Ambush At The AGM – Notice Requirements For Listed Companies In The Digital Age

With a significant proportion of companies listed on the Hong Kong Stock Exchange incorporated in the Cayman Islands and approximately 223 Cayman-incorporated, PRC companies listed in the US, this analysis of the recent Privy Council Sinovac judgment considers whether an equivalent activist shareholder ambush would success against a Cayman-incorporated, Hong Kong- or US-listed company.

Proxy battles and the law of company meetings

In a judgment given on 16 January 2025, the Judicial Committee of the Privy Council (the "Board" or "JCPC") considered a number of important questions that arose during the hard-fought proxy battle to secure control of Sinovac Biotech Ltd ("Sinovac").¹

To the casual observer, the name 'Sinovac' may only prompt memories of the Pandemic – it was, after all, one of the first Chinese pharmaceutical companies to produce a vaccine to combat Covid-19. However, for those with a keen interest in proxy battles (and the law of company meetings) much can be learnt from the Board's decision and the Sinovac saga generally. Indeed, as Sinovac is a company incorporated under Antiguan law and listed on NASDAQ, the Board's decision has implications for companies incorporated in other offshore jurisdictions, which are listed in Hong Kong and/or the US (most notably Cayman Islands incorporated companies or "Cayman Listcos"). As Lord Hodge outlined, when speaking extrajudicially in February 2025, the Board "applies the principle of precedent on a cross-jurisdictional basis such that JCPC decisions will also bind the courts of other JCPC jurisdictions where the same point of law arises for decision. This will be the case where both jurisdictions apply English common law to the point at issue, and there is no reason to suggest any difference between them."²

Accordingly, if a Cayman Listco finds itself the target of a similar AGM 'ambush' in the future, the ratio decidendi of the Board's judgment will be applied by the Cayman Courts, absent any material difference in the relevant statute, the articles of association and/or the facts at issue.

In light of the dominance of Cayman incorporated companies as listing vehicles for Chinese businesses in the US³ and on the Stock Exchange of Hong Kong ("HKEX"),⁴ the prospect of future 'ambushes' must be a key consideration for shareholder activists and boards of directors in the region.

Background

The background to the dispute can be summarised as follows:

• Sinovac had approximately 3,300 shareholders at the relevant time, with legal title to many shares held by brokers or depositaries (described as 'street names' by the Board). The directors from 2012 until the annual general meeting held in February 2018 (the "2018 AGM") were the "Incumbent Directors", including Weidong Yin (Chairman and CEO of Sinovac).
• Two consortia sought to take the company private in 2016: the management consortium led by the Incumbent Directors v the Sinobioway consortium, a minority shareholder group.
• In March 2016, the Incumbent Directors adopted a rights agreement governed by Delaware law, designed to deter hostile takeovers by conferring the right to purchase preferred shares on existing shareholders. This rights agreement (known colloquially as a 'Poison Pill' agreement) would be triggered if any person acquired 15% or more of the shares.
• The 2018 AGM was held in Beijing, with notice having duly been given to shareholders, and the agenda for the AGM included re-election of the Incumbent Directors. Sinovac's by-laws permitted voting by proxy and the re-election of the directors was 'ordinary', not 'special', business.
• Most of the shareholders who attended the 2018 AGM did so by proxy, by lodging proxy forms with the company prior to the meeting. 17.47% of the company's shareholders were not present in person or by proxy at the 2018 AGM.
• At the 2018 AGM, a proxy stood up and proposed motions to amend the ballot paper with a view to removing all of the Incumbent Directors, except one director (Yuk Lam Lo), and nominating an alternative slate of directors (the "New Directors"), all of whom were affiliated with 1Globe, a major shareholder of Sinovac which appeared to have sided with the Sinobioway consortium.
• The New Directors received a majority of the votes cast at the AGM, but the scrutineer did not declare the result immediately, citing the need to check proxy validity. Crucially, Sinovac had not instructed any Antiguan lawyer to attend at the AGM for the purpose of advising the chairman of the meeting.
• No shareholder requested that the 2018 AGM be adjourned nor did the Chairman purport to adjourn the 2018 AGM of his own motion.
• Clearly, the 2018 AGM created significant issues for the company. As a result, over a month elapsed before Sinovac found itself in a position to announce the results of the AGM in question. Unsurprisingly, the company declared that the Incumbent Directors had been re-elected to the board and the company commenced proceedings in Delaware asserting a 'Trigger Event' under the rights agreement to dilute the dissenting shareholders' votes.
• 1Globe initiated proceedings in Antigua seeking declarations that the New Directors were duly elected and that the Incumbent Directors had ceased to hold office.
• The Antiguan High Court held that the proposal to amend the ballot with an alternative slate of directors and the casting of votes in favour of these New Directors at the AGM was a "pre-planned ambush" lacking prior notice to the company and shareholders, violating a minimum standard of fairness and statutory provisions under the Antiguan International Business Companies Act (the "IBCA"). The Antiguan High Court refused to grant relief to 1Globe.
• The Eastern Caribbean Court of Appeal upheld the High Court decision. 1Globe appealed to the JCPC.
• The appeal to the JCPC was heard in July 2024 and judgment given in January 2025. Accordingly, for a period of almost seven years, including the Pandemic years, there was no certainty as to the composition of Sinovac's board of directors.

