HONG KONG SAR, CHINA Law and Practice Contributed by: George Lamplough, Vanessa Cheng and Curtis Pak, Holman Fenwick Willan
Where both the company and a shareholder have a cause of action arising from the same conduct, but the shareholder’s loss is not a separate and distinct loss and is reflective of the company’s loss, the shareholder is not enti - tled to bring a personal action to recover that reflective loss (Waddington Ltd v Chan Chu Hoo (2008) 11 HKCFAR 370). Common Law Derivative Action Under common law, a shareholder can com - mence a derivative action in relation to a fraud on the company. The shareholder has to estab - lish that: • the wrongdoers have committed fraud on the company “fraud” here is a broader concept than common law fraud, and generally covers conduct where power has been exercised for a purpose beyond the scope of or not justi - fied by the instrument creating the power, such as breaches of fiduciary duties by direc - tors; and • the wrongdoers are in control of the company – the element of control is often stated to be control of voting power in the general meet - ing. Common law derivative action can also be brought when the company has acted ultra vires and the company has not commenced an action. Statutory Derivative Action (Part 14, Division 4, Companies Ordinance) With the permission of the court, a shareholder can commence a statutory derivative action on behalf of the company in respect of misconduct committed against the company, which includes a non-Hong Kong company (Section 732, Com - panies Ordinance). The person bringing the stat - utory derivative action must be a shareholder of the company. “Misconduct” means “fraud, neg -
ligence, breach of duty, or default in compliance with any Ordinance or rule of law” (Section 731, Companies Ordinance). The court may permit the shareholder to com - mence a derivative action if it is satisfied that: • on the face of the application, it appears to be in the company’s interests that leave shall be granted; • there is a serious question to be tried; • the company has not itself brought the pro - ceedings; and • the shareholder has served a written notice on the company (unless the requirement has been dispensed with by the court). A shareholder who wants to commence a statu - tory derivative action on behalf of a foreign com - pany must first satisfy the requirements under the laws of the place of incorporation (if any). In the recent case of Chen Pei Xiong v Convoy Global Holdings Ltd and Forthwise International Ltd [2024] HKCFI 1568, the Court ruled that the Plaintiff did not have standing to bring a statu - tory derivative action in Hong Kong in relation to a BVI company, where he had failed to obtain leave from the BVI Court before commencing the derivative action in Hong Kong. Statutory Injunction (Pt 14, Division 3, Companies Ordinance) Sections 728–730 of the Companies Ordinance allow certain individuals, including shareholders and creditors, the right to seek an injunction to restrain breaches of the Companies Ordinance or breaches of fiduciary duties by directors.
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