Did you know that a major shareholder can obtain relief pursuant to section 168A of the Companies Ordinance (Cap 32) (CO), a provision traditionally used by minority shareholders to seek an alternative remedy to winding-up in cases of unfair prejudice?
In the recent matter of Luck Continent Ltd v. Cheng Chee Tock Theodore1, the Court of Appeal (CA) confirmed the decision of Barma J (as he then was) in the court below2 that the major shareholder (holding 46.58% issued shares) of a Hong Kong listed company is entitled to relief pursuant to section 168A CO. Section 168A(1) CO relevantly provides:
Any member of a specified corporation who complains that the affairs of the specified corporation are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally or of some part of the members (including himself)…may make an application to the court by petition for an order under this section.3
Section 168A(2) provides the court with a broad discretion to make such orders as it thinks fit so as to bring an end to the matters complained of. In granting the relief sought by the major shareholder, Lam JA with whom the CA agreed, confirmed:
…s.168A itself has not limited its application to minority shareholder or small companies. Whether it is adaptable to deal with unfairness in large listed companies is one of the contentious issues in this appeal. In principle, the question should hinge on whether unfairness can be established as opposed to whether the company is a small company or a large listed company.
His Lordship's comments echo those of Barma J (as he then was) that "[u]nusually for proceedings under section 168A, these proceedings are brought in respect of a publicly listed company. Also somewhat unusually, they are brought by the company's major shareholder"4 but that a major shareholder is not precluded from utilising this CO provision.
On the facts, the CA agreed with the court below that the minority shareholders' blocking of a motion to amend the listed company's bye-laws did constitute unfairly prejudicial conduct by the minority shareholders. Among other things, the minorities' exercise of their voting power was contrary to what the parties had agreed and a breach of a fundamental understanding between the shareholders that the company should maintain its listing status. The blocking of the motion was especially significant as the listed company's shares had been suspended from trading (for reasons unconnected with the bye-laws issue) and the suspension would unlikely be lifted until all regulatory concerns, including the failure to amend the bye-laws, were satisfactorily addressed.