Lam Hau Lok Ivan v. Lam Kit Yee Vanessa and Another
Read the full judgment text of HCMP 1408/2024 on BabelCite. This High Court CFI judgment was delivered on 16 May 2025.
1. This is the Plaintiff’s application by way of Originating Summons filed on 5 August 2024 for a declaration that the allotment of 24,000,000 Class A shares (the “ Allotted Shares ”) in the 2 nd Defendant (the “ Company ”) to the 1 st Defendant on 2 August 2021 (the “ Allotment ”) as recorded in the Return of Allotment dated 5 August 2021 (the “ Subject NSC1 Form ”) filed with the Companies Registry was void and invalid. The 1 st Defendant opposes the Originating Summons, and the Company remain
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HCMP 1408/2024 [2025] HKCFI 2026 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 1408 OF 2024 __________________
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______________________ D E C I S I O N ______________________ I. INTRODUCTION 1.This is the Plaintiff’s application by way of Originating Summons filed on 5 August 2024 for a declaration that the allotment of 24,000,000 Class A shares (the “Allotted Shares”) in the 2nd Defendant (the “Company”) to the 1st Defendant on 2 August 2021 (the “Allotment”) as recorded in the Return of Allotment dated 5 August 2021 (the “Subject NSC1 Form”) filed with the Companies Registry was void and invalid. The 1st Defendant opposes the Originating Summons, and the Company remains neutral. II. BACKGROUND 2.The Company was incorporated in Hong Kong on 28 July 1978. Before 2011, Lam Wai Ming (“Father”) and Cheung Siu Kiu (“Mother”) were the only registered shareholders of the Company holding Class B Shares therein and owners of the corporate shareholders holding Class A Shares therein. The distinction between Class A Shares and Class B Shares is, in essence, that the dividends on Class A Shares would be larger than Class B Shares, and that Class A-Shares are voting shares while Class B Shares are non-voting shares. The Company was to operate Father’s business and manage Father’s assets. 3.Father and Mother had five children in the following order of seniority:-
4.Prior to the Allotment, the number of Class A Shares was 15,990,000 at HK$1 each (totaling HK$15,990,000), while the number of Class B Shares was 10,000 also at HK$1 each (totaling HK$10,000). 5.The Subject NSC1 Form provides the following information:-
6.A board minutes of the Company (the “Board Allotment Resolution”) related to the Allotment provides as follows:-
7.A members resolution relating to the Allotment (the “Members’ Allotment Resolution”) provides that:-
8.The date of the Board Allotment Resolution and that of the Members’ Allotment Resolution both were 2 August 2021. As at that date (before the Allotment), Father, the Plaintiff and Benjamin were the only directors and live shareholders each holding 25% of the shareholding of the Company, while Mother, in whose name the remaining 25% of the shareholding was registered, passed away on 28 September 2011. 9.On 2 August 2021, at 16:38 the 1st Defendant sent a voice message on Whatsapp to the Plaintiff, saying:-
10.On the same day, at 21:02, the Plaintiff replied, “ok”. III. ALLOTMENT OF SHARES AT A DISCOUNT 11.Article 4(B) of the Articles of Association of the Company provides that:-
12.Although this provision primarily regulates “unissued shares”, the starting proviso “relating to new shares” clearly envisages that there could be “new shares”. “New shares”, by its natural and ordinary meaning, includes any news shares, whether created upon an increase of capital or not, and the word “including” (meaning not exhaustively) reinforces this. 13.Section 57B of the Companies Ordinance (Cap 32) provides that:-
14.Section 50 of the Companies Ordinance (Cap 32) may also be relevant:-
15.However, section 50 of the Companies Ordinance (Cap 32) must be read together with section 135 of the Companies Ordinance (Cap 622), which provides that:-
16.As there is no more nominal or par value, there cannot be discount as such because there is no longer any reference value for a discount. In other words, section 50 of the Companies Ordinance (Cap 32) has no effect in article 4(B) of the Articles of Association. What remains necessary are (1) the members’ approval; and (2) the directors’ approval. 17.It is convenient at this juncture to deal with the submissions of Mr Edward Tang, counsel for the Plaintiff, that section 147 of the Companies Ordinance (Cap 622) is a provision that restricts issuance or allotment of shares at a discount. Section 147 of the Companies Ordinance (Cap 622) provides that:-
18.I disagree with Mr Tang, for the following reasons:-
