TSE WAI IP v. CLARITY MEDICAL GROUP HOLDING LTD

HCMP 1627/2025

[2026] HKCFI 3274

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1627 OF 2025

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JUDGMENT

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Introduction

1.  By an originating summons dated 19 September 2025 (“OS”), Tse Wai Ip (“Dr Tse”) applies for leave to a bring a statutory derivative action on behalf of Clarity Medical Group Holding Limited (“the Company”). At the conclusion of the hearing, I dismissed the OS with reasons to be delivered later. These are my reasons.

2.  Dr Tse is the founder of the Company and was an executive director from 30 June 2022 until he was removed on 1 August 2025. The Clarity Medical Group provides ophthalmic services to patients with eye conditions and operates various medical centres in Hong Kong. The Company is incorporated in the Cayman Islands and its shares are listed on the Main Board of the Hong Kong Stock Exchange (“Exchange”). Its shares are currently suspended trading pending the Company’s compliance with resumption guidance from the Exchange. The resumption window is due to expire in October 2026.

3.  The scope of the intended action is set out in a draft Statement of Claim annexed to the OS. There are seven intended defendants. Six of them are current or former directors of the Company, or involved in senior management. At the centre of the intended action is an alleged scheme on the part of certain of the intended defendants to take over control of the Company and to divert funds away from it.

4.  On behalf of the Company, Mr Man SC submitted that the OS should be dismissed because Dr Tse lacks standing to bring and maintain these proceedings since he has never been a registered member of the Company. As a result of a bankruptcy order made against him on 3 November 2025, Dr Tse is no longer entitled to call for the legal title to his shares to be transferred to him and registered in his name.

5.  The Company submitted that this was, in itself, a sufficient basis for the court to dismiss the OS. The Company further submitted that leave should be refused because the intended action was not in the best interests of the Company, and that in any event, the claims intended to be advanced did not disclose any serious issue to be tried.

6.  As will be apparent below, the focus of this judgment is on the standing issue. At the hearing, I was satisfied that this was a clear case where Dr Tse does not have the necessary standing to pursue this application. Since the lack of standing is dispositive of the application, it is neither necessary nor desirable for the court to express a view on whether the intended action discloses any serious issue to be tried or is in the best interests of the Company. This is especially so in light of the ongoing investigation by Special Committee into a number of complaints including some of those sought to be raised by Dr Tse in the intended action. The results of that investigation may have a bearing on whether the Company will be able to resume trading.

Relevant Facts on the Standing Issue

7.  Prior to his bankruptcy, Dr Tse appears to have owned 478,750 shares in the Company through his personal account held with Koala Securities Limited (“Koala”). Koala is a participant of the Central Clearing and Settlement System (“CCASS”) in Hong Kong. In September 2025, Dr Tse gave instructions to Koala to have those shares transferred to and registered in his personal name. The transfer did not take place at this time and it is unclear on the evidence why this is the case.

8.  Dr Tse was adjudicated bankrupt on 3 November 2025. It is not in dispute that at the time of his bankruptcy he was not a registered shareholder. There is also no dispute that the beneficial interest in Dr Tse’s shares vested in the Official Receiver immediately upon his bankruptcy. Since his shares were held through a CCASS participant, the legal title was held by HKSCC Nominees Limited.

9.  According to a Stock Withdrawal Receipt dated 2 March 2026 issued by CCASS Depository Services, there was a total of 478,750 shares in the Company withdrawn from the CCASS system by Koala. Next, by a Standard Form of Transfer, HKSCC Nominees Limited transferred the shares to Dr Tse who then applied to the branch share register in Hong Kong to be registered as a member of the Company.

10.  On 16 March 2026, Tricor Investor Services Limited stated that the request was voided due to the following reason:

“The Registrar has been instructed by the Company not to proceed with the requested registration pending further instructions from the Company, as the board of the Company is seeking legal advice on the application in order to discharge its duties”.

11.  It is apparent that the attempt to have the transfer of shares registered in Dr Tse’s name was to address any potential issue arising from a possible lack of necessary standing to apply for leave to commence a statutory derivative action on behalf of the Company.

Discussion

12.  Section 732(1) of the Companies Ordinance (Cap 622) (“the CO”) provides that:

“If misconduct is committed against a company, a member of the company or of an associated company of the company may, with leave of the Court granted under section 733, bring proceedings in respect of the misconduct before the court on behalf of the company.”

