Read the full judgment text of HCMP 125/2015 on BabelCite. This Court of First Instance judgment was delivered on 5 June 2015 before Harris J.
Company law – inspection of company records – section 740 of the Companies Ordinance (Cap 622) – shareholders representing 2.5% of voting rights – good faith and proper purpose – proposed subscription of 222 million new shares (9.53% of issued capital) by The Bank of East Asia, Limited ("BEA") to Sumitomo Mitsui Banking Corporation ("SMBC") – Elliott group of hedge funds holding approximately 2.5% of BEA's capital (worth about HK$1.8 billion) seeking disclosure of documents relating to the placement – whether the application was made in good faith and for a proper purpose – whether directors' fiduciary duties required consideration of shareholders' interests in approving the placement – whether the placement was for a proper purpose or to entrench the Li Family's control of BEA – whether the board's process in approving the placement in September 2014 was adequate – board of 18 directors, including 3 executive directors (Sir David Li and his 2 sons) and 4 Li Family non-executive directors – memorandum of 1 September 2014 signed by all directors without holding a board meeting – retention of Goldman Sachs only after Elliott's objections – board's reaffirmation of the placement in January 2015 – completion of the subscription on 27 March 2015 – whether completion of the placement renders the application futile – whether confidentiality concerns warrant refusing inspection – whether the recent acquisition of shares by the Plaintiffs undermines the application – whether directors, when exercising their power to issue new shares, owe a fiduciary obligation to have regard to the interests of shareholders and to act fairly between different groups of shareholders (yes) – held, the Plaintiffs established a proper purpose under section 740 – the application was brought in good faith, given the substantial economic interest of the Elliott group – confidentiality concerns addressed by undertakings as to use rather than refusal of inspection – completion of the subscription does not preclude a proper purpose for inspection, as a declaration regarding breach of fiduciary duty could still be sought – directors' fiduciary duty extends to having regard to shareholders' interests when issuing shares (following Howard Smith Ltd v Ampol Petroleum Ltd and Passport Special Opportunities Master Fund LP v Esun Holdings Ltd) – the manner in which the board dealt with the placement in September 2014 was unsatisfactory, with inadequate information and no meeting – application against individual directors (2nd to 19th Defendants) falls away as they have no documents in category 6 – order nisi that the costs of the application be paid by the Defendants – precise form of order to be agreed between the parties or relisted.
Legal issues: Proper purpose for inspection of company records under s.740 Companies Ordinance · Good faith requirement under s.740 Companies Ordinance · Confidentiality as discretionary bar to inspection under s.740 · Futility of inspection after completion of placement · Directors' fiduciary duty to consider shareholder interests when issuing shares
Outcome: Application granted in part; the court was satisfied that the Plaintiffs had established a proper purpose and good faith under section 740 of the Companies Ordinance. The application against the 2nd to 19th Defendants (individual directors) fell away as they did not have the category 6 documents sought. The remaining categories of documents required refinement of the precise form of order sought.
Cited by 6 cases · Cites 2 cases