hong kong court jurisdiction

Topics: Shareholder Pages: 9 (1743 words) Published: October 10, 2013
Number 1426

12 November 2012

Client Alert
Latham & Watkins
Litigation Department

Jurisdiction of the Hong Kong Courts re
Winding Up and Unfair Prejudice Petitions
— Are Offshore Companies Safe?
Hong Kong law contains a number of provisions designed to protect the interests of minority shareholders, including the “unfair prejudice” remedies under section 168A of the Companies Ordinance (the Ordinance) and the Ordinance’s “just and equitable” winding-up provisions. These protections can, in some cases, also be invoked by shareholders of non-Hong Kong companies. However, as the Hong Kong Court’s recent judgment in Re Yung Kee Holdings Limited1 demonstrates, a minority shareholder of a non-Hong Kong company would be wise to proceed cautiously before seeking to avail itself of these provisions.

“A minority
shareholder of
a non-Hong
Kong company
would be wise to
proceed cautiously
before seeking to
avail itself of the
‘unfair prejudice’
remedies and
the ‘just and
equitable’
winding-up
provisions under
the Companies
Ordinance.”

This Client Alert analyses the circumstances in which the Hong Kong Court might allow minority shareholders of non-Hong Kong companies to make use of these protections, following the Re Yung Kee Judgment.

Background
The Yung Kee restaurant is a well-known icon in Hong Kong, visited by many locals on a regular basis, and seen as an enticing pit stop for tourists, who come to savour its famous roasted goose. As are many businesses in Hong Kong it is family owned, having been established by a Mr. Kam in the early 1930s. Over the years the business (the restaurant, associated businesses and property) became very valuable. Upon his death in 2004, ownership of the business was divided amongst Mr. Kam’s family members.

Unfortunately, disputes arose. Ultimately one of the family members (the minority shareholder, Kam Kwan Sing) (the Petitioner) determined to use the Hong Kong law provisions referred to above and petitioned to wind up the ultimate holding company (Yung Kee) in Hong Kong, unless his brother (the majority shareholder) bought his 45 percent stake or sold him his 55 percent share. The Petitioner’s primary claim was that the affairs of Yung Kee (which was incorporated in BVI) had been conducted in a manner unfairly prejudicial to him as a member.

On 31 October 2012, the Hong Kong Court dismissed the petition holding that it had no jurisdiction to make a buy-out/sell-out order in favour of the Petitioner, because Yung Kee had not established a place of business in Hong Kong; nor did it have jurisdiction to wind up Yung Kee, since Yung Kee did not have a sufficient connection with Hong Kong. The basis for these decisions is outlined on the following page.

Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with affiliated limited liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and as affiliated partnerships conducting the practice in Hong Kong and Japan. Latham & Watkins practices in Saudi Arabia in association with the Law Office of Salman M. Al-Sudairi. In Qatar, Latham & Watkins LLP is licensed by the Qatar Financial Centre Authority. Under New York’s Code of Professional Responsibility, portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York’s Disciplinary Rules to Latham & Watkins LLP, 885 Third Avenue, New York, NY 10022-4834, Phone: +1.212.906.1200. © Copyright 2012 Latham & Watkins. All Rights Reserved.

Latham & Watkins | Client Alert

Unfair Prejudice and Buy-out/Sell-out Order: Place of
Business in Hong Kong
Section 168A applies to “specified corporations”. This is defined to include a “nonHong Kong company”, which is a company...
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