Restriction on Personal Actions as per Irregularity Principle and the Provisions for Personal Rights under General Law for set up Hong Kong Limited Company


Despite of the fact that constitution of the company allows the member to proceed for the remedy through their conferred personal rights, court can still decline to grant remedy for such matters in the light of Irregularity Principle defined and elaborated in the case of Foss. The irregularity principle should be treated as principle independent of Proper Plaintiff Principle. Because, exercise of personal rights of the member for seeking remedy may lie outside the scope of the Proper Plaintiff Principle discussed in the case of Foss but such exercise would still be considered associated with the Irregularity Principle. This can be explained as, consider the situation where member holds the credentials, eligibility and standing to bring personal actions for the enactment of his/her individual rights pertaining to abuse or any mis-conduct, but possibility exists that court may decline to allow plaintiff to commence proceedings of personal actions as it may seem contradictory to the eligibility criteria of the Irregularity Principle or where court sees the application of Irregularity Principle. Because, court observe that the alleged irregularity against which remedy and the commencement of proceedings of personal action is sought, could have been ratified by the ordinary resolution or through the matter of majority consent. These restrictions related to the Irregularity Principle have been in practice prior to the amendments in the Section 23 of Predecessor Companies Ordinance which makes an act invalid even through a quite narrow rationale which says that; any matter prone to the irregularity have the ultimate end through the calling of the meeting and through the consent of majority, irregularity could be made valid and free from any rationale of Irregularity. Quite similar provision is found in the Section 86 of Cap.622 and stands equally applicable like rest of the provisions of the Cap. 622.

It should be noted that not every supposed irregularity be made associated with the Irregularity Principle and any such matter where the matter complained of is in fact a matter of substance rather than of any irregularity, then for such matters Irregularity Principle would not be applied. One such example of this observation can be the situation as per which, doubt exist that for any matter which articles of association binds to be decided in general meeting, can such matter be resolved through the consent of majority without being shown in the meeting and no evidence of any such holding of meeting and thus be imposed as the binding on the company to decide the matter with the way, unanimous consent of majority showed? For such matters, it is believed that subjected matter is not merely of the nature of Irregularity principle, instead the matter is meant to be of the nature of being non-compliant with the articles of the company. If in any case, Irregularity principle is applied for such matters then it would be considered inconsistent and contradictory to the doctrine of unanimous consent. Because as per the Doctrine of Unanimous Consent, for the situation where informal decision is made without holding a formal meeting is subjected for the ratification by the unanimous approval of the members of the company.

If we see the case law, being filed, proceeded and decided for the matter pertaining to the situation where members are either allowed or not allowed to enforce their conferred personal rights in the constitution of the company, can best be understood and explained in the context of irregularity principle for a set up Hong Kong limited company. There is an existence of quite critical question which poses the vulnerability for the company secretarial services Hong Kong that whether the matter in question or complained off, falls within the jurisdiction of constitutional power conferred to the ordinary majority of the members of the company or if views of the majority is clear in this complained or questioned matter? If ordinary majority of the member is able to make the matter in question, in compliance with the articles of the company and majority’s views regarding this ratification is clear then there is no need to award remedy in favour of the minority member who is complaining and insisting on treating the questioned matter as one of the nature of the Irregularity Principle after register company in Hong Kong online or through concern authority.

There are certain matters where ordinary majority would not be able to ratify or address the complaining matter as they for such matters no constitutional powers has been conferred to them. Following are some of those matters where doctrine of ordinary majority would not be applicable and hence minority member would be entitled to enforce his or her conferred individual rights, by the constitution of the company:

  • Conferred right concerning the transfer of shares.
  • Right to regulate or bring any regulations for the matter dealing with forfeiture of shares.
  • Up holding of rights of pre-emption and class rights.
  • Conferred rights to receive the dividends, in the way entailed in the constitution of the company.
  • Rights conferred by the constitution of the company, regarding appointment of director.

The situations mentioned above is solely for the enactment of the personal rights of the minority members and thus does not allows and so does not grant power to the ordinary majority of the members to ratify, settle or authorise the complaining and impugned matter. Any attempt by the ordinary majority of the members to side-step or to ignore the provisions of articles be considered the act equivalent to the alteration of company’s constitution and shall be held invalid because such alteration can only be facilitated through the special resolution and no through any ordinary resolution, whether register company in Hong Kong online or through concern authority.

