Section 633(1) of the Companies Ordinance allows a person or a member of the company to apply to the Court to request a rectification of the register of members if a name is entered or omitted from the register without sufficient cause or where a person ceases to be a member. The Companies Court (“Court“) in Shi Jiu Xing v Hong Kong A-Sun Group Co Ltd and Others [2023] HKCFI 1852 held that a rectification application under section 633(1) of the Companies Ordinance was subject to the Court’s discretion. The Court also confirmed that, in Hong Kong, the Court continues not to treat the register of members as conclusive evidence and is entitled to consider all relevant facts and circumstances.
Background
This case involved a dispute around the beneficial ownership of certain shares (“Shares“) in a company (“Company“), which were held in the name of a shareholder, Shi, in the register of members.
The Company alleged that Shi received the Shares pursuant to an assignment agreement and when the assignment became impossible, he became a bare trustee and ought to return the Shares to the Company.
The parties were involved in PRC proceedings which ruled that although there was no legal basis for the Company to seek the return of Shi’s Shares, Shi was not in fact the beneficial owner of the Shares. However, Shi argued that the register of members included his name, and that should be conclusive evidence of his ownership.
The Company had carried out several share allotments which had the effect of diluting Shi’s shareholdings. Shi applied to the Court under section 633(1) of the Companies Ordinance for a rectification of the Company’s register of members, claiming that the share allotments should be cancelled as he did not receive notice of the meetings which approved the share allotments.
Judgment
The Court held that a rectification application under section 633(1) of the Companies Ordinance was subject to the Court’s discretion. To exercise its discretion properly, the Court stated that it was necessary to take into account all relevant circumstances.
Taking into account the surrounding facts and evidence, including the positions taken by the parties in the PRC proceedings and the eventual ruling, the Court found that there was strong evidence that Shi received the Shares through the assignment agreement (which had lapsed) and Shi was estopped from arguing otherwise.
The Court further held that in Hong Kong, the register of members is not treated as conclusive evidence of ownership, and the Court would be prepared to take into account other factors that have an impact on the status of ownership of the shares of the applicant. As the relief of rectification is not automatic, it does not follow that once it is shown that a registered shareholder did not receive notices of allotment of new shares, he is automatically entitled to have the allotments cancelled by way of rectification of the register. In this instance, the Court refused the rectification application as it found that Shi did not hold any beneficial interest in the Shares.
Key takeaways
The case is a reminder of the discretionary nature of the Hong Kong Court’s power to order rectification of a company’s register of members. It also shows that the Court is willing and ready to take into account a range of facts and circumstances to establish ownership of shares rather than relying solely on the register of members.
