Remedies that Court Orders for the Unfair and Prejudice Conducts of an Incorporate HK Company


In Hong Kong company formation services unfair prejudice remedy is the last remedy that victim could seek from the court. This is the reason this remedy is of immense importance. We shall now discuss the remedies that court may award, after being satisfied from the facts and eligibility of the case and there is no doubt on the part of court that alleged conduct is unfair and prejudice to the interests of member or company itself.

Section 725(1) of Cap. 622 for Hong Kong company formation services states that once the conduct is proved to be unfair and prejudice then there is no question on it to be unfair and prejudice and the court may make any order it deem that should be given in this case. Section 725(2) of Cap. 622 moves one step ahead and enlist those remedies, which court may award to satisfy and award unfair and prejudice remedy, provided it does not limit sub section (1):

  • Court may order to restrain the conduct, which is complained to be unfair and prejudice.
  • Court may give orders, to commence proceedings in the name of the company.
  • Court may appoint receiver or manager of the company’s property or any other corporate assets.
  • Court may award remedy, which deems to regulate future affairs of the company.
  • Court is independent in passing any order which requires the purchase of share of any member, either by company itself or by any other member of the company.
  • Court is open in giving any such order which it thinks would be appropriate to give in this particular case.
  • Court may order the company or any other person, which it declares as being responsible, to pay damages to the victimised member

In case of the past member of an incorporate HK company only available remedy would be the payment of damages to the victim. As per the statutory provisions, court’s discretion to award remedy is quite wide and court is independent in passing any order which it deems, would best fit the situation and must be awarded to address the grievances of the plaintiff / petitioner. It must be noted that the remedy court has awarded should be least intrusive and there must be the proportionality between the complaining conduct and the awarded remedy. It is the duty of the court to ascertain the circumstances of the case and keep in view the interests of all stakeholders such as interests of the company’s creditors, employees of the company and the interests of the company itself. If the operational dimensions of the company are of public nature then court must keep in view the interests of the public, while ascertaining circumstances of the case.

There is the general perception which says that after the establishment of the company and paying Hong Kong company formation cost it happens that the conduct of the company proves to be unfair and prejudicial and we know that although the statutory provisions in this case is of discretionary nature, still court has the power to decline the relief, where it deems appropriate. It is not necessary that matter be hold till the conclusion of the case and thus where the impugned conduct is of the extent where justice would be halted if relief is granted after the conclusion of the case then it is upon the discretion of the court to grant interim relief in these situations, apart from awarding final or conclusive relief.

Now we shall discuss the important remedies in detail so that concept and scope of these remedies shall be cleared.

Court’s order to regulate affairs of the company

After start up business Hong Kong court may order to regulate future affairs of the company by giving an order which directs the holding of general meeting or restrains the holding of general meeting or may order to alter articles of the company so that affairs of the company be run fairly and in unprejudicial manner. For example, in the case of Roberts matter related to the payment of excessive remuneration to the directors of the company, was put forward, so in this case court ordered to alter the articles of the company and held that amount of remuneration should be decided by the unanimous agreement of company’s members or in the case where disagreement occurs, independent accountant should decide the amount of remuneration.

For the case of Re Spargos Mining NL, circumstances reports of the situation where directors were found to be in the consistent abuse of provisions of company’s constitution by consistently making corporate decisions via written resolution or circulating resolutions court found this act to the unfair and prejudice and ordered for the deletion of this provision as through this abuse directors were failed to hold annual meeting of the company and thus court reckoned this to be unsatisfactory and haphazard for the corporate business and affairs of the company and passed order that constitution of the company should be amended at the earliest and that any further alteration, if any, should not be done without the leave of the court.

