HONG KONG ASSET MANAGEMENT LTD v. THE REGISTRAR OF COMPANIES

HCMP 2177/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2177 OF 2017

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REASONS FOR JUDGMENT

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1.  This is an application by originating summons issued on 10 October 2017 pursuant to section 346 of the Companies Ordinance Cap 622 (“CO”) for an order that the time for registration of a share charge deed dated 28 July 2017 (“Charge”) made between the applicant as chargor and Eternal Sincere Finance Limited (“ESFL”) as chargee in respect of the shareholding of a Hong Kong company Intelligent Star Limited (“ISL”) to secure repayment of the Secured Obligations defined in the Charge be extended for 21 days from the date of the order to be made on the grounds that the omission to register the Charge was due to inadvertence, that the omission was accidental, was not of a nature that would prejudice the position of creditors/shareholders of the applicant, and/or that it would be just and equitable to grant relief. Such application was supported by the affirmation of Fung Ka Lok (director of the applicant and ISL, “Mr Fung”) filed on 10 October 2017.

2.  The applicant is a Hong Kong company, and the defendant is the Registrar of Companies (“Registrar”) whose attendance at the hearing on 7 November 2017 was excused. On 16 October 2017, the Registrar filed acknowledgment of service indicating he did not intend to contest the proceedings.

3.  Mr Fung explained that on 28 July 2017 the applicant and ESFL executed the Charge whereby the applicant charged inter alia by way of first fixed charge all its present and future rights and title to and interest from time to time in the applicant’s 100% shareholding in ISL. On or shortly before 25 August 2017, ie within 1 month after the execution of the Charge, Mr Fung as director of both the applicant and ISL instructed solicitors to submit Form NM1 in respect of the Charge to the Companies Registry. The Form NM1 gave ISL under “Company Name”. On 4 September 2017, the Registrar wrote to the applicant’s solicitors requesting clarification as to which company was the chargor under the Charge. In fact, the applicant was the chargor, so on 12 September 2017 the applicant’s solicitors replied to confirm the description under “Company Name” was a clerical error. On 15 September 2017, the Registrar wrote to the applicant’s solicitors and observed that (a) the applicant being the party who created the Charge should be the one to file the Form NM1, (b) the applicant should seek court order under section 346 of the CO to extend time for registration of the Charge, and (c) the applicant was to deliver the court order and new Form NM1 to the Companies Registry for registration. Mr Fung confirmed the applicant’s omission to register the Charge was due to accidental inadvertence as explained above.

4.  The relevant provisions of the CO are as follows:

“A company must deliver a statement of the particulars of every specified charge created by the company, together with a certified copy of the instrument (if any) creating or evidencing the charge, to the Registrar for registration within the registration period specified in subsection (5)(a).” (section 335(1))

“The registration period is …… (a) for the purposes of subsection (1) …… (i) one month after the date on which the specified charge is created ……” (section 335(5))

“The Court may, on application by the company …… order that – (a) the registration period specified in section 335(5) …… be extended; ……” (section 346(1))

“The Court must not make an order unless the Court is satisfied that –

(a) the failure specified in subsection (5) –

(i) was accidental;

(ii) was due to inadvertence or some other sufficient cause; or

(iii) is not of a nature to prejudice the position of creditors or members of the company ……; or

(b) it is just and equitable to grant the relief on other grounds.”

(section 346(3))

5.  In relation to a similar provision in section 86 of the Companies (Winding Up and Miscellaneous provisions) Ordinance Cap 32, it has been held the discretion may be exercised so long as one of the 5 distinct grounds set out in such provision was satisfied,[1] and discretion has been exercised where there was a failure to appreciate the relevant statutory provision.[2]

6.  Further, there has been judicial guidance on the interpretation of “accidental” and “inadvertence” under similar provisions in the CO (eg section 142(4)-(5) of CO):

“(a) “accidental” should mean “not deliberate”;[3]

(b) “inadvertence” should mean “carelessness” and “absence of bad faith”.[4]”

7.  Here, I am satisfied on Mr Fung’s explanation that the omission by the applicant to register the Charge within time was accidental and not deliberate. Mr Fung did instruct the applicant’s solicitors to submit (and the applicant’s solicitors did submit) the Form NM1 together with the Charge to the Companies Registry for registration. So there was no question of bad faith or withholding of information pertaining to the Charge from the public. The description of the company on Form NMI as ISL was clearly inadvertent.

8.  There was also nothing to suggest the late registration was of a nature to prejudice the position of the creditors/members of the applicant. Mr Fung confirmed the applicant’s 100% shareholding in ISL had never been subject to any charge other than the Charge, and the sole shareholder of the applicant (ie Hong Kong Financial Group Limited) was at all material times aware of the Charge. Mr Fung confirmed the applicant and its sole shareholder had common directors, and he was a common director of both companies.

9.  Mr Fung also said (and I accept) that in respect of the

applicant (a) no winding up order had been made or resolution for winding up had been passed, (b) no winding up petition was pending, (c) no notice of resolution had been given for winding up, (d) it continued to carry on business, and (e) no judgment was entered against it that remained unsatisfied.

10.  For all of the above reasons, at the hearing, I have granted extension of time for registration of the Charge to 21 days from the date of the order made with no order as to costs.