There can be no doubt as to the jurisdiction of the Hong Kong Courts to make a winding-up order in respect of a company incorporated and registered in Hong Kong.  Yet, the Court may also compulsorily wind up any unregistered company in the following circumstances as listed in s327(3) of the Companies Ordinance (Cap. 32) (the “CO”) :-

(a)    if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;

(b)      if the company is unable to pay its debts; or

(c)       if the court is of opinion that it is just and equitable that the company should be wound up.

Who are the “unregistered companies”?

Pursuant to s326 of the CO, “unregistered companies” include any partnership (whether limited or not), association and company not registered under the CO and the Limited Partnerships Ordinance (Cap. 37) but do not include any partnership, association or company which consists of less than 8 members and is not a foreign partnership, association or company.

In the past, it was uncertain whether foreign companies, which may have established a place of business in Hong Kong, and therefore have registered as a Part XI Company under s333 of the CO, could be wound up under s327 of the CO, but the law has since December 2007 made it clear that the “unregistered companies” do include Part XI Companies.

It is in the Court’s discretion to wind up a foreign company

The Court has for a long time exercised jurisdiction to wind up foreign companies where it considered appropriate.  The jurisdiction to wind up a foreign company is flexible.  However, even when the Court considers itself to have jurisdiction, it does not mean that a winding-up order will automatically follow.  The Court always has discretion in the matter.  For example, it will not make a winding-up order if it considers that some foreign court would be a more appropriate forum.  The making of a winding-up order against a foreign company with no assets within jurisdiction and no trading connection, which was continuing to trade in its country of incorporation and elsewhere worldwide is considered highly undesirable.

When will the Court exercise its discretion?

In considering whether to exercise its discretion to set in motion its winding-up procedures under s327 of the CO, the Court has to ensure that the 3 core requirements below are satisfied:

(1)   There had to be a sufficient connection with Hong Kong, which may, but this did not necessarily have to consist in the presence of assets within the jurisdiction;

(2)   There must be a reasonable possibility of benefit that the winding-up order would benefit those applying for it; and

(3)   The Court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.

The 1^st core requirement: A sufficient connection with Hong Kong

On the whole, based on the facts and circumstances of each particular case, the Court is likely to take into consideration the following when considering the connection between the company whose winding-up is petitioned for and Hong Kong.

Ø   Assets within Hong Kong

Whether there are assets within Hong Kong is to be determined as at the moment of the petition is presented.  A classic example is cash deposited in a bank account in Hong Kong, although assets in its widest sense may also cover a right of action in Hong Kong.  English authorities suggested that any assets of the company within the jurisdiction will suffice, they need not be commercial assets, or assets which indicate the company formerly carried on business there.  The assets need not be assets which will be distributable to creditors by the liquidator in the winding-up: it suffices if by the making of the winding-up order they will be of benefit to a creditor in some other way.

Having said that, it was suggested in Re Zhu Kuan Group Company Ltd, unreported, HCCW874/2003, that the mere existence at one time of a single bank account in Hong Kong may not be enough to show a sufficient connection with Hong Kong.  Substantial funds contained in the account during its existence, or significant numbers of transactions in Hong Kong through the account may, however, support a suggestion that the existence of the bank account showed a sufficient connection with Hong Kong.  And in Re Beauty China Holdings Ltd, unreported, HCCW 364/200, the Court commented that cash, cash equivalents and pledged time deposits held in Hong Kong dollars did not necessarily mean that these assets were held in Hong Kong, and even so, it might have been transferred out of the jurisdiction at the time the petition was presented.

Moreover, the existence of assets in Hong Kong and their value to potential creditors of the company are two separate matters.  The existence of assets in Hong Kong may, depending on the nature of the assets in question, serve to demonstrate a real connection with Hong Kong.  This connection can be shown to exist even if the assets are to prove ultimately (for whatever reason) to be worthless, since they may nonetheless demonstrate a substantial commercial or other connection with Hong Kong. 

Ø   The presence of a place of business within Hong Kong

Whether the connection between a foreign company and Hong Kong is sufficient to justify a winding-up order is always a question of fact.  There was an English case which considered a company whose business was in effect running out of a hotel room in the jurisdiction had proved a sufficient connection with the place. 

