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BCI & BIMC Ascertainment Cases ▍Whether a Dissolved Hong Kong Company Can Undertake the Liability as a Subject in Lawsuit?

Come from:BCI&BIMC    Date:2019.11.13 Hits:57 

Basic Facts

Appellant (Plaintiff in the case of first instance): Guangzhou Xuyang Clothing Co., Ltd., place of residence: 401, East factory building, Section 3 of Dawei, Tangxi, Baiyun District, Guangzhou City, Guangdong Province.

Legal representative: Xiong Yunge, general manager.

Appellee (defendant in the first instance case): Chen Yuanxiang, female, born on February 28, 1979, Han nationality, address on identity card: Yiyang County, Shangrao City, Jiangxi Province.

Appellee (defendant in the case of first instance): Boutayh Bernard, male, born on October 13, 1972, Hong Kong resident.

Xuyang Company provided three purchase orders (No. 6132, No. 6170, No. 6178) issued by ICE-ZONE LIMITED to Zhangwen (Xuyang Clothing), on November 30, 2014 and March 30, 2015, which confirmed the agreement between Xuyang Company and ICE-ZONE LIMITED that ICE-ZONE LIMITED would purchase clothing from Xuyang Company. Xuyang Company stamped on the purchase orders with its official seal, so did ICE-ZONE LIMITED, and Chen Yuanxiang also signed on the orders. Xuyang Company provided the warehouse receipts and box list to prove that the three batches of goods were sent to the designated warehouse on January 22, June 7, and June 10, 2015 according to the purchase order. Xuyang Company provided a statement signed by ICE-ZONE LIMITED and Zhang Wen (Xuyang Clothing), which proved that ICE-ZONE LIMITED issued a statement to Xuyang company on October 30, 2015, which stated that "As of October 30, 2015, ICE-ZONE LIMITED owed RMB 630,000 yuan to Xuyang Clothing-Zhang Wen ", and the statement was stamped by ICE-ZONE LIMITED and signed by Chen Yuanxiang. After checking the accounts, Xuyang Company claimed that the aforesaid amount had not been paid so far, so it filed the case to the court of first instance.

Chen Yuanxiang said that she joined the ICE-ZONE LIMITED in Hong Kong and managed the company's work in all aspects. This Hong Kong company put running capital for distribution, purchase and payment of goods into her account, and all expenditures were made through her account. Xuyang Company provided a bank transaction statement proving that part of the payment was transferred from Chen Yuanxiang's account to Zhang Wen's account. Xuyang Company applied for the appearance of Zhai Li in court as a witness, to prove  the facts below: Zhai Li worked at ICE-ZONE LIMITED from July 2014 to June 2015; she found the recruitment information of ICE-ZONE LIMITED on www.51job.com and then applied for the job; she did not sign the employment contract with ICE-ZONELIMITED; her salary was also paid through Chen Yuanxiang; she could sign contracts with the seal of ICE-ZONE LIMITED; once at the business place of ICE-ZONELIMITED there hung the business license of Aiqiqi Fashion Co., Ltd. (of which the legal representative is Chen Yuanxiang); Zhai Li came to know Zhang Wen couple through others, and then introduced them to ICE-ZONE LIMITED; ICE-ZONE LIMITED then sent purchase orders to Zhang Wen couple.

Issues for Ascertainment

Because the Apellee ICE-ZONE LIMITED is a Hong Kong-registered company, and its shareholder Boutayh Bernard is a Hong Kong resident, according to Article 14 of the "Law of the People's Republic of China on Law Applicable to Foreign-related Civil Relationships", issues such as the capacity for civil rights and civil conduct, organizational structure and shareholders' rights, etc. of a legal person and its branches are governed by the law of the place of registration. Therefore, the questions of whether ICE-ZONE LIMITED, as a company that has been dissolved by the Registrar of Companies of HK under its authority, can undertake liability as a subject of this lawsuit and whether Boutayh Bernard bears joint and several liability for the debts concerned in the case, should be governed by Hong Kong law. In the trial of the appeal, the Guangzhou Intermediate People's Court entrusted Benchmark Chambers International & Benchmark International Mediation Center (formerly known as Benchmark Chambers International, hereinafter referred to as BCI & BIMC) to conduct Hong Kong law ascertainment. The issues to be ascertained are as follow:

Issue 01: During the existence of a one-person company in Hong Kong, what kind of liability does the shareholder of the one-person company bear for the company's debts?

