You Only Liquidate Twice07Jul2022
Can a winding-up petition be presented when a company is being wounded up voluntarily?
The relevant law (the Companies Winding Up and Miscellaneous Provisions Ordinance) states clearly that the winding up of a company shall not bar the right of any creditor (or contributory) to have it wound up by the Court, and further provides that a winding-up petition may be presented even though a company is being wound up voluntarily. However, the Court will not make a winding-up order on the petition unless it is satisfied that the voluntary winding-up cannot be continued, with due regard to the interest of the creditors.
In Re Medisco Equipment Ltd (1983), a petition to put a company into compulsory liquidation was dismissed on the basis that the petitioner had not shown any reason why the existing voluntary liquidation was not a proper way of ensuring that matters would be dealt with efficiently and impartially.
In Re Palmer Marine Surveys Ltd (1986), however, the Court displaced an existing voluntary liquidation by granting the petition of a creditor for a compulsory liquidation. It was made clear that substantial independent creditors should not be left with a strong and legitimate sense of grievance. In this case the majority creditors were excluded from the creditors’ meetings because one proxy did not turn up in time, as a result of which the nominee of the director who controlled the company was appointed liquidator. Creditors wanted a winding up by the Court to launch an investigation into the company’s affairs, as there was some suggestion that assets of the company had been sold at an undervalue. The Court was entitled to have regard to the general principles of fairness and commercial morality. The liquidator should not only be independent (there was no suggestion of partiality levelled at the existing liquidator) but also be seen to be independent.
In Re Goldcone Properties Ltd (2000), the Court emphasised that, where a company was already in a voluntary liquidation, the making of compulsory order was a matter for the exercise of the Court’s discretion. In exercising that discretion the Court would have regard to the views expressed by the creditors, particularly if they were not associated with the controllers of the company, and the liquidator must not only act independently and impartially but must be seen to be doing so.
What about the already appointed liquidator?
A voluntary liquidator can properly swear and file evidence on petition as the facts found by him in the course of his investigation, and as to the present state of the liquidation, and that he can properly appear by counsel at the hearing to assist the Court. However, he should not press a view one way or the other.
Are there any grounds to object?
Yes. One is that the voluntary winding up is an adequate remedy. In Re Medisco Equipment Ltd, the petition was dismissed as the petitioner had not shown any reason why the existing voluntary liquidation was inadequate, while the voluntary liquidator showed that voluntary winding-up was a better remedy for all the creditors.
The position of the majority of the creditors is also a factor. The fact that a majority of creditors were in favour of a compulsory order was one of the reasons why a compulsory order was granted in Re Goldcone Properties Ltd. In contrast, a substantial majority (in number) of creditors opposed the petition in Re Medisco Equipment and in that case the petition was dismissed.
If in doubt, please contact us.
Ian De Witt
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.