(a) In relation to each type of insolvency procedure available in the legal system of this economy, what are the administrative organs/entities involved in the implementation and management of that procedure? (For example a trustee, liquidator, receiver, government official.)

(1) Compulsory Winding Up - The administrative entities that play a role in a compulsory winding up are the liquidator (and in some cases special managers), the Official Receiver (a government official), and the court. Historically, the Official Receiver served as liquidator in most winding ups, save the more complicated cases. However, in May 1996, the Official Receiver introduced a trial scheme to contract out non-summary compulsory winding ups (cases in which the net realisable assets will exceed HK$200,000) and set up an Administrative Panel of Insolvency Practitioners for Court Winding-Up that includes firms of accountants (the 'APIPCW Scheme'). The trial scheme was successful and has been retained and has been renamed the Panel A Scheme.

At the time the APIPCW Scheme was introduced, there were thirteen firms of accountants on the panel. A similar scheme was recently established for a trial run from August 1997 until June 1998 for non-remunerative cases in which there are not sufficient assets to justify the use of the Panel A Scheme. The trial was successful and the government hopes to reintroduce it on a non-trial basis from April 1999. Of the Panel B cases, roughly 85% are no asset cases. The government guarantees a fee to the private liquidator of HK$60,000 per case for cases in which there are less than HK$200,000 in assets.

In 1997/98, of the 41 cases in which the assets exceeded HK$200,000, private liquidators were appointed in 33 cases, and special managers in 8. Official Receiver's Office, Annual Departmental Report 1997-1998, supra, para 3.6.4, at 8. During the operation of the trial Panel B Scheme private accountants served as liquidator in 186 cases and the Official Receiver served as liquidator in the remaining 232.

Thus, at present, the Official Receiver is no as frequently involved as liquidator as in the past (primarily where the company's assets exceed HK$200,000.) However, in practice, he still is involved in most cases as provisional liquidator. After the presentation of a winding-up petition, but before the making of a winding up order, the court may appoint an interim provisional liquidator. (See Section 193.) In practice, the court has usually appointed the Official Receiver, although this is changing with the introduction of the Panel A Scheme. Upon the making of a winding up order, the Official Receiver becomes the provisional liquidator where no provisional liquidator has yet been appointed. (See Section 194). There are often delays in the appointment of a liquidator for up to three months from the making of the winding-up order. Thus, in most cases, the Official Receiver serves as provisional liquidator until it is clear that the assets exceed HK$200,000. At that time, upon compliance with the appointment procedure, he gives way to an appointee from Panel A who is chosen to serve as liquidator.

In addition to his role as liquidator, the Official Receiver plays other very important roles in liquidations. in Hong Kong, China. The Official Receiver's Office's Annual Departmental Report 1997/98 describes (at page 3) the principal administrative functions of his office in liquidations as follows:

(a) to investigate the affairs of . . . directors and officers of insolvent companies, report to the Court on causes of business failures, take appropriate action to prosecute persons for insolvency offences and apply for the disqualification of directors whose conduct is considered to render then unfit to be concerned with the management of companies, and refer other offenses to the Secretary for Justice or the Commercial Crime Bureau

(b) to monitor the conduct of private insolvency practitioners, who are acting as liquidators in compulsory liquidations . . . invest the funds by them, audit their accounts and investigate complaints against them

More particularly, the Official Receiver's office is involved in a broad array of functions including case investigation, the realisation of assets, book debts recovery, support for litigation, prosecutions, and director disqualifications, dividend distribution, and processing the release of liquidators.

The Official Receiver is involved in a liquidation from the beginning - within 24 hours of filing a petition, a petitioner is required to serve the Official Receiver with copies of the documents filed in the winding up proceedings. Companies (Winding-up) Rules, r 23A. Pursuant to Section 179A, the Official Receiver may appear at the hearing on the winding-up petition; call, examine and cross-examine any witness; and support or oppose the making of a winding up order.

Section 190 provides that the statement of the company's affairs must be submitted to the Official Receiver within 28 days of the relevant date (the date of the appointment of a provisional receiver or the date of the winding-up order where no such appointment is made) or within such an additional period as granted by the Official Receiver or the court. The Sub-Committee has recently proposed to make it easier for the Official Receiver to dispose with the statement. Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 6.9 at 25. (However, the Sub-Committee has also proposed that where a statement is required, it shall be a contempt of court for a director to fail to file the statement within the 28 day- or additional period without reasonable excuse. Supra, para 6.15 at 26.

Pursuant to Section 191, the Official Receiver is responsible for the submission of a preliminary report to the court that must contain the following information specified in Section 191:

(a) the amount of the capital issued, subscribed, and paid up, and the estimated amount of assets and liabilities; and

(b) if the company has failed, causes of the failure; and

(c) whether in his opinion further inquiry is desirable as to any matter relating to the promotion, formation or failure of the company, or the conduct of the business thereof.

