Re China Metal Recycling (Holdings) Ltd (Private examination under s. 221)
Court of First Instance
Companies Winding-Up Proceedings No. 210 of 2013
Godfrey Lam J in Chambers
Company Law
25 June 2014

Liquidation – private examination of officer of company pursuant to s.221 – whether jurisdiction to order examination in relation to subsidiaries of company – whether reasonable to order examination in relation to subsidiaries of company

Ls were appointed the provisional liquidators of C, a listed company; and were empowered to take control of all of its subsidiaries (the “Group”), including those in mainland China which carried out C’s scrap metal recycling business (the “Mainland Subsidiaries”). X was the founder, Chairman, CEO and majority shareholder of C. Following an investigation, the Securities and Futures Commission (the “SFC”) reported that C had deceived the market by substantially overstating its profits and trading in C’s shares were suspended. The SFC presented a winding-up petition against C alleging fraud and dishonesty by its senior management, based on records of fictitious transactions, forged documents and a round robin of funds. Ls also caused an action to be brought in the name of C and a Macau subsidiary against X and other defendants based largely on the petition, for, inter alia, fraudulent breach of duties (the “Action”). Despite numerous requests, Ls could not obtain sufficient information from X about, or gain any meaningful access to and control over, the Mainland Subsidiaries. Ls therefore sought an order under s.221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) that X be examined on oath concerning “the promotion, formation, trade, dealings, affairs or property of the Group … and its associated companies for the purpose of identifying and preserving the assets of the Group” and also for understanding and stabilising their businesses and operations.

Held, granting the application, that:

  • There was jurisdiction to order private examination relating to C’s subsidiaries. Under s.221 of Ordinance, information concerning the company’s “dealings” or “affairs” was wide enough, in an appropriate case, to include information concerning the activities of a subsidiary. Ls had a duty to preserve the assets of C and, given the business reality of the Group, also to be informed about the assets of the Mainland Subsidiaries and, where necessary, to take steps to protect them.
  • Ls had been unable to become the directors or legal representatives of the Mainland Subsidiaries. They remained strangers to the Group and needed the assistance of X, who played a key role in the Group’s management. An oral examination was therefore reasonably required to enable Ls to carry out their functions.

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