Zhang Allie v. Kim David Nam and Others

HCMP 1645/2024

[2025] HKCFI 1471

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1645 OF 2024

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D E C I S I O N

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1.This is the application of Zhang Allie (“P”) by originating summons filed on 30 August 2024 (“OS”) seeking, inter alia, (1) a declaration that the documents submitted for filing on 10 July 2023 and 9 July 2024 (the “Documents”) with the Companies Registry (“CR”) in respect of the Company, the 2^nd defendant, set out in the Schedule to the OS are null and void; (2) a declaration that P has been and remains a director of the Company and other consequential relief. At the conclusion of the hearing, the Decision was reserved which I now give.

Relevant background

2.P and Kim David Nam (“D1”) are the only directors and shareholders of the Company, with each owning 50% of the shares in the Company which they co-founded in Hong Kong on 14 May 2021.

3.Some 18 months later, P and D1 had a disagreement over the management of the business involving a Seychelles company known as Neural Data Technologies Ltd which they also jointly owned. That led to P intending to disassociate herself from D1.

4.Before turning to the chronology of events, it is relevant to mention that the outcome of the present application will have implications for the ongoing US litigation between the Company and, inter alia, P.

5.In the event of D1 succeeding in this application, the US Court would regard D1 as the sole director. If P were to succeed in this application, she would be able to apply to the US Court to dismiss the entire US action.

Chronology of events

6.On 23 June 2023, P sent an email addressed to the Company at its registered address but sent to D1 (the “23 June email”) with a copy to Carmen Cho, the company secretary. The email read:

“David

I am writing to formally resign from my position as CEO and Director of [the Company], effective immediately.

I would like to express my sincere thanks for the opportunity to work with and learn from you.

Sincerely,

Allie Zhang”

7.On the same day, P (as the counterparty to a consulting agreement dated 5 July 2021 with the Company) sent an email to herself requesting an immediate termination of the consulting agreement instead of having to give 30 days’ notice together with a reply from the Company agreeing to P’s proposed amendment.

8.On the following day, 24 June 2023, D1 sent an email to P (the “24 June email”):

“Hi Allie,

I cannot accept your resignation at this time. For starters, consider handing over all the accounts you have admin access to. Also, approving your resignation via your company account and email account is not an acceptable form of approval. There is something called segregation of duties in basic business law and principles.

Accounts you are admin/owner:

[9 accounts were listed]

You may transfer these to [email protected] or [email protected] depending on domain.

Otherwise, if you choose to continue to keep these accounts owned by the company’s hostage, please prepare to receive legal action for every day in passing, shortly.

Note that despite your public resignation statement, on paper, you still currently hold a director title at both companies until legally.

Lastly, although you provide a statement of resignation, you failed to state whether you are giving up your shares and if so, at what price. If your intention is to give up all your shares without profit, there needs to be a dollar account attached to it so I suggest you provide a written a (sic) statement selling your all your shares $1.

Regards,

David”

9.It is P’s evidence[1] that sometime in late June 2023 D1 notified HSBC that P was no longer a director and authorised signatory of the Company.

10.On 29 June 2023, EllaLan (solicitors for the Company) wrote to P complaining of wrongful acts, more particularly, that on the day P tendered her resignation, she wrongfully retained sole custody of assets over which the Company had proprietary rights (the “Assets”) and, in section D of the letter, demanded, inter alia, delivery up of the Assets within 7 days.

11.On 4 July 2023, D1 signed a Form ND2A on behalf of the Company giving notice of P’s resignation on 23 June 2023. The Form ND2A exhibited bears a stamped receipt of the Companies Registry (“CR”) dated 10 July 2023.

12.On 7 July 2023, P sent an email to D1 in the following terms[2]:

“I confirm that I am still a director of [the Company].”

13.When P became aware[3] of the filing of Form ND2A on 10 July 2023, she caused her solicitors to write to the CR on 24 July 2023 alleging that its contents (that P resigned on 23 June 2023) are “totally untruthful, misleading or even fraudulent.” P requested the CR to remove the Form ND2A within 7 days.