In Re Information Securities One Ltd [2007] 3 HKLRD 786, [2007] 4 HKC 383, although the company had declared that it ceased to have a place of business in Hong Kong, the Court took into account evidences which showed the company's central management remained based in Hong Kong, the fact that prior to the appointment of the liquidators, its principal place of business was in Hong Kong and the fact that one of the two executive directors was a resident in Hong Kong, and concluded that its connection with Hong Kong was sufficiently close.

In Re Zhu Kuan Group Company Ltd, the substantial borrowings of the company from Hong Kong financial institutions were considered to have demonstrated its strongest connection with Hong Kong in that case, which showed that Hong Kong was a significant centre for the raising of the company’s funds, and thus the company must have carried on business/ part of its business in Hong Kong.

In Re Beauty China Holdings Ltd, the fact that the company had in its own annual report stated an Hong Kong address as its “head office” and “principal place of business”, together with the fact that the company provided an Hong Kong address as the only available address on its website, coupled with other documentary evidences in relation to the company which stated an Hong Kong address as the address of the company (for example, the minute of a board meeting had shown that the director’s meeting was held in Hong Kong) invited the Court to conclude that this Hong Kong address was more than a correspondence address but was in fact an address where the company has carried on business, and thus successfully established a sufficient connection with Hong Kong.

Ø   Choice of law

While an agreement providing that it is to be governed by Hong Kong law (and subject to the jurisdiction of the Hong Kong Courts) is more likely to be considered a close connection with Hong Kong, the Court had in Re Solar Touch Ltd [2004] 3 HKLRD 154 indicated that a jurisdiction/ choice of law clause in an agreement by itself, without other evidence as to where the agreement was negotiated, executed and performed, was not enough to demonstrate a sufficiently close connection with Hong Kong to justify the Court granting a winding-up order.

Ø   Other substantial connection with Hong Kong

The above is not an exclusive list of factors that the Court is entitled to consider when determining whether or not to exercise its discretion to wind up an unregistered company, any one of the above condition will not in every case, by itself, necessarily be sufficient.  The Court may, based on the facts and circumstances of each particular case, take into account any relevant evidence such as a company’s shareholding in some other company incorporated in Hong Kong.

In Re Beauty China Holdings Ltd, the company’s description of its own business as “a company led by Hong Kong management and local experts” in its annual report and the fact that the product of the company was available in more than 30 outlets in Hong Kong and Macau was found to denote its connection with Hong Kong.

The 2^nd core requirement: Reasonable possibility of benefit if the company is wound up

Secondly, the Court must be satisfied that there is a reasonable possibility that someone is going to benefit from the winding-up of the company.

If it can be shown that the assets in Hong Kong are in fact worthless, although it may be sufficient to satisfy the 1^st core requirement by showing a close connection with Hong Kong, it may nonetheless suggest that there will be no benefit to the creditors from the winding-up of the company in Hong Kong.

Yet, it does not mean that this is a requirement too hard to satisfy.  The Court had in the case of Re Beauty China Holdings Ltd pointed out that the liabilities of a subsidiary exceeding its assets did not mean that there was no prospect of some recovery for the creditors of the company.

Similarly, the Court had in the case of Re Zhu Kuan Group Company Ltd refused to reject the possibility of recovery from a shareholding of a HK$2 company which had never carried on any business and whose financial position or purpose was not backed up by any evidence.

Moreover, the Court readily considered the ability of the liquidators of the company to undertake investigations in Hong Kong in relation to various matters (both by their own efforts and through the use where necessary of private examinations under s221 of the CO) a benefit to the creditors of the company from the making of a winding-up order because the use of such powers may result in the obtaining of information that could lead to recoveries in Hong Kong, or in other places by the liquidators appointed there.

The 3^rd core requirement: Petitioner’s connection to Hong Kong

Thirdly, there must be someone subject, or at least submitting, to the jurisdiction.  Usually this requirement is easily satisfied as the Court should be able to exercise jurisdiction over some if not all the petitioners and/or supporting creditors in Hong Kong who should not by themselves preclude the Court from making a winding-up order.

Recognition of foreign insolvencies

On a separate note, while the Court recognizes foreign liquidations in respect of a foreign company where a principal liquidation is taking place under the law of the company's incorporation,  Re Information Securities One Ltd illustrates that a foreign representative under a foreign liquidation has to initiate a new liquidation in Hong Kong.  There is no ancillary process whereby a foreign representative can seek the assistance of the Hong Kong Courts without a full scale winding-up proceeding.  The test for the Court to exercise its discretion in an ancillary liquidation is the same as discussed above.