The Official Receiver has pointed out many problems with this section that undermine the usefulness of the section. He submitted several suggestions to streamline the provision to improve its effectiveness, which were adopted by the Sub-Committee. Supra, paras 6.21-.26 at 27.

Pursuant to Section 191(2), the Official Receiver may also submit an additional report or reports as to whether, inter alia, he believes that any fraud has been committed by in the promotion or formation of the company or by any officer of the company in relation to the running of the company since its formation.

Section 216 provides that where the that the Official Receiver becomes the liquidator, he may seek the appointment of a special manager, who may be given the powers of a receiver and manager. A special manager will be appointed in cases where his special expertise is necessary. See Tomasic & Tyler, supra, para [10403].

The role of the liquidator is discussed in Section J2(a) below and the need for judicial approval is discussed in Section J2(b).

(2) Creditors' Voluntary Winding Up - The main administrative entity is the liquidator, discussed in Section J2(a) below. However, Sections 238 and 247, which provide for the calling of meetings, provide that the Official Receiver may grant extensions for the holding of meetings. The Official Receiver's Office has submitted to the Sub-Committee on Insolvency that these references should be replaced by references to the Registrar of Companies and 'that the Official Receiver should have no involvement in voluntary winding-up apart from supervising the Companies Liquidation Account.' Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 12.25 at 82. The Sub-Committee agreed with the request regarding the references but noted that 'we do not necessarily accept that the role of the Official Receiver should be limited to winding-up by the court and to certain aspects of voluntary winding-up.' Id, para 12.26 at 82.

(3) Section 166 Scheme - In a Section 166 scheme outside the insolvency process, the most important participants are the company's management and the company's secured creditors. No administrative entities play a role in the process.

In a Section 166 scheme occurring as part of a liquidation, the administrative entities would be the same as in a compulsory winding up.

(4) Proposed Provisional Supervision - The primary administrative entity will be the provisional supervisor. One of the aims of provisional supervision is to keep the involvement of the court and outside administrative entities to a minimum. However, ultimately the provisional supervisor is subject to the supervision of the court and of the Official Receiver, who will operate the panel of provisional supervisors.

(b) What qualifications must each type of administrator of insolvency procedures possess? Is there a system of regulation of insolvency administrators in this economy?

(1) Compulsory Winding Up - To participate in the Panel A Scheme, a firm of accountants must have at least two qualified practitioners who have insolvency experience of either 600 hours over three years, or 750 hours over five years, excluding voluntary liquidations. Lower qualifications were set for the trial Panel B Scheme.

It is anticipated that Hong Kong, China will eventually introduce a licensing scheme for the licensing of all insolvency practitioners, including trustees in bankruptcy, liquidators in winding ups, receivers, and provisional supervisors. A recent recommendation has been made to that effect by the Sub-Committee of Insolvency in the Consultation Paper on the Winding-up Provisions of the Companies Ordinance (para 1.14 at 8).

The Companies Ordinance provides that a liquidator may not be a body corporate (Section 278) or an undischarged bankrupt (id), nor be subject to a disqualification order (Section 168D). The Sub-Committee on Insolvency recommended that prohibition also extend to the following: persons of unsound mind and to persons disqualified from acting as a liquidator (Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 18.4 at 141); and insolvency practitioners subject to a conflict of interest (id, para 18.5 at 141-42), including any auditor of the company within the previous three years (id, para 18.6 at 142). The Sub-Committee also proposed that neither a receiver nor any partners of members of the same firm that acted as a receiver of a company should be permitted to later act as a liquidator for that company. Id, paras 20.10-.12 at 158.

(2) Creditors' Voluntary Winding Up - The Panel A Scheme is not applicable to voluntary winding ups. However, the Section 278 and 168D restrictions do apply. In addition, in voluntary liquidations commenced under the special Section 228A procedure, the liquidator must be either a solicitor or a professional accountant under the Professional Accountants Ordinance (cap 50).

(3) Section 166 Scheme - There is no administrator involved in the process in a winding up outside liquidation. In a Section 166 scheme occurring as part of a liquidation, the administrative entities would be the same as in a compulsory winding up.

(4) Proposed Provisional Supervision Procedure - A panel of insolvency practitioners will be established by the Official Receiver on a basis similar to that now used in liquidations pursuant to the Panel A Scheme. Report on Corporate Rescue and Insolvent Trading, supra, para 7.7 at 49. It is anticipated that firms of lawyers will eventually be added to the scheme.

