Certain conducts which allows Unfair Prejudice Remedy for the Members of Public and Family Companies after Hong Kong Limited Company Registration


As we know that in Hong Kong incorporation services public companies are always treated exclusively from the private limited companies and those limited by shares. But before getting towards this discussion let’s get a general look of the circumstances where instead of seeking help of court, matter could well be resolved intra-organizational setting or by any intermediate mediating role, in the disputed matter.

Petitioner’s Ability to end the Dispute

It is not always necessary that whenever dispute arise after Hong Kong limited company registration, help of court shall always be sought. There can be the way where through any mediator’s role or through any intra-organizational setting, matter could well be resolved. We shall now ascertain petitioner’s ability to play his/her rule in ending the dispute. So, where possibility exist that impugned matter can be resolved with the interference of petitioner then such mediating effort of petitioner shall not be considered as unfairly prejudicial conduct. For example, consider the situation where articles of the company, which are required to create a company in Hong Kong allow that if any dispute arise and thus deadlock is created then petitioner has the power to appoint more directors in the board so as to end the conflict and let corporate affairs of the company, run smooth.

Situation where no Party is at Fault

There is a question that how can any act be subject to unfair prejudicial conduct if both the accused wrong doer and the sufferer, are not at faulty end. Basically, possibility exist that after create a company in Hong Kong court might not be able to grant relief as per Section 724-725 of Cap.622 for the situation where irreconcilable difference exists between the parties and that there is the breakdown in the relationship of trust and confidence between the two parties so neither of the party is at fault, hence for such situation court does not has the strong grounds to award relief. But, relief may be awarded if petitioner is successful in convincing courts through the relevant evidence that, complaining matter is unfairly prejudicial to his/her affairs.

Situation where member is locked in the company on account of difficulties in disposing of his/her shares and prima facie it seems as if member nor the company is at fault, then for such situation there will be difficulty for the court to grant relief. There is the suggestion from legal experts to avoid being in proceedings which would conclude on declaring both the sufferer and who let victim suffer, an innocent. For example, consider the situation where there is the state of deadlock in the company and all alternatives like appointment of extra directors etc. seems irrelevant, then instead of going into the proceedings of unfair prejudice remedy, petitioner should apply to court for the winding up of company on the just and equitable grounds.

Character of the Company

To ascertain that whether the complaint conduct is unfair or prejudicial or none of them, it is necessary to assess the complaining matter in the commercial context, including the character and nature of the company. Suppose that particular remedy or equitable consideration may best suits the company in quasi partnership, but possibility exist that such equitable consideration might not be well suited for the other companies. The conduct which seems unfairly prejudicial for the large corporation or corporate giants, it is not necessary that same act shall be held equally unfair and prejudice to the small companies and in contrary to this, it is not mandatory that the conduct which is found to be incapable to put forward for the proceedings of Unfair Prejudicial Remedy for large corporate groups or companies, shall also be held incompetence for the smaller corporations to proceed with. It is noted that, if company has any objects and facts reports that these objects are basically not for any commercial use by the companies limited by guarantee, then this context should be kept in mind while considering the matter for the award of relief.

Issue of Public Companies

As per the Section 724 of Cap. 622, members of the public companies after obtaining certificate of incorporation Hong Kong irrespective of the fact even if it is a listed company in Hong Kong’s Stock Exchange, are entitled to apply to court for any conduct which is unfair and prejudice to their interest. If we talk about legal examples in this context then case of Bremner Plc and case of Luck Continent Ltd are two eminent cases. Case of Bremner Plc reports of the circumstances where even upon the requisition by the petitioner general meeting was not called. Court held that this unreasonable delay in convening general meeting even upon the requisition of petitioner found to be unfair and prejudicial to the interests of the petitioner. For the case of Luck Continent Ltd, even upon the request of petitioner company’s articles weren’t altered. Circumstance reported that failure to amend constitution of the company resulted in breach of listing rules of the Stock Exchange and on account of this breach, company’s shares were suspended to trade in the Stock Exchange. Not all Provisions of unfair prejudicial remedy are for members of public companies hence there are certain limitations on the members of public companies regarding relief for unfair and prejudicial conduct. For the public companies, grant of relief for unfairly prejudicial conducts are usually limited to those acts or conducts which are in breach of some legal or equitable rights or breach of any universal expectation of the members. It must be noted that personal expectations do not comes in this counting because public companies generally do not have such expectations on account of purely commercia footing. It is said that there is no need to grant relief to those members who are already selling their shares in the market hence provisions of Section 724 of Cap. 622 shall not be applied to these members. But certain legal commentators think that just because market exist for those selling their shares, shall not deprive members from the remedy, they are entitled to get as per the statutory provisions. Consider a situation where large numbers of shareholder commence proceedings to exit from the company on account of corporate mal practice, then sale of shares in the market would not be an adequate remedy because this could sharp a bad impression of company in the corporate world and possibility exist that shares of company may encounter devaluation, which would otherwise would not be a good news for the existing shareholders and eventually existing shareholders would incur a significant loss.