Key Aspects of the Board's Decision

Before delving into the Board's decision in detail, it is important to note the caveat that the Board issued when giving its decision. Due to the choices of the parties in the Courts below, certain issues had been abandoned/not been pursued and while belated efforts were made to revive certain points before the Board, the Board cautioned that the "unfortunate result of these choices by the parties is that the Board's opinion as to the overall outcome of this appeal should not be regarded as the outcome which might have ensued if all the potentially arguable points had been raised in time..."

As for the Board's decision itself, it was held that:

The Notice/Fairness Issue

• Under the IBCA and Sinovac's by-laws, the election of directors at an AGM is 'ordinary business' not requiring prior notice, and shareholders must be taken to accept that new directors may be proposed and elected at the meeting without advance disclosure. In particular, the Board held that the "exclusion of the election of directors from special business ensures that the shareholders retain dominion over who the directors should be, without interference from the company, at the direction of the current board". On this point, the rule in Betts v Macnaghten [1910] 1 Ch 430 survives into the modern, digital era of meetings.⁵
• The issue of any adjournment is problematic and one which the Board appears to have raised of its own motion and without the benefit of written or oral argument. Section 71 of the IBCA gives directors who face, inter alia, replacement or removal from office, a right to submit a written statement giving the reasons as to why they oppose any proposed action or resolution (i.e., pertaining to their removal from office or replacement). The Board considered that the spirit and intent of that provision meant that a director facing replacement/removal should, if possible, be given an opportunity to respond in writing.¹ Where that is not possible and where the chairman has the requisite power to adjourn the meeting, he or should do so.⁷

The Rights Agreement

• The Board held the Rights Agreement invalid under section 161 of the IBCA because it added rights to shares without a special resolution amending the articles, a necessary requirement.

Proxy Invalidity

• The Board declined to decide on the issue of proxy invalidity, noting that the company had waived this objection by not relying on it in earlier stages in the Courts below.

Outcome

• As a result, the Board allowed the appeal, declaring that the New Directors were duly elected at the 2018 AGM and that the Incumbent Directors ceased to hold office from that date.
• The Board emphasized that despite the lack of prior notice, the shareholder bargain under the IBCA permits such proposals at an AGM, and the failure to adjourn the meeting was unfortunate but did not invalidate the election.

The Board declined to order a fresh meeting given the passage of time and the lack of factual update.

Could a Cayman ListCo listed on HKEX be Ambushed in this Way?

When considering this issue in the abstract, it is important to note that there is no 'one size fits all' answer. The question can only be determined by reference to the contents of the Cayman Listco's articles of association and what steps the players, particularly the chairman, takes when faced with this scenario at an AGM. However, there are some common threads which will be explored below.

