Read the full judgment text of HCA 1496/2017 on BabelCite. This Court of First Instance judgment was delivered on 31 August 2017 before B Chu J.
Civil law – company law – derivative action – interlocutory injunction – balance of convenience – alleged fraudulent conspiracy to seize control of listed company – Requisition of EGM – challenge to validity of share placements and Disputed EGM Resolutions – cross-summons to restrain plaintiff from acting on behalf of company – production summons for company documents. The Plaintiffs brought a derivative action on behalf of Aeso Holding Limited challenging the acquisition of shares by W&Q Investment Limited and Defendants 5-9 ('Requisitionists'), the validity of an EGM held on 12 June 2017 ('Disputed EGM'), and resolutions purportedly passed thereat – The Company was listed on the GEM Board in January 2017, with Acropolis Limited (1st Plaintiff) holding 38.25% and W&Q (controlled by Wilson Liu) holding 36.75% – the Requisitionists, holding 10.825% of shares placed through Cinda, requisitioned the Disputed EGM three months after listing to remove all incumbent directors and appoint 5 new directors – the Disputed EGM was held amid chaotic circumstances including a typhoon and conflicting announcements, with the Disputed EGM Resolutions purportedly passed to appoint the New Board. Whether the Plaintiffs established a serious issue to be tried on allegations that the Requisition was a device in a fraudulent scheme to seize control of the Company and the share placements to the Placees were sham transactions – held: yes, the evidence overwhelmingly pointed towards the Requisition being a fraudulent device under s 317 of the SFO. Whether the balance of convenience favored granting the Injunction Summons to restrain reliance on the Disputed EGM Resolutions – held: yes, applying a forward-looking approach as in Re Birmingham International Holdings Limited, the interests of the Company's only operating subsidiary (Aeso HK, a fitting-out and renovation business) and the fact that the Disputed INEDs did not oppose the relief supported granting the injunction – distinguished Mission Capital v Sinclair on the basis that the present case involved allegations going to the root of the EGM's validity and the orders were prohibitory – considered King Pacific International Holdings Ltd where injunctions were granted to restrain warring camps of directors. Whether to grant the Cross Summons by W&Q to restrain Jones Chan from acting on behalf of the Group – held: no, dismissed. Whether to grant the Production Summons for company documents – held: documents for operating the Company (reason ii) no longer needed in light of injunction orders; financial documents (reason iii) to be released directly to auditors. The Court relied on the SVAL Reports showing connections between Liu's Camp and the Requisitionists through Cyril Cheung and PINS, the inconsistent explanations of the Requisitionists and their advisor Warren Lee of Yu Ming, the affidavit of Howe of Anglo Chinese concluding the Requisition was a fraudulent device under s 317 of the SFO, and the timing of share transfers from CCASS to control voting at the EGM – also considered Music Advance Ltd v Incorporated Owners of Argyle Centre on the lower risk of injustice test. Orders: leave to add D15 (Aeschylus Limited) and D16 (Aeso Limited) to the writ – restrain D1-D4, D10-D12, D14-D16 from relying on the Disputed EGM Resolutions and board resolutions made in reliance thereof, save for defending HCMP 1647/2017 (including the Receivership Summons) and continuing HCA 1737/2017 – leave to serve out of jurisdiction on D1 and D15 – liberty to apply – speedy trial ordered – costs of the Injunction Summons and Cross Summons to be in the cause (order nisi to be made absolute after 21 days).
Legal issues: Serious issue to be tried on alleged fraudulent conspiracy · Balance of convenience for Injunction Summons · Cross Summons to restrain Jones Chan · Production Summons for company documents
Outcome: Injunction Summons granted in part restraining D1-D4, D10-D12 and D14-D16 from relying on the Disputed EGM Resolutions and the New Board's resolutions, with limited exceptions for the Receivership Summons defence and HCA 1737/2017. Cross Summons dismissed. Production Summons to be argued further if parties so wish. Leave granted to add D15 (Aeschylus Limited) and D16 (Aeso Limited) to the writ.
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