Many companies in Hong Kong have adopted (in whole or in part) the provisions of Table A in the First Schedule to the Companies Ordinance (Cap. 32) (“Table A”) as their own articles of association. This is often the case particularly in respect of “shelf” companies, as Table A provides a ready-made set of Articles for Hong Kong companies to adopt.

Table A includes provisions governing the manner in which shareholders meetings take place. One of these provisions (Article 56), states that:-

“… if within half an hour from the time appointed for the meeting a quorum is not present, the meeting… shall be dissolved… and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the members (emphasis added) present shall be a quorum.” (“Article 56”)

However, the highlighted wording raises questions in a deadlock situation where only a single member is willing to be present at a shareholders meeting.

These questions were examined in the recent Hong Kong case of Re China Star Enterprise Limited [2013] 5 HKLRD 271 where it was held that, in the context of Article 56, “members” could be construed in the singular.

The Facts

X and Y were the only members and directors of the Company which had adopted (in part) the provisions of Table A for its articles. X and Y held 60% and 40% of the Company’s shares (respectively).

X gave notice to convene an extraordinary general meeting pursuant to Regulation of 56 of Table A. Only X attended and the company deemed that a quorum had not been establish so the meeting was adjourned for a week pursuant to Article 56. Again, only X had attended and he then passed a resolution appointing his son as an additional director of the company (“the Resolution”).

X then applied to the Court for a declaration that the Resolution was effective and valid. The lower Court granted the application. Y then appealed.

Counsel for Y argued that prior to the amendment of Article 56 in 1984, the intention of the legislature was clear in that at least two (2) members must be present as the quorum requirement was then three (3) members. The legislature did not specify “member or members” in the 1984 and this was deliberate. This showed that the legislature did not intend for a one member quorum when the company had two (2) or more members.

The Court’s Decision

After trial, the Court rejected Y’s arguments and held that “members” in the context of Article 56 could be construed in the singular.

Although the Court acknowledged that at common law, a meeting generally means the “coming together of more than one (1) person” this is not an absolute rule. A classic exception of this is where a company has only a sole director.

Furthermore, under section 7 of the General Clauses and Interpretation Ordinance (Cap. 1) (“Section 7”), it provides that “words in the plural include the singular”. The Court could not find any contrary intention in Article 56 or in the Ordinance which precludes the application of Section 7.

The Court’s decision shows that such provisions will be interpreted with a degree of flexibility, and commercial mindedness, to allow a company to carry on its business with relative ease.

Our Views

In the view of cases such as the above, we do suggest that careful attention be paid to the wording of articles so as to avoid any unwanted deadlock situations.

A common misconception is that Table A will no longer apply to those companies whom have adopted it when the new Companies Ordinance (Cap. 622) (“the New Ordinance”) comes into effect on 3rd March 2014. This is not the case as many companies will continue to use Table A as their articles (in so far as they do not contravene the New Ordinance) so this case will have relevance on an ongoing basis. Companies seeking to adopt the prescribed Model Articles under the New Ordinance will have to take positive action to do so.

 

 
For more information on M&A and Commercial matters, please contact:-

Chris Gordon | cgordon@robertsonshk.com | +852 2861 8413
Chris Lambert | clambert@robertsonshk.com | +852 2861 8417
Jennifer Wong | jwong@robertsonshk.com | +852 2861 8318