Sinopoly Strategic Investment Ltd v FDG Kinetic Ltd

• Jurisdiction: Bermuda
• Judge: Mussenden J
• Judgment Date: 21 July 2021
• Court: Supreme Court (Bermuda)
• Docket Number: CIVIL JURISDICTION (COMMERCIAL COURT) 2021: No. 75

[2021] SC (Bda) 55 Com

In The Supreme Court of Bermuda

Mussenden J

CIVIL JURISDICTION (COMMERCIAL COURT) 2021: No. 75

IN THE MATTER OF FDG KINETIC LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 1981

Between

Sinopoly Strategic Investment Limited

Applicant

and

FDG Kinetic Limited

Respondent

Appearances:

Keith Robinson, Carey Olsen Bermuda Limited, for Sinopoly Strategic Investment Limited

Lilla Zuill for Mr. Jaime Che and Mr. Tang Chung Wah

Companies Act 1981 Section 76, Notice of Motion for joinder, Applications for stay of an order in respect of holding an annual general meeting, Leave to appeal, Stay pending appeal

RULING

RULING of Mussenden J

Introduction

1 At the conclusion of the hearings on 29 April 2021 I adjourned a Notice of Motion to a later date to be set for a full hearing, I declined an application for leave to appeal to the Court of Appeal and I declined an application for a stay of an order pending appeal brought by Mr. Jaime Che (“ Mr. Che”) and Mr. Tang Chung Wah (“ Mr. Tang”) (together the “ Joinder Applicants”). This Ruling sets out the Court's reasons for those decisions.

2 This matter came before me on 29 April 2021 in respect of FDG Kinetic Limited (the “ Company”). The Petition in this matter had been adjourned from time to time to 29 April 2021.

3 On 28 April 2021 Zuill & Co filed a Notice of Motion returnable on 29 April 2021, firstly on behalf of Mr. Che who was a director of the Company and secondly on behalf of Mr. Tang who was one of the joint and several receivers of the Company in respect of all of the undertaking, property and assets of the Company pursuant to a Debenture dated 5 September 2019 (the “ Related Party Receiver”). The applications were for the following: (a) the Joinder Applicants be joined as Respondents; (b) the Ex Parte Order dated 1 April 2021 be set aside; and (c) in the alternative to the Order being set aside, that the Order be stayed pending appeal (the “ Che/Tang Applications”). It was supported by the Second Affirmation of Jaime Che affirmed on 28 April 2021 (“ Che 2”) together with its Exhibit “ JC-2”.

4 Also on 28 April 2021 Sinopoly filed a Summons returnable for the same time as the Petition on 29 April 2021 for various orders in respect of the conduct of an upcoming adjourned annual general meeting of the Company to be held on 30 April 2021 in Hong Kong (the “ Adjourned AGM”) 1.

Background

5 In order to deal with the Che/Tang Applications it is necessary to set out in some considerable detail the background to this matter.

6 The Che/Tang Applications came as a result of and in the midst of other proceedings in respect of the Company. On 12 March 2021 Sinopoly Strategic Investment Limited (“ Sinopoly”) had presented a Petition seeking relief pursuant to section 76 of the Companies Act 1981 (the “ Act”). The Petition was listed to be heard before the Court on 9 April 2021.

7 Also, on 12 March 2021 Sinopoly with the support of Union Grace Holdings Limited (together the “ Majority Shareholders”) filed an emergency ex parte on notice application (“ Sinopoly's Application”) pursuant to Section 76(1) of the Act to remedy the failure of the board of directors of the Company to:

• a. hold an annual general meeting (“ AGM”) of the Company within the time prescribed by section 71 of the Act and Bye-Law 56;

• b. call an AGM of the Company for the purpose of electing directors of the Company in accordance with inter alia Section 71 of the Act Bye-Law and Bye-Law 61;

• c. adhere to and comply with inter alia Bye-Laws 61, 87 and 88 and Section 71 of the act by:

  • i. Refusing to allow an election in respect of the seats of two of the three members of the board of the Company that have retired or will retire by rotation at the AGM in accordance with Bye-Law 87; and

  • ii. Refusing to allow Sinopoly to nominate candidates (the “ Sinopoly Candidates”) for election to the Three Available Seats (as defined below) at the AGM of the Company in accordance with Bye-Law 88.

Hearing of 15 March 2021

8 At the ex parte hearing on notice on 15 March 2021 Mr. Robinson and Mr. Masters appeared for Sinopoly. Ms. Tovey and Mr. Dyer of Walkers appeared for the Company. Ms. Tovey explained that the Company had received late notice of Sinopoly's Application and were present on a watching brief.

