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Important Changes under the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016 – Part 2: Streamlining the Winding Up Process

This is the second in a series of articles highlighting the changes to be brought in by the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016 (Amendment Ordinance), which was gazetted on 3 June 2016 and will come into effect on a date to be appointed by the Secretary for Financial Services and the Treasury. Our first article looked at the changes aimed at increasing creditor protection. This article looks at the changes aimed at streamlining the winding up process, which mainly relate to changes to the proceedings of Committees of Inspection.

Committees of Inspection

A Committee of Inspection (COI) may be appointed in a court or creditors’ voluntary winding up to represent the creditors and contributories of the company and to supervise and give directions to the liquidator. The Amendment Ordinance introduces a number of changes aimed at simplifying the proceedings of COIs and promoting court-free procedures, thereby reducing the time and costs involved in the winding up process. The changes include the following:-

  • Maximum and minimum number of COI members prescribed: A new section prescribes the minimum and maximum numbers of COI members. The minimum is 3 and maximum is 7, although the liquidator can apply to court to vary those numbers.
  • Body corporates will be able to be members of a COI
  • COIs will no longer be required to meet every month: Meetings are to be held as and when determined by the liquidator. The liquidator must summon the first COI meeting within 6 weeks from the date of his appointment or the appointment of the COI, whichever is the later.
  • A COI member can be represented (in relation to COI business) by another person authorised for that purpose by general power of attorney or letter of authority. A COI member cannot be represented by a body corporate, undischarged bankrupt or person subject to a voluntary arrangement with his creditors.
  • COI members can attend COI meetings remotely, with the use of technology. This will allow COI members to attend meetings from different places, thereby saving the time and costs involved in holding and attending such meetings. If the liquidator decides to hold a meeting with remote attendance, he will be required to give10 days’ written notice of the date, time and place of meeting to all COI members. COI members may then choose to go to the meeting at the place specified or join the meeting remotely.
  • Bills of costs or charges of persons employed by the Official Receiver or Liquidator in a court winding up (e.g. solicitors and accountants) which exceed HK$3000 will no longer be required to be taxed by the court, if they have been approved by the COI. This aims to provide a court-free procedure, which in turn will save the time and costs involved in administering winding up cases. Where the COI does not agree the proposed costs or charges, they would be taxed by the court, as under the current regime.

Appointment of solicitor by liquidator

Currently, in a court winding up, the sanction of the court or COI is required for the liquidator to exercise his power to appoint a solicitor to assist him in the performance of his duties. Under the Amendment Ordinance, that still applies, but as an alternative, the liquidator will be able to exercise such power without court or COI sanction, if he has given at least 7 days’ notice of his intention to exercise such power to the COI members (or to the creditors, if there is no COI).

New Form 1A –Statutory Demand

Another new feature under the Amendment Ordinance is a new prescribed form of statutory demand, which should help streamline procedures by reducing disputes in respect of the validity of statutory demands. The usual ground for a winding up petition is that the company is unable to pay its debts, which is shown by its failure to comply with a statutory demand for payment. Currently, the statutory demand does not have to be in any prescribed form, which often leads to disputes regarding its validity where, for example, it omits certain required information. Under the new rules, the statutory demand will be a prescribed form (Form 1A), which clearly specifies what information must be included.

Key Contacts

Richard Hudson

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9680

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