TANG KIN CHEUNG v. LEUNG SO MUI AND ANOTHER

HCMP 2384/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2384 OF 2008

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D E C I S I O N

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1.  This is an originating summons issued pursuant to section 114B of the Companies Ordinance, Cap. 32 by Tang Kin Cheung, one of the shareholders and directors of Duncan Interior Limited (“the Company”).  The application was taken out on 27 November 2008.  The plaintiff seeks an order that an annual general meeting (“AGM”) of the Company be convened in accordance with the agenda attached to the originating summons with a consequential direction that one member of the Company present in person or by proxy shall be deemed sufficient to constitute the required quorum.

2.  The 1^st defendant, Madam Leung So Mui, is the other shareholder and director of the Company.  She is not opposed to convening an AGM.  She contended, however, that the application should be made under section 111(2) instead of section 114B, and that no order for costs should be made against her.

3.  The Company was incorporated on 6 September 2006.  The plaintiff holds 60% of the issued shares, and the 1^st defendant holds 40%.  It is not in dispute that the 1^st AGM should have been held by 5 March 2008 at the latest.  No AGM was ever held.

4.  Since July 2007, the Company had ceased business.  It terminated its office lease in October 2007.

5.  The relationship between the two shareholders has broken down.  They could not agree on a way to resolve their disputes and put an end to their co-operation in business.

6.  In September 2008, the plaintiff attempted to convene an AGM.  There was disagreement between him and the 1^st defendant on the agenda proposed by him, in particular his proposal to appoint his wife as an additional director.  He alleged that the 1^st defendant had refused to pass a board resolution to hold an AGM, this is denied by her.

7.  In October 2008, the 1^st defendant attempted to convene a board meeting to consider and approve financial statements of the Company and to dissolve the Company.  The meeting could not be held as the plaintiff did not attend.

8.  Under article 7 of the articles of association, it is provided that at the first annual general meeting to be held and at every succeeding annual general meeting, all directors, except permanent directors if they are appointed, shall retire from office and be eligible for re-election.  No permanent directors were appointed for the Company.  As no 1^st AGM was held by 5 March 2008, the effect of the above article was that all directors vacated office on 5 March 2008, being the last day on which the 1^st AGM could have been held (In re Consolidated Nickel Mines, Limited [1914] 1 Ch 883 at 888).

9.  With all of the directors vacating office, it is clear that no valid AGM could have been held without a court order.  In default of the holding of an AGM in accordance with section 111(1), it is for a member of the Company to apply under section 111(2) for a meeting to be held.  Section 114B(1) is not the correct provision to be invoked.

10.  It is not necessary to resolve if the 1^st defendant did or did not refuse to pass a board resolution to hold an AGM.  As all the directors are deemed to have retired by 5 March 2008, an application must be made to the court by one of the shareholders in order that an AGM is to be held.  There is no reason why the 1^st defendant should pay the costs of the plaintiff in this application.

11.  Both the plaintiff and the 1^st defendant have responsibility to see to it that the Company should comply with its statutory obligation in holding an AGM, as they were the directors of the Company at the material time.  Both have incurred costs in this application.  In the circumstances, I think it would be fair to make no order as to the costs of this application.

12.  It does not appear to me necessary to give a direction that one member of the Company present in person or by proxy at the AGM should be deemed sufficient to constitute the required quorum, the 1^st defendant having consented to the application to hold an AGM.

13.  I do not propose to make any direction on the item on the agenda about the appointment of the plaintiff’s wife as an additional director.  I only note at this stage no reason has been given by the plaintiff why an additional director should be appointed, in view of the fact that the Company had already ceased business in July 2007.  I am alive to the 1^st defendant’s concern that the bank mandate, which requires joint signatures, might be changed by the board if the plaintiff’s wife should be appointed as an additional director.  It is not appropriate in this application to decide for the Company how its business and affairs should be managed.  The shareholders should consider if it is in the best interests of the Company to appoint an additional director and whether any proposed candidate is suitable.  And if any additional director were to be appointed, he or she would owe a fiduciary duty to the Company and be personally liable if there is any breach of duty.  If there is unfair prejudice to any member in the conduct of the affairs of the Company, the member who has suffered prejudice would have a remedy at law.

14.  I make the following orders:

(1)  an AGM of the Company be convened and held by the plaintiff as soon as practicable;

(2)  21 days’ notice in writing of convening the AGM be given by the plaintiff to the 1^st defendant;

(3)  at the AGM to be convened, the members present in person or by proxy shall consider and vote on the following matters:

(a)  the financial reports of the Company

(b)  the declaration of dividends

(c)  the election of directors

(d)  the appointment of auditors

(e)  the appointment of the Company secretary, and

(f)  the transaction of any other business;

(4)  there be liberty to the parties to apply; and

(5)  there be no order as to the costs of this application.