DAI WEIMIN v. REGISTRAR OF COMPANIES AND OTHERS

HCMP 2122/2020

[2022] HKCFI 2866

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANCEOUS PROCEEDINGS NO 2122 OF 2020

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J U D G M E N T

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1.  This is an application brought by originating summons (the “Originating Summons”) by Mr Dai Weimin (the “Plaintiff”) under section 42 of the Companies Ordinance (Cap 622) (the “CO”) to remove or, alternatively, rectify the information contained in the following documents:-

(1)  The Notice of Change of Company Secretary and Director (Appointment / Cessation) (Form ND2A) (Document Ref. No. 22000988174) (the “Impugned ND2A”); and

(2)  The Annual Return (Form NAR1) (Document Ref. No. 23101718983) (the “Impugned NAR1”),

    (collectively, the “Impugned Documents”).

A.  BACKGROUND FACTS

2.  On 17 December 2009, Keen Sino Investment Limited (the “Company”) was incorporated in Hong Kong as a private company limited by shares.

3.  The Company is an investment vehicle and holds 90% shares in中科匯太陽能（吳江）有限公司 (“Wujiang Company”), a company incorporated in the People’s Republic of China, which carries out the Company’s solar power project. The remaining 10% of the shares are held by 北京中科泰創綠色能源技術研究院 (“Beijing Research Centre”).

4.  The Company was formed pursuant to some discussions between Mr Cao Zhen (the “2^nd Defendant”) and the dean of the Beijing Research Centre back in 2008. After settling on developing a solar-power project, the Defendant agreed to look for investors to finance the project. It was after the Defendant came to know of Huai Chuanjie (“Huai”), who was willing to invest in the project, that the Company was set up.

5.  For all practical purposes, Huai was the sole director and sole shareholder of the Company since its incorporation.

6.  In early 2014, the Plaintiff expressed interest to the 2^nd Defendant in acquiring the Wujiang Company. On 20 March 2014, 許書梅 (“Hui”), on behalf of the 2^nd Defendant, entered into a 股權轉讓協議 (Shares Transfer Agreement, “STA”) with 杜建根 (“Du”) and 黃建忠 (“Huang”), on behalf of the Plaintiff.

7.  It is stated in Recital (A) of the STA that while the 2^nd Defendant does not have any shareholdings in the company, he is the actual controller and has the right to request the shareholder of the Company to transfer the shares in the Company to the Plaintiff or any third party specified by the Plaintiff.

8.  Following the conclusion of the STA:-

(1)  On 25 March 2014, Huai resigned from directorship and Huang became the director of the Company.

(2)  On 27 March 2014, Huai and Huang signed the instruments of transfer and bought and sold notes to transfer all the shares in the Company (the “Company Shares”). The documents were stamped and the transfer was registered on the same day.

(3)  To reflect the change in directorship, a form ND4 recording Huai’s resignation and a form ND2A recording Huai’s cessation of directorship and Huang’s succession of directorship were filed with the Companies Registry (the “CR”) on 27 March 2014; and

(4)  The change in shareholdings is recorded in a form NAR1 (Annual Return for 2014), filed with the CR on 23 May 2019.

9.  On 21 November 2019, the Impugned ND2A was registered with the Companies Registry, stating that the 2^nd Defendant was appointed as the director of the Company on 15 May 2019 and that Huang ceased to be the director on 25 May 2019.

10.  On 18 December 2019, the Impugned NAR1 was registered with the Companies Registry, stating that Huang transferred all his Company Shares to the 2^nd Defendant on 15 May 2019 and that the 2^nd Defendant was the only director of the Company at the material time.

11.  Both Impugned Documents were signed off by the 2^nd Defendant as the “director” of the Company.

12.  On 30 December 2019, board resolutions were passed by Huang resolving that (1) the Plaintiff is appointed as the new director of the Company; (2) Huang resigned as director of the Company; and (3) the transfer of the Company Shares from Huang to the Plaintiff were approved for registration.

13.  Following the passing of the board resolutions on 30 December 2019:-

(1)  On 17 January 2020, Huang and the Plaintiff signed the instruments of transfer and bought and sold notes to transfer the Company Shares. The documents were stamped on the same day; and

(2)  On 19 March 2020 and 27 March 2020, a form ND2A recording the Plaintiff’s appointment as the director of the Company (“2020 ND2A”) and a form ND4 recording Huang’s resignation (“2020 ND4”) were filed with the CR respectively.

14.  Upon discovering the filing of the Impugned Documents:-

(1)  On 14 January 2020, Huang signed a 「確認函」 (Confirmation Letter) confirming that he had never appointed the 2^nd Defendant as director of the Company, nor authorised anyone to file the Impugned Documents; and

(2)  On 17 January 2020, the Plaintiff made reports to the CR asking for deregistration of the documents but to no avail.

