Applications to the Court to seek Relief for Unfair Prejudice Remedy as per Section 168A of Cap 32 for a set up company in HK


As we found Section 168A to be quite different from other statutory rights and so does applications to the court for relief as per Section 168A will also be different. The amendments which are made through an Ordinance, are effective since July 2005. As per the Section 168A(2A) past member(s) is also entitled to the right of petition and seek relief pertaining to rules and regulations of Unfair Prejudicial Remedy. As per the Section 168A(5B) member shall not be treated and thus not be called past member if he/she cease to be the member of the company before 15 July 2005, see Ordinance No. 30 of 2004 for reference.

Section 168A(2B) states that if court finds that conducts of the company were being carried out in the matter which is prone to the matter of unfair prejudicial, in any sense, then court may pass the order for the payment of damages to all the members, parts of members or any individual member or victim in any capacity.

Subsection 168(5) and 5(A) extends the right of petition in Section 168A and allows the personal representative of the member of the company or the trustee who is beneficially interested in bringing up proceedings by the virtue of will or any setting pertaining to intestacy of the member of the company, irrespective of the fact that whether he/she is a past member or current member. Apart from the past member or any other member of the company, Company’s Financial Secretary can also apply to the court through the petition if he/she observe that matter of the company is being conducted in the way completely unfair and prejudicial. Such revelation could have been made by coming across any document, reports revealing of such unfair prejudicial carrying out of corporate affairs. For carrying out such proceedings or to stand eligible for the Unfair Prejudicial Remedy, company must be winded up prior to the award of sought remedy.

It now has been established very clearly that as per the script of Section 168A that any member of the company is allowed to apply to the court for the award of remedy or redressal of his/her grievances, through petition. Hong Kong Legislative Establishment related to Hong Kong business registry gives this provision quite importance and conceives it with wide and much liberal views so that wider discretion be ensured to decide that which is fair and equitable, and which is not? Case of Lou Thiam Siong was filed in 1989 where a former member of the company applied to court to make him part of the on-going proceedings of Unfair Prejudicial Remedy but credentials of the past or former member to be the party in proceedings was objected by the defendant as well as plaintiff. However, court held that; the way legal provision was interpreted, limits former member from being the party to proceedings but the true essence of legislation widens up the jurisdiction to the present as well as former members.

For the case of Re Ocean Palace Restaurant the petitioner applied to the court for the execution of the declaration of the trust, but circumstances reported that the petitioner did not had any beneficial interest in the company nor in its shares. Court communicated that as per the rules of Hong Kong business registry it is compulsory for the applicant to be the member of the company and this is exclusively for the actions pertaining to the Section 168A and apart from showing that the applicant or the plaintiff is the member of the company, there is no need to show that whether he/she has legal or beneficial interest in the company or in its shares.

In reference to our past discussions and the above-mentioned examples, one may conceive that grant of leave as per the Section 168A are merely for the minority shareholders but in reality, majority shareholders can also benefit from the provisions of Unfair Prejudicial Remedy (Section 168A). this can better be understood by referring to the case filed in 1993 in the United Kingdom’s court with legal reference initials as Re Baltic Real Estate Ltd. In this case petition was depreciated and opposed claiming that, it was filed by the majority shareholder of the company. But, it was held that there is no question on the legitimacy of the petition, hence it should not be struck out merely because of the reason that this petition was filed by the majority shareholder of the company.

Concurrency in Section 168A and the Cap 571

You may have been wondering on the Cap 571, basically the Securities and Futures Ordinance is what Cap 571 usually refers to. For the situation where the concerned company is the one which is the listed company, then for such companies Securities and Futures Commission (SFC) may petition on the same legal grounds as if the petition would be made for invoking Section 168A. After starting a business in Hong Kong if SFC finds that matters of the company are being conducted in the matter unfair and prejudicial to the company and to the interests of company’s shareholders then, as per the Section 214 of SFC 2002, SFC would petition for the relief. Such provisions were introduced in the year 1994 and one referring case in support of this concurrency is the one with legal referral initial as Mandarin Resources Corp Ltd where Justice Rogers held that:

Such sections could arguably be applied to the situations where prejudicial and unfair acts took in place prior to 1994 because prior to the enactment of Section 214 of SFC, Section 168A was in practice and similar matters for the pre-enactment era of Section 214 of SFC could be resolved with Section 168A. This decision clearly supports the concept of concurrency between the Section 168A and Cap 571.

