ALBERT EDWARD RODRIGUES v. ASSOCIACAO PORTUGUESA DE SOCORROUS MUTUOS (IN LIQUIDATION)

HCMP 1391/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1391 OF 2014

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J U D G M E N T

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1.  I have before me an application by the company for an order that its current creditors’ voluntary winding up be permanently stayed. The application arises in unconventional circumstances. The company is limited by guarantee and was incorporated in Hong Kong in 1915. Although the company is not a legally recognised charity in practice it functions as one. Its activities are intended to benefit the Portuguese community in Hong Kong.

2.  On 17 October 1989 the company passed a special resolution resolving that it be voluntarily wound up. At that time the company was solvent. The intention was apparently that its assets be transferred to another entity with much the same purpose. Following the passing of a winding up resolution it appears from an unsigned letter dated 8 November 1989 from the honorary secretary of the company to the Registrar General of the Companies Registry that a firm of solicitors, Sousae & Hoosen, had been appointed liquidators.  It appears subsequently to have been the intention that Mr. Gabriel Azedo and Mr. Arthur Gomes replace them. However, there are no original or copy documents recording this and it appears that the necessary notice of appointment of liquidator was not filed at the Companies Registry.

3.  On 20 August 1990 the Registrar General of the Companies Registry wrote to the company stating that the copy of the special resolution that had been submitted to the Companies Registry was not acceptable because it contained an inaccurate date, the respondent had failed to comply with section 233 of the Companies Ordinance by failing to present a declaration of solvency, the effect of failing to present such a declaration was that the winding up of the company would technically proceed as a creditors’ voluntary winding up and, as the respondent was out of time to comply with the requirements of the Companies Ordinance, the liquidator should apply on behalf of the Company to the court for an order staying the winding up proceedings so that the company could start afresh and proceed as a members’ voluntary winding up as it had originally been intended. For reasons which are unknown to the individuals currently responsible for the company's affairs Mr. Azedo and Mr. Gomes took no steps to address these matters.

4.  Matters then developed in an unexplained and rather bizarre manner.  It appears that at no stage were any steps made to liquidate the Company. On the contrary the Company continued to carry on its affairs as it had in the past although in more recent years its activities have diminished. Each year the Company had audited financial statements prepared. These were approved by its board who included Mr. Azedo and Mr. Gomes for the early part of the period.  Mr. Azedo was an experienced certified public accountant and a number of other members of the board were successful and high-profile local businesspeople. One might reasonably have expected one of their number to have recalled that the Company had taken steps to place itself in voluntary liquidation and either taken steps to address the matter or suggested that professional advice be taken. There is, however, nothing to suggest that the failure of the board to ensure that the company's affairs were conducted properly was sinister or the result of bad faith. I think it reasonable to assume that as the Company was not a commercial venture and the directors, who were probably for the most part busy men with other commercial interests, simply didn't give the affairs of the Company sufficient attention. I am satisfied from the information contained in the audited financial statements that the Company is clearly solvent and able to pay what limited debts it has or may have.

5.  Section 209(1) of the Companies (Winding up and Miscellaneous Provisions) Ordinance Cap 32 provides:

“the court may at any time after an order for winding up, on the application either of the liquidator, all the official receiver, or any creditor or contributory, and on proof to the satisfaction of the court that all proceedings in relation to the winding up ought to be stayed, make an order staying the proceedings, either altogether or for a limited time, on such terms and conditions as the court thinks fit.”

6.  In a voluntary winding up the same power is exercisable by virtue of section 255 (1) where it may be "just and beneficial" to do so:

“The liquidator or any contributory or creditor may apply to the court to determine any question arising in the winding up of a company, or to exercise, as respects the enforcing of calls, or any other matter, all or any of the powers which the court might exercise if the company were being wound up by the court.”

7.  The principles by reference to which the court determines applications to stay winding up proceedings under section 209 (1) are well established and explained in Kwan J’s decision in Re Outboard Marine Corp Asia Ltd [1]. Briefly they are as follows:

(1) The power to grant a stay of winding up proceedings is discretionary.

(2) The burden is on the applicant to make out a sufficient case that carries conviction. Before granting a stay, section 209 (1) requires “proof to the satisfaction of the court that all proceedings in relation to the winding up ought to be stayed”.

(3) Whether there are sufficient assets to pay all the creditors of the company and the expenses of the liquidation. The court will also have regard to the interests of shareholders.

(4) The court will also consider whether a stay is conducive or detrimental to commercial morality and to the interests of the public at large.

8.  I am satisfied that all the creditors of the company can comfortably be paid out of the assets available to the company and the liquidation expenses, if there are any which seems highly doubtful, can  also readily be satisfied.  It seems to me clearly desirable that the affairs of the Company are properly regulated.  The choices are between requiring the Company to liquidate its assets and proceed as appears to have been intended in 1989 or to allow the Company to continue to do lawfully what in practice it has been doing for the last 25 years.  It seems to me clear that the latter is the more appropriate course to adopt.  As I have previously indicated although the way in which matters transpired is unsatisfactory there appears to be no reason to think that it is desirable that there is an investigation into the conduct of the affairs of the Company and the propriety of the board’s behaviour and inactivity.  At least so far as the early 1990s are concerned such an investigation would be only of a historical interest.

9.  I am satisfied that this is a proper case in which to make an order staying the technical state of liquidation in which the Company currently finds itself.  There is also an application pursuant to section 182 for an order validating all transactions by the Company, including transfers of shares and changes in the status of members since it was placed into liquidation.  Generally the court is reluctant to make such all encompassing validation orders, but given the unique character of the Company’s liquidation it seems to me to be prudent to do so and I can see little, if any danger, of anything being validated that should properly be impugned.

10.  I will order that the costs of the application are paid out of the assets of the company.