RE: ASEAN INTERESTS LTD

HCCW 1233/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 1233 OF 2000

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D E C I S I O N

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1. On 25 November 2003, I gave directions for a hearing to be held to resolve a point of construction relating to section 207(1) of the Companies Ordinance, Cap. 32. Specifically, the issue the court is concerned with is whether a corporate creditor may be appointed as a member of a committee of inspection or whether the statutory provision would only allow natural persons to be appointed.

2. I am given to understand by the Official Receiver that prior to 19 December 1995, the Official Receiver had taken the position that only individuals should be appointed, having regard to doubts expressed in this respect in Ex parte Greaves [1937] 1 Ch 499 at 506, even though that point was not the subject of the decision in the case. On 19 December 1995, the Official Receiver issued a Technical Circular for internal guidance as to how to avoid the problem of replacement when an individual appointed to a committee of inspection should leave the creditor company, and that was by seeking an order that the "duly authorised representative" of a firm or a company should be appointed instead of a named individual.

3. That was the practice followed until about December 1999 when the issue was raised by Le Pichon J (as she then was) in Re Pro KTA Ltd, HCCW No. 71 of 1995. In a chambers hearing in those proceedings on 23 December 1999, the Judge indicated that the corporate creditor itself should be appointed as a member of the committee of inspection. The comments of the Official Receiver were sought and he responded by a letter dated 20 January 2000 citing authorities and expressing agreement with the indication of the court that a corporate creditor could and should be appointed. The Official Receiver has since revised his guidelines accordingly.

4. This decision in chambers was not publicized. What happened subsequently is that other judges, including myself, and masters have reverted to the former practice of appointing duly authorised representatives of entities to sit on a committee of inspection. In so doing, reliance has been placed on a passage in Butterworths Hong Kong Company Law Handbook, 4th edition 2002, at paragraph [207.03] which reads as follows:

"It seems that only individuals can be members: see subsection (5) which assumes individuals and Re Testro Bros Consolidated Ltd [1965] VR 18."

5. At the hearing today, both the Official Receiver and the liquidators are in agreement that the above extract does not correctly state the law and they urge me not to follow the decision in Re Testro, which is not binding on me.

6. I am indebted to Ms McKenna and Mr Vaisey for their helpful submissions. I am in agreement with them that on a proper construction of section 207(1), a corporate creditor or contributory may be appointed to a committee of inspection.

7. I start with the relevant statutory provisions.

8. Section 207(1) reads as follows:

"A committee of inspection appointed in pursuance of this Ordinance shall consist of creditors and contributories of the company or persons holding general powers of attorney from creditors or contributories in such proportions as may be agreed on by the meetings of creditors and contributories, or as, in case of difference, may be determined by the court."

9. "Creditor" is defined in rule 2 of the Companies (Winding-up) Rules as:

"includes a corporation, and a firm of creditors in partnership".

10. This definition in the Companies (Winding-up) Rules applies to Cap. 32 by virtue of section 296(2), which is as follows:

"All rules and orders made under this section shall be judicially noticed, and shall have effect as if enacted by this Ordinance."

11. The definition of "contributory" is in section 171 and this reads:

"The term 'contributory' means every person liable to contribute to the assets of a company in the event of its being wound up, and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory."

12. For the definition of "person", one turns to section 3 of the Interpretation and General Clauses Ordinance, Cap. 1 and this reads:

"includes any public body and any body of persons, corporate or unincorporate ...".

13. On the ordinary and natural meaning of the terms of "creditor" and "contributory" as defined, it would appear to be the case that a body corporate which is a creditor or contributory should be entitled to be appointed to a committee of inspection.

14. I digress here to point out that in the Insolvency Rules in the United Kingdom, any ambiguity in the statutory provision in this regard has been removed as there is express provision in Rule 4.152(5) that "a body corporate may be a member of the committee, but it cannot act as such otherwise than by a representative appointed under Rule 4.159". Similar provisions have been enacted in our Bankruptcy Rules in rule 122ZE(3) and 122ZJ, but no amendments have been made to section 207 of Cap. 32.

