Ta Yang Group Ltd v. Ta Yang Silicone Rubber Industrial Co Ltd

HCMP 446/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 446 OF 2007

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HCMP 447/2007

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HCMP 448/2007

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(Heard together)

Before: Hon Kwan J in Chambers (not open to public)

Dates of Hearing: 27 March 2007

Date of Decision: 27 March 2007

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D E C I S I O N

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1.There are three originating summonses before me involving two companies – Ta Yang Silicone Rubber Industrial Company Limited (“Ta Yang Silicone”) and China Top Investments Limited (“China Top”).  These applications were made under sections 111(2), 122(1B)(a) and (b) of the Companies Ordinance, Cap. 32.  Under section 111(2), the court has power to give such directions on the holding of a general meeting if there is default to comply with the requirements in section 111(1) to hold an annual general meeting each year.  Under section 122(1B), the court may extend time for the laying of accounts at the annual general meeting and substitute for the requirement to lay accounts at the annual general meeting, a requirement to lay such accounts at such other general meeting of the company as the court may specify.

2.The applications first came before the court on 15 March 2007.   I have adjourned this to today for the companies to file further evidence to give a proper explanation why the statutory requirements on the holding of general meetings and the laying of accounts had not been complied with and the reason for the present applications.  The companies have since filed further evidence.

3.Ta Yang Silicone and China Top are private companies incorporated in Hong Kong in 1991.  Since January 1997, China Top is an investment holding company holding operating subsidiaries in China and itself has no trading activities in Hong Kong.  On 15 December 2006, they have become wholly owned subsidiaries of Ta Yang Group Limited.  Ta Yang Group Limited, Ta Yang Silicone and China Top are the proposed subsidiaries of Ta Yang Group Holdings Limited (“Holdings”).  Holdings has applied on 16 February 2007 for its shares to be listed in the Main Board of The Stock Exchange of Hong Kong Limited.

4.To prepare for the application for listing, the Ta Yang group of companies passed the corporate records and documents to their solicitors.  In the course of reviewing the corporate documents, the solicitors discovered that the former company secretary of Ta Yang Silicone and China Top had not closely observed the provisions of the Companies Ordinance.  The director of these companies are residents of Taiwan, they had little understanding about the laws of Hong Kong and had relied on the company secretary and the former auditors to deal with the secretarial and accounting matters.

5.In respect of Ta Yang Silicone, it had not convened an annual general meeting in 1997.  That was the only year when the company did not hold an annual general meeting.  What happened was that the accounts for the period from 1 August 1995 to 31 July 1996 were completed early, and were laid in an annual general meeting held on 19 December 1996 instead of in 1997.  It did not occur to the company secretary that she should have convened another annual general meeting in 1997 to comply with the statutory requirement that there should be an annual general meeting every year. 

6.For the accounts of Ta Yang Silicone for various periods from 1991 to 2005, some were laid in an extraordinary general meeting which was not an annual general meeting and the meeting was before the deadline provided in section 122(1A).  In other instances, the accounts were laid before an annual general meeting held after the deadline.  These mistakes were made because the company secretary had relied on the former auditors.  Notwithstanding that the audited accounts in three years were laid in the extraordinary general meetings, the then shareholders still had knowledge about the accounting position of the company.  As for the delays in laying the accounts, they were for shorts period ranging from 20 days to 39 days.

7.Except for 10 shareholders of Ta Yang Silicone who had transferred their shares prior to 15 December 2006, when the company became wholly owned by Ta Yang Group Limited, all such shareholders who had held shares in the company as at 15 December 2006 have consented to the present applications.

8.For China Top, no audited accounts were prepared for the period from 1 August 1996 to 31 July 2005.  The company secretary recalled she had asked the then auditors when they were going to prepare the audited accounts of the company, and was told that that would be done.  The company secretary and the former auditors then forgot about the whole thing.  China Top received no tax demand after 30 May 1996, so there was nothing to prompt them that the audited accounts of the company should be prepared.  What happened was that the operating subsidiaries of China Top did prepare and submit audited accounts annually to China Top from time to time.

9.The audited accounts of the operating subsidiaries would show the financial position of the operating subsidiaries and therefore the financial health of the group.  All of the then shareholders of China Top had access to all financial documents of the company and its operating subsidiaries, so they effectively had knowledge of the financial position of the operating subsidiaries and of China Top from time to time.

10.On the advice of the solicitors, after the omission was discovered, China Top instructed new auditors on 31 December 2006 to prepare the accounts for 1996 to 2005.  The 1996 to 2005 audited accounts were adopted by the sole member of China Top, Ta Yang Group Limited, by written resolutions in lieu of an annual general meeting on 28 February 2007.

11.The companies were advised by the solicitors in February 2007 to apply to court seeking various reliefs in these originating summonses.  Except for the three shareholders who had transferred their shares prior to 15 December 2006, when China Top became wholly owned by Ta Yang Group Limited, all such shareholders who held shares in the company as at 15 December 2006 have consented to the present application.

12.The listing division of the Stock Exchange has noted the deficiencies in the compliance practice of China Top.  They required the matter to be fully resolved, as directors of a listed issuer must, collectively and individually, fulfil fiduciary duties and duties of skill, care and diligence to a standard commensurate with the standard required by Hong Kong law.  Before the listing application can proceed further, the listing  division would require a court order to rectify the omissions, with a proper explanation of the reason for the failure to comply with the relevant provisions of Cap. 32.

13.Irrespective of whether the listing is successful, the directors of Ta Yang Silicone and China Top intend to seek reliefs herein because they wish to comply with the law.

14.I accept there was no wilful default in the above instances, and there was no intention to contravene the provisions of Cap. 32.  The omissions and errors would seem to be inadvertent.  The companies had relied on professional advice.  It did not appear that prejudice had been occasioned to the shareholders of Ta Yang Silicone and China Top.  In their supporting affirmations, the directors have promised that they would comply with the statutory requirements in future.  I note that upon successful listing, independent non-executive directors would be appointed with appropriate qualifications to advise the directors on compliance matters relating to Cap. 32.  Further, an audit committee would be established to ensure compliance with regulatory matters and corporate governance requirements.

15.I will exercise my discretion to grant these applications.

Mr Charles Sussex, SC & Mr William Wong, instructed by Messrs. Kirkpatrick & Lockhart Preston Gates Ellis, for the Plaintiffs in all three proceedings