Issue 02: In the case of a Hong Kong one-person company being dissolved, does the Hong Kong one-person company have the qualification as a subject? Is the Hong Kong one-person company liable for its debts?

Issue 03: If the one-person company in Hong Kong is dissolved with outstanding debts claimed by the creditors, is the company liable for these debts? Is the shareholder of the company liable for these debts?  If so, what kind of liabilities?

Issue 04: If the one-person company in Hong Kong is dissolved with outstanding debts which are not claimed by the creditors, is the company liable for these debts? Is the shareholder of the company liable for these debts? If so, what kind of liabilities?

Issue 05: Does the one-person company in Hong Kong have any legal status other than existence or dissolution? If so, what is the legal status? Under the aforementioned legal status, is the Hong Kong one-person company liable for its debts? Is the company's shareholder liable for the debts? If so, what kind of liabilities?

Ascertainment Report

In response to the court's entrustment, BCI & BIMC provided a "Law Ascertainment Report" on June 6, 2019, which states: For issuing this report, we conducted a search about ICE-ZONELIMITED in the Hong Kong Companies Registry.

On Issue 01:

There is no distinction between one-person and multi-person companies under Hong Kong's company law. Since February 13, 2004, the revised Companies Ordinance of Hong Kong allows a company incorporated in Hong Kong to have only one member (or commonly known / understood as "shareholder") and one director. Under the current Companies Ordinance, companies established in Hong Kong can be divided into two categories by the legal liabilities of company members: (1) limited company, and (2) unlimited company.

There are also two types of limited companies: companies limited by shares, and companies limited by guarantee. According to Section 8 of the Companies Ordinance, a company is a company limited by shares if the liability of its members is limited by the company's articles to any amount unpaid on the shares held by the members. According to Section 9 of the Companies Ordinance, a company is a company limited by guarantee if—: (a) it does not have a share capital; and (b) the liability of its members is limited by the company's articles to the amount that the members undertake, by those articles, to contribute to the assets of the company in the event of its liquidation. The Companies Ordinance also divides companies established in Hong Kong into "private companies" and "public companies". A "private company" must meet the following conditions: (a)its articles -(i) restrict a member's right to transfer shares;(ii) limit the number of members to 50; and(iii) prohibit any invitation to the public to subscribe for any shares or debentures of the company; and (b) it is not a company limited by guarantee. A company is a public company if—(a) it is not a private company; and (b) it is not a company limited by guarantee.

According to the records of the Registry, ICE-ZONE LIMITED was registered as a limited company in Hong Kong on September 2, 2006 in accordance with the then applicable Companies Ordinance (hereinafter referred to as the previous ordinance).

At the time of establishment, the articles of association of ICE-ZONE LIMITED had two parts: (1) the memorandum of association and (2) the articles. According to the third item of the Memorandum of Association filed by ICE-ZONE LIMITED in the Registry, the liability of the members of the company is limited. According to Section 4 (3) of the previous ordinance, since the memorandum of association of ICE-ZONE LIMITED contains the clause "the liability of the members of the company is limited", the company shall be deemed as a company where "the liability of its members is limited by the company's memorandum of association to any amount unpaid (if any) for the shares held by each member". The Companies Ordinance came into effect on March 3, 2014, replacing the previous ordinance, and eliminates the requirements on the memorandum of association. Therefore, companies only need to prescribe the company's regulations in the articles of association. For a company established before that date, the articles contained in its memorandum of association are regarded as provisions of the company's articles of association. Therefore, the provisions of ICE-ZONE LIMITED's original memorandum regarding the limitation of the liability of its members are regarded as provisions of its articles, which means that, the liability of its members is limited by the company's articles to any amount unpaid for the shares held by the members. Therefore, according to Section 8 of the Companies Ordinance, ICE-ZONE LIMITED is a "company limited by shares".