Court facilitated and made certain rights to be enacted through the personal actions. Those rights are:

  • Despite of the fact that member do not possess the voting right, right to receive the notice of the meeting should be granted and so does he or she should be served with such notice.
  • For those members who possess the voting rights, their right to vote in the general meeting should be held valid and must be respected, henceforth.
  • For the improper votes, right to exclude such votes shall be made available.
  • For any proposed resolution, member’s right to propose amendments in the resolution should be made available and must be open to exercise.

In these situations, ordinary majority of the members does not have the prerogative to alter the articles of association of the company so that such personal rights of the member be excluded. Apart from this ordinary majority of the members has the power to convene another meeting for the questioned matter and make decisions which now be totally complained with the articles of the company.it seems as if prima facie there is the scope for the application of irregularity principle for such situations. This scope can better be understood with reference to an example which concerns the question of the voting of right of a member, which is considered as the right of proprietorial nature, for the case where member is declined to vote for the proposed resolution despite of the fact that he or she holds the credentials and standing to vote, then court may put forward the declaration that his or her vote shall be recorded. But, court may be reluctant to award such declaration if there is certainty of the fact that outcome of the poll will not be changed even if this member be allowed to vote and thus sought writ for granting proceedings of meetings as invalid, shall be ruled out. However, this issue be stood valid and intact where the view of majority is clear. Assume that, inappropriate notice was served for the holding of general meeting and certain matter was decided and decisions regarding corporate affairs of the business was made then such meeting could be stood invalid if there is certainty that outcome of the general meeting and so does the made decisions could have been different if proper notices would have been served. But for the situation where it is quite obvious that majority has decided the matter and that even if proper notices be served, outcome of the meeting would have been stayed same and thus for this circumstances court would refrain from declaring proceedings of the general meeting and so does the passed resolution, inappropriate. After addressing question of how to incorporate in Hong Kong, quite similar sentiments were shown by the judicial doctrine of Hong Kong in the case of Re Hong Kong Sailing Federation.

As long as the consent of majority member convenes the concept that decisions made in the meeting and the resolutions passed in the company would not have been different even if all the requirements of the company’s constitution be served and furnished even then irregularity principle be prone to application, such that for such applicable situations, a minority member would not be held liable for the sought remedies in these following scenarios:

  • Directors have been serving more than their stipulated term, mentioned in the articles of association of the company.
  • Inappropriate notice was served to convene the general meeting.
  • Proceedings of the general meeting faces lack of quorum.

Prior to the enactment of Section 86 of Cap.622 court categorically held that member could only enforce conferred rights as per the constitution of the company in the capacity of member only. Referring to the case of Eley would better elaborate this because in this case, court held that member is not entitled to bring action entailed in the articles of the company stipulating that alleged member was to act as the legal advisor of the company.

After getting out of the question boundary of how to incorporate in Hong Kong and even with the enactment of amendments concerning personal rights of the members, it might be possible that member shall not be allowed to enforce provision concerning his or her personal rights, in his or her standing or capacity as the member of the company. Thus, that is why legal commentators communicated that Section 86 of Cap.622 should be interpreted in the context of predecessor Section 75 which states that articles of the company have the status of regulatory prescription for the company and that is why cases like that of Eley shall made to continue as per the currently prevailing statutory provisions. Because this was made to discontinue and prohibit the conferred rights in company’s articles which are basically not the part of general regulations of the company and hence couldn’t be applicable to all stakeholders of the company, alike.

Personal Rights of the Member(s) as per the General Law

Apart from the rights which are conferred to the members of the company by the constitution of the company, court recognises that there are certain rights and powers which the general law such as Common Law and the Equity Law confers to the members. As per these provisions of General Law, members have certain personal rights which they get associated to themselves as soon as they acquire the membership of the company. Through these personal rights, members are able to exercise and take actions pertaining to any abuse or infringement of their personal rights. The personal rights which general law confers to the member(s) includes:

  • Right to get any decisions made and intact, through the special resolution and where there, matter be decided as per the special resolution it must be passed by special resolution, rather not through the ordinary resolution.
  • Ordinance as well as the General Law grants member(s) a right to restrain company from the conduct which is found to be in contravention to the Companies Ordinance as well as to the constitution of the company.
  • Member(s) right to receive dividends, as declared in the articles of association and membership deed or whatsoever.
  • Member(s) right that he or she shall be taken serious at the proceedings of meetings and properly be heard.
  • Member(s) right to restrain improper dilution of voting rights of any member or executive, by the directors of the company.
  • Member(s) right to restrain improper alteration of company’s articles of association.