Shareholders use rights to see records

In a landmark case a couple of years ago, the judge in charge of company and shareholder disputes in Hong Kong described section 152FA of the Companies Ordinance (Inspection of corporate records by members) as "an often overlooked yet powerful right by which to expose wrongful conduct in relation to the company's affairs".

Since that case there has been a marked increase in the number of shareholders seeking such access.

The more a shareholder can point to evidence of financial impropriety by a company's management or directors, such as to prick the conscience of the court, the better. For example, dubious corporate transactions, unauthorised bonuses and questionable directors' expenses -particularly, if those expenses are substantial and suggest, as in one case for example, personal "peccadilloes".

Section 152FA came into force in July 2005. However, it was not until 2011 that cases began to surface in Hong Kong. The section is modelled on Australian legislation and is intended to codify shareholders' rights to inspect company records.

The new Companies Ordinance due to become operative next year has similar provisions (sections 739-743: Members' inspection of company records).

Since the passage of Section 152FA there have been about a dozen or so related cases (at first instance and on appeal) before the courts in Hong Kong. In about two-thirds of these cases the shareholder has obtained a court order for access to substantial company records. While each case turns on its facts a number of observations may be made. A company for these purposes includes a listed or private Hong Kong company and a foreign company with a place of business in Hong Kong.

"Records" has a wide meaning and in practice includes company books, minutes, agreements, ledgers, accounts, bank statements and the like. A shareholder will usually describe the company records sought in a schedule to their court application.