LIGHT SHINE LTD v. CHEUNG HO LAI LILY AND OTHERS

HCMP 884/2021

[2021] HKCFI 3750

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 884 OF 2021

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D E C I S I O N

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A. INTRODUCTION

1.  This is the Plaintiff’s Originating Summons dated 25 June 2021 pursuant to section 42 of the Companies Ordinance (Cap 622) (“the Ordinance”) for an order that the following documents be declared null and void, and removed from the Companies Register (“the Register”):

(1)  The Notice of Change of Company Secretary and Director (Appointment/Cessation) (Form ND2A) (Document Ref: 24000803722) filed on 21 January 2019;

(2)  The Notice of Resignation of Company Secretary and Director (Form ND4) (Document Ref: 24000803723) filed on 21 January 2019;

(3)  The Notice of Resignation of Company Secretary and Director (Form ND4) (Document Ref: 24000803724) filed on 21 January 2019;

(4)  The Notice of Resignation of Company Secretary and Director (Form ND4) (Document Ref: 24000803725) filed on 21 January 2019; and

(5)  The Notice of Resignation of Company Secretary and Director (Form ND4) (Document Ref: 24000803726) filed on 21 January 2019 (collectively, “the Disputed Forms”).

2.  Alternatively, the Plaintiff seeks to rectify the information in the Register to reflect the annulment and/or removal of the Disputed Forms.

3.  The 1^st and 2^nd Defendants are unrepresented and have not appeared in these proceedings.   Having reviewed the two affirmations of service filed by the Plaintiff’s solicitor, I am satisfied that all parties have been properly served and notified of these proceedings (including the hearing on 2 September 2021).

4.  The Registrar of Companies (“the Registrar”) maintains a neutral stance in respect of this Application and she has been excused from attending the hearing on 2 September 2021.  The Registrar’s position is that she does not oppose the making of a removal order so long as the Court is satisfied that the conditions stipulated under section 42(4) of the Ordinance are met.  Further, in the Statement dated 30 August 2021, the Registrar has indicated that should this application be granted, the Companies Registry (“the Registry”) would update the particulars of the Plaintiff’s officers on the Companies Register to restore the position “before the registration of the Disputed Forms”.

B.  BACKGROUND

5.  The Plaintiff is a limited company incorporated on 25 May 2018. Mr Pong Yuen Man Tommy (“Mr Pong”), Mr Tam Che Ming (“Mr Tam”) and Wang Fu Group Limited (“Wang Fu”) were appointed as its directors on 31 July 2018. Victory Corporate Limited (“Victory”) was appointed on the same day as the Plaintiff’s company secretary.  At all material times up to the date of the hearing, Wang Fu remained the Plaintiff’s only shareholder.

6.  The Plaintiff has been carrying on a business of investing in the landed property market. By an assignment dated 28 September 2018, the Plaintiff became the registered owner of the following properties:

(1)  Unit S1, 4^th Floor, Block 1 Including Flat-Roof Appurtenant Thereto, Nos. 472-484 Kwun Tong Road, Kwun Tong Industrial Centre, Kowloon (“1^st Property”); and

(2)  Unit T1, 4^th Floor, Block 1 Including Flat-Roof Appurtenant Thereto, Nos. 472-484 Kwun Tong Road, Kwun Tong Industrial Centre, Kowloon (“2^nd Property”).

7.  The 1^st Property and the 2^nd Property were mortgaged to Hang Seng Bank (“the Bank”) on 7 March 2019.

8.  The Disputed Forms were allegedly filed without the Plaintiff’s knowledge on 21 January 2019. According to these documents, on 21 January 2019:

(1)  Mr Pong, Mr Tam and Wang Fu ceased to act as directors of the Plaintiff;

(2)  Victory ceased to act as the Plaintiff’s company secretary;

(3)  the 1^st Defendant was appointed as the Plaintiff’s director; and

(4)  the 2^nd Defendant was appointed as the Plaintiff’s company secretary.

9.  It is the Plaintiff’s case that neither it nor its directors or Victory have had any contact, connection, or dealing with the 1^st and 2^nd Defendants. Accordingly, as alleged by the Plaintiff, the signatures and company chops on the Disputed Forms (purporting to be those of Mr Pong, Mr Tam, Wang Fu and Victory) are forgeries.

