Companies Amendment Ordinance 2000
Hong Kong's Companies (Amendment) Ordinance 2000 came into effect on 1 July 2000. From an insolvency perspective the principal changes were to ss.194, 195 and 196 (Appointment of Liquidators), s.228A (Commencement of Creditor's Voluntary Liquidation), and s.264A (Interest on Debts).
Appointment Of Liquidators
Section 194(1A) - Panel "T" Appointments
When a winding up order is made the Official Receiver is automatically appointed as the provisional liquidator of a company . However, the effect of the amendment is that where the Official Receiver is the provisional liquidator of the company by virtue of the winding up order and is of the opinion that the property of the company is not likely to exceed HK$200,000, he may at any time appoint one or more persons as provisional liquidator in his place.
However, what seems to happen in practice is that the Official Receiver, in his capacity as provisional liquidator, automatically appoints a member of the Panel unless a creditor can show that the assets of the company are in excess of HK$200,000. By doing so this transfers the onus on to the creditor to establish the value of the assets, rather than the Official Receiver forming the opinion that the assets are worth less than HK$200,000 as set out in the Ordinance.
A further change to s.194 then states that:
"the Court may make any appointment and order as it thinks fit if the creditors and contributories of the company do not pass a resolution or do not meet".
Immediately following the making of the winding up order, the Official Receiver becomes provisional liquidator of the company. However, under the present contracting-out scheme he can then immediately appoint a private sector insolvency practitioner to act as provisional liquidator in his place. If the assets of the company are less than HK$200,000, the case will be handled in a summary manner and the insolvency practitioner who acted as provisional liquidator is likely to become liquidator.
In practice what happens is that almost every case is transferred out to a private sector insolvency practitioner, unless there is strong evidence that the company has assets in excess of HK$200,000.
The overall effect of these changes was to give the Official Receiver's Office the power to contract out liquidation cases. The other effect is that the insolvency practitioner, who under the old panel scheme acted as agent of the provisional liquidator in summary cases, acts as provisional liquidator and then as liquidator in his own right.
Here you'll find further discussion of the Panel Scheme.
Section 228A Creditors' Voluntary Liquidation
The principal change was that under the old legislation, the directors could commence the liquidation under s.228A if:
"They consider it is necessary that the company be wound-up and that there are good and sufficient reasons for the winding-up to be commenced under this section".
This has now been amended to:
"They consider it is necessary that the company be wound-up and that the winding-up should be commenced under this section because it is not reasonably practicable for the winding-up to be commenced under another section of this ordinance" that sub section".
The consideration to be included in the resolution would be the reasons why no other section was "reasonably practicable".
The effect of this change should be that fewer liquidations will be commenced under the s.228A procedure. There is no definition of what is "reasonably practicable" and for that reason, and also because directors may be liable to a fine and imprisonment if they cannot show "reasonable grounds" for having adopted this procedure, it is likely that insolvency practitioners will err on the side of caution. In the circumstances they are less likely to advise directors to use the s.228A procedure.
For a more detailed summary of the current position regarding liquidations under s.228A see here.
Section 264A - Post Liquidation Interest On Debts
Prior to 1 July 2000, in the event that sufficient funds were available to pay all creditors in full, interest was payable on the claims of creditors from the date of the winding-up order to the date of payment of the proved claim. This was the case for all liquidations which commenced after10 February 1997 being the date on which the judgment was handed down in the Setaffa caseThis amendment provides for interest to be payable on the taxed costs of the petition as well as debts proved in the winding-up.
In view of the judgment in the Setaffa case it is reasonable to assume that this change will only apply to companies where the winding-up order was made on or after 1 July 2000, being the date on which this piece of legislation was enacted.