Shareholders’ Disputes, Windings-Up Of Solvent Companies And Section 182 Dispositions

Keywords: shareholders disputes, windings-up, solvent company, Companies Ordinance, CO

Did you know that dispositions of property of a solvent company made after the commencement of a winding-up will unlikely be disturbed unless it can be demonstrated that the disposition is not in the interests of the company?

Two recent decisions, handed down in the context of shareholder disputes, highlight the atypical application of section 182, Companies Ordinance (Cap 32)(CO) to solvent companies. For another atypical application of the CO, see our recent Legal Update "Major Shareholder Obtains Relief Pursuant to Section 168A" of 20 December 2013.

Section 182 relevantly provides:

In a winding up by the court, any disposition of the property of the company, including things in action, and any transfer of shares, or alterations in the status of the members of the company, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.

Dispositions and Insolvent Companies

Applications for validation orders are typically made by a company subject to a winding-up petition for "one off " transactions or payments which can be demonstrated to the satisfaction of the court as being for the benefit of not only the company but its unsecured creditors as a whole. The principles for the exercise of the court's discretion in these circumstances are well established by the authorities. The observations made by the English Court of Appeal in Re Gray's Inn Construction Co Ltd1, adopted in Hong Kong2, relevantly provide:

It is a basic concept of our law governing the liquidation of insolvent estates...that the free assets of the insolvent at the commencement of the liquidation shall be distributed rateably amongst the insolvent's unsecured creditors as at that date...There may be occasions, however, when it would be beneficial, not only for the company but also for its unsecured creditors, that the company should be enabled to dispose of some of its property during the period after the petition has been presented but before a winding-up order has been made. An obvious example is if the company has an opportunity by acting speedily to dispose of some piece of property at an exceptionally good price. Many applications for validation under the section relate to specific transactions of this kind or analogous kinds. It may sometimes be beneficial to the company and its creditors that the company should be enabled to complete a particular...