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balance shoot is properly drawn up so as to exhibit a true and correct view of the state of the company's affairs as shown by the books of the company. This report must be read before the com- pany in general meeting. The balance sheet in the annual sum- mary, and certain statements in the statutory report, must be audited by the auditors. If an auditor makes in his report a state- ment false in any material particular, knowing it to be false, he is guilty of a misdemeanour. Proceedings may also be taken in a winding up against an auditor for misfeasance, and in one case in England the auditor was held liable to repay a dividend improper- ly declared in reliance on a misleading cortificate given by him, Ordinance, Nil; Act, Sections 26 (3), 65 (4), 112 to 114, 215, 281; Bill, Clauses 27 (4), 66, 112 to 114, 204, 259,
Private Companies.
These are introduced for the first time. A"private company ineans a company which by its articles :---
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(a.) restricts the right to transfer its shares; and (b) limits the number of its members (exclusive of persons who are in the employment of the company) to fifty;
and
(c) prohibits any invitation to the public to subscribe for
any shares or debentures of the company.
It may be formed by two or more persons and may be wound up if the number of members falls belowe two: the corresponding number for an ordinary company is seven. As the public are not invited to subscribe for shares, and as private companies are small and intimate, the ordinary restrictions as to allotment, commence- ment of business, and the appointment or advertisement of directors, do not apply, and the statement in form of a balance sheet, the statement in lieu of a prospectus, and the statutory report, need not be filed. Preference shareholders and debenture-holders have no right to receive or to inspect the reports or balance sheets of a private company. Otherwise private companies are subject to the same provisions as an ordinary company. They were introduced in the United Kingdom by the Companies Acts of 1900 and 1907. Ordinance, Nif; Act, 2, 26 (3), 65 (10), 72 (3), 82 (2), 85 (vi), 87 (6), 114, 115, 121, 129 (iv), 137 (i); Bill, 2, 27 (4), 66 (10), 73 (8), 23 (2), 80 (7), 88 (6), 114, 115, 121, 129 (iv), 131 (i).
Power to Compromise.
Power is given to the court to sanction a compromise between a company and its creditors or any class of them, or between its members or any class of them, provided that the compromise is approved by a three-fourths majority in value of the creditors, members, or class in question. Formerly the power existed only where the company was being wound up. Ordinance, Section 192; Act, Section 120; Bill, Clause 120.
Winding up by the Court.
Under the present law, the Court appoints in each case an "Official Liquidator" to wind up the company. This officer is of course not a Government official, but is usually an ex-employee of the company, a public accountant, or other suitable person. He is subject to the general control of the court, and has to come to the court at various stages in the winding up. Some of his functions he can perform only with the sauction of the court. The Registrar of the Supreme Court has to countersign all his cheques, must join in any request for the investment of the moneys of the company, and keeps the documents representing such investments. But apart from the above he is subject to no regular and systematised control.
The Companies Act of 1890 introduced in England a stricter control and placed it in the hands of a Government official called the official receiver" and of the Board of Trade. This system is continued by the Companies (Consolidation) Act of 1908, and is adapted to Hongkong by the present Bill. In the High Court a special officer is appointed as official receiver for the purpose of
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companies winding up, while in the Country Courts the official receivers in Bankruptcy act. Considerable difficulty has been ex- perienced in adapting these provisions of the Act owing to the absence in Hongkong of any authority corresponding to the Board of Trade, and as the matter is still under discission it is impossible to do more than indicate broadly how the control will affect the liquidators of companies, and some of the statements as to the officers by whom that control is to be exercised must be taken as provisional. In any case, many of the details of the control must be worked out later on in the Winding-up Rules, which in the case of England form a inediamn 8yo, book of 144 pages, The following are the main features of the control.
A new office is created, that of official receiver for companies matters. As the number of companies which are being wound up at any given time is small in Hongkong it is proposed that the duties of this office should be discharged by the official receiver in bankruptcy. As soon as a winding-up order has been made the official receiver becomes the provisional liquidator of the company. He may also be appointed liquidator, and he is ex-officio liquidator during any vacancy in the office. As such provisional liquidator he summonses separate meetings of the creditors and contributo- ries of the company to determine whether application shall be made to the court for appointing a liquidator in place of the official receiver, and whether application shall be made for the appoint- ment of a committee of inspection. Usually the court appoints the person selected at the meetings, but it is not compelled to do so, and sometimes refuses. As a rule it leans in favour of appoint- ing the official receiver. If the two meetings differ, the court decides between them. Within 14 days of the winding-up order the directors and officers of the company are bound to make out and submit to the official receiver a statement, verified by affidavit, giving information as to the assets, liabilities, and creditors of the company, and such other information as the official receiver may require. The official receiver then makes a report to the court ou the capital, assets, and liabilities of the company, on the causes of its failure, and whether further enquiry is desirable as to any matter relating to the promotion, formation, or failure of the coni- pany, or the conduct of its business. He may also make a further report as to whether any fraud has been committed, and ou such further report the court may order the public examination of the suspected promoters, directors, or officers. This provision, it may be noted, goes far beyond the present powers of examining di- rectors and officers.
Every liquidator must pay the moneys received by him to an account called the Companies Liquidation Account, at such bank. as the Colonial Treasurer may direct. The official receiver con- trols this account and authorises all payments out, and himself keeps separate accounts of the receipts and payments in the wind- ing-up of each company. Every liquidator must send to the official receiver at least twice a year an account of bis receipts and pay- ments, and the court causes the account to be audited. The two
preceding sentences illustrate the difficalty of applying the Act here. The functions which are assigned in them to the official re- ceiver are in England performed by the Board of Trade, and as the bill stands there is no regular control over the liquidator when the latter bappens to be the official receiver. Such control is of course less necessary than in the case of "outside" liquidators, and Clause 218 provides for the auditing of his accounts. The official receiver (in England, the Board of Trade) is also to tako cognizance generally of the conduct of liquidators of companies, may on complaint make an enquiry and take such action as he thinks it, and may apply to the court for the examination of the liquidator on oath, All "outside" liquidators are bound to give to the official receiver all necessary information and access to the books and documents of the company, and have to apply to him (in England, the Board of Trade) for their release. They must also give certain information to the registrar of companies.
Various improvements are also introduced into winding up procedure, eg., the appointment of committees of inspection and special managers where desirable. Power is also taken to delegate to liquidators certain powers of the court, eg, as to making calls; advantage of this has been taken in the English winding up Rules,
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