9 Sinopoly's Application was heard in advance of the AGM to be held in 2 days' time on 17 March 2021 in Hong Kong. The application was supported by the First Affidavit of Edward Middleton sworn on 12 March 2021 (“ Middleton 1”) along with its Exhibit “ ESM-1”.

10 Middleton 1 states that the Company was incorporated on 1 October 1992 under the laws of Bermuda and is listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “ HkEx”). Mr. Che was the Chief Executive Officer and Executive Director. Mr. Cao, an Executive Director was purportedly suspended. Mr. Hung and Mr. Toh were the other independent non-executive directors. Additionally, pursuant to an announcement of the Company dated 22 October 2020, Professor Sit Fung Shuen Victor (“ Professor Sit”) resigned as an independent non-executive director and chairman of the Company with effect from 24 October 2020. Accordingly, the Company was under the day to day control of the sole extant executive director Mr. Che.

11 Pursuant to a circular of the Company dated 29 October 2020, Mr. Toh and Mr. Cao were to retire from office by rotation at the AGM although Mr. Toh had offered himself for re-election but Mr. Cao did not offer himself for re-election. The Company's position is that there is only one seat available for election at the next AGM. However, Mr. Middleton was advised and believed that by operation of Bye-Law 87, the number of seats available for election at the AGM was three, being those of Mr. Toh, Mr. Cao and Professor Sit (the “ Three Available Seats”).

12 The last AGM of the Company was held on 3 September 2019 and Section 71 of the Act required an AGM to be convened at least once in every calendar year, that is 3 September 2020 and Bye-Law 56 of the Company requires an AGM to be held within 15 months of the preceding one, that is 3 December 2020.

13 Issues had arisen about holding an AGM, its conduct, the number of seats available for election and the election process.

14 Mr. Robinson made submissions and references to the evidence in Middleton 1 including the Bye-Laws of the Company. The thrust of his submissions were as follows:

• a. The fundamental purpose of an AGM is to elect the directors;

• b. The shareholders of a company control the company, not the directors;

• c. The Majority Shareholders had a 74.56% beneficial interest in the Company per the 2020 Annual Report but as of the date of the hearing, they had approximately a 69.80% beneficial interest;

• d. Both the 3 September 2020 and 3 December 2020 dates for holding an AGM had passed;

• e. The formal procedures to be followed in respect of calling AGMs and the nomination and vetting of potential directors were not being followed;

• f. There was correspondence between the Majority Shareholders and the Company addressing issues in the procedures but the Company was still refusing to abide by the proper procedures; and

• g. There was a need for the intervention of the Court in respect of the AGM and the applicable procedures.

15 Mr. Robinson then submitted that on 23 February 2021 Sinopoly proposed candidates for election to the Three Available Seats pursuant to Bye-Law 88. However:

• i. In breach of Bye-Laws 86, 87 and 88 and Bye-Law 61 read together with Section 71 of the Act, the Company was refusing to conduct an election in respect of the Three Available Seats;

• ii. In breach of Bye-Law 88 the Company was refusing to allow the shareholders to elect the duly proposed Sinopoly Candidates to the Three Available Seats; and

• iii. The Company was proposing to hold a meeting which would not qualify as an annual general meeting pursuant to Section 72 of the Act read together with Bye-Law 61 and therefore was also in breach of Bye-Law 56 and Section 71 of the Act.

16 Mr. Robinson submitted that section 76 of the Act provided the Court with the jurisdiction to regulate the conduct of AGMs of Bermuda companies. The Court has the indisputable authority under 76 of the Act to order a meeting of the company to be called, held and conducted in such manner as the Court thinks fit and to give such ancillary or consequential directions as it thinks expedient. He provided case authorities where section 76 of the Act was analysed in detail in the context of Bermuda companies including Ng Pui Lung v CY Foundation Group Limited and Luck Continent Limited [2011] Bda LR 12 and Lee Gai Poo v Asia Pacific Wire & Cable Corp [2006] Bda LR 73.

17 Section 76 provides as follows:

“Power of Court to order meeting

76 (1) If for any reason it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called, or to conduct the meeting of the company in manner prescribed by the bye-laws or this Act, the Court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting, order a meeting of the company to be called, held and conducted in such manner as the Court thinks fit, and where any such order is made may give such ancillary or consequential directions as it thinks expedient.

(2) Any meeting called, held and conducted in accordance with an order under subsection (1) shall for all purposes be deemed to be a meeting of the company duly called, held and conducted.”

18 Mr. Robinson submitted that in Luck Continent, the Court found by reference to Asia Pacific Wire & Cable that:

“34. As far as the existence of jurisdiction to invoke section 76 of the Act is concerned, decided cases are of limited import because “[w]hether or not it is so...