Lohas Holding Ltd v. The Registrar of Companies and Another
Read the full judgment text of HCMP 97/2022 on BabelCite. This High Court CFI judgment was delivered on 2 November 2022.
1. There are 2 applications before the court. They concern two Form ND2A filed at the Companies Registry (“ CR ”) in respect of the appointment of Ms Chien Yu Mei (“ Chien ”) as director of Lohas Holding Limited (“ Company ”):
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HCMP 97/2022 [2022] HKCFI 3358 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 97 OF 2022 _______________
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_______________ Before: Hon Linda Chan J in Chambers Date of Hearing: 29 September 2022 Date of Judgment: 2 November 2022 _______________ J U D G M E N T _______________ 1.There are 2 applications before the court. They concern two Form ND2A filed at the Companies Registry (“CR”) in respect of the appointment of Ms Chien Yu Mei (“Chien”) as director of Lohas Holding Limited (“Company”):
2.The Company contends that the purported appointment of Chien as director was invalid in that no notice had been given to the shareholders in respect of the proposed appointment, and no resolution was passed at the extraordinary general meeting held on 1 December 2020 (“1st EGM”) to appoint her as director. 3.Chien does not dispute that the notice convening the 1st EGM did not refer to the proposed appointment of director. She argues that “an overwhelming majority of all shareholders of the Company” voted at the 1st EGM to appoint her as a director. Further, the irregularity principle applies to cure any alleged procedural defect of the 1st EGM. Factual Background 4.The Company was incorporated on 29 April 2011. Its paid up capital is US$38,000,000 divided into 3,800 shares. The Company is an investment holding company and holds 86.67% equity in a company established in the Mainland (“Subsidiary”) which engages in real estate development project in Fushun in the Mainland. 5.Since 2020, the Company has 13 shareholders of which 8 are corporate shareholders. The names of the shareholders, their usual representatives and shareholdings are as follows:
6.It is Chien’s case that amongst the shareholders, Yok Senior, his daughter (Yok) and godson (Shih) “all along acted in concert as a friendly camp”, while Chang and her are “independent”. 7.Chang was the sole director of the Company from 9 September 2018 until he resigned on 1 December 2020. Chang was assisted by his sister, Ms Chang Mei-Yu, Vivian.[1] 8.Prior to the 1st EGM, the following events took place:
9.The 1st EGM was attended by shareholders holding 86.64% of the issued shares and Chang resigned as director at the meeting. There is a dispute as to whether the resolutions appointing Yok and Shih as directors were passed at around the same time as the purported appointment of Chien. 10.It is not in dispute that there were discussions (“Discussions”) among some shareholders regarding the appointment of Chien, Yok and Shih as directors. The parties differ on whether the Discussions took place at or after the 1st EGM, whether any poll had been called and taken and whether any resolution was passed by the shareholders appointing Chien as director. 11.Chien relies on the unsigned minutes of the 1st EGM prepared by Chang’s assistant and a partial audio recording taken on 1 December 2020 in support of her case that the Discussions and the resolutions appointing Shih, Yok and her as directors took place during the 1st EGM. 12.On 19 December 2020, Chang sent a message in the WeChat Group stating that he thought the 2nd EGM had been cancelled on 1 December 2020 and, as he had to deal with other matter, he would not attend the 2nd EGM.[8] 13.Also on 19 December 2020, the 2nd EGM was held and attended by shareholders holding 68% of the issued shares. At the meeting, resolutions were passed to affirm the appointment of Yok and Shih as directors with effect from 1 December 2020[9]. 14.On 20 September 2021, the 1st Form was filed at the CR. On 5 November 2021, Chien circulated a letter to the Company and the other equity holder of the Subsidiary claiming to be a director of the Company in reliance on the 1st Form. 15.On 18 November 2021, the Company filed the 2nd Form which crossed out the entire contents of the 1st Form. In the 2nd Form, there was an annotation made by the Registrar of Companies (“Registrar”) that “This is the amended Form ND2A for the incorrect one filed on 20/09/2021 which is claimed to be incorrect and should not have been filed”. Discussion 16.The application is made under s.42 of the CO. Section 42(1) of the CO provides as follows:
17.Section 42(4) provides:
18.The principles governing an application under s.42 of the CO have been stated by Godfrey Lam J (as he then was) in Re China Nice Education Research Publishing Investment and Management Co Ltd [2016] 3 HKLRD 525, §§15 – 20, and may be summarised as follows:
19.In the affirmations filed by the parties, many allegations are made against the other party. However, the real issues relevant to the applications are fairly narrow:
