The Winding-up Provisions of the Companies Ordinance

The Law Reform Commission was established by His Excellency the Governor in Council in January 1980. The Commission considers such reforms of the laws of Hong Kong as may be referred to it by the Secretary for Justice or the Chief Justice.

The Secretary of the Commission is Mr Stuart M I Stoker and its offices are at:

THE LAW REFORM COMMISSION
OF HONG KONG

REPORT

Chapter	*Page*

Introduction	1

Terms of reference
The consultation process
Confidentiality
Abbreviations and other expressions used in this report
Report in English and Chinese

1. Overview	5

Review of the Hong Kong Companies Ordinance
Recommendations / Format of the report
Language of the new Insolvency Ordinance

2. A Separate Insolvency Ordinance to Include All Forms of Winding-up, Receivership, Provisional Supervision and Bankruptcy	9

Receivership and provisional supervision
Members’ (solvent) voluntary winding-up
Disqualification of directors
Procedures should be kept separate within an Insolvency Ordinance

3. Licensing of Insolvency Practitioners	12

Provisional supervision
The “Grandfather” exemption
Training and continuing education
Two practitioners per firm
Indemnity / Bonding
Bankruptcy Ordinance

4. Remuneration (Fees) of Office-holders	17

How office-holders’ fees are treated at present
The Ferris Report
The need to establish a Panel to scrutinise office-holders’ fees
How the Panel would operate / Convenor
The Panel to consider disputes as to fees only in cases referred to it
Who would be on the Panel
Access to the Panel
How the Panel would charge
Panel to be inquisitorial

5. The Role and Funding of Official Receiver’s Office	24

Protection of Wages on Insolvency Fund levy on the business registration fee
Adequate and appropriate funding of the Official Receiver's Office
The need for proper regulation of the winding-up of companies by the Official Receiver's Office

6. Renaming of Members’ (Solvent) Voluntary Winding-up and Creditors’ (Insolvent) Voluntary Winding-up	30

7. Minorities	31

Section 168A Alternative remedy to winding-up in cases of unfair prejudice	31
Companies Winding-up proceedings and Miscellaneous proceedings distinguished

8. Contributories	33

Section 170 Liability as contributories of present and past members	33
Liability of past directors and shareholders
Expanded circumstances where a contributory can present a petition
Section 171 Definition of contributory	34
Section 173 Contributories in case of death of member	34
Section 174 Contributories in case of bankruptcy of member	34
Provision to apply before or after death of bankruptcy
Insolvent companies

9. Cases in which Company may be Wound-up by the Court	35

Section 177 Circumstances in which company may be wound-up court	35
Regulatory authorities
Section 178 Definition of inability to pay debts	35
Prescribed form
Presumption of insolvency
Minimum debt amount under section 178(1)(a)
Deeming provisions under section 178(1)
Contingent and prospective liabilities under section 178(1)(c)
Service by e-mail or fax
Assignment of part of a debt

10. Petition for Winding-up and Effects thereof and Consequences of Winding-up Order	40

Section 179 Provisions as to applications for winding-up	40
Directors to be able to petition to wind-up
Telephone and fax numbers and e-mail addresses to appear on a petition
Advertising the petition in the Hong Kong Government Gazette
Inconsistency between section 179(2) and section 257
Section 180 Powers of court on hearing petition	42
Contributories
Section 180A Hearing of unopposed petition by Registrar of High Court	43
Petition not opposed unless affidavit in opposition filed
Section 181 Power to stay or restrain proceedings against company	44
Not to apply to section 166
Section 182 Avoidance of dispositions of property, &c. after commencement of winding-up	45
Lites pendentes in winding-up by court to be registered by Official Receiver
Section 183 Avoidance of attachments, &c.	47
Section 186 Actions stayed on winding-up order	47
Section to apply to creditors’ (insolvent) voluntary winding-up
Quasi-judicial actions, quasi-criminal actions and administrative actions
Right to sell quota

