New Practice Directions coming into effect on 17 July 2023

Revised Practice Direction 3.1 – Bankruptcy and Winding-up Proceedings

Bankruptcy Proceedings 

Pursuant to the revised Practice Direction 3.1, for a bankruptcy petition based on the failure to comply with a statutory demand, a petitioner is now required to file a completed Checklist in the form of Appendix A attached to the revised Practice Direction 3.1 together with an affidavit proving service of the statutory demand (paragraph 1.2). Previously, before a petition may be filed, the petition must first be lodged with the High Court Registry together with affidavit(s) proving service of the statutory demand for the Court to consider whether service of the statutory demand has fully been complied with under the relevant rules, and the solicitors would then need to return after 3 working days to check the status.  Under the revised Practice Direction 3.1, it now stipulates that leave to file the petition or requisition(s) raised by the Master will generally be received within 28 days. If there are no updates within 28 days, the solicitors may then return to the High Court Registry or write to the Master in charge of the Bankruptcy and Winding-up List to ascertain the status (paragraph 1.3).

Perhaps one of the more significant changes is that an additional method of service of statutory demand is now added under paragraph 2. A creditor who has communicated with the debtor during the period of 12 months immediately preceding the date of statutory demand using electronic means including emails, WhatsApp, WeChat or other similar means of communication may now choose to deliver a statutory demand through such means. This method is also available where the debtor has expressly agreed with the creditor to use any such electronic means to receive any documents relating to the debt, the subject of the statutory demand.

Upon fulfilling the steps set out under paragraph 2.1 of the revised Practice Direction 3.1, a creditor would be normally regarded as having done all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention as required under Rule 46(2) of the Bankruptcy Rules (Cap. 6A).

In relation to an application for setting aside a statutory demand, where such an application is not dismissed by the Court, the Court will now give directions on paper on filing of evidence and leave to the parties to fix a date for the hearing (where appropriate) instead of scheduling an inter partes directions hearing (paragraph 8).

Winding-up Proceedings

The revised Practice Direction 3.1 also clarifies the manner in which the petition must be served. 

For both bankruptcy proceedings and winding-up proceedings (other than winding-up petitions on “just and equitable” grounds)

The following changes under the revised Practice Direction 3.1 will apply for both bankruptcy proceedings and winding-up proceedings, save for winding-up petitions on “just and equitable” grounds (“just and equitable winding-up”).  

There is also a new requirement under the revised Practice Direction 3.1 for lodging a consent summons if:

(a) agreement is reached between parties that the petition shall be dismissed or struck out after the winding-up petition has been advertised and/or gazetted (paragraph 14.4); and/or

(b) where parties wish to make a joint application to adjourn a winding-up petition and vacate the hearing (paragraph 14.5).

The revised Practice Direction 3.1 further lays down clear guidelines for effective case management:

(a) Where a Respondent intends to oppose the petition, he/she must follow paragraphs 16.1 and 16.2 and file a notice to show cause or affidavit in opposition in accordance with these paragraphs (paragraph 16.1, paragraph 16.2);

(b) The general rule is that discovery of documents or cross-examination of deponents will not be ordered, and no expert evidence should be filed without leave of the Court (paragraph 16.3, paragraph 16.4);

(c) English translation should be prepared where documents in Chinese are exhibited to an affidavit (paragraph 16.5); and

(d) Interlocutory applications in the petition should be rare (paragraph 16.6). 

New Practice Direction 3.7 – Urgent applications to the Companies Judge

The new Practice Direction 3.7 applies to urgent applications (ex parte or inter partes) made to the Companies Judge as listed below: (paragraph 1) 

(a) Application for an injunction restraining the presentation or advertisement of winding-up petition; 
(b) Application for appointment of provisional liquidators;
(c) Application for recognition and assistance of foreign provisional liquidators and liquidators;
(d) Application for a validation order;
(e) Application for an injunction to restrain the holding of meeting of directors or shareholders of a company; 
(f) Application for an injunction to restrain any person from acting in the capacity of director of a company; 
(g) Application for an appointment of receiver and/or manager of a company;
(h) Application relating to issuance of new shares, transfer of shares or registration of transfer of shares in a company;
(i) Application in which the standing of a party or intending party to apply for remedies under a statutory or common law derivative action is or may be in issue; and
(j) Application for an injunction under sections 728-729 of the Companies Ordinance (Cap. 622).

(paragraph 2)

An urgent application should be made in accordance with the procedures set out in Practice Direction 11.1 and Practice Direction 3.8 (paragraph 3 and paragraph 6), and solicitors should approach the Clerk of Court instead of the clerk to individual Judge when lodging the application (paragraph 3).

If an ex parte application needs to be made, it should only be made where there are good grounds (e.g. need for secrecy or great urgency). However, if:

(a) the applicant fails to file any skeleton arguments in respect of the application;
(b) the application does not provide any grounds for making the application on an ex parte basis in the skeleton arguments;
(c) the grounds stated in the skeleton arguments do not justify the application to be on an ex parte basis;
(d) great urgency is the result of the applicant’s own delay and inaction in making the application (e.g. a company waiting until expiry of 21-day period for compliance with a statutory demand before applying for an injunction to restrain presentation of a petition); or
(e) the company has other means to avoid a winding-up petition, e.g. providing security for the subject debt, 

the Court has power to dismiss the ex parte application without any hearing. 

Key takeaways

The above only lists out some of the key changes made to the Practice Directions, and is by no means exhaustive. Practitioners should, therefore, be familiar with the revised and new Practice Directions as mentioned above ahead of the 17 July 2023 commencement date, as failure to comply with the new Practice Directions may result in adverse consequences to their clients’ cases or result in dismissal of applications. 

The new Practice Directions further enhance the Court’s degree of control in case management, with changes made to (i) streamline the process of bankruptcy/ winding-up petitions (for example, by dispensing the need for appearance at hearing for uncontested bankruptcy and winding-up proceedings (save for just and equitable winding-up)) and to (ii) provide clearer guidance to practitioners who often need to make urgent applications to the Companies Judge and are welcome developments to save time and costs.