As ICE-ZONE LIMITED is not a company limited by guarantee, and its articles of association meet the requirements of the Companies Ordinance. It is therefore also a private company for the purposes of the Companies Ordinance. A basic principle of Hong Kong company law is that a company established in accordance with the law is a subject independent of its members. According to this principle, members of the company are not personally liable for the company's debts. This principle was established in the case of the British House of Lords in 1897: Salomon v. A. Salomon & Co. Ltd. [1897] AC22. Therefore, during the existence of a company limited by shares, under normal circumstances, shareholders do not need to undertake personal liabilities for the company's debts. However, depending on the case, the court may "pierce the corporate veil" or "unveil the corporate veil" in certain circumstances. The Hong Kong court stated in China Ocean Shipping Co. v Mitrans Shipping Co. Ltd. [1995] 3HKC123 that the use of a company structure to evade existing legal liabilities is objectionable, and the court may pierce the corporate veil under appropriate circumstances to preserve the legal liabilities of the company; but to simply avoid incurring any legal liability with the use of company structure is not objectionable. In this case, the plaintiff, China Ocean Shipping Co. signed a charter contract with Mitrans Panama, a Panamanian company.

When Mitrans Panama breached the contract, Mitrans Panama was ruled to compensate the plaintiff after arbitration. However, Mitrans Panama failed to enforce the arbitral award. Therefore, the plaintiff sued the defendant, Mitrans Shipping Co. Ltd, which was registered in Hong Kong. The plaintiff argued that the corporate veil between the defendant and Mitrans Panama should be lifted, because Mitrans Panama is only a false appearance for the defendant to evade its legal liability to the plaintiff. But the judge disagreed with the plaintiff's arguments and stated that the defendant had no legal liability at all before signing the charter contract, and the contract was signed by Mitrans Panama, so the defendant had no legal liability to evade. Although the judge did not "lift the corporate veil" in the above case, the judge applied relevant legal principles. However, in Centaline Property Agency Ltd. v. Cyberspeed Technology Co. Ltd. [2007] 4HKLRD745, the defendant Company C signed an engagement agreement with the plaintiff, a real estate agency, commissioning the plaintiff as the agent to buy and inspect the property; Company B bought the property from another real estate agency. Based on the facts that Company B arranged a loan from the bank to purchase the property with the property as collateral, and provided financing to company C, and company C provided guarantee for the said bank loan and the financing; Company B leased the property to an affiliated company and the affiliated company subleased the property to Company C, and the mastermind behind these companies is the same person. The judge held that the company's veil should be pierced, and defendant Company C should pay the intermediary fee to the plaintiff in accordance with the engagement agreement.

Following the Hong Kong cases mentioned above, an important case of "piercing the corporate veil" emerged in the UK: Prest v Petrodel Resources Limited [2013] UKCS34. This is a case concerning the distribution property after divorce. The appellant, Mr. Prest, held several properties through a company and the court had to decide whether those properties should be transferred to his spouse. The judge who made the main verdict of the case summarized two principles concerning "piercing the veil of corporate": the "concealment principle" and the "evasion principle". Where there has been concealment of liability, the judge argued, there will be no need to pierce the corporate veil because all that would be required would be to look behind the veil to establish the true actors. The judgement in Prest therefore clarified that piercing the corporate veil would only be possible when company law had been used to evade liability.

In the "Lifting, Piercing And Sidestepping The Corporate Veil" written by British legal professionals (James Wibberley, Guildhall Chambers & Michelle DiGioia, Gardner Leader), they summarized several points from the Prest case: (1) The clear distinction between corporate and personal liabilities as established in  Salomon v. A. Salomon & Co. Ltd.; (2) The primacy of the separation between personal and corporate liabilities can be overcome in the case of fraud.; (3) Lifting the corporate veil applies where a company is being used to "conceal the identity of the true actors"; (4) Piercing the veil only applies where "a person under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control"; (5) The veil can only be pierced as a matter of last resort. But it needs to be clarified: if the shareholder is held liable for the company's debt because of "piercing the veil", his liabilities are not simply caused by his status as a shareholder.