11. Official Receiver in Winding-up	49

Section 190 Statement of company’s affairs to be submitted to Official Receiver	49
Valuation of assets by directors
Costs of preparation of statement of affairs
Extension of date for submission of the statement of affairs
28 days for submission of the statement of affairs
Dispensing with the statement of affairs
Contempt of court
No exemption for non-executive directors in respect of the statement of affairs
Fines and imprisonment
Affidavit of concurrence
Section 191 Report by Official Receiver	54
Official Receiver to have discretion to file report
No obligation on Official Receiver to investigate if company has not failed
Official Receiver should make investigations where appropriate in all winding-up cases

12. Interim Liquidator, Provisional Liquidator and Liquidator	56

Section 193 Appointment and powers of provisional liquidator	56
Appointment of provisional liquidator
Specimen powers of provisional liquidators
Right of third parties to appear at the hearing of an application for appointment of a provisional liquidator
Section 194 Appointment, style, &c. of liquidators	60
Liquidator
Interim liquidator
Liquidator may summon meetings of creditors and contributories
Creditors may require a meeting to be held
Meeting of creditors’ choice of liquidator to prevail
Section 195 Provisions where person other than Official Receiver is appointed liquidator	62
Section 196 General provisions as to liquidators	62
Separate provision for resignation, removal and remuneration
Resignation of liquidator
Removal of liquidator
Section 199 Powers of liquidators	64
Powers which may require sanction
Powers of liquidators to be placed in a schedule
Foreign currencies
Section 200 Exercise and control of liquidator’s power	66
Disposal of assets of company to members of the committee of inspection
Section 202 Payments of liquidator into bank or Treasury	67
Section 203 Audit of liquidator’s account	68
Accounts under section 203 and section 284 distinguished
Summary of accounts
Accounts to be filed with the Registrar of Companies
Confidentiality agreements
Signing accounts by liquidators on conversion of liquidation
Section 204 Control of Official Receiver over liquidators	70
Section 205 Release of liquidators	70

13. Committee of Inspection	72

Section 206 Meetings of creditors and contributories to determine whether committee of inspection shall be appointed	72
Relationship of liquidator and committee of inspection
Role of committee of inspection
Directors should be obliged to attend meetings of creditors
Remuneration of committee of inspection
Resolutions by post
Length of time liquidations can continue
The Securities and Futures Commission
Section 207 Constitution and proceedings of committee of inspection	77
Committee of inspection to be renamed “Liquidation Committee”
Committee of inspection to act in the best interests of creditors as a whole
Number of members of the committee
Quorum
Body corporate to be a member of the committee
Letters of authority
Meetings only when necessary and agreed
Voting
Section 208 Powers of court where no committee of inspection	79
Official Receiver to sanction actions of private sector liquidators where no committee of inspection

