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Hong Kong Law Reform Commission |
8.1 The section makes general provision for the circumstances under
which contribution by contributories may be made to the assets of a company
which is being wound-up.
8.2 The Insolvency Act, section 76, provides that where a payment has
been made out of the capital of a private company for the redemption or purchase
of the company's shares, and the company is wound-up as insolvent within a year
of the date of the redemption or purchase, the recipient of the payment may be
obliged to repay the amount paid in whole or in part. In addition, the
directors who made the statutory declaration for the purposes of the redemption
or purchase may also be jointly and severally liable to make repayment with the
recipient.
8.3 There is no corresponding provision under the Companies
Ordinance and, as it would be useful to set out the potential liability of past
directors and shareholders, we recommend that the provision be placed in
the Companies Ordinance. We received one submission to the effect that the
potential liability should be extended to a two-year period and that a
liquidator should be obliged to demonstrate that the company was insolvent at
the date of redemption or purchase as, otherwise, a share purchase in good faith
followed by a catastrophic event which left the company insolvent could place an
unexpected and unfair burden on the contributories. We do not support this
submission.
8.4 The adoption of a provision similar to section 76 of the
Insolvency Act would effect a change in the circumstances of contributories. At
present, contributories are entitled to petition for the winding-up of the
company only in limited
circumstances,[42] the policy behind
which is to prevent a person from buying shares in order to qualify himself to
harass or wreck a company. In addition, there is a common law requirement that
a contributory normally has to establish a financial interest in the obtaining
of an order and therefore a contributory whose shares are fully paid up needs to
establish that the company is probably solvent so that there is a prospect of a
return of capital to the members at the conclusion of the
winding-up.[43]
8.5 The new
provision would upset the assumption behind the policy as, in this case, the
contributory as petitioner would be faced with the prospect of personal
liability and therefore he would have the standing to present a petition. The
Insolvency Act has therefore
provided[44] that a person who is
liable under section 76 to contribute to the assets of the company may petition
on the grounds as set out in the Companies Ordinance, section 177(1)(d) and
(f)[45], that a company is unable to
pay its debts or where the court is of the opinion that it is just and equitable
that the company should be wound-up. We recommend that this provision
should be
adopted.[46]
8.6 We received
a submission that to limit abuse of the provision a contributory who intended to
present a petition should be obliged to obtain a certificate from a Master that
his case passed the test for an action on which a petition could be presented.
We do not support the submission.
8.7 The Insolvency Act, section 79(3), provides that a person who is
liable under section 76 of the Insolvency Act is not regarded as a contributory
for the purposes of the articles of association of the company. We received no
submissions on the point and recommend that this provision should be
adopted.
8.8 It has been suggested that the use of the word
“contributory” in these provisions assumed that a company had
already been wound-up and it would follow that the sections assumed a
pre-existing winding-up. We are unsure as to what the position would be if a
contributory died before the winding-up. For the sake of clarity, we
recommend that the provisions should state that they apply to a person
who died either before or after the date of the winding-up.
8.9 No provision is made for the demise of insolvent companies, which
are just as likely to be contributories as natural persons. We recommend
that provisions should be made for insolvent companies in sections 173 and 174.
[41] Note section 180. It is not necessary for a contributory to prove that a company has a surplus available for distribution.
[42] Companies Ordinance, section 179(1)(a). The Insolvency Act equivalent is section 124(2). Note also section 257 of the Companies Ordinance.
[43] The Law of Insolvency, Ian F. Fletcher, 2nd edition, page 535. See Re Rica Gold Washing Co. (1879) 11 Ch. D. 36.
[44] Insolvency Act, section 124(3).
[45] The Insolvency Act equivalent being section 122(1)(f) and (g).
[46] Note the comments on contributories under section 180.
[47] Note Ng Yat Chi v Max Share Ltd. & Another [1998] HKLRD 866 CFA.