It was reported by Reuters[1] that in September 2023, Su Zhu, a co-founder of Three Arrows Capital, was arrested at Singapore’s Changi Airport and jailed for four months for deliberately refusing to cooperate with court-ordered examinations. This dramatic case is a powerful reminder to directors that the consequences of defying a court-ordered examinations are severe and very real.
In Hong Kong, the same teeth exist. Under sections 286A, 286B and 286C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) liquidators have the statutory power to compel any relevant person — directors, former directors, or even the company’s accountant — to attend court, answer questions under oath, and produce documents. Failure to comply may constitute civil contempt of court. The Liquidator may apply to the Court for an order to commit the defendant for fine and/or imprisonment in light of his breach of court order.
Public Examination under section 286A
This procedure is typically invoked where a liquidator suspects that the company officers have engaged in fraudulent conduct or other matters which should be brought to the court’s attention.
Notably, the scope of application of this procedure is not limited to situations involving alleged fraud. Under the former section 222 (now replaced by section 286A), it is a pre-condition that the liquidator must have alleged in a report under section 191(2) that fraud has been committed before invoking the procedure. This requirement is removed by section 286A, thereby significantly widening the scope of application of the procedure.
The examination takes place in open court before a master or judge, which means members of the public and the press can attend. During the examination, the individual is examined on oath and must answer all questions put to them by the court, or with the court’s permission.
Under section 286A(2), the following persons may be examined:
- a person who is or has been an officer of the company;
- a person who is or has acted as a provisional liquidator or liquidator of the company;
- a person who is or has acted as a receiver or manager of the property of the company; and
- a person who is or has been concerned, or is taking or has taken part, in the promotion, formation or management of the company.
Under section 286A(3), the following matters may be examined:
- the promotion, formation or management of the company;
- the conduct of the business and affairs of the company; and
- the conduct or dealings of the person examined in relation to the company.
Section 286A explicitly provides that written record of the examination must be taken. Under section 286A(9), the notes of the examination must be taken down in writing, read over to, and signed by the person examined. According to section 286A(10)(b), the notes must be open to inspection by any creditor or member of the company at all reasonable times. Importantly, section 286A(10)(a) provides that the notes may be used as evidence against the person examined.
Private examination under sections 286B and 286C
This is typically used by liquidators to compel an uncooperative director to attend before court and be examined under section 286C. To assist the examination, the liquidator may also apply for an order requiring the uncooperative director to produce any books and papers in his custody or power relating to the company or the promotion, formation, trade, dealings, affairs or property of the company under section 286B(1)(d).
Under section 286B(4), the following persons may be examined:
- an officer of the company;
- a person known or suspected to have in the person’s possession any property of the company;
- a person supposed to be indebted to the company; and
- a person whom the court thinks capable of giving information concerning the promotion, formation, trade, dealings, affairs or property of the company.
Under section 286C(1), the matters that may be examined include the promotion, formation, trade, dealings, affairs or property of the company.
Unlike public examination, where written notes of the examination must be taken and are mandatorily open to inspection by any creditor or member of the company, private examination allows the liquidator to obtain sensitive information discreetly and maintain the confidentiality of ongoing investigation. Whilst the court may cause notes of the examination be taken (section 286C(4)), these notes are not filed nor open to inspection by any person other than the liquidator unless the court orders otherwise (rule 62(2) of Companies (Winding-up) Rules (Cap. 32H)). The court retains full discretion over the custody and inspection of such notes, as well as the provision of copies or extracts from them.
Conclusion
In summary, the public and private examination procedures under sections 286A to 286C serve distinct but complementary investigative functions in the winding up process. Public examination promotes transparency by allowing public scrutiny, whereas private examination enables the discreet gathering of sensitive information. Together, these provisions strike a balance between the need for thorough investigation in the interests of creditors and members, and the protection of confidential or sensitive information during the liquidation process.
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[1] https://www.reuters.com/world/asia-pacific/singapore-police-confirm-arrest-36-year-old-man-responding-query-reported-arrest-2023-10-05/