13.  Accordingly, it is incumbent upon Dr Tse to establish that he is a “member” of the Company within the meaning of section 732 and has the requisite standing to pursue a derivative claim. A “member” is defined under section 2 to mean either a founder member or a person who agrees to become a member of the company and whose name is registered, as a member, in the company’s register of members.

14.  A person who is not yet a registered member of a company is still entitled to make an application under sections 732 and 733 so long as he is able to satisfy the court subsequently that he has become a registered member of the company by the time when leave is granted (Chen Pei Xiong v Convoy Global Holdings Ltd [2024] HKCFI 1568 at [55]).

15.  There is no dispute that Dr Tse is not, and has not been, registered as a member in the Company’s register of members. Nor is there any dispute that the general rule is the court will examine the register of members to determine whether a person qualifies as a “member” for the purpose of seeking leave to commence a statutory derivative action.

16.  Dr Tse, however, relies on the principle that even if registration on the register of members is generally necessary, this is subject to an exception where it would be unjust to refuse recognition of the parties’ status as members, for example where the failure to register was due to the wrongful act or default of the company or its officers (Re Mak Shing Yue Tong Commemorative Association Ltd [2005] 4 HKLRD 328 at [54-56]; Kitnasamy v Nagatheran [2000] 2 SLR 598 at [26]). In such circumstances, the company may be estopped from denying that an individual is a member even though his name does not appear on the register of members. This is based on the equitable maxim that a court will not enable a statute to be used as an instrument of fraud.

17.  As I see it, the issue in the present case is whether the Company acted in a manner which rendered it unjust or inequitable for it raise Dr Tse’s lack of standing to defeat the present application. At the heart of the matter is whether Dr Tse had a valid entitlement to be registered as a member in the first place. If Dr Tse did not, I find it difficult to see how the Company should be estopped from taking the standing objection.

18.  Having considered the submissions of the parties, I took the view that Dr Tse was not validly entitled to request the transfer of the shares to his own name after his bankruptcy. This is because that entitlement arises from the beneficial ownership of his shares which indisputably vested with the Official Receiver upon Dr Tse’s bankruptcy. Neither the Official Receiver nor the trustee-in-bankruptcy made the request that the shares be transferred to Dr Tse. Further, I agree with Mr Man SC that the act of instructing a nominee to transfer legal title to the beneficial owner is an exercise of a power incidental to the beneficial interest. Since the beneficial interest in the shares no longer vested with Dr Tse after his bankruptcy, I am unable to accept that he had a valid legal entitlement to effect the transfer and to become a registered member of the Company.

19.  On behalf of Dr Tse, Mr Wong argued that his client’s entitlement as legal owner arose as a result of the transfer which took place on 2 March 2026 which was after bankruptcy order was made. It was argued that Dr Tse’s acquisition of legal title to the shares amounted to after-acquired property which did not immediately vest in the trustee in bankruptcy under s.43A of the Bankruptcy Ordinance (“BO”).

20.  I am unable to accept this submission. I do not consider that Dr Tse’s acquisition of legal title to the shares can properly be described as after-acquired property. Fundamentally, the argument focuses exclusively on the transfer which took place on 2 March 2026 without giving due recognition to the fact that the underlying basis for the transfer is Dr Tse’s status as the previous beneficial owner of the shares. In my view, it is artificial and incorrect to view the transfer in isolation from the beneficial ownership of the shares which vested on bankruptcy. I do not accept that the two can be segregated in the manner suggested.

21.  Under section 2 of the BO, any things in action ‘arising out of or incidental to’ the beneficial ownership of the shares would fall within the definition of ‘property’ which would vest in the Official Receiver on bankruptcy. These are words of wide import and, in my judgment, clearly include the right to call for the transfer of legal title to the shares in question. I agree with Mr Man SC that this supports the Company’s contention that the entitlement to instruct a nominee to transfer legal title to the beneficial owner did vest in the Official Receiver.

22.  Mr Wong submitted that Dr Tse only obtained the right to become a registered member in March 2026 when the instrument of transfer was executed and that the right only arose upon its execution. However, by then the bankruptcy order had already been made, and all of Dr Tse’s rights arising out of or incidental to the 478,750 shares constituted ‘property’ had already vested in the Official Receiver. Relatedly and importantly, in my view Dr Tse clearly was entitled to seek to become a registered shareholder prior to his bankruptcy. This is not a merely abstract point. It is grounded in the reality that Dr Tse gave instructions to Koala to have his shares transferred and to be registered as a member in September 2025 which was well before the bankruptcy order of 3 November 2025. Dr Tse made that request on the basis that he had the right to be registered as a member prior to his bankruptcy.

