Is the liquidator’s perceived lack of independence a ground to convert a voluntary winding up into compulsory winding up?
Introduction
In Hong Kong, a company can be wound up by
way of voluntary or compulsory liquidation. In creditors’ voluntary liquidation,
creditors have the right to oversee and participate in the liquidation process,
including the appointment of liquidator. However, disputes between creditors
may arise and some creditors may want the liquidation process to be conducted with
the Court’s sanction. In this recent case of Re Samwell Spare Parts Limited (In Creditors’ Voluntary Liquidation) [2022] HKCFI 2851, the Court revisited the
principles for converting a voluntary winding up to a compulsory winding up.
Facts
Samwell Spare Parts Limited (the “Company”) owed Airbus Helicopters
China HK Limited (the “Petitioner”)
a substantial debt as a result of a partial arbitral award. A special
resolution was passed to wind up the Company by way of creditors’ voluntary
liquidation. By the time of the creditors’ meeting, another camp of connected
creditors (the “Connected Creditors”)
whose debts constituted over 50% of the total amount appointed the liquidator
of their choice (the “Liquidator”).
The Liquidator found that there were
potentially unfair preference payments to some of the Connected Creditors, but did
not pursue further investigations citing that he did not have sufficient funds.
The Liquidator also experienced some delay retrieving the Company’s books and
records and other documents.
The Petitioner was dissatisfied with the
conduct of liquidation and complained that it was not pursued by a liquidator
that is not only independent, but is seen to be independent. The Petitioner applied
to convert the creditors’ voluntary winding up to compulsory winding up. It was
not disputed that the Petitioner is the major independent creditor despite the
parties’ disagreement as to who the majority creditor was after the further
costs award ordered by the arbitral tribunal in favour of the Petitioner.
The Court’s findings
Recorder Rachel Lam SC (the “Recorder”) applied the relevant legal
principles governing conversion as set out in Re STX Pan Ocean (Hong Kong) Co Ltd (in liq) [2014] 5 HKLRD 581 to the facts and found that:
1.
The Petitioner is indisputably the majority independent creditor and its
view is clearly in favor of a compulsory winding up.
2.
There are various matters that require further investigation and it was
not ideal to leave it in abeyance due to a lack of funding.
3.
The views of the majority by number (i.e. the Connected Creditors) are
not decisive and the Court will accord lesser weight to them in view of the
possible unfair preference transactions.
4.
Whilst there is insufficient evidence to suggest that the Liquidator has
been lacking independence, the present arrangements, in particular the
Liquidator’s decision not to proceed with further investigations, leave a
substantial independent creditor with a strong and legitimate sense of grievance.
Infeasibility
of alternative remedy
One of the opposition
raised by the Connected Creditors is that there is another route or remedy
available to the Petitioner, namely the removal or replacement of the
Liquidator.
The Recorder
considered that such alternative is not truly available to the Petitioner. First,
it is impossible for the Petitioner to convene a meeting under section 244A of
the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) to consider the removal of liquidator, which
requires a resolution to be passed by a majority in number and three-fourths in
value of the creditors present and voting on the resolution. Secondly, as there
were insufficient ground or evidence suggesting that the Liquidator was in fact
biased or partial, the Court would not replace the Liquidator under section 252
of Cap. 32. Therefore, the Petitioner was justified in not pursuing these
theoretically available alternative remedies.
Accordingly, the
Recorder ordered that the Company be wound up by way of compulsory winding up.
Takeaway
This case
illustrates that in deciding whether to convert a voluntary winding up to a
compulsory one, the Court would take into account a number of factors, rather
than taking the creditors’ wishes by simple count of heads or debt amount. Further,
the Court is likely to accord less weight to creditors who are reasonably
suspected to be involved in voidable transactions. Whilst the liquidator’s lack
of independence can be a ground for conversion, it is not a requirement.
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Published by ONC Lawyers © 2022 |