Delivery up of documents of insolvent companies to liquidators by former solicitors

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Authored by: Mandy Pang

In Joint and Several Liquidators of Yes! E-Sports Asia Holdings Limited (in Liquidation) v Holman Fenwick Willan (A Firm) [2024] HKCFI 1197, the Court confirmed that solicitors should produce documents of former insolvent clients to liquidators when a request is made under section 286B(1)(d) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (CWUMPO). 

Under section 286B(1)(d) of the CWUMPO, at any time after appointment of a provisional liquidator or a winding up order having  been made, the court may  order any of  the following to produce any books and papers in their possession, custody or power relating to the company or the promotion, formation, trade, dealings, affairs or property of the company: (i) an officer of the company; (ii) a person known or suspected to have in their possession any property of the company; (iii) a person supposed to be indebted to the company; and (iv) a person whom the court thinks capable of giving information concerning the promotion, formation, trade, dealings, affairs or property of the company.

Background

Yes! E-Sports Asia Holdings Limited (Company) was incorporated in October 2018. Mr Shen Ka Yip, Timothy (Timothy) and Ms Lai Sze Yau, Vivien (Vivien) were initial directors of the Company.

The respondent solicitors (Solicitors) had acted for the Company since January 2021, as well as for Capital Creation (BVI) Limited (CCBVI), a shareholder of the Company. The Solicitors also acted for Timothy and Vivien in respect of an application for inspection of various documents of the Company taken out by another director of the Company in HCMP 297/2021.  Vivien and Timothy resigned as director on 7 March 2021 and 4 May 2021 respectively.

On 15 September 2021, the Company was wound up.  

In August 2022, the joint and several liquidators of the Company (Liquidators) requested books and records, documents or other property held by the Solicitors for the Company and copies of 11 bills issued by the Solicitors covering the period from 12 March 2021 to 31 December 2021 listed in the Solicitors’ letters to the Official Receiver (August 2022 Request). 

The Solicitors did not respond to the August 2022 Request until December 2022.  In their response, the Solicitors imposed the conditions that (i) the Liquidators agree to pay HK$40,000 as costs on account for reviewing the files and extracting the information requested; and (ii) the express consent of Timothy and Vivien (for whom they also act) before releasing the requested documents (Conditions). 

It was the Liquidators’ position that the Liquidators were seeking documents of the Company and Timothy and Vivien could not withhold any confidential information from the Company in respect of their dealings as directors of the Company.

In light of deadlock between the parties, on 19 April 2023, the Liquidators took out an application for document production against the Solicitors pursuant to section 286B(1)(d) of the CWUMPO, and sought costs on an indemnity basis (Production Summons).

In May 2023, the Solicitors provided a list of the pleadings, documents, correspondence between the parties’ lawyers and correspondence between the Solicitors, the Company, Timothy and Vivien in HCMP 297/2021 (List). The Solicitors insisted that no copies of documents would be provided, unless the Liquidators provided funds to secure their costs and expenses. 

In early July 2023, the Liquidators requested copies of 9 items from the List, agreeing to bear the Solicitors’ reasonable costs of providing a USB device and reasonable copying charges.   Thereafter, the Solicitors agreed to provide the copies sought.  The Solicitors also notified the Liquidators that they would issue a Summons seeking costs, unless the Liquidators agreed to bear their costs and the costs of the Production Summons.

In mid-July 2023, the Solicitors issued a Summons (Security for Costs Summons) for costs of the Production Summons and security for costs in the approximate sum of HK$1.2 million and costs of the Security for Costs Summons.

As the substance of the Production Summons and Security for Costs Summons were disposed of by consent, the only issue before the Court was the issue of costs in respect of the Production Summons and the Security for Costs Summons.

Decision

The Court applied the principles in Re Aveling Barford Limited [1989] 1 WLR 360 and Re BCCI SA [1997] BCC 561 and held that the Court has a discretion to award costs to a respondent, being its costs of compliance in respect of an application made under section 286B of the CWUMPO, but that such application should be made at the appropriate time (when compliance has been fully achieved or at any rate is well on the way to achievement).  In view of this, it was held that the Solicitors’ request that the Liquidators make payment on account before delivery up of the Company’s files was unjustified. 

Further, as there was no evidence that Timothy and Vivien retained the Solicitors for matters which did not relate to HCMP 297/2021 or the Company, there was no basis for the Solicitors to require the express consent of Timothy and Vivien before releasing the requested documents.

As to the Security for Costs Summons, the Liquidators challenged the jurisdictional basis of it.  Their position was that neither section 286B(1)(d) of the CWUMPO, Order 23 of the Rules of the High Court (Cap 4A) nor inherent jurisdiction of the Court provided the jurisdictional basis for such application.  The Court accepted the Liquidators’ submissions that the Security for Costs Summons lacked jurisdictional basis.

The Court took the view that the Solicitors did not act reasonably in imposing the Conditions, which led to unduly wasted resources and time for a straightforward delivery up of the Company’s files to the Liquidators. The Court also observed there was repetitive posturing and unnecessary vitriol in correspondence to antagonise the opponent.  In the circumstances, the Court ordered the Solicitors to pay the costs of the Production Summons and Security for Costs Summons to the Liquidators on an indemnity basis.

Takeaways

Solicitors, and other professionals (such as accountants) should produce documents of former insolvent clients to liquidators when a request is made under section 286B(1)(d) of the CWUMPO.

Whilst the Court has a discretion to award costs to a respondent, its costs of compliance in respect of an application made under section 286B of the CWUMPO, will only be awarded if the respondent acts reasonably.  The respondent is not entitled to require liquidators to make payment on account before producing the documents.