15.  Against the above background, the Plaintiff filed the Originating Summons on 9 June 2021 to remove the Impugned Documents or, alternatively, rectify the information therein.

16.  As of the present, the most updated forms filed at the CR reflecting the Company’s directorship and shareholding are the 2020 ND2A and the Impugned NAR1. This means that the CR records show the current director as the Plaintiff and the current shareholder as the 2^nd Defendant.

B.  APPLICABLE PRINCIPLES

17.  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.”

18.  In Forever Up Holdings Ltd v Tong Yan Wa [2018] HKCFI 2775 at §12, I have referred to the applicable principles helpfully summarised by G Lam J (as he then was) in In Re China Nice Education [2016] 3 HKLRD 525:

“(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).”

19.  In To Sai Tak and another v Registrar of Companies and others [2020] HKCFI 1615, a case which concerned similar facts to the present, Linda Chan J allowed the removal of the documents from the CR for the following reasons:

“(1) The Impugned Documents were filed by [the defendant] without the authority of the Company and, as such, are null and void.

(2) All the salient information contained in the Impugned Documents is false. If the Impugned Documents were allowed to remain in the Companies Registry, even with the false information crossed out or rectified, there is a real risk that the persons dealing with the Company may question the identity of the shareholders and directors and insist that the Company should provide further evidence to put the matter beyond doubt. This will only impede the normal operation of the Company and add to the time and expenses of [the plaintiffs] in dealing with the Company’s affairs.

(3) The Company holds all the equity in the Subsidiary, which has ongoing business in Dongguan City. There are bound to be persons and entities dealing with the Subsidiary, such as tenants and the Mainland authorities, who may need to ascertain the identity of the shareholders and directors of the Company so as to satisfy themselves that they are dealing with the right persons. The continuing presence of the incorrect information in the Impugned Documents will create uncertainty and confusion over the identity of the shareholders, directors and secretary of the Company as well as the location of the registered office. It is not in the Company’s interest to be left in such a confusing and uncertain state.

(4) There is a real risk that [the defendant] may use the Impugned Documents to mislead others into believing that he has been reinstated as the sole shareholder and sole director of the Company and, hence, has the authority to deal with the Company’s assets including the Subsidiary. It will cause material damage to the Company if the Subsidiary is disposed of by [the defendant] who, as matter now stands, is neither a shareholder nor director and has no right or power in the Company.”

20.  In view of the above legal principles and reasoning, I am of the view that:-

(1)  The threshold for section 42(4) to be engaged is fairly low: the material damage to the company limb is satisfied where there is a prospect that damage may be caused to the company.

(2)  However, the prospect has to be real. Pure inconsistencies contained in the CR do not cause to any material damage to the company, and can be clarified by the inclusion of a note of explanation by the Registrar.

(3)  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, including the uncertainty and confusion to current and/or potential business partners and lenders and misleading representations of authority.

C.  ANALYSIS

21.  I agree with Ms Wong for the Plaintiff that the Impugned Documents were signed off and filed without the Company’s authority and the information therein is false or factually inaccurate because:-

(1)  In respect of the Impugned ND2A:-

(a)  No board resolutions have been passed, nor were any documents executed on 15 May 2019 or any time, to appoint the 2^nd Defendant as the director of the Company; and

(b)  Huang only resigned as the director of the Company on 30 December 2019, and the Company has never passed any resolution to remove Huang from directorship prior to 30 December 2019.

(2)  In respect of the Impugned NAR1:-

(a)  Again, the 2^nd Defendant has never been appointed as a director of the Company;

(b)  Huang has never transferred his shareholdings in the Company to the 2^nd Defendant on 15 May 2019 or any other time; and

(c)  Huang only transferred his shareholdings in the Company to the Plaintiff on 17 January 2020.

22.  Thus, I am satisfied that the requirements under section 42(1) are met in respect of both Impugned Documents.

23.  While the 2^nd Defendant does not dispute the above, he opposed the application for rectification or removal of the Impugned NAR1 on the ground that he has a counterclaim for beneficial ownership of the Company Shares. The 2^nd Defendant also applied to convert the Originating Summons into a writ, so that the issue of beneficial ownership should be dealt with together with the rectification/ removal application.

24.  I also note that during the hearing, Mr Wong for the 2^nd Defendant submitted that the 2^nd Defendant does not object to a rectification of the Impugned Documents. That is sensible because there is no legitimate reason as to why inaccurate information should appear in the record of the CR without proper rectification.

25.  The 2^nd Defendant’s main case is that Huai had held the shares for him on trust, and puts forward two alternative cases:

(1)  Under the terms of the STA, the 2^nd Defendant retains the beneficial interest in the Company Shares until the Plaintiff or Huang complied with the terms of the STA. As the Plaintiff or Huang had not fulfilled all of their payment obligations, the 2^nd Defendant’s retains beneficial ownership of the Company Shares.

