Hong Kong: Unfair prejudice and listed companies

Earlier this month the Court of Appeal of the High Court gave judgment in Luck Continent Ltd v Cheng Chee Tock Theodor (CACV 107/2012). This is an interesting and important decision concerning section 168A of the Companies Ordinance Cap 32 in the context of listed companies. Section 168A provides that a shareholder may petition the court for relief where the company's affairs are being, or have been, conducted in an unfairly prejudicial manner. An equivalent provisions exists in the United Kingdom: section 994 of the Companies Act 2006.

The case concerned a company incorporated in Bermuda with a listing on the Hong Kong Stock Exchange. Its articles stipulated that a special resolution was required to remove a director. This provision was inconsistent with the HKSE Listing Rules which required an ordinary resolution (see para 4(3) of Appendix 3: here, pdf).  Several attempts were made to comply with the Listing Rules by amending the company's articles but these were blocked by shareholders holding just over 25% of the company's shares. The shares were later suspended from trading.

The company's largest shareholder - holding a little under 47% of the shares - sought an order under section 168A for the amendment of the company's articles. This was granted last year by Barma J. in the Court of First Instance (see HCMP 702/2010), and upheld by the Court of Appeal several days ago in a decision considering English authorities including O'Neill v Phillips [1999] 1 WLR 1092 and Re Astec (BSR) plc [1998] 2 BCLC 556. Noting that amending the articles would facilitate the resumption of trading in the shares, the court found that the blocking of the amendment breached a fundamental understanding between the shareholders that the company would maintain its listing status. The breach of this understanding was unfairly prejudicial.