Lai Chi Keung v. Wang Zhihua and Another

HCCW 186/2013

[2018] HKCFI 867

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 186 OF 2013

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HCCW 187/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 187 OF 2013

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HCCW 188/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 188 OF 2013

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Before: Hon G Lam J in Chambers

Date of Hearing: 28 March 2018

Date of Decision: 28 March 2018

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D E C I S I O N

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1.This is a directions hearing of the three petitions in these three conjoined cases issued pursuant to s 168A and 177(1)(f) of the previous Companies Ordinance, Cap 32.

2.The petitions had come on for trial in July 2016, before Recorder Pow SC.  On the first day of trial, by consent, an order was made as follows:

“Subject to the terms hereinbelow and on a without admission of liability basis, the 1^st Respondent shall purchase the Petitioner’s entire interest in the 2^nd Respondent.”

3.The order then continued to provide that all the other issues, including, inter alia, the purchase price, the number of shares involved, the percentages of shareholding, and other ancillary matters, be adjourned for further argument. 

4.It is now accepted, I believe on all hands, that strictly speaking, the court cannot order one shareholder to buy out the interest of another shareholder in the company under s 168A unless the necessary finding has been made that the affairs of the company have been conducted in a manner unfairly prejudicial to the petitioner. 

5.The court does not have jurisdiction, even by consent, to make an order for the buy‑out of shares in such a petition until it is satisfied that there has been unfairly prejudicial conduct.  See Hollington on Shareholders’ Rights, 8^th edition, at §§ 8‑01 to 8‑08; Re Bird Precision Bellows Limited [1986] Ch 658.

6.It follows, therefore, that even where the parties have agreed that the respondent is to buy out the petitioner, it is usually necessary for the court to come to a determination on the merits of the petition, to the effect that the petition is well‑founded, before the court can make an order for buy‑out under s 168A.  Further, and in any event, a simple, in‑principle agreement for a buy‑out leaves a myriad of matters to be determined which are necessary findings in order to set the parameters and basis of the valuation, so that very often a trial of the allegations in the petition may still be necessary, as recognised by Recorder Patrick Fung SC in Re Astrotech Company Limited (unrep, HCCW 282/2010, 31 January 2013), at §§ 6 to 10. 

7.In the present case, the parties not having been able to agree upon the terms of the buy‑out, it is accepted by all that a trial will in any event be necessary to ascertain whether the petitions are well‑founded and which of the allegations of misconduct are established, which clearly will have a fundamental impact on the value of the shares to be transferred.  In these circumstances, I do not think it is essential to have the consent order set aside, whether by this court if there is jurisdiction to do so, or otherwise, provided it is recognised that the jurisdiction of the court to make an order for buy‑out is circumscribed in the way that I have already described. 

8.The better course, it seems to me, instead of being bogged down on questions of jurisdiction for the consent order, is to have the matter set down for trial as expeditiously as possible, so that the issues that require determination can be resolved sooner rather than later. 

Mr Joshua Choy, instructed by S H Chou & Co, for the petitioner in HCCW 186/2013

Ms Karen Cheung, instructed by Oliver C M Chan & Co, for the petitioners in HCCW 187/2013 and HCCW 188/2013

Mr Lo Ka Chun, of Stevenson, Wong & Co, for the respondents in HCCW 186/2013, HCCW 187/2013 and HCCW 188/2013