19.Mr Tang also submits that new shares could only be issued at nil consideration as bonus shares, and bonus shares could be allotted only to existing shareholders. The Allotment was therefore ultra vires. In support of such submissions, he relies on section 170 of the Companies Ordinance (Cap 622). I can agree to the extent that only bonus shares could be issued at nil consideration, but I cannot see anything in the section which would at any rate suggest that bonus shares could be issued to existing shareholders. On this, I raised to Mr Tang that it was common that a company would issue bonus shares to its employees who are not necessarily its existing shareholders. Mr Tang then pointed me to section 280 of the Companies Ordinance (Cap 622) to say that section 280 is a specific provision permitting bonus shares to be issued to non-existing shareholders. Mr Tang’s reliance on section 280 is misplaced. Section 280 is an exemption from prohibition of financial assistance given by the company to acquire the company shares. Section 277(b) makes it clear that the prohibition does not apply to the allotment of bonus shares”. But again, there is no specific mention that bonus shares could only be issued to existing shareholders. In my view, the concerns of the statutory regime are mainly twofold, namely, protection of existing shareholders and protection of outsiders dealing with the company (notably, creditors). If all the existing shareholders agree and there would be no change to the capital to the prejudice of outsiders, I do not see why the Companies Ordinance would not allow issuance or allotment of bonus shares to other persons that existing shareholders. 20.In support this “existing shareholder” submissions, Mr Tang also relies on article 44(b) of the Articles of Association, which provides that the Company may subdivide the existing shares. That article regulates division of existing shares. However, I do not see how that article could prohibit the Company from issuing or allotting bonus shares to other persons than existing shareholders. 21.In the circumstances, I find that the Company could issue bonus shares to other persons than existing shareholders. 22.Mr Tang also relies on articles 42 – 43 of the Articles of Association for his contention that new shares could only be issued upon increase of capital. While these articles regulate the circumstances for issuance and allotment of new shares upon increase of capital, I do not see how these articles could prohibit the Company from issuing or allotting new shares without increase of capital. In the circumstances, I disagree with Mr Tang and find that shares could be without increase of capital. 23.Lastly, Mr Tang also refers me to EIC Services Ltd & Anor v Stephen Phipps [2005] 1 WLR 1377. However, the issue in that case was not a case on whether bonus shares could be issued to other persons than existing shareholders or whether shares could be issued without increase of capital. The issues set out in §16 of that case were focused on the effect of section 35A(1) of the Companies Act 1985 providing for the legal effect of the power of the board where an outsider dealt with the company in food faith. That case does not advance Mr Tang’s position. 24.Following my findings above, what were necessary for the Allotment were a members’ approval and a board approval. IV. RESOLUTIONS BINDING UPON THE PLAINTIFF 25.It is convenient to deal with the Plaintiff’s evidence which appears to suggest that he did not sign the Board Allotment Resolution and the Members’ Board Allotment Resolution. I do not accept such evidence for the following reasons:-
26.The Plaintiff’s evidence also seems to suggest that he sign the documents without knowing or paying attention to the contents. I also do not accept such evidence for the following reasons:-
27.Lastly, the Plaintiff suggests that at the time of the Resolutions, Father was mentally incapable. The burden lies upon the Plaintiff to prove the alleged mental incapability. There is, however, no medical evidence to that effect. The only evidence the Plaintiff relies upon is mainly the 1st Defendant’s report to the Plaintiff about Father’s situation in hospital. Such evidence, when read together with the 1st Defendant’s own evidence and also the evidence of Au Yeung Hung Pan Benes, the bookkeeper of the Company having worked for Father for more than 20 years explaining to the contrary, is nowhere to discharge the Plaintiff’s burden. V. MEETINGS FOR THE RESOLUTIONS 28.In respect of members’ meetings, article 62 of the Articles of Association provides that:-
29.Mr Tang, for the Plaintiff, initially contended that Mother’s estate did not sign on the Members’ Allotment Resolution and therefore it was not a written members’ resolution pursuant to article 62 of the Articles of Association. He rightly did not pursue this point any longer during the hearing. In my view, such contention would be rejected:-
