The Irregularity Principle (Principle) has long been invoked by parties seeking to defend the validity of board and shareholder resolutions passed with irregularities. As early as the late 19th century, the English Courts have held that “if the matter complained of by the minority is within the legitimate power of the majority the Court will not interfere”1. Over the centuries, the jurisprudence on the Principle has continuously evolved, resulting in a test of ‘inevitability’. This Article revisits such test, before examining its application in three Court of First Instance Judgments handed down in early 2026.
A. The established “Inevitability” test
In 2020, Re Dalny Estates Limited2 provided a much-welcomed clarification of the Principle – for it to apply to a specific irregular resolution, the majority would have to inevitably be in a position to call and hold a meeting properly and regularise the decision if necessary. This was further applied and upheld in Chen Pao Tzu v Chen Sheng Kuei & others3, where the Court said that “the threshold is one of inevitability”, and the burden is on the party relying on the Principle to show that it applies. Zhong Da Mining Holding Ltd v Lam Wo Ping and others4 further clarifies that the Court does not see a distinction between “minor irregularities” and “substantive defect”. The position set out in Re Dalny Estate Ltd boils down to one question:- “whether the same result would inevitably have been obtained had the correct procedure been followed.” Where the answer is yes, the Principle applies.
B. The test in action
The Court of First Instance has had three recent opportunities to consider disputed and irregular resolutions and the application of the “inevitability” threshold test, which we examine below.
In Re Global Resources Investment Technologies Limited5 (available here), the resolution in question was to remove a director (1st Defendant) of the concerned company (Plaintiff), passed by the sole shareholder. There were two irregularities pleaded – (1) the failure to serve a special notice under s.462(4) of the Companies Ordinance (Cap. 622) (CO); and (2) the failure to respect the 1st Defendant’s right to protest against his removal under s.463 of the CO. The application of the inevitability test was a straightforward exercise, as the Court found that it was inevitable that the same result would have been reached had special notice been given to such director, as the sole shareholder would have voted the same way. The Principle applied, and the resolution was upheld.
In Re Zhengtan Holdings Limited (in Liquidation)6 (available here), there was no formal resolution in question, only a letter issued by the 99.9% shareholder of the concerned company (Plaintiff) to the directors (Defendants) requiring them to transfer control of the company, by resigning and appointing new directors. Despite the lack of any formal resolution, the Court nonetheless found the inevitability threshold met and the Principle applied to the letter. The 99.9% shareholder of the Plaintiff would have been able to remove the Defendants as directors in any event.
In Chin Choon Onn and Jong Yat Kit v Lai Sum Hung and others7 (available here), the resolution in question was one to allot shares of the Company (4th Defendant) to the 1st Defendant. The irregularity was that the company only had one valid director, despite the articles of association of the company requiring a quorum of two for board meetings. Here, the Court found that the ‘inevitability’ threshold was not met. Specifically, the Court found that for the correct procedure to be followed, an additional director ought to have been appointed. On the facts, one director could not convene any board meeting, and the purportedly unanimous resolution could not be said to be even a majority. If the board is not even properly constituted, it cannot be in an ‘inevitable’ position to cure the irregularity.
C. Commentary
The three cases above demonstrate that the test for the Principle is a focused one – it does not concern the form or extent of the irregularity, but the “inevitability” threshold. In Zhengtan, a document as informal as a letter was held to be a valid resolution, as the result would be inevitably the same, whereas in Chin Choon Onn, a board resolution could not pass the threshold test by reason of it being inquorate.
More importantly, it is clear that any finding of “inevitability” would be highly dependent on the evidence put forward, especially by the directors and shareholders present and absent during the alleged passing of the disputed resolution. In Global and Zhengtan, the Companies in question were also the Plaintiffs of the proceedings defending the disputed resolutions to be upheld. The disputed resolutions were passed by a sole shareholder (in Global) and a 99.9% shareholder (in Zhengtan) respectively, who had full control of the companies during voting, and remained in control of the companies during the court proceedings. In such circumstances, it is easier to claim the ‘inevitability’ of the resolutions. In contrast, the sole director who executed the disputed board resolution in Chin Choon Onn no longer had directorship of the company during the proceedings, and in fact gave evidence against the validity of the resolutions, and the Court could not conclude that the Principle applied. A finding of ‘inevitability’ relies on the intention, knowledge, and evidence of those who are entitled to vote in and resolve the disputed resolutions.
In light of the above, directors and shareholders of companies are reminded to minimize irregularities and be well-acquainted with the Company’s articles of association, and to keep contemporaneous records of all notices, minutes, and resolutions. The successful application of the Principle in Re Global and Re Zhengtan does not indicate a pattern of the Court overriding irregularity; seen correctly, it is a reminder of the evidence-dependent and fact-sensitive nature of the ‘inevitability’ test.
For further information, please contact:
Paul Kwan, Partner, Deacons
paul.kwan@deacons.com
1 Macdougall v Gardiner (1875) 1 Ch. D. 13
2 [2018] 1 HKLRD 409
3 [2021] HKCFI 299
4 [2024] HKCFI 1613
5 [2026] HKCFI 357
6 [2026] HKCFI 521
7 [2026] HKCFI 695
