Given the nature of their businesses, shipping companies may be
involved as respondents in arbitration proceedings in different
jurisdictions. As arbitrations tend to be lengthy procedures, a
claimant to such proceedings may want to explore whether there are
any quicker routes they can take to recover their losses. One such
option they might consider is bringing a winding up petition
against the company. However, as a mandatory stay will usually be
imposed on court proceedings brought by a party in breach of an
arbitration agreement, what is the position with regards to
bringing a winding up petition?
The Hong Kong court has jurisdiction to wind up any company
registered in Hong Kong and require it to pay off its creditors. An
unregistered company may also be wound up if (a) the company is
dissolved, has ceased to carry on business, or is carrying on
business only for the purpose of winding-up its affairs; (b) the
company is unable to pay its debts; and (c) the court considers
that it is "just and equitable" that the company is wound
up. For a non-Hong Kong company to be wound up in Hong Kong, the
provisions relating to an unregistered company must be met, and the
company must have a sufficiently close connection with Hong Kong,
which is shown by evidence that the company has some assets within
the jurisdiction and one or more persons are concerned in the
proper distribution of the assets.
Where a winding up petition is based on a company's
inability to pay a debt, it will be dismissed if the company can
establish that the debt is genuinely disputed on substantial
grounds. If this can be shown then the court will leave the dispute
to be resolved by other means.
In the case of Re Jade Union Investment
Ltd  HKEC 306, it was held that a winding up
petition differs from an action between parties where the court is
determining their respective rights and liabilities. The judge held
that neither the existence of an arbitration clause in a contract
between the parties nor the existence of an arbitration commenced
pursuant to it, would of themselves establish that the debt is bona
fide disputed on substantial grounds; the debtor would still have
the burden of proving this. Therefore the winding up proceedings
would not be automatically stayed.
This case was followed in Sinom (Hong Kong)
Ltd  HKEC 1541 where the court was deciding
whether to grant an injunction to restrain the presentation of a
winding up petition. The court held that although an injunction
will be granted to prevent a petition which it considers to be an
abuse of process, such a course of action should be taken with
great caution as a winding up petition is a right conferred by
statute and there would need to be clear and persuasive grounds to
restrain a would-be petitioner.
These cases show that the mere existence of an arbitration
clause or arbitration proceedings between a debtor and a creditor
will not necessarily mean that there is a genuine dispute in
relation to the debt owed justifying the dismissal of a winding up
petition. Instead, the court hearing the petition will still
themselves consider whether there is a bona fide dispute regarding
Before presenting a winding up petition, a creditor must make a
deposit (currently HK$12,150) with the Official Receiver to cover
their fees and expenses. The petition must then be presented in the
prescribed form to the Registrar of the High Court, who will
arrange the petition hearing, and served on the debtor company.
Every petition must be accompanied by an affidavit and advertised
before the hearing. If the petition is not opposed it will be
determined by the Master at the first hearing; however, if it is
opposed, as is likely with a debt subject to arbitration
proceedings, the hearing will usually be adjourned to take place
before the Companies Judge.
The sudden declaration of bankruptcy of OW Bunker in 2014
provided a stark reminder of just how quickly a company can fall
into financial difficulties, regardless of its size. Given the
speed with which such problems can arise, it is beneficial for
creditors to have a good understanding of the options available to
them to recover their debts. A winding up petition may be presented
in relation to an unpaid debt and the Hong Kong court has held that
an arbitration agreement or involvement in arbitration proceedings
would not automatically preclude a creditor from pursuing this
course of action.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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