LEUNG CHUN WAH v. ARRAY ELECTRONICS (CHINA) LTD

HCMP 1489/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1489 OF 2013

--------------------

------------------------------------------------------

R E A S O N S  F O R  D E C I S I O N

------------------------------------------------------

1. Before the court were 24 summonses. 18 were applications seeking relief to regularise non-compliance with the requirements of sections 111 and/or 122 of the Companies Ordinance (“the Ordinance”). The papers had mentioned a deadline of the 30 September 2013 for obtaining the orders. Upon enquiry, the court was advised that the timetable had changed and that the impending listing which had prompted the present applications had been delayed by about three months. It should be said at once that it is incumbent on an applicant to volunteer such information at the earliest opportunity.

2. Be that as it may, there were two further hearings and further evidence was filed for each of the 18 applications on 29 October 2013. At the hearing on 5 November 2013, the relief sought was granted with written reasons to be handed down which I now do.

Background facts

3. In recent years, there has been a spate of applications such as those currently before the court brought about by anticipated listings on the HK Stock Exchange.

4. Willas-Array Electronics (Holdings) Limited (“Willis-Array”) is a company incorporated in Bermuda and listed on the main board of the Singapore Exchange Securities Trading Limited since 2 July 2001.  It is a distributor of electronic components.  On 21 June 2013, it applied for a dual listing of its shares on the main board of the Stock Exchange of  Hong Kong limited (“the listing application”).  Willas-Array has  29 subsidiaries, 18 of which are Hong Kong companies, the remaining 11 being overseas companies.

5. A review of corporate compliance in anticipation of the  Hong Kong listing revealed various instances of non-compliance with sections 111 and 122 of the Ordinance by its 18 Hong Kong subsidiaries.  They apparently pose a serious hurdle in the way of a successful listing application unless remedied.

6. At the hearing on 9 September 2013, the applications were dealt with in three groups: Groups I, II and III.  I will adopt the same grouping. All respondent companies are subsidiaries of Willis-Array.

7. Willis-Array is currently listed in Singapore.  Public shareholders hold 57.23% of its issued shares.  The balance of 42.77% is held

(a) as to 6.92% by Hung Yuk Choy (“Mr Hung”), one of the directors of Willis-Array and of many of the respondent companies;

(b) as to 10.59% by Global Success International Ltd which is owned by Kwok Chan Cheung (“Mr Kwok”), a director of Willis-Array and of all the respondent companies;

(c)  as to the balance of 24.28% by Max Power Assets Limited (“Max Power”) which is wholly-owned by HSBC International Trustee Ltd as trustee of a discretionary trust.  Leung Chun Wah (“Mr Leung”) a shareholder and director of Group I and Group II respondent companies is a discretionary beneficiary of that trust.

8. Willas-Array has a wholly owned subsidiary, Cleverway Profits Limited (“Cleverway”).  Cleverway holds, directly or indirectly, the respondent companies. 

9. Except for the 4 respondent companies considered under Group III below in which Cleverway has a 60% interest via Noblehigh Enterprises Limited (“Noblehigh”), the remaining 14 respondent companies considered under Groups I and II are all wholly owned subsidiaries of Cleverway.  Annexed to these Reasons is a copy of the Group’s current corporate structure.

10. Each of the applications in Groups I and II is supported by  3 affirmations filed by Mr Leung.  Each of the applications in Group III is supported by an affirmation of Phaisalakani Vichai and 2 later affirmations made by Mr Kwok.  Mr Leung’s 2^nd affirmation and Mr Kwok’s  1^st affirmation were filed to address concerns that had been expressed by Godfrey Lam J at an earlier hearing held on 6 August 2013. 

The statutory requirements

11. In brief, sections 111 and 122 impose certain obligations on private companies (“the statutory provisions”).

12. Section 111 (1) requires a private company to hold a general meeting as its AGM in each year, such that no more than 15 months should elapse between one AGM and the next.  Special provisions apply to the first AGM.  Under the proviso to that section, the 1^st AGM need not be held in the year of a company’s incorporation or in the following calendar year so long as it is held within 18 months of incorporation.  ‘Year’ refers to a calendar year and is not calculated from the date of registration of the company.

