Introduction

Liquidators of China Medical Technologies Inc v Samson Tsang Tak Yung involved a contested dispute over the liquidators' access to certain documents stated to be in the respondent's possession or control (for further details please see "Important judgment on liquidators' ability to obtain documents"). At first instance, the court refused to order the respondent to give wide ranging production of documents to the liquidators on the basis that the documents sought did not fall within Section 221(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32).(1) This judgment was recently successfully appealed by the liquidators, with the Court of Appeal taking a far more purposive approach to Section 221(3) – in particular, with reference to the meaning of "relating to the company" in the context of an order for the production of documents.(2)

Background

The respondent is said to have been a director and former chief financial officer of the company. The liquidators sought wide-ranging categories of document from him in order to (among other things) recover the company's assets and assess potential claims against him. The application for the production of documents was made pursuant to Section 221(3) of the ordinance. There was also a corresponding application for the respondent's examination pursuant to Section 221(2), which was successful.

However, at first instance the court refused the order for production on the basis that the documents sought by the liquidators did not "relate to the company". The court refused to accept that the provisions of Sections 221(1) and 221(2), on the one hand, and Section 221(3), on the other, were coextensive because the former (examination) referred to matters concerning the "promotion, formation, trade, dealings, affairs or property of the company", whereas the latter (production of documents) was more limited by reference to records "relating to the company".

In effect, the lower court's decision turned on an issue of statutory interpretation. Undeterred, the liquidators appealed to the Court of Appeal. In short, they argued that the lower court's decision was contrary to the legislative history and purpose of Section 221(3) of the ordinance. Indeed, in the process, the liquidators' lawyers appear to have gone to extensive (and impressive) efforts to trace the legislative history as far back as 19th and 20th century English statutes.

Therefore, as happens with some appeals, the Court of Appeal was asked to consider the legislative history of Section 221(3) in greater depth and give the section a more purposive interpretation in effect, the liquidators invited the Court of Appeal to treat Sections 221(2) (examination) and 221(3) (production of documents) as covering at least the same material.

Appeal

In an interesting judgment, the Court of Appeal agreed with the liquidators' arguments concerning the legislative history and purpose of Section 221(3) of the ordinance. The general purpose of Section 221 was to permit liquidators to carry out their important functions – in particular, to collect assets and investigate the company's affairs (including with regard to making recoveries). Since this was a broad purpose, the Court of Appeal considered that there should be no discernible difference in the purposes of Sections 221(2) and 221(3) – both were directed at assisting liquidators and should have the same, or at least a very similar scope, as opposed to (for example) one provision being much narrower than the other.

The Court of Appeal noted that the expression 'relating to' in the context of "relating to the company" (Section 221(3)) had considerable width and was familiar to lawyers.

The Court of Appeal also accepted the liquidators' arguments that if one traced the legislative history of Sections 221(1) and (3), their separation into individual sub-sections could be explained – although the legislative intention was such that, as a matter of principle, the range of documents that could be produced should be no less than the information which could be examined.

In effect, matters concerning the "promotion, formation, trade, dealings, affairs or property of the company" (Section 221(1)) and records "relating to the company" (Section 221(3)) were essentially one and the same when considering the court's jurisdiction, although the court had a residual discretion to limit the scope of matters to be disclosed to liquidators depending on the circumstances of an individual case.

Therefore, the Court of Appeal allowed the liquidators' appeal and ordered the production of the documents sought by them. The documents appear to be wide ranging and apparently relate to (among other things) the respondent's ownership of certain assets, apparent divorce and third parties said to have received assets belonging to the company. The Court of Appeal declined to remit the matter back to the first instance court for further consideration.

Comment

Had matters stopped there, it might have been interesting to see whether the respondent applied for permission to appeal to the Court of Final Appeal. However, matters have been overtaken to some extent by Sections 286B and 286C of the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016, which (in the main) came into effect in Hong Kong on February 13 2017. Sections 286B and 286C contain coextensive powers for examination and production of documents.(3) Therefore, if there were any doubts that there was a legislative gap, matters appear to have been put on a firmer statutory footing.

That said, the Court of Appeal's judgment is interesting for a number of other reasons.

First, the judgment is a good example of an appeal court having the confidence to give a statutory provision a more purposive and remedial interpretation than a court of first instance.(4) This is not uncommon in Hong Kong.

Second, the Court of Appeal's approach to the expression 'relating to' could have wider application and, according to the Court of Appeal, the fact that documents might relate to other persons or entities does not mean that they cannot also relate to the company. The expression "relating to the company" appears in Section 286B of the new ordinance, together with a coextensive power relating to (among other things) the "affairs or property of the company".(5)

Third, the proceedings in this case may yet give rise to an issue concerning (for example) the respondent's right to privacy, although unfortunately this issue does not appear to have been extensively argued before the first instance court. Therefore, the Court of Appeal appears to have been (understandably) reluctant to entertain much discussion in this regard.

For now, the result is an appeal judgment with which liquidators (and their lawyers) will be content and of which potential respondents must be mindful because it illustrates a strong judicial recognition of the importance of a liquidator's functions(6) – particularly where, for example, misfeasance is suspected on the part of a company's former officer.

For further information on this topic please contact David Smyth or Warren Ganesh at RPC by telephone (+852 2216 7000) or email (david.smyth@rpc.com.hk or warren.ganesh@rpc.com.hk). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) [2015] 2 HKLRD 27 and [2016] 2 HKLRD 962.

(2) [2018] HKCA 252.

(3) For example, see Section 286B(1)(d): "produce any books and papers in the person's custody or power relating to the company or the promotion, formation, trade, dealings, affairs or property of the company".

(4) Section 19 of the Interpretation and General Clauses Ordinance (Cap 1): "An Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit."

(5) Supra note 3.

(6) For the more academically minded, the judgment is a good example of the spirit of Section 19 of the Interpretation and General Clauses Ordinance in play. For legal historians, the judgment is an account of the legislative history of Section 221. If there is an appeal, the respondent might hope for a non-permanent judge of the Court of Final Appeal with a more literal approach to statutory interpretation (eg, with an Antipodean influence).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.