23.  Dr Tse relied on Re Palmer [2025] 1 All ER (Comm) 637 for the proposition that the relevant entitlement to be vested on bankruptcy must be in existence at that point in time. That is fine so far as it goes, but on a factual level it seems to me that the circumstances of that case are very different from the present. As stated by Judge Cawson KC at [113], the relevant entitlement to compensation in Re Palmer only came into existence when the GLO Scheme was established in March 2022. Before then all that Ms Palmer (bankrupt in 2015) had was a hope or expectation that the government might step in and offer some form of ex gratia compensation. Factually, the case is quite far removed from this case when Dr Tse’s entitlements over the shares, including the right to call for a transfer and to be registered, did exist at the time of bankruptcy.  

24.  For completeness, I will also deal with the arguments of the parties based on the Articles of Association of the Company.

25.  Article 48(1) provides:

“The Board may, in its absolute discretion, and without giving any reason therefor, refuse to register a transfer of any share (not being a fully paid up share to a person of whom it does not approve, or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also, without prejudice to foregoing generality, refuse to register a transfer of any share to more than four (4) joint holders or a transfer of any share (not being a fully paid up share) on which the Company has a lien.”

26.  Article 49(c) provides: -

“Without limiting the generality of the last preceding Article, the Board may decline to recognise any instrument of transfer unless:

(c)  the instrument of transfer is lodged at the office or such other place at which the Register is kept in accordance with the Act or the Registration Office (as the case may be) accompanied by the relevant share certificate(s) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer (and, if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).” 

27.  Article 50 provides:

“If the Board refuses to register a transfer any of any share, it shall within two (2) months after the date on which the transfer was lodged with the Company, send to each of the transferor and transferee notice of the refusal”.

28.  On behalf of Dr Tse, Mr Wong argued that the Company’s discretion to refuse registration is limited under Article 48(1) only to cases where the shares are not fully paid up. He submits that the Company’s refusal to register Dr Tse’s shares is wrongful since the shares are fully paid up. However, as pointed out by Mr Man SC, under Article 49(c), the Board has a discretion to decline to recognise any instrument of transfer unless it is accompanied by such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer.

29.  Mr Wong submitted that there is no indication that the board of directors had actually required evidence to show Dr Tse’s right and authority in accordance with Article 49(c).

30.  On the facts of the present case, the Company instructed the Registrar not to proceed with the requested registration pending further instructions since the board was seeking legal advice on the application to discharge its duties. Although a formal notice of refusal had yet to be issued under Article 50 by the time of the hearing, it was clear that the Company has taken the view that the registration should be refused. In other words, it has taken the view there is no evidence that Dr Tse could produce which could demonstrate his entitlement to be registered as a member. I have found that position to be correct as a matter of law, and accordingly it is reasonable for the Company to have formed that view. In such context, it would be an exercise in futility for the board to require evidence from Dr Tse. In such circumstances, I agree that the board was entitled to decline to register Dr Tse’s shares. Therefore, I am unable to agree that this is a case where it is unfair or unjust to allow the Company to deny Dr Tse’s standing to pursue the intended action by reason that his name does not appear on the Company’s register of members.

Other Grounds of Objection to the Application

31.  Both sides filed extensive submissions on whether there was a serious issue to be tried on the merits, and whether the intended action was truly in the best interests of the Company. I mean no disrespect to counsel by not canvassing their detailed arguments. As I have mentioned above, it seems to me that the standing issue is dispositive of the application and I am firmly of the view that there is a lack of requisite standing. Mr Man SC sensibly indicated at the hearing that the Company would not press for a determination on the other objections raised.

Conclusion

32.  I should record that Mr Man SC expressly mentioned at the conclusion of the hearing the possibility that the Company would seek an order for disclosure of the funder(s) of this application, together with a non-party costs order, in the event that the Applicant does not pay the Company the costs of this unsuccessful application.

33.  For all the above reasons, I dismissed the OS with costs to be paid by the Applicant to the Company, with certificate for two counsel.