13. Section 122 (1) requires that the profit and loss accounts of a private company be laid before the company at its annual general meeting for the period since the preceding accounts.  Under section 122 (1A) those accounts are to be made up to a date not exceeding 9 months before the date of the meeting.  Subsection (2) requires a balance sheet as at the date to which the profit and loss account is made up to be laid before the company at its AGM.  A breach of section 111 generally entails a breach of section 122 as well although there are exceptions.

14. In short, the statutory provisions enable directors to give an account of their stewardship of the company in relation to the recent financial year’s performance.  The statutory provisions ensure that members of the company are provided with audited financial statements and the directors’ report (required to be annexed to the balance sheet by section 129D) in a timely manner.  The AGM is an opportunity for shareholders to assess the performance of the company and its directors for the relevant period.

15. Sections 111 (2) and 122 (1B) empower the court to grant relief and regularise non-compliance.

The applicable principles

16. The applicable principles for the exercise of the court’s discretion to grant relief under either section have been considered and applied in a number of recent cases.  See, for example, Re Sanliuyidu (Hong Kong) Sports Goods Co Ltd [2009] 4 HKLRD 708 at §5.  In brief, in deciding whether or not to exercise its discretion to regularise  non-compliance, typically, the court would have regard to, inter alia, the following factors:

(a) whether the shareholders were conversant with the financial position of the company in question and were not prejudiced by the non-compliance;

(b) whether the default was inadvertent; and

(c)  whether the court is satisfied that the company would comply with its statutory obligations in future.

17. Pausing here, where there have been changes in share ownership, the importance of identifying the period(s) of default cannot be over emphasised.  It enables the applicant to focus on the identity of the affected shareholders and the directors during the period(s) of default.  The supporting evidence needs to be drawn with the applicable principles in mind and as stated in a recent judgment where I had to consider similar issues, in such cases the evidence needs to address, inter alia, the following matters: 

(a) shareholders (including former shareholders) affected by the non-compliance (“the affected shareholders”);

(b) whether they were aware of the financial position of the company during the relevant year(s) of default;

(c) for affected shareholders who could not be contacted, the efforts made to contact them;

(d) the identity of the relevant directors (including former directors) who would have first-hand knowledge of the reasons for non-compliance and their explanation for the same. 

See Intelligence Link Ltd, unreported, HCMP 1435/2013, 28 October 2013 at §7.

18. For factually complicated applications such as the present involving numerous companies with different shareholding and directorship structures and a myriad of contraventions, it is incumbent on the applicant not only to ensure the accuracy and completeness of the supporting affidavits/affirmations with particular regard to the matters mentioned above but also that the relevant breaches, shareholdings and directorships are set out in an easily comprehensible manner.

19. In the present case, considerable judicial time has had to be expended in verifying the relevant facts in respect of each of the  18 applications which should not have happened had the evidence filed been complete.  Additionally, some of the initial supporting affirmations contained statements that were discrepant with exhibited documentation.

20. On the factor of "inadvertence" and, more generally, the court’s approach to the exercise of its discretion, in a recent decision, Harris J opined that indifference to compliance with the statutory provisions by a group of companies does not, or not necessarily, fall to be characterised as “inadvertent”: Prime Sunlight Ltd v Asiatic Century Ltd, unreported, HCMP 1445/2013, 28 October 2013 at §§15-17 and 30.

21. The issue whether in any particular case the contraventions concerned could fairly be characterised as “inadvertent” is clearly  fact-sensitive. Suffice it to say that on the facts of that case, the judge was not satisfied that the breaches of the statutory provisions arose from what could fairly be characterised as “inadvertence”.

The applications

22. It would be convenient to deal with the eleven originating summonses constituting the Group II applications first.

Group II: HCMP 1494/2013, 1496/2013, 1497/2013, 1498/2013, 1499/2013, 1500/2013, 1501/2013, 1502/2013, 1503/2013, 1504/2013 and 1505/2013

23. With one exception (mentioned below), the respondent companies in this Group were incorporated between 2000 and 2003 and upon incorporation or very shortly thereafter, the issued shares became vested in Mr Leung and Cleverway.  

24. HCMP 1500 is the exception in that the respondent company was incorporated on 15 October 1982 (and not 3 June 2002 as stated in the supporting affirmation).  Happily, this difference is not material for present purposes.  Mr Leung and Cleverway became shareholders in  May 2002.