On Issue 02:

Registry records show that ICE-ZONE LIMITED was struck off the Companies Register by the Registrar of Companies (the Registrar) on September 15, 2017 under Section 746 of the Companies Ordinance and was then dissolved. If the Registrar has reasonable cause to believe that a company is not in operation or carrying on business, the Registrar may send to the company by post a letter inquiring whether the company is in operation or carrying on business. (Section 744.(1) of the Companies Ordinance).If the Registrar does not receive a reply to the letter; or the Registrar receives a reply to the letter stating that the company is not in operation or carrying on business. Then the Registrar must, within 30 days after the end of that month send to the company by registered post another letter—(i)referring to the letter sent under Section 744(1); and(ii)stating that-(A)no reply to it has been received; or(B)the Registrar has received a reply to it to the effect that the company is not in operation or carrying on business; and(b)publish in the Gazette a notice that, unless cause is shown to the contrary, the company's name will be struck off the Companies Register, and the company dissolved, at the end of 3 months after the date of the notice.(Section 745.(1), (2) of the Companies Ordinance ).

After publishing a notice, the Registrar may, unless cause is shown to the contrary, strike the company's name off the Companies Register at the end of 3 months after the date of the notice. The Registrar must publish in the Gazette a notice indicating that the company's name has been struck off the Companies Register. On publication of the notice, the company is dissolved. (Section 746. (8) of the Companies Ordinance). Therefore, such dissolution is the outcome of the Registrar exercising his statutory administrative power to strike the company's name off the register. The question of whether a dissolved company has "qualification as a subject" cannot simply be answered with "yes" or "no", because such an answer needs a clear definition of "qualification as a subject".

Section 73. (2) of the Companies Ordinance sets out one of the effects of becoming a corporation: "On and after the date of incorporation, the body corporate is capable of exercising all the functions of an incorporated company, and has perpetual succession." Section 115.(1) of the Companies Ordinance states: "A company has the capacity, rights, powers and privileges of a natural person of full age." However, there is no provision in the Companies Ordinance stating that the company will lose this capacity, right, power and privilege after dissolution. Section 752. (1) of the Companies Ordinance: "If a company is dissolved under this Part or Section 226A, 227, 239 or 248 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), every property and right vested in or held on trust for the company before the emergency dissolution is vested in the Government as bona vacantia." Therefore, the company lost the right to hold and dispose property. However, this clause is subject to the provision that the dissolved company can be reinstated.

According to Section 760 of the Companies Ordinance, a person who was a director or member of the company may apply to the Registrar for the restoration of the company to the Companies Register. Under Section 764.(1), (2) of the Companies Ordinance, (1) if a company is restored to the Companies Register under this Subdivision, it is to be regarded as having continued in existence as if it had not been dissolved. (2) on application by any person, the Court may give directions, and make orders as it seems just, to place the company and all other persons in the same position as nearly as may be as if the company had not been dissolved. The Companies Ordinance does not expressly stipulate that a company dissolved under Section 746 of the Companies Ordinance shall not operate or that its business activities are deemed invalid. Instead, a necessary condition for the Registrar to approve the reinstatement is that "the company was, at the time its name was struck off the Companies Register, in operation or carrying on business;" (Section 761. (2) of the Companies Ordinance). An application for restoration under Section 760 of the Companies Ordinance must be made by a director or member of the company. In addition, the company's directors, members or creditors, or any other person (including the government) who appears to the court with interests in the matter, may file a lawsuit with the Court for restoration of company registration under Section 765 (4) of the Companies Ordinance.

Under Section 759 of the Companies Ordinance, the Court's powers under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) to wind up a company are not affected by the fact that (a) the company's name has been struck off the Companies Register under Section 746 or 747 and the company is dissolved under that section; or (b) the company has been deregistered, and is dissolved, under Section 751. It can be seen that the dissolved company does not "completely disappear".