Court’s Order regarding Composition of Board of Directors or any Manager

It is an accepted fact and has been authorised and affirmed by the court that as per the statutory provisions court is independent in appointing any person upon whom all the shareholders share confidence, to let affairs of the company be run smoothly, as the manager or receiver of the company’s assets or corporate affairs. Thus, on these grounds court has the standing to restrain any acting or serving director to halt his or her directorial services for the companies because he or she is found to be in the breach of those legal rights, of which he or she was made custodian upon their consent to be the director of the company. As court has passed restraining orders so to let affairs of company be run smooth court should replace existing board of directors with new directors, as appointed by the court, for the period of 12 months on the grounds that:

  • This new management shall well pursue the corporate affairs of the company.
  • They shall support the on-going investigations.
  • They shall pursue the remedies for the company in relation to past defaults.
  • This new management shall depict effective management skills for the present and future affairs of the company.
  • To assume the role in the board of directors of the company and ensure that affairs of the company shall be continued fairly and in the competent manner.
  • To identify a third-party purchaser who shall purchase the shares of the company so that change at the board level shall be visible.

But in the case of Re Chime Corporation, court communicated that it would be difficult for the court to decide that who would be the appropriate person to decide and run affairs of the company and to grant special permission to the specific person, to intervene in the corporate affairs of the company, shall be allowed and done only where it is required to do so. It is quite clear in the script of the provisions that court should not act to alter the composition of the board of directors of the company, especially where such order of the court deems to involve highly antagonistic parties to cooperate in running affairs of the company. There is very important thing to keep in mind that court’s order should not be of such extent where it would seem as if court is having active role in the management of the company and is involved in the supervision of cooperate affairs of the company.

One alternative to avoid above-mentioned situation is the appointment of independent managers or receivers for the certain time period, by the court. But it is also not considered to be the quite appreciable alternative because normally it is said that appointment of such receivers or managers could prove to be harm to the corporate affairs of the company for example, such appointment could let company to enter the defaulting condition under security agreements and thus it is quite likely that court may decline to appoint receivers or managers in these circumstances, specially where there is the probability that there could be an adverse consequences on the relationship between creditors or the customers of the company.

Court’s Order to Purchase Shares of the Company

This is one of the most common and highly anticipated remedy by the both court and petitioner for the conducts which are alleged to be unfair and prejudice to the affairs of the company, after the start up business Hong Kong. For this remedy, court does not have to accede to the buy-out request of the petitioner and subsequently to compel respondent to purchase the shares of the petitioner, especially where lesser remedy is available to address the grievances of the petitioner and where there is likelihood that such unfair and prejudice conduct would not happen again. But for the situations where there is difficulty and impracticality in framing orders which might address and provide remedy against the alleged unfair and prejudice conduct then court may agree to the petitioner’s request to buy-out his or her possessed shares to either company or any members of it. This could happen in the cases where there is some sort of breakdown in the relationship of relevant parties and where the policy of “let go” is in the favour of both parties so that no situation of offense, annoying or interference in each other’s matter, shall occur, and thus petitioner would be locked down in the company on account of difficulty in disposing of his or her shares. Facts may report that respondent may have not enough grounds to deny the buy out request of the petitioner.

As per the script of Section 725(2)(iv)(B) and 725(2)(iv)(C) of Cap. 622 orders pertaining to the buy out requests of the petitioner shall only be made against the member of the company or the company itself. It would be legally and morally inappropriate to force particular member of the company to buy shares of the petitioner even though his or her contribution in the complaining act is quite minimal. Legal history reports that buy out orders against the company are quite rare and this might be because of the circumstances where company’s capital would shrink by going into purchase of such shares, this would still be depreciated even if it is done with the consent.

Although Section 725(2) of Cap. 622 does not says that buy out request can be made against the person who is not even the member of the company but equivalent provision in England says that any person who is not the member of the company but found to be involve in the conduct which is unfair and prejudice then he or she shall be declared respondent in proceedings and if seems appropriate, shall be held liable to buy shares of the petitioners, either primarily or secondarily.

Where the respondent is the majority member of the company then court has the power to direct respondent to sell his or her shares to the petitioner, but it must be kept in mind that such orders are passed only in special circumstances and are only to provide relief to the petitioner. For the situation where parties hold equal shareholder such as both the buyer and seller hold 50% 50% shares of the company then court shall decide whom to buy and whom to be bought out on the basis of factors, such as:

  • Contribution to the company.
  • Fitness to exercise control over the company.
  • Do the concerned parties have any bad faith or any impropriety?

Usually court has the wider discretion pertaining to the matter regarding valuation of shares to determine the amount to be paid by the buyer against each bough shares, by overriding any requirement which shall raise question on the fairness of valuation of shares.