CHIU TAT SI v. TUNE BRIGHT INVESTMENTS LTD

HCMP 1473/2019

[2020] HKCFI 519

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1473 OF 2019

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J U D G M E N T

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THE APPLICATION

1.  I have before me an originating summons dated 16 September 2019 made by Chiu Tat Si (“Mr Chiu”), majority shareholder of Tune Bright Investments Limited (“the Company”).  The Company is the Respondent.

2.  The Company’s financial year ends on 31 March, so that the deadline for holding an AGM is 31 December of the same year, pursuant to s.610 of the Companies Ordinance (Cap. 622) (“the CO”).  Whilst the Company has prepared annual returns for 2016, 2017 and 2018, the Company has failed to hold annual general meetings by 31 December of each of those years.  This is in breach of section 610 of the CO, subject to the operation of ss.610(7) and (8).

3.  Mr Chiu’s application is made pursuant to s.610(7) of the CO for the Court to direct the calling of general meetings of the Company for the years 2016, 2017 and 2018, in order to remedy such breaches. It is supported by two affirmations of Mr Chiu; no other formal evidence has been filed.

4.  The application was due to be heard on 6 February 2020, but the hearing was adjourned in light of the coronavirus outbreak.  By consent of the parties, the application was referred to me to be disposed of on paper.

BACKGROUND

5.  The Company was incorporated as a private limited company on 20 November 1987.  It has at all material times held two properties in Hong Kong from which it receives rental income, and has not carried on any other business.  Mr and Mrs Chiu are the directors of the Company.

6.  So far as material, the Company’s ownership has been as follows:

a.     From 1993 to November 2006: 53% by Mr Chiu, 10% by his wife, Chan Chui Shau (“Mrs Chiu”), 30% by Au Kin Sun (“the Deceased”) and 7% by Yuen Yuet Sim.

b.     From November 2006 to March 2017: 53% by Mr Chiu, 17% by Mrs Chiu, and 30% by the Deceased.

c.     Since 21 March 2017, 53% by Mr Chiu, 17% by Mrs Chiu, and 30% by the Deceased’s wife, Yeung Yuk Yin (“Madam Yeung”).

7.  Mr Chiu and the Deceased, along with Mr Chiu’s son, were also involved in a business for the rental of construction machinery (“the Partnership Business”).  The Deceased and Mr Chiu were close friends and colleagues until Mr Chiu’s death in October 2003.  From 2004, the Partnership Business was transferred to Yau Hing Machinery Limited (“Yau Hing”).

8.  Thereafter, Madam Yeung commenced litigation against Mr Chiu and his son in respect of the Partnership Business.  Such litigation was finally resolved in March 2017.  This resolution included the transfer of the Deceased’s shares in the Company to Madam Yeung.

LEGAL PRINCIPLES

9.  The Court has an unfettered discretion as to whether or not to make an order under s.610(7).  Re Sanliuyidu (Hong Kong) Sports Goods Co Ltd  [2009] 4 HKLRD 708 at paragraph 5.

10.  In deciding whether to exercise the discretion the Court should have regard to the following three factors, albeit these considerations are not exhaustive:

a.     Whether the shareholders were aware of the financial position of the company in question and thus were not prejudiced by non-compliance;

b.     Whether the default was inadvertent; and

c.     Whether the court was satisfied that the company would comply with the obligations to lay its profit and loss accounts or income and expenditure statements before general meetings in future.  Re Sanliuyidu at paragraph 5.

DISCUSSION 

(i)   Prejudice to shareholders

11.  Mr Chiu’s evidence is that:

a.     The Company held 2 properties on which it earned substantial rental income each month, but it has never employed any staff.

b.     Prior to 2003, he, Mrs Chiu and the Deceased were very close and would discuss matters relating to the Company and were very familiar with the financial position of the Company.

c.     After the Deceased’s death in 2003, he and Mrs Chiu (the 2 Company directors) remained familiar with the Company’s financial position.

d.     As to Madam Yeung who has been a shareholder since 2017, Mr Chiu believes she had a general understanding of the Company’s financial position to the extent that it earned a handsome monthly rental income on its properties; and that on March 2019 she was provided with the Company’s audited accounts for 2016, 2017 and 2018 so that she was then aware of the Company’s financial position.

