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Legal Update

Petitioners Beware: Pleading Winding-up as an Alternative Remedy to Section 168A

7 February 2014
Mayer Brown JSM Legal Update

Did you know that in the recent matter of Chan Kam Cheung v. Sun Light Elastic Ltd & Another1 the petitioner's alternative remedy for winding-up was struck out by the court?

The petitioner and the respondent were shareholders of Sun Light Elastic Ltd (the "Company"). By a petition issued on 21 August 2012, the petitioner sought, as its primary relief, orders pursuant to section 168A of the Companies Ordinance (Cap. 32). Section 168A provides the court with a discretion to grant relief to any member of a company who complains that the affairs of that company are being, or have been, conducted in a manner unfairly prejudicial to the interests of members generally or of some part of the members. This provision is typically used by minority shareholders but has recently been successfully relied upon by a major shareholder of a Hong Kong listed company (see our Legal Update "Major Shareholder Obtains Relief Pursuant to Section 168A" of 20 December 2013).

In this instance, the petitioner sought a buy-out order but also pleaded winding-up as an alternative remedy. As observed by the Honourable Mr. Justice Harris in his decision, the petition "does not explain in what circumstances it is envisaged the court might order a winding-up"2. An application was made by one of the other shareholders of the Company (named as 2nd respondent) for the strike-out of the petitioner's alternative relief on the ground that there was no prospect of this relief being granted.

In agreeing with the 2nd respondent his Lordship made the following observations:

In my view if a winding-up order is to be sought, particularly in the alternative it should only be because the Petitioner has a particular reason for doing so. It is not enough simply to say 'well one never knows what will transpire'. This would be no criteria at all. The Petitioner must be able to point to particular matters he is concerned might make a winding-up order the appropriate or only practical relief…3.

His Lordship explained his reasoning with reference to an earlier decision of his in the matter of Sin Chung Yin Ronald & Ors v. Sinodental Investments Ltd4 in which Mayer Brown JSM acted for the successful applicants in having the petitioners' prayer for winding-up struck out. In that decision, his Lordship said:

21. I think it is appropriate to end with the salutary reminder of Madam Justice Yuen in Re Wong To Yick Wood Lock Ointment Limited [2001] 2 HKC 618 at 623F. There is a Practice Direction in England, (No.1 of 1990) [1990] 1 WLR 490 reminding practitioners of the undesirability of including as a matter of course a prayer for winding up as an alternative to an order under section 459 of the Companies Act (1985) (equivalent to section 168A of the Companies Ordinance) that:

'It should be included only if that is the relief that the petitioner prefers or if it is considered that it may be the only relief to which he is entitled.'

22. It is clear that the prayer for a winding-up order has been included in this case without sufficient thought as to whether or not it is necessary. Practitioners should not automatically include as an alternative relief in a petition presented primarily for relief under section 168A of a prayer for winding up. They should only do so if there is reason to believe that this may be the relief that will be sought at trial, and the facts relied on in forming this view should be set out in the petition and amplified as necessary in the petitioner's evidence filed in support of that petition5.

On the facts of the matter before him, his Lordship formed the view that the "prayer for a winding-up order had not been properly thought through"6 and as a consequence, that prayer was struck out with costs against the petitioner. This decision provides a salutary reminder to petitioners that every prayer for winding-up must be grounded on pertinent facts supporting such relief.

1 [2013] 5 HKLRD 1. 
2 Ibid, 3-4. 
3 Ibid, 6. 
4 HCCW 404 of 2011, (unreported), 16 May 2012. 
5 [2013] 5 HKLRD 1, 6-7. 
6 Ibid, 8.


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