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Section 221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32)


Dec 08, 2015

Two recent cases from the Court of First Instance reflect the court’s wish to expand the use of s.221 of the CWUMPO, in relation to liquidator’s application for production of documents by and examination of persons who are not officers or employees of the insolvent company. These cases reflect that when a fraudulent scheme is involved or when the documents are reasonably required by liquidators to properly understand the affairs of the company, the court would be prepared to allow such application.

In Y v A [2015] HKEC 1897, Harris J stated that, generally, the court would be slow to allow such applications. The respondents in this case were neither officers nor employees of the Company. It was also unclear whether or not they had notice of the application or are aware of the liquidators' wish to talk to them about the affairs of the Company.

Nevertheless, Harris J considered that there existed special circumstances and ordered production of documents by and examination of these respondents. The court was concerned that the respondents may have been the beneficial owners of some other companies through which very significant sums of money appeared to have been misappropriated from the Company. Even if the respondents may have had no involvement in the fraudulent scheme, the court found that it was reasonable - given the magnitude of the prima facie wrongs done to the Company - to make the order of production of documents so they are able to provide some assistance to the liquidators.

In another recent case Kong Wah Holdings Ltd [2015] HKEC 1575, the court discussed a similar liquidators’ application under s.221 for production of documents by a bank. S Kwan J dealt with the competing interests between the duty of confidentiality owed to a bank’s customers and the need of liquidators to properly understand the company’s affairs. It was the bank’s stance that they should not voluntarily disclose the related bank documents because of its duty of care and confidentiality. The liquidators’ stance was that they had been “kept in the dark” as to what documents were held by the bank.

The court ruled in favour of the liquidators. The judge commented that the court attaches significant weight to the views of liquidators, as they have detailed knowledge of the problems of the affairs of the company in question. Also, as an application under s.221 is of a summary nature, the court cannot be expected to indulge in fine judgments as to the precise width of the order which was to be made. The court therefore made an order for the production of documents by the bank.

Both cases illustrate that the court is now more prepared to expand the use of s.221 of the CWUMPO, and this is based on the court’s greater willingness to assist liquidators when a prima facie case of fraud may be involved.
      

     

For more information on other commercial matters, please contact:-

Chris Gordon | cgordon@robertsonshk.com | +852 2861 8413
Chris Lambert | clambert@robertsonshk.com | +852 2861 8417
Jennifer Wong | jwong@robertsonshk.com | +852 2861 8318

 

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