14.In its reply of 19 August 2024, the CR noted that having regard the relevant provisions for resignation of directors (being section 464 of the Companies Ordinance, Cap 622 (the “Ordinance”) and article 22 (d) of the Company’s Articles of Association (“AOA”)), a director ceases to be a director upon giving notice of resignation. There is no requirement or pre-condition for the resignation to be accepted by the Company before it becomes effective.

15.Meanwhile, on 26 July 2023, P’s solicitors replied to EllaLan’s letter of 29 June 2023 which, inter alia, asserted that as no board meetings have been convened nor board resolutions passed to accept P’s “intended resignation”, P continues to be a director of the Company.

16.Pausing here, it is wrong to characterise the 23 June email as about P’s “intended resignation”: the 23 June email stated in no uncertain terms that P’s resignation was “effective immediately”.

17.On 9 July 2024, D1 filed Form NAR1 on behalf of the Company.

Legal principles

18.Section 464 of the Ordinance governs the resignation of directors. In pertinent part, it provides as follows:

“464. Resignation of director

(1) A director of a company may, unless it is otherwise provided in the articles of the company or by any agreement with the company, resign as director at any time.

...

(5) If notice of the resignation of a director of a company is required to be given by the articles of the company or by any agreement with the company, the resignation does not have effect unless the director gives notice in writing of the resignation –

(a) in accordance with the requirement;

(b) by leaving it at the registered office of the company; or

(c) by sending it to the company in hard copy form or in electronic form.”

19.Pursuant to §2(4)(b) of the Ordinance, electronic form would include any documents sent by electronic means:-

“(4) For the purposes of this Ordinance –

(a) document or information is sent or supplied in hard copy form if it is sent or supplied –

(i) in paper form; or

(ii) in a similar form capable of being read;

(b) a document of information is sent or supplied in electronic form if it is sent or supplied –

(i) by electronic means; or

(ii) by any other means while in the form of an electronic record; and

(c) a document or information is sent or supplied by electronic means if it is sent or supplied in the form of an electronic record to an information system.”

20.Article 22 of the Company’s articles provides:

“Termination of director’s appointment

A person ceases to be a director if the person –

...

(d) resigns the office of director by notice in writing of the resignation in accordance with section 464 (5) of the Ordinance;

… ”

21.The following passage from Halsbury’s Laws of Hong Kong (at §95.0702) conveniently encapsulates the legal position in relation to the resignation of company directors:

“A director can resign at any time, unless it is otherwise provided in the articles of the company or by agreement with the company. Where notice of the resignation of a director of a company is required to be given by the articles of the company or by any agreement with the company, the resignation has no effect unless the director gives notice in writing either in accordance with such requirement or by sending it by post to, or by leaving it at, the registered office of the company, or by sending it to the company in hard copy form or in electronic form. A resignation once tendered cannot be withdrawn, except with the consent of the company.”

22.As regards the withdrawal of the resignation, the position stated in Halsbury is based on Glossop v Glossop [1907] 2 Ch 370 where Neville J opined (at pp. 374-375) that once a director has given proper notice of his resignation of his office, he is not entitled to withdraw that notice. If it is withdrawn, it must be by the consent of the company properly exercised by the directors of the company.

The issue

23.The issue for determination is whether P remains a director of the Company. That involves determining

(i)  whether the 23 June email which was addressed to the Company took immediate effect when it was sent; and, if so,

(ii)  whether the 24 June email and/or the 7 July email reversed or nullified the effect of the 23 June email.

24.As to (i) above, reading section 464 (1) of the Ordinance together with Article 22 (d), the legal position is clear. Upon sending the 23 June email, P ceased to be a director of the Company with immediate effect[4].

25.P did not attempt to grapple head-on with the clear legal effect of section 464 (1) of the Ordinance and Article 22 (d). Rather, Mr Sunny Chan, counsel for P, submits that if the 3 emails, namely, those of 23 June, 24 June and 7 July are read together, by 7 July the consensus of the directors and shareholders of the Company (i.e. P and D1) is that P remains a director. He relies heavily on the fact that P and D1 are the only shareholders and directors of the Company.

26.P cites no authority for adopting an approach that depends on subsequent events that may or may not occur. This ‘wait-and-see approach’ contradicts the clear legal position that in circumstances such as the present, P’s resignation takes immediate effect. It is also objectionable because it is entirely open-ended, creating uncertainty as regards the composition of the board at any particular point in time.

