FOREVER UP HOLDINGS LTD v. TONG YAN WA

HCMP 2009/2018

[2018] HKCFI 2775

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2009 OF 2018

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REASONS FOR DECISION

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1.  By an Originating Summons dated 13 November 2018, Forever Up Holdings Ltd (the “Company”) applied for the following orders:

(1)   The Notice of Change of Address of Registered Office filed at the Companies Registry (Document Ref. No. 24000396233) be declared null and void, and be removed from the Companies Registry;

(2)   The Notice of Change of Company Secretary and Director filed at the Companies Registry (Document Ref. No. 24000396232) be declared null and void, and be removed from the Companies Registry;

(3)   The Notice of Change of Address of Registered Office filed at the Companies Registry (Document Ref. No. 23201244240) be declared null and void, and be removed from the Companies Registry;

(4)   The Notice of Change of Company Secretary and Director filed at the Companies Registry (Document Ref. No. 23201244241) be declared null and void, and be removed from the Companies Registry.

(collectively the “Notices”)

2.  The Respondent, Tong Yan Wa, did not attend the hearing despite being properly served. Basically, the above documents were filed by the Respondent fraudulently. The Respondent has since been convicted after trial.

MATERIAL FACTS

3.  On 21 January 2008, the Company was incorporated by Mr. Leung Chun Ming, Mr. Lee Fook Sang, David, and Mr. Chow Stephen Wing Cheung (“Mr. Chow”) (the “Directors”), who were and still are the only directors and shareholders of the Company.

4.  In 2012, the Company purchased a property known as 7/F with the roof, 1070 Canton Road, Kowloon (the “Property”). The Company remains the sole owner of the Property to date.

5.  On 21 June 2016, Ms Yildz Choi (“Ms Choi”) of the Company’s legal representative Messrs. Darin Leung & Partners was approached by a woman for the mortgage of the Property. The said woman was carrying the certified copy of the title deeds of the Property.

6.  In late 2016, as Ms Choi was Mr Chow’s personal acquaintance, she brought up this event with Mr Chow over a lunch meeting, only to be told by Mr Chow that the Company never had any plan to mortgage the Property at all. Ms Choi thus suspected that a fraud was being committed against the Company in relation to the Property.

7.  On 29 June 2016, the Respondent and his associates were arrested. The Respondent was subsequently found guilty for attempted fraud on 7 November 2017 and was sentenced to two years imprisonment on 23 November 2017.

8.  It later transpired from the judgment of DCCC 950/2016 dated 7 November 2017 (the “Judgment”) that the Respondent had forged a number of documents to dress himself up as the sole director of the Company in order to obtain a mortgage loan by the Property. The said forged documents included two of the Notices, namely:

(1)   Notice of change of Company Secretary and Director (Appointment/Cessation) filed on 12 May 2016, indicating the resignation of the Directors as the director of the Company and the appointment of the Respondent in replacement (the “False ND2A”)

(2)   Notice of change of Address of Registered Office filed on 4 May 2016, indicating the registered address of the Company changed to Unit 1501, 610 Nathan Road, Mongkok, Kowloon (the “False NR1”).

(collectively the “False Notices”)

9.  On 31 October 2016, in an attempt to undo the registration of the False Notices, the Directors filed to the Companies Registry another Notice of Change of Company Secretary and Director (Appointment/Cessation) (the “Remedial ND2A”) and a Notice of Change of Address of Registered Office (the “Remedial NRI”), collectively (the “Remedial Notices”) in order to rectify the Company’s record.

10.  However, the Remedial Notices did not achieve the Directors’ objective as the False Notices remain registered with the Company Registry. In the circumstances, the Company has no choice but to make the present application to remove both the False Notices and the Remedial Notices.

APPLICABLE LEGAL PRINCIPLES

11.  Sections 42(1), (4), (5) and (8) of the Companies Ordinance, Cap.622, provide:

“(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 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.

(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.”

12.  In Re China Nice Education [2016] 3 HKLRD 525, G Lam J., helpfully summarised the principles as follows:

(1)   Section 42(1) of the Ordinance empowers the court to either rectify any information on the register or remove any information from it. (§13)

(2)   Section 42(4) provides that removal is only to be ordered if two conditions therein are satisfied, namely: (§17)

(a)   First, the Applicant has to show that rectification is not good enough. The continuing presence of the incorrect information will cause material damage to the company. It is the damage to the company, not to any other person, that needs to be shown.

(b)   Secondly, the Applicant has to show that the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the register.

(3)   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, is not itself a sufficient reason for removing it as opposed to rectifying it. Even forged documents are not necessarily to be removed unless the conditions in sub-section (4) are met. (§18)

(4)   Under section 42(8), an order made by the court under section 42 is to be registered as well.

(5)   The mere existence of a certain document may cause damage to the company despite the registration of a rectifying document. A winding-up order is one of such example, as its sheer existence may work injustice against the company. On the other hand, a notice of change of secretary and a notice of change of address cannot be said to be in the same category as a winding-up order. (§§21-22)

13.  In Re Wellable Investments Ltd, HCMP 510/2016, unrep., 11 April 2016, a case the facts of which are very similar to the present case, Au‑Yeung J., at §§10-14 said:

“10.   The defendant admitted at the hearing that he had “done wrong” and signed the purported documents without the approval of Madam Liu. He did not object to the orders sought against him.