10.  Unbeknown to the Plaintiff, on 31 January 2019, a manager of a mortgage company in Central made a report to the Police stating that the 1^st Defendant had used forged documents in support of her application for a mortgage loan. The 1^st Defendant was arrested on the same day. It was later revealed by the Police that one of the supporting documents submitted by the 1^st Defendant was a record from the Register showing the purported appointment of the 1^st Defendant as a director of the Plaintiff and the resignation of Mr Pong and Mr Tam as directors thereof.

11.  It appears that the Plaintiff only became aware of the Disputed Forms when Ms Chung Pui Kwan (“Ms Chung”), a secretary of the Plaintiff and a director and corporate secretary of Victory, filed a Notice of Change in Particulars of Company Secretary and Director (Form ND2B) dated 1 March 2019 to reflect Mr Tam’s change of his residential address. On 26 March 2019, the Registry returned the said Form ND2B by post because it had been submitted after Mr Tam’s purported cessation of his role as a director (as shown in the Disputed Forms). Mr Tam then reported the matter to the Police on 29 March 2019.  Shortly thereafter, Ms Chung lodged a complaint to the Registry to report the incident and requested for a rectification of the Plaintiff’s registered records.

12.  On 16 April 2019, the Registrar wrote to Ms Chung informing her, inter alia, that:

(1)  The Registry had already made a request for information and documents from the relevant persons (“有關人士”) in order to conduct further investigations.

(2)  As the Registry had not received any reply from the aforesaid relevant persons, it would proceed to invoke section 44(1)(d) of the Ordinance and add annotations to the Register indicating that the Disputed Forms were subject to dispute and could contain erroneous information unless Ms Chung made her opposition known to the Registry within 7 days.

(3)  Alternatively, if the Plaintiff wished to rectify or remove the Disputed Forms, it should first seek independent legal advice on whether an application should be made under section 42 of the Ordinance.

(4)  The Registry had already made enquiries with the Police but added that the Registrar was not responsible for making in-depth investigations into allegations of forged documents.

13.  In her reply, Ms Chung clarified that the Plaintiff did not object to the proposed annotations, but nevertheless requested the Registry to suspend or otherwise prevent members of the public from obtaining access to the information on the Disputed Forms. Ms Chung further added that the Plaintiff was in the process of seeking legal advice in respect of a possible rectification or removal application and would inform the Registry if the Plaintiff were to proceed with such action.

14.  In May 2019, the Plaintiff’s record in the Register was annotated to include the following remarks (which still remain to date):

“… ACCORDING TO THE INFORMATION PROVIDED TO THE CR, THERE ARE DISPUTES REGARDING THE VALIDITY OF THE CHANGES OF DIRECTORS / COMPANY SECRETARIES REPORTED IN THE FOLLOWING DOCUMENTS … [Reference to Disputed Forms]” (“the Annotations”)

15.  According to the Plaintiff, in about March 2020, Ms Chung learned from Mr Tam that a police officer told Mr Pong that someone had used the 1^st Property and the 2^nd Property to make a loan application. It is unclear on the evidence that this is a reference to the unsuccessful mortgage loan application allegedly made by the 1^st Defendant on 31 January 2019.

16.  The Plaintiff alleges that prejudice has been caused by the Disputed Forms.  As stated in Mr Tam’s letter to the Police on 21 January 2021:

“We [ the Plaintiff] have suffered great loss in that our recent application for mortgage loans for the purpose of completing the purchase of two car parking spaces was rejected by some banks (including Hang Seng Bank Limited, which is the mortgagee of our two properties purchased some time before the captioned matter happened). Hang Seng Bank Limited has, and the other banks must have had, notice of the [Disputed Forms] filed at the Companies Registry by Mr. So Pak Kin and Madam Cheung Ho Lai Lily, who are both total strangers to us.

As a result of the rejection of our mortgage application by the banks, we have had to complete the purchase of the two car parking spaces without any mortgage but all with our own money, thus causing us a cashflow problem and disrupting our normal business operation…”

17.  The Plaintiff also refers to its correspondence with the Bank, indicating that the Annotations have had a material adverse impact on the creditworthiness of the Plaintiff and its related entities. There is apparently a risk that the Annotations might form a potential basis for the Bank to withhold and/or suspend loan facilities.

18.  On 20 September 2020, the 2^nd Defendant was arrested by the Police on 20 September 2020.  The investigations appear to be ongoing.  It has been classified by the Police as one of “uttering a forged document”.