Test for determination of Unfair and Prejudicial Conduct

We have been talking a lot on unfair prejudicial conducts and quoting this again and again but there must be one question hovering upon your psych sense let’s cut down this trouble and let’s shift our discussion towards review of the test, which may help us in determining that whether the alleged conduct after starting a business in Hong Kong really amounts to the Unfair and Prejudicial Conduct or this is just another example of misuse of corporate provisions. The test could better be understood by referring to the case of Re Lai Lap limited where Justice Le Pichon explained this test by citing the remarks in the case of Re Bovey Hotel limited and these remarks were also cited in the case of Re RA Noble Limited which authenticate its relevance and extensive of the remarks. Summary of this test says that Matter shall only be considered unfair and prejudicial to the interests of the company or any member(s) if and only if any bystander who is observing the conducts authenticates and regards these conducts as unfair and prejudicial to the interests of the petitioner’s interests.

Justice Le Pichon also referred to the court’s remarks in the case of Re Macro Ltd which states that:

For the alleged mismanagement court would not interfere in matters pertaining to the commercial judgement such as the matters with the literal probability of “would arise” such as situations where the disputing and the alleged cause was merely that company should invest in commercial properties rather than the residential properties. But for the circumstances where the evident mismanagement is of the extent which justifies the court’s intervention then for such cases, remedy is available as per the Section 168A.

Court’s Powers as per the Section 168A

After affirming that the presented evidences are legitimate and has the sound grounds for the commencement of proceedings for the grant of relief under Unfair Prejudicial Remedy then there must be certain powers and the borderline for the court to decide for such matters. So if court is satisfied with the credentials of the applications to be eligible for the grant of relief as per Section 168A then as per the conferred powers and the legal framework, appropriate orders could have been issued.

Case of Re Little Olympian limited UK held that court has been conferred with quite wider discretionary powers in regard to the parties against whom relief is sought. For any case, if the appropriacy demands then court may grant relief against the non-member or any person who is not even involved in the affairs of the company or any other person against whom relief is not sought, can even be made respondent in the case if court deems it appropriate.

Sound weird? Take is as reference and irrespective of this, following are some of the orders which court can make as per the Section 168A:

  • Give orders to regulate the affairs of the company, in future.
  • Orders can be made by the court to pave the way for the buying of shares of the other member(s) either by the company or certain shareholders.
  • Orders could be made either to discontinue or continue certain acts.
  • Court can order to authorise any such proceeding which is being brought up against the person who is accused of wrong doing, in the name of the company or on the behalf of the company because such proceedings are being continued on the directions of the court.
  • Through the order, court may appoint manager or receiver of the company’s property and may specify his/her powers and duties as well as fixation of his/her remuneration.
  • Court has the power to order the payment of damages to the person whose interests have been infringed on account of conduct which is unfair and prejudicial.

Court held in the case of Re Full Bullion limited that this court, as well as other courts, has the jurisdiction to appoint interim manager or receiver for the assets of the company and such power is in line with provisions of Section 168A and that principals as per which such appointment is made, demands that there must be some serious question tried whether in terms of financial compensation or balance of convenience. Such principles were laid down in the case of American Cyanamid Co and Justice Chu explained that; Interim appointment shall not be made for the circumstances where there are serious concerns on such appointment such that there exists no useful purpose for such appointment and that such appointment would be unfair and prejudicial to the ones, who opposed the appointment of interim managers or receivers.

Legal commentators say that if court deems to issue the orders to force company to purchase its own shares then such order would be driven by the provision which subjects reduction in company’s capital. If grant of any such order amounts to the alteration of company’s articles, then such alteration would have immediate effect and there would be no pre-requisite requirement of approval by the board through resolution. But, Section 168A (3) says that such alteration should be carried out only with the consent of court and as per the Section 168A (4) copy of such order should reach the office of the registrar within 14 days of enactment for the formalities related to company formation services in Hong Kong.

However, it is believed that there are still a lot of certainties in the grant of relief as per Section 168A despite of the fact that efforts were made to broaden its scopes but still there are some certainties. While the UK equivalent of Hong Kong’s Section 168A is quite broad and elaborative. May be this is the reason why legal commentators emphasis on extra care while referring to the UK cases. If due to any reason the sough remedy does not falls within the jurisdiction of Section 168A then shareholder may need to refer to any other course of action.

In company formation services in Hong Kong, Hong Kong justifies the difference between the literature of UK’s and Hong Kong’s scope of Section 168A on the grounds that such provisions were enacted in Hong Kong prior to the enactment in UK. But, generally the effect of both these doctrines seems to be quite similar.