(c) Are the creditors of a corporate debtor permitted to participate in the administration of the relevant insolvency procedure, and if so, how? (For example are the creditors permitted to assist the administrator, or supervise or dictate the conduct of the administration?)

(1) Compulsory Winding Up - Described below is the formal layout of the meeting structure and role to be played by creditors in winding ups as set out in the Companies Ordinance and rules. However, it must be kept in mind that creditors overall do not actively participate in winding ups. The quorum for meetings of creditors is three creditors (Companies (Winding-up) Rules, r 123) and it is not uncommon that the quorum is not met, which in turn leads to additional delay and expense. (The same problem has historically existed in bankruptcy cases, which led to the recent lowering of the quorum in bankruptcy cases from three creditors to one.) Part of the reason for the lack of interest is necessarily tied to the fact that roughly 85% of winding ups involve no asset cases. However, even in cases where there are sufficient assets for a reasonable recovery by creditors there is often less creditor participation than in other countries. In those winding ups where there is active creditor involvement, it is usually through the committee of inspection or when Section 265(5B) is used. This section provides that certain creditors may be given an advantage over other creditors where such creditors have done the following: provided an indemnity for costs of litigation used to successfully recover assets; provided money or an indemnity to protect or preserve assets; or provided an indemnity for expenses which have been recovered by the liquidator. Section 265(5B) is used in roughly 25-30 % of asset cases.

Nevertheless, creditors may be involved in the liquidation in a number of ways. Pursuant to the Companies (Winding-up) Rules, r 106, unless the court directs otherwise, the first meetings of creditors and contributories under Section 194 shall be held within three months of the making of the winding-up order. At those meetings, the creditors and contributories now choose a liquidator from the Panel A Scheme. The Sub-Committee on Insolvency has proposed that the Official Receiver as liquidator should be given a discretion to hold the meeting of creditors within 12 weeks of his appointment, subject to an obligation to call the meeting if so requested by 25% of the creditors. Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 7.14 at 33. The Sub-Committee has also accepted the Official Receiver's recommendation that in the case of a difference of opinion between the creditors and the contributories as to who should be appointed liquidator, the choice of the creditors should prevail subject to the right of the contributories to apply to the court regarding the matter. Supra, paras 7.16-.17 at 33.

In addition, pursuant to Section 287, the court may direct that meetings of creditors be held to ascertain the wishes of the creditors as to any matters relating to the winding up. Companies (Winding-up) Rules, r 112 further provides that in addition to meetings called under Sections 194 and 287, the liquidator may call general meetings to ascertain the wishes of creditors.

Furthermore, Section 206 provides that after the making of a winding-up order, a meeting of the creditors should be called to decide inter alia whether a committee of inspection (including both creditors and contributories) should be appointed to act with the liquidator. (The Sub-Committee on Insolvency has proposed that there should be no obligation on the first meeting to decide whether to appoint the committee. Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 8.10 at 43.) In cases in which a committee of inspection is formed, it should meet as frequently as the committee decides, and in the absence of such decision, at least once per month. The liquidator or any member of the committee may also call a meeting of the committee as and when he thinks necessary. Section 207(2). Section 207 provides that the committee shall be composed of creditors in the proportion agreed to by the meeting or, in the case of a difference, as determined by the court. The committee shall 'act with' the liquidator. Section 206(1). In its Report, the Sub-Committee proposes that the committee be renamed the 'liquidation committee,' which would better reflect the function of the group to 'act with a liquidator, rather than to supervise and inspect.' Supra, para 8.20 at 45-46. The Sub-Committee also proposes the following: that the committee should contain between 3-5 members and that the quorum for a meeting be two members present or represented (id, paras 8.21-.22 at 46); that it should be clarified that a body corporate may be a member of the committee (id, para 8.23 at 46); that meetings should be held as and when necessary (id, para 8.25 at 47); and that where there is no committee, the Official Receiver should have the authority to sanction actions of private sector liquidators and that where the Official receiver acts as liquidator he should seek the sanction of the court (id, para 8.30 at 47).

There often is strong creditor interest at the first meeting of a committee of inspection, which tends to diminish the longer the winding up continues. There have even been liquidations in which the committee of inspection has collapsed.) To address these problems, the Sub-Committee on Insolvency has proposed that committee members should perhaps receive a nominal payment and that committees should be able to operate through written resolutions sent by post. Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, paras 8.12-.13 at 44.) Where the committee of inspection does get involved, it is often in areas involving the amount of money to be spent on investigations, compromises on debts, and the approval of fees.

Section 199(1) provides (see Section J2(a) below) that the liquidator may exercise certain powers only with the sanction either of the court or of the committee of inspection. Furthermore, pursuant to Section 199(3), any creditor may apply to the court with respect to the exercise or proposed exercise of any of the liquidator's powers set out in Section 199.