Notice Requirements – Ordinary Business v Special Business

First, the Cayman Companies Act (2025 Revision) does not define 'ordinary business' or 'special business'. A Cayman Listco which is listed on HKEX must ensure that its articles of association (or the equivalent) conform with certain requirements⁸ but the Listing Rules are silent on what falls within the scope of 'ordinary business' as opposed to 'special business'. In practice, however, the election of directors at a general meeting tends to be treated as 'ordinary business' in the Cayman Listco's articles of association. This means that the lower notice thresholds discussed in the Sinovac decision would apply.

The Power to Adjourn?

Secondly, practitioners considering whether this issue could prove to be problematic for a Cayman Listco⁹ are likely to look to the HKEX Main Board Listing Rules (the "Listing Rules") for assistance. For example, paragraph 13.73 of the Listing Rules requires an adjournment of a meeting where it is not possible to give shareholders 10 days' notice of any material matters.¹⁰ The replacement of the entire slate of directors would appear to be such a 'material matter' and while this might seem to be a complete answer to the matter at issue (i.e., simply adjourn the meeting), it is not from a Cayman Islands law perspective, as the chairman of the meeting rarely has a unilateral power to adjourn the meeting (a resolution of members is usually needed, the "Adjournment Resolution Article").

In this instance, Sinovac's by-laws are entirely silent on the power to adjourn a meeting. While the Board posited that the chairman might have a residual power at common law to adjourn the meeting, those comments were obiter and the authority referenced (Byng v London Life Association)¹¹ pertained to a situation in which the shareholders could not physically participate in the meeting due to the size of the venue and the chairman had purported to adjourn the meeting because he could not ascertain their views. If an ambush arose at a meeting and the company's articles contained an Adjournment Resolution Article, it would be a brave chairman who simply proceeded to adjourn in disregard of the obligation to put the proposed adjournment to the members in attendance at the meeting in question.

On a separate but related matter, there is little jurisprudence on the interaction between the Listing Rules and Cayman law but it is clear from the limited case law that does exist that a breach of the Listing Rules (particularly paragraph 13.73) is unlikely to impact on the validity of any resolution passed at a general meeting.¹² Indeed, the Board resisted arguments to supplement Sinovac's constitutional documents by reference to the NASDAQ listing rules stating that its by-laws "cannot have changed as the result of its being listed."¹³

Election of Directors – Express Notice Requirements

With Cayman Listcos, it is common to find an article with imposes an obligation on shareholders to notify the company should they wish to propose any person for election as director at a general meeting (the "Director Election Article").¹⁴

Again, there is very little case law on how this type of provision operates in practice and whether a failure to adhere to the notice requirements set out in a Director Election Article is fatal to the election of the proposed director(s). There is one common law authority, however, which considered the position and held that the failure to adhere to the requirements did debar the proposed directors from election. Obiter comments in the recent China Shanshui judgment suggest that this is the correct position.¹⁵

Could a Cayman-incorporated US Listed Company be Ambushed in this Way?

Again, when considering this issue in the abstract, it is important to note that there is no 'one size fits all' answer. The question can only be determined by reference to the contents of the Cayman Listco's articles of association and what steps the players, particularly the chairman, takes when faced with this scenario at an AGM.

However, the possibility of an ambush occurring is far more likely for a Cayman Listco which is listed on NYSE or NASDAQ, than HKEX. This is because such Cayman Listcos, as foreign issuers, can avail themselves of many exemptions and, accordingly, the articles of association are very much influenced by the wishes of original founder(s) of the company, as opposed to the requirements of any listing rules.¹⁶ Sinovac's by-laws bear very little resemblance to the standard articles of association of a company listed on HKEX and, as a result, provisions, such as the Director Election Article, which may have prevented the strategy deployed in the Sinovac case, were absent.

There is a carve-out to the comment above though – where the founder votes his/her shares in person or by proxy (with such proxy having authority to vote on any new proposals) and the company has adopted a dual-class weighted voting structure,¹⁷ the prospect of such an ambush succeeding is remote, as the founder/his proxy will simply vote down the proposal through the might of his weighted voting rights.

