Fang Ankong: Informal Shareholder Consent and Duomatic

In a Nutshell

The Duomatic² principle in broad terms provides that in a matter which is intra vires a company and lawful, the company’s shareholders can give their consent not only by a formal resolution at a general meeting but also by unanimous informal consent.

The Privy Council (“PC”) reaffirmed the Duomatic principle; reinforcing that shareholder consent must be unanimous and that the extent of that consent must be certain – shareholders must give specific consent for a company to enter a particular transaction. A general purpose of intent to enter a transaction is not sufficient.

Background

This was an appeal to the PC from the British Virgin Islands (“BVI”).

Green Elite Ltd (“Green Elite”) was incorporated in the BVI as a vehicle jointly owned by HWH Holdings Ltd (“HWH”) (controlled by Mr Fang) and Delco Participation BV (“Delco”), to implement an employee share incentive scheme for three intended beneficiaries in connection with an IPO vehicle (“CT”). Green Elite held shares in CT to this end. All intended beneficiaries and Mr Fang were directors of Green Elite.

CT paid dividends to Green Elite, which it transferred to its directors and HWH but not to Delco. Green Elite also later sold its CT shares, but the proceeds of sale were paid to Mr Fang’s personal bank account and onwards to the intended beneficiaries. Delco was not told the purchase price and there was no board meeting to approve it. Delco applied to the BVI Court to wind up Green Elite and liquidators were appointed.

Proceedings

Green Elite’s liquidators issued proceedings against the former directors and HWH seeking an account of the sale proceeds of the CT shares and any dividends. The liquidators claimed that the former directors had breached their fiduciary duties to act in good faith in the best interests of Green Elite, not to act for a collateral purpose and not to act in a way as to place themselves in a position of conflict between their personal interests and the interests of Green Elite. The liquidators also claimed against HWH for knowing receipt.

The central issue of fact was what was agreed between HWH and Delco as to the basis on which Green Elite would hold its shares in CT for the purpose of the employee incentive scheme. The defendants argued that there was no breach of duty, and the payments were properly made to implement Green Elite’s purpose to provide an employee share incentive scheme (which was approved by Delco and HWH as the shareholders of Green Elite). Although the alleged approval/arrangement was not reflected in the articles or memorandum nor in a formal resolution of the shareholders at a general meeting, the defendants, relying on Duomatic principles, claimed that the approval was given by Delco and HWH informally when it agreed that Green Elite would act as a vehicle for the employee share incentive scheme. In Duomatic, Buckley J said at p373:

“I proceed on the basis that where it can be shown that all shareholders have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be”.

Despite this argument, the judge found that only two key elements of the employee share incentive scheme were agreed between the owners of HWH and Delco; the intended beneficiaries would pay for the shares in CT and there would be a lock-up period before they qualified to receive them. However, neither the price nor the length of the lock-up period was agreed. Further, the judge found that Delco and HWH had not given their assent to the payments that had been made and ordered that they be returned. The judge found that there had been no ‘meeting of minds’ between the shareholders which could, through the application of the Duomatic principle, authorise the manner in which Mr. Fang had dealt with the sale proceeds and dividends.

The Court of Appeal of the Eastern Supreme Court (BVI) dismissed the appeal by Mr. Fang and HWH upholding the decision at first instance. Mr. Fang and HWH appealed to the PC.

Decision

The PC dismissed the appeal and upheld the Court of Appeal’s decision.

In reaffirming the existence of the Duomatic principle, the PC held that while the assent given in accordance with the principle need not have the features of a binding contract, the shareholders should intend to bind themselves legally as if they had passed a formal resolution. Therefore, if it could be shown that the shareholders have all assented to a particular matter, their assent will take effect as if it were a formal resolution. This was not the case on these facts as the specific terms of the employee incentive scheme had not been confirmed and agreed.

¹ [2025] UKPC 56
² [2025] UKPC 47
³ [1969] 2 Ch 365