25. The common thread running through this Group is a failure by each of the respondent companies to lay the company’s audited profit and loss accounts and balance sheets at its 2007 AGM in respect of the financial year ended 31 March 2007.  The 2007 accounts were only adopted at the company’s subsequent AGM i.e. the 2008 AGM held on  23 October 2008, causing contraventions of section 122 (1), (1A) and (2).  In fact, the contraventions relating to the 2007 accounts are common to all  18 applications.

26. During the defaulting period relevant to the 2007 accounts, the directors of the Group II respondent companies were as follows:

(a) Messrs Leung and Kwok were (and remain) directors of each of the eleven Group II respondent companies.

(b) Mr Hung was (and remains) a director of all Group II respondent companies except for the respondent company in HCMP 1500.

(c) Kim Sung Woo who was appointed a director of that respondent company in HCMP 1503 in January 2005 (and still holds that appointment).

(d) Mr Vichai who was appointed a director of the respondent companies in HCMP 1503 and 1505 in 2002/2003.

27. In respect of three of the eleven applications in Group II, namely, HCMP 1496/2013, 1497/2013 and 1499/2013, there were similar instances of non-compliance in respect of the respondent companies concerned in that the first set of accounts for each of them were only laid and adopted at a subsequent AGM.  As those contraventions all occurred after the Singapore listing, for present purposes, they are similar in nature to the contraventions in respect of the 2007 accounts.

28. A question that not unnaturally arises is why such contraventions should have occurred post the Singapore listing.  The evidence is that insofar as there had been infractions pre-listing, none came to light and consequently none rectified during the due diligence exercise for the Singapore listing.  Any non-compliance before and after the Singapore listing only emerged in May 2013 during the HK listing exercise.  This was said to be attributable to the ‘wider and more comprehensive’ scope of the due diligence necessary for a HK listing.

29. I now turn to consider the 3 factors mentioned in §16 above in relation to the Group II applications.

 (a) Affected shareholders

30. On the question of knowledge on the part of the shareholders and the absence of prejudice, so far as the earlier contraventions are concerned, the defaulting years were 2003 and 2005.  The only former shareholders who might have been affected were the original subscribers in HCMP 1497, being GSL Services Ltd and GNL Services Ltd.  However, as original subscribers, they would have been aware of the financial condition of the respondent companies.  On the evidence presented, I am prepared to accept that insofar as former shareholders are concerned, they were aware of the financial condition at the material time and that they have not been prejudiced.

31. The current shareholders affected by post-Singapore listing non-compliance are Mr Leung and Cleverway.  It is clear from the evidence that Mr Leung had the requisite knowledge.

32. Mr Leung became a director of Cleverway in July 2000 and Mr Kwok, Mr Hung, Sze Wing Wah and Ching Tak Hon were appointed directors in February 2001.  Mr Sze passed away in September 2004 and Mr Ching (who resigned as director in June 2004) has not responded to a registered letter sent to him by Mr Leung.

33. Since late September 2004, Messrs Leung, Kwok, and Hung have been and remain the only directors of Cleverway.  Both Mr Kwok and Mr Hung in their capacity as directors of Cleverway have confirmed to Mr Leung their awareness of the financial condition of the Group II respondent companies at the time of the default in respect of the 2007 accounts and also of the financial condition of the relevant Group II respondent companies in respect of the earlier defaults in 2003 and 2005. In short, the relevant directors of Cleverway had the requisite knowledge.

34. But as Cleverway is a wholly-owned subsidiary of Willas-Array and Willas-Array is a listed company, that is a factor that could be said to add a different dimension to the affected shareholders issue.

35. As earlier noted, currently 3 shareholders own approximately 42% of Willas-Array, namely, Mr Hung, Mr Kwok (through  Global Success) and Max Power.  Public investors hold the remaining 58% of the shares but they are a fluctuating body.  In my view, it would not be unreasonable in those circumstances to regard the knowledge of those  3 shareholders (each having a significant holding) as representative. 

36. It transpires from Mr Leung’s 3^rd affirmation filed on  29 October 2013 that Max Power is wholly owned by HSBC International Trustee Limited as trustee of a discretionary trust under which Mr Leung and his family members are the ultimate beneficiaries but, importantly, any disposal and/or acquisition of Willas-Array’s shares by Max Power requires Mr Leung’s consent except under exceptional circumstances as stipulated in the trust deed.  That is disclosed in the latest draft submitted to the Stock Exchange on 18 October 2013 in connection with the listing application.

