Consequences Of Keeping Minority Shareholders Out In The Cold

The case of Tempo Group Limited & Ors v Fortuna Development Corporation & Ors1 centred on a dispute between the three principal owners of Fortuna Development Corporation ("Fortuna"), a Cayman Islands incorporated holding company. The main issues in question were whether the three owners had agreed that one of them, Dr Chen, was to be guaranteed a seat on the board of directors and whether his subsequent removal from the board at the extraordinary general meeting ("EGM") was valid. On the first point, the Court found that there was no agreement which entitled Dr Chen to a position on the board. However, Dr Chen was re-instated to the board because the EGM at which he was removed was found to be a nullity.

Background

Fortuna was established in 1994 to hold various significant investments in Vietnam including amongst others a power plant, a large land development and other infrastructure. Its three major shareholders were holding companies, each of which owned by Dr Chen, Mr Ting and Mr Tsien, respectively. On 22 June 2004, an EGM was held in Beijing. Despite Dr Chen's objections, Mr Ting and Mr Tsien were successful in passing a number of special and ordinary resolutions. These included the removal of Dr Chen from his position as a member of the board and greatly restricted his right to deal with his shares. The special resolutions required approval by a two thirds majority of the value of the shares in the company. The special resolutions could not have been passed without the support of Maxima Resources Corporation ("Maxima"), which owned 5 per cent of the outstanding shares. Mr Niu claimed to be the sole director and shareholder of Maxima and sought admission to the EGM. Mr Niu intended to support Dr Chen and thus prevent the special resolutions from being passed. However, Mr Niu was refused entry to the EGM. Instead Mr Tsien, the Chairman of the meeting, purported to vote in favour of all of the resolutions as the corporate representative of Maxima.

The defendants claimed that the true beneficial owner of Maxima was Mr Niu's mother, and that she had authorised the issuance of bearer shares and given legal ownership of Maxima to Mr Tsien and his wife (Mrs Niu's daughter). Furthermore, the defendants alleged that Maxima had authorised Mr Tsien to vote on its behalf at the EGM (the "Authorisation"). On the defendants' case, Mr Niu had no right to represent Maxima at the EGM and all of the resolutions, both ordinary and special, were and...