(2)  In the alternative, if the beneficial ownership had been passed, the STA was rescinded in light of the Plaintiff’s or Huang’s default in their payment obligations, and the Huang’s beneficial ownership of the shares reverted to the 2^nd Defendant.

26.  The Plaintiff argued that he did not fulfill the payment obligations only because the 2^nd Defendant had failed to fulfill the prerequisites to payment.

27.  Having carefully considered the parties’ written and oral submissions, I am of the view that it is inappropriate to convert the current Originating Summons into a writ action.

28.  First and foremost, the 2^nd Defendant’s claims for beneficial ownership fall wholly within the purview of the STA. His claims require the construction of the STA, the determination of whether the beneficial interest in the Company Shares had passed, whether the 2^nd Defendant had indeed breached the prerequisites to payment and whether the STA or the transfer of the Company Shares had been rescinded.

29.  However, Clause 8 of the STA specifically provides that any disputes arising out of or in relation to the STA should be resolved through friendly negotiations, and if such negotiations fail, be referred to the Suzhou Arbitration Commission for determination (the “Arbitration Clause”):-

“协议各方应通过友好协商解决因履行本协议引起的或与本协议有关的争议，协商不成，应将该争议提交苏州仲裁委员会，并按照该仲裁委员会的仲裁规则仲裁，该仲裁裁决是终局的。”

30.  In view of the Arbitration Clause, this Court is clearly not the appropriate forum for the determination of the 2^nd Defendant’s counterclaim. The 2^nd Defendant’s claims should be referred to the Suzhou Arbitration Commission for determination.

31.  This is a point initially not taken by the Plaintiff. Mr Wong for the 2^nd Defendant thus submitted that the case could still be taken before this Court unless the Plaintiff objected to such course. I do not accept this contention, because to allow the 2^nd Defendant to have the issue resolved at this Court amounts to a prima facie breach of the STA, and this Court should not assist the 2^nd Defendant on such a course unless the Plaintiff agrees to it.

32.  Moreover, Ms Wong for the Plaintiff subsequently confirmed at the hearing that the Plaintiff will rely on the Arbitration Clause, so allowing the 2^nd Defendant to proceed with his counterclaim in this Court will necessitate prejudice to the Plaintiff’s rights under the STA. I note that Mr Wong did not insist on his application after the Plaintiff confirmed his reliance on the Arbitration Clause.

33.  Given that this Court does not have jurisdiction to determine the 2^nd Defendant’s counterclaim, this Court can at most recognise that the 2^nd Defendant intends to challenge Huang’s and the Plaintiff’s beneficial interest in the Company Shares. However, I am of the view that such challenge does not prevent this Court from granting an order under section 42.

34.  As the 2^nd Defendant’s beneficial interest in the Company Shares is yet to be resolved, the present state of circumstances remains that Huang and the Plaintiff was and is the shareholder of the Company. As far as the record of the CR is concerned, the CR only recognises legal title; it does not recognise trusts. It is trite law that one who has beneficial interest in a property does not strictly “own” the property; he only has a right enforceable against the trustee’s right to control the trust property for his benefit. Only the trustee is the owner of the property. As such, it is only correct that this Court allow the rectification or removal of the NAR1 to reflect the present state of shareholding in the Company.

35.  Pursuant to the rectification or removal of the NAR1, it remains open for the 2^nd Defendant to commence arbitration in Suzhou, because the record that the 2^nd Defendant is not the legal shareholder of the Company Shares does not conflict with his claim for beneficial interest in the shares. Should the 2^nd Defendant obtain a favourable judgment in due course, and depends on the relief that were to be granted by the appropriate forum, it is open for him to update the records of the CR then.

36.  Secondly, and in any event, I am of the view that the 2^nd Defendant’s case is not germane to the present application. Taking the 2^nd Defendant’s case to the highest, and assuming that the 2^nd Defendant is the beneficial owner of the shares, the legal title remained vested in Huang, and thereafter, the Plaintiff. The records in the CR do not seek to reflect beneficial ownership of shares.

37.  Thirdly, the 2^nd Defendant’s claim may raise time bar issues. On the facts, the 2^nd Defendant deposed that he had sent notice to Huang and the Plaintiff on or around 1 October 2014 stating that Huang and the Plaintiff had failed to fulfil the STA and the shares transfer had terminated. In this regard, the 2^nd Defendant’s claims for Huang’s or the Plaintiff’s breach of contract appear to have arisen latest in October 2014, and is prima facie out of the 6-year limitation period applicable to claims arising out of contract if the applicable law is Hong Kong law.