14. General Powers of Court in case of Winding-up by Court	81

Section 209 Power to stay winding-up	81
Court to review, rescind or vary any order
Section 209A Power of court to order winding-up to be conducted as creditors’ voluntary winding-up	82
Section 209B Consequences of an order under section 209A	82
Section 209C Transitional	82
Minority view
Majority view
Application of sections 182, 183 and 186 to voluntary windings-up converted from windings-up by the court
Section 210 Settlement of list of contributories and application of assets	85
Power to settle lists of contributories to be delegated to liquidator
Inclusion in list may result in unpaid capital being called
Objection to entry in or omission from list
Section 211 Delivery of property to liquidator	87
Provision to extend to voluntary winding-up
Any person may be required to hand over assets
Delivery of property to be extended to provisional supervisors
Information held by auditors
Section 212 Payment of debts due by contributory to company and extent to which set-off allowed	88
Section 213 Power of court to make calls	88
Section 214 Payment into bank of moneys due to company	88
Section 215 Order on contributory conclusive evidence	88
Section 216 Appointment of special manager	88
Section 217 Exclusion of creditors not proving in time	89
Section 219 Inspection of books by creditors and contributories	91
Provision to apply to all forms of winding-up
Access to information by creditors and contributories
Section 221 Power to summon persons suspected of having property of company	92
Receivers should not be able to apply under the provision
Self-incrimination
Examination to be extended to voluntary windings-up
Application only by liquidator
Application inter partes unless circumstances demand ex parte application
Examination on matters considered relevant
Legal representation of person to be examined
Inspection of liquidator’s report to the court
Costs may be paid by the person examined
Court may order payment of money or delivery of property etc.
Perjury
Affidavit of dealings
Interrogatories
Production of documents by the Commissioner of Inland Revenue
Section 222 Power to order public examination of promoters, directors, &c.	98
Fraud
Self-incrimination
Legal representation of person to be examined
Creditors may request and require liquidator to hold an examination
Inspection of liquidator’s report to the court
List of topics
Costs may be paid by the creditors
Costs may be paid by the person examined
Perjury
Special manager
Section 224 Power to arrest absconding contributory or officer	101
Section 226 Delegation to liquidator of certain powers of court	101
Section 226A Dissolution of company otherwise than by order of court	102
Section 227A Court may make a regulating order	102
Section 227E Proof of debts	103
Section 227F Application of Ordinance to small winding-ups	105

15. Resolutions for and Commencement of Voluntary Winding-up	106

Section 228 Circumstances in which company may be wound-up voluntarily	106
Section 228A Special procedure for voluntary winding-up in case of inability to continue business	107
Penalties under sub-section (2)
Section 229 Notice of resolution to wind-up voluntarily	109

16. Declaration of Solvency	111

Section 233 Statutory declaration of solvency in case of proposal to wind-up voluntarily	111
Swearing of the declaration of solvency

17. Provisions Applicable to a Members’ (Solvent) Voluntary Winding-up	113

Section 235 Power of company to appoint and fix remuneration of liquidators	113
The “PL formula” to apply to members' (solvent) voluntary winding-up
The need for a liquidator in solvent liquidations
Section 235A Power to remove liquidator	114
Section 237 Power of liquidator to accept shares, &c. as consideration for sale of property of company	114
Section 237A Duty of liquidator to call creditors’ meeting in case of insolvency	115
Provision for rules
Section 238 Duty of liquidator to call general meeting at end of each year	115
Meeting under the section and General Meeting
Extension of time to be granted by the Official Receiver
Section 239 Final meeting and dissolution	117
Simplified procedure
Inland Revenue
Books to be kept
Declaration of solvency
Advertising of notice in the Gazette
Post dissolution
Affairs of the company fully wound-up

18. Provisions Applicable to a Creditors’ (Insolvent) Voluntary Winding-up	122

Section 241 Meeting of creditors	122
Consequences of adjourned meeting of company
Details of the statement of affairs
Section 242 Appointment of liquidator	124
Section 243 Appointment of committee of inspection	125
Number of members of the committee of inspection
Committee of inspection to act in the best interests of creditors as a whole
Recommendations under section 207
Section 244 Fixing of liquidators’ remuneration and cesser of directors’ powers	126
Remuneration and cesser of powers to be separated
Section 245 Power to fill vacancy in office of liquidator	127
Section 247 Duty of liquidator to call meetings of company and of creditors at end of each year	127
Discretion to postpone holding of meetings for up to three years
Section 248 Final meeting and dissolution	128
Affairs of the company fully wound-up

