Court Confirms that Corporate Creditors can be Appointed to a Committee of Inspection

Written by Tom Vaizey, Partner, Johnson Stokes & Master

Summary

In a recent case, Re Asean Interests Limited [2004] HKEC 184 (decision 19 December 2003), the Court of First Instance has confirmed that, where corporations wish to be members of a committee of inspection in a liquidation, they should be members in their own right rather than having natural persons appointed to represent them.

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The Issue

The committee of inspection can play an important role in the administration of a court ordered liquidation.† The liquidators must report regularly to the committee, and certain powers of the liquidators are only exercisable with the sanction of either the court or the committee.† These powers include the power to bring legal proceedings, to carry on the company's business, and to make arrangements or compromises with creditors.†

Section 207 of the Companies Ordinance specifies the categories of persons who may be appointed to a committee: they must be creditors or shareholders or persons authorised by them though powers of attorney.† In recent years, the court has interpreted section 207 to mean that only natural persons can sit on committees of inspection, so where a creditor or shareholder is a corporation, an individual must be nominated to represent it. This can cause practical problems : liquidations can last for several years and an individual who is acting as the representative of a corporation might leave his or her employment, or be moved to a different position, so he or she would need to resign from the committee.† Further creditors' and shareholders' meetings would then need to be convened to replace the member.

In Asean, a committee consisting of three corporations and one individual, all creditors, had been appointed.† The liquidators sought confirmation from the court as to the validity of the appointment of the corporations themselves as members.

The Statutory Provision

Section 207(1) states that:

A committee of inspection appointed in pursuance of this Ordinance shall consist of creditors and contributories of the company or persons holding general powers of attorney from creditors or contributories in such proportions as may be agreed on by the meetings of creditors and contributories, or as, in case of difference, may be determined by the court.

Section 207(5) provides that:

"If a member of the committee becomes bankrupt, or compounds or arranges with his creditors, or is absent from 5 consecutive...