LAM BING KWAN v. SINO-I TECHNOLOGY LTD

HCMP 806/2022 and HCMP 1022/2023
(HEARD TOGETHER)

[2023] HKCFI 2325

HCMP 806/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 806 OF 2022

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1022 OF 2023

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(HEARD TOGETHER)

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D E C I S I O N

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1.  I have summonses before me in two sets of proceedings commenced by the Defendant Company which is seeking an extension of time for the dates by which it must lay before the Company in general meeting audited financial statements. They relate to the financial years ending 31 December 2022 and 2023.

2.  The reasons why the applications have been necessary are complicated but I do not think I need to explain in detail what has taken place. It would suffice to say this. The Company is an intermediate holding company of Nan Hai Corporation Limited which is not incorporated in Hong Kong but is listed on Hong Kong Stock Exchange (stock code: 680).

3.  The Company’s auditors have taken the position that they cannot complete the audit of the Company’s financial statements for the relevant years until certain concerns they have about the appraisal of the value of security provided by the Nan Hai Group to the Company and its subsidiaries has been satisfactorily completed.

4.  What makes this case anomalous is that because Nan Hai is not incorporated in Hong Kong, it is not subject to the relevant sections of the Companies Ordinance (“Ordinance”). The Company has found itself in the position, of being unable to complete its audit for reasons which it would appear its board genuinely has no control over. Of course, if Nan Hai itself was incorporated in Hong Kong then the live issue would probably be whether or not it should be entitled to an extension of time for putting its audited financial statements before its members.

5.  I have already granted two extensions of time to the Defendant. Clearly it is not satisfactory that the Company continue to be unable to comply with its statutory obligations but I accept that: (1) the board of the Company genuinely is unable itself to address the problems that are preventing the audit being completed; (2) that it has taken steps to ensure that its members are fully cognisant of the financial state of the Company and the reasons why the audit cannot be completed.

6.  In the circumstances I will, therefore, grant further extensions of time for compliance with section 431 of the Ordinance until the 28 February 2024. There be no order as to costs.

Mr Brian Lee, instructed by Ho Tse Wai & Partners, for the plaintiff (in both actions)

The defendant was not represented and did not appear (in both actions)

HCMP 806/2022

[2022] HKCFI 2325

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 806 OF 2022

________________

________________

________________

__________________

D E C I S I O N

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1.  I have before me an originating summons dated 23 June 2022 seeking the following orders:

(1)  A general meeting of the Defendant be held on or before 31 December 2022 and such general meeting shall be regarded as the annual general meeting of the Defendant in respect of the financial year ending on 31 December 2021;

(2)  The requirements for the Defendant’s directors to lay reporting documents for the financial year ending on 31 December 2021 be substituted with a requirement to lay the said reporting documents at the general meeting referred to in paragraph 1 above, and that the period of six-month as referred to in section 431(1)(b)(i) of the Companies Ordinance (Cap 622) be extended accordingly;

(3)  No order as to the costs of this application.

2.  The Company is listed on the Hong Kong Stock Exchange, its financial year ends on 31 December. Its auditors, BDO Limited, have requested information regarding the appraised value of security provided by the Company’s immediate holding company, Nan Hai Corporation Limited, which is also listed and its subsidiaries for certain loans owing to the Company’s group.

3.  As a consequence it has not been possible to hold the annual general meeting and put before shareholders for their consideration the audited financial statements for the year ending 31 December 2021, within the six-month period required by the Companies Ordinance. The Company, therefore, seeks a six-month extension in order for the audit to be completed and for the financial statements to be ready to be put before shareholders.

4.  I will grant an order in the terms of the originating summons as I am satisfied that a reason has been given for the inability of the Company to comply with the Companies Ordinance and the application was issued within the six-month period. The criteria that the court applies when considering applications of this sought are well-known.

5.  The court’s discretion to extend time is unfettered. The following (non-exhaustive) factors would be taken into account, though the court will not necessarily refuse to extend time even if some of these are not satisfied:

(1)  Whether the shareholders were aware of the financial position of the Company in question and thus were not prejudiced by non-compliance;

(2)  Whether the default was inadvertent; and

(3)  Whether the court is satisfied that the Company will comply with its obligation in the future.

See: Re GT Group Holdings Ltd[1]; Re Kidsloop Ltd[2]; Re Goldbond Group Holdings Ltd[3].

6.  The court’s discretion ought to be exercised for some discernible legitimate purpose: Re GT Group Holdings Ltd[4]; Re Goldbond Group Holdings Ltd[5].

7.  The criteria are met in the present case.

8.  If, however, the Company is unable to complete the audit within the six-month extension, the court would expect a full explanation of the underlying cause of the problem if a further extension of time is sought.

Mr Victor C I Lui, instructed by Eversheds Sutherland, for the plaintiff

The defendant was not represented and did not appear