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Hong Kong Law Reform Commission |
10.1 The section provides that a petition to the court to wind-up a
company may be presented by the company, any creditor or creditors, including
contingent and prospective creditors, a contributory or contributories, or any
combination of those parties. Certain special conditions apply to petitions by
contributories and contingent or prospective
creditors.[61] The section also
makes provision for the Financial Secretary and the Registrar of Companies to
wind-up companies in certain
cases.[62]
10.2 Directors are not included in the list of those who are able to
petition for the winding-up of a company under the section. The situation is
different under the Insolvency Act, section 124(1), which specifically provides
that directors are able to present a petition to wind-up. This provision was
introduced to overcome a court decision to the effect that the former practice
of allowing the directors of companies to petition for the winding-up of a
company based on a resolution of the directors was
wrong.[63]
10.3 Even now,
it appears that under the Insolvency Act directors must petition in their own
names rather than in the name of the company and that they ought to act
unanimously in the absence of a decision of the board of
directors.[64] Where there has been
a resolution of the board to petition to wind-up, the decision may be carried
out by any one of the directors who has authority to carry out the decision on
behalf of all the
directors.[65]
10.4 It is
likely that petitions of this kind would be rarely used as directors would be
more likely to favour the voluntary winding-up of a company under sections 228
or 228A of the Ordinance. We would, however, note the recommendation that
section 228A should be
abolished.[66] It has been noted,
in relation to the Insolvency Act provisions that:
“The directors would in any case require the authorisation of a general meeting in order to be entitled to present a petition for winding-up, unless such a power is expressly conferred on the directors by the company's articles. The fact that the articles usually delegate the management of the company to the directors has been held[67] not to include an authorisation to present a winding-up petition without the sanction of a general meeting, and it is significant that [article 82] of Table A does not confer any such authority”.[68]
10.5 We
are aware that due to the nature of Hong Kong companies, where family interests
are probably more prevalent than in other jurisdictions, there could be a danger
of family groupings oppressing the interests of minorities. We have, however,
never considered that the existence of family interests in companies should be
given any special weight.
10.6 We recommend that directors,
following an ordinary resolution of the board of directors, should be able to
petition to wind-up their company without the need to obtain the approval of a
general meeting of shareholders. Shareholders would be able to express their
opposition at the hearing of the petition. Situations may arise where directors
have to act urgently to have their company wound-up by the court and the danger
of oppression of minorities is counterbalanced by the recommendation that only
recognised insolvency practitioners should be qualified to act as liquidators in
a winding-up by the court.[69] We
consider that the need to wind-up a company in urgent circumstances could only
arise in situations where a company was insolvent and we recommend that
directors should only be able to wind-up companies under such circumstances.
10.7 These recommendations modify the proposal in the Consultation
Paper.[70] We received
submissions expressing reservations about the effect on shareholders and
representing that it was important that the shareholders had an opportunity to
make their views known before a final decision was taken on the future of their
company and that for the present purposes, shareholders should not be reduced to
trying to oppose a petition in the court.
10.8 The information to be given in a statutory demand under
Insolvency Act, rule 4.6, provides that the address and telephone number of an
individual who may be contacted by the debtor with a view to satisfying the debt
must be given. Similarly, the notice of appearance on the hearing of a petition
under Insolvency Act, rule 4.16, provides that the notice should contain the
name and address of any person giving it, together with his phone number.
10.9 We would go further and recommend that any notice under the
insolvency provisions which requires any form of reply, including statutory
demands and petitions, should contain full details of how to contact the person
giving the notice, or the details of his representative. We recommend
that in addition to the address and telephone number of the contact party, other
details such as fax number and e-mail address may also be included. The
guidance notes on all such notices should reflect this.
10.10 We note the general comments on the advertising of notices
relating to the winding-up provisions in the Government
Gazette.[71]
10.11 We note an inconsistency between these two provisions. Section
257 provides that where a company is being wound-up voluntarily, any creditor
may apply to have the company wound-up by the court, but that if the application
is submitted by a contributory, the court must be satisfied that the rights of
the contributories will be prejudiced by a voluntary winding-up. Under section
179(2) the court must be satisfied that the voluntary winding-up cannot be
continued with due regard to the interests of the creditors and contributories.
10.12 It has been generally accepted in Hong Kong that it is not
necessary, where a contributory petitions under section 180(1A) that it is just
and equitable that a company be wound-up, for the contributory to prove that the
company has a surplus available for distribution from which the contributory
could ultimately
benefit.[72]
10.13 That is
not the case in the United Kingdom where it has been long established that a
petitioning contributory must show that that he has a tangible interest in the
company.[73]
10.14 The Hong
Kong provision and the equivalent provision under the Insolvency Act, section
125(2), are similarly worded and it is unclear that a different approach has
been taken to the petitions of contributories.
