The Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016 (hereinafter, “the Ordinance”) was published on 2nd June 2016. The purpose of the Ordinance, as per its preamble, is “to amend the Companies (Winding Up and Miscellaneous Provisions) Ordinance and its subsidiary legislation to increase protection of creditors; to streamline the winding up process; to strengthen regulation under the winding up regime; and to make related, consequential and minor technical amendments.” This article will set out some of the main changes found in the Ordinance concerning the protection of creditors and the winding up process.
Creditor protection
The Ordinance aims to enhance the protection of creditors by introducing, inter alia, the following changes:
1) Unfair preferences: The Ordinance enables the court to set aside transactions entered into by a company prior to its winding up where it unfairly puts one creditor in a better position than others.
2) Transactions at an undervalue: The court has the power to set aside transactions at an undervalue entered into by a company within 5 years before the commencement of its winding up, but only where one of two conditions are met: either the company is unable to pay its debt at the time or it becomes unable to pay its debt as a result of the transaction or unfair preference.
3) Floating charges: The relevant time has now been extended such that floating charges made in favour of connected persons two years before the commencement of the company’s winding up will be caught.
4) Members’ and directors’ liabilities: Where a company is being wound up and it has made a payment out of capital relating to the redemption or buy back of any of its shares from a person and winding up commences within one year, both the past shareholder and the director who signed the solvency statement are jointly and severally liable to contribute an amount not exceeding the amount of the payment out of capital made by the company in respect of the shares redeemed or bought back from the past shareholder.
Winding up
The Ordinance also aims to streamline the winding up process by introducing, inter alia, the following changes:
1) Appointment of solicitor: The procedure whereby a liquidator appoints a solicitor to assist in court winding-up has been simplified.
2) Safeguards in voluntary winding up: The directors must deliver to the Registrar a winding up statement. Thereafter, the directors need to “cause a meeting of the company to be summoned for a date not later than 28 days after the delivery of” the said winding up statement. The directors are to appoint a provisional liquidator from the commencement of the winding up of the company.
3) Powers of provisional liquidators: For court winding up, the powers and duties of provisional liquidators are set out more clearly. The remuneration and tenure of the provisional liquidators are also set out more clearly.
4) People disqualified for appointment as provisional liquidator or liquidator: The list of disqualified people has been expanded to avoid conflicts of interest.
Summary
Whilst the operation date of the Ordinance is currently unknown, however, once the Ordinance comes into effect, they are likely to have an impact on the landscape of insolvency and winding up law in Hong Kong.