Fang Ankong And HWH Holdings Limited V Green Elite Limited

• Published date: 06 February 2023
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation, Shareholders
• Law Firm: Collas Crill
• Author: David Harby

THURSDAY 02 FEBRUARY 2023

The Eastern Caribbean Court of Appeal ("the Court of Appeal") has clarified the application of the Duomatic Principle and the need for director and shareholder approval for dispositions of greater than 50% of a company's assets pursuant to s.175 of the BVI Business Companies Act 2004.

Background to the appeal

On 5 January 2023, the Court of Appeal handed down its judgment in (1) Fang Ankong and (2) HWH Holdings Limited v Green Elite Limited (in Liquidation) BVIHCMAP2022/0013 ("Green Elite"). The case concerned a BVI company that had been established for the sole purpose of giving effect to an employee share scheme for the benefit of three employees to reward them for service upon the public listing of Chiho-Tiande Group Limited (a Cayman Islands company) ("CT").

The shares in Green Elite were owned by two companies; 50% by HWH Holdings Limited, whose ultimate beneficial owner was a Mr Fang Ankong ("Mr Fang"); and 50% by Delco Participation BV ("Delco"). In April 2014 Green Elite agreed to sell the shares in CT to a third party for approximately HK $150 million. The sale price was paid to Mr Fang's bank account in three tranches. Mr Fang did not tell the directors of Delco (his joint venture partners) that he had kept the proceeds. Mr Fang held on to these for about a year and then, through a series of further transactions, he caused the sales proceeds, as well as dividends received from the CT shares, to be paid to the three employees equally.

In 2018, Green Elite, through its appointed liquidators, commenced proceedings against Mr Fang and the three employees claiming breach of their fiduciary duties as directors of Green Elite and/or a failure to comply with s.175 of the BVI Business Companies Act ("BCA").

The judge at first instance identified as a key issue whether the Duomatic principle applied to permit the payments to the three employees. He found (amongst other matters) that;

(a) as there was never an agreement between Mr Fang and Delco at any time, that the shares should simply be given to employees;

(b) the alleged "understanding" lacked legal effect and the distribution was not within the "agreed purpose" as there were no meetings of minds; there was no Duomatic assent;

(c) the "usual or regular course of business" exception under s.175 BCA potentially applied to the distribution but was negatived by the lack of director approval and shareholder authorisation; and

(d) the directors were liable under s.121 of the BCA.

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