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Updates on Practice Direction regarding Bankruptcy and Winding-up Proceedings

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Authored by: Adeline Ng

The Judiciary announced updates to some Practice Directions on 4 July 2023, which include updates to Practice Direction 3.1 regarding Bankruptcy and Winding-up Proceedings.  These updates have taken effect on 17 July 2023. 

This article highlights the salient updates in the new Practice Direction 3.1 (“New PD 3.1”).

Lodging of bankruptcy petition

Under Rule 49(9) of the Bankruptcy Rules, the Court may decline to file the bankruptcy petition if it is not satisfied that the creditor has discharged his obligation in respect of the service of statutory demands imposed by Rule 46(2) of the Bankruptcy Rules.

Under the New PD 3.1, for a bankruptcy petition based on the failure to comply with a statutory demand, apart from the bankruptcy petition and the affidavit(s) proving service of the statutory demand, the petitioner is further required to lodge a new document, which is a completed checklist in the form of Appendix A of the New PD 3.1 (paragraph 1.2).  It should be noted that all sections of the checklist should be completed; if not, detailed explanation should be provided.  In the absence of satisfactory explanation, requisition will be raised, which may also delay the processing of the application.

The New PD 3.1 (paragraph 1.3) specifies that generally the solicitors lodging the petition will receive leave to file the petition or requisition(s) raised by the Master within 28 days; if not, they may return to the High Court Registry or write to the Master in charge of the Bankruptcy and Winding-up List to ascertain the status.

Service of statutory demand

Rule 46(2) of the Bankruptcy Rules requires the creditor to do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention.  The New PD 3.1 (paragraph 2.1) prescribes the following new steps which are normally regarded as compliance with such obligation:

  1. If the debtor has agreed with the creditor to use any electronic means (which includes emails, WhatsApp, WeChat or other similar means of communications (“Electronic Means”)) to receive any documents relating to the debt, the subject of the statutory demand, or
  1. The debtor has during the period of 12 months immediately preceding the date of the statutory demand used any of the Electronic Means to communicate with the creditor, and
  1. The creditor has sent the statutory demand to the debtor through the Electronic Means.

Application for certificate of compliance

Under Rule 29 of the Companies (Winding-up) Rules, the petitioning creditor has to obtain a certificate of compliance from the Registrar before any winding-up order will be made by the Court.  Under the New PD 3.1 (paragraph 11.3), in addition to the requirement that the petitioning creditor should obtain the certificate of compliance without undue delay, it is expressly stated that in the absence of any good reasons, failure to obtain such certificate within 3 months from the date of the petition may result in the dismissal of the petition.

Service of winding-up petition

The New PD 3.1 (paragraph 12.1) specifies how service of the winding-up petition is to be effected, depending on the type of the subject company in question:

Type of company  How is service effected?
Hong Kong company  At its registered office in Hong Kong
Registered non-Hong Kong companyOn the authorized representative of the company, or The place of business established by the company in Hong Kong  
Non-Hong Kong company with an established place of business in Hong Kong  At the place of business
Non-Hong Kong company which no longer has a place of business in Hong Kong  Service should be effected in accordance with s.803(5)(b) of the Companies Ordinance
Unregistered company which has no place of business in Hong Kong and is not registered under s.777 of the Companies OrdinanceLeave to serve the petition out of jurisdiction must be obtained from the Court

Bankruptcy and winding-up proceedings (other than winding-up petitions on “just and equitable” grounds)

For bankruptcy and winding-up petitions which are uncontested (i.e. no notice of intention to appear has been served, or no notice to show cause has been filed), the New PD 3.1 indicates that it will not be necessary for the petitioner or his representative to attend the hearing; rather, the Court will announce at the hearing of the petition that a bankruptcy or winding-up order is made (paragraphs 13.1 and 13.2).  Please note, however, that the above does not apply to a debtor’s petition for self-bankruptcy (paragraph 13.3).

The New PD 3.1 provides further guidance on how contested bankruptcy and winding-up petitions are to be dealt with, depending on the type of order to be sought (paragraphs 14.2 to 14.5).

Where the Petitioner intends to seek a substantive order from the Court

If the parties are represented, they shall lodge the requisite documents with the Court electronically via the e-Lodgement platform and serve the same on the Respondent and the Official Receiver in accordance with the requirements and deadlines set out in the New PD 3.1.  Failure to do so may result in an adjournment of the petition and the defaulting party may be ordered to pay any wasted costs to the other party irrespective of the merits of the petition.

An unrepresented Petitioner is given an additional option of lodging his skeleton arguments with the Court in hard copy.  It should be noted that an unpresented Petitioner is subject to the same deadlines as a represented Petitioner.

Where the Petitioner intends to seek directions on further conduct of the petition

The parties should comply with the requirements of and deadlines for lodging and service of skeleton arguments.

Where the parties seek an order to dismiss or strike out the petition

If, after a winding-up petition has been advertised and/or gazetted, the parties reach an agreement that the petition be dismissed or struck out, the petition shall be listed for hearing in court and the Court may dismiss or strike out the petition without the parties’ attendance if:

  1. A consent summons signed by all parties (including all supporting and opposing creditors who have filed a notice of intention to appear in the petition) is lodged 2 clear days prior to the hearing; and
  1. Such consent summons makes provision for the costs of the Official Receiver.

Where the parties wish to adjourn a winding-up petition and vacate the Court hearing

If the parties wish to jointly apply to adjourn a winding-up petition and vacate the hearing, the Petitioner shall lodged a consent summons (signed by all parties), together with a letter providing brief reasons or justification for seeking an adjournment.

Case management of creditor’s bankruptcy or winding-up petition

The New PD 3.1 further provides guidance on case management matters relating to a creditor’s bankruptcy or winding-up petition, including:

  1. A respondent opposing the petition shall file a notice to show cause or affidavit in opposition in accordance with rule 68 of the Bankruptcy Rules or rule 32(1) of the Companies (Winding-up) Rules, as the case may be;
  1. No discovery of documents or cross-examination of deponents will be ordered, unless good grounds are shown to justify departure;
  1. Expert evidence may only be filed with the Court’s leave.  Filing expert evidence in the absence of Court’s leave may risk the Court expunging such expert evidence and penalizing the party in default with costs; and
  1. Where there are Chinese exhibits to an affidavit, the party exhibiting such documents should obtain (i) an English translation of the documents which are essential to his case and (ii) the agreement of the other party or submit the same to the Court for certification within the prescribed timeframe.  Alternatively, parties may consider seeking the Court’s directions to dispense with preparation of the English translation.

The updates in the New PD 3.1 seek to streamline certain aspects of bankruptcy and winding-up proceedings and bring certain requirements up-to-date with modern communication practices (e.g. allowing service of statutory demand by Electronic Means and lodging of documents electronically).  Parties to bankruptcy and winding-up proceedings should familiarize themselves with the New PD 3.1 to avoid complications and/or delay to the proceedings and adverse costs consequences.

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