Practical Steps to Consider Now and at Future Annual General Meetings

In light of the Sinovac decision, those advising listed companies should review their articles of association/constitutional documents as follows:

1. The Board suggested that the easiest way to navigate this issue would be an adjournment of the meeting, if the chairman had the power to do so. Advisors should review the relevant listing rules and consider whether the articles of association/constitutional documents may be amended to allow the chairman to unilaterally adjourn the meeting in this type of scenario.

2. Advisors may wish to review the company's articles of association/constitutional documents to ensure that it contains a functioning Director Election Article. If this type of provision is absent, Cayman Listcos should consider amending the articles to include it. Leaving aside the distinction between ordinary business v special business, if shareholders are obliged to give advanced notice of whom they wish to nominate as a director, there can be no 'surprises' at meetings in the future.

Finally, the Sinovac decision illustrates the need to ensure that experienced legal advisors attend at the meeting or are available to advise by phone/electronically at a moment's notice. For Cayman Listcos, these legal advisors should be qualified to advise on Cayman Islands company law and, in particular, the law of company meetings.

Footnotes

1 [2025] UKPC 3.

2 'The Work of the Judicial Committee of the Privy Council', Lord Hodge, Deputy President of the UK Supreme Court, Supreme Court of Brunei Darussalam, 27 February 2025.

3 As at 7 March 2025, approximately 268 Chinese companies were listed on NYSE and NASDAQ: https://www.uscc.gov/sites/default/files/2025-03/Chinese_Companies_Listed_on_US_Stock_Exchanges_03_2025.pdf. Of those 268 companies, 223 (or approximately 83%) were incorporated in the Cayman Islands.

4 See In the Matter of Aubit International (Unreported, 4 October 2023, Doyle J) at paragraph 134 for a discussion the Cayman Islands' majority share of primary listings on HKEX.

5 The rule in Betts v Macnaghten provides that "[w]here shareholders are on notice that the business of an AGM is to include the election of directors, they are taken to have it within their reasonable contemplation that any appointments of directors, within the powers of the shareholders to do so under the company's constitution, might be made..." and "True it is that proxy forms have to be completed, and usually are completed, and then sent off before the meeting, but that was no less true in 1909 than in 2018. The difference between then and now, which supports rather than undermines the reasoning in Betts, is that they had to be hand delivered or posted, whereas now they can be sent, instantaneously, online." See paragraphs 40 and 47 of the Board's judgment.

6 Ibid at paragraph 54.

7 Ibid.

8 See Paragraph 8.14A of the Main Board Listing Rules and Appendix A1 of the Main Board Listing Rules.

9 One which is listed on the Stock Exchange of Hong.

10 The rules require the chairman to adjourn the meeting "or, if that is not permitted by the issuer's constitutional documents, by resolution to that effect..." There is no discussion in the Main Board Listing Rules as to what transpires if the shareholders refuse to pass such a resolution adjourning the meeting.

11 [1990] Ch 170.

12See Oung Shih Hua James v Paladin Limited [2014] SC (Bda) 68 Civ (28 August 2014). While this is a Bermuda judgment, it was delivered by the former Chief Justice Kawaley, who now sits as a Grand Court Judge of the Cayman Islands.

13 Ibid at paragraph 59.

14 Such articles are commonly phrased as follows: "No person shall, unless recommended by the Board, be eligible for election to the office of Director at any general meeting unless during the period, which shall be at least seven days, commencing no earlier than the day after the despatch of the notice of the meeting appointed for such election and ending no later than seven days prior to the date of such meeting, there has been given to the Secretary notice in writing by a member of the Company (not being the person to be proposed), entitled to attend and vote at the meeting for which such notice is given, of his intention to propose such person for election and also notice in writing signed by the person to be proposed of his willingness to be elected."

15 [2025] HKCFI 1868 at paragraph 528.

16 For an interesting discussion of foreign exemptions, see Chang and Burke, Corporate Constitutionalism for Foreign Private Issuers. https://clsbluesky.law.columbia.edu/2025/05/02/corporate-constitutionalism-for-foreign-private-issuers/?amp=1

17 While the Listing Rules do permit weighted voting right structures in HKEX, eligibility is severely restricted, unlike on the US exchanges. See Paragraph 8A.06 of the Listing Rules.

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