Grand Field Group Holdings Limited (the "Company") was
listed on the Hong Kong Stock Exchange and carried on the business
of property development and sales in China through its
Mr Tsang and his wife were the founders of the Company
("Tsangs"). The Tsangs and their company together held
about 22% of the issued shares of the Company. In July 2007, there
was a change in the management of the Company when the Tsangs
resigned as directors. They brought in Mr Huang as a strategic
investor in the Company and became consultants of the Company until
Mr Huang, the chief executive officer and an executive director,
and Mr Chu, the chairman and an executive director of the Company,
served a notice to terminate their consultancy in March 2008.
Mr Tsang claimed that there were breaches of fiduciary duties by
Mr Huang and Mr Chu as the Company's directors in a number of
transactions including misappropriation of funds and improper
transactions. As the Company had not itself brought proceedings
against its directors because they were in control of the board, Mr
Tsang applied for leave of the Court of First Instance (the
"Court") to bring a statutory derivative action on behalf
of the Company and for an order that an independent auditor be
appointed for and on behalf of the Company to investigate and
report to the Court on its financial position.
Section 168BC(3) of the Companies Ordinance (Cap.32) sets out
three requirements for leave to be granted by the Court to bring a
statutory derivative action. They are as follows :-
it appears to be prima facie in the interest of the company
that leave be granted to the applicant to bring proceedings on its
there is a serious question to be tried and the company has not
itself brought the proceedings; and
the applicant has served a written notice on the company in
accordance with section 168BD of the Companies Ordinance.
For the first requirement, it was only necessary to establish
that it appears to be prima facie in the interest of the Company to
sue. It was not necessary or appropriate to establish this to a
particularly high standard and the Court should not attempt to
resolve the underlying dispute. It would suffice if an arguable
case was disclosed and, on the face of it, it would be in the
interest of the Company to bring proceedings. The second
requirement was likewise of a relatively low threshold.
The complaints indicated that there was an arguable case that
the Company had through its subsidiary entered into a number of
disadvantageous transactions and there were doubts as to the
legality of some of these transactions. If these allegations were
established, the Court was inclined to think that the Company had
suffered financial loss and ought to be compensated in damages by
those directors who had acted in breach of their fiduciary duties.
The Court was satisfied that the complaints raised by Mr Tsang had
disclosed an arguable case having a serious question to be tried
and it would appear to be prima facie in the interest of the
Company to bring legal proceedings against the intended defendants.
The Court also held that the Company had not indicated it would
bring proceedings against the intended defendants and Mr Tsang had
served a notice on the Company in accordance with section
The Court therefore decided to grant leave to Mr Tsang to bring
a statutory derivative action on behalf of the Company.
The Court further held that there was no need for investigation
by an independent auditor to be appointed by the Court at this
stage as the information presently available to Mr Tsang was prima
facie sufficient to bring proceedings. If the Company wished to
engage such an auditor, it was at liberty to do so, without any
order from the Court.
Based on the decision of this case, it is clear that a
shareholder of the company may apply to the Court for leave to
bring proceedings on behalf of the company under section 168BC(3)
of the Companies Ordinance. The Court would apply a relatively low
threshold on the requirements of section 168BC(3) when granting
leave to shareholders.
Experienced lawyers in our Corporate Finance and Securities
Department regularly advise listed companies on regulatory
compliance and company law issues. If you have any questions on the
above eNews, please do not hesitate to contact us.
The content of this article is intended to provide a general
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The Hon'ble High Court of Bombay has held that where a Scheme of Amalgamation is executed between two companies registered in two different states [...], then the said two orders are two independent instruments.
Lawyers are pretty good at figuring it out quietly and amicably among themselves, without recourse to a public courtroom.
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