Dismissal of liquidators: who has the locus standi?

introduction

In the recent case of Shearman & Sterling (a firm) and others v Asia-Pac Infrastructure Development Limited (in voluntary liquidation) and others [2022] HKCFI 218, which concerns a request for dismissal of liquidators, the Court, after considering the conditions required locus standi for having made such a request in detail, dismissed the request, finding that the applicants did not have standing.

context

1st defendant (the “Company”) is a company in compulsory liquidation. Bothn/a and 3rd defendants (“Silk” and “Whoarespectively) are the liquidators of the Company. The Company is one of the plaintiffs in HCA 806/2006 (“806 Stock“) while the plaintiffs (the “Shearman Parties”) are the defendants.

At the request of the Shearman parties, the company was ordered on December 6, 2011 and November 19, 2014 to provide security in the aggregate amount of HK$4.4 million for the costs of the Shearman parties in the action 806 up to and including the exchange of witness and expert statements. evidence. The Company made the payment as ordered.

On April 10, 2017, the Shearman parties requested to increase the funds paid by the company to cover their costs of HK$2.4 million, but later withdrew their request on November 10, 2017. The reason why the Shearman parties did not pursue their claim was that they could not be certain that the plaintiffs in the 806 action would “top up” the amount paid into court to cover the payment. It was further stated that the costs the Shearman parties had spent through June 27, 2018 on the 806 action far exceeded the amount of the installments.

By summons dated December 18, 2017, the Shearman Parties requested the replacement of Tang and Hou as liquidators of the Company (the “Deletion request”) pursuant to Section 252 of the Companies (Winding-up and Miscellaneous Provisions) Ordinance, Cap 32 (“Cap 32”) and the inherent jurisdiction of the Court.

The Shearman parties argued that their ability to bring the request for deletion resides in their status as (1) creditors of the company; and/or (2) the defendants in the 806 action. The company argued that neither of these remedies gives the Shearman parties a sufficient interest in the relief sought in the motion for remand.

Questions

The issues before the Court include, among others:

1. If the Shearman parties have locus standi request deletion?

2. Was the conduct of Tang and Hou (and in particular that of Tang) such that a case was made for their dismissal?

Locus standi for deletion request

Under Section 252 of Cap 32, the Court may, “on the case shown», dismiss a liquidator and appoint another in his place. Although this article does not contain any limitation as to who may apply for the dismissal of a liquidator, the Court does not agree that it should be interpreted as meaning that there is no limitation as to the categories of persons who may apply under this section.

According to Fletcher, Insolvency Law (5and ed., 2017), “the right to request the dismissal of a liquidator is limited to persons who have “a legitimate interest in the redress sought”. Even though the law itself does not expressly limit the class of persons who can make the request, the court will not remove a liquidator of an insolvent company at the request of a contributor who is not also a creditor.”.

Citing the foregoing and having also carefully considered a line of case law, the Court held that the status of the Shearman parties as defendants in the 806 action does not give them the requisite capacity. location. It would not suffice for the Shearman parties to demonstrate that they have an interest in bringing the claim or that they may be affected by the outcome of the liquidation. The mere fact that they were defendants in the 806 action was not enough.

Further, the Court also found that the Shearman parties failed upright as creditors of the Company. The Court clarified that a creditor has standing to seek the dismissal of a liquidator not by virtue of the label of “creditor”, but by virtue of the circumstances in which this creditor will be affected by the liquidation which, in turn , justifies its interest in the choice of the liquidator. (s). In this case, the Court noted that the amounts owed by the Company had already been secured by a bond for costs paid by the Company in connection with the 806 Action. As such, the position of the parties Shearman s was akin to that of a secured creditor and would be largely unaffected by the liquidation process. Any charges that might have been overspent had not yet become due. Accordingly, they did not have a sufficient interest in the remedy sought and, therefore, the location when submitting the deletion request.

Despite findings that the Shearman parties did not have a sufficient interest in the relief sought, the Court then considered the merits of the substantive reasons, but found that it would also have dismissed the motion for remand on the merits.

Conclusion

This case clarifies the quality required for a party to request the dismissal of the liquidator(s). While Cap 32 252 does not specifically contain a limitation as to who may make such a request, parties should bear in mind that they must be able to demonstrate that they have a “sufficient legitimate interest » to request the dismissal of liquidators and administrators in the sense that their interest will be affected by the liquidation process.

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