10.15 The
Consultation Paper proposed that the Hong Kong provisions should be
amended to make it clear that a contributory should not have to prove that he
had a tangible interest in the company against which the petition had been made
and noted section 467(5) of the Australian Corporations Law in this
regard.[74]
10.16 We
received two submissions which questioned why a contributory should be entitled
to petition if he had no tangible interest in the company, with the thought that
such a petition would seem likely to be motivated by improper reasons. It was
also submitted that it was a policy issue and not a matter for the court. In
the case of a petition by a contributory, the English practice of requiring the
contributory to show that he has a tangible interest in the company, that is the
company has a surplus available for distribution from which the contributory
could benefit, before he can present a petition, is a sound
rule.
10.17 We take these points and change the proposal to
recommend that a petitioning contributory should establish that he has a
tangible interest in the company.
10.18 In the case of an unopposed petition, the jurisdiction of the
court may be exercised by the Registrar of the High Court.
10.19 It has been suggested that there might be a practical problem
with the section in that it is sometimes very difficult to know whether a
petition has in fact been opposed or not. Experience suggests that appellate
decisions as to what is meant by opposition tend to be lenient in favour of
companies being petitioned
against.[75]
10.20 This
means that the petitioner’s solicitors can get caught in a situation where
the company petitioned against has done no more than indicate that the company
wants to settle the dispute but a Registrar proceeds and makes an order for
winding-up which is later set aside on appeal on the ground that the Registrar
does not have the jurisdiction to wind-up a company where there is opposition to
the petition.
10.21 It was suggested that there might be a problem in
that a Registrar could hear unopposed petitions but that, if there was even
remote opposition to the petition, the hearing had to be adjourned before a
judge. It was felt that there was a problem judicially in a Registrar
adjourning, for example, a case for two weeks with costs to the Official
Receiver, because a Registrar could only deal with unopposed petitions. He had
no substantive jurisdiction. We consider that there is an argument for allowing
Registrars to have slightly increased powers.
10.22 An example of the
point in question occurred in the case of Hendrarsin and ors v Chong Lai Fee
and anor, when the Court of Appeal considered the question of the
jurisdiction of the Registrar of the then Supreme Court to wind-up companies on
unopposed petitions. In the particular circumstances of the case, it was held
that an unequivocal statement of intention to oppose a petition in the notices
of intention to appear entered by the contributories, reinforced by what the
Registrar had been told about an earlier petition, was clear evidence that the
petition was opposed. The fact that the petition was opposed went to the
Registrar’s jurisdiction to make a winding-up order. It followed that
failure to file an affidavit in opposition or to take out a summons for a stay
or apply for an adjournment could not have conferred jurisdiction on the
Registrar. The Registrar thus had no power to make the winding-up order.
10.23 Under the Insolvency Act, a Practice Direction lists all the
applications that must be heard by the judge. It states that all other
applications shall be made to the Registrar in the first instance, who may give
any necessary directions and may, in the exercise of his discretion, either hear
and determine it himself or refer it to the
judge.[76]
10.24 We
recommend that the Registrar should be able to make a winding-up order in
an unopposed case and that a petition should not be regarded as opposed unless
an affidavit in opposition has been filed by or on behalf of the company. The
Registrar should also be given authority to deal with all matters relating to
filing and service of affidavits, including extensions of time. In practice,
the court may in complex cases give extensions of up to five weeks for the
filing of affidavits.
10.25 The section allows the company, any creditor, or a
contributory, to apply to the relevant court to stay or restrain proceedings
that are pending against the company. The court may stay or restrain any
proceedings on such terms as it thinks fit.
10.26 The provision applies, however, only after the presentation of
the petition and before a winding-up order has been made. The Bar Association
made a submission on the Consultation Paper on Corporate Rescue and Insolvent
Trading to the effect that section 181 might be extended to facilitate a
moratorium under section 166, which provided companies with the power to
compromise with creditors and members. The difficulty with section 166 is that
there is no means by which a company seeking to compromise can be protected from
actions of creditors or members to frustrate the compromise, such as a petition
to wind-up the company.
10.27 The Bar Association submitted that
section 166 might be used both before and after winding-up and that neither the
presentation of the petition nor an order made upon it would, as a matter of
law, finally end the possibility of a scheme for voluntary arrangement. Given
the procedural requirements for advertising and the practical considerations for
fixing dates, there would inevitably be a time lapse between presentation of the
petition and a hearing on the merits which, although not a true moratorium,
would be an effective period of time in which a scheme for voluntary arrangement
could be finalised.
