IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING-UP) PROCEEDINGS NO 107 OF 2012

Transcription

1 W 107/2012 (W-) of edagogic nnovations imited and of ections 177(1)(f) and 168 of the ompanies rdinance, (hapter 32) W and etitioner W 1 st espondent Y 2 nd espondent 3 rd espondent efore: on arris in hambers ate of earing: 8 ovember 2013 ate of udgment: 8 ovember 2013

2 have before me an application issued by the etitioner to stay a winding up of the 3 rd espondent ( ompany ) commenced on 5 ugust 2013 by a resolution of its director purportedly passed pursuant to s 228 of the ompanies rdinance. he etitioner was represented by r ose aurellet and iss onnie ee, and the 1 st and 2 nd espondents by r incent ung. 2. he background to the application is this. n 30 arch 2012 the etitioner issued a etition pursuant to s 168 and in the alternative seeking relief under s 177(1)(f) of the ompanies rdinance arising from alleged unfair prejudice. he allegation of the etitioner and the 1 st and 2 nd espondents who are the shareholders owning 75% of the ompany s capital and in the case of the 2 nd espondent, its sole director, have also resulted in leave being granted to the etitioner to commence a derivative action on behalf of the ompany against the 2 nd espondent and proceedings by the ompany, under the control of the 1 st and 2 nd espondents, against the etitioner. 3. n 5 ugust 2013 the sole director, the 2 nd espondent, caused a resolution to be passed pursuant to s 228. ection 228 of the ompanies rdinance provides: (1) he directors of a company or, in the case of a company having more than 2 directors, the majority of the directors, may, if they have formed the opinion that the company cannot by reason of its liabilities continue its business, resolve at a meeting of the directors and deliver to the egistrar a statement in the

3 - 3 - specified form (the winding-up statement), signed by one of the directors, certifying that a resolution has been passed to the effect that (a) (b) (c) the company cannot by reason of its liabilities continue its business; they consider it necessary that the company be wound up and that the winding up should be commenced under this section because it is not reasonably practicable for it to be commenced under another section of this rdinance; and meetings of the company and of its creditors will be summoned for a date not later than 28 days after the delivery of the winding-up statement to the egistrar. 4. he 2 nd espondent used the ompanies egistry standard form W2 and gave in section 3 the following reasons for winding up the ompany under 228: 1. he company s bank account has been frozen by a winding up petition leading to lack of cash for daily operation. 2. eluctant of shareholders in providing further financial support. 3. arrying on business under this situation will prejudice creditors interest. 5. notice of meeting of creditors dated 9 ugust 2013 was issued by the 2 nd espondent stating that a voluntary liquidation was commenced on 5 ugust 2013 and that s Wong ing ai was appointed rovisional iquidator. 6. n 21 ugust 2013 s Wong wrote to the etitioner s solicitors. s Wong said, amongst other things, this in her letter: n any event, as the ompany has gone into liquidation, all matters, including causes of action accruing to the ompany or against the ompany are to be pursued and conducted by the iquidators who will be appointed at the creditors meeting., therefore, expect that:-

4 n respect of 945/2013, no action be taken unless with the express instructions from ourselves as rovisional iquidators of the ompany or from the iquidators (when appointed); 2. n respect of W 107/2012, as the ompany is in winding up already, expect the proceedings be dismissed or stayed indefinitely; and 3. n respect of 965/2012, as the ompany has been put into liquidation, ection 182 of the ompanies rdinance would prevent the ompany disposing of assets. request you to give a general stay to the proceedings so that the rovisional iquidators/iquidators could assess the matter before responding to you (acting for the efendants). f necessary, shall consider applying for a stay of proceedings. 7. n 30 ugust 2013 a meeting of creditors took place and s Wong ing ai and r eung hung Yin were appointed the joint and several liquidators of the ompany. 8. he etitioner challenges the commencement of the voluntary liquidation on 2 grounds. irst, that the s 228 procedure was improperly invoked and this of itself justifies staying the winding up. econdly, that s 228 has been misused, it is, says the etitioner, an attempt to avoid a trial of the etitioner s complaints, and points to s Wong s letter of 21 ugust 2013 as demonstrating what must have been appreciated by the 1 st and 2 nd espondents to be the disruptive consequences of a winding up. 9. will deal with the 2 objections in reverse order. t is clear that as the 1 st and 2 nd espondents control the board of the ompany and could pass a resolution of members to put the ompany into liquidation, that whatever flaws there may have been in the use of s 228 they could lawfully seek to achieve the same result that they purported to achieve through s 228. r aurellet argued that if the etitioner had received