30.In my view, Father, the Plaintiff and Benjamin were all the shareholders for the purpose of article 62 of the Articles of Association. In any event, as to the rights over Mother’s shares, the parties’ dispute is only over who of the Plaintiff, Father or the 1st Defendant could exercise the rights, while the undisputed evidence is that all the other beneficiaries of the Mother’s estate agreed to the Allotment. In the circumstances, assuming in favour of the Plaintiff that he had the right to represent Mother at the time, I would take the Plaintiff’s signature on the Members’ Allotment Resolution as representing consent of the Mother’s estate as well for the purpose of article 62 and if necessary, applying Duomatic principle (the principle being expounded in Ng Kwok Piu Philip and Ors v To Pui Kui and Ors [2020] HKCA 724 at §§21 and 56.1-56.3). 31.Further and in any event, Father, the Plaintiff and Benjamin accounted for 75% of the shareholding. Therefore, as submitted by Mr Martin Ho (leading Mr Adrian Kwan) for the 1st Defendant, even assuming that Mother would somehow still be entitled to vote, by the irregularity principle (summarised by DHCJ Maurellet SC in §§30-33 of Re Paul & Shark Asia Pacific Ltd [2021] 2 HKLRD 1235), no practical difference would result, and thus the Members’ Allotment Resolution would still be valid even if article 62 would not apply. 32.In respect of board meetings, articles 90 – 92 of the Articles of Association provide that:-
33.The Plaintiff contends that there was no physical meeting at the venue as purported in the Board Allotment Resolution because the Plaintiff was at that time not even in Hong Kong. I, however, do not see how this would in any event affect the validity of the Resolution. In any event, at most, this would such an irregularity that the unanimous consent of the board at the Board Allotment Resolution could cure by applying the irregularity principle or the Duomatic principle. 34.Lastly, Mr Tang, for the Plaintiff’s submissions that the Allotment took place before the passing of these Resolutions take the Plaintiff nowhere. It is common that formal resolutions are passed after the act in question is done, and there is nothing wrong in this particularly when the Resolutions passed afterwards are unanimous. I do not see how the Members’ Allotment Resolution could be regarded as ratification that would require informed consent as submitted by Mr Tang. In Mr Tang’s submissions, to constitute an informed consent of the Members’ Allotment Resolution, the Plaintiff must be informed of (1) the purpose of the Allotment being to dilute the existing shareholders’ shareholding to the benefit of the 1st Defendant; (2) the bonus shares being allotted at nil consideration; and (3) the existing shareholders giving up the right to be offered the shares first. Assuming that such information would be required for a proper ratification, in my view, the information on the Board Allotment Resolution and the Members’ Allotment Resolution had already said it all: for (1), the dilution was a simple calculation which Mr Tang had to accept that the Plaintiff could work it out on his own; for (2) the word “bonus” and the absence of any specification of the consideration clearly suggested that the shares were bonus and at nil consideration; and finally for (3), obviously, the Plaintiff knew himself that he had not been offered any such shares first. Therefore, I do not accept Mr Tang’s submissions that the Members’ Allotment Resolution was invalid due to lack of informed consent. VI. IMPROPER PURPOSE 35.Mr Tang, for the Plaintiff, also submits that the Allotment was made for an improper purpose, which was not permitted:-
36.The proposition set out in §(1) above is not a statutory rule. The context is important. The authorities for the proposition cited by Mr Tang are cases of pure commercial context, but I would say that even in commercial context, if all the shareholders unanimously agree (agreeing that their shareholding would be altered), I do not see why the Court would find such allotment invalid. Here, the Board Allotment Resolution and the Members’ Allotment Resolution, all unanimously passed, put the Plaintiff’s ground to rest. 37.In any event, as emphasised by Mr Ho, for the 1st Defendant, the present context is a family context, not a pure commercial context. In such a context, the best interest of the company is determined by the family: see Tam Po Kei v Tam Bo Kin [2012] 2 HKLRD 1227 at §46. In the present case, the evidence is overwhelming that Father had the final say. Given that Father, the Plaintiff and Benjamin all consented to the Allotment, I do not see why in such context, the purpose, be it to re-distribute the assets held by the Company to the 1st Defendant, to dilute the existing shareholders’ shareholding or otherwise, would be improper. VII. CONCLUSION 38.Therefore, I dismiss the Originating Summons, and order that the Plaintiff do pay the 1st Defendant costs thereof forthwith, summarily assessed at HK$485,000 (with a discount to reflect failure to comply with PD 14.3 already applied). 39.It remains for me to thank counsel for their assistance.
Mr Edward Tang, instructed by H.M. Tsang & Co., for the Plaintiff Mr Martin Ho and Mr Adrian Kwan, instructed by Sit, Fung, Kwong & Shum, for the 1st Defendant The 2nd Defendant was not represented and did not appear | |||||||||||||||||||||||||
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