Introduction

In the recent case of Shearman & Sterling (a firm) and others v Asia-Pac Infrastructure Development Limited (in creditor’s voluntary liquidation) and others [2022] HKCFI 218, which concerns an application for removal of liquidators, the Court, after having considered the requisite locus standi for making such an application in detail, dismissed the application, finding that the applicants lacked the standing.

Background

The 1^st Defendant (the “Company”) is a company in creditors’ voluntary liquidation. The 2^nd and 3^rd Defendants (“Tang” and “Hou” respectively) are the liquidators of the Company. The Company is one of the plaintiffs in HCA 806/2006 (“806 Action”) whilst the Plaintiffs (the “Shearman Parties”) are the defendants.

Upon applications of the Shearman Parties, the Company was on 6 December 2011 and 19 November 2014 ordered to provide security in the total sum of HK$4.4 million for the Shearman Parties’ costs in the 806 Action up to and including exchange of witness statements and expert evidence. The Company has made the payment‑in as ordered.

On 10 April 2017, the Shearman Parties applied to uplift the funds paid in by the Company to satisfy their costs of HK$2.4 million, but subsequently withdrew their application on 10 November 2017. The reason why the Shearman Parties did not continue with their application was that they could not be certain that the plaintiffs in 806 Action would then “top up” the amount paid into Court to cover the payment out.  It was further said that the costs Shearman Parties had spent up to 27 June 2018 on the 806 Action far exceeded the amount of payment‑in.

By way of originating summons dated 18 December 2017, the Shearman Parties sought for replacement of Tang and Hou as liquidators of the Company (the “Removal Application”) pursuant to s.252 of the Companies (Winding up and Miscellaneous Provisions) Ordinance, Cap 32 (“Cap 32”) and the Court’s inherent jurisdiction.

The Shearman Parties submitted that their standing in bringing the Removal Application lies in their status as (1) creditors of the Company; and/or (2) defendants in the 806 Action. The Company argued that neither of these gives the Shearman Parties sufficient interest in the relief sought under the Removal Application.

Issues

The issues before the Court include, amongst other things:

1.        Whether the Shearman Parties have locus standi to make the Removal Application?

2.        Whether Tang’s and Hou’s conduct (and in particular that of Tang) have been such that a case has been made out for their removal?

Locus standi for the Removal Application

Under s.252 of Cap 32, the Court may, “on case shown”, remove a liquidator and appoint another in its place. While this section does not contain any limitation on who may make an application to remove a liquidator, the Court does not agree that it should be taken to mean that there is no limitation on the categories of persons who may apply thereunder.

According to Fletcher, The Law of Insolvency (5^th ed, 2017), “standing to apply for removal of a liquidator is restricted to persons who have ‘a legitimate interest in the relief sought’. Even though the Act itself does not expressly limit the category of person who may make the application, the court will not remove a liquidator of an insolvent company on the application of a contributory who is not also a creditor”.  

Citing the above and having also carefully considered a line of authorities, the Court held that the Shearman Parties’ capacity as the 806 Action defendants does not give them the required locus. It would be insufficient for the Shearman Parties to show that they have an interest in making the application or that they may be affected by the outcome of the liquidation. The mere fact that they are the defendants in the 806 Action was not suffice.

Further, the Court also found that the Shearman Parties lacked standi in the capacity as the Company’s creditors. The Court clarified that a creditor has standing to apply to remove a liquidator not by virtue of the “creditor” label, but by virtue of the circumstances where such creditor will be affected by the liquidation that in turn justifies its interest in the choice of liquidator(s). In the present case, the Court noted that the money owed by the Company had already been secured by security for costs paid by the Company in the 806 Action. As such, the Shearman Parties’ position were akin to that of a secured creditor and would be largely unaffected by the liquidation process. Any costs that might have been spent in excess had not yet become payable. Accordingly, they lacked sufficient interest in the relief sought and thus, the locus in making the Removal Application.

Despite the findings that the Shearman Parties lacked sufficient interest in the relief sought, the Court went on to consider the merits of the substantive grounds but concluded that it would also have dismissed the Removal Application on merits.

Conclusion

This case clarifies the necessary standing for a party to bring an application for removal of liquidator(s).  Whilst s.252 of Cap 32 does not specifically contain any limitation on who may make such application, parties shall bear in mind that they must be able to show that they have “sufficient legitimate interest” in seeking the removal of liquidators and trustees in the sense that their interest will be affected by the liquidation process.