37. In the light of that evidence, I consider that Mr Leung may be regarded for present purposes as ‘representing’ Max Power and his knowledge is properly attributable to Max Power.

38. In my view, the awareness of Messrs Leung, Kwok and Hung of the financial condition of the relevant respondent companies is significant: not only were they directors of Cleverway, they were themselves beneficially interested in Willis-Array and therefore indirectly in Cleverway.  In the circumstances, I am satisfied that none of the affected shareholders was prejudiced by breaches that have occurred in respect of the Group II respondent companies.

  (b)  Reasons for non-compliance

39. During the defaulting period for each of the earlier contraventions 2003 (for HCMP 1496 and 1499) and 2005 (for  HCMP 1497), the relevant directors were Messrs Leung, Kwok and Hung.

40. The reasons for the contraventions (confirmed by Mr Kwok and Mr Hung) are to be found in Mr Leung’s affirmations.  It should be noted that Mr Kwok has filed affirmations to explain the reasons for  non-compliance by Group III respondent companies.  The material parts of those affirmations are virtually identical to those filed by Mr Leung.

41. In his 1st affirmation Mr Leung stated that the cause of  non-compliance was the result of inadvertent oversight by the directors who were not fully familiar with the statutory requirements and specifically, the need to convene AGMs within the stipulated time and to prepare and to lay timely accounts.

42. It was also said that although a professional and reputable secretarial service provider (Tricor Secretaries Ltd (“Tricor”)) had been engaged to handle the secretarial affairs of the Hong Kong subsidiaries of the Group and thus the respondent companies concerned since 1992, the directors of the relevant respondent companies had not been alerted to the non-compliance.

43. In his 2nd affirmation Mr Leung elaborated further and explained that in relation to non-compliance concerning the 2007 accounts, the auditors of the Group have advised him that while the financial statements were substantially complete shortly before the respective AGMs of the respondent companies, due to new auditing practices, the auditors of the Group were unable to complete their internal process of signing off on the audited financial statements in time for the 2007 AGMs.

44. I readily accept the explanation given in § 43 above for the default in relation to the 2007 accounts for all 18 applications. The directors should be exonerated from blame in respect of that default because it was beyond their control.  It is clearly excusable and, in my view, those contraventions unquestionably were “inadvertent”.

45. In so far as concerns the remaining three instances of default involving only three of the Group II respondent companies, I accept the other reasons stated.

46. In each case, the non-compliance was in respect of the first set of accounts only.  No similar breaches occurred in respect of the eight other respondent companies in this Group.  There is no evidence to suggest that the earlier defaults were in any way wilful or that they betray an attitude of “indifference” on the part of the directors.  There seems to be no reason, much less a compelling one, for the court not to accept that those defaults were caused through inadvertence.

(c) Future compliance

47. There is evidence to the effect that all the current directors of the respondent companies in Groups I, II and III as well as the company secretary of Willis-Array have now received legal advice as to the requirements of Section 122.  Messrs Deloitte Touche Komatsu will continue to be appointed to act as auditors. 

48. Further, upon a successful listing of Willis-Array, independent non-executive directors with professional knowledge will be appointed to advise the board of directors of the parent company on compliance matters and an audit committee will also be formed to oversee the financial reporting and internal control procedures of the Group to ensure compliance with regulatory matters. 

49. I consider the arrangements made for the future compliance of the statutory provisions satisfactory and likely to ensure that contraventions of the statutory provisions will not recur.

Conclusion

50. Having regard to all the circumstances, I consider it appropriate to exercise my discretion to grant the relief sought in respect each of the Group II respondent companies. 

Group I: HCMP 1489/2013, 1490/2013 and 1531/2013

51. Group I applications concern 3 respondent companies that have a much longer history.  Their current shareholders are Mr Leung and Cleverway whose ultimate owner is Willas-Array.  The respondent companies in this Group were incorporated on 8 July 1988,   15 October 1982 and 20 January 1981 respectively.

52. So far as concerns non-compliance by all Group I companies as regards the 2007 accounts and whether relief should be granted, what I have concluded in relation to the Group II applications applies, mutatis mutandis.

53. In each of the Group I applications, in addition to  non-compliance in respect of the 2007 accounts and balance sheets, there were other contraventions of the statutory provisions, being   non-compliance with the requirements of section 111 and, consequentially (save in HCMP 1531), also contraventions of section 122 for the same periods.  All such contraventions occurred before 1993 and well before the Singapore listing.

