RE MKI CORPORATION LTD

C.W.U. No. 562 of 1994

HEADNOTE

Application to strike out a petition to wind up an "oversea company" registered under Part XI of the Companies Ordinance, on the basis that the provisions of Section 326 of the Companies Ordinance did not extend to companies registered under Part XI as they were excluded from the definition of an unregistered company. Held::

Companies registered as oversea companies under Part XI of the Companies Ordinance did not fall within the meaning of the words "companies registered under this Ordinance" as used in the Companies Ordinance and hence there was a power to wind up such companies.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMPANIES (WINDING-UP) NO. 562 OF 1994

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D E C I S I O N

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1. This is an application to strike out a Petition to wind up a public company.

2. The Petition is brought by the Securities and Futures Commission to wind up MKI Corporation Limited ("the Company"). The Company is a company incorporated under the laws of Bermuda. It is registered under Part XI of the Companies Ordinance as an oversea company which has established a place of business in Hong Kong. It is a company which the Securities and Futures Commission takes interest in because its shares are listed on the Stock Exchange in Hong Kong although dealings in those shares have been suspended for some time.

3. The Commission relies upon the terms of Section 45 of the Securities and Futures Commission Ordinance. That reads as follows:-

"If, in the case of a company which may be wound up by the court under the Companies Ordinance (Cap. 32), it appears to the Commission that it is expedient in the public interest that the company should be wound up. The Commission may, subject to subsection (2), present petition for it to be wound up under that Ordinance on the ground that it is just and equitable that it should be so wound up."

4. The power of the Court to wind up the Company is said to reside in Section 327 of the Companies Ordinance which reads:-

" (1) Subject to the provisions of this Part, any unregistered company may be wound up under this Ordinance, and all the provisions of this Ordinance with respect to winding up shall apply to an unregistered company, with the exceptions and additions mentioned in this section.

(3) The circumstances in which an unregistered company may be wound up are as follows -

(a) if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;

(b) if the company is unable to pay its debts;

(c) if the court is of opinion that it is just and equitable that the company should be wound up."

5. There is no need in this instance to go into the question as to whether the facts averred in the amended Petition and supporting affidavit bring the matters alleged within the terms of 'Just and Equitable'. Although when this application to strike out was first launched there was a challenge as to that as well, that has now been abandoned as far as to-day's proceedings are concerned.

Company's case to strike out Petition

6. The Company's case to strike out the Petition may be shortly stated. It is said that the power to wind up a company under Section 327 is limited to unregistered companies. Section 326 defines what is an unregistered company. Section 326(a) makes it clear that an unregistered company does not include a company registered under the Companies Ordinance. Part XI of the Ordinance, in contradistinction to the corresponding provisions of the Companies Act in the United Kingdom, specifically provides that an oversea company is registered and in particular it is said that Section 333(3) makes clear that a company in respect of which the appropriate steps have been taken is registered. The terms of Section 326(a) make clear that what is being talked about is registration under this Ordinance and clearly Part XI is part of "this Ordinance". Mr. Scott on behalf of the Company goes on to say that if there were any doubt about it one only has to look at paragraph 2 of the Amended Petition to see that indeed there it is said that the Company is registered.

7. On this basis it is said that the matter is simple, clear and unambiguous.

8. Unfortunately, Mr Scott's argument seems to me to fall into the classic mistake of taking words out of context and construing them on their own.

Construction of the Companies Ordinance

9. As Viscount Simonds said in the case of The Attorney General v. Prince Ernest Augustus of Hanover [1957] A.C. 436 at p. 463 :

"... the elementary rule must be observed that no one should profess to understand any part of a statute or of any other document before he had read the whole of it. Until he has done so he is not entitled to say that it or any part of it is clear and unambiguous."

10. That concept is, in my view, included in Lord Reid's words in the case of Pinner v. Everett [1969] 3 All ER 257 at 258I where he said in the context of completely different legislation :-

"In determining the meaning of any word or phrase in a statute the first question to ask always is what is the natural or ordinary meaning of that word or phrase in its context in the Statute?"

11. As I shall come to in a moment Mr. Scott's submission also fails to observe the legislative history of the Ordinance.

12. Turning first to the Ordinance itself, as a prelude to what I have to say in respect of the matter of interpretation, I should start by referring to Section 2(1) which is the definition section and that provides that :

"In this Ordinance unless the context otherwise requires, ...