Section 200(1) provides that the liquidator should have regard to any direction that may be given by resolution of the creditors or contributories at any general meeting, or by the committee of inspection. In addition, any directions given by the creditors or contributories at any general meeting shall in the case of conflict be deemed to override any directions given by the committee of inspection. Pursuant to Section 200(2), the liquidator must summon general meetings of creditors or contributories whenever requested to do so in writing by 1/10 in value of the creditor or the contributories, as the case may be. (The Sub-Committee has proposed that this percentage be raised to 25%. Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 8.11 at 43. However, the liquidator is not required to follow the wishes of creditors - Section 200(4) provides that subject to the provisions of the Companies Ordinance, the liquidator 'shall use his own discretion' in the administration and distribution of the assets. However, in practice it would be rare for a liquidator to act contrary to the wishes of creditors without seeking directions from the court pursuant to Section 200(3). If not, it would be likely that a person aggrieved by such act or decision of the liquidator would apply to the court (pursuant to Section 200(5)) to review such act or decision.

Section 219 provides that the court may order that the books and papers of the company be available for inspection by creditors and contributories.

There are also rules regarding the obligation of the Official Receiver and the liquidator to disseminate certain information and notices to the creditors. Creditors also have the right to inspect the statement of affairs of the company. In cases in which the committee of inspection is not actively involved, the Official Receiver will communicate with creditors through general mailings.

(2) Creditors' Voluntary Winding Up - The creditors participate in a variety of ways. Pursuant to Section 241, the company must call a meeting of creditors on the day (or the day after) the voluntary winding up resolution is proposed and lay before the meeting a full statement of the position of the company's affairs. At this meeting, the creditors may nominate a person to serve as the liquidator in the winding up. Section 242. If the members choose a different person at their meeting, the person chosen by the creditors will be liquidator unless the court orders otherwise. (The same is true of a members' voluntary winding up is converted to a creditors' voluntary winding up, although the creditors may prefer to retain the existing liquidator. Section 237A.) The committee of inspection or the creditors (if there is no such committee) may fix the liquidator's remuneration. Section 244. Sections 251 and 246 specify that certain powers of the liquidator may only be exercised with the sanction of the court or the committee of inspection (ie, the power to accept shares or other interests as consideration for sale of the property of the company and the powers specified in Section 199(1)(d),(e), and (f), as discussed in Section J2(a) below.) If the winding up extends for more than a year, the liquidator must call a meeting at the end of the first year, and every year thereafter. Section 247. He must also call a meeting of the creditors after the affairs of the company are fully wound up. Section 248. Finally, Companies (Winding-up) Rules, r 122(2) provides that the liquidator may call general meetings of creditors for the purpose of ascertaining their wishes.

It is unclear from Section 243 whether the committee of inspection should have up to five or up to ten members. To clarify the issue, the Sub-Committee on Insolvency has recommended that, as in the case of a compulsory winding up, the committee be limited to 5 members. Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 13.11 at 90.

Section 255A provides that an audit of the liquidator's accounts shall not be required if the committee of inspection or, as the case may be, the company by ordinary resolution so determines. The Sub-Committee has recommended that this section be amended to clarify that if there is no committee, the decision should be made by a meeting of creditors. Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra para 14.16 at 98.

The Sub-Committee on Insolvency has proposed that Section 219 be extended to cases of voluntary winding up. Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 9.50 at 58.

(3) Section 166 Scheme - Sections 166 and 166A specify the procedures for the summoning by the court of meetings of creditors or classes of creditors, as the case may be. See also Section 227D. For a discussion of the voting procedures, see Section I3(b) above.

(4) Proposed provisional supervision - The Report on Corporate Rescue and Insolvent Trading highlights three situations in which the provisional supervisor must call a meeting of creditors:

(a) where he is satisfied that he will complete the formulation of a plan of voluntary arrangement within six months of the commencement of provisional supervision;

(b) where it appears to him that he will not be able to complete the formulation of a plan within six months of the commencement of provisional supervision; and

(c) where he decides that the purposes of provisional supervision cannot be achieved.

There are other circumstances in which meetings will have to be called. For example, if the provisional supervisor decides to borrow money that will rank ahead of all other claims, he must meet from time to time with existing major creditors and with any new lenders.

The provisional supervisor will have the discretion whether to form either a formal or informal committee of creditors. (The proposals do not impose a committee of inspection on the provisional supervisor.) The provisional supervisor is also empowered to call additional meetings of creditors.

For a discussion of the voting procedures, see Section I3(b) above.

(a) In relation to each type of insolvency procedure available in the legal system of this economy, what are the powers given to each type of administrator by statute, at general law or pursuant to the terms of the appointment? (for example power to carry on the business of the organization, to pay creditors, to compromise claims of or against the debtor, to issue or defend legal proceedings, to obtain credit, to sell property, to execute documents on behalf of the debtor.)

