With All Due Authority... Part Two Of Our Series On The Impact Of Fang Ankong And Hwh Holdings Limited V Green Elite Limited

• Published date: 07 February 2023
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers
• Law Firm: Collas Crill
• Author: Ellie Crespi and Annabel Bishop

The recent Court of Appeal judgment of the BVI case of Fang Ankong and HWH Holdings Limited v Green Elite Limited (in Liquidation) affirmed the BVI Commercial Court judgment finding the directors of Green Elite Limited (Green Elite) liable for HK$158.7m, plus interest, for failure to obtain shareholder consent. Partner David Harby has given an excellent summary of the judicial analysis, which you can read here.

So, how are we going to be advising our corporate clients in the BVI?

Case Details

Green Elite was incorporated to effect an employee share benefit scheme for three employees to reward them upon listing of the joint venture (JV). Green Elite's shareholders were Mr Fang, acting through HWH Holdings Limited, and Delco Participation BV (which was owned jointly by two individuals). The directors of Green Elite were Mr Fang and three employees, with no representative from Delco.

In 2014, Green Elite sold the shares in the JV to a third party without director or shareholder approval. The share proceeds were paid to Mr Fang in three tranches. He did not disclose that he kept the proceeds to his JV partners and eventually distributed the consideration to the three employees. In 2018, Green Elite commenced proceedings against Mr Fang and the three directors for breach of fiduciary duties and failure to comply with section 175 of the BVI Business Companies Act 2004 (as amended) (BCA).

Mr Fang tried to rely on the 'Duomatic principle' in that there was an "understanding" between the shareholders that there would be an incentive scheme for certain key employees to be rewarded on the IPO of the JV. Mr Fang argued that he did not fail to comply with section 175 of the BCA as:

• each transfer amounted to 33% and did not hit the threshold of 50%;
• the distribution was made in the regular course of Green Elite's business; and
• there was an approval at board level by Mr Fang and the three directors, and at shareholder level by Duomatic assent.

Duomatic Principle

The Duomatic principle recognises situations where directors of a company can rely on the unanimous agreement of the members without the need for a formal resolution. The principle is characterised by its informality but it is key to distinguish between informality and certainty. It must be possible to identify that the agreement was intended to have legal effect and was on certain terms. Shareholders must also be aware that their assent is being sought.

Key considerations in deciding whether the...