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Hong Kong Court of Final Appeal Considers Sufficient Connection to Wind Up a BVI Company on the Just and Equitable Basis

November 2015 Nigel K. Meeson QC

The Hong Kong Court of Final Appeal has given judgment in the Yung Kee restaurant case, a dispute between brothers concerning the operation of a well-known restaurant, club and building in Hong Kong which was owned indirectly through a typical corporate structure for family holdings involving BVI companies. It has reversed the previous findings of both Harris J and the Court of Appeal and held that there was sufficient connection with Hong Kong to wind-up the ultimate BVI holding company on the just and equitable basis.

The relevant company, Yung Kee Holdings Limited, was a holding company for shares in another BVI company, Long Yau, which in turn operated two Hong Kong subsidiaries carrying on business exclusively in Hong Kong. The business had been started by the father, and after his death the two brothers owned 90% of the business with the remaining 10% being owned by their sister. The two brothers had fallen out and the older brother brought proceedings in the Hong Kong court seeking an order that his younger brother buy him out on the ground that the affairs of the company were being carried on in a manner which was unfairly prejudicial to him (section 168A of the Companies Ordinance). In the alternative he sought an order that the company be wound up on the just and equitable ground under section 327(3)(c) of the Ordinance. The Court of Appeal had held neither claim could succeed.

The Court of Final Appeal dismissed his appeal on the unfair prejudice application, agreeing with the court below that the company had not “established a place of business in Hong Kong”. They held that a “place of business” connotes a place where or from which the company either carries on or possibly intends to carry on business. While “business” is not confined to commercial transactions or transactions which create legal obligations, there is no reason to suppose that it covers purely internal organisational changes in the governance of the company itself. The notion that it does, seems to follow from a belief that a company must have a place of business somewhere, but (leaving aside the share transfer and registration office) there is nothing in fact or law which requires a company which does not carry on business at all to have a place of business, and there is nothing strange in finding that such a company has not established one anywhere.

 

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Hong Kong Court of Final Appeal Considers Sufficient Connection to Wind Up a BVI Company on the Just and Equitable Basis

 



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