Fernando Alberto Olivo Maradei v. Registrar of Companies

HCMP 343/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 343 OF 2016

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DECISION

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1.I have before me an application brought by originating summons by Mr Maradei for an order under section 42 of the Companies Ordinance (Cap 622) that (1) the Notice of Change of Company Secretary and Director (Appointment/Cessation) (Form ND2A) filed on 23 October 2014 (Document Reference No 23501001676); (2) the Notice of Change of Address of Registered Office (Form NR1) filed on 23 October 2014 (Document Reference No 23501001675); (3) the Annual Return (Form NAR1) filed on 23 October 2014 (Document Reference No 23101031057); and (4) the Return of Allotment (Form NSC1) filed on 11 August 2015 (Document Reference No 23201090459), be removed from the Companies Register.

2.China Nice Education Research Publishing Investment and Management Company Limited (“the company”) was incorporated in Hong Kong on 23 October 2013 as a private company limited by shares with a capital divided into 10,000 shares, all of which have been issued.  Mr Maradei was the sole shareholder and sole director of the company.  The secretary was originally World Business Limited.  The company was set up to hold the copyrights and trademarks relating to the business of several education centres established and operated in Mainland China by Mr Maradei. 

3.In August 2015, Mr Maradei had a discussion with several individuals, who may, for present purposes, be called Liva, Monica, Fiona, and Wang, for the sale of certain interests in the company to them. Fiona, in particular, had been a business partner of Mr Maradei in the Mainland.  According to Mr Maradei, however, no agreement was reached at that time or thereafter for the sale or allotment of any shares to these individuals.

4.In September or October 2015, the business partnership between Mr Maradei and Fiona broke down.  At about this time, Mr Maradei discovered that a notice of change of the secretary of the company, and a notice of change of the address of registered office of the company had been filed with the Registrar of Companies in October 2014. 

5.The purported new company secretary was stated to be HK Zhout Int’l Invest Consultant Limited (“HK Zhout”).  According to Mr Maradei, he had never caused the change of the secretary of the company to this firm. 

6.Further, an annual return was filed on 23 October 2014.  This shows that the company secretary was HK Zhout and that the address of the registered office was as per the new address shown in the notice of change of the address of registered office.

7.Mr Maradei also found out that a return of allotment purported to be signed by Liva as a director of the company had been filed on 11 August 2015 indicating that Liva, Monica, Fiona and Wang had been allotted various amounts of shares in the company totalling 990,000 shares. 

8.Mr Maradei has stated categorically in his affirmations in these proceedings that these documents were not authorised by him; in particular, he as the sole director had never decided to allot or authorise the allotment of the shares to the four individuals.  He has reported the matter to the police.  Liva has also given a statement to the police declaring that the signature on the return of allotment was not hers but forged.  Mr Maradei said he confronted Fiona with what he had discovered but did not receive any reply from her.  Accordingly, he instituted these proceedings for relief under the Companies Ordinance with a view to removing the above documents from the Companies Register.

9.In general, it seems to me desirable that, where an application under section 42 is not being made by the company in question, it should be joined as a respondent to the application so that it has notice of it and may be bound by the decision of the court.  In the present case the application was issued with the Registrar of Companies as the only respondent, though because Mr Maradei is in control of the company I am prepared to waive any irregularity in this respect. 

10.Furthermore, it seems to me, as a basic requirement of justice, that notice of proceedings of this kind should ordinarily be given to persons who would be directly affected by the order sought, at any rate where there would otherwise be no one to contest the application from their standpoint.  So, for example, an application that is aimed at removing a return of allotment from the register should be notified to the allottees.  In the present case, following an earlier order of the court, the papers have been sent to Fiona, Wang, Monica, and Liva, as well as HK Zhout. None of them has responded in any way to this application.

11.Section 42(1) provides as follows:

“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.”

12.The provisions in section 42 have some similarities to section 1096 of the (UK) Companies Act 2006 but it is clear that they are not identical.  In particular, whereas section 1096 of the UK Act bears the heading “Rectification of the register under court order”, that section is solely concerned with rectification by way of removal of material from the register pursuant to an order of the court.

13.In contrast, section 42(1) of the Companies Ordinance empowers the court to do one of two things, ie rectifying any information on the register and removing any information from it.  It is implicit that information may be rectified otherwise than by removal. Subsection (2) provides as follows:

“If, in relation to an application for the purposes of subsection (1), a document showing the rectification is filed with the Court, the Court may require the Registrar to rectify the information by registering the document.”

14.This, it seems to me, provides for a specific way (albeit not, in my view as at present advised, the only way) of rectification of the register, that is to say, by requiring the Registrar to register a document filed in the proceedings showing the rectification.

15.Subsection (4) is important, because it prescribes and restricts how the court’s power to order removal of information may be exercised.  The equivalent provision in the UK 2006 Act is section 1096(3). There is an important difference in the Hong Kong provision, however, which stems from the existence of separate powers in Hong Kong for ordering removal and rectification respectively.  Subsection (4) provides:

“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.”