According to Note 15/7/14 of Hong Kong Civil Procedure 2019, if the plaintiff is a company that has been dissolved through a winding-up procedure, the lawsuit will be terminated on the day the company is dissolved. But if the plaintiff is a company dissolved by the Registrar with administrative power (as in the case of ICE-ZONE LIMITED), the court has the power to order "the company and others be placed in the same place as if the company's name had not been struck off". A dissolved company is limited in qualification, but it is not completely disqualified. Regarding whether ICE-ZONE LIMITED shall be liable for the company's debts after dissolution, it depends on whether the creditor has applied through Section 765 of the Companies Ordinance and the court has decided to grant the application in accordance with Section 767 of the Companies Ordinance. If the company is required to undertake liabilities, the company registration needs to be restored first. If the company registration is not restored, the company cannot be held liable. If a company is restored to the Companies Register under Section 767, it is regarded as having continued in existence as if it had not been dissolved. (Section 768(1) of the Companies Ordinance); The Court may give directions, and make orders as it seem just, to place the company and all other persons in the same position as nearly as may be as if the company had not been dissolved. (Section 768.(2) of the Companies Ordinance); If any property, right or interest was vested in the Government under Section 752 (1) of the Companies Ordinance at the time of the restoration, they should be revested back in the company subject to any liability, interest or claim that was attached to the property, right or interest immediately. (Section 773(5) of the Companies Ordinance). And Section 773 (6) and (7) stipulate how the government should pay the company, for the property that has been settled or disposed, the amount equivalent to the settlement or disposal. Creditors may also apply for winding up the company after the company registration is restored. Section 756 of the Companies Ordinance also retains the legal liabilities of directors, managers and members of the company that has been dissolved, and these liabilities (if any) continue and may be enforced as if the company had not been dissolved.

On Issue 03:

There are roughly two types of processes for a company limited by shares to get dissolved from its corporation: dissolution through liquidation (including winding-up by court order, voluntary winding-up of members and voluntary winding-up of creditors) or dissolution without liquidation. During the liquidation process, creditors are required to present a proof of claim to the liquidator. The liquidator may give a notice no less than 14 days informing creditors to prove their claims or recourse, or before a certain day from time to time, otherwise they will be excluded from the benefits of the next distribution made after that date, and they may not be allowed to put objections to the distribution above. The liquidator must review each proof of claim and the basis for each claim, and must accept or reject all or part of the proof of claim in writing. If the creditor is dissatisfied with the liquidator's decision, the creditor can apply to the court to overturn or change the decision. After the liquidator has processed the company's assets and claims, and after the company's affairs have been completely completed through legal and normal procedures, the liquidator can reach the company's dissolution through legal procedures (with or without a court order).

However, it is also possible that the company has begun liquidation, but because the Registrar has reasonable grounds to believe that the company has no liquidator and no provisional liquidator is acting, the Registrar may publish in the Gazette a notice indicating that the company has been struck off the Companies Register. (Section 747 of the Companies Ordinance). In this case, it is possible that the company did not complete the procedures for proof of claims when it was dissolved. After dissolution, the company is not liable for debts, and shareholders will not be held liable because of the identity of the shareholders. However, under Section 290(1) of Chapter 32 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance(the Winding Up Ordinance), the court may at any time within 2 years of the date of the dissolution, on an application being made for the purpose by the liquidator of the company or by any other person who appears to the court to be interested, make an order, upon such terms as the court thinks fit, declaring the dissolution to have been void, and thereupon such proceedings may be taken as might have been taken if the company had not been dissolved. The liquidator of the company or any other person who appears to the court to be interested may at any time apply to extend the period of 2 years referred to in subsection (1) and the court may so extend, on such terms and conditions as seem to it just and expedient, if it is satisfied that there are exceptional circumstances justifying the extension in accordance with Section 290 (1A) of the Winding Up Ordinance.

On Issue 04:

If a company limited by shares is dissolved without liquidation, normally there is no process of proof of claims. Dissolution without liquidation can be achieved in the following ways: (1) the Registrar's dissolution under Section 746 of the Companies Ordinance, which including companies that is not in operation or do not carry on business; (2) the Registrar's application for the removal of a company unsuitable for liquidation to the Court in accordance with Section 748 of the Companies Ordinance; (3) application for deregistration by the company or its directors or members under Section 750 of the Companies Ordinance, and dissolution by the Registrar under Section 751.