"company" means a company formed and registered under this Ordinance or an existing company.

"existing company" means a company formed and registered under the Companies Ordinance 1865 (1 of 1865) or the Companies Ordinance 1911 (58 of 1911)."

13. It may be convenient if I refer then to the provisions of Part XI of the Ordinance. This part contains provisions relating to what are now termed 'oversea companies'. Provisions requiring registration of documents relating to oversea companies were first included in the Companies Acts in the United Kingdom in the 1907 and then the 1908 legislation. Subsequently similar provisions were incorporated into the Hong Kong legislation by Ordinance 58 of 1911. It is not necessary to go through the legislative history in this regard in any great detail. It suffices to say that up until the enactment of the 1984 amendments to the Companies Ordinance, it was a requirement that any company which was incorporated outside Hong Kong but had established a place of business in Hong Kong had to register certain documents, for example their charter, their lists of directors and the name and address of a person in Hong Kong who was authorised to accept service of process and notices on behalf of the company. What had to be registered was documents.

14. Sometime in the 1960's, a committee was set up in Hong Kong to consider the company law. That committee reported in 1973. That was after what I have been told is about 9 years deliberation. Amongst many other recommendations, the committee recommended that instead of just registration of documents the company itself should be registered. That recommendation is explained and made in para. 10.16 of the report. It says little more than that the committee recommended the adoption of the Australian approach of registering the company so that there would be a register which could be searched.

15. Although after the 1984 amendments, the Ordinance provided that there should be a register, it would be rather surprising if a list of companies whose documents had been registered had not, in fact, always been available.

16. The differences between the Ordinance after the 1984 amendments and before them can be summarised that after 1984 a notice of the situation of place of businesses in Hong Kong had to be filed. There was the creation of a register of companies. There was a requirement to file annual returns and there was also a new control under the Ordinance over the names which the company could use. There was also a requirement under Section 337A to file notice of proceedings to liquidate the company in the home territory.

17. I should mention at this stage that if the provisions relating to registration were not complied with there were penalties imposed under Section 340 of the Ordinance.

Power of the Court to wind up an unregistered Company

18. The Courts in the United Kingdom were first given the power to wind up an unregistered company by the Act of 1862, but it was not until the Ordinance 58 of 1911 that the power was given to the Hong Kong Court.

19. The cases in England show that the power to wind up an unregistered company has been exercised both in respect of companies the documents of which were registered under the equivalent of the previous Part XI of the Hong Kong Ordinance and those in respect of which the documents could not be so registered because the company had not established a place of business within the jurisdiction.

20. The power in Hong Kong is now contained in Section 327, which I have referred to previously, and the definition of an unregistered company for these purposes is contained in Section 326. That reads :

" For the purposes of this Part, "unregistered company" includes any partnership, whether limited or not, any association and any company with the following exceptions -

(a) a company registered under the Companies Ordinance 1865 or under the Companies Ordinance 1911 or under this Ordinance."

21. Mr. Scott in his reply speech faintly tried to suggest that some or all of the cases in the United Kingdom might have been decided per incuriam, particularly as in many of the earlier cases the company itself was not represented.

22. That argument is unsound. In recent cases, the Courts in the United Kingdom have exercised their power to wind up in cases where the power has been tested and argued about. The test of jurisdiction has been held to be less than that where there are assets available within the jurisdiction. The major authority in this respect is that of In re a Company (No. 00359 of 1987) [1988] 1 Ch 210. In that case, Peter Gibson J. went through the previous decisions relating to the winding up of a foreign company and examined the principles that lie behind them. He established that the jurisdiction to wind up a foreign company is flexible. What is important is that there is a sufficiently close connection with the jurisdiction and that there is a reasonable possibility of benefit for the creditors from the winding up. Knox J. in Re Real Estate Development Co. [1991] BCLC 210 added that the court must be able to exercise jurisdiction over one or more persons interested in the distribution of the company's assets. I would also refer to the case of Re Hibernian Merchants, Ltd. (1957) 3 All ER 97, although in that case the matter was unopposed.

23. I take it that it is settled law that the equivalent of Section 327 gives the power to the Court to wind up a company incorporated overseas. There are no grounds under the United Kingdom legislation for saying that the power does not extend to companies whose documents are registered as oversea companies. If that be right, I take it that it has at all material times been the law that the Court in England has power to wind up a company incorporated overseas. Given the length of time that the provisions have been in effect and acted upon, I see no justification for saying otherwise than it has been the intention of the Legislature that that is so. The statutory position in Hong Kong was unarguably the same as that in the United Kingdom at least until the 1984 amendments.