38.  Lastly, I note that Mr Wong relied on Deputy High Court Judge Raymond Leung SC’s judgment in Li Ngan Kwan v Registrar of Companies and Others [2020] HKCFI 2230 as an example where an originating summons for rectification or removal of impugned documents were stayed in favour of the trial resolving the beneficial ownership of the shares.

39.  It suffices to say that Li Ngan Kwan is distinguishable from the present case for three reasons:-

(1)  No arbitration clause or dispute on the appropriate forum for adjudication was involved;

(2)  No time-bar issues were involved in the claim for beneficial ownership of the shares in question; and

(3)  On the peculiar facts of Li Ngan Kwan, the trial in question had already commenced when the originating summons was taken out, and was adjourned part heard, so it was understandable for the Court to order that the trial be proceeded before the originating summons were determined;

(4)  Yet, in these proceedings, no pleadings have been filed for the 2^nd Defendant’s counterclaim. There is no case management justification for resolving the 2^nd Defendant’s counterclaim in the present application.

40.  Given that the requirements of section 42(1) are satisfied, what remains to be determined is whether the Impugned Documents are to be removed or rectified.

Impugned ND2A

41.  In respect of the Impugned ND2A, I am not satisfied that the requirements under section 42(4) are met for the following reasons:-

(1)  Given that the 2020 ND2A and 2020 ND4 have been filed, the most updated record in the CR is that the Plaintiff is the current director of the Company, and that Huang had only ceased to be the director since 30 December 2019.

(2)  Insofar as the business partners of the Company and the Wujiang Company are concerned, they are only interested in knowing who the director is and who has the authority to deal with them. The present records will not cause any confusion as to who the present director of the Company is and when the Plaintiff’s office commenced, so the Plaintiff is not prejudiced by the Impugned ND2A.

(3)  What remains in the CR records is an inconsistency in the date of cessation of Huang’s directorship, with the Impugned ND2A showing it as 25 May 2019, and the 2020 ND2A as 30 December 2019, and a suggestion that the 2^nd Defendant may have been a director of the Company. However, pure inconsistencies do not cause material damage to the company.

(4)  Rather, the inconsistencies will be clarified by the order for rectification. As the order made by the court under section 42 is to be registered, the basis of the rectification ought to be apparent from an inspection of the record (In Re China Nice Education at §20). In this regard, no prejudice is occasioned to the Plaintiff if the Impugned ND2A is not removed.

Impugned NAR1

42.  On the contrary, in respect of the Impugned NAR1, I am of the view that the requirements under section 42(4) are satisfied for the following reasons:-

(1)  As the latest NAR1 filed with the CR is the Impugned NAR1 reflecting the 2^nd Defendant as the most recent shareholder, there is a risk that the 2^nd Defendant may feign authority with the Impugned NAR1 to pass shareholders’ resolutions and mislead others into believing their validity.

(2)  The presence of the Impugned NAR1 is apt to confuse both the Company’s and the Wujiang Company’s business partners or the Mainland authorities, who may need to ascertain who are the shareholders the Company. The mere rectification of the Impugned NAR1 may leave public inspectors in a state of confusion, given what remains as the most updated record is a false record.

(3)  The removal of the Impugned NAR1 will be more in the Company’s interest, as it will reflect what is closer to the true legal position.

(4)  In view of the material damage that may ensue to the Company and the lack of prejudice occasioned to the 2^nd Defendant by the removal of the Impugned NAR1, the Company’s interest in removing the Impugned NAR1 outweighs the 2^nd Defendant’s interest in retaining the same in the CR records.

D.  DISPOSITION

43.  For the reasons stated above, I make the following orders:-

(1)  An order that the Impugned ND2A be rectified;

(2)  An order that the Impugned NAR1 be removed without prejudice to the 2^nd Defendant’s right to commence a fresh writ action or arbitration to pursue his claim for beneficial interest in the shares; and

44.  I also make a costs order nisi that the Plaintiff is entitled to the costs of and occasioned by this Originating Summons and the same is to be paid by the Defendant, on a party to party basis, if no agreement can be reached by the parties, for the following reasons:-

(1)  The Plaintiff has applied for removal and, alternatively, rectification of the Impugned Documents and his application has been granted;

(2)  While the 2^nd Defendant accepted at the outset that section 42(1) was satisfied, he did not accept the Plaintiff’s application for rectification and necessitated the current application. His position was only made clear during the course of oral submissions before this Court; and

(3)  The 2^nd Defendant’s application to convert the current Originating Summons into a writ action was inappropriate due to the presence of the Arbitration Clause.

45.  The above costs order nisi will be made absolute within 14 days unless an application is made to vary the same within the 14-days period.

46.  Finally, it remains for the Court to thank Ms Wong for the Plaintiff and Mr Wong for the 2^nd Defendant for their helpful assistance.