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Just & equitable winding up – a higher threshold than unfair prejudice

In ACE International (B.V.I.) Limited [2020] HKCFI 498 Mr Justice Jonathan Harris of the Hong Kong Court of First Instance held that if a company is incorporated in a jurisdiction such as the BVI, which has a similar unfair prejudice regime to Hong Kong, and the company does not have a place of business in Hong Kong generally, the dispute between shareholders should be litigated in the place of incorporation, because the petitioner is behaving unreasonably in seeking exclusively a just and equitable winding up.

The requirements for the Court to exercise jurisdiction over a foreign company were determined by the Court of Final Appeal in the Yung Kee case (FACV 4/2015) which held that in order to obtain unfair prejudice relief the foreign company must have an established a place of business in Hong Kong. Our blog on Yung Kee is available here.

The petitioners were unable to issue unfair prejudice proceedings in Hong Kong since ACE had no place of business in Hong Kong. The Court considered whether it was unreasonable for the petitioners to have issued a just and equitable winding up petition exclusively in Hong Kong whilst leaving the door open to issuing unfair prejudice proceedings in the BVI, and in turn whether this was a further factor to take into account when determining whether to exercise its jurisdiction over a foreign company. 

The Court concluded that a petitioner should be required to litigate his complaint in the place of incorporation of the company unless there was some compelling reason not to and that it would be unreasonable and inconsistent with the philosophy underlying Hong Kong law for a shareholder of a foreign company to insist on seeking relief in Hong Kong if the same relief were available in the Company’s jurisdiction of incorporation. Ultimately the petitioner undertook not to seek relief in the BVI should its petition to wind up on the just and equitable ground fail in Hong Kong.

It remains to be seen why any plaintiff would seek to limit itself to a just and equitable winding up, a notoriously higher standard than the more modern unfair prejudice test. The unfair prejudice regime was introduced in England by the Companies Act 1980 precisely because the threshold for relief was simply too high – behaviour being so bad that only the extreme step of a winding up would do. Parliament determined that minority shareholders were not being adequately protected under the just and equitable (and oppression) regime.

Just & equitable winding up – a higher threshold than unfair prejudice

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