15. Before I come to section 207(5), one other provision in Cap. 32 is relevant and this is section 115 which provides as follows:

"(1) A corporation may by resolution of its directors or other governing body -

(a) if it is a member of a company, authorize such person as it thinks fit to act as its representative at any meeting of the company or at any meeting of any class of members of the company;

(b) if it is a creditor (including a holder of debentures) of a company, authorize such person as it thinks fit to act as its representative at any meeting of any creditors of the company held in pursuance of this Ordinance or of any rules made thereunder, or in pursuance of the provisions contained in any debenture or trust deed or other instrument, as the case may be ...

(2) A person authorized under subsection (1) shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual shareholder, creditor, or holder of debentures, of the company."

16. Thus, section 115 provides for a mechanism in which a corporation may be represented in a meeting of creditors. So there is no problem at all for a corporate creditor to be appointed to a committee of inspection.

17. What led to the conclusion reached by Sholl J in Re Testro that only a natural person could be appointed is the provision equivalent to our section 205(5) and this reads as follows:

"If a member of the committee becomes bankrupt, or compounds or arranges with his creditors, or is absent from 5 consecutive meetings of the committee without the leave of those members who together with himself represent the creditors and contributories, as the case may be, his office shall thereupon become vacant."

18. Sholl J was influenced by this provision because it specifically mentions "bankruptcy, or assignments or arrangements for the benefit of creditors, and with absence from meetings", which is "quite clearly drawn with reference to natural persons only" (supra. at 23 lines 10-20). The statutory provision says nothing about liquidations or schemes of arrangement or official arrangements that apply to companies. Hence, he concluded that the provision must mean that the committee should consist of individuals only.

19. I am persuaded by Ms McKenna and Mr Vaisey that there is an explanation why there is express provision for the bankruptcy of a member of a committee of inspection, but no provision for the liquidation of a corporate member. In bankruptcy, there is a vesting of rights of the bankrupt in the trustee in bankruptcy. The individual loses capacity other than in a few exceptional instances. Hence, legislation is required to clarify what is to happen in the situation when an individual who serves on a committee of inspection is made bankrupt. A company in liquidation will be the same entity as such, albeit controlled by the liquidator instead of by the management. Liquidation does not affect the rights of a company under section 115 to appoint an authorised representative to a meeting, as a liquidator has been held to be within "other governing body" in the equivalent provision in the Companies Act 1948 in Hillman & Ors v Crystal Bowl Amusements Ltd & Ors [1973] 1 All ER 379.

20. For the above reasons, I do not propose to follow Re Testro. I hold that on a proper construction of section 207(1), a corporation that is a creditor or contributory can and should be appointed to a committee of inspection and an individual, whether named or unnamed, who is to represent the corporation, should not be appointed.

21. In the present case, an order was made on 4 November 2002 providing that there should be a committee of inspection and that the liquidators should convene a meeting of creditors to establish the membership thereof. On 10 December 2002, a meeting of creditors was held and it was resolved that representatives of the following be appointed:

Brixton Investments Pte Ltd;

Madam Kawita Mohan Vaswani;

Industrial Development Corporation of South Africa; and

State Bank of India

22. The liquidators seek in this application an order to confirm that the appointment and constitution of the committee of inspection is valid; alternatively, if the court should determine otherwise, directions to hold creditors' meeting to determine the membership of the committee of inspection to consist of named individuals and an order to ratify the acts of the liquidators as set out in the schedule to the summons.

23. For the reasons given above, I make a declaration that the committee of inspection, made up of the three corporate members and Madam Kawita Mohan Vaswani, is properly constituted.

24. I have earlier made an order on 19 November 2003 to ratify and confirm the acts of the liquidators as set out in the schedule to the summons and that order is to stand. I further order the liquidators to gazette the appointment of the membership of the committee of inspection, if they have not already done so, within 14 days hereof. Lastly, I order that the costs of the Official Receiver and of the liquidators in this application are to be paid out of the assets of the company.