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25 March 2019 | by LexisNexis Hong Kong

In the case of Yeung Bing Kwong Kenneth v Mount Oscar Ltd [2018] HKCU 4503, the Court of First Instance held that a Hong Kong company is not required to give any reasons for the removal of a director.

The applicant was a director who complained against his company, for the company refused to provide him with the reasons for his removal despite repeated requests. The applicant brought an action in court seeking:

(i) a declaration that the ordinary resolution passed to remove him as director is invalid or otherwise null and void, and

(ii) an injunction to restrain the company from implementing or otherwise acting upon the resolution.

The applicant argued that, as a matter of statutory interpretation, the board was required to give reasons for removal of a director and it should be read into section 463 of the Companies Ordinance by necessary implication. The applicant also argued that he had not been given a real, genuine or reasonable opportunity to make meaningful representations for himself as the reasons for his removal were not provided.

The court disagreed and rejected the applicant’s argument after considering the legal principle in a UK case, R (Morgan Grenfell) v Special Commissioner of Income Tax [2002] 2 WLR 1299, which differentiates between a necessary implication and a reasonable or sensible implication. The court held that it is not enough for the applicant to show that the additional requirement is reasonable, sensible or, if the Legislature had thought about it, would probably have included this requirement into section 463. Therefore, the applicant must show it is clear from the express language of section 463 that the additional requirement must have been included.

The threshold for reading in additional requirement by necessary implication is very high. In the court’s view, the applicant had not even come close to reaching the high threshold required for including the additional requirement of giving reasons to him as an affected director by way of necessary implication under the Companies Ordinance.

The court will not interfere with the internal management of companies acting within their powers and in fact has no jurisdiction to do so. The applicant’s claim was therefore dismissed.

For more information on company law, please see:

Butterworths Hong Kong Company Law Handbook – 20th Edition

Butterworths Hong Kong Company Law (Winding Up and Miscellaneous Provisions) Handbook – Third Edition

Gore-Browne on Companies

Company Law: Powers and Accountability – Second Edition

Hong Kong Company Law: Legislation and Commentary

Hong Kong Corporate Law

Lexis® Practical Guidance Hong Kong – Corporate

The Annotated Ordinances of Hong Kong – Companies Ordinance (Cap 622)

The Annotated Ordinances of Hong Kong – Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32)

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