(1) Compulsory Winding Up - As noted in Section J1(a) above, after the presentation of winding-up petition, a provisional liquidator may be appointed. Section 193(3) provides that 'the court may limit and restrict his powers by the order appointing him.' As noted by the Sub-Committee on Insolvency, the provisional supervisor 'is to take control of, or preserve, the assets of the company in the period between his appointment on the hearing of the petition and the making of a winding-up order and the appointment of a liquidator.' Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 7.1 at 29. The Sub-Committee has recommended that a standard list of powers should be provided for a provisional supervisor, rather than by having his powers limited and restricted by the court as at present. Supra, para 7.3 at 29.

The liquidator is an agent of the company and may bind the company with his actions. Section 199 sets out the powers of the liquidator as follows:

(1) The liquidator in a winding up by the court shall have power with the sanction either of the court or of the committee of inspection -

(a) to bring or defend any action or other legal proceeding in the name and on behalf of the company;

(b) to carry on the business of the company, so far as may be necessary for the beneficial winding up thereof;

(c) to appoint a solicitor to assist him in the performance of his duties;

(d) to pay any classes of creditors in full;

(e) to make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim, present or future, certain or contingent, ascertained or sounding only in damages against the company, or whereby the company may be rendered liable;

(f) to compromise all calls and liabilities to calls, debts, and liabilities capable of resulting in debts, and all claims . . . .

(2) The liquidator in a winding up by the court shall have power-

(a) to sell the real and personal property and things in action of the company by public auction or private contract . . . ;

(b) to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts, and other documents, and for that purpose to use, when necessary, the company's seal;

(c) to prove, rank, and claim in the bankruptcy, insolvency, or sequestration of any contributory . . . ;

(d) to draw, accept, make, and endorse any bill of exchange or promissory note in the name and on behalf of the company . . .;

(e) to raise on the security of the assets of the company any money requisite;

(f) to take out in his official name letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate . . . ;

(g) to appoint an agent to do any business which the liquidator is unable to do himself;

(h) to do all such things as may be necessary for winding up the affairs of the company and distributing its assets.

Section 226 also delegates certain powers of the court to the liquidator including the following:

(a) the holding and conducting of meetings to ascertain the wishes of creditors [Section 200];

(b) the settling of lists of contributories and the rectifying of the register of members where required, and the collecting and applying of assets [Section 210];

(c) the paying, delivery, conveyance, surrender or transfer of money, property, books, or papers to the liquidator [Section 211];

(d) the making of calls [Section 213];

(e) the fixing of the day on or before which creditors are to prove their debts or claims [Section 217] . . . .

The exercise of the power to rectify the register of members requires the special leave of the court and the exercise of the power to make any call requires either the special leave of the court or the sanction of the committee of inspection. Also, Section 211 specifies the persons who are required to deliver property to the liquidator.

The Sub-Committee on Insolvency has made several recommendations with regard to the liquidator's powers. First of all, for ease of reference the powers exercisable by liquidators - no mater how appointed - should be set forth in a schedule to the Companies Ordinance. Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, para 7.34 at 36. Second, with regard to the power to appoint a solicitor, the liquidator will only be required to give notice to the committee of inspection. Supra, para 7.31 at 35-36. And third, the liquidator should be provided with various powers regarding foreign currencies (eg, delaying conversion), which have recently been provided to trustees in bankruptcy. Supra, para 7.39 at 37.

(2) Creditors' Voluntary Winding Up - Pursuant to Section 251, a liquidator in a voluntary winding up may exercise any of the powers exercisable by a liquidator in a compulsory winding up without sanction (Section 251(b)), with the exception that the powers provided by Section 199(1)(d), (e) and (f) may only be exercised with the sanction of the court or the committee of inspection (or the meeting of the creditors if there is no such committee) (Section 251(a)). In addition, the liquidator may do the following: exercise the power of the court under the Companies Ordinance to settle a list of contributories (Section 251(c)); exercise the power of the court for making calls (Section 251(d)); and summon general meetings of the company for the purpose of obtaining the sanction of the company by special resolution or for any other purpose he may think fit (Section 251(e)).

Also, pursuant to Section 246, the liquidator may exercise the powers provided in Section 237 (regarding the acceptance of shares and other interests as consideration for sale of property of a company), subject to the sanction either of the court or of the committee of inspection.

(3) Section 166 Scheme - Not applicable to a non-insolvency scheme, since there is no such insolvency administrator. In a liquidation scheme, see the discussion of compulsory winding up above.