After dissolution, the company is not liable for debts, and shareholders will not be held liable because of the identity of the shareholders. However, regardless of dissolution under Section 746, 748, or 751 of the Companies Ordinance, creditors may apply to the court for restoration of company registration (Section 765(4) of the Companies Ordinance). See the comments on Question Two for the effect of the restoration.

On Issue 05:

In addition to the normal existence and dissolution of a company limited by shares, a company can have the following status: 1. In the state of liquidation. The laws on the winding up of a company are contained in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) (the Winding-up Ordinance). The winding up of a company can be made by the court. It can be an automatic winding up (divided into "voluntary winding up of members" and "voluntary winding up of creditors"). After the company's winding-up begins, the powers of the company's directors and shareholders are generally suspended, and the company is taken over by the liquidator. The liquidator exercises its powers in accordance with the Winding Up Ordinance. The main responsibility of the liquidator is to receive the company's assets and liquidize the assets, to obtain the amount they should contribute to the company's assets from the "shareholders", and to determine the company's debts and deal with the company's assets and repay the company's debts according to law. In the state of liquidation, the company is liable for the company's debts. But the company's liability is limited to the extent to which its assets can be repaid. Every present and past member(contributory) shall be liable to contribute to the assets of the company to an amount sufficient for payment of its debts and liabilities, and the costs, charges, and expenses for the winding up, and for the adjustment of the rights of the contributories among themselves (Section 170(1) of the Winding Up Ordinance). But this shared liability is limited.

For members of a company limited by shares, "no contribution shall be required from any member exceeding the amount, if any, unpaid on the shares" (Section 170(1)(d)) This means that if the contributor has paid the full amount of the shares, he will no longer have to bear the shared liability. 2. "Dormant company" status. If a qualified private company passes a special resolution specified in subsection (2), and the resolution is delivered to the Registrar for registration, the company is a dormant company as declared by the resolution. (Section 5 of the Companies Ordinance). A company that can be declared as dormant company must be a private company and a company that is not part of Section 5(7) of the Companies Ordinance (the Section 5(7) mainly covers financial companies governed by other regulations). A dormant company is a company that is still registered in the company register, but because of its "dormant" status, the liabilities below could be exempted: performing financial statements, director's reports, appointing auditors, convening general meetings, delivering annual returns to the Companies Registry and registering with companies under the Companies Ordinance. The basic element to keep dormant is that the company must not have "accounting transaction". "Accounting transaction" are defined in Section 373 of the Companies Ordinance, which includes "a record of the company's assets and liabilities" (Section 373(3)(b)). If the company passes a special resolution, announcing that it intends to enter into an accounting transaction and that resolution has been handed over to the Registrar for registration; or there is an accounting transaction related to the company, the company is no longer a dormant company and the aforementioned exemption is terminated. So, if there is debt for the company, it is no longer a dormant company. Companies are also liable for debt. As for the liability of shareholders, it is the same as a company in normal existence.

Decision of the Court

The court held that because the appellant ICE-ZONE LIMITED is a Hong Kong-registered company and the shareholder of ICE-ZONE LIMITED Boutayh Bernard is a Hong Kong resident, this case is a commercial dispute involving Hong Kong and should be handled in the same manner as a foreign-related commercial case. The sale involved took place in mainland China, so the law of PRC should be applied to the dispute at hand according to the provisions of Article 41 of Law of the People's Republic of China on Law Applicable to Foreign-related Civil Relationships. Article 14 of Law of the People's Republic of China on Law Applicable to Foreign-related Civil Relationships stipulates that the laws at the place of registration shall apply to such items as the capacity of civil rights and civil conducts, organizational institutions, rights and obligations of shareholders, etc. of a legal person and its branches. Therefore, the question of whether Boutayh Bernard should bear jointly and severally liability for the debts should be governed by the law of Hong Kong.