54. When an AGM is not held as required by the statutory provisions, usually (but not invariably) a breach of section 122 would also be triggered.  In such cases, it would be the exception rather than the norm for the relevant accounts to have been laid in a timely manner before the members for approval. 

55. Section 111 defaults occurred from 1989 to 1991 (inclusive) for HCMP 1489, and from 1983 to 1991 (inclusive) for HCMP 1490, with consequential section 122 defaults for those respective periods.  In addition, section 122 non-compliance also occurred in 1992 for  HCMP 1489.

56. For HCMP 1531, there was non-compliance with section 111 inasmuch as the 1^st AGM was held approximately 23 months after incorporation and hence beyond the 18 month period stipulated in the proviso.  Nevertheless, a general meeting was held within time in 1982 at which the accounts for the year ended 31 March 1982 were laid and approved.  Accordingly, there was no corresponding breach of  section 122.

 (a) Affected shareholders

(i) HCMP 1489 and 1490

57. Mr Kwok and one Chan Kei Biu (“Mr Chan”) were the subscribers to the memorandum of the respondent companies in  HCMP 1489 and 1490.  They were the only affected shareholders during the periods of default for both sections 111 and 122 breaches, save that in HCMP 1489 Mr Kwok transferred his share in the respondent company to Array Electronics (Holdings) Ltd, in March 1992.  In turn, Array Electronics (a former subsidiary of Willas-Array) transferred its share to Cleverway in 2000, several years before it was dissolved.

58. There is no question but that Mr Kwok was fully aware of the financial condition of the relevant respondent companies.  That is clear from the evidence filed.

59. As regards Mr Chan, it is to be noted that AGMs were held every year as from 1992.  At the 1993 AGM, Mr Chan was present and voted to adopt the reports and the financial statements for the period from the date of incorporation to 31 March 1991 and for the two subsequent financial years.  In those circumstances, as a factual matter, I do not see how Mr Chan could have been prejudiced by the failure to hold AGMs in the earlier years.

60. Nor do I see that he could have been prejudiced by  section 122 breaches since he voted to adopt the accounts in respect of those years at the 1993 AGM, quite apart from the fact that he was also one of the two original subscribers and as such would have known of the financial condition of the respondent companies.

61. For those reasons, I am satisfied that Mr Chan as the sole former shareholder who cannot now be contacted would have been aware of the financial circumstances of the respondent companies and did not suffer any prejudice by the contraventions that took place during the defaulting period.

   (ii) HCMP 1531

62. The current shareholders are Mr Leung and Cleverway. They did not acquire their respective shareholdings until September 2000. 

63. In 1982, the respondent company had no fewer than 12 former shareholders who could have been prejudiced.  While efforts to contact the affected shareholders have not been fruitful, it is relevant to note that 10 out of 12 affected shareholders remained shareholders the subsequent year (i.e. 1983) during which an AGM was convened and the relevant accounts approved.

64. The non-compliance in question was technical in the sense that an AGM was convened and held except that it took place a few months out of time.  That is different from no meeting having been held at all. In those circumstances the affected shareholders could not be said to have suffered any real prejudice and I so hold.

  (b) Reasons for non-compliance

65. Messrs Leung, Kwok and Hung are the current directors of each of the respondent companies in Group I.  Attempts made to contact former directors who are relevant directors have not been successful. 

66. For HCMP 1489 and 1490, Mr Kwok was a director of the relevant respondent company shortly after its incorporation and remained the sole director for virtually the entire period of default involved.  Mr Leung and Mr Hung became directors in July 1992 and so were relevant directors in respect of the section 122 contraventions in 1992 in HCMP 1489.

67. Mr Leung’s affirmations filed in support of each Group I application state reasons that mirror those given in respect of Group II applications and summarised in §§ 41-43 above save that for breaches of section 111 that occurred prior to 1992, Mr Leung’s 3rd affirmation recently filed in support of each of the Group I applications proffers a further explanation. 

68. AGM records prior to the engagement of Tricor to handle the company secretarial affairs of the Hong Kong subsidiaries were internally maintained and, due to the passage of time, some could not be located to verify compliance with section 111.  No doubt preferring to err on the side of caution, relief sought for section 111 contraventions has been premised on the assumption that there had been non-compliance with section 111 when that might not have been the case.

