China Power Clean Energy Development Co Ltd v. The Registrar of Companies

HCMP 1230/2018

[2018] HKCFI 2219

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1230 OF 2018

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REASONS FOR DECISION

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1.This is an application by originating summons dated 10 August 2018 by China Power Clean Energy Development Company Limited (“the Company”), pursuant to section 142(2) and (5) of the Companies Ordinance, Cap 622, for an order that time to deliver to the Registrar of Companies a return of allotment in respect of an allotment of shares by the plaintiff on 17 July 2017 (“the Allotment”) be extended to 9 August 2018.

Material facts

2.The application is supported by the Affirmation of Fung Chun Nam who is the company secretary.  The Company is listed on the Stock Exchange of Hong Kong Limited (“HKSE”) under stock code 0735 since 18 July 2017.

3.On 17 July 2017, the Company allotted a total of 1,186,633,408 shares representing an increase of share capital in the amount of HK$6,696,486,045.  The Allotment as made pursuant to a scheme of arrangement under section 99 of the Companies Act 1981 (as amended) ofBermuda (the “Scheme”) between China Power New Energy Development Company Limited (“CPNE”), a company incorporated in Bermuda with limited liability the shares of which were previously listed on the HKSE (under the same stock code 0735 as the Company’s), and its shareholders as at 4:30 pm (Hong Kong time) on 14 July 2017 (“Scheme Shareholders”).  The Scheme became effective on 17 July 2017.

4.Under the Scheme:

(1) The Company replaced CPNE as the listed holding company of a group of companies.

(2) The Scheme Shareholders’ shares in CPNE were cancelled andthe Company, pursuant to the Allotment, allotted one share to them for every one CPNE share held, which resulted in them holding the same proportionate interests in the Company as they did in CPNE.

5.Pursuant to section 142(1) of the Companies Ordinance, Cap 622, the Company was required in respect of the Allotment, to deliver to the Registrar of Companies a return of allotment (ie Form NSC1) (the “Form NSC1”) for registration within one month of the Allotment (ie on or before 17 August 2017).

6.However, the Company failed to do so.  According to Mr Fung, the Company first became aware of its failure to comply with section 142(1)on 19 July 2018 when the Companies Registry returned the Company’s 2018 annual return filling (Form NAR1) and the financial statements delivered for registration on 12 July 2018 citing an inconsistence between the issuedshare capital as reported on the Form NAR1 and the Companies Registry’s records at the time.

7.According to Mr Fung, the failure to comply with section 142(1) was due to inadvertence and accidental omission as a result of a misunderstanding between the Company, its service providers and its legal advisors at the material time.

8.The Company and CPNE have engaged Slaughter and May asits legal advisor (the “Legal Advisor”) on implementing the Scheme which formed part of a reorganization proposal within the Company’s group of companies (“the Reorganisation Proposal”).  In addition, the Company hasengaged, respectively, Tricor Tengis Limited as its share registrar and Tricor Services Limited to assist in its annual return filings to the Companies Registry (together, the “Service Providers”).

9.It is the Company’s evidence that upon completion of the Reorganisation Proposal, the Company anticipated or thought that the Legal Advisor would file the Form NSC1 in respect of the Allotment on the Company’s behalf.  However, the Legal Advisor assumed that the Service Providers would assist the Company. As a result, no Form NSC1 was filed by either the Legal Advisor or the Service Providers.

10.It was not until when the Company received the letter of 19 July 2018 from the Companies Registry that it was discovered that in fact neither the Legal Advisor nor the Service Providers had express instructions or was expressly mandated under their respective terms of engagement with the Company to handle the filing of Form NSC1 in respect of the Allotment after completion of the Reorganisation Proposal.  This is regrettable because one would have thought that such obligation should be covered in the terms of engagement.

11.Upon becoming aware of the omission on 19 July 2018, the Company sought legal advice from the Legal Advisor on 23 July 2018 and the present application was taken out on 10 August 2018.

Applicable legal principles

12.Section 142 provides:

“ (1) Within one month after an allotment of shares, a limited company must deliver to the Registrar for registration a return of the allotment that complies with subsection (2).

…

(3) If a limited company contravenes subsection (1), the company, and every responsible person of the company, commit an offence, and each is liable to a fine at level 4 and, in the case of a continuing offence, to a further fine of $700 for each day during which the offence continues.

