JOINT AND SEVERAL LIQUIDATORS OF WILHELMSEN SHIP MANAGEMENT HOLDING LTD (IN MEMBERS’ VOLUNTARY WINDING UP) v. THE REGISTRAR OF COMPANIES

HCMP 654/2021

[2021] HKCFI 1709

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 654 OF 2021

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REASONS FOR DECISION

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1.  This was the adjourned hearing of the originating summons dated 11 May 2021 by the joint and several liquidators of Wilhelmsen Ship Management Holding Limited (“the Company”) (In Members’ Voluntary Winding Up) (“the applicant”) for an order under section 42 of the Companies Ordinance, Cap 622 (“the Ordinance”) to rectify inaccurate information in the certificate of solvency (Form NW1) dated 12 October 2020 (“the Original Form NW1”). At the conclusion of the adjourned hearing, the relief sought was granted for the reasons set out below.

Background

2.  The Company which was incorporated in 1990 sold its business to Wilhelmsen Ship Management Holding AS (“WMSH AS”) under a Business Transfer Agreement dated 24 June 2020 (“BTA”). It then took steps to enter into a members’ voluntary winding up.

3.  On 30 September 2020, based on unaudited management accounts of the Company as at that date of retained earnings of USD4.8 million (in round terms), the Company declared and paid an interim dividend of USD3.7 million on 1 October 2020.

4.  The entire dividend amount (“the Dividend Payment”) was paid to Wilhelmsen Maritime Services AS (“WMS AS”) (one of 2 shareholders) upon the instructions of the only other shareholder of the Company, Abacus (Nominees) Limited.

5.  Based on the unaudited management accounts made up to 9 October 2020, the Company had a net balance of nil assets and this information was entered into the Original Form NW1 filed on 12 October 2020.

Events precipitating the present application

6.  In the course of finalising the financial statements for the period from 1 January to 12 October 2020, PricewaterhouseCoopers (“PwC”) revisited the BTA and found that the Company’s retained earnings as at 9 October 2020 was less than the amount shownin the unaudited management accounts.

7.  PwC calculated the carrying value of the Company’s business to be approximately USD8.3 million. As the business was sold for only USD2.2 million (which was at a substantial discount), this translated into a USD6.1 million loss for the Company.

8.  At the hearing on 1 June 2021, it was unclear from the supporting documents how the figure of USD1,282,051.28 (to be shown in the amended Form NW1 (“amended Form NW1”) which is to replace the valuation of nil in the Original Form NW1) was arrived at.

9.  The hearing was adjourned for further evidence to be filed to clarify the matter.

10.  Ho Siu Pik one of the joint and several liquidators filed a 2^nd affirmation on 11 June 2021 (“Ho 2^nd”) for the adjourned hearing.

11.  Ms Ho explained that loss on disposal of business under the BTA was booked and recognised in 2 stages: (1) of the approximately USD6.1 million loss, the Company resolved to first recognise a part of the loss in the sum USD3,629,905.11 pertaining to the loss on disposal of its investment in subsidiaries and joint ventures transferred to WSMH AS. (2) After the Dividend Payment was made, between 1 and 9 October 2020, the Company transferred its remaining business and assets (consisting of cash, bank balances and account payables) to WSMH AS.

12.  Following that subsequent transfer, the Company had to account for the balance of the loss on disposal of business, i.e. USD2,481,977.11 (“the Outstanding Loss”).

13.  §12 of Ho 2^nd contains a breakdown of the Outstanding Loss and recalculates the retained earnings as at 9 October 2020, reducing it to an accumulated loss in the sum of USD1,282,051.28. From an accounting perspective, that was an irregularity that had to be rectified by recovering certain payments so that the retained earnings would not be a negative value.

14.  PwC proposed that the loss in retained earnings be filled by adjusting the Dividend Payment from USD3.7 million to USD2,417,948.72, the latter figure being the difference between the Dividend Payment and the figure of USD1,282,051.28.

15.  The Company therefore adjusted the Dividend Payment and WMS AS (the recipient of the Dividend Payment) consented to the adjustment. As a result, as of 9 October 2020, there was an amount due and receivable from WMS AS to the Company in the sum of USD1,282,051.28, being the excessive dividend paid by the Company. It is recorded as an asset, namely “intercompany receivables” in the revised unaudited management accounts of the Company made up to 9 October 2020 and dated 18 January 2021.

