Opposing Contributories in Winding Up Petitions: When and how to oppose

27 August 2020

Often in winding-up petitions, contributories of the company, for one reason or another, may wish to oppose the winding-up petition in their own right, including by filing evidence and making submissions at hearings. One major concern a contributory may have in deciding whether to take this course of action is of course the potential costs consequences, especially in the scenario where the opposition is ultimately unsuccessful and the company is wound up.

This issue recently arose in Re China Cultural City Ltd [2020] HKCFI 1947, a decision concerning costs of a creditors’ winding-up petition (which itself concerned an interesting issue on locus standi: see our earlier article), where the Court ultimately ordered the opposing contributory Chinluck to bear 70% of the Petitioner’s costs of the Petition save the Petitioner’s costs of presenting and advertising the Petition.

In so doing, Harris J clarified the judgment of Le Pichon J (as she then was) in Re Datacom Wire & Cable Co Ltd [2000] 1 HKLRD 526, where she explained the conventional costs order at 529E-I as follows:

(1) One set of costs is generally given to the petitioner, another among all the creditors supporting him and a third among the contributories supporting him;

(2) Where the petitioner has been substituted, the original petitioner’s costs of presenting and advertising the petition will be ordered to be paid as an expense of the liquidation: see Re Bostels Ltd [1968] Ch 346;

(3) Costs under (1) and (2) are normally ordered to be paid out of the assets of the company as an expense of the liquidation;

(4) Creditors or contributories appearing to oppose a successful petition are not entitled to costs. See Re Bathampton Properties Ltd [1976] 1 WLR 168 at p.171H and French, Applications to Wind-up Companies at para.4.5.5.1.” (emphasis added)

Le Pichon J then added at 530C-E that “the underlying rationale remains that a party who unreasonably opposes winding-up petition should be ordered to bear the costs.” (emphasis added)

On the face of it, this would seem to suggest that the normal costs order is that opposing contributories do not need to pay the costs of the Petitioner, unless the opposing contributories acted unreasonably in opposing the Petition. Indeed, this was subsequently applied in Re HKSTC Warrington Fire Research (unrep., HCCW 684/2001, 21 May 2002) per Yuen JA at §§4-9 and more recently in Re Sky River International Trading (HK) Limited [2019] HKCFI 2561 per DHCJ Le Pichon at §§33-34.

However, Harris J clarified at §5 of the said judgment that the test was that generally active opposition by an opposing contributory will attract an adverse costs order, in contrast to the approach of there being a presumption that costs are paid out of the assets of the company unless it is demonstrated by a petitioner that opposition was unreasonable. With respect, this approach has much to commend and is also in line with the general rule that “costs follow the event”. It remains to be seen whether this clarification would deter active but unmeritorious opposition by opposing contributories.

Key Takeaway

Contributories who intend to oppose a winding-up petition should bear this decision in mind in deciding whether to take an active stance, given that it has now been made clear that the general rule is that an adverse costs order would be made should their opposition be unsuccessful.

What then are the exceptions to this general rule? Examples given by Harris J include “if an opposing contributory is simply bringing to the court’s attention relevant matters to which the court should have regard and of which the court might not otherwise have been apprised or if the opposition is being advanced because the company cannot, for example, because of a deadlock at board level, oppose the petition”.

Further, as the cost order in this case (i.e. that Chinluck should bear 70% of the Petitioner’s costs save the Petitioner’s costs of presenting and advertising the Petition) demonstrates, this is not necessarily an all-or-nothing question, and the extent of an opposing contributory’s assistance to the Court has to be assessed on a case-by-case basis.

This article is co-authored by John Hui, Christopher Chain, Jasmine Cheung and Howard Wong 

   

 

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