(4) If a limited company fails to deliver a return that complies with subsection (2) within one month after an allotment of shares, the Court may, on application by the company or a responsible person of the company, extend the period for delivery of the return by a period determined by the Court.

(5) The Court may extend a period under subsection (4) only if it is satisfied—

(a) that failure to deliver the return was accidental or due to inadvertence; or

(b) that it is just and equitable to extend the period.

(6) If the Court extends the period for delivery of a return, any liability already incurred by the company or a responsible person of the company for an offence under subsection (3) isextinguished and subsection (1) has effect as if the reference to one month were a reference to the extended period.”

13.Accidental means that the failure to comply is the result of a pure accident and not a deliberate act.  (See para 6 of Hong Kong Asset Management Ltd v Registrar of Companies, unreported, HCMP 2177/2017, 7 November 2017 per Deputy High Court Judge Marlene Ng).

14.Inadvertence means heedlessness, carelessness or some want of attention where the circumstances show an absence of good faith.  (See Thomas Montgomery & Sons v WB Anderson & Sons Ltd (1979) SLT 101 at 103 per Lord Ross).  Ignorance of the relevant statutory provision falls within the meaning of inadvertence. (See In re Jackson & Co Ltd [1899] 1 Ch 348 at 351 per Kekewich J and Re Poly Property Group Co Ltd [2016] 4 HKC 169 at para 16, per L Chan J.)

15.An instance where it is just and equitable to grant an extensionof time is where the grant of relief will not cause any identifiable prejudiceto any relevant party.  (See Re Poly Property Group Co Ltd (supra) at para 17 and Confiance Ltd v Timespan Images Ltd [2005] 2 BCLC 693 at paras 25 – 29, per Pumfrey J.)

Analysis

16.Applying the above legal principles to the facts of the presentcase, first, this court is of the view that the mistaken assumption on the partof the Company, the Legal Advisor and the Service Providers resulted in aninadvertent omission to file Form NSC1.  It was clearly not a deliberate act.  I agree with Mr Chan’s submission that it was an honest mistake due to thelack of communication, or want of attention, amongst the Company and its advisers.  It does falls within the meaning of accidental or inadvertence for the purpose of section 142(5).

17.Secondly, it is just and equitable to grant the extension soughtas it would not cause any identifiable prejudice to relevant parties.  In fact, it is beneficial to give certainty to the Company’s shareholders and the investing public given that the Scheme was sanctioned by the Bermudan Court and the Allotment was announced to the Hong Kong market.

18.Thirdly, this Court also notes that the Company has acted promptly and presently no summons has been issued for breach of section 142 of the Companies Ordinance, Cap 622.  Miss Sze of the Companies Registry very helpfully drawn to this Court’s attention the case of Re Hong Wei (Asia) Holdings Company Limited, unreported, HCMP 1418/2016.  In that case, Harris J at paragraph 12 said:

“ Generally speaking by that stage the criminal court has been seized of the matter, and it being likely that the delay having beenconsiderable and, as in the present case, the omission only comingto light and steps being taken to remedy it by the Company after it has received the summons, it will generally be inappropriate for the Companies Court to grant an extension of time.”

19.In the present case, at this stage, the criminal court has not seized of the matter.

20.This Court further takes note that to prevent similar incidents from happening again, the Company is in the course of preparing an internal reminder to be circulated in respect of the appropriate procedures to be adopted in the event of any future allotment of shares by the Company.  The Company also intends to provide further trainings as necessary to existing and new members of its company secretarial team to prevent miscommunications and/or misunderstanding with external advisors of the Company in the future.  It appears to this court that a clear provision in the letters of engagement is also necessary.

Disposition

21.For the reasons set out above, this Court grants an order in terms of paragraph 1 of the Originating Summons dated 10 August 2018:

“ Time to deliver to the Registrar of Companies a return of allotment in respect of an allotment of shares by the Plaintiff on 17 July 2017 be extended to 9 August 2018.”

22.Costs of this application are to be paid by the Company to the Companies Registry in the sum of HK$1,500.00 as requested.

23.Finally, this Court thanks Mr Chan for the Company and Ms Sze for the Companies Registry for their helpful assistance.

Mr Anthony Chan, instructed by Slaughter & May, for the plaintiff

Ms Sze Wai Shan, of the Companies Registry, for the defendant