SHAREHOLDERS' RIGHTS (PART III) - MINORITY SHAREHOLDERS' PROTECTION


Section 168A of the Companies Ordinance, the Court can order the buyout of the minority shareholders.  In more drastic cases, the Court may even order the wind-up of the company.  These are very powerful weapons for the aggrieved minority shareholders.


Section 168A provides, inter alia, that :-


"Any member of a specified corporation who complains that the affairs of the specified corporation are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally or of some part of the members (including himself) or,…… the Finical Secretary, may make an application to the Court by petition for an order under this section. ……. whether or not such conduct consists of an isolated act or a series of acts."


In order to make out a claim under this Section, the petitioner must be able to show to the Court 3 key elements.



  1. "Interests of the members"

To come within Section 168A, the person seeking the protection must be a "member" of the company and the conduct complained of must relate to the conduct of the affair of the company which the petitioner is a member.


So far as the requirement of unfair prejudice is concerned, the conduct complained of must be prejudicial in the sense it causes prejudice or harm to the relevant interest of the members or some of the members.  Such interests cover both legal and equitable interest.



  1. "Conduct of the Company's Affairs"

What amounts to the "conduct of the affairs of the Company" is not clearly defined in the Ordinance.  So one has to look to the case law for clarification.  It has been held by the Court that conduct of a shareholder in his private capacity does not amount to conduct of the company's affairs.  For example, rude and aggressive behaviour of a shareholder towards customers of the company.  On the contrary, where majority shareholders had set up a competing business and deliberately run down the business of the company was held to be "the affairs of the Company".



  1. "Unfair Prejudice"

The conduct complained of must be both "unfair" and "prejudicial" to the minority shareholders.  The unfairness and prejudice must co-exist.  Unfairness may consist of a breach of the rules or in using the rules in a manner which would be seen as contrary to good faith.  Prejudice can be established if the minority shareholder can show that the value of his shareholding has been seriously diminished or put into jeopardy.


 


 


Albert Lam
July 2013