Introduction

In the recent decision of Re Hin-Pro International Logistics Limited CACV 54/2016, the Court of Appeal confirmed that the court has jurisdiction to grant leave to petitioner to amend a creditor’s winding-up petition to include post-petition debts.

Background

Compania Sud Americana De Vapores S.A. (the “Petitioner”) presented a creditor’s winding-up petition (the “Petition”) against Hin-Pro International Logistics Limited (the “Company”) on 18 August 2014. The Petition originally only included one debt (the “Original Debt”) which no longer subsisted after the underlying costs order made by the courts in Hong Kong was discharged on 15 October 2014. On 1 December 2014, the Petitioner made application for leave to re-amend the Petition to substitute the Original Debt with eight debts which accrued after the presentation of the Petition (i.e. after 18 August 2014).

The Court of First Instance ruled in favour of the Petitioner and the Company appealed.

Issues before the Court of Appeal

There are two issues before the Court of Appeal, namely:

1.       whether the court has jurisdiction to grant leave to petitioner to amend a creditor’s winding-up petition to include post-petition debts; and

2.       if the court has such jurisdiction, whether the court should exercise the discretion to grant the leave in favour of the Petitioner.

Decision of the Court of Appeal

Jurisdiction

Upholding the decision of the Court of First Instance and following the decision of Neuberger J in Re Richbell Strategic Holdings Ltd [1997] 2 BCLC 429, the Court of Appeal held that the Eshelby rule (which applied to writ actions) does not apply to creditor’s winding-up petition. According to the Eshelby rule, the court cannot allow amendment of writ to bring in a cause of action which did not exist at the time the writ was issued, unless both parties agreed.

The courts relied on the following four differences between a creditor’s winding-up petition and a writ action to justify applying a less stringent test to an application seeking to amend a petition than an application seeking to amend a writ:

1.       Since the petitioner of a creditor’s winding-up petition is asserting a class remedy on behalf of all creditors of the company, it is in public interest to stop insolvent company from continuing to trade and to allow orderly distribution of its assets among its creditors. Such public interest is normally absent in a writ action.

2.       The public interest consideration is also reflected in the lower threshold for other creditors of the company to participate in a creditor’s winding-up petition than that for non-party to intervene a writ action. Other creditors can give notice of intention to appear as supporting or opposing creditor in a creditor’s winding-up petition, regardless of whether he was relying on pre-petition or post-petition debts and regardless of whether that creditor had an interest in the matter between the petitioner and the company. In contrast, in order for a non-party to intervene a writ action, he must have an interest in the matters in dispute between the plaintiff and the defendant or satisfy the court that “there exists a question or issue which in the opinion of the court it would be just and convenient to determine between him and a party to the action”.

3.       It is in public interest to preserve the commencement date of the winding up order so that if the petitioner fails to advertise his petition or consents to withdraw his petition etc, there is a mechanism for substitution in creditor’s winding-up proceedings. Such mechanism allows the court to substitute the petitioner with any creditor who has a right to present a petition, whether relying on pre-petition or post-petition debts.

4.       A creditor can rely on a future debt to present a winding-up petition as a prospective creditor pursuant to section 179(1)(c) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) while a plaintiff in a writ action can only sue for recovery of accrued debts.

In addition, the Court of Appeal agreed that Order 20 rule 5(1), 7 and 8 of the Rules of the High Court (Cap. 4A) give the court wide and general discretion to allow amendment at any stage of the proceedings for the purpose of determining the real question in controversy and there is nothing in Order 20 rule 5 that bars the power of the court to allow petitioner to amend a creditor’s winding-up petition to include debts accrued after its presentation.

Discretion

After deciding the court has jurisdiction to allow amendment to include post-petition debts, the Court of Appeal upheld the decision of the Court of First Instance to exercise the discretion in favour of the Petitioner for two reasons:

1.       allowing such amendment can avoid the multiplicity of proceedings and unnecessary waste of costs, time and the court’s resources that will result if the court rigidly insist a fresh petition in the present case; and

2.       allowing such amendment would not cause the Company to suffer any substantive prejudice, the Company can always apply to strike out the re-amended Petition or oppose it at the substantive hearing of the Petition if the Company has a bona fide defence on substantial grounds.

Conclusion

In conclusion, the Court of Appeal ruled that the court has jurisdiction to grant leave to petitioner to amend a creditor’s winding-up petition to include debts accrued after its presentation. This decision is to be welcomed as it would avoid insolvent companies unreasonably prolonging their lives by technical arguments.

 

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: insolvency@onc.hk                                   T: (852) 2810 1212 W: www.onc.hk                                             F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2016