69. Since 1992, Tricor has been responsible for keeping the AGM records of the Hong Kong subsidiaries.  After that date, no further instances of non-compliance with section 111 have arisen for the  Hong Kong subsidiaries.

70. Whether relief should be granted will be considered together with Group III applications in §§ 91-98 below.

Group III: HCMP1491/2013, 1492/2013, 1493/2013 and 1495/2013

71. The respondent companies were incorporated on   17 December 1997, 3 May 1994, 5 July 1994 and 20 April 1995 respectively.  Through a transaction completed in September 2006 (“the 2006 acquisition”), Willis-Array became the indirect majority owner of the respondent companies.

72. The instances of non-compliance all arise under section 122.  In addition to the contraventions of section 122 in respect of the  2007 profit and loss accounts and balance sheet (as to which I have nothing to add), in each case, there were other instances of non-compliance both before and after the 2006 acquisition.  The years in which they occurred are identified below.

73. As will become apparent, all 4 respondent companies in Group III are wholly owned subsidiaries of ValenceTech Ltd.  ValenceTech itself is wholly owned by Noblehigh.  However,  Willis-Array did not acquire an interest in Noblehigh (and hence ValenceTech) until 2006.

74. The following table sets out the defaulting years relevant to each of the Group III respondent companies:

Table
HCMP	HCMP	HCMP	HCMP
1491	1492	1493	1495
	1995	1995
1998	1998	1998	1998
1999	1999		1999
2007	2007	2007	2007
2008	2008	2008	2008
			2009
2012

  (a) Affected shareholders

75. For all Group III applications, so far as post 2006 acquisition contraventions are concerned, the only affected shareholder is the current shareholder ValenceTech.  As appears from the corporate chart,  Willis-Array has a 60% interest in Noblehigh, the remaining 40% being owned by Success Advance Ltd.

76. Willis-Array’s 60% interest in Noblehigh is indirectly held through Cleverway and its wholly owned subsidiary.  I have already addressed the issue of Cleverway’s knowledge and awareness as shareholder (directly or indirectly) of the 18 Hong Kong subsidiaries in  §§ 33-38 above.

77. Advance Success has seven shareholders and all of them have now confirmed that they were aware of the financial position of the relevant respondent company in Group III during the post 2006 acquisition defaulting years.  

78. For post 2006 acquisition contraventions, the issue of prejudice does not arise given the awareness of the post-2006 acquisition affected shareholders of the financial condition of the Group III respondent companies.

79. I now turn to consider the issue of awareness of the pre 2006 acquisition affected shareholders.  The evidence shows that best efforts made to contact such affected shareholders have not been successful.  

80. Affected shareholders for HCMP 1491 are former shareholders John Auyeung and Valence Technology Inc.  Since  Valence Technology Inc amalgamated with ValenceTech Limited (the current sole shareholder of the company) in April 2000, for present purposes, the only relevant former shareholder affected is Mr Auyeung who cannot be reached.

81. For HCMP 1492, HCMP 1493 and HCMP 1495, the affected shareholders are Mr Auyeung, Ng Lai Yick, Legend-Valence Holdings (BVI) Ltd and (after 10 June 1998) Valence Technology Limited who acquired its share from Legend-Valence.  Mr Auyeung was also a shareholder of Valence Technology Limited until 2001.

82. It should be mentioned that for HCMP 1492 and 1493, in respect of the contravention that took place the year following incorporation, the original subscribers are also affected shareholders. However, as it is my view that as original subscribers they would have been aware of the financial condition of the company concerned, they would not have been prejudiced.  So, for present purposes, the focus must be on the shareholders identified in the preceding paragraph.

83. For the contraventions that occurred in 1998 and 1999 for HCMP 1491 and in 1995 and 1998 for HCMP 1493, there is evidence from which it could be inferred that the shareholders had suffered no prejudice. In each case, at every AGM at which no profit and loss accounts and balance sheets were laid, the same shareholders adopted those accounts and balance sheets at the next AGM.

84. For HCMP 1492 and 1495 the same inference cannot be drawn despite the adoption of the accounts at the subsequent AGM because the identity of the affected shareholders had changed during the defaulting years in question.

85. Nevertheless, it is relevant to note that each of those respondent companies had no more than a handful of shareholders.  The small size of the company with a limited number of shareholders is a relevant consideration.  It is unlikely that the shareholders in such a company would not have been familiar with its financial condition.

