Privy Council upholds breach of duty finding in employee share scheme dispute

Case overview

In Fang Ankong and another v Green Elite Ltd (In Liquidation) [2025] UKPC 47, the Privy Council dismissed an appeal concerning HK$150 million in sale proceeds and HK$8.7 million in dividends that former directors transferred to themselves and a related company. The case arose from Green Elite Ltd, a BVI company established solely to operate an employee share benefit scheme.

Background and factual findings

Green Elite was incorporated in January 2010 as part of a joint venture between Chinese and Dutch business interests planning to float their scrap metal business. The company held shares in Chiho-Tiande Group Ltd, representing an employee incentive scheme for three key employees.

When Green Elite sold its shares for HK$150 million in April 2014, director Fang Ankong diverted the proceeds to his personal account. Between April 2015 and December 2017, he distributed these funds equally among the intended beneficiaries. The directors also transferred dividends totalling HK$8.7 million.

The trial judge found that whilst shareholders HWH and Delco had agreed Green Elite would serve as a vehicle for the share scheme, they had not agreed on critical implementation details. Specifically, no agreement existed regarding the lock-up period or the price beneficiaries would pay for shares. The judge held these matters were to be determined later by shareholder agreement, which never materialised.

The appellants' arguments

The appellants contended that since Green Elite's sole purpose was implementing the employee share scheme, any directorial action furthering that purpose was necessarily proper. They argued the judge erred in requiring formal shareholder assent when the directors were simply executing the agreed corporate purpose.

Alternatively, they maintained that the shareholders had given unanimous informal consent under the Duomatic principle, which permits shareholders to authorise corporate actions by unanimous agreement without formal resolutions.

The Privy Council's reasoning

The Board rejected both arguments. First, it emphasised that Green Elite had specifically pleaded the fundamental duty preventing directors from placing themselves in positions where personal interests conflict with company interests. The case concerned directors transferring company assets to themselves without authority—a clear breach of basic fiduciary principles.

The Board cited In re George Newman Ltd [1895] 1 Ch 674, reaffirming that directors cannot "pay themselves or each other, or make presents to themselves out of the company's assets" without proper authorisation from the company's constitutional documents or shareholders at a properly convened meeting.

Critically, the appellants could not selectively rely on the shareholders' understanding. Whilst the general purpose of an employee scheme was agreed, the shareholders' understanding expressly contemplated that implementation details—including lock-up periods and pricing—required further agreement. Directors possessed no authority to determine these matters unilaterally.

Regarding Duomatic principles, the Board confirmed that on the facts found, no shareholder agreement existed authorising the specific actions taken: Mr Fang's personal receipt of proceeds, subsequent distributions to other directors, and dividend payments. Delco never approved these actions, precluding any Duomatic assent.

The Board clarified that whilst Duomatic assent need not satisfy contractual requirements such as intention to create legal relations, shareholders must have actually assented to the particular matter in question. Here, they had not.

Significance

This judgement reinforces that directors bear the burden of justifying transfers of company property to themselves. Corporate purpose, even when agreed by shareholders, does not provide blanket authorisation for directors to implement that purpose on self-determined terms. Where shareholders contemplate further agreement on implementation, directors must obtain that agreement before acting.