Regarding whether Chen Yuanxiang should bear joint and several liability for the debts involved, the headlines of the purchase orders involved all show "ICE-ZONE LIMITED" and the orders are printed with its address, telephone and other contents, and the balance is also stamped with the company seal of ICE-ZONE LIMITED. So it should be confirmed that the purchase order was issued in the name of ICE-ZONE LIMITED. The settlement statement issued by Xuyang Company was also confirmed in the name of ICE-ZONE LIMITED. There was a letter from the relevant person in charge of Xuyang Company and Chen Yuanxiang and other responsible personnel of the companyto the relevant departments to reflect the situation. The content of the letter shows that Xuyang Company knew that Chen Yuanxiang was an employee of ICE -ZONE LIMITED. Chen Yuanxiang signed the purchase order and other transaction materials as an employee of ICE-ZONE LIMITED. Signing the purchase order and other related documents is a performance of official conduct, and the legal consequences of performing official conduct should not be borne by her. Moreover, Xuyang Company did not fully prove that the transaction involved was between Xuyang Company and Chen Yuanxinag in her own name. Therefore, the court of first instance's determination that Chen Yuanxiang's purchase of the clothing from Xuyang Company was not supported by facts is appropriate, and the court of second instance maintained this determination.

Regarding the liability of Boutayh Bernard, the Legal Ascertainment Report states that ICE-ZONE LIMITED is a limited company by shares and a private company. According to the Registry records, its name was struck off from the Company Registery by the Registrar on September 15, 2017 under Section 746 of the Companies Ordinance and it was dissolved. The case of the House of Lords of the United Kingdom in 1897: Salomon v. A. Salomon & CO. Ltd. [1897] AC22 established a basic principle of Hong Kong company law: a company established in accordance with the law is a subject independent of its members. According to this principle, the company's members are not personally liable for the company's debts. Therefore, during the normal existence period of a company limited by shares, its shareholders do not bear personal liability for the company's debts. After the company is dissolved, its shareholders will not be held liable for the company because of the identity of the shareholder. Although the court can "pierce the corporate veil" in some cases, the principles of "piercing the corporate veil" are based on "concealment principle" and "evasion principle". In this case, Xuyang Company failed to provide evidence to prove that Boutayh Bernard had "concealed the identity of the true actor" or "intentionally inserted the company under its control to evade existing legal liabilities or restrictions" as stated in the "Legal Ascertainment Report". Therefore, Xuyang Company's claim for Boutayh Bernard's liability for the debts involved is insufficient and the court does not support this claim.

In the case of (2018) Yue 01 Min Zhong No. 6075, Guangzhou Intermediate People's Court entrusted BCI & BIMC to ascertain some legal issues, including whether a company that has been dissolved by the Registrar of Company Registry of Hong Kong under its authority can assume liability as a subject of litigation and whether its shareholders bear joint and several liability for the debts involved. Based on the results of this ascertainment, Guangzhou Intermediate People's Court makes the following judgment on the related case (2018) Yue 01 Min Zhong 21205.

Case Information:

Appellant (plaintiff in the case of first instance): Guangzhou Zengcheng Diwei Garment Factory. Place of business: Xintang Town, Zengcheng, Guangzhou City, Guangdong Province.

Operator: Zeng Xingyin.

Appellee (defendant in the case of first instance): Chen Yuanxiang, female, born on February 28, 1979, Han nationality, lives in Yiyang County, Shangrao City, Jiangxi Province.

On March 30, 2014, Diwei Garment Factory signed ICE-ZONELIMITED purchase order No. 6160 with ICE-ZONE LIMITED. On March 9, 2014, Diwei Garment Factory signed ICE-ZONELIMITED purchase order No. 6168 with ICE-ZONE LIMITED. In the above two purchase orders, the operator of Diwei Garment Factory signed at the signature column with the name of Diwei Garment Factory, and the name of ICE-ZONE LIMITED was signed by Chen Yuanxiang with the company's seal. Later, Chen Yuanxiang transferred the deposit from her bank account to the account of the operator of Diwei Garment Factory, and Diwei Garment Factory then produced clothing and delivered it to ICE-ZONE LIMITED.

