December 3, 2022

Cayman Islands companies listed in HK: choice of law shareholder disputes

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From Harneys

Approximately half of all companies listed on the Hong Kong Stock Exchange (HKEX) are incorporated in the Cayman Islands. So when a dispute arises regarding the rights of shareholders in HKEX-listed companies, onshore and offshore legal advisers find themselves examining the overlap between the articles of association (governed by Cayman Islands law) and the requirements set out in the main board listing rules of HKEX (the Listing Rules)(governed by HK law).

In the recent case of In the Matter of Xinhua News Media Holdings Limited (Unreported, HCMP 1901/2017, 18 September 2017), the directors of Xinhua News Media Holdings Limited (the Company), a HKEX-listed, Cayman incorporated company sought to incorporate elements of the Listing Rules to impede a shareholder’s legitimate right to nominate directors for election at the Company’s AGM. The shareholder in question had complied with the procedural requirements set out in Article 116 of the Company’s articles of association, including the lodgment of notices in writing and consents to act on behalf of the nominee directors (the Nomination Notices).

The Company’s directors refused to issue the necessary announcement to shareholders in advance of the AGM, and raised additional barriers to compliance before, ultimately, deeming the Nomination Notices to be invalid for failing to comply with the Company’s “procedure”, namely compliance with Rule 13.51(2) of the Listing Rules. Rule 13.51(2) of the Listing Rules sets out certain details which must be provided by new directors on their appointment (not in advance), and Article 116 contains no reference to Rule 13.51(2).

Relying upon expert evidence on Cayman Islands law provided by Harneys, the shareholder successfully sought urgent injunctive relief in the High Court of Hong Kong which held the Nomination Notices to be valid and, as a result, imposed a mandatory injunction on the Company/its Directors to make the Announcement and take all necessary steps to enable and facilitate the election of the shareholder’s nominee directors.



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