Sep 2024
On 15 May 2024, the Bermuda Court granted an order striking out a winding-up petition (the “Petition”), setting aside an earlier order appointing joint provisional liquidators (“JPLs”), and discharging the JPLs appointed over New Sparkle Roll International Group Limited (the “Company”), a Bermuda company listed on the Hong Kong Stock Exchange. The Company’s new board of directors (the “New Board”) was represented by Conyers.
Background
The Company is a holding company for various subsidiary operating entities in the distribution of luxury goods and automobiles and property management services, predominantly based in Hong Kong and Mainland China. The Company is solvent but its largest shareholder, Mr Sze (“Sze”) believed it to be under performing. He therefore sought and obtained majority control of the Company (along with certain concert parties) to replace the former directors (the “Former Directors”). Sze was accused of obtaining his controlling interest via unlawful means (the “Shareholder Allegations”) and, based on those allegations, the Former Directors sought to prevent Sze from exercising his rights as a shareholder. However, all of the Shareholder Allegations were raised by the Former Directors only after Sze requisitioned a special general meeting (the “SGM”) for the purpose of removing and replacing the Former Directors. On 12 April 2024, Linda Chan J granted an injunction in favour of Sze, enjoining the Former Directors personally from, amongst other things, interfering with the shareholder votes (the “HK Injunction”).
The Company’s Former Directors initiated the Petition in Bermuda three days after the HK Injunction was made. The Petition was presented on 15 April 2024, and the Appointment Order was obtained on the same day. The Company’s New Board challenged both the Petition and the Appointment Order.
The New Board’s Main Arguments
The primary legal arguments presented include the assertion that the Petition was not duly authorised by the members in a general meeting, rendering it invalid, as the Former Directors lacked the authority to initiate it without a special resolution. Furthermore, it was argued that the Former Directors pursued the Petition and Appointment Order with the improper purpose of preventing Sze from exercising his rights to replace the Board, which constitutes an abuse of power. This action was characterised as an abuse of process, especially given that the Former Directors were enjoined from interfering with the SGM where Sze was to vote. Additionally, the Petition was criticised for being defective, as it failed to adequately state facts justifying a winding-up order and relied on vague references to affidavit evidence. The Former Directors were also accused of failing to provide full and fair disclosure during the ex parte hearing, which is crucial for such applications. Lastly, the claim of urgency for the appointment of JPLs was challenged, with evidence suggesting that preparations had begun well before the alleged urgent hearing, undermining the necessity for immediate action. These arguments collectively sought to dismiss the Petition and set aside the Appointment Order.
The Outcome
The Court accepted the legal arguments presented by Conyers on behalf of the New Board, granting the order to strike out the Petition, set aside the Appointment Order, and discharge the JPLs. Subsequently, on 9 August 2024, the Court issued a further order addressing costs and future proceedings related to the case.
These proceedings underscore the crucial role of the Bermuda Court in respecting Hong Kong proceedings and endorsing the HK injunction. The decision also emphasises the commitment to safeguarding shareholders’ rights, demonstrating that the judiciary plays an essential part in maintaining corporate governance standards and ensuring fair treatment for all stakeholders involved.