16.The phrase “even if a document showing the rectification in question is registered” is notably absent in section 1096(3) of the UK Act.  Further, subsection (4)(a) requires future damage to be shown, whereas the UK Act refers to either past or future damage (because section 1096(3) uses the phrase “has caused, or may cause, damage”).

17.The effect of the language of subsection (4), it seems to me, is to restrict the power to order removal and to make rectification the ordinary remedy where the situation referred to in subsection (1) arises. Removal is to be ordered only if the two additional conditions as set out in subsection (4) are satisfied:

(1) First, the applicant has to show that registration of a document showing the rectification is not good enough; the continuing presence of the incorrect information will cause material damage to the company.  Note that it is damage to the company, not to any other person such as the applicant, that needs to be shown.

(2) Secondly, the applicant has to show that the company’s interest (note, again: not any other person’s interest) in removing the information outweighs the interest of other persons in the information continuing to appear on the register.

18.On the terms of section 42(4), 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 in itself a sufficient reason for removing it as opposed to rectifying it; nor in my view is the fact that a document is a nullity or is one that should never have been registered had the true facts been known.  The structure of section 42 suggests that even forged documents are not necessarily to be removed unless the conditions in subsection (4) are satisfied.  By statute, removal cannot be ordered unless, inter alia, it is shown that material damage to the company will be caused by the continuing presence of the incorrect information despite any rectification.

19.Ms Li who has appeared on behalf of the applicant has prayed in aid the English cases of Re Calmex Ltd (1988) 4 BCC 761, and Bank of Beirut SAL v HRH Prince Adel El-Hashemite [2015] 3 WLR 875 at paragraph 90, but the first case and the relevant passage in the second both concern the inherent jurisdiction of the court to order the removal of documents from the register of companies, the continued existence of which may be in doubt in Hong Kong at least in relation to cases that are covered by and therefore fall to be decided under section 42.

20.Under the statutory scheme, the order made by the court under section 42 is to be registered as well: see section 42(8), so that the basis of the rectification (or removal) ought to be apparent from an inspection of the record.  One should also bear in mind the Registrar’s power under section 44 to make a note in the register for the purpose of providing information in relation to a rectification, removal, or any other information. In the present case, the Registrar has already included an annotation in both the Chinese and English languages on the relevant records in the register to indicate that there is a claim that the relevant specified documents were filed without the company’s authority and the information contained therein may not be correct.  If an order is made pursuant to section 42(1), no doubt the annotation will be revised accordingly. 

21.I can conceive of documents whose continued presence on the register may possibly cause damage to the company despite the registration of a rectifying document: a winding up order made and registered by mistake is an example, as occurred in Re Calmex Ltd.  The mere existence of a winding up order in the register may work injustice against the company, irrespective of what annotations, explanations or rectifying documents are put alongside the entry of the order.

22.I do not think that an annual return, a notice of change of secretary and a notice of change of address of registered office can be said to be in the same category of a winding up order, and Ms Li has accepted in the present case that these documents can adequately be dealt with by an order for rectification rather than removal. 

23.The return of allotment, on the evidence, however, stands on a somewhat different footing.  There is no cancellation of allotment that can be filed, and rectification, if ordered, will probably have to be done by deletion or amendment of words on the existing return.  The evidence shows that the company, formed only a few years ago, has recently been in sensitive negotiations with potential investors for injection of capital and expansion.  It is a commercial reality that in the competitive field the company finds itself in, such venture capital may well be deterred by the existence of dispute or even the mere hint of a dispute among existing partners.  On the evidence, injustice can be caused to the company in this way by the continuing presence of the return of allotment despite any rectification. The evidence is, in my view, just enough to satisfy subsection (4)(a). 

24.Subsection (4)(b) is straightforward here because the purported allottees have not come forward with any contention showing any colour of right to uphold the allotment or maintain the return of allotment on the register.  They have not come forth to say that the return was not forged.

25.In conclusion, it seems to me that the applicant has proved his case under section 42(1).  In relation to the annual return and two notices, he has not satisfied the condition under section 42(4)(a) with the result that the court can only grant an order for rectification of the documents in question.  In the case of the return of allotment, I am satisfied it ought to be removed and I so order.  I shall hear counsel on the precise terms of the order to be made.

26.As for costs, although the Registrar of Companies is the respondent, she has duly submitted a statement to the court pursuant to section 43(2) of the Companies Ordinance and taken a neutral stance.  As is made clear in section 62, the Registrar is not responsible for verifying the truth of the information in a document or the authority under which it is delivered to her for registration.  She cannot in any way be blamed for registering the relevant documents in the first place.  There is no basis whatsoever for any adverse costs order against her.  There will therefore be no order as to costs.

Ms Theo Li, instructed by Tam, Pun & Yipp, for the applicant

Mr Lee Chak-lam, of the Registrar of Companies, for the respondent