27.P reasons that

(a)  as D1 refused to accept P’s attempt to resign when he sent the 24 June email, in D1’s mind, he wanted P to remain as a director. Given that P and D1 are the only shareholders, it must mean that the shareholders’ consensus by 7 July 2023 is that P remains a director; and

(b)  if D1’s position is that P is no longer a director, he could have written back after receiving the 7 July email stating that P’s resignation was effective or convening a shareholders’ or directors’ meeting to decide the matter.

28.The 1^st reason advanced presupposes that where a company is set up as a quasi-partnership with P and D1 as shareholders and directors, an effective resignation as director requires the consent of the remaining director. However, as no authority was cited in support, there is no valid basis for that premise.

29.There is also no requirement for any board approval or resolution accepting P’s resignation.

30.Implicit in the 2^nd reason is the notion that a resignation that is immediately effective may be withdrawn. But as is clear from the passage cited from Halsbury[5], a resignation once tendered cannot be withdrawn unless P can establish that the withdrawal is with the consent of the Company.

31.Ms Jacqueline K K Chan, counsel for D1 submits that there is no evidence of any consent on the part of the Company. Had the Company consented to P’s withdrawal of her resignation or treated the withdrawal as legally binding, it would not have submitted (i) Form ND2A to the CR for filing on 10 July 2023[6] (giving notice of P’s resignation), and (ii) Form NAR1 on 9 July 2024 reflecting the composition of the board (with D1 being the sole director of the Company). Those matters give rise to an irresistible inference that the Company never consented to the withdrawal of P’s notice of resignation.

32.The fact that in late June D1 notified HSBC that P was no longer a director and authorised signatory of the Company is also significant. It shows that well before 7 July 2023, D1 no longer considered P a director and authorised signatory of the HSBC account.

33.As the 23 June email took immediate effect, D1 as the sole director had full authority to file the Documents on behalf of the Company.

34.Further, while P is eligible for reappointment as a director[7], Article 21 requires an ordinary resolution or by a decision of the directors for reappointment. However, no shareholders’ meetings or board meetings have ever taken place to reappoint P as a director.

35.In so far as P seeks to invoke the Duomatic principle, in Ng Kwok Pui Philip & Ors v To Pui Kui & Ors , CACV 21/2016, CACV 24-29/2016, CAMP 6/2019, unrep., 31 August 2020, the Court of Appeal (at §56.3) cited Neuberger J’s observations made in EIC Services Ltd & Anor v Phipps & Ors [2003] BCC 931 (at [122]) regarding the essence of the Duomatic principle:

“… where the articles of a company require a course to be approved by a group of shareholders at a general meeting that requirement can be avoided if all members of the group, being aware of the relevant facts, either give their approval to that course, or so conduct themselves as to make it inequitable for them to deny that they have given their approval …”

36.D1 submits that for the principle to apply, there must first be a decision which requires approval by shareholders’ meeting as required by the Company’s articles. Article 22 (d) only requires that the notice of resignation be given to the Company in accordance with section 464 (5) of the Ordinance which has been complied with. The AOA did not require that the resignation be approved by a shareholders’ meeting in order to be effective. For that reason, the Duomatic principle is inapplicable.

37.As stated in Palmer’s Company Law, Volume 2 at §7.437, the principle requires that the relevant members must have the appropriate or full knowledge as to what they are assenting. It will not be enough if they are unaware that consent is being sought or that their consent will be significant.

38.The fact that P sent D1 the 7 July email of itself is neither here nor there. Look at objectively, D1 had already revoked P’s authority as an authorised signatory to the Company’s bank account and had also signed Form ND2A on 4 July 2023.

Conclusion

39.I have no hesitation in concluding that P ceased to be a director of the Company upon sending the 23 June email. It follows that the OS falls to be dismissed.

40.Accordingly, I order that the OS be dismissed.

41.I also make an order nisi of costs with certificate for counsel in favour of D1, such costs to be summarily assessed and payable forthwith. Directions for the same will be given when the order nisi becomes absolute.

Mr Sunny Chan, instructed by Franki Ho & Associates, for the Plaintiff

Ms Jacqueline K.K. Chan, instructed by Lee & Chow for the 1^st and 2^nd Defendants

The 3^rd Defendant, attendance be excused