20.In my view, no valid resolution was passed at the 1st EGM to appoint Chien as director of the Company for the following reasons. 21.First, no valid notice had been given to the shareholders in respect of the proposed appointment of Chien (or, indeed, any directors) at the 1st EGM. 22.It is well-established that a resolution passed at a general meeting would be invalid if the meeting had not been convened by a valid and regular notice issued to all the shareholders. A valid notice must (1) state the correct date, time and place of the meeting; (2) state the purpose of the meeting; (3) give notice of any special business; (4) comply with all legal rules and statutory requirements; (5) be clear and explicit in its contents; (6) be given with due and proper authority; (7) allow the correct period of time between service and the date of the meeting; and (8) be sent to all those persons who are entitled to receive it (Kosmin & Roberts, Company Meetings and Resolutions, 3rd ed., §2.01). 23.However, the court may not interfere if the challenge only goes to minor irregularities (as opposed one of substance) in the notice or if the defect in the notice could be remedied by issuing another notice and that a majority of members support the resolution that has been passed at the meeting (Kosmin & Roberts, §§2.130 & 2.132; Re Legal Costs Negotiators Ltd [1999] 1 BCLC 171 (CA); Bentley-Stevens v Jones [1974] 1 WLR 638). 24.The 1st EGM Notice did not refer to any proposed resolution to appoint any directors. The lack of any notice on the proposed appointment was not a mere irregularity but a substantive defect as shareholders receiving the 1st EGM Notice were entitled to know what proposed resolutions would be put to them for consideration at the 1st EGM. Indeed, Chang as chairman of the meeting, said that shareholders could not propose any ad hoc resolution for consideration at the meeting. It is no answer to say that a majority of the shareholders were present at the 1st EGM as all shareholders were entitled to rely on a valid notice in deciding whether or not to attend the 1st EGM. 25.The Company produced the acknowledgement letters duly signed by 8 shareholders who attended the 1st EGM by themselves or through their proxies (being the first 8 shareholders listed in the table at §5 above) which show that amongst the 11 shareholders who attended the 1st EGM, 8 of them (representing 69.83% of issued shares) confirmed that they would not support a resolution to appoint Chien as director. As such, it cannot be said that had proper notice of the 1st EGM been given to the shareholders, the majority would have supported a resolution to appoint Chien as director. 26.Second, in the acknowledgement letters the 8 shareholders confirmed that (1) at the 1st EGM, there was no discussions or proposed resolution to appoint Chien as director; and (2) they would not support the appointment of Chien. This confirms that the Discussions only took place after the conclusion of the 1st EGM and some of the shareholders left the meeting. It follows that no resolution could have been passed at the 1st EGM. 27.Mr Lai Chun Ho, counsel for Chien, submits that both the Discussions and the votes on the appointment of Chien took place during the 1st EGM, relying on 3 “critical piece of contemporaneous evidence”:
28.I do not think that the above documents are sufficient to prove that the Discussions or the votes took place during the 1st EGM:
29.Further, Mr Lai submits that the irregularity principle applies to “cure” any defect in Chien’s appointment at the 1st EGM. The principle is not in dispute. As Mr Lai submits:
30.Mr Lai points to the following matters which, he contends, show that “an overwhelming majority of all shareholders of the Company (consisting of 86.64% of all voting rights of the Company) at the 1st EGM” had voted to appoint Chien as a director, and the appointment of Chien “as a matter of substance was acknowledged by all shareholders of the Company”[13]:
31.I do not think that the irregularity principle applies to cure the defects in the appointment of Chien for the following reasons:
32.For the above reasons, I hold that no valid resolution was passed at the 1st EGM to appoint Chien as a director of the Company. It follows that the information set out in the 1st Form is incorrect and should be rectified or removed. 33.It is not in dispute that the continuing presence of the 1st Form at the CR has caused material damage to the Company as third parties dealing with the Company in particular those in the Mainland are confused as to whether or not Chien is a director of the Company. It is in the interest of the Company to remove the 1st Form from the CR. 34.As regards the 2nd Form, its purpose is to inform the public the fact that there is a dispute over the appointment of Chien as director. Once the 1st Form is removed from the CR, it would not be necessary for the 2nd Form to remain in the CR. It is therefore appropriate for the 2nd Form to be removed from the CR. 35.I make the following order:
36.As for costs, I make a costs order nisi that the costs of and occasioned by the OS and the Counterclaim, including all costs reserved, be paid by Chien to the Company, to be taxed if not agreed.
Mr Dan Leung, instructed by Llinks Law Offices LLP, for the Plaintiff Mr Lai Chun Ho and Mr Joshua Yeung, instructed by Charles Chu & Kenneth Sit, for the 2nd Defendant [1] Chien 1st §7(g). [2] Chien 1st §8(a). [3] Chien 1st §8(b). [4] Chien 1st §8(c). [5] Chien 1st §8(d). [6] It is common ground that all the shareholders use the WeChat Group to communicate with each other, as can be seen from list in the WeChat Group. [7] Chien 1st §9. [8] Chien 1st §§22(d)-(e). [9] Yok 1st §10; Yok 2nd §35. [10] Chien 1st §§17-18. [11] On 25 May 2022, the Company’s solicitors requested Chien to provide the “full unedited and untrimmed audio recording” of the 1st EGM. On 30 May 2022, Chien’s solicitors stated that recording of the entire 1st EGM could be provided. By letter dated 7 June 2022, Chien’s solicitors put on record that the Company’s solicitors stated that they have no instruction to receive the full recording. Nevertheless, in Yok 2nd §26, the Company criticized Chien for adducing partial recording of the 1st EGM. [12] Yok 2nd §20. [13] Chien 1st §§13-14. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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