C.  LEGAL PRINCIPLES

19.  Section 42 of the Ordinance reads as follows:

“(1) The Court may, on application by any person, by order direct the Registrar to rectify any information on the Companies Register or to remove any information from it if the Court is satisfied that—

(a) the information derives from anything that—

(i) is invalid or ineffective; or

(ii) has been done without the company’s authority; or

(b) the information—

(i) is factually inaccurate; or

(ii) derives from anything that is factually inaccurate or forged.

…

(4) The Court must not order the removal of any information from the Companies Register under subsection (1) unless it is satisfied that—

(a) even if a document showing the rectification in question is registered, the continuing presence of the information on the Companies Register will cause material damage to the company; and

(b) the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the Companies Register.

(5) If the Court makes an order for the rectification of any information on or the removal of any information from the Companies Register under subsection (1), the Court may make any consequential order that appears to it to be just with respect to the legal effect (if any) to be accorded to the information by virtue of its having appeared on the Companies Register.

(6) If the Court makes an order for the removal of any information from the Companies Register under subsection (1), it may direct—

(a) that a note made under section 44(1) in relation to the information is to be removed from the Companies Register;

(b) that the order is not to be made available for public inspection as part of the Companies Register; and

(c) that—

(i) no note is to be made under section 44(1) as a result of the order; or

(ii) any such note is to be restricted to providing information in relation to the matters specified by the Court.

(7) The Court must not give a direction under subsection (6) unless it is satisfied that—

(a) any of the following may cause damage to the company—

(i) the presence on the Companies Register of the note or an unrestricted note (as the case may be);

(ii) the availability for public inspection of the order; and

(b) the company’s interest in non-disclosure outweighs the interest of other persons in disclosure.

(8) If the Court makes an order under this section, the person who made the application must deliver an office copy of the order to the Registrar for registration.”

20.  For present purposes, there are two questions which need to be addressed:  First, are the Disputed Forms false and/or filed without the authority of the Plaintiff?  Secondly, should the Disputed Forms be removed or rectified?

21.  The relevant principles have been recently set out by Deputy High Court Judge Paul Lam SC in Harrison Ltd v The Registrar of Companies and Anor [2020] HKCFI 3112 at §§9-11:-

(1)  Section 42(4) of the Ordinance prescribes and restricts the Court’s power to exercise the removal of information from the Register. Removal may only be ordered if (a) the Plaintiff shows that rectification is insufficient because the continuing presence of the incorrect information will cause material damage to the company, and (b) the company’s interest in removing the information outweighs the interests of other persons in having the information continue to appear on the Register.

(2)  The fact that the information is incorrect, or relates to an invalid or ineffective transaction, or has been filed without proper authority of the company, or that a document is a nullity or is one that should never have been registered, is not in itself a sufficient reason for removing it as opposed to rectifying it. Indeed, the structure of s.42 suggests that even forged documents should not necessarily be removed unless the conditions in subsection (4) are established.

(3)  The extra hurdles imposed by subsection (4) shows a clear legislative intention that where there is factually incorrect information on the Register, the preferred method is rectification, rather than removal.

(4)  Nevertheless, the threshold for subsection (4) is “fairly low”. The Court is entitled to consider a wide range of factors in determining whether any damage would be caused to the company if the impugned record persists, including misuse of forged documents and the portrayal of a harmful impression to current and other potential business partners or lenders. It may be sufficient to show that the continued presence of such records will impede the normal operation of the company.

(5)  Under subsection (8), the order made by the Court under s.42 should be registered, so that the basis of the rectification or removal ought to be apparent from an inspection of the record.

See also Re China Nice Education Research Publishing Investment and Management Co Ltd [2016] 3 HKLRD 525 at §§11-20; Forever Up Holdings v Tong Yan Wa [2019] 5 HKC 478 at §11-16; Re China Crown Holdings Ltd [2020] HKCFI 1615 at §§25-26, 33.

22.  It has also been observed in Harrison Ltd (above)at §13 that where a removal order is sought, the applicant is required to adduce evidence to convince the Court that the statutory criteria under subsection (4) has been satisfied.

D.  ANALYSIS

23.  In the present case, I am satisfied that the Plaintiff’s case has met the requirements under s. 42(1) for the following reasons:

(1)  The Plaintiff has adduced concrete evidence that it has never appointed the 1^st Defendant as its director or the 2^nd Defendant as its company secretary and that the Plaintiff’s incumbent directors and company secretary have never resigned.

