T Skevington and M Bacina
Bitmain co-founder commences court action to recapture control over company
Micree Zhan Ketuan, co-founder and former co-CEO of Bitmain, one of the largest cryptocurrency mining hardware companies in the world, recently commenced legal action against his former co-founder Wu Jihan in an attempt to regain control of Bitmain. This latest action follows Zhan's dramatic removal from the Company in October 2019.
The court action concerns an extraordinary general meeting (EGM) of shareholders in Bitmain held in November 2019. According to the summons, Zhan (through his shareholding entity Great Simplicity Investment Corporation) is asking the court to invalidate a resolution from the EGM which varied the rights of Bitmain’s Class B shares down from 10 votes per share to 1 vote per share. Bitmain's 2018 IPO prospectus indicated that Zhan held 3,988,768,187 Class B shares, compared to the 2,243,331,244 Class B shares held by Wu. It’s unclear whether the balance of Class B shares between Zhan and Wu has shifted since. But based on these numbers, the EGM resolution would have dramatically reduced Zhan’s influence over Bitmain.
Interestingly, Bitmain's 2018 IPO prospectus included a summary of its Articles of Association (constitution) which included the following extract:
Our Company shall not vary the rights of the Class B Shares so as to increase the number of votes to which each Class B Share is entitled.
In Australia, this type of resolution would constitute a variation of class rights under Part 2F.2 of the Corporations Act 2001 (Cth), which restricts the ways in which companies can change the rights of shareholders without the input of those shareholders. This case is a timely reminder to prospective co-founders that while everything might be rosy at the start of the relationship, you should be prepared for the worst from the beginning (and get legal advice accordingly to avoid being Zuckerberg-ed).
Commenting on his unceremonious dismissal from the company he co-founded, Zhan wrote in a letter published through his WeChat social media account in November 2019 that he intends to return to Bitmain and “restore order” as soon as possible.
Bitmain has declined to comment to media outlets on this latest development.