(4) Proposed Provisional Supervision Procedure - The Report on Corporate Rescue recommends that a provisional supervisor be empowered to remove directors whom he considers not necessary to the running of the company (para 8.23 at 75); to appoint new directors (id, para 8.24); and to delegate his powers back to the management of the company (id, para 8.22 at 57). In addition, in para 8.25 (id, p 57) the Report recommends that a provisional supervisor also be given the following powers, which as can be seen, are drawn primarily from the powers that liquidators are provided with in compulsory liquidations:

(a) to appoint a solicitor or accountant or other professionally qualified person to assist him in the performance of his functions and to dismiss any such appointee;

(b) to appoint an agent or employ any person to do any business which he is unable to do or which may not conveniently be done by himself and to dismiss any such appointee;

(c) to do all acts and to execute any deed, receipt or other document in the name of the company;

(d) to make any payments necessary or incidental to the performance of his functions;

(e) to use the company seal and chop;

(f) to draw, accept, make and endorse any bill of exchange or promissory note in the name of and on behalf of the company;

(g) to raise or borrow money and grant security therefor over the property of the company;

(h) to make any arrangement or compromise on behalf of the company;

(i) to call any meeting of the members or creditors of the company;

(j) to disclaim onerous contracts;

(k) to form a committee of creditors;

(l) to do all other things incidental to his functions.

(b) To what extent and in what circumstances may each type of insolvency administrator seek assistance, advice or direction in the conduct of the administration, and from what sources? (for example the Court, his appointor, the creditors of the debtor, a solicitor, accountant or other relevant person.)

(1) Compulsory Winding Up - Pursuant to Section 200(3), the liquidator may apply to the court for directions in relation to matters arising in the course of the winding up. Pursuant to Section 200(2), the liquidator may summon general meetings of creditors or contributories for the purpose of ascertaining their wishes. In addition, the liquidator may appoint a solicitor to assist him in the performance of his duties (Section 199(1)(c)).

(2) Creditors' Voluntary Winding Up - Section 255(1) provides that the liquidator may apply to the court to determine any question arising in the winding up or to exercise all or any of the powers which the court might exercise if the company were being wound up by the court. Pursuant to Section 255(2) if the court is 'satisfied that the determination of the question or the required exercise of power will be just and beneficial, [it] may accede wholly or partially to the application on such terms and conditions as it thinks fit, or may make such other order on the application as it thinks just.' This section can thus be used by a liquidator in a creditors' voluntary winding up to exercise the powers delegated by the court to a liquidator in a compulsory winding up. In addition, as noted in Section J1(c) above, the liquidator may call meetings of creditors, and pursuant to Section 251(e), may summon general meetings of the company.

(3) Section 166 Scheme - Inapplicable in a non-insolvency scheme; in an insolvency scheme, see discussion of winding up above.

(4) Proposed Provisional Supervision Procedure - The Report on Corporate Rescue provides that the provisional supervisor should be able to apply to the court to seek directions as to any matter arising in connection with the performance of his duties and functions. (Para 8.28 at 59) In addition, as noted in J2(a) above, the provisional supervisor may appoint a solicitor accountant, or other professional to assist him in the performance of his duties.

Also as noted in J1(c) above, the provisional supervisor may call meetings of the members or creditors of the company

(a) In relation to each type of insolvency procedure available in the legal system of this economy, what are the duties imposed upon each type of administrator by statute and at general law? (for example a duty to take possession of assets of the debtor, to realise those assets, to discharge the debt owed to his appointor, to call for proofs of debts owed to creditors, to adjudicate upon claims of creditors, to apply available assets in discharge of those claims, to report on the conduct of the debtor by the proprietors.)

(1) Compulsory Winding Up - There is no general statutory duty for the liquidator to carry out the liquidation properly. Robert Pennington, Pennington's Corporate Insolvency Law pp 170-71 (2d ed). Rather, the Companies Ordinance sets forth specific duties for the liquidator, which may be categorized as follows:

(a) Properly administering the company's assets - including opening a separate bank account (the 'Company's Liquidation Account') (Section 202); notifying the Official Receiver of his appointment (Section 195); maintaining proper records including books of meetings (Section 201) and accounts (Section 203).

(b) Getting acquainted with the company's affairs

(c) Reporting to and Assisting the Official Receiver and Registrar of Companies - including giving the Official Receiver such information and such access to and facilities for inspecting the books and documents of the company, and generally such aid as may be requisite for enabling the Official Receiver to perform his duties under the Companies Ordinance (Section 195(b)); sending the appropriate accounts of his receipts and payments to the Official Receiver (Section 203(1)); furnishing the Official Receiver with such vouchers and information as required by the Official Receiver as well as producing for the Official Receiver to inspect the books of accounts of the company (Section 203(2)); complying with any inquiry by the Official Receiver (Section 204); and in a case extending for more than one year, sending the Registrar a statement with respect to the proceedings and the position of the liquidator at such intervals as may be prescribed (Section 284).

