Re Allied Properties (HK) Ltd

Kwan V-P, Yuen and Barma JJA
23, 27 November 2020

Facts

C was a listed company incorporated in Hong Kong held by AGL, also a listed company in Hong Kong. A direct wholly-owned subsidiary of AGL (the Offeror) put forward a scheme of arrangement to holders of shares in C other than those held by the Offeror and its concert parties (the Scheme Shareholders), for the purpose of privatising C, which involved inter alia: (a) the cancellation of shares held by the Scheme Shareholders in exchange of payment; and (b) the reduction of capital (the Scheme). C issued an ex parteoriginating summons for directions to convene a single meeting of the Scheme Shareholders for the purpose of considering and approving the Scheme (the Court Meeting) (the OS). At the directions hearing of the OS, the Judge raised a number of concerns, particularly regarding the requirement that the effect of the Scheme must be explained fairly and accurately. The Judge adjourned the OS sine die for C to address the concerns raised. C then revised the draft composite document. When the OS was restored, the Judge gave directions to convene the Court Meeting, but expressed that it was not the role of the court at the OS stage to scrutinise the preparation of the draft composite document to ensure compliance with the statutory requirements. At the Court Meeting, more than 99% of the shares held by the Scheme Shareholders present and voting were cast in favour of the Scheme. C subsequently presented a petition for sanction of the Scheme and confirmation of the reduction of capital. The petition was adjourned twice in order for C to adduce further evidence and make submissions to address the Judge’s concerns. In the end, the Judge refused to sanction the Scheme because: (a) she had concerns that the headcount test in s.674(1)(c)(ii) of the Companies Ordinance (Cap.622) (the CO) might not have been met; and (b) she took the view that the Scheme document did not provide sufficient information to the Scheme Shareholders to enable them to make an informed decision as to how to vote at the Court Meeting. C appealed.

Held, allowing the appeal, sanctioning the Scheme, and confirming the reduction of capital, that:

The Court had reservations whether C’s complaints of procedural unfairness were made out. The Judge had on multiple occasions enunciated concerns about the adequacy of the composite documents, albeit she had not made explicit what she regarded as lacking as mentioned in her judgment. It could not be said that that C was not given the opportunity to make proper submissions in this regard. (See paras.24–26.)
The headcount test was not applicable in this situation. Where a scheme involved a takeover offer within s.674(5) of the CO, by virtue of s.674(2) the headcount test was replaced by the requirements of a 75% majority in value of the voting rights of the members present and voting and that the votes cast against the scheme did not exceed 10% of the total voting rights attached to all disinterested shares in the company. The Judge had erred in considering that the Court might not have jurisdiction to sanction the Scheme if the headcount test was not met. On the evidence, the dual requirements under s.674(2) of the CO were met. There was no jurisdictional obstacle in that regard (Re Cheung Kong (Holdings) Ltd [2015] 2 HKLRD 512, Re Enice Holding Co Ltd [2018] 4 HKLRD 736 applied). (See para.27–28.)
The Judge was wrong to take the view that adequate explanation had not been given to the Scheme Shareholders. This vitiated the exercise of her discretion in refusing to sanction the Scheme. The Judge made a hypothesis on dividend which ignored and contradicted the composite document, and amounted to substituting the Judge’s own view on dividend policy for C’s dividend policy. (See paras.30, 36.)
The statutory requirements for sanction of the Scheme were met. The fairness test was also satisfied. The Scheme was such that an intelligent and honest person, a member of the class concerned and acting in respect of his interest, might reasonably approve. The privatisation had the overwhelming support of the Scheme Shareholders, who would have considered the information provided in the composite document on the commercial impact of the Scheme. The court should be slow to differ from the majority views, as it normally acted on the principle that businessmen were much better judges of what was to their commercial advantage than the court could be (UDL Argos Engineering & Heavy Industries Co Ltd & Others v Li Oi Lin & Others (2001) 4 HKCFAR 358, Re Cheung Kong (Holdings) Ltd [2015] 2 HKLRD 512, Re Inmarsat Plc [2019] EWHC 3470 (Ch) applied). (See para.37.)

Appeal

This was an appeal brought by the petitioner against the dismissal by Linda Chan J in the Court of First Instance of its petition for sanctioning of a scheme of arrangement approved at a court meeting (see [2020] HKEC 3190).

Jurisdictions