Basically, the word “Fraud on Minority Members” seems to be quite unfortunate. It is believed that fraud is not the relevant and proper word to use here however the legislative demands of its usage in corporate sense. So, the word fraud in corporate sense is defined as:
Abuse of the powers by the person(s) responsible for corporate affairs of the business or generally are in control of the company.
Despite of the fact that different implications are imposed for the exercise of personal rights after getting out of the question of how to open a company in HK but generally it is thought and considered that minority member can invoke personal actions as per the general law for the situations where majority members allegedly acted for the mis-conduct and fraud on the minority members. Such doctrine related to the fraud on minority is based solely on the general equitable concept of fraud which restricts the majority members to exercise those powers and act in the way, which enables majority members to indulge in the activities and decisions which paves the way of fraud to the minority members. In addition to this and to prevent the situation of fraud towards minority members, majority members are restrained from using those powers which are beyond their scope and are not justified thus wouldn’t amount to abuse of conferred powers, so that grounds for the fraud on minority be diminished. Generally speaking members are not considered as fiduciary towards transactions with each other nor they owe any sort of fiduciary duties to other fellow members of them and thus prima facie allowed to vote for their personal interest at general meeting in a company incorporation Hong Kong. But general equitable restraints still would be implementable on the majority members to prevent them from securing personal gains from the concerned member nor they would be allowed to get unprecedented gains with the veil of allowable voting rights for the personal interests in the general meeting, which would be out of the scope of conferred powers and also would be inconsistent with the contemplated objects of power. The principle which deems to prohibit members from altering the articles of the company, except of the fact where matter is thought to bona fide for the company, should be seen in the wider spectrum of doctrine of fraud on minority which primarily focuses on the restriction or restraining of powers of the majority members. Another relatable example for such situation would be the one, where majority shareholders in the general meeting, passes a resolution through which authorisation of issuance of shares was made merely to dilute the holdings of minority shareholder in the company.
For the case of Hiew Fook Siong, Court of First Instance accepted the principle that shareholders are not generally fiduciaries and hence owes no fiduciary duties to the Hong Kong company establishment and thus on these grounds it is not a necessity of the member to act bona fide for the company and in the best interest of the company. But, Court of First Instance also showed consent to English standing for the case of Estamnco (Kilner House) Ltd where English authorities established that the doctrine of fraud on minority requires that the powers of the general meeting be made subjected to the equitable consideration, to prevent the situation where these powers may be exercised for the unjust purpose against the minority member in a particular way. On account of presented facts and after examination of these facts, court held that doctrine of fraud on the minority basically does not restricts and restrain general meeting to exercise its legitimate power of removing particular director from his or her office. Legal commentators states this decision to be legitimately arguable and presentable because it is not the legal right nor the prerogative of the director to remain in office as long as they wish, nor they are allowed to decide who to be remain director of the company and whom to be removed from directorship, as these are the legitimate powers and sanctity of the general powers to decide for such matters.
For the case of Sunlink Int’l Holdings Ltd, Harris J accepted that equitable constraint on the powers of majority is quite legitimate and enriched with sense and for such situation, court has the legal standing to intervene in the matter and restrict particular shareholder(s) so that the alleged person do not destruct economic standing nor the corporate sanctity of the minority or any other shareholder for no rational reason, by his or her exercise of vote. For the same case, Court ordered injunction to restrict majority member or shareholder where the alleged person through his voting right deems to inject capital of the company which is in liquidation and thus such act of opposition from the alleged shareholder would eventually cause company to be de-listed from the stock exchange and henceforth such exercise of votes by the alleged shareholder would disable company to acquire the last feasible and applicable rescuing option.
Personal Rights of the Member as per Statute
After answering the question of how to start a company in Hong Kong, there are numerous provision and legislations which bestows exclusive and statutory rights to the member(s) of a Hong Kong company establishment and such statutory rights of the member(s) are:
In reference to the above-mentioned rights, member has the right and thus entitled to the enforcement of these statutory rights and if due to any reason they are not given these rights then member(s) shall be considered eligible to seek court’s help to confer him or her these statutory rights, regardless of what majority members decide and will of majority shareholders. But for other rights which prima facie seems to be the rights conferred by statue then question may shall be posed on the scope of member’s eligibility and credential to apply to the court for the enforcement of statutory rights, which are under question. For the circumstances where passed resolution deems to invalidate the statutory rights of the members and falls within the jurisdiction of violation of the statutory rights of the member such as the right of the member through which he or she can demand for the holding of poll at the general meeting. But generally it is argued that such violation could have been prevented by the Irregularity Principle entailed in the case of Foss, provided matter in question is of the nature that even though invalidation of resolution, consent of majority would not have been changed and that majority’s decision would remain the same in the newly called meeting, even if proceedings to held resolution invalid be commenced or decided.
Not only these are the conferred powers to the members, there are more statutory rights that the company’s legislation confers to the members of the company. Such legislatively conferred rights by the company, centres towards the provision of remedy to the members for any wrong or fraud done to them, through the exercise of their (members) personal actions. These exclusive and corporal legislatively conferred rights include:
Statutory Protection of the Rights of the Minority
Companies ordinance provides certain protection to the minority shareholders after crossing the barrier of how to start a company in Hong Kong, to safeguard their rights and to ensure that majority might not abuse the minority shareholders through the exercise of their powers. Such Statutory protections are:
For any situation as per which any attempt or act to contravene company’s constitution or companies ordinance, any persuading offers or act of convincement be evident or any sort of breach of fiduciary duties is visible then Financial Secretary of the company or credit or any member of the company whose rights have been or are being infringed and affected by such conduct or act, may apply to the court for the grant of order of injunction.