be justified by applying the 4-step proportionality test established in Hysan, at §§134 and 135, namely:

(1)  whether the intrusive measure pursues a legitimate aim;

(2)  if so, whether it is rationally connected with advancing that aim;

(3)  whether the measure is no more than (reasonably) necessary for that purpose; and

(4)  whether a reasonable balance has been struck between the societal benefits of the encroachment and the inroad made into the constitutionally protected rights of the individual, asking in particular whether pursuit of the societal interest results in an unacceptably harsh burden on the individual.

48.  Before I consider the application of the 4-step proportionality test to the facts of the present case, there are two preliminary observations which should be made.  First, the vesting of the properties held by or belonging to a company immediately prior to its dissolution in the Government as bona vacantia is simply the legal consequence of the common law rule that “property must belong to somebody, and where there is no other owner, not where the owner is unknown, … it is the property of the Crown” (Re Wells [1933] Ch D 29, at 55-56 per Romer LJ).  Second, a company’s property does not, in any event, belong to its shareholders.  Hence, upon the dissolution of the Company in this case, the Applicants had no right to claim the Property as their own although, had they acted within 4 months from the date of the dissolution of the Company, they would have been able to apply to the Registrar for the payment of any debts which might be owed by the Company to them out of the bona vacantia under s 290B(2).  This having been said, the consequence of the dissolution of the Company is that the bundle of rights which they previously enjoyed as shareholders of the Company is thereby extinguished, and those rights are, as a matter of principle, entitled to protection under BL 6 and/or BL 105.

49.  For the purpose of the present discussion, the intrusive measures imposed by ss 290A and 290B which are required to be justified under the 4-step proportionality test are:

(1)  the striking off from the register of a company which has failed to forward its annual return to the Registrar for 2 consecutive years, leading to its dissolution and the consequent vesting of its properties in the Government as bona vacantia (“the Striking Off Measure”);

(2)  the imposition of a strict time-limit of 20 years for making an application to restore the company, beyond which no application can be entertained by the Registrar (“the Strict Time Limit Measure”).

50.  1^st step: the Applicants accept that encouraging the proper filing of annual returns by private companies in Hong Kong is a legitimate aim[8].  As stated by Kwan J (as she then was) in The Official Receiver v Tong Wing Man and Others, HCMP 5157/2001 (6 February 2003), at §25, “the persistent failure to file annual returns and accounts is hardly a trivial matter.  These are obligations imposed by statute for the protection of members of the public in their dealings with an entity that has the benefit of trading with limited liability”.  The Applicants also accept that providing for the “finality” of the striking off and dissolution of a company (with all its attendant consequences) and preventing “stale claim(s)”[9] are legitimate aims.

51.  2^nd step: whether a measure is rationally connected with advancing an aim is essentially a matter of logic and common sense.  In Bank Mellat v Her Majesty’s Treasury (No 2) [2014] AC 700, at §92, Lord Sumption JSC referred to the following statement of Wilson J in Lavigne v Ontario Public Service Employees Union [1991] 2 SCR 211, at 291 -

“The Oakes inquiry into ‘rational connection’ between objectives and means to attain them requires nothing more than showing that the legitimate and important goals of the legislature are logically furthered by the means government has chosen to adopt”,

and added the following -

“The words ‘furthered by’ point towards a causal test: a measure is rationally connected to its objective if its implementation can reasonably be expected to contribute towards the achievement of that objective…”

52.  The threat of a striking off of a company from the register would normally act as an incentive for the company to properly file its annual return as required by law.  It is also clear from the legislative history of s 290A that its aim is to enable the Registrar to take effective enforcement action against companies which persistently fail in their statutory duty to submit annual returns (see §24 above).  It would appear that there was in fact wide-spread abuse of the statutory procedure for the striking off of a company under s 290A as “a government-provided free corporate deregistration service”, which eventually led to the repeal of s 290A in 1999[10]. However, the mere fact that the statutory procedure under s 290A was abused in some, or even many, instances does not mean that the Striking Off Measure is not rationally connected with advancing the aim of encouraging companies to properly file annual returns.