86. Another significant fact But a more significant factor is the common shareholder feature.  The same group of persons were involved.  Mr Auyeung,  Mr Ng, Legend-Valence and Valence Technology were affected shareholders in three out of the four Group III respondent companies (HCMP 1492,1493 and 1495), with Mr Auyeung also of the fourth.  If, as shareholders of the respondent company in HCMP 1493, they were aware of its financial condition (see §83 above), it is unlikely that they would not also have been aware of the financial condition of the other Group III respondent companies of which they were shareholders.

87. On those facts, I consider it appropriate to draw the inference that the affected shareholders had the requisite awareness and have not suffered any prejudice.

  (b)  Reasons for non-compliance

88. Unlike Group I and II applications, none of the current directors was a director during the defaulting period prior to the year 2000.  Attempts have therefore been made to contact all relevant former directors to ascertain the reasons for the instances of non-compliance that occurred in the 1990s.  

89. Despite best endeavours, no such former director could be contacted.  It follows that there is no one who is in a position to explain the reasons for the breaches that occurred in 1995, 1998 and 1999.  In those unusual circumstances, the extensiveness or otherwise of the contraventions and the absence of prejudice would be considerations to which greater weight would be attached.

90. For Group III applications, post 2000 relevant directors who could be reached have confirmed the reasons stated in Mr Vichai’s affirmation and Mr Kwok’s affirmations for the contraventions of the statutory provisions.  Those reasons essentially mirror the reasons given by Mr Leung and set out in §§ 41-43 above.

Conclusion for Group I and III applications

91. So far as section 111 relief is concerned, to order meetings tobe convened now when that should have been done over 20 years ago (in 1989, 1990 and 1991) would seem to be rather artificial and pointless.  The only discernible reason for this court to exercise its discretion would be to remove a potential jeopardy to the proposed listing. 

92. To progress a listing may (but not necessarily) constitute a good reason for exercising the discretion.  In cases where the relevant factors (i.e. the absence of prejudice to any affected shareholder, a conclusion on the evidence that the contraventions were inadvertent and that the steps to be taken are likely to ensure future compliance) are satisfied, in the absence of countervailing factors, that factor may tip the balance.

93. In respect of breaches of section 122 that occurred after 1992, it is relevant to take into account the fact that professionals were engaged to attend to company secretarial matters of the Hong Kong subsidiaries and that the directors not unreasonably placed reliance on their expertise.  Regrettably the professionals failed to alert the directors to the contraventions when they did occur.

94. For Group III respondent companies, as they were not acquired until 2006, Tricor does not come into the picture.  Importantly, for reasons already explained, I do not consider that the affected shareholders were prejudiced as a result of the contraventions that occurred during the second half of the 1990s.

95. In any event, those contraventions were sporadic and intermittent.  Contrast Asiatic where, despite a sophisticated corporate structure involving a chain of BVI companies, no professionals were ever engaged and it seems no accounts were ever prepared or AGMs convened.  It is to be noted that in Asiatic, where the relief sought was for more than a single defaulting year, it was invariably for consecutive years ending in 2012 and running sequentially up to 7 years.

96. Even if breaches in Group III applications that are of recent vintage were to call for closer scrutiny, the default in respect of the  2007 accounts for which a specific and valid reason exists should be put on one side.  Looking at the table above, the contraventions when put in the context of the Hong Kong subsidiaries of the Group as a whole appear to be no more than isolated instances of non-compliance.

97. In the absence of special circumstances that give rise to legitimate concerns (as in Asiatic where the facts did give rise to such concerns), there would not appear to be any good reason to withhold the exercise of the court’s discretion.  Looking at the overall corporate structure of Willas-Array, breaches of the statutory provisions that have occurred while unfortunate and an aberration on the part of the directors could, nonetheless, fairly and properly be characterised as “inadvertent”.  In a perfect world they would not and should not have occurred but the reality is that mistakes do occur and key dates sometimes overlooked, even for the conscientious.

98. I have already expressed the view that the measures to be taken to ensure compliance are adequate.  Realistically, it is highly unlikely that contraventions will recur once the new arrangements are in place.

99. Taking all matters into account, I consider it appropriate to exercise the court’s discretion to grant the relief sought in respect of each of the Group I and III applications also.