ANNA GRÜTER AND OTHERS v. REIGN DIGITAL CREATIVES LTD AND ANOTHER

HCMP 964/2020

[2020] HKCFI 3137

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 964 OF 2020

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D E C I S I O N

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1.  The applicants are shareholders of the 1^st respondent company and together hold 50 per cent of the company shareholding.

2.  By originating summons dated 6 July 2020, the applicants seek essentially two forms of relief.  First, they seek inspection of the company’s books, records and documents pursuant to section 740 of the Companies Ordinance, cap 622, and secondly, they seek to call a general meeting pursuant to section 570 of that Ordinance.

3.  The other respondent to these proceedings is its former sole director, albeit that he has now resigned, leaving the company without any directors.

4.  I accept on the materials that both respondents have been properly served; the 1^st respondent at its place of registered office in Hong Kong, and the 2^nd respondent in accordance with an order for substituted service by email, permitted by the order of a Master.  Neither respondents have responded to these proceedings, and I agree with Mr Tommy Cheung, counsel for the applicants, that it is likely that neither respondent is minded to oppose the applicants’ application. Nevertheless, I am still required to be satisfied that the applicants are entitled to the claimed, or any relief, as being appropriate.

5.  Insofar as the relevant legal principles are concerned, dealing first with the inspection of documents, it is well established that a shareholder is entitled to inspection of a company’s documents pursuant to section 740 of the ordinance where the court is satisfied that the application is made in good faith and the inspection is for a proper purpose.  See, for example, Wong Kar Gee Mimi v Hung Kin Sang Raymond [2011] 5 HKLRD 241 at paragraphs 14 to 16, and Selvaraj Moorthy v GMT Industrial Limited [2019] 4 HKLRD 572 at paragraph 11. Those authorities also identify that the requirement of good faith requires an applicant to act honestly and with a purpose that he believes to be proper.

6.  But an application made by a substantial and longstanding shareholder might in and of itself discharge the burden of establishing good faith and proper purpose, as might the situation where the application seeks inspection to protect the shareholder’s economic interest in the company.

7.  If it is said that the application is made for the purpose of enabling the applicant to carry out investigation into potential misconduct or maladministration, it falls to the court to assess on the basis of the available evidence whether the applicant has made out a proper case for investigation, taking into account such explanations as might be offered by the respondent.

8.  As to the holding of a general meeting, section 570 of the Ordinance provides that the court may order a general order meeting of the company to be called, held and conducted in any manner the court thinks fit, if for any reason it is impracticable either to call a general meeting in any manner in which general meetings of the particular company may be called or to conduct the meeting in the manner prescribed by the company’s articles or by the Ordinance.  In that context, “impracticable” does not simply mean impossible and the court must examine the circumstances of the particular case to answer the question whether, as a practical matter, the desired meeting of the company can be convened and/or held as appropriate.  The section also provides power to the court to give any ancillary or consequential directions that it thinks expedient for the holding of any such meeting.

9.  I do not think I need for the purposes of this application to delve deeply into the particular facts, but on the evidence which has been filed I accept that there are real concerns about the company which are worthy of investigation at least, and that it is that investigation which is in part the purpose of this application to inspect the books, records and documents of the company.

10.  There is material to suggest that there has been a relatively long-term deprivation of information from certain shareholders of even the minimal amount that one would expect them to give in a company with limited and close ownership such as this one.  There is also a genuine desire on the part of the applicants to hope to ensure that the company is and was being managed properly, as well as a desire to complete the process under which the 1^st applicant is selling her shares to the 3^rd applicant, but where the sale or transfer is not yet able to be effected without the approval of the board, where there is no operative board.

11.  I also accept that there is a sufficient and adequate basis for suggesting that the 2^nd respondent might have diverted the company’s business, and the documents requested are necessary for investigating that position.  There is also the apparent failure on the part of the company to have convened any general meetings as required under the Ordinance from perhaps as early as 2015.

12.  Looking at the matters overall, I am satisfied that the application is made in good faith and for proper purposes.

13.  As to the general meeting to be called, as sought by the originating summons, I have already pointed out that it is unclear whether the company has held any such general meeting since 2015 and some recent attempts to requisition the company and the 2^nd respondent to convene shareholders’ meetings have not borne fruit.  I accept that convening a meeting is now impracticable and further several steps from the applicants are unrealistic.

14.  In those circumstances, it seems to me that the requirements of section 570 of the Ordinance are satisfied and that it would be appropriate also to give ancillary or consequential directions along the lines of those made by Madam Recorder Yvonne Cheng SC in Ever Point Asia Pacific Limited v Tse Tsz Fung (HCMP 395/2019, unreported, 15 May 2019), namely that a general meeting be convened, the attendance of one shareholder of the company at the general meeting shall constitute a quorum and that a resolution be put at the general meeting and if thought fit, be passed for the appointment of director or directors of the company.

15.  In those circumstances, I make an order in the terms of paragraph 1 of the originating summons and paragraph 2 of the originating summons, varied to include the additional consequential directions I have just mentioned.  I will also grant an order in the terms of paragraph 3 of the originating summons, namely that there be general liberty to apply.

(Discussion re costs)

16.  I make an order that the costs of these proceedings, including the costs of today be payable by the respondents jointly and severally, such costs to be summarily assessed on the papers.

17.  The applicants are to file their statement of costs within 7 days and the respondents have 14 days thereafter to respond if they wish, and for me then to deal with it on those documents.