19. Provisions Applicable to Every Voluntary Winding-up	130

Section 250 Distribution of property of company	130
Application to winding-up by the court and creditors' (insolvent) voluntary winding-up
Section 251 Powers and duties of liquidator in voluntary winding-up	131
Powers of liquidator
Duties of liquidator
Section 253 Notice by liquidator of his appointment	131
Section 254 Arrangement, when binding on creditors	131
Challenge within 14 days from the date of the arrangement
Resolution to be passed by majority in number and two-thirds in value
Section 255A Audit of liquidator’s accounts in voluntary winding-up	133
Section 257 Saving for rights of creditors and contributories	133
Deeming provision in relation to creditors' (insolvent) voluntary winding-up for the purposes of the Protection of Wages on Insolvency Ordinance
Filing of accounts of liquidator on conversion from voluntary winding-up to winding-up by the court

20. Proof and Ranking of Claims	136

Section 263 Debts of all descriptions to be proved	136
Section 264 Application of bankruptcy rules in winding-up of insolvent companies	136
Section 265 Preferential payments	137
Principle of pari passu distribution to be restated
Exceptions to principle only where considerations of maintenance of public order and the prevention of systemic failure are involved
Employees / The Protection of Wages on Insolvency Fund Board
Recommendations on employees
Increase in the statutory entitlements under the Protection of Wages on Insolvency Ordinance
Admission of employees’ claims
That the Protection of Wages on Insolvency Fund should lose its subrogation preference
Employees Compensation Assistance Fund
Insurance
Bank depositors
The Government
Fines
Companies Registry
Distraint / landlords
Priorities of debts
Discretionary preference under sub-section (5B) to remain
Bankruptcy Ordinance

21. Effect of Winding-up on Antecedent and Other Transactions	157

Section 266 Fraudulent preference	157
Section 266B Fraudulent preference deemed to be an unfair preference	157
Disqualification of directors
Unfair preference to creditors, sureties or guarantors
Company influenced by a desire to give a preference
Preference to an associate
Relevant time
Employees to be included in unfair preference provisions
Provisions to be set out in the Companies Ordinance
Connected persons
Associate
Transactions at an undervalue
Provision for transaction at an undervalue to include transaction at an overvalue
Relevant time
Court orders in respect of unfair preferences and transactions at an undervalue / overvalue
Third parties may be affected
Insolvent trading
Transactions at an undervalue / overvalue and the Conveyancing and Property Ordinance
Section 267 Effect of floating charge	166
Super priority lending under provisional supervision
Section 268 Disclaimer of onerous property in case of company wound-up	167

22. Offences Antecedent to or In Course of Winding-up	169

Section 271 Offences by officers of companies in liquidation	169
Offences to be separated into offences which occur before winding-up and those which occur in the course of winding-up
Few convictions
Burden of proof to be on the accused for certain offences
Hong Kong Bill of Rights considerations
Concealing of property
Section 273 Frauds by officers of companies which have gone into liquidation	174
Section 274 Liability where proper accounts not kept	176
Prosecution of offences
Proper books of account
Section 275 Responsibility of directors for fraudulent trading	179
Insolvent trading
Section 276 Power of court to assess damages against delinquent officer, etc.	181
Provisional supervisors
Section 277 Prosecution of delinquent officers and members of company	182
“Has been guilty”

23. Supplementary Provisions as to Winding-up and Supplementary Powers of Court	185

Section 278 Disqualification for appointment as liquidator	185
Unqualified person not to act as an insolvency practitioner
Bodies corporate, bankrupts, persons of unsound mind and persons disqualified from acting as a director not to act as an insolvency practitioner
Where insolvency practitioner should not act as insolvency practitioner
Section 278A Corrupt inducement affecting appointment as liquidator	187
Section 283 Disposal of books and papers of company	187
Commissioner of Inland Revenue
Costs
Section 284 Information as to pending liquidations	190
Filing of accounts by companies being wound-up by the court
Any person should have the right to inspect the statement of a liquidator
Signing accounts by liquidators on conversion of liquidation
Section 285 Unclaimed assets to be paid to Companies Liquidation Account	192
Public interest
Inconsistencies between section 285 and rule 183
Need to distinguish and separate provisions for “unclaimed” and “undistributed” assets
Prescribed period
Tax Clearance Certificates and Estate Duty Clearance Certificates
Section 289 Affidavits, &c.	197

