Shareholders’ Remedies

Unfair prejudice petition derivative action winding up

Unfair Prejudice Petition | Derivative Action | Just and Equitable Winding-up

In this current uncertain economic environment, investors may feel frustrated in being repeatedly asked to contribute capital or face dilution.  This is especially the case for minority investors who may have limited rights and/or access to the books and records of the company. 

Set out below is an overview of some of the common methods that a shareholder can seek redress for wrongs committed against the company.

 

Presentation of an unfair prejudice petition

Instituting a derivative action

Petition for winding up on just and equitable grounds

 

Who may claim

An existing shareholder of the company, including

  • personal representative of a deceased member; and
  • trustee and person beneficially interested in the shares of a deceased member

A former shareholder of a company

An existing shareholder of the company or of an associated company of the company

The company

Any creditor or creditors (including any contingent or prospective creditor)

Contributory or contributories (e.g. shareholder)

Trustee in bankruptcy

Personal representative of a contributory

Nature of matters covered

Company’s affairs being conducted in a manner unfairly prejudicial to the interests of the member(s); or

Actual or proposed act or omission of the company being unfairly prejudicial to the interests of member(s)

Examples of such conduct:

  • Exclusion from management 
  • Diversion of corporate opportunity or business from the company
  • Making secret profits
  • Misappropriating the company’s assets
  • Excessive awards to selected fews
  • The company fails to bring proceedings in respect of any matter; or
  • The company fails to continue, discontinue or defend proceedings due to misconduct committed against the company

Misconduct may refer to:

  • Fraud
  • Negligence
  • Breach of duty 
  • Default in compliance with law
  • Loss of substantial business or assets of the company
  • Business of the company is at a loss and its remaining assets are insufficient to pay its debts
  • Deadlock in the management of the company which affects the operation of the company
  • Lack of confidence in the conduct and management of the company’s affairs
  • A director treats its business as his own
  • Directors withhold information from shareholders
  • Misconduct of directors
  • Improprieties in management

If you wish to know more about how we can help or any issues raised in this article or more information, please contact: 

Alfred Leung, partner (alfredleung@hkytl.com)

Andy Kwan, associate (andykwan@hkytl.com)

Eunice Leung, trainee solicitor (euniceleung@hkytl.com)

This article is general in nature and is not intended to constitute legal advice. Please seek professional advice before taking any action in relation to matters dealt with in this article.  

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