RE Y.S. LEE & SONS JEWELLERY CO. LTD.

HEADNOTE

                Notice that Company is unable to pay its debts.

                Necessity for strict compliance with S. 178(a) of Cap. 32.

                Posting Notice to Registered Office of Company not good service and accordingly not compliance with requirements of section. Considering also circumstances when Court can find that a Company is unable to pay its debts under S. 177(d).

IN THE SUPREME COURT OF HONG KONG

Companies Winding Up

No. 244 of 1984

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RULING

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1. Mr. Robertson of the Official Receiver's office informed me that problems have been encountered by the official Receiver in knowing whether petitioning creditors in companies winding up cases have to strictly comply with the requirements contained in section 178(a) of the Companies Ordinance, Cap. 32.  Section 178 reads as follows:

                "178.     A company shall be deemed to be unable to pay its debts.

2. Mr. Hoosenally who was representing the petitioning creditor conceded that in the present case the notice referred to in section 178(a) had not been delivered personally to the registered office of the company but had been sent by post. He also conceded that the petition had been filed within the 21-day period referred to therein which also would appear to constitute non-compliance with the requirements.

3. Mr. Robertson advised me that similar problems arose in numerous cases and he was anxious to obtain directions from the Court as to whether posting the notice to the registered office of a company was sufficient for compliance with the statutory requirements. Indeed he had sought similar directions from Mr. Justice Jones on this subject. I was shown an informal ruling which had been made by Mr. Justice Jones when he dealt with this subject in some detail and came to the conclusion:

 

"A notice of demand may be served upon the company either by registered or ordinary post sent to the registered office, or by personal service at the registered office upon a person authorized to accept service, or by leaving it at the registered office. If the door of the registered office is locked the notice can be placed under the door."

With the greatest respect to Mr. Justice Jones I find myself unable to agree with the conclusion he reached after considering all of the authorities which were referred to in his Ruling.

4. It is my impression that Mr. Justice Jones mainly placed reliance upon Australian authorities which were referred to him. The relevant provisions in Australia legislation are similar to those our Ordinance. The law is well-summarized on pages 44 and 45 of the 2nd edition of McPherson 'The Law of Company Liquidation'.

 

"1.    Statutory Demand

The provisions of section 222(2) prescribe a simple method by which a creditor, to whom the company owes more than $100, can establish that the company is unable to pay its debts. The procedure is for the creditor to serve what is commonly known as a "statutory demand", requiring the payment of the sum due within three weeks. If the company neglects to pay the sum due, or to secure or compound for it to the reasonable satisfaction of the creditor, it is, at the end of that period, deemed to be unable to pay its debts. The demand must be in writing and signed by the creditor or his authorized agent, it must specify the sum due, and it must be served by leaving it at the registered office of the company. Because of the important consequences which ensue from non-compliance with the notice, the prescribed procedure must be strictly complied with. Hence it is not sufficient if the notice of demand is addressed to the wrong company, or is sent by registered post to the office of the company, nor if it is served otherwise than at the registered office on a person not shown to have authority to accept service on behalf of the company, but a notice has been held to be sufficiently served if left under the locked door of the registered office of the company."

Mr. Robertson cited a number of Australian, New Zealand and a South African cases to me and in no case has it been accepted that service by post constituted compliance with the various sections.

5. I do not think that Mr. Hoosenally is able to derive much assistance from authorities in England. There is a commentary on section 223 of the Companies Act 1948 appearing on page 532 and following pages of the 14th edition of Buckley on the Companies Acts. Service is defined at page 534 as follows:

 

"Service. The present editors know of no reported authority on the point, but submit that the requirement that the demand be left at the registered office precludes service by post in reliance on section 437(1)."

Section 437(1) is similar to our section 356 which contains the general provision that documents can be served on a company by sending them by post to the registered office of the company. There is no doubt in my mind that the specific provisions contained in section 178(a) would supersede the general terms contained is section 356. I am satisfied that there has not been strict compliance with section 178(a) in this case and the petition cannot be successfully grounded on this section.

6. During the course of his submission Mr. Hoosenally drew my attention to the nature of the company's indebtedness to the petitioning creditors. He informed me that the judgment which his client had obtained had been based upon a claim which was made for $160,204.62 in respect of three cheques which the company had drawn in favour of his clients which had been dishonoured upon presentation. These three cheques had been dated in January, February and March 1984. Mr. Hoosenally argued that the circumstances of the case were such that I could reasonably drew an inference that the company was unable to pay its debts. If I could be satisfied of this the petition could succeed by virtue of the provisions contained in section 177(d) of the Ordinance. It can be seen from the headnote of Re Globe New Patent Iron and Steel Co. ⁽¹⁾ that the Court could be satisfied that where a company had dishonoured bills it was unable to pay its debts. In the particular circumstances of this case I am prepared to draw this inference. I therefore made an order that the company be wound up. I would, however, like to emphasise that proof of a company's inability to pay its debts may not readily be established in every case and legal representatives of petitioning creditors would be well-advised to ensure that the provisions contained in section 178(a) are strictly complied with if difficulties are to be avoided is presenting winding up petitions to the Court. I made the usual order for costs in this case.

(1)    1875 20 LR 337