Introduction

In our previous Newsletter “Directors' personal liability for costs for unreasonably opposing a winding-up petition – Part I”, we discussed the case of Re Carnival Group International Holdings Ltd [2022] HKCFI 2668. After that, the Court went on to make an important judgment regarding the Petitioner’s costs. It held the current executive directors (“EDs”) and independent non-executive directors (“INEDs”) of Carnival Group International Holdings Ltd (the “Company”) personally liable for the Petitioner’s costs of and occasioned by the Company’s opposition to the Petition from the time the restructuring of the Company had proved to be fruitless. In contrast to recovering the Petitioner’s costs from the assets of the Company, the Petitioner can directly and speedily recover part of its costs from the directors.

For more details on the history and background to the case, please read our full Newsletter.

What does this mean in practical terms?

There are three key takeaways from the ruling:

1.       Facing a winding-up petition against a listed company. A winding-up petition against a listed company is the most important legal document that all directors must handle carefully. It is usual for the directors of a listed company to consider taking up restructuring proposal, so as to salvage the listed company from going into insolvent liquidation and preserve its listing status. At this juncture, the directors must ask themselves: is there any reasonable prospect for the restructuring plan to succeed?  To adequately answer this question, the listed company is not only expected to engage lawyers and accountants to put forward a restructuring proposal that is impressive on paper, but also to prove so in reality. The directors have to consult all institutional, retail, onshore and offshore creditors to solicit their support for the restructuring plan. If they could secure the agreement of the requisite majorities of creditors of the listed company and its group and implement a restructuring proposal, it has the genuine basis to ask for time from the Court to progress the proposed restructuring.

2.       High standards expected for all directors. There are high standards expected of the directors of listed companies. They are expected to be trusted, and must know the business, operation and financial situation of a listed company well and act in compliance. This duty applies not only to executive directors, but also equally and fully extends to independent non-executive directors. Further, this duty is of a continuous nature. It is anticipated that the directors would closely monitor the restructuring process and make timely reports and disclosure to the Court as to the true progress and financial state of the listed company and the group. If, at any point of time, there are signals of failure or the restructuring plan under discussion becoming unviable, directors have to consider making the painful decision to put the company into liquidation so as to bring into operation the statutory scheme of winding up its affairs and assets.

3.       The Court’s assertive approach against directors. Ultimately, if the directors of a listed company, including its independent non-executive directors, fail to demonstrate to the Court that they have sufficiently considered and scrutinised the restructuring proposal and genuinely believe that the restructuring proposal can be implemented in practice to benefit the creditors, the Court has demonstrated no hesitation to “penalise” them for unreasonably opposing the winding-up petition. And they would be blamed for putting the creditors’ money at risk and wasting the company's assets in opposing the winding-up.