X. Case Illustration
 
Winding-up scenario:
AZ Company owes Mr. C and other vendors a total sum of $500,000. Despite
repeated verbal or written demands from those creditors, the company
has failed to repay the debts. Mr. C, after chasing AZ Company for
2 two months in respect of his debt of $100,000, plans to institute
winding-up proceedings against the company so that he can try to
recover at least part of the debt.
Question1:
Can Mr. C file a winding-up petition against AZ Company at this stage? Answer
1
Question2:
There is still no reply from AZ Company, even after it received the written
demand. Can Mr. C proceed to file a winding-up petition in Court? Answer
2
Question 3:
In addition to delivering the winding-up petition to all relevant parties,
must Mr. C also advertise the petition in newspapers? Answer
3
Question 4:
Mr. C knows that AZ Company’s bank account will be frozen after the presentation
of a winding-up petition against it, but he is still afraid that the company’s
assets may be dissipated in other ways. What should he do? Answer
4
Question 5:
After the presentation of a winding-up petition, AZ Company is trying to
raise money to pay off its debts. The company has shown some written evidence
to the Court and its creditors regarding such effort. Can the company apply
to the Court for dismissing Mr. C’s petition? Answer
5
Question 6:
A winding-up order is finally granted by the Court against AZ Company. What
should Mr. C do in order to secure his rights on recovering the debt? Answer
6
Question 7:
Will the shareholders of AZ Company be personally liable for the debt of the
company when their company is wound-up? Answer
7
Question 8:
What should the directors of AZ Company do after the making of a winding-up
order? Answer
8
Question 9:
When will the winding-up process be completed? Answer
9
Answer1:
Firstly, Mr. C should make sure that "AZ Company" is a limited company. He could find out the registered details of this company by conducting a company search at the Companies Registry.
If it is confirmed that AZ Company is a limited company, Mr. C should also issue
a formal written demand to the company requiring it to pay the debt before
presenting a winding-up petition. The written demand must be left (not
sent by post, by registered post, by fax or by electronic means) by Mr.
C or his lawyer at the registered office of the company. The company
must be given 21 days in which to pay the debt before any further action
can be taken against it.
Answer 2:
Mr. C can file a winding-up petition against
AZ Company if the company is still “unable to pay its debts” 21 days
after receiving the written demand. With reference to section 178 of
the Companies Ordinance, a company shall be deemed to be unable to
pay its debts if: “a creditor, by assignment or otherwise, to whom
the company is indebted in a sum then due equal to or exceeding the
specified amount ($10,000), has served on the company, by leaving it
at the registered office of the company, a demand under his hand requiring
the company to pay the sum so due, and the company has for 3 weeks
thereafter neglected to pay the sum, or to secure or compound for it
to the reasonable satisfaction of the creditor.”
Answer 3:
The petition must be advertised 7 clear days before the date on which the petition
will be heard by the court, once in the Gazette, and once at least in two
local daily newspapers (one in Chinese and one in English). The advertisement
must state the date on which the petition was presented, the date set for
the court hearing, and the name and address of the petitioner and the petitioner’s
solicitors.
The advertisement should also contain a note at the foot thereof stating that
any person who intends to appear at the hearing of the petition, either
to oppose it or support it, must send notice of such intention to the petitioner,
or to the petitioner’s solicitors, not later than 6 o’clock in the afternoon
of the day previous to the hearing or not later than 1 o’clock in the afternoon
of Saturday if the hearing is on the coming Monday. An advertisement of
a petition for the winding up of a company by the court which does not contain
such a note shall be deemed irregular.
Answer 4:
Mr. C may apply to the Court for the appointment of
a provisional liquidator after the presentation of the winding-up petition.
The provisional liquidators will take the necessary steps to preserve the
assets of the Company. A sum of $3,500 is required to be deposited with the
Official Receiver’s Office. But sometimes additional sum is necessary if so
required.
Answer 5:
A possibility that the company might be able to make
full repayment of its debts is not a sufficient ground on which to object
to the petition. However, an application can be made to the Court for an
adjournment of the winding-up proceedings so that appropriate arrangements
can be made with the creditors. The Court has discretion as to whether the
Company should be wound up, or there should be further negotiations between
the company and its creditors before the granting of a winding-up order.
Suppose the debtor company applies to the Court for dismissal or a stay of (suspend) Mr. C's petition on the ground of cross-claim against Mr. C. What then would be the chance of success by the debtor company? The answer would depend on the fact of each case. Generally, that company must establish a genuine cross-claim with substance in it. The amount of cross-claim itself must exceed the amount of the debt claimed by Mr. C against that company. Where both requirements are met, the court would exercise its discretion to dismiss or stay the petition in the absence of special circumstances.
Answer 6:
Mr. C has to supply proof of the debt owed to him
by AZ Company by completing a Proof of Debt Form (Form 63A) He should submit the form to the provisional liquidator or liquidator together
with any documentary evidence that he may have. A filing fee of $40 is required
if the debt exceeds $250. Mr. C may attend or even summon a general meeting
of creditors so that he can participate in the decisions concerning the distribution
of the remaining property of AZ Company.
Answer 7:
The shareholders' liabilities are limited to the value of shares owned by them (limited by shares). Therefore, there will be no liability further than the value of any shares in their names that they have not yet paid for at the time the company is wound up. Another case, which is not common in the commercial field, is that the liabilities of shareholders are limited to an amount in which they have agreed to contribute to the company's assets if the company is being wound-up (limited by guarantee).
Answer 8:
On the appointment of a provisional liquidator
or the making of the winding-up order, the powers of the directors of
AZ Company will cease.
The directors are legally required to:-
- deliver to
the provisional liquidator or liquidator the company’s assets,
accounts’ books and records, and seal;
- attend the office of the provisional liquidator or liquidator for
interviews to provide information about the company’s assets and
dealings;
- submit a sworn statement of affairs of the company (similar to a
balance sheet) within 28 days after the appointment of a provisional
liquidator or the making of the winding-up order;
- attend meetings of creditors and contributories when notified to do so by the
provisional liquidators or liquidators;
- continue to co-operate with the provisional liquidator or liquidator
until the liquidation is concluded; and
- notify the provisional liquidator or liquidator of any change in
address.
Answer 9:
The liquidator will apply to the Court for
the release of the relevant duties once the followings have been accomplished:
- all the assets of AZ Company have been realized (i.e. all assets
have been sold and converted to cash);
- investigations related to the winding-up proceedings are completed;
and
- a final dividend (if any) has been paid to the creditors to settle
the debts
The liquidator will send notices, together with a summary of the relevant
receipts and payments in the liquidation, to the creditors and contributories
of the company of the intention to apply to the Court for release from
the duties as liquidator. At this point, any creditor or contributory has 21 days from the date of the notice to raise objection to the intended
release of the liquidator.
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