Read the full judgment text of CACV 560/2020 on BabelCite. This Court of Appeal judgment was delivered on 23 November 2020 before Kwan VP, Yuen JA and Barma JA.
Civil law – company law – scheme of arrangement – privatisation – Companies Ordinance (Cap 622) ss 670, 671, 673, 674 – takeover offer – headcount test – negative 10% test – adequacy of composite document – informed decision by scheme shareholders – The petitioner, Allied Properties (H.K.) Limited (the Company), is a Hong Kong-incorporated company listed on the Main Board of HKEx since 1981 and a subsidiary of Allied Group Limited (AGL). Sunhill Investments Limited, a wholly-owned subsidiary of AGL and the Offeror, proposed to privatise the Company by way of a scheme of arrangement under which Scheme Shareholders would receive HK$1.92 per share, comprising HK$0.42 as Scheme Consideration from the Offeror and HK$1.50 as a Special Dividend from the Company's reserves, with the Offeror and Offeror Concert Parties waiving their entitlement to the Special Dividend. AGL and its three wholly-owned subsidiaries held approximately 74.996% of the Company's shares, with the remaining 25.004% held by Scheme Shareholders. The Company issued an ex parte Originating Summons in HCMP 657/2020 for directions to convene a court meeting; directions were given on 15 June 2020. At the Court Meeting on 15 July 2020, 46 Scheme Shareholders voted in favour and 21 voted against, with over 99% of the Scheme Shares held by Scheme Shareholders present and voting cast in favour. The Company then petitioned in HCMP 1033/2020 for sanction of the Scheme and confirmation of the Reduction of Capital. Linda Chan J dismissed the petition on 9 October 2020, primarily on the basis of concerns about the headcount test and the adequacy of the Composite Document. The Company appealed. First issue: whether the headcount test under section 674(1)(c)(ii) applies to a scheme involving a takeover offer. Holding: No; where a scheme involves a takeover offer within section 674(5), the headcount test is replaced by the negative 10% test under section 674(2), which requires that votes cast against the scheme do not exceed 10% of the total voting rights attached to all disinterested shares. The judge erred in considering whether the headcount test was met; on the evidence, both the 75% majority in value test and the negative 10% test were satisfied, and there was no jurisdictional obstacle to sanctioning the Scheme. Second issue: whether the Composite Document provided sufficient information to enable Scheme Shareholders to make an informed decision. Holding: Yes; the Composite Document provided sufficient information. The Explanatory Statement clearly stated that the Scheme and Special Dividend were inter-conditional and that, if the Scheme were not approved, the Company would revert to its existing dividend policy. The judge's hypothesis that the Company would likely use the Relevant Reserve to pay a dividend of HK$0.375 per share to all shareholders if the Scheme fell through was illegitimate, as it contradicted the Composite Document and substituted the court's view of dividend policy for that of the directors. The court will not second-guess the directors' commercial judgment on dividend policy. The Scheme Shareholders had all the information they needed to make an informed decision. The court allowed the appeal, sanctioned the Scheme, and confirmed the Reduction of Capital, being satisfied that the statutory requirements for sanction were met and that the fairness test was satisfied, as an intelligent and honest person acting in respect of his interest might reasonably approve the Scheme. The court was slow to differ from the majority views of Scheme Shareholders on commercial matters.
Legal issues: Whether headcount test or negative 10% test applies to scheme involving takeover offer · Adequacy of Composite Document for informed voting by Scheme Shareholders
Outcome: Appeal allowed; Scheme sanctioned and Reduction of Capital confirmed.
Cited by 15 cases · Cites 1 case