(d) Calling meetings of creditors - as noted in Section 226(a).

(e) Collecting the company's assets - including taking into custody or under control the property of the company (Section 197); seeking a vesting order (Section 198); and seeking payment from holders of partly paid shares Section 170).

(f) Preserving assets - including carrying on the business of the company so far as may be necessary for the beneficial winding up of the company pursuant to Section 199(1)(b); disclaiming onerous property, including contracts and leases (Section 268); and exercising avoidance powers (see K(2)(a) below).

(g) Realising assets - including selling property and executing documents in the company's name (pursuant to the powers in Section 199(2)).

(h) Settling the list of contributories, inviting proofs of claim, and distributing assets - including repaying debts to creditors and a surplus (if it exists) to contributories and inviting proofs of claim.

(i) Effecting dissolution

See Arjunan and Low, supra, at 439-42. The liquidator's duties at general law would include a 'common law or equitable duty to apply the company's assets in the proper manner and to discharge its liabilities in the proper order out of those assets' (Pennington, supra, at 171), fiduciary duties, and duties of care.

The Sub-Committee on Insolvency has recommended a major change in this area by proposing that a liquidator should be subject to specific statutory duties, as follows:

A liquidator should be under a duty to act in a fiduciary capacity and to deal with the property under his control honestly, in good faith, with proper skill and competence and in a reasonable manner.

In realising the assets of a company it should be the duty of a liquidator to take all reasonable care to realise the best price reasonably obtainable in the circumstances.

Consultation Paper on the Winding Up Provisions of the Companies Ordinance, supra, 7.40 at 37.

As for disclaimer, the Sub-Committee has proposed that a liquidator should be able to disclaim property without first having to apply to the court. Id, para 16.41 at 128.

(2) Creditors' Voluntary Winding Up - The duties of a liquidator in a creditors' voluntary winding up would be the same as those listed above for a liquidator in a compulsory winding up, with the exception of the duties relating to reporting and assisting the Official Receiver and with regard to the duties relating to the delegation most of the powers of the court to a liquidator (unless they have been delegated to the liquidator pursuant to Section 255.)

(3) Section 166 Scheme - Inapplicable in a non-insolvency scheme; in an insolvency scheme, see discussion of winding up above.

(4) Proposed Provisional Supervision Procedure - The overriding duty of the provisional supervisor shall be to supervise the company's affairs and to carry out his functions. Report on Corporate Rescue and Insolvent Trading, supra, para 9.1 at 60. He shall also have the duty to do all things necessary to protect the assets of the company for the benefit of the creditors. Id. His most pressing responsibility will be to formulate the proposal for a plan of voluntary arrangement. The Report on Corporate Rescue and Insolvent Trading does not include a detailed list of statutory duties for the provisional supervisor, but they will surely flow from the powers given to him.

(a) What remedies and/or sanctions are available in the legal system of this economy in respect of breaches of duty or transgressions committed by each type of insolvency administrator?

(1) Compulsory Winding Up - The Companies Ordinance provides for the liquidator's actions to be subject to review by both the Official Receiver (Section 204) and the court (Section 199). Section 204(1) provides that the Official Receiver shall take cognizance of the conduct of liquidators. Where a complaint is made to the Official Receiver by a creditor or a contributory in regard to the conduct of a liquidator, the Official Receiver shall inquire into the matter and take such action as he may think expedient. Pursuant to Section 204(2) and (3), the Official Receiver may apply to the court to examine the liquidator or other parties under oath and direct than an investigation be made of the books and vouchers of the liquidator. He might choose to seek a court order for the liquidator to cooperate, and for contempt proceedings to follow if he did not; or he might seek to have the liquidator removed by applying under Section 196 (see below). Tomasic & Tyler, supra, para [9851]. The Official Receiver is able to exercise additional control over liquidators through the control of the Panel A Scheme.

Section 199(1) provides that the liquidator may be removed by the court on cause shown. The phrase 'on cause shown' implies 'some unfitness of the person, perhaps from personal circumstances in which he is involved. It is unfitness in the widest sense.' Id, para [9,877]. Tomasic and Tyler list the following examples of circumstances in which liquidators have been removed: (id):

(a) where the liquidator was unwilling to sue directors who were friends of his and the court thought he should;

(b) where the liquidator had business connections with directors of other companies with which the company in liquidation had had dealings which might be voidable;

(c) where large creditors offered to pay into court enough to satisfy the claims of other creditors so that the company's assets could be administered by their nominee;

(d) where in the case of an insolvent company two of the creditors were willing to act as liquidators without remuneration; and

(e) where the original liquidator had been the contributories' nominee and it turned out that the company was not solvent after all but the liquidator was persisting in taking misfeasance proceedings against the directors at the company's expense despite the wishes of the creditors.

