Winding-up – committee of inspection (“COI”) – dissolution – whether court had jurisdiction to order dissolution against creditors’ wishes – COI not to be dispensed with save for good reason
FW, a creditor of C, failed to register at the Companies Registry a charge over C’s sole asset (the “Property”) executed in September 2010 and, upon a winding-up order being made against C on 7 August 2012, became void against C’s liquidators (“Ls”) and creditors. On 24 September 2012, RGL obtained a court order for a 28-day extension to register at the Companies Registry a floating charge over a loan to C executed on 26 January 2011 “without prejudice to the rights of any creditors acquired between 1 March 2011 ... and the date of registration pursuant to the order” (the “Proviso”). The value of the Property for the purposes of proof of debt for voting was the forced sale value of HK$360 million. Ls took the view that the Proviso gave FW priority to RGL. FW claimed that view was wrong as RGL’s current debt was HK$283,361,816.49 and FW’s debt was HK$98,234,621.92, FW was an unsecured creditor for HK$21,596,438.41. FW sought the convening of a new meeting of creditors to vote on the membership of the Committee of Inspection (“COI”), by replacing two of its three members with FW’s representatives. Ls applied for the dissolution of the COI on the ground that it would be unconstructive and partisan, since all but one of the creditors had divided into two camps, namely one comprising two sisters, and the other comprising companies owned or associated with X including FW and RGL which had to date been unhelpful to Ls. At issue was whether: (a) in respect of FW’s proof of debt for voting purposes, by virtue of the Proviso, FW had priority over RGL and so was fully secured; and (b) in the absence of express provision in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (the “CWUO”) or the Companies (Winding Up) Rules (Cap. 32H, Sub. Leg.), the Court had jurisdiction to dissolve a COI which had already been appointed against the wishes of the creditors.
Held, dismissing Ls’ application, that:
- The Proviso did not remedy the consequence of FW’s failure to register its legal charge. Inter alia, it was only rights acquired during the Proviso period that acquired priority. Thus, a creditor who had failed to register his security did not acquire priority over a subsequent creditor who applied successfully to extend the date for registration of his charge. FW was entitled to vote the unsecured portion of its debt for HK$21,596,438.41 under the Proof of Debts Rules (Cap. 6E, Sub. Leg.) which were applicable under s. 264 of the CWUO.
- If a liquidator considered that after a COI had been approved by the court under s. 206(1) of the CWUO, that for any reason (other than vacancies) it should be dissolved, he should ask the Official Receiver to issue the application, which in practice would be made by the liquidator. Ls’ application should therefore fail.
- In any event, a COI assisted the court in its supervisory role over the liquidators and obviated the need for time-consuming and costly applications to the court. It also ensured that the liquidation process protected and advanced the interests of the creditors. A COI was not to be dispensed with save for good reason. Possible inconvenience to the liquidators and difficulties arising from conflicts of interest and bias were not themselves a reason to dispense with a COI. Here, there was insufficient reason to dissolve the COI, even if Ls were able to apply for an order other than through the OR.