24. So I turn to the question as to whether Section 326 in using the expression "registered ... under this Ordinance" should be construed as including or excluding companies registered under Part XI.

Section 327A of the Companies Ordinance

25. The first Section to which I should draw attention is Section 327A. That reads as follows :

"Where a company incorporated outside Hong Kong which has been carrying on business in Hong Kong ceases to carry on business in Hong Kong, it may be wound up as an unregistered company under this Part, notwithstanding it has been dissolved or otherwise ceased to exist as a company under or by virtue of the laws of the place of its incorporation."

26. This provision traces its history back to Section 91 of the Companies Act 1928 and Section 338(2) of the 1929 Companies Act and first came into Hong Kong legislation as Section 313(2) of the Ordinance No. 39 of 1932. Just looking at the wording of the Section on its own, it says that the Court may wind up a company which has ceased to carry on business in Hong Kong notwithstanding that it has been dissolved or otherwise ceased to exist.

27. Of course, the provisions of Part XI require any company which has established a place of business in Hong Kong to deliver documents for registration and, as I have observed, Section 333(3) requires the Registrar to keep a register and to issue a certificate that the company is registered under that Part. It may well be that carrying on business does not necessarily mean that a place of business has been established. Particularly nowadays business can be carried on without having an established place of business. But as Mr. Scott agreed in the course of argument it is likely that nearly all Part XI companies, which by necessary implication will have established a place of business in Hong Kong, will be carrying on business here. On the other side of the coin, it is quite likely that, other things being equal, a company falling within the opening words of the Section would be one to which Part XI applied.

28. It is necessary to look and see how this Section came into being. Morritt J. in the case of Re a Company (No. 007946 of 1993) [1994] 1 BCLC 565 said at p. 570 of the report in respect of the corresponding provision in the United Kingdom :

(It) "was originally enacted to remove a doubt as to the court's jurisdiction which arose in connection with the dissolution of Russian banks following the revolution in 1917. It did not confer any new power to wind up companies: see Re Cia Merabello San Nicholas SA [1972] 3 All ER 448 at 455. It would be most surprising if a company incorporated in Northern Ireland might be wound up in England if it had ceased to carry on business in England and had been dissolved in Northern Ireland, but not otherwise. This would be the consequence of the company's argument and of the view expressed in Dicey and Morris (to which I have referred)."

29. It seems to me having considered the Merabello case, that is right.

30. I should mention that Lord Evershed M.R. in the case of Banque Des Marchands De Moscou (Koupetschesky) v. Kindersley & another [1951] 1 Ch. 112 at p. 131 said that the Section may have been introduced to make clear that the power related to winding up companies and not partnerships. I prefer the reasoning of Morritt J., coming as it does after a long line of cases and fitting in as it does with the history of the use of the legislation.

31. Be that as it may, what the Section says is notwithstanding. That seems to me to mean "despite the fact", or "even though" as Mr. Scott put in his argument.

32. The Section is not a Section which gives a power to wind up which did not already exist. It harks back to Section 327(3)(a). It seems to me quite clear that the Section is predicated upon the basis that there is power to wind up if the company has not been dissolved or otherwise ceased to exist in the country of its incorporation. The Section is there to safeguard against the possibility of it being said that the Court cannot wind up something which has already ceased to exist in its country of incorporation.

33. If that is right, it seems to me a fair inference that by far the bulk of the companies which would come within this Section are companies which would fall within the provisions of Part XI. It may be that some companies that should register do not do so. But in construing an Ordinance one should at least proceed upon the basis that the Ordinance is drafted on the basis that it will be observed. When an Ordinance makes provision for it to cover non-observance of one of its provisions it usually does so expressly.

34. In my view the presence of Section 327A alone makes it difficult to construe Section 326 as excluding companies registered under Part XI from inclusion within the meaning of unregistered companies as used in that Section. Such a construction would render Section 327A largely ineffective. The fact that this Section was expressly re-enacted by the 1984 legislation leads me to believe that the Legislature cannot have intended that the scope of companies falling within the term "a company ... registered under this Ordinance" in Section 326(a) was intended to be changed because of what was largely a change in the mechanics relating to oversea companies.