10.28 In addition, once a petition was presented,
the court would have the power to grant a stay of proceedings or execution where
a scheme could be finalised. The submission concluded that if the lack of a
moratorium was considered to be a major defect, consideration could be given to
extending application of section 181 to pre-presentation situations.
10.29 The Report on Corporate Rescue and Insolvent Trading
rejected the suggestion for a variety of reasons, including points made that
section 166 was an open-ended procedure which was not desirable, that use of
section 166 could result in limitless court applications, and that section 166
had no proper procedural structure on which to process a workout. Ultimately,
however, the Report considered that the recommendations for provisional
supervision would render use of section 166
redundant.[77] We remain of the view
that there is no reason to extend the application of section 181 to the period
before the presentation of the petition.
10.30 Prior to the publication of the Consultation Paper, Mrs.
J. C. Olivier, then of the Legal Aid Department submitted that:
“To enable petitions to be registered as lites pendantes: In relation to the existing winding-up provisions, I would like to see the introduction of an explicit statutory provision to enable ‘winding-up petitions’ to be registered in appropriate land registers as lites pendantes, where land property or interest therein forms part of the assets of a debtor company. Such registration would provide for early protection of assets and be of great assistance to this Department.
I would emphasise the word ‘statutory’. I am at present of the opinion that such a power can be inferred from the provisions of the Land Registration Ordinance but this opinion is not shared by the Land Registrar who refuses to accept winding-up petitions as lites pendantes on the general premise that as a rule there is no reference to land etc. in the body of a petition and accordingly in his opinion there is no compliance with the interpretation of lites pendantes in section 1A of the Land Registration Ordinance.
The interpretation of lites pendantes in section 1A is :
(a) any action or proceeding in a court or tribunal that relates to land or an interest in or charge on land; and
(b) a bankruptcy petition.
You will note the anomaly between winding-up and bankruptcy procedure. As a rule a bankruptcy petition also does not refer to land etc. therein but same is specifically included in the interpretation of lites pendantes.
My research on this issue does indicate that in the late 19th & early 20th century, the companies legislation in England provided for such registration of winding-up petitions but the statute law developed since has ‘lost’ this provision. Indeed it is interesting to note that winding-up petitions are considered lites pendantes in certain states of Australia, with mandatory registration, as it is also in Malaysia and Singapore.”
10.31 The
Consultation Paper indicated that it did not intend to arbitrate in the
dispute as to whether a winding-up petition was a lis pendens as defined
under the Land Registration Ordinance (Cap. 128). The Consultation Paper
expressed uncertainty as to whether a winding-up petition should be registrable
as winding-up proceedings were not an in rem claim since they did not
relate to the title or status of property. The Consultation Paper stated
that winding-up proceedings only related to the status of the company being
petitioned against.
10.32 The Consultation Paper considered
that, in any event, there were already adequate facilities for searches against
winding-up petitions, as a search against a petition could be made in both the
Official Receiver's Office and in the High Court Registry. The Consultation
Paper pointed out that the Official Receiver's Office kept a computer record
of all petitions filed and that the High Court Registry would be computerised in
late 1998.
10.33 We received three submissions in support of the
original submission of Mrs. Olivier and we are persuaded to recommend that
lites pendentes in windings-up by the court should be registered in the
Land Registry as a matter of course.
10.34 To give effect to this, we
recommend that the Official Receiver, as recipient of copies of all bankruptcy
petitions and petitions for winding-up by the court, should be obliged to
register these petitions in the Land Registry. We understand that this
recommendation would broadly follow the position in England and Wales where a
petitioner can register a petition in the Land Registry under the Land Charges
Act and with the Official Receiver.
10.35 The section provides apparently strict wording that any
attachment, sequestration, distress or execution against the estate of the
company after the commencement of the winding-up “shall be void to all
intents”. The actual position is not so strict, however, as sections
181 and 186 provide the court with a discretion to allow proceedings to continue
if the court thinks fit. Also, section 269 restricts the rights of creditors in
relation to attachment or execution in cases where a company has been
wound-up.
10.36 There was a suggestion in the Insolvency Sub-committee
that the strict wording of the section should be amended to reflect the actual
situation but we note that the same wording is used in the United Kingdom,
Australia and Singapore and we consider that it would be best that Hong Kong
should remain in step with these
jurisdictions.[79]
10.37 The section provides that where a winding-up order has been
made, or a provisional liquidator has been appointed, no action or proceeding
shall be proceeded with or commenced against the company except by leave of the
court, and subject to such terms as the court may impose. We refer to the
comments on this section under section
209A.[80]
10.38 We received a submission that the principles of sections 183
and 186 should be applied to a creditors' (insolvent) voluntary winding-up in
that the pari passu principle and the concept that claims should be dealt
with in the proof procedure should apply. The submission noted that it appeared
that section 186 was already applied to voluntary windings-up on an application
under section 255, the burden being on the liquidator to satisfy the court on
why the stay should be granted. The submission considered that it would be
preferable to have an automatic stay of proceedings in a creditors' (insolvent)
voluntary winding-up, and for a claimant to be able to apply to the court to
uplift the stay for a good reason. We support this submission and
recommend its adoption.
