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Green Elite: The Duomatic Principle, S.175 And Directors’ Liability For Unauthorised Payments – Financial Restructuring


The Eastern Caribbean Court of Appeal recently handed
down judgment in Fang Ankong and anr v Green Elite Limited (in
BVIHCMAP2022/0013. The case addresses a number of
important legal issues relating to the operation of the Duomatic
principle1, the meaning and effect of s.175 of the BVI
Business Companies Act, 2004 (the “BCA”), and a BVI
director’s liability for unauthorised payments.

Below is a summary of the case and a list of the key
points from the Court of Appeal’s decision. A copy of that
judgment is available here.

The Basic Facts

At its heart the case concerned payments (totalling c.HK$150
million) that had been made by a BVI company – Green Elite
– to three of its directors, who were also employees of the
company. The company subsequently went into liquidation and its
liquidators alleged that those payments – which comprised the
sale proceeds of assets previously owned by Green Elite – had
been made by the directors in breach of their fiduciary duties.

Among other things, liquidators alleged that in making the
relevant payments the directors had: (a) acted in breach of s.121
of the BCA (which imposes a duty on a BVI director to exercise his
or her powers as director for a proper purpose and in compliance
with the BCA and the company’s M&As –
s.121“); and (b) failed to comply with
the requirements of s.175 of the BCA (which they alleged also
constituted a separate breach of s.121)

For the benefit of any non-BVI lawyers reading this, s.175
applies where there is a disposition by a BVI company of more than
50% in value of its assets which is not made in the usual or
regular course of the business carried on by the company. It is
intended to provide an important check on the directors’ power
to dispose of the company’s assets, in that (among other
things) it requires that the proposed disposal be authorised by a
shareholders’ resolution.

In Fang, the liquidators’ allegations were defended
on the basis that: (a) the relevant shareholders had authorised the
payments in accordance with the Duomatic principle; and (b) s.175
did not apply to the payments, but if it did the directors had
complied with its requirements.

The Decision of the BVI Commercial Court

At first instance 2 Jack J found that the Duomatic
principle did not apply, as the “understanding” relied
upon by the directors (as allegedly authorising the relevant
payments) had not been intended by the shareholders to be legally
binding. In particular, Jack J found that certain key terms had not
been agreed upon. Therefore, the payments constituted a breach of
s.121, as they had had not been made for a proper purpose.

Jack J also found that the payments constituted a breach of
s.175. Although 3 separate payments had been made – none of
which individually comprised more than 50% in value of Green
Elite’s assets – there was, in reality, only one
transaction, and the value of that transaction exceeded the 50%
threshold. Jack J accepted that the transaction was
“potentially” one made in the usual or regular course of
the company’s business (as a holding company), but ultimately
found that the directors had not complied with the requirements of

In light of those findings, Jack J inter alia ordered
the directors to account to Green Elite (jointly and severally) for
the full value of the unauthorised payments, plus interest.

The Court of Appeal Decision

The Court of Appeal dismissed the defendants’ appeal. In
short, it upheld Jack J’s decision on the Duomatic principle
and his overall conclusion on s.175 (albeit those parts of the
judgment dealing with s.175 were strictly obiter).
However, there are several interesting aspects of the Court of
Appeal’s analysis:

(1) On the Duomatic principle, the Court of Appeal confirmed
that whilst Duomatic assent does not involve the application of
contractual principles (such as offer, acceptance and
consideration), there must (among other things) be material from
which assent can be objectively ascertained. Further, in cases in
which an understanding or agreement is alleged (i.e. where the
party is not relying upon silence or acquiescence), the objective
approach for the ascertainment of assent is broadly similar to the
objective approach which must be taken when determining formation
of a contract, including the intention to create legal relations
and certainty of terms.

The Court of Appeal reiterated that the Duomatic principle
requires unequivocal shareholder assent. Therefore, particularity
in respect of the terms of the agreement or understanding is
something that a court is entitled to consider when determining
whether, objectively, the shareholders intended to bind

(2) On the meaning and effect of 175, the Court of Appeal
made clear (albeit obiter) that:

(a) The section is capable of being engaged where there are
transfers, dispositions etc. that individually do not constitute
50% in value of the assets of the company but which form part of
one single transaction that exceeds that 50% threshold.

(b) In order for the “usual or regular course of
business” exception to be engaged, the company in question
must actually be carrying on a business in the sense of an
“ongoing commercial activity”. The Court of Appeal
expressed the view – disagreeing with Jack J – that
simply holding shares does not constitute the carrying on of a
business. In taking that position, the Court of Appeal
distinguished (and appeared to ultimately disagree with) the view
that it had previously expressed in Fong v
3 , when addressing s.80 of the IBCA 1984 (the
predecessor to s.175).

(c) Although s.175 does not expressly set out the same, a breach
of that section does give rise to certain consequences, including
for the purpose of the duties imposed by s.121 of the BCA.

(3) On a director’s liability for unauthorised
, the Court of Appeal agreed with Jack J that
where a director causes a company to make unauthorised payments for
which the company receives no value, the director is liable to the
company to pay compensation equal in amount to the payments made.
In reaching that view the Court of Appeal cited with approval the
English Court of Appeal decision of Auden McKenzie (Pharma
Division) v Patel
4, which had itself cited the
well-known line of authorities dealing with the payment of
unauthorised dividends, including Bairstow v Queens Moat House


The Court of Appeal’s decision provides helpful guidance on
the operation of the Duomatic principle in those cases in which an
informal agreement or understanding is alleged. The case also
confirms the principles governing a director’s liability for
unauthorised payments. However, perhaps the most striking part of
the Court of Appeal’s decision is its obiter remarks
on s.175, including its analysis of the “usual or regular
course of business” exception. Given the large number of
holding companies in this jurisdiction, the Court of Appeal’s
analysis (if adopted in future cases) is likely to lead to an
increase in the number of disputes concerning s.175 – a risk
of which BVI directors will need to be aware.


1.Taken from the case of the same name: [1969] 2 Ch.

2.BVIHC (Com) 2018/0222 (unreported, delivered 17 January

3.BVIHVMAP2018/0001 and BVIHCMAP2018/0002 (unreported,
delivered 27 March 2019).

4.[2019] EWCA Civ 2291

5.[2001] EWCA Civ 712.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.


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