Section 146A of the Companies Ordinance

35. I turn, however, to consider Section 146A of the Ordinance. This was a new provision which was introduced by the 1984 amendments. It reads as follows :

"Sections 143 to 149 and Section 150 shall apply to all bodies corporate incorporated outside Hong Kong which have a place of business in Hong Kong or have at any time had a place of business therein as if they were companies registered under this Ordinance but subject to such, if any, adaptations and modifications as may be specified by regulations made by the Financial Secretary."

36. That Section, as will be seen, uses the words "registered under this Ordinance" when it comes to dealing with matters relating to inspections. Obviously, this Section caters for instances where the provisions of Part XI of the Ordinance have not been complied with. But on the other hand, the primary purpose of the intent of the legislation must be that it is predicated on people complying with the legislation. Section 146A must be read in the light that oversea companies will comply with the provisions of Part XI.

37. Mr. Scott says that this Section applies to companies which have a transitory operation not equivalent to establishment in Hong Kong. He says it applies to companies which have a place of business but which have not established a place of business. He says "It seems to be an enabling provision for the Financial Secretary to make regulations".

38. If anything I find this even more difficult to fit in with the general argument than Section 327A. The concept of a company carrying on business but not having established a place of business is one that I can understand. The concept of a company that has a place of business in Hong Kong as is required by Section 146A but neither establishes a place of business nor has established a place of business in Hong Kong and continues to have a place of business in Hong Kong as required under Section 332 of the Ordinance is one that I simply cannot envisage. Even if it were possible to suggest such a company, I do not consider it is a viable matter to conceive that the Legislature would have wasted time legislating about such a freak company. That proposition seems to me to be incredible.

39. I proceed upon the basis that prior to the 1984 amendments the phrase "registered under this Ordinance" was not and never had been used in respect of Part XI companies. In my view the phrase as used in the Ordinance after the 1984 amendments has been used in the same sense as it was before. As I have indicated reference to the whole legislation leaves me in no doubt that this conclusion is the only possible one.

Ancillary Point on the basis of 1973 Report

40. Mr. Scott submits, on behalf of the Company, that because of the fact that the recommendation in para. 10.44 of the 1973 Report was not adopted, so it must be presumed that the Legislature did not intend to adopt that proposal. That point, it seems to me, cannot be good. In the United Kingdom, it is clear that an oversea company can be wound up. The recommendation which was made in the 1973 Report was that there should be an express provision giving power to the Court to wind upon oversea company. This followed a recommendation made in the report of the Jenkins Committee. That suggestion was not taken up in the United Kingdom. Presumably it was not taken up in the United Kingdom because the draftsman thought it was unnecessary and indeed, as I have indicated, subsequent cases have shown that it was indeed unnecessary.

Overall result which would be achieved on the Company's Interpretation of the Ordinance

41. The result of the construction of the words in Section 326 which have been put forward by the Company would be that the Court had no power to wind up a company that has been registered under Part XI of the Ordinance. In contrast a company that is not capable of registration under Part XI of the Ordinance could be wound up. That would mean a company which has not established a place of business in Hong Kong could be wound up by the Hong Kong Court, whereas a company which has established a place of business and has become registered in Hong Kong could not be wound up. That seems to me, at the very least, would make it a very odd piece of legislation if that was the intention of the Legislature. I would also mention that, of course, the winding up on the company's argument could also take place of a company which has failed to register. Another anomaly would be that the effect of the 1984 amendments would be that in regularising and seeking to control more closely what have become known as "oversea companies" by registering them, the Legislature has let go the vital power of being able to wind up the companies. One merely has to ask the question rhetorically has the Legislature really traded in the right of the Court to regulate a company to the extent of being able to wind it up for the power to require a change of name?

42. In my view, it does not help to cogitate as to whether the words odd, absurd, ludicrous, ambiguous, anomalous are apt descriptions for the construction which it is sought to put upon the words and effect of the statute. I am satisfied simply that the Legislature did not intend the construction which the Company seeks to put upon the Ordinance. I am satisfied that the Legislature did not intend when the wording of Section 333(3) was incorporated that companies to which "this Part applies" in the words of the 1984 draftsman and "Part XI applies" in the words of the 1993 draftsman should be treated as companies "registered under this Ordinance" as that term has been used in Section 326.I therefore dismiss this application.It remains only to thank Counsel for their arguments and in particular Counsel for the Petitioner for the careful analysis of the provisions of the Companies Ordinance.