10.39 A submission was received as to whether quasi-judicial actions,
such as arbitration, quasi-criminal actions such as offences under the Companies
Ordinance, Import and Export Ordinance (Cap. 60) and administrative actions such
as those taken by the Trade Department against traders who breached any of the
provisions of the textile control system, were caught by this section and
whether assets affected by these actions were available to creditors.
10.40 We have heard of no such problems. As regards arbitration
proceedings we are of the view that they are unlikely to proceed once winding-up
proceedings have been instituted and insolvency practitioners on the Insolvency
Sub-committee have had no problems with arbitrations. We note that section 5 of
the Arbitration Ordinance (Cap. 341) makes some provision for bankruptcy but
appears to make no provision for winding-up. For the avoidance of doubt, we
recommend that provision should be made in the Companies Ordinance that
an arbitration clause in a contract should not, in the absence of substantial
dispute, be sufficient to preclude a right of a petitioner to petition to
wind-up a company.
10.41 We note the decision in Hollmet AG &
Another v Meridian Success Metal Supplies Ltd
[81] where the court held that
it was the underlying contract, not the winding-up proceedings, that was the
subject matter of an arbitration agreement and that the court’s
jurisdiction was not ousted merely because a contract provided that disputes
should go to arbitration. It may be noted that the court added that once
arbitration proceedings had been commenced the matter was different because it
might then be said that there was not a debt owing.
10.42 As regards
fines and penalties under the Companies Ordinance and other Ordinances, we note
that the Report on Bankruptcy recommended that fines were not provable by
the Government.[82]
10.43 We were advised by the Trade Department that a liquidator or
receiver appointed by the court was allowed to dispose of the existing quota of
a company but that the liquidator or receiver could accept allocation of new
quotas on behalf of the company.[83]
[61] See sub-section (1)(a) and (c) respectively.
[62] See sub-section (1)(d) and (e) and sections 147(2)(a) and 177(1)(c) and (2).
[63] Re Emmadart Ltd. [1979] Ch. 540.
[64] Re Instrumentation Electrical Services Ltd. (1988) 4 BCC 301.
[65] Re Equiticorp International plc [1989] 4 BCC 310.
[66] See paragraph 15.15.
[67] Re Emmadart Ltd. [1979] Ch. 540, paragraph 10.2.
[68] See The Law of Insolvency, Ian F. Fletcher, 2nd edition, page 534.
[69] See generally Chapter 3.
[70] See paragraphs 5.2 to 5.6 of the Consultation Paper.
[71] See Chapter 29.
[72] Re DJH Consultants Ltd. and Others, (1984) Civil App No. 164, Re Cirtex Co Ltd., [1987] 3 HKC 13, Re Yick Fung Estates Ltd. and Re Shui Hing Investment Co. Ltd. CWU Nos. 100 and 101 of 1984 reported as Waychong Enterprises Ltd. and anor. v Yick Fung Estates Ltd.(1985) HC No. 4298 of 1983, see [1986] HKLR 240, CA, and note also Re Universal Information Ltd. (1995) CWU No. 187 of 1995.
[73] Re Rica Gold Washing Co. (1879) 11 Ch. D. 36, at paragraph 8.4.
[74] Note the recommendation under section 170 on expanded circumstances where a contributory can present a petition at paragraphs 8.4 to 8.6.
[75] Note that under the Companies (Winding-up) Rules, rules 30 and 32 any person who intends to appear on a petition must give notice of his intention and affidavits in opposition to a petition must also be filed.
[76] Practice Direction No. 3 of 1986 (United Kingdom).
[77] See the Report on Corporate Rescue and Insolvent Trading, October 1996, paragraphs 1.1 to 1.7.
[78] Note the comment on sections 182, 183 and 186 at paragraphs 14.22 to 14.24.
[79] United Kingdom Insolvency Act, section 128(1), the Australian Corporations Law, section 468(4), and the Singapore Companies Act, section 260.
[80] See paragraphs 14.22 to 14.24.
[81] [1997] HKLRD 828.
[82] See the Report on Bankruptcy, paragraphs 15.29 to 15.49 and section 34(3A) of the Bankruptcy Ordinance.
[83] There will be no restrictions on exports of textile products by 2004.