(2)  In the circumstances, the Plaintiff has established at least a prima facie case of forgery.

(3)  Upon discovery of the Disputed Notices, the Plaintiff immediately reported the matter to the Police and also lodged a complaint to the Companies Registry.

(4)  The evidence filed by the Plaintiff has been unchallenged in these proceedings.

24.  As stated by Godfrey Lam J (as he then was) in Re China Nice Education Research Publishing Investment and Management Co Ltd [2016] 3 HKLRD 525 at §§15–20:-

(1)  Section 42(4) prescribes and restricts how the Court’s power to order removal of information may be exercised.  Removal is to be ordered only if (a) the plaintiff is able to demonstrate that registration of a document showing the rectification is not good enough and the continuing presence of the incorrect information will cause material damage to the company; and (b) the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the register (§§16 – 17).

(2)  The fact that the information is incorrect, or relates to an invalid or ineffective transaction, or has been filed without proper authority of the company in question or that a document is a nullity or is one that should never have been registered, is not in itself a sufficient reason for removing it as opposed to rectifying it (§18).

(3)  The order made by the Court is to be registered, so that the basis of the rectification (or removal) ought to be apparent from an inspection of the record (§20).

25.  In relation to s.42(4), in order to prove that the Disputed Forms will cause material damage to the Plaintiff, it must be shown that their continued existence will result in a real risk of material damage to the Plaintiff even if rectifications are made: Re China Crown Holdings Ltd (above) §33.  Nevertheless, no removal order will be made where the alleged harm is purely hypothetical, unrealistic, or inconsequential; a mere impression of confusion (without more) is unlikely to result in any material harm to the company: see Yuen Yin Kwan v Sino Insurance Brokers Group Ltd [2020] 1 HKLRD 1117 at §29.

26.  In my view, the Plaintiff has fulfilled the requirements under s.42(4) (the threshold of which, as stated above, is fairly low) for the following reasons:

(1)  The Plaintiff has adduced evidence that the Disputed Forms were created and filed with a fraudulent intent to apply for a mortgage loan although I acknowledge that such evidence, per se, is not sufficient, as stated above.

(2)  The continuing presence of the Disputed Forms on the Companies Register might cause the public to associate the Plaintiff (or its operations) with the 1^st Defendant and/or the 2^nd Defendant (and also their conduct, particularly if they are ultimately convicted of criminal offences).  As shown in the evidence adduced by the Plaintiff, this may also affect the Bank’s credit rating of the Plaintiff, leading to some adverse impact on the existing credit facilities.  There is still a risk that the registration of rectified documents may not satisfy the Bank or other financing institutions that the issues arising from the Disputed Forms have been fully resolved.

(3)  Further, if the Disputed Forms were not removed, the contents thereof would give rise to questions of identify of the directors who have the authority to sign documents on behalf of the Plaintiff (which is an investor in real properties).  This is particularly so here because the 1^st Property and the 2^nd Property were mortgaged to the Bank after the Disputed Forms were registered. The Plaintiff has also made other property purchases since then.

(4)  Moreover, if the Plaintiff decides to sell or dispute of any of its properties, a potential title problem will arise as requisitions will almost certainly be made relating to the identity of the directors who are capable of validly executing the documents for the intended transfer.

(5)  In the circumstances, I take the view that the Plaintiff’s interest in removing the Disputed Forms outweighs the interests of other persons in the information being preserved on the Register.

27.  In addition, according to s.42(6) of the Companies Ordinance, if the Court makes an order for the removal of any information from the Companies Register under 42(1), it may direct that a note made under s.44(1) in relation to such information is to be removed as well.  Hence, in view of my analysis above, I will make an order that the Annotations (as referred to in paragraph 14 above) be also removed. 

E.  CONCLUSION

28.  In light of the above, I make an order that the Disputed Forms (i.e. the document listed under paragraph 1 of the Originating Summons) be declared null and void and be removed from the Companies Register.  I also make an order that the Annotations (as referred to in paragraph 14 of this Judgment) be removed.

29.  Moreover, I make an order nisi that:

(1)  Costs of the Plaintiff’s Originating Summons be paid forthwith by the 1^st Defendant and the 2^nd Defendant to the Plaintiff, summarily assessed at HK$10,795.

(2)  There be no order as to costs between the Plaintiff and the 3^rd Defendant.

30.  The said costs order nisi shall become absolute unless an application to vary the same is made within 14 days from the date of this Decision.