Hong Kong: How Should Liquidators Deal With A Request To Deliver Up Documents After Being Discharged From Office?

Introduction

After the liquidators are discharged from office in the liquidation of a company, the company may ask the liquidators to return the documents kept by them as liquidators. The recent case of Luen Tat Watch Band Manufacturer Ltd v Stephen Liu Yiu Keung David Yen Ching Wai [2020] HKCFI 2610 sheds light on how the liquidators should conduct themselves upon receiving such request.

Background

The Plaintiff was wound up on 6 July 2010 and the Defendants were appointed as joint and several liquidators of the Plaintiff in October 2010. On 27 November 2017, the Court permanently stayed the winding-up, and removed and discharged the Defendants as liquidators of the Plaintiff ("Removal Decision").

On 7 December 2017, the Plaintiff requested the Defendants to release and deliver the documents kept by them in their capacity as the Plaintiff's liquidators. The Defendants replied that they would return the books and documents relating to the Plaintiff's affairs "which are the Plaintiff's property" ("Luen Tat Documents"). The Defendants delivered 8 batches of Luen Tat Documents to the Plaintiff by 5 July 2018. Upon a review of the documents delivered, the Plaintiff found that certain categories of documents were missing, such as some draft liquidators' reports ("Missing Draft Reports") and "Adjudication Summaries" in relation to several proofs of debt ("Missing PODs").

Despite the Plaintiff's repeated requests to the Defendants to specify the categories of documents which the Defendants refused to release to the Plaintiff, the Defendants did not provide any concrete answers except stating "working papers and other documents intended solely for the liquidator's own use to enable them to fulfil their duties are the property of the liquidators themselves" in a letter dated 15 May 2018.

The Plaintiff's application

On 26 September 2018, the Plaintiff applied for an order that the Defendants hand over the documents "generated in the course of the liquidation of the [Plaintiff] and/or in the course of acting as the liquidators of the [Plaintiff]." to the Plaintiff. The Plaintiff submitted that the relationship between a company and its liquidators was essentially that of principal and agent and the Plaintiff had a broad entitlement to the records retained by the agent in the course of the agency in so far as such records relate to the principal's affairs.

The Defendants contended that the Plaintiff was only entitled to documents generated when the liquidator was acting as agent for the company and not when he was performing another function. Towards the end of the hearing, the Defendants made a proposal to the Plaintiff that they file an affirmation verifying a list of categories of documents generated in the course of the liquidation of the Plaintiff and/or in the course of acting as the liquidators of the Plaintiff that remain in the possession, power or custody by the Defendants and not previously supplied to the Plaintiff. The Plaintiff rejected the proposal as being made far too late.

Decision

The Court did not accept the defence raised by the Defendants. The Court held that a liquidator exercises his powers and fulfilled his duties in respect of the company's property as agent for the company, in whose ownership the property remains vested, albeit not for the benefit of the company but in order to give effect to the statutory scheme.

The Court noted that the Missing PODs were of particular concern to the Plaintiff as the Removal Decision was highly critical of the admission of the relevant debts. The Defendants had returned all documents relating to the PODs and some draft reports to the Plaintiff except for the Missing Draft Reports and Missing PODs and failed to provide a satisfactory explanation as to their rationale in withholding such documents. The Court held that the Defendants' own evidence had suggested that documents delivered to the Plaintiff, including documents relating to the remaining PODs and draft reports, were "Luen Tat's Property", which was a clear admission that the Plaintiff was entitled to those documents.

The Court also referred to Documentary Evidence in Hong Kong, which stated that the agent had an obligation to keep records of transactions entered into on behalf of the principal and to make records available. Once the relationship had terminated, the fiduciary obligation of loyalty was at an end. But there was still an obligation to provide records in respect of the transactions entered into on behalf of the principal, and the affairs of the principal.

Nonetheless, the Defendants in this case did not make such an offer nor produce a list of the categories of documents retained before the hearing. The Court held that the Plaintiff was entitled to reject the belated offer made by the Defendants and such offer shall be made at the latest by May 2018. Even if there were documents that arguably the Defendants were entitled to retain, it would not affect the ultimate outcome in the present case in view of the fact that the Defendants had not discharged their burden of showing what categories of documents they shall not produce.

In the circumstances, the Court granted the order sought by the Plaintiff and ordered the Defendants to pay the Plaintiff's costs on an indemnity basis, considering the Defendants, as officeholder, have conducted themselves disgracefully.

Key takeaway

The key take away here – where the liquidators are requested to deliver the documents generated in the course of liquidation to the company and the liquidators would like to withhold certain categories of documents, the liquidators are advised to (1) produce a list of the categories of documents which the liquidators decline to deliver and the reasons for doing so; and (2) deliver the remaining documents at their earliest convenience.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.