11.   Accordingly, there was no doubt that the purported documents were filed without the company’s authority. The information about the defendant’s reappointment as a director (three months after his resignation) and the change of the registered office of the company to the property address was factually incorrect. Such information was derived from forms filed with the Companies Registry on which the signatures of Madam Liu were forged.

12.   Applying section 42(4)(a), the continuing presence of the information on the purported documents in the Companies Register will cause material damage to the company because:

(a)   The defendant may use the purported documents to handle the company’s business or dispose of the properties held by the company. The purported sale of the property by the defendant as attorney for Madam Liu was evidence of the defendant’s dishonest intention.

(b)   Documents sent to the purported registered office of the company at the property address shall be deemed to have been received by the company.

(c)   The company would be unable to file its annual returns for 2015 and onwards. The Companies Registry has already returned the annual return of the company for the year 2015 to the company secretary and refused to register it.

13.   Applying section 42(4)(b), the company’s interest in removing the information greatly outweighs the interest of the defendant in the information continuing to appear on the Companies Register. The defendant is no longer a shareholder or director and simply has no interest in the company. He should not be permitted to hold himself out as a director of the company thereby misleading the public in thinking that the company shall be responsible for his acts done in the company’s name.

14.   Accordingly, the purported documents should be removed from the Companies Registry and the Companies Register should be rectified.”

14.  I am of the view that the above legal principles and reasoning apply, a fortiori, to the facts of the present case.

15.  In Re Honour Island Development Limited HCMP 1200/2017, unrep., 22 March 2018, Deputy High Court Judge To at §19 said:

“If a document showing the rectification is filed in the Companies Register, the continuing presence of the documents filed by the Unauthorized Directors as such would not cause material change to the Company. However, I accept the applicant’s argument that these documents should be viewed against the scheme as a whole. They were filed pursuant to an elaborate scheme to extinguish the shares of the lawful owners and to exclude the Original Directors from management of the Company. The continuing presence of these documents might cause intangible damage to the Company. Investors, lenders and people dealing with the Company might view the propriety of the conduct of the Company and its directors with suspect and might be weary of their authority as its directors and officers representing the Company. People intending to deal with the Company might be deterred by the sight of these documents and might speculate if there is anything untoward going on in the Company or within its management. There is a real risk that material damage to the Company might result by keeping these documents in the Companies Register. The documents are fraudulent and created with intent to deceive. They should never have been registered and kept in the Companies Register and should cease to continue to be kept there. On the other hand, I cannot see how SIL, SRML or any other person could arguably have any interest in the continuing appearance of these inaccurate or forged documents and the inaccurate information contained therein in the Companies Register. The balance is in favour of their removal than rectification of the information in the Register.”

16.  As a matter of law, I am of the view that:

(1)   The threshold for section 42(4) to be engaged is fairly low. For instance, in both Re China Nice Education and Re Honour Island Development Limited, the material damage to the company limb was satisfied where there is a prospect that damage may be caused to the company.

(2)   The court is entitled to consider a wide range of factors in determining whether any damage would be caused to the company if the record persists, from misuse of forged documents to portrayal of a damaging impression to current and/or potential business partners or lenders.

ANALYSIS

17.  I agree with Mr Chan for the Applicant that the False Notices were filed by a convicted fraudster. The requirements under section 42(1) are satisfied, as the False Notices were both filed without the Company’s authority and the information therein is false or inaccurate.

18.  As to the Remedial Notices, while they were filed by the Directors with the Company’s authority, they endorsed the inaccurate and false information under the False Notices, namely, the Respondent was once a director of the Company. Such false information being derived from the factually inaccurate and forged False Notices. Hence, I am satisfied that the requirements under section 42(1) are satisfied regarding the Remedial Notices.

19.  I am also satisfied that the requirements under section 42(4) are also satisfied for the following reasons:

(1)   The continuing presence of the information in the False Notices on the Companies Register will give the public the misguided impression that the Respondent, a convicted criminal, was once a director of the Company. The impact would be particularly acute for potential business partners of the Applicant, who may think that the Company is associated with criminal activities and thus be deterred from doing business or lending to the Company.

(2)   The changing back and forth of the Company’s directorship within such short time span (between the False Notices and the Remedial Notices) may also impress upon the public and potential business partner that the Company is suffering from management problems or internal struggles, when the truth is that the Company is no more than a victim of fraud.

(3)   As to the Remedial Notices, confusion may ensue if only the False Notices is removed but not the Remedial Notices, as the Respondent would have shown to be removed as a director without any prior record of his appointment. To avoid such confusion the Remedial Notices should be removed as well purely as a relief consequential to the removal of the False Notices.

(4)   In any event, as the Remedial Notices mistakenly endorse the fact that the Respondent was once a director of the Company, the Remedial Notices should also be removed so as to clear the Company from any purported association with the Respondent.

(5)   Finally, there does not appear to be any person including the Respondent whose interest may possibly be affected by the removal of the False Notices and the Remedial Notices.

DISPOSITION

20.  For the reasons stated above, I make an order in terms of the Originating Summons save and except that costs should be paid by the Respondent, on an indemnity basis, to the Applicant, to be taxed, if not agreed. This application would not be necessary but for the fraudulent conduct of the Respondent. The Applicant as a victim of fraud should be entitled to its costs on an indemnity basis.

21.  Finally, it remains for me to thank Mr Chan for the Applicant for his very able and helpful assistance rendered to this court.