Liu Yaozong v. The Registrar of Companies and Others

HCMP 783/2023

[2023] HKCFI 2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 783 OF 2023

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BETWEEN

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D E C I S I O N

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1.I have before me an originating summons dated 22 May 2023. It is issued pursuant to sections 42 and 633 of the Companies Ordinance, Cap 622. It seeks a declaration that various filings at the Companies Registry purporting to name the director and shareholder of the Company are void and have no legal effect. In addition there are consequential orders sought for the rectification of the Companies Registry’s records and some of the companies’ own registers which cannot currently be found and which will need to be recreated.

2.As is normally in such cases the Registrar of Companies is the 1^st Defendant to the application. The Registrar has written to the court indicting no objection to the order that is sought. Its form has been agreed with the Registrar.

3.The 3^rd Defendant, Mr Cheng Yuk Ho is according to the evidence filed by the Plaintiff, the individual who caused the Companies Registry to wrongly record the ownership and control of the Company. It would appear that Mr Cheng had some kind of business relationship with the Plaintiff’s family. I assume, but I am not told this, from the names that the Plaintiff and his parents are from the Mainland and Mr Cheng had helped them with their affairs in Hong Kong. This would appear to have included using the Company to acquire on at least two occasions, a car in addition to Mainland dual number plates.

4.The Company was incorporated in November 2011. The evidence indicates that initially the Plaintiff was its sole shareholder and sole director and initially the Companies Registry’s records recorded this. In December 2012 it would appear from the Companies Registry’s records that Mr Cheng began to file documents at the Companies Registry showing that he was the sole shareholder and the sole director. For some reason which is not explained in the evidence, the Plaintiff never became aware of this and this position continued for 10 years. It appears from the evidence that the Plaintiff became aware of what Mr Cheng had been doing as a consequence of his father informing him in January 2023 that he had become aware of the unsatisfactory state of the Company’s corporate filings. Although again this is not made clear I assume from the evidence this is because the Plaintiff’s parents are involved in other litigation with Mr Cheng concerning his misconduct in connection with his dealings with them unrelated to the present company.

5.In February 2023, the Companies Registry sent the first of a number of letters to the Company informing it that as it records had not been kept up to date, the Companies Registry would take steps for the Company to be struck off the register and dissolved. These matters appeared to have been the catalyst for the present application. I am satisfied that clearly an order should had been made which remedies the current unsatisfactory position.

6.Some discussion took place between me and Mr Poon as to whether in the circumstances the correct order was simply for the filing of new documents at the Companies Registry, effectively an up to date annual return, showing correctly the Plaintiff as the shareholder and sole director or whether a more extensive order should be made for the impugned filings to be removed.

7.There are a number of authorities explaining the court’s approach to determining which is the appropriate order to make. Most recently I explained the relevant principles in [24]–[25] of my decision in Re Ho Yu Shum v Project Space Ltd[1].

“24. Both originating summons are issued under section 42 of the Ordinance. The two sub-sections which are relevant to are (1) and (4):

‘42. Registrar must rectify information on Companies Register on order of Court

(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.’

25. Broadly speaking the section is engaged if the court is satisfied that (1) information recorded on the Companies Registry is incorrect, for example, it records a person as being a director, who had not been validly appointed, and (2) even if a new document, which has the effect of correcting the information on the Companies Registry is registered, for example, showing correctly the validly appointed directors, allowing the earlier incorrect information to remain on the Companies Registry will cause material damage to the company and ‘the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the Companies Register.’”

8.On balance it seems to me that the better course is to order the removal of the impugned documents. Although I have some concern about such an extensive change in the register, (a period of 10 years), on balance it seems to me that it is better that what has clearly been an extensive abuse by Mr Cheng is completely remedied at least so far as the formal Companies Registry records are concerned. I will, therefore, make an order in the form of the draft that has been agreed by the Plaintiff’s solicitors with the Companies Registry which for convenience I will append to this Decision.

9.The only further matter that I need to deal with is costs. The form of order that has been handed up to me seeks an order that the costs be assessed on an indemnity basis. It would seem to me since the application has been uncontested and on the face of it has been necessitated by Mr Cheng’s dishonest conduct, this is appropriate.

10.The draft order also provided for a gross sum assessment. This I declined to order. My reason for doing so is as follows. The total amount claimed is, what on the face of it should be a very straightforward application, very high. Although authorities have not been cited to me it is my recollection that the court should only assess costs on a gross sum basis if the court’s initial reaction to a skeleton is that the figure claimed is roughly in line with what the court would expect. If the court is concerned about the level of fees then a full taxation is required.

11.In the present case I am told the reason why the solicitors’ costs were as high as they are, has a lot to do with the background to this matter and the fact that the solicitors had to spend time liaising with the Companies Registry to avoid the Company being deregistered and also spending time trying to find what records are available to the Company. The bill that I have been given does not apportion those costs.

12.It does not seem to me that all of the costs I have described should be recoverable in this application. Although the principal cause of the problem that has necessitated the originating summons being issued, is Mr Cheng’s conduct, it is quite clear that the Plaintiff has paid no attention to the way in which the Company was being managed. This no doubt led to the solicitors having to carry out rather more work than might otherwise have been the case. Although the solicitors may well be justified in billing their client for that work it does not seem to me that it necessarily constitutes costs which are properly recoverable from the 3^rd Defendant, Mr Cheng, in the present application.

Mr Arthur Poon, instructed by DLA Piper Hong Kong, for the plaintiff

Attendance of the 1^st defendant was excused

The 2^nd defendant was not represented and did not appear

The 3^rd defendant was not represented and did not appear

Appendix

Order

UPON the application of the Solicitors for the Plaintiff by way of Originating Summons filed on 22^nd May 2023 (the “Originating Summons”)

AND UPON READING the said Originating Summons, the Affirmation of Liu Yaozong and the exhibits referred thereto filed herein on 22^nd May 2023 and the Affirmation of Ho Kwok Chau filed herein on 15^th June 2023

AND UPON HEARING Counsel for the Plaintiff, the 1^st Defendant’s attendance being excused, and the 2^nd and 3^rd Defendants being absent

IT IS ORDERED THAT:-

1. A declaration be made that the documents as set out in Schedule 1 herein (the “Documents”) are null, void, and of no legal effect;

2. The Documents be removed from the Companies Register;

3. The new blank register of members be rectified by inserting the name of the Plaintiff as the holder of the share of the 2^nd Defendant;

4. The 2^nd Defendant is to issue forthwith and deliver to the Plaintiff a share certificate in respect of the share held by him in the 2^nd Defendant;

5. A declaration be made that any share certificate issued by the 2^nd Defendant held in the name of the 3^rd Defendant is null and void;

6. The new blank register of directors be rectified by inserting the name of the Plaintiff as the sole director of the 2^nd Defendant;

7. The new blank register of company secretaries be rectified by inserting the name of Bentleys Taxation Consultation Limited as the corporate secretary of the 2^nd Defendant;

8. The Plaintiff be authorised to rectify the registers for carrying this order into effect;

9. Notice of such rectification be given to the 1^st Defendant;

10. Costs of and occasioned by the Originating Summons be paid by the 3^rd Defendant to the Plaintiff on an indemnity basis, to be taxed if not agreed; and

11. There be no costs order as between the Plaintiff and the 1^st Defendant.