Hong Kong Court of Appeal Revisits the Rules Concerning Removal of Directors

October 2019

In Yeung Bing Kwong Kenneth v Mount Oscar Limited [2019] HKCA 688, dispute arose from an ordinary resolution to remove the office of a director. The Hong Kong Court of Appeal discussed the rationale and effect of sections 462 and 463 of the Companies Ordinance (Cap.622).

Facts

Mount Oscar Limited (the Company) was a private limited company incorporated in Hong Kong. The appellant was one of four directors of the Company. The Company had complied with all the express statutory requirements under the Companies Ordinance to remove the former director from directorship, including giving a special notice and passing an ordinary resolution at the Extraordinary General Meeting (the Resolution) for the removal. No ground of the removal was provided.

Dissatisfied with the Resolution, the former director asked for a declaration from the court to invalidate the Resolution and an injunction to restrain the Company from implementing or otherwise acting upon the Resolution. The basis of his application was that a director faced with a proposed resolution to remove him and who has the right to protest against his removal under sections 462 and 463 of the Company Ordinance, is entitled to be provided with the reasons for his removal.

Decision

The court held that the purpose of sections 462 and 463 of the Company Ordinance was not providing the director with a right to protest against removal, but granting shareholders the right to remove directors. The statutory right of dismissing directors by ordinary resolution enables the shareholders to assert themselves against the directors by a simple majority, and ensures that the ultimate control of a company is in the hands of shareholders. The shareholders’ power of removing directors is unfettered and exercisable without cause. The principles of natural justice is not invoked in the present context.

The court restated that the procedural protection given by sections 462 and 463 of the Company Ordinance to directors is “to prevent a director from being deprived of an office of profit on a snap vote and without having had a full opportunity of stating the contrary case” and no further protection is offered by the Ordinance. If the legislature intended to provide a further protection, it would have been mentioned expressly in it.

The court explained that the power is closely related to the elementary principle of law that the court has no jurisdiction and will not interfere with the internal management of companies acting within their powers.

To sum up, the procedural protection set out in sections 462 and 463 of the Company Ordinance is to allow the affected directors to make representation and to state their case, but it does not provide further protection of requiring reasons to be given for their removal.