The High Court Granted Facilitative Orders in Favour of Liquidators against an Uncooperative Ex-Director

The Hong Kong Courts exercise supervisory jurisdiction over liquidations in Hong Kong.  Recently, the High Court reiterated its role to assist liquidators to effectively discharge their duties, in the best interest of the general body of creditors.  In Tiffany Wong and Edward Middleton as Joint And Several Liquidators of China Properties Group Limited v Wong Sai Chung [2023] HKCFI 2346, DHCJ William Wong SC allowed the Liquidators’ application for a mandatory order directing an ex-director of a wound up company to ratify the appointment of one of the Liquidators as the sole director of the company’s four BVI subsidiaries, in the midst of various pending applications in the Hong Kong and BVI Courts.

Background

Upon a judgment creditor’s petition, the Hong Kong Court made a winding up order against the Company on 31 May 2023.  The Company was incorporated in the Cayman Islands and listed on the Main Board of the Hong Kong Stock Exchange.  The Company directly holds four BVI subsidiaries, which in turn hold various Hong Kong and Mainland subsidiaries and the substantive assets and operations of the group.

The Respondent, an ex-director of the Company, appealed against the winding up order, although he did not apply to stay the liquidation.  He also applied to restrain the Liquidators from accessing or inspecting any documents or assets not within their scope of power.  The Company’s directors have been uncooperative with the Liquidators, who are therefore unable to access the Company’s books and records.  The Liquidators have applied to the Hong Kong Court for assistance (i.e. the ‘Omnibus Summons’), which will be heard on 10 October 2023.

Meanwhile, the Liquidators managed to change the directors by updating their registers in the BVI, thereby appointing one of the Liquidators, Ms Wong, as sole director in place of the Respondent.  The Respondent commenced BVI court proceedings for a declaration that he is the sole director and injunctive reliefs against the Liquidators, which is pending before the BVI Courts.

The present application is to compel the Respondent to sign Resolutions to ratify Ms Wong’s appointment as sole director of the four BVI subsidiaries.  The Liquidators said they cannot wait until the hearing of the Omnibus Summons.  They submitted that if they were to do so, the assets of the Company may be at risk having regard to the BVI Proceeding and its uncertain outcome.

The Court’s ruling

DHCJ William Wong SC allowed the Liquidators’ application, directing the Respondent to sign the Resolutions to ratify Ms Wong’s appointment.  The primary reason is that he considered the order is necessary for the Liquidators to proceed with the liquidation, in view of the uncooperative conduct of the Respondent. 

He disagreed with the Respondent’s submission that this application is an abusive attempt to usurp the BVI Proceedings.  In principle, the Company, as shareholder of the four BVI subsidiaries, can by proper resolutions remove and appoint directors of the BVI subsidiaries.  The Liquidators are entitled to act on behalf of the Company and to effect change of directorship in the BVI subsidiaries.

He also disagreed that the Liquidators should be ordered to apply for fresh winding up orders in the BVI Courts in order to gain control over the Company’s BVI subsidiaries.  It will not be cost effective for the Liquidators to apply for a winding up order against each subsidiary.

Key messages

This case is a reminder of the Hong Kong Court’s power and duty to grant such orders to facilitate a liquidation pursuant to a Hong Kong winding up order.  The Court is not obliged to defer its decision until the resolution of pending applications and proceedings in Hong Kong or foreign Courts.

It should be emphasized that DHCJ William Wong SC found Hong Kong ‘definitely’ the Company’s centre of main interest (COMI).  The Company was incorporated in the Cayman Islands and has Hong Kong, BVI and Mainland subsidiaries.  It was listed in Hong Kong and subject to Hong Kong’s legal and regulatory regimes.  In fact, this is a typical corporate structure for Hong Kong listed companies with substantive operations in the Mainland China.  It may be anticipated that the Hong Kong Court will adopt a similar approach to facilitate future requests by liquidators in this type of cross-border insolvency cases.

Just as importantly, the facts and circumstances of each specific case must be considered.  In this case, the key features include the fact that the Respondent never applied to stay the liquidation pursuant to section 209 of the Companies (Winding-Up and Miscellaneous Provisions) Ordinance (Cap. 32).  Although he has appealed against the winding up order and applied to restrain the Liquidators from accessing or inspecting the Company’s documents or assets, he had not made any significant progress in either his appeal or application, despite prompts by the Liquidators.  His uncooperative conduct has even given rise to the Official Receiver’s concern about the lack of progress of the liquidation for about three months.  The Respondent is in Hong Kong and subject to the Courts’ in personam jurisdiction .  In all the circumstances of the case, the Court considered it necessary to grant the facilitative orders sought by the Liquidators.