16.  In view of the evidence now before the court, I am satisfied that the Original Form NW1 was factually inaccurate. The amended Form NW1 that shows a balance of USD1,282,051.28 would rectify that inaccuracy.

The Registrar’s statement

17.  The Registrar (whose attendance was excused) is neutral to the application. On 20 May 2021, a statement was submitted pursuant to section 43(2) of the Ordinance expressing a concern that the Amended Form NW1 could result in non-compliance with section 233(2)(a) of Companies (Winding Up and Miscellaneous Proceedings) Ordinance, Cap 32 (“C(WUMP)O”) if the court were to make an order under section 42 of the Ordinance.

18.  For a members’ voluntary winding up, section 233 requires, inter alia, that a certificate of solvency (Form NW1) be issued within the 5 weeks immediately preceding the date of the passing of the special resolution (“SR”) for voluntary liquidation and its delivery to the Registrar for registration. In the present case, the SR was passed on 12 October 2020. If this court were to grant the order sought, the amended Form NW1 would be dated 2 March 2021 and outside the time limit prescribed by section 233(2)(a).

19.  On the facts of the present case, Mr Keith Cheung, counsel for the Company, submitted that the Registrar’s concern is misplaced for a number of reasons:

(1)  The result envisaged by the Registrar is predicated on the amended Form NW1 evidencing the rectification granted by the court having the effect of rendering the original document void. But there is no precedent or principle for that proposition. The amended Form NW1 merely records the effect of rectification and does not re-engage section 233(2)(a).

(2)  The original filing remains in effect in the absence of a declaration that it is null and void: see for example Re China People (Hong Kong) Limited [2020] HKCFI 2873 at § 56. Such a declaration would normally be made where the continued presence of the impugned document will cause material damage to the company and the present case is not such a case.

(3)  It is a tenet of statutory construction that the court will seek to avoid a construction that produces an absurd result: see the presumption against absurdity: Bennion, Bailey and Norbury on Statutory Interpretation, 7^th edition (2017) at §12.1. A corollary is that the court will avoid adopting a construction that cures the mischief the enactment was designed to remedy only at the cost of establishing another mischief: Bennion at §12.7.

(4)  If the concern expressed has any validity, the ramifications would be serious and far-reaching. Under section 40, the Registrar could notify the company of inconsistent information, request that steps be taken to resolve the inconsistency and require a person to give updated information. Section 41 enables the correction of typographical errors. It would mean that the Registrar should not exercise its powers under sections 40 and 41 of the Ordinance.

20.  I accept those submissions. In my view, it is unthinkable that section 233(2)(a) would be interpreted in the manner postulated in the Registrar’s statement.

21.  If the statutory period prescribed for filing restarts each time an amendment is made, a company is likely to be liable for penalties for late filing simply because a company takes steps to rectify under section 40 or if the Registrar revises the filing under section 41. The absurdity of such a construction is evident and it is not one which a court would adopt except as a last resort.

Conclusion

22.  There would not appear to be any reason why the court should refuse the order sought provided the basis of the rectification is apparent from an inspection of the Register. Section 44 empowers the Registrar to make a note in the Register for the purpose of providing information in relation to a rectification, removal, or other information: see Re China Nice Education Research Publishing Investment and Management Co Limited [2016] 3 HKLRD 525 at §20.

23.  The Registry’s current practice is to annotate both the original filing and amended form: see Yuen Yin Kwan v Sino Insurance Brokers Group Limited [2020] 1HKLRD 1117 at §24.

24.  WMS AS who would be directly affected by the order has been notified of these proceedings agree to the order sought.

25.  Accordingly, at the adjourned hearing, I granted the declaration sought to the effect that the information stated in the Original Form NW1 is factually inaccurate and also ordered that an amended Form NW1 be prepared to effect the rectification; that upon receipt, the Registrar shall register the amended Form NW1 and shall annotate the Original Form NW1 and amended Form NW1 in an appropriate manner upon registering the amended Form NW1; that there be liberty to apply; and that there be no order as to costs.