24. Provisions as to Dissolution	198

Section 290 Power of court to declare dissolution of company void	198
Section 290A Registrar may strike off company for failure to forward annual returns	199
Section 290B Bona vacantia	199
Limitation of four months in respect of claims
Section 292 Property of dissolved company to be bona vacantia	200
Claims to property which have vested bona vacantia in the Government

25. Receivers and Managers	201

Review of role of receivers and managers
Combining Part III (Registration of Charges) and Part VI (Receivers and Managers)
Regulation of insolvency practitioners
Certification of the appointment of a receiver or receiver and manager
Section 297 Disqualification for appointment as receiver	202
Section 297A Disqualification of undischarged bankrupts	202
Disqualification of directors
Receiver should not be liquidator of the same company
Section 300 Power of court to fix remuneration on application of liquidator	204
Section 300A Provisions as to information where receiver or manager is appointed	206
Section 300B Special provisions as to statement submitted to receiver	206
Information to be provided by receivers to creditors and other interested parties

26. Winding-up of Unregistered Companies (Cross-border Insolvency)	208

Section 326 Meaning of unregistered company	208
Section 327 Winding-up of unregistered companies	209
Section 327A Oversea companies may be wound-up although dissolved	209
Jurisdiction of the court
Recognition of foreign proceedings
“Oversea” companies
Whether Hong Kong courts should apply foreign law in ancillary proceedings
UNCITRAL Model Law on Insolvency

27. Companies (Winding-up) Rules	217

Rule 22A Deposit by petitioner	217
Rule 23A Copies of documents filed in proceedings to be served on Official Receiver	217
Rule 24 Advertisement of petition	217
Rule 28 Appointment of provisional liquidator	217
Rule 33 Substitution of creditor or contributory for withdrawing petitioner	218
Withdrawal of petition where it has not been advertised
Rule 47 Security to satisfaction of Official Receiver	219
Rule 48 Failure to give or keep up security	219
Rule 88 Interest	219
Rule 93 Notice to creditors to prove	220
Rule 123 Quorum	220
Rule 125 Cases in which creditors may not vote	221
Rule 127 Creditor required to give up security	221
Rule 154 Resignation of liquidator	222
Rule 157 Special bank account	222
Rule 160 Investment of assets in securities, and realization of securities	223
Rule 176 Costs and taxation	223
Rule 179 Costs payable out of the assets	223
Rule 183 Payment of undistributed and unclaimed money into companies liquidation account	224
Rule 190 Disposal of books and papers	224

28. Directors: Payment of Compensation	225

Imposition of fines and penalties on directors
Shifting of burden of proof onto directors
Directors may be obliged to obtain compensation insurance
Obligation on directors to sign an annual statement as to the company's affairs
Trading while insolvent

29. Hong Kong Government Gazette – Advertising of Insolvency Related Issues	230

30. Transfer of Business (Protection of Creditors) Ordinance	233

31. Netting Systems	235

32. Related Companies	238

33. Subordination of Debt	239

Annex - Acknowledgements	240

Hong Kong Law Reform Commission

THE LAW REFORM COMMISSION OF HONG KONG

REPORT

THE WINDING-UP PROVISIONS OF
THE COMPANIES ORDINANCE

THE LAW REFORM COMMISSION
OF HONG KONG

REPORT

CONTENTS

Chapter

Page

Hong Kong Law Reform Commission

THE LAW REFORM COMMISSION OF HONG KONG

REPORT

THE LAW REFORM COMMISSION OF HONG KONG

REPORT

CONTENTS

Chapter

Page

THE WINDING-UP PROVISIONS OF
THE COMPANIES ORDINANCE

THE LAW REFORM COMMISSION
OF HONG KONG