Section 199(3) provides that the exercise by the liquidator of his powers shall be subject to the control of the court and any creditor or contributory may apply to the court with respect to the exercise or proposed exercise of those powers. For the court to interfere with the liquidator's discretion, the court will need to find that 'he has acted in excess of his powers, or fraudulently as in a way which no reasonable and responsible person would have acted.' Id, para [9977].

Section 200(5) provides that where a person who is aggrieved by any act or decision has applied to the court, the court may 'confirm, reverse, or modify the act or decision complained of, and make such order in the premises as it thinks just.'

The court may also assess damages against a liquidator for misfeasance under Section 276, including the following actions or behavior: misapplying or retaining or becoming liable or accountable for any money or property of the company; or being guilty of any misfeasance or breach of duty in relation to the company that is actionable at the suit of the company. The Sub-Committee on Insolvency recommended that a provisional supervisor should also be subject to action under this section. Consultation Paper on the Winding Up Provisions of the Companies Ordinance, para 17.41 at 138. The court may examine the conduct of the liquidator and compel him to repay or restore the money or property or any part thereof with interest, or to contribute such sums to the company by way of compensation.

In addition, pursuant to Section 279, if a liquidator has made any default in filing, delivering or making any return, account, or other document (or in giving any notice which he is by law required to file, deliver, make or give) and fails to make good the default within 14 days after the service on him of a notice requiring him to do so, the court may, on the proper application, make an order directing the liquidator to make good the default within such time as may be specified in the order.

In addition, pursuant to Section 202(2), if the liquidator retains for more than 10 days a sum greater than HK$2,000, or such other amount as authorized by the Official Receiver, then unless he presents a satisfactory explanation to the court, he shall pay interest on the amount retained at the rate of 20% per annum and shall be liable to disallowance of all or such part of his remuneration as the court may think just, and to be removed from his office, and shall be liable to pay any expenses occasioned by reason of his default.

(2) Creditors' Voluntary Winding Up - The Companies Ordinance provides for the liquidator's actions to be subject to the overall supervision of the court. Pursuant to Section 252(2), the court may, 'on cause shown' remove a liquidator. (See the discussion in the context of compulsory winding up immediately above.) And pursuant to Section 255, any creditor or contributory may apply to the court to determine any question arising in the winding up. Sections 276 and 279 also apply to creditors' voluntary winding ups.

(3) Section 166 Scheme - Inapplicable in a non-insolvency scheme; in an insolvency scheme, see discussion of winding up above.

(4) Proposed Provisional Supervision Procedure - The provisional supervisor will be under the supervision both of the court and of the Official Receiver who will operate the panel of provisional supervisors. Report on Corporate Rescue and Insolvent Trading, supra, para 11.10 at 70. The Report recommends against allowing the creditors by majority vote to remove a provisional supervisor. Instead, the Report opts for removing a provisional supervisor only for 'cause shown.' Id, para 11.6, at 70. The Report stresses the role to be played by the court and notes that if a 'provisional supervisor did not carry out his functions, duties and powers in good faith and with due diligence it should become clear to the court, which could decline to grant an extension' of the moratorium. Id, para 11.3 at 69. The Sub-Committee has recently proposed in its consultation paper on the winding-up provisions that the provisional supervisor should also be subject to Section 276. Consultation Paper on the Winding-Up Provisions of the Companies, supra, para 17.41 at 138.

In addition, where a provisional supervision did not result in a voluntary arrangement and the company were wound up, if it appeared to a liquidator that the provisional supervisor was in breach of his obligations, the liquidator should make a report, which should be forwarded to the Official Receiver in those cases in which the Official Receiver was not serving as liquidator. The Official Receiver would then have the power to apply to the court for an order to disqualify the provisional supervisor from acting as such for a designated period. In addition, the report could be forwarded to the provisional supervisor's professional body. Report on Corporate Rescue and Insolvent Trading, supra, para 11.4 at 69.

Lastly, if a provisional supervisor were removed from a provisional supervision for cause shown, the Official Receiver would have to address the issue of whether the provisional supervisor should be removed from the panel. Id, para 11.11 at 71.

(b) Have there been actual instances of breach of duty or transgressions committed by insolvency administrators?

Yes, there have been a few instances, but they are quite rare, perhaps as few as 1-2 in the last ten years.

(c) If so, give the details of any major cases and a summary of the action taken and the results.

There are no major cases. In the few cases that were mentioned the breaches were corrected and the liquidators were 'rapped over their knuckles.'