Remuneration
The following is a brief summary of how the remuneration of Insolvency Practitioners in Hong Kong (and their solicitors) are agreed in the various types of insolvency process.
Creditors' Voluntary Liquidation
S.244(1) provides that the remuneration of the liquidator in a creditors' voluntary liquidation is to be agreed by the committee of inspection. However, if there is no committee of inspection the liquidator can convene a meeting for the purpose of agreeing his remuneration. Alternatively, it can be agreed by a resolution passed at the annual general meeting or indeed a resolution passed at the first meeting of creditors.
It is the responsibility of the liquidator to critically scrutinise his solicitors bills before they are paid. If there is a Committee of Inspection then he should consider discussing their bills with its members before they are paid.
Provisional Liquidator Appointed Under s.193
The provisional liquidator's remuneration is agