BANK OF COMMUNICATIONS (HONG KONG) LTD v. REGISTRAR OF COMPANIES

HCMP 745/2025

[2025] HKCFI 2731

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 745 OF 2025

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REASONS FOR DECISION

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1.  By originating summons dated 13 May 2025, the Bank of Communications (Hong Kong) Limited (the “Bank”) applied for an order that the registration of a Side Letter dated 24 March 2025 (the “Side Letter”) be removed from the Companies Register (the “CR”). The Side Letter was issued by Harmony New Energy Auto Service (Hong Kong) Limited 和諧新能源汽車服務(香港)有限公司 (the “Company”) to the Bank and under the Certificate of Registration of Charge issued by the Registrar of Companies (the “Registrar”) on 15 April 2025 (the “Certificate”).

2.  At the conclusion of the hearing, pursuant to section 42 of the Companies Ordinance Cap 622 (the “Ordinance”), I made an order in terms of the originating summons. My reasons appear below.

Relevant background

3.  The Company purchased motor vehicles under the BYD brand (“the motor vehicles”) through financing by the Bank.

4.  By the Side Letter, the Company as borrower agreed and undertook with the Bank

(i)  to assign to the Bank all its ownership rights, interests and entitlements therein to the Bank until the motor vehicles are sold to any third party with the prior written consent of the Bank;

(ii)  to deposit all the vehicle documents[1] with the Bank immediately upon completion of the purchase of each of the vehicles;

(iii)  to pay proceeds of sale of motor vehicles financed by the Bank into the Company’s designated bank account; and

(iv)  to indemnify the Bank against all claims, losses the Bank will have suffered relating to or arising out of the breach of any of the above undertakings.

5.  On 15 April 2025, the Bank’s solicitors (“YCLPK”) filed with the CR a Statement of Particulars of Charge (Form NM1) with a certified copy of the Side Letter for registration under section 335 of the Ordinance. The Registrar issued the Certificate the same day with Registration Number 2025003558.

6.  Subsequently, upon review of the relevant provisions of the Ordinance pertaining to registration, YCLPK came to the view that the registration of the Side Letter was a mistake caused by an inadvertent accidental slip or oversight on its part.

7.  The Registrar adopts a neutral position to the Bank’s application for an order to remove (i) the Form NM1, (ii) the certified copy of the Side Letter and (iii) the Certificate (collectively, the “Registered Documents”) from the CR. The Registrar will not oppose the granting of a removal order if the Bank is able to satisfy the requirements prescribed under sections 42 (1) and 42 (4) of the Ordinance.

Whether the Side Letter is a “specified charge”

8.  The relevant statutory provisions are sections 334 and 335 of the Ordinance. A document is not registrable under section 335 unless it is a “specified charge” for the purposes of section 334.

9.  A “specified charge” is a charge created on or after 3 March 2014[2] that falls within the charges described in subparagraphs (a) to (j) of section 334 (1) of the Ordinance. The only category that could conceivably apply to the Side Letter is subparagraph (b) which reads:

“(b) a charge created or evidenced by an instrument that, if executed by a natural person, would require registration as the bill of sale;”

10.  Section 2 of the Bills of Sale Ordinance, Cap 20 (“BSO”) defines “bill of sale” as including

“any agreement … by which a right in equity to any personal chattels, or to any charge or security thereon, is conferred …”.

11.  Mr William Chua of YCLPK who appeared for the Bank submitted that even if the Side Letter created a charge in and over the motor vehicles, unless the Side Letter, if executed by a natural person, would have been registrable as a bill of sale under the Bills of Sale Ordinance, Cap 20 (the “BSO”), it is not within subparagraph (b) and thus not a “specified charge” for the purposes of section 334.

12.  The Bank submitted that the Side Letter’s effect is akin to that of a “hire purchase agreement” in respect of, for example, taxis. It has been held that hire purchase agreements in those cases are not bills of sale: see East Asia Finance Co Ltd and Anor v Li Choi Hung & Ors, HCCL 80/1999, unrep., 21 June 2002, a case which concerned a refinancing exercise whereby the 1^st plaintiff would purchase the taxis from the dealer for hire to the defendants. The taxis were already registered as owned by the defendants, and subject to hire purchase agreements with a finance company (X). The refinancing arrangement involved the dealer paying off the sums due to X the same day as the defendants submitted their applications to the 1^st plaintiff.

13.  DHCJ Woolley held that as far as the 1^st plaintiff was concerned, it was a straightforward refinancing exercise, the effect of which was to transfer ownership to them of the taxis, against payment to the dealer, and then to hire them to the defendants. There was no necessity for a sale agreement with the dealer as the effect of the arrangements was to transfer actual ownership to the 1^st plaintiff against payment. Although the hirers of the taxis were registered as owners, the finance company would retain the original vehicle registration documents as well as blank notices of transfer signed by the hirers and delivery receipts to acknowledge that they had taken delivery.

14.  Based on those facts, DHCJ Woolley rejected the defendants’ case that, inter alia, the agreements, being solely security for the loans, constituted bills of sale within the meaning of that BSO and were void, not having been registered under that Ordinance.

15.  Several months after East Asia Finance, a similar point arose in Dah Sing Bank Ltd v Tai Mo Fong, DCCJ 3053/2002, unrep., 21 August 2002, where the plaintiff had purchased two taxis from the Dealer and leased them to the defendant under the hire purchase agreements. David Lok DJ (as he then was) held that the hire purchase agreements do not constitute bills of sale under the BSO, citing East Asia Finance as well as East Asia Credit Company Limited v Li Shiu Fan and Ors, HCA 968/98[3].

16.  The Side Letter has the same effect as the hire purchase arrangements in the above authorities: the legal title of the vehicle is in the hirer as the registered owner but the documents of title, such as the vehicle registration documents and transfer of ownership form endorsed in blank by the hirer are held by the party financing the transaction.

17.  The Bank submits and I agree that the Side Letter, if executed by a natural person, does not constitute a bill of sale under the BSO and so is not is not a “specified charge” within section 334 (b) of the Ordinance requiring registration under section 335.

Section 42 of the Ordinance

18.  The Court’s power to make an order for removal of information in the Companies Register (“CR”) is governed by section 42. The relevant provisions are those in subsections (1) and (4) of section 42. They provide as follows:

“42. Registrar must rectify information on Companies Register on order of Court

(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 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) … 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.”

19.  The Side Letter is not a “specified charge” to be registrable as a charge under section 335. The registration which the Certificate purports to evidence is accordingly “invalid or ineffective” within the meaning of section 42 (1)(a)(i) because it is in fact based on that Side Letter that is not registrable.

20.  Turning to section 42 (4), the Court needs to be satisfied of the matters set out in both subparagraphs (a) and (b).

21.  The Bank submits that information that is not registrable is personal to the parties to the transaction and has no place in the public domain. The Certificate which puts such information in the public domain purportedly relates to a charge that is registrable against the Company. From the Company’s perspective, particularly one that is active, it is information that is potentially deleterious to its reputation and financial standing.

22.  It is not difficult to appreciate that the existence of an encumbrance blemishes the Company’s financial standing. It could deter potential clients from doing business with it, at least, without the Company having to devote resources needlessly to clarify the situation or respond to queries when such resources could more profitably be deployed elsewhere. I am therefore satisfied that the continuing presence of the Certificate will cause material damage to the Company.

23.  Apart from the Company, the only other person whose interest in the information continuing to appear in the CR could be affected is the Bank who, ostensibly, has the benefit of the ‘charge’. The Company’s interest in removing the Registered Documents clearly outweighs the interest of the Bank. Since the Charge is not registrable under section 335 and should not exist in the first place, the Bank can have no legitimate interest in the information continuing to appear in the CR.

24.  For the reasons set out above, I am satisfied that the requirements prescribed under sections 42 (1) and 42 (4) of the Ordinance are met.