Hong Kong: Reviving The Dead Company In Hong Kong

Last Updated: 4 December 2007

In Hong Kong, if a company is dissolved following compulsory or voluntary liquidation, the court may declare the dissolution void on the application of any person interested within two years of the date of dissolution (Section 290(1) Companies Ordinance (Cap 32)). Such two year period may even be extended upon application under section 290(1A). Company’s shareholders and directors may therefore not rest in peace even after a Company has been officially dissolved.

In the recent case of Re Yiu Cheung Glass Mirror Co Ltd [2007] 1 HKC 502, the High Court of Hong Kong ordered that Yiu Cheung Glass Mirror Co Ltd ("the Company") a dissolved company be restored to the Companies Registry following an application under section 290.

The Background

The application was made by B S C Shinwa Kogyo Company Limited and B S C Interior Contract and Engineering Company Limited ("the Applicants"), the contractors of a construction project in which the Applicants were sub-contractors of some interior decoration works in or about 2001.

In January 2001, a former employee of the Company ("the Employee") in the construction project was assigned the task of fixing glass panels near a lift shaft intended to be used for bubble lifts. The Employee fell slightly over 40 feet from the ground floor into a void space, through the scaffolding which was erected above the void space and landed at the third basement level.

The Employee suffered injuries and commenced proceedings under both the Employees’ Compensation Ordinance (Cap 282) and common law. The employees’ compensation proceedings were commenced in 2003 and continued into 2005. Common law proceedings were not started until about January 2004. The Company went into liquidation in about October 2001, with the liquidation coming to an end in April 2005. The Company was properly dissolved pursuant to section 248 of the Companies Ordinance on 19 July 2005.

The Application

The reason for the Applicants’ application was that they wished to pursue possible claims for contribution or indemnity from the Company in the proceedings brought against them by the Employee.

The liquidators, who was also a party to the restoration proceedings, objected to the application on the following grounds :-

    1. the Applicants had failed to provide good reasons for the revival of the Company, or to explain their failure to take steps to bring claims against the Company earlier in the course of liquidation; and
    2. they did not think there is much use to revive the Company.

The Applicants failed to take steps at an earlier stage

According to Re Max Win Engineering Limited (unreported, HCMP 1913 of 2002, 24 May 2002), the failure of the applicant to make the application at an earlier stage to defer the dissolution of the company was a ground for rejecting an application under section 290, unless the applicant could provide at least some explanation for its failure to take steps earlier in the ordinary course of dissolution.

In the present case, the Applicants argued that, even though they were aware that the Company was in liquidation through previous correspondence with the liquidators, they had only known of the dissolution of the Company four months after the dissolution took place.

This was because the proceedings commenced by the Employee against the Applicants were taken over by the Applicants’ insurers. The Applicants only realized that the Company had been dissolved when their insurers ceased to act for them in the employees’ compensation proceedings.

It is common in employees’ compensation and related common law proceedings in Hong Kong that the insurers will take charge of the proceedings and appoint their own lawyers to represent the insured (e.g. the Applicants in the present case). The insured’s role in the proceedings is to assist the insurers in defending (if applicable) the case and have no decision making power in the proceedings.

The Court accepted that the Applicants did not have control of the employees’ compensation or common law proceedings and were not directly involved in instructing solicitors regarding those proceedings. The fact that they were previously represented by solicitors not instructed by them who did not take steps to pursue any claim for an indemnity or contribution was an adequate explanation for their failure to take steps earlier.

The revival of the Company will not serve any good purpose

The liquidators also argued that there was no useful purpose to restore the Company as there was an exclusion clause in the contract of insurance, which excluded liability for injury that was suffered by a person working at the height of more than 30 feet above ground or floor level. Since in this case it is common ground that the employee fell a distance of more than 40 feet and suffered injury, the liquidator suggested that the exclusion clause would apply to exclude the liability of the Applicant’s insurers. The Court ruled that, in an application for restoration of a dissolved company, the Companies Court only needs to examine if the application fell within the general legislative purpose of section 290 and not whether the restoration would serve any good purpose. Such issue should be examined by another tribunal at a later stage.

Conclusion

Since one of the ordinary purposes of section 290 is to entitle a creditor to make a claim which he has not previously made, in this case the Applicants had satisfied the Court as to why they had failed to make the claim earlier. In the absence of some other prejudicial factors to the Company which rendered it unjust or inequitable, the Court exercised its discretion and ordered that the Company be restored.

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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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