53.  Mr Yim submits that the Striking Off Measure is not rationally connected with the aim of encouraging compliance with the annual return filing requirement because, it is said, the obligation to file annual return is to be discharged by the company’s directors or secretary, not the shareholders, and thus the deterrence effect under ss 290A and 290B is directed towards the wrong party - punishing the shareholders who bear no responsibility for the company’s default, and it “provides no incentive for the person(s) responsible to comply with the filing requirement”.  I am unable to accept this submission because:

(1)  The directors of a company are appointed by the shareholders and answerable to them for their action or inaction.  The shareholders have ultimate control over the affairs of a company.  It is incorrect to suggest that shareholders bear no responsibility for the company’s default, particularly in respect of private companies targeted by ss 290A and 290B[11] where the directors and shareholders often are the same or overlap substantially.

(2)  It is also incorrect to think that directors do not have a general interest to see that the company of which they are directors is not struck off the register for failing to properly file its annual return, quite apart from the fact that every officer of the company who is in default of the filing requirement is liable to a fine and, for continued default, to a daily default fine under s 109(4).

(3)  Whether a company has properly filed its annual return is a matter of public record which the shareholders can easily find out by doing a company search at the Companies Registry.

(4)  Before the Registrar can exercise the power to strike off a company from the register, she is required to give public notice of the intended striking off in the Gazette under s 290B(2) which is accessible to the shareholders.

Mr Yim’s attempt to differentiate between the directors and shareholders also has an air of unreality on the facts of the present case, having regard to the fact that the Applicants were at all material times the only directors and shareholders of the Company and the 1^st Applicant was also the secretary of the Company.  It was their responsibility to ensure that a proper registered address was maintained to receive communications from the Registrar.

54.  In so far as the Strict Time Limit Measure is concerned, Mr Yim accepts that it is rationally connected with the legitimate aim of providing “certainty, clarity and finality”[12].

55.  In all, I am of the view that the Striking Off Measure and the Strict Time Limit Measure are rationally connected with the legitimate aims mentioned above.

56.  3^rd step:  the present case does not concern restriction of or interference with core fundamental rights, but is concerned with policies pertaining to trade and commerce, including in particular the protection of members of the public in their dealings with companies with limited liability.  The Government is, in my view, entitled to a degree of latitude in choosing the appropriate measure to pursue the legitimate aims.

57.  The Striking Off Measure is no more than reasonably necessary for advancing the aim of encouraging the proper filing of annual returns by companies in Hong Kong, having regard to the following matters:

(1)  The important consideration of protection of members of the public who deal with companies with limited liability (see §50 above).

(2)  Prior warnings of default and intention to strike a company off the register are required to be given by the Registrar to the company and its directors and secretary under s 290A(1) and (2).

(3)  Evening after the striking off, the company or any member or creditor thereof are given a very generous period of 20 years to apply to the Registrar for the restoration of the company.

(4)  A person who claims to be a creditor of the company dissolved under section 290A(3) or any other person who claims an interest in the bona vacantia may, within a period of 4 months from the date of dissolution of the company, apply to the Registrar for the payment of the debt owed by the company out of the bona vacantia.

58.  The Strict Time Limit Measure is also no more than reasonably necessary for advancing the legitimate aim of “certainty, clarity and finality” having regard to the very generous period of 20 years allowed for a company or any member or creditor thereof to apply for its restoration.  In this regard, as have been said by the court on many occasions, the imposition of a bright line is not objectionable in principle.

59.  4^th step: for the same reasons, I am of the view that a reasonable balance has been struck between the societal benefits of the encroachment under ss 290A and 290B and the inroad made into the constitutionally protected property rights of the Applicants under BL 6 and BL 105.  The pursuit of the societal interest cannot be said to result in an unacceptably harsh burden on the Applicants.  As earlier mentioned, it was their responsibility to ensure that a proper registered address of the Company was maintained to receive communications from the Registrar.

60.  In all, I am of the view that ss 290A and 290B are constitutionally valid.

DISPOSITION

61.  The application for leave to apply for judicial review is granted on the basis that the intended application for judicial review is reasonably arguable with a realistic prospect of success.  The substantive application for judicial review is dismissed upon full consideration of the merits.  The Applicants shall pay the Registrar’s costs of the proceedings herein, including the costs of the hearings on 11 and 12 June 2020, to be taxed if not agreed.