12.  Madam Yeung has notified her position on the application to Mr Chiu’s solicitors by a solicitor’s letter dated 12 November 2019 (“the 12 November 2019 letter”).  Madam Yeung states that:

a.     She was kept in the dark about the Company’s financial position before March 2019 when she was provided with the audited accounts.

b.     Many items in the financial statements are questionable.  She has raised a number of requisitions and many of them are still outstanding.

c.     She has all along been excluded from the affairs of the Company.  It is a consolation that Mr Chiu is now taking remedial action.

d.     She does not object to Mr Chiu’s application.

13.  It would appear that Madam Yeung was, due to the failure to hold AGMs, not aware of the financial position of the Company from December 2017 (when there should have been an AGM for the previous year) to March 2019.  As a shareholder, she was prejudiced to the extent that she did not have the financial information reflected in the Company’s accounts, nor the opportunity to discuss the Company’s position at an AGM, to which she was entitled.

14.  I have not been provided with copies of the accounts but on the basis that the Company holds two properties, earns rental income and pays for no staff, it is unlikely that the accounts will reveal much more than precise numbers as opposed to the gist of the Company’s financial position which would have been generally known to Madam Yeung.  No suggestion is made by Madam Yeung that the accounts she received in March 2019 reveal matters which would have caused her to take any particular steps or action if there had been no non-compliance with s.610.

15.  This is not a case where all shareholders were provided with all relevant company information at the right time, with an open-door policy on discussions with management and other shareholders.  So it cannot be said that failure to hold the AGMs made no practical difference, and there was no prejudice at all.  Madam Yeung was not provided with the Company’s financial information when due.

16.  However, Madam Yeung does wish to discuss matters in the accounts, and she does not object to this application to permit the AGMs to be held.

(ii) Whether the default was inadvertent

17.  Mr Chiu’s evidence is that:

a.     He received education until secondary school level; and Mrs Chiu received education to primary school level;

b.     He did not know about the company secretarial obligations of a company or the requirements under the Ordinance, nor that a company is required to hold AGMs.  However, he acted as the Company’s company secretary for more than 20 years in order to save costs. An employee of the construction machinery business prepared the Company accounts and helped with Company registry filings.

c.     He and his wife became aware of the requirement to hold AGMs from their lawyers (apparently this is in the context of receiving legal advice with dealing with claims by and settlement with Madam Yeung).

d.     They accordingly wish to rectify the breaches and regulate the Company’s affairs properly.

18.  Madam Yeung (by the 12 November 2019 letter) challenges Mr Chiu’s evidence as to his lack of knowledge of the requirement to hold AGMs.  She asserts:

a.     Mr and Mrs Chiu are directors of Yau Hing; and Mr Chiu is a director of Fortune Target International Limited; and accordingly, they are not as ignorant and experienced about company administration as professed.

b.     Mr and Mrs Chiu instructed LC Shum & Co, CPA to prepare the Company’s accounts for many years including 2016, 2017 and 2018, and that it is unthinkable that the said accountants would not have mentioned the need to hold AGMs.

c.     Mr and Mrs Chiu are aware of the need to file annual returns.

19.  Mr Chiu filed evidence in response.  Effectively, he states that although he and his wife held directorships in one or two family companies, they were run on an informal basis; that he and his wife were of advanced years and did not attend to Company matters as diligently as they hoped, and many matters were delegated to staff of Yau Hing.

20.  There is in my view no evidence that the failure to hold AGMs was anything other than inadvertent.

(iii) Future compliance

21.  Mr Chiu’s evidence is that:

a.     In July 2019, the Company engaged a company secretarial services provider (“Y&L”) to act as the Company’s company secretary instead of Mr Chiu.

b.     Mr Chiu has been advised that despite such engagement, it remains the duty of the directors to ensure that there is due compliance with the requirements of the Ordinance.

c.     He is confident that with the assistance of Y&L, they would be able to ensure future compliance with the requirements of the Ordinance.

22.  Madam Yeung by her 12 November 2019 letter accepts that the Company has taken remedial action.

(iv) Interested parties

23.  As stated above, Madam Yeung does not oppose Mr Chiu’s application, and wishes to have an opportunity to discuss the Company’s financial position.

24.  For completeness’ sake, I will record that the Company as respondent (which acts by its two directors Mr and Mrs Chiu) has no objection to the application.

25.  Despite no formal statement of views to the Court, it is implicit that Mrs Chiu supports, or at least does not object to, the application.

26.  This is then a case where all interested parties believe that the Company should and can mend its ways, and there is no objection to relieving the Company from liability for non-compliance.

CONCLUSION

27.  I am satisfied that this is a case for exercising my discretion in favour of making an order under s.610(7).

28.  I make an order in terms of paragraphs 1 and 2 of the Originating Summons.