5 - 5 - notice of an extraordinary general meeting to pass a resolution to put the ompany into liquidation, his client could have applied to enjoin the ompany. have some difficulty seeing how this would have been the correct course as it would have been possible to continue with the unfair prejudice petition. he derivative action could have either been continued by the liquidator or leave sought to continue it under s 186 which, if there was any doubt about the desirability of leaving the matter with the liquidator, could have been granted in order to ensure that the etitioner s complaints were not stifled by the liquidation. 10. t follows from what have said above that it was open to the 1 st and 2 nd espondents to put the ompany into voluntary liquidation by a resolution of shareholders. 11. erhaps paradoxically, given the argument have just addressed, this is the basis upon which the etitioner says that s 228 was improperly used. ection 228(1)(b) provides that: (b) they consider it necessary that the company be wound up and that the winding up should be commenced under this section because it is not reasonably practicable for it to be commenced under another section of this rdinance; f it was reasonably practicable for a member s resolution to be passed the 2 nd espondent could not, if properly advised have thought that s 228(1)(b) was satisfied. r aurellet took me to ozell sia (olding) td v nternational td & nor [1997] 1; nvestment td v nternational ecurities () td & rs 4211/2003 (nrep) 14 ctober 2005; nvestment td v nternational ecurities () td & rs 369/2005 (nrep) 6 ebruary 2008, which he submits establishes that s 228 is only to be used where there is

6 - 6 - no reasonable practical alternative procedure to wind up the ompany not simply because the directors think that it is more convenient. 12. r ung very fairly accepted at the outset both that an extraordinary general meeting could have been convened and a member s resolution passed and that it could not be fairly suggested that the need to wind up the ompany was so urgent that the swifter procedure provided by s 228 was necessary. e argued that in the present case it was quite clear that the majority wanted the ompany wound up and that any defect in using s 228 was purely technical. his is not, he said, a case like in which the board deprived the shareholders of the opportunity to decide the matter. 13. accept that if the decision to wind up the ompany had been left to the shareholders the result would have been the same. owever, it seems to me that the following are determinative of the matter. irst, s 228, uses very clear language and it is to be applied strictly. nless a genuine reason exists for using its procedure rather than convening an extraordinary general meeting, it cannot be used. f it is wrongly used the resulting liquidation has been wrongly commenced. econdly, it is important that the requirement for a company to hold meetings of members to decide important issues is respected. embers are entitled to be informed of important matters affecting a company s affairs (and there can be nothing more important than the suggestion that a company be wound up) asking directors questions and exercising their voting rights. r ung s submission amounts to a suggestion that those rights can be ignored if the views of the majority are known and immutable. disagree.

7 or these reasons in my view the resolution passed on 5 ugust 2013 was defective and the liquidation wrongly commenced. will, therefore, order that the winding up commenced on 5 ugust 2013 be stayed. (onathan arris) udge of the ourt of irst nstance igh ourt r ose aurellet and iss onnie ee, instructed by lvan iu & artners, for the petitioner r incent ung, instructed by.. heng & o, for the 1 st and 2 nd respondents ttendance of the oint & everal iquidators, Wong ing ai and eung hung Yin, was excused he 3 rd respondent: edagogic nnovations imited, was not represented and did not appear