Company documents – inspection by director under s. 374 – whether applicant no longer director by time of application and hence lacked locus standi – inspection by shareholder under s. 740 – whether application for inspection made in good faith and for proper purpose or fishing expedition – Companies Ordinance (Cap. 622)
P was the eldest son of D1. Both parties, together with P’s brothers and cousins (D2–5) were shareholders and directors of C, a company set up by D1 to acquire and hold real properties. As was the usual practice under the Old Articles of Association, at the Annual General Meeting (“AGM”) held on 31 December 2014, P and D1–5 retired as directors of C and were re-elected “for the ensuing year”. On 9 February 2015, a resolution was passed adopting New Articles of Association (the “New Articles”), of which Art. 22(2) provided that “Unless otherwise specified in the appointment, a director appointed under para. (1)(a) [ie, by ordinary resolution or a decision of the directors] holds office for an unlimited period of time”. At the AGM on 31 December 2015, all directors retired and D1–5, but not P, were re-elected. P had not paid for his 17 percent shareholding in C and was financially dependent on D1, who ceased financial assistance to P in April 2015 due his alleged overspending. In September 2016, P applied under s. 374 of the Companies Ordinance (Cap. 622) as a director of C for inspection of essentially all its documents since its incorporation in 1992. At issue was whether P was a director of C. P argued that under Art. 22 of the New Articles, the 12-month tenure of the directors appointed by ordinary resolution was converted to one unlimited in time. P also applied under s. 740 of the Ordinance as a registered shareholder of C for inspection of the same documents.
Held, dismissing the application, that:
- As for the s. 374 application, on a proper construction, Art. 22(2) applied only to the appointment of directors under Art. 22(1)(a) after the adoption of the New Articles. As such, it did not apply to P’s appointment on 31 December 2014. Given the proviso “unless otherwise specified in the appointment”, although C’s directors were appointed under Art. 22(1)(a) at the 2015 AGM, it was resolved that they were still appointed “for the ensuing year” only. Article 22(2) did not have the legal effect of entrenching directorship in any person indefinitely, irrespective of specific resolutions passed during C’s general meetings.
- Accordingly, P had retired on 31 December 2015 and was no longer a director when he made the application. Thus, he lacked the requisite locus standi under the Ordinance and common law.
- The scope of the s. 740 application was very wide and strongly suggestive of a fishing expedition. P’s stated purpose, namely “To carry out a thorough investigation” of C’s affairs, was not a proper purpose under s.740. A shareholder was not entitled to inspect documents to monitor and challenge the managerial decisions of directors. On this ground alone, the application could be dismissed.
- P had not shown the application was made in good faith and for proper purposes. In any event, the fact that P had been a director between 1992 and 31 December 2015, yet never exercised his right to inspect C’s documents or even participated in its management was relevant to the Court’s exercise of its discretion against making the order sought.