On October 30, 2015, ICE-ZONE LIMITED issued a reconciliation summary form to Diwei Garment Factory, stating that the delivery amount of two purchase orders fulfilled by Diwei Garment Factory was RMB 534,543 yuan, the quantity of which was 13,254, and the deposit paid and the balance paid were in total RMB4 0,543 yuan, the unpaid amount of 6160 purchase order was RMB 321,000 yuan, the unpaid amount of  6168 purchase order was RMB 173,000 yuan, indicating "As of October 30, 2015, the amount of  ICE-ZONE LIMITED owes to Zengcheng Diwei Garment factory of Guangzhou City-Zeng Xingyin is RMB 494000 yuan. " The summary was printed with the name and stamp of ICE-ZONE LIMITED and signed by Chen Yuanxiang.

On January 13, 2016, Diwei Garment Factory filed a lawsuit with the court of first instance, requesting Chen Yuanxiang to pay the amount of RMB 494,000 yuan and its interests and penalty, and that Aiqiqi Company should assume joint liability for Chen Yuanxiang's liability. Because Aiqiqi Company has cancelled its registration, Chen Yuanxiang submitted a set of copies of the ICE-ZONE LIMITED registration certificates in Hong Kong, and Aiqiqi Company withdrew from the lawsuit. The court of first instance added ICE-ZONE LIMITED as the defendant based on the application of Diwei Garment Factory Participate.

The court of first instance held that the purchase order and summary statement of debts issued by Diwei Garment Factory to verify the sales contract relationship related to the payment involved in the case were issued and stamped in the name of ICE-ZONE LIMITED. ICE-ZONE LIMITED clearly stated that the balance of payment of RMB 494,000 yuan was due to Di Wei Garment Factory, which did not indicate that Chen Yuanxiang purchased or received clothes from Di Wei Garment Factory in the name of Aiqiqi Company or on her own. Chen Yuanxiang also proved her position as the manager of ICE-ZONE LIMITED and the fact that she was responsible for transferring the payment for ICE-ZONE LIMITED and paying the employees' salaries. Diwei Garment Factory provided no evidence to prove that Chen Yuanxiang signed the above materials without permission or with a fake ICE-ZONE LIMITED seal, nor did it prove that Chen Yuanxiang and Aiqiqi Company authorized Yang Ronghui to sign for the goods on behalf of Aiqiqi Company. Therefore, the court of first instance determined that a sales contract relationship was formed between Diwei Garment Factory and ICE-ZONE LIMITED based on the above evidences. ICE-ZONE LIMITED confirmed that the payment of the goods owed by Diwei Garment Factory to Diwei Garment Factory was RMB 494,000 yuan.

Court Decision

In a related case Guangzhou Xuyang Clothing Co., Ltd. v. Chen Yuanxiang, ICE-ZONE LIMITED and Boutayeh Bernard ((2018) Yue 01 Min Zhong 6075) tried by Guangzhou Intermediate People's Court, it is ascertained that ICE-ZONE LIMITED was struck off the Company Registry of Hong Kong by the Registrar under Section 746 of the Companies Ordinance on September 15, 2017. During the trial of the case of (2018) Yue 01 Min Zhong No. 6075, this Court entrusted BCI & BIMC to conduct a Hong Kong law ascertainment.

Regarding whether ICE-ZONE LIMITED shall be liable for the company's debts after dissolution, it depends on whether the creditor has submitted application according to Section 765 of the Companies Ordinance and the Court has decided to restore the company registration in accordance with Section 767 of the Companies Ordinance. If the company is required to undertake liability, the company registration needs to be restored first. If the company registration is not restored, the company cannot be held liable. The effect of restoration is that the company shall be regarded as having continued in existence as if it had not been dissolved. (Section 768(1) of the Companies Ordinance). Accordingly, the court issued a civil ruling (2018) Yue 01 Min Zhong 6075 (2018) on September 5, 2019, which identified the content of the above-mentioned "Legal Ascertainment Report" and dismissed Guangzhou Xuyang Clothing Co., Ltd.'s lawsuit against ICE-ZONE LIMITED.


Read the original: 藍海查明案例 ▍已解散的香港公司能否作為訴訟主體承擔責任?

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