Issue of Family Companies

For the issue of family companies after obtaining certificate of incorporation Hong Kong foremost observation must be made in assessing extent of personal relationships between family members in small family run companies as this is the most important and foremast factor so as to decide whether the relationships are of mutual trust and confidence or there is some other sort of relationship. It is mandatory because import of equitable consideration shall be made on the basis of this observation. Merely on the ground that company is a family run small company, so it must be in quasi partnership hence this shall not be treated as sufficient evidence. To establish and ascertain personal expectations of the member, it is necessary for the petitioner to show that; affairs of the company are not being carried out in purely commercial context and it is mandatory for the petitioner to provide relevant evidence and prove before the court that nature of business of this family run company is solely upon the family establishment and that as such no such big commercial aspect is attached with the transactions of the company. For example, when the sole mission or objective of the company is merely to provide employment to the family members of the founding members of the company. Because there is no such big commercial is interest, obviously there will be some sort of commercial gain but still it satisfies credentials to regard this as a family company or a family run business.

Examples of Unfair and Prejudice Conducts

Any breach of Cap. 622 is sufficient enough to provide grounds for considering the conduct purely unfair and prejudicial. The legal obligations of the ordinance can best be understood by reading this as being part of the terms and conditions, upon which member agreed to associate. For example, as per the script of membership deed, following conducts shall be considered as conducts being unfair and prejudicial:

  • Breach of provisions which restricts the provision of financial assistance in acquiring company’s shares.
  • Breach of provision which makes it necessary to seek approval of the members for non-pro allotment of shares.
  • Continuous breach of provisions which requires maintenance of proper accounts.
  • Breach of those provisions which requires holding of Annual General Meeting.

It must be noted that statutory remedy shall be provided if and only if the alleged contravention results in prejudice to the members. Any technical or trivial breach of provision is usually over looked and no remedy shall be provided for such minor contraventions because such mistakes are of technical nature and any minor can do this on account of mis-knowledge. For the case of Wong Man Yin court of final appeal cautioned about taking the cavalier approach for the legal rights of the members because they observed that provisions like Section 114 of predecessor companies ordinance deems to protect the legal rights of the member and one example of this is the service of notice regarding the general meeting to the members hence all this is done to ensure proper and better management of the company. Court of Final Appeal further communicated that:

Failure to serve the notice of general meeting or any board meeting of the company shall not be considered mere technicality and if to consider it the technical problem, then should be a light technicality, because justifications fairly exist to justify such breach of legal obligation.

Breach of Listing Rules

If for any case, listing rules of the Stock Exchange are breached then such breach can potentially amount to the conduct of unfairness and prejudice. Referring to the case of Cheng Chee Tock Theodore we shall be in the position to understand this much better. In this case, company was listed in the Stock Exchange of Hong Kong and allegedly breached the listing rules of the stock exchange because special resolution was presented for the removal of director but as per the listing rules, an ordinary resolution would have been sufficient. Hon’ble court held that failure of company in amending its constitution falls within the jurisdiction of unfairly prejudice conduct because even if company ratifies this breach then this shall not be enough to compel Stock Exchange to lift band over shares trading of company, in question. Court gave significance to the agreement, upon which investors invested in company which clearly binds the company to maintain the listing status. A question was made before the court that; will personal relationships between the shareholders of the company would intervene to uphold the understanding for the purpose of an unfair prejudice petition. Court marked this question irrelevant and so does what legal commentators think.

Legal commentators communicated that; Listing rules has the fundamental status and does not proceeds as any statutory rule would proceed and only governs the listed company. So, in short member’s expectations from the company regarding abidance of listing rules is same as members expects company to abide by the legal regulatory requirements. For such types of uncertainty on the part of members such as how to run the affairs of the company there is no need for any personal relationship between the members and the agreement, they signed.