Fang Ankong and another v Green Elite Ltd (Virgin Islands)

A director may not transfer or distribute company assets for personal benefit without authority, even where the company was established for a purpose that the transaction seeks to advance. Authority must derive from the company’s constitutional instrument or valid shareholder consent. Under the Duomatic principle, unanimous informal shareholder assent can operate as a formal resolution, but it must extend to the particular acts undertaken. It need not satisfy contractual requirements such as an intention to create legal relations or legal enforceability. A general agreement to establish an employee share scheme does not authorise distributions where essential implementation terms remain for later shareholder agreement.

Green Elite Ltd, a BVI company formed to operate an employee share incentive scheme, held shares in Chiho-Tiande Group Ltd. Its directors transferred dividends and sale proceeds from those shares to themselves and HWH Holdings Ltd. The company, acting through its liquidators, brought claims for breach of fiduciary duty and breach of section 175 of the Business Companies Act 2004.

The High Court upheld the claim and ordered payment of the sums due. The Court of Appeal of the Eastern Caribbean Supreme Court (BVI) dismissed an appeal by Fang Ankong and HWH. The appeal to the Privy Council concerned whether the payments were made for an improper purpose and whether they had been authorised by unanimous informal shareholder assent under the Duomatic principle. The section 175 issues did not arise for decision if there was no such assent.

1. Appeal dismissed. The Board advised His Majesty accordingly.
2. Directors possessing or controlling company assets cannot pay or transfer those assets to themselves or each other, or make gifts from them, unless authorised by the company’s constitutional instrument or by the shareholders at a properly convened meeting. The Board applied the principle stated in In re George Newman Ltd [1895] 1 Ch 674.
3. For a matter which is intra vires the company and lawful, shareholders entitled to vote may give unanimous informal consent which operates as if it were a resolution passed at a general meeting. Such assent need not possess the features of a binding contract. It is unnecessary to ask whether the shareholders intended to create contractual legal relations, whether the assent was legally enforceable, or whether it had legal effect in contractual terms.
4. The assent must relate to the particular matter or acts undertaken. A general agreement that Green Elite would operate an employee share incentive scheme did not authorise the receipt, retention and distribution of the proceeds and dividends in issue. Essential matters, including the lock-up period and the price payable by beneficiaries, remained to be agreed by the shareholders and never were.
5. On the trial judge’s findings, Delco and HWH had not assented to those transactions. The directors therefore acted in breach of fiduciary duty, and the appeal failed without any need to decide the section 175 issues.

• Privy Council: Appeal dismissed; the Board advised His Majesty accordingly.
• Court of Appeal of the Eastern Caribbean Supreme Court (British Virgin Islands): Appeal dismissed. Smith JA(Ag), with Michel JA and Webster JA(Ag), upheld the High Court’s decision and rejected the challenge to the application of the Duomatic principle.
• High Court (Commercial Division) of the Eastern Caribbean Supreme Court (British Virgin Islands): Jack J upheld Green Elite’s claims and ordered the former directors and HWH to pay the sums awarded. The decision is identified as BVIHC (COM) 2018/0222.