Introduction

A receiver is an individual whose role is to realize sufficient of the charged assets in order to satisfy the company’s indebtedness to its secured creditors. Although a receiver is often appointed by the secured creditors of the company, the Court also has a broad discretion to appoint a receiver. Under Section 21L of the High Court Ordinance (Cap. 4), the Court may appoint a receiver by interlocutory or final order when it appears just and convenient to do so. A receiver appointed by the Court acts as an officer of the Court to discharge the duties in the order appointing him and is not the agent of either the secured creditors or the company. The receiver is also under a duty to exercise the rights of shareholders where necessary to preserve the value of the shares of the company to which the receiver is appointed.

Sometimes, parties to an action might want to apply for an order to appoint interim receivers to a company pending the final determination of the legal proceeding. This might be because there is a risk of dissipation of the assets of the company. Under Order 30 Rule 1(3) of the Rules of the High Court (Cap. 4A), where the applicant wishes to apply for the immediate appointment of interim receivers, he may do so ex parte, which refers to the application brought by one party in the absence of and without representation or notification of other parties. In the recent case of Wong Luen Hang and others v Chan Yuk Lung and others [2015] HKEC 2312 (5 November 2015), the Court of Appeal considered the question of whether it was appropriate to allow application for appointing interim receivers on ex parte basis.

Background

The applicants were the 1^st and 2^nd plaintiffs in several ongoing shareholders dispute proceedings against the defendants. The 1^st and 2^nd plaintiffs and the 1^st and 2^nd defendants each held 25% of the issued shares in two companies (the “Two Companies”). According to the plaintiffs, the 1^st and 2^nd defendants had conspired with other defendants to cause assets and business of the Two Companies to be transferred to a company under the 1^st and 2^nd defendants’ control.  The plaintiffs further claimed that the 1^st and 2^nd defendants had fictitiously caused the Two Companies to be indebted to a company called Myers Management Consulting Limited (“Myers”). As a result, Myers had petitioned for the winding-up of the Two Companies in January 2015, which was discovered by the plaintiffs in mid-January 2015.

On 24 September 2015, the plaintiffs made an ex parte application for the appointment of interim receivers to protect the assets of the Two Companies. On 25 September 2015, the Court of First Instance gave directions that the application should be heard inter partes since there were on-going civil actions between the parties. The plaintiffs then renewed their ex parte application for appointing interim receivers before the Court of Appeal.

Basis of Ex parte Application

The plaintiffs submitted that the ex parte application was brought not on the basis of urgency but in order to preserve the confidential nature of the application. According to the plaintiffs, the 1^st and 2^nd defendants and their conspirators all shared a low level of commercial morality, particularly in light of their scheme to wind up the Two Companies. It followed that if the defendants were given advance notice of the application, there would be a real risk that they would remove or destroy the records and documents of the Two Companies, so as to delay, obstruct or even frustrate any investigation that the interim receivers might carry out into the affairs of those Two Companies.

Findings of the Court

The Court of Appeal considered it worth restating the principle that its role in an ex parte application for interim relief was really to preserve the interim position of the parties pending the determination of the issues in an inter partes hearing.

In assessing whether it was appropriate to allow the plaintiff’s ex parte application, the Court of Appeal made it clear that the appointment of a receiver was an extremely drastic remedy. Therefore, the Court should be vigilant that the relief would only be granted in appropriate circumstances. For instance, it might be appropriate to grant such relief when delay would cause injustice or the respondent would take action that might nullify the effect of the relief.

(1)   Urgency

The Court first addressed the issue of urgency. In doing so, the Court found that the assets of the Two Companies had been transferred since 2011. Also, the attempt to wind-up the Two Companies had already occurred at the beginning of 2015. The Court therefore found that, as admitted by the plaintiffs, there was really no urgency involved in the case.

(2)   Confidential Nature

The Court then went on to address the issue of confidential nature of the application. In particular, it commented that the confidential nature of an application and the question of urgency were not always two separate issues. In the present case, the Court held that to preserve confidentiality by way of an ex parte application might be justified if there was urgency involved. Examples of such urgency included the discovery of more transfer of the assets of the Two Companies. Since the present application did not involve such element of urgency, the plaintiffs were not able to succeed on the ground of confidentiality. However, to ensure that the arguments on confidentiality were fully ventilated, the Court did direct that the name of the case was to be listed simply as ‘Re A’ in the Daily Cause List.

Apart from finding that there was neither urgency nor confidentiality involved, the Court also commented that the plaintiffs had already been engaged in two other separate actions against the defendants. The Court thus held that the plaintiffs should proceed by way of inter partes application for the appointment of interim receivers.

Conclusion

The decision shows the Court’s approach in considering whether to exercise its discretion to allow an ex parte application for appointing interim receivers in ongoing proceedings. It highlights the difficulty an applicant may encounter in persuading the Court to allow such an ex parte application. In essence, the Court held that urgency and confidentiality are not always two separate issues. If an applicant cannot satisfy the Court of the former limb, he/she may likely fail on the latter limb as well.