Cross-Border Derivative Issues Considered In Hong Kong, Yet Issues Remain

The Hong Kong Court has held that a shareholder in a BVI company seeking to bring a derivative claim in Hong Kong must first obtain the permission of the BVI Court under Section 184C of the BVI Business Companies Act, 2004.

In Wong Ming Bun v Wang Ming Fan and Others1, the Plaintiff sought to bring derivative proceedings on behalf of Creative China Limited, a BVI incorporated company in which he was a shareholder ("the Company"). The Company's principal asset was a majority stake in a Hong Kong Listed company. The Defendants applied to strike out the Claim on the footing that the Plaintiff required, and had not obtained, the permission of the BVI Court under Section 184C of the BVI Business Companies Act, 2004 ("the Act") before commencing derivative proceedings. This application succeeded: the Claim was struck out.

The issue for the Court in Wang was whether BVI law or Hong Kong law governed the Plaintiff's locus standi to mount a derivative action. The Hong Kong Court held that the question whether a shareholder can commence a derivative action in the name and on behalf of the company is a matter of substantive law, and, accordingly, is governed by the law of the place of incorporation. In so doing, the Court followed the decision of the Hong Kong Court of Appeal in East Asia Satellite Television (Holdings) Ltd. v New Cotai LLC [2011] 3 HKLRD 734 and that of Lawrence Collins J in Konamaneni v Rolls Royce Industrial Power (India) Ltd. [2002] 1 WLR 1269.

The BVI common law principles relating to derivative actions on behalf of BVI companies have been replaced by Section 184C of the Act. Any member wishing to bring an action in the name and on behalf of a BVI company must follow the procedure set out in that section.

Section 184C(1) of the Act provides that the BVI Court may, on the application of a member of a BVI company, grant leave to that member to:

(1) bring proceedings in the name and on behalf of that company; or

(2) intervene in proceedings to which the company is a party for the purpose of continuing, defending or discontinuing the proceedings on behalf of the company.

In deciding whether to grant leave under Section 184C(1) of the Act, the Court must take the following matters into account:

(1) whether the member is acting in good faith;

(2) whether the derivative action is in the interests of the company taking account of the views of the company's directors on commercial matters;

(3) whether the proceedings are likely to...