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HCCW 262/2019

[2019] HKCFI 2959

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING‑UP PROCEEDINGS NO 262 OF 2019

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D E C I S I O N

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1.  This morning I heard an application for the appointment on provisional liquidators over the Company. The application was not contested by the Company. The only issue that arose was as to the identity of the provisional liquidators. The Petitioner sought the appointment of Mr K and Mr T of R firm. The Company proposed insolvency practitioners from S firm or C Limited. The reason for this disagreement appeared, as it so often does, to come down to a suspicion on the part of the Petitioner and the Company that whoever the other chose might be inclined to favour the party that nominated them. However, the specific ground for suggesting that Mr K and Mr T should not be appointed concerns the disclosure statement made by them for the purposes of their proposed appointments.

2.  Section 262C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, requires that before a person may be appointed as a provisional liquidator the person must make a disclosure statement that complies with section 262D.  Section 262D specifies the information that must be disclosed.  Sub-section (1)(b) requires the person to disclose whether any of the relationships set out in sub-section (2) exist and if such a relationship does exist specifies the information to be disclosed, namely, the details of the relationship and the person’s reasons for believing that the existence of such a relationship would not result in the person having a conflict of interest or duty.  Amongst the categories of relationships required to be disclosed is“a financial advisor of the company, its holding company or its subsidiary” [1].

3.  In the last couple of years R firm has carried out work for two subsidiaries of the Company.  On both occasions the work was limited. In one case the work seems to have involved preparation of a tax return and reviewing an assessment for which HK$23,000 was charged. On another occasion for a different subsidiary R firm did similar work for fees totaling HK$41,000.  R firm took the view that this work did not constitute work as a financial advisor and did not refer to it in the disclosure statement prepared for the purposes of the provisional liquidation application.  In my view in this R firm were incorrect.       Although R firm seem to have taken the view that the work was largely administrative it seems to me that “financial adviser”, which is not a term of art, is a broad term and extends to any person who conventionally would be characterised as a financial adviser (which accountants generally will be) or providing services, which contain some element of advice relating to financial matters.  R firm seem to have taken the view that because what they did was small in scope and sophistication it did not come within  sub-section (2).  In my view this was wrong.  R firm are financial advisers and presumably this is why they were engaged.  Although, the work undertaken may have been routine this does not alter the character of R firm’s function, which was to act as financial advisers to the subsidiaries albeit in a minor way.

4.  The way in which R firm should have dealt with the matter was to acknowledge in the disclosure statement that they had acted as financial advisers, but to avail themselves of sub-section (1)(b)(ii)(B) and explain why they believed that the relationship did not give rise to a conflict of interest.  Whether or not the relationship gives rise to a material conflict is a matter to be determined by the Official Receiver or the Court.

5.  It does not seem to me that the work R firm had carried out does give rise to a material conflict of interest. The Company’s opposition to the appointment of R firm was on the basis of a conflict.  As in my view it is not material and the Company’s opposition seems to be based more on an instinctive rejection of the Petitioner’s preferred candidate other than any credible grounds for thinking R firm are unsuitable, I will make an order appointing Mr K and Mr T on the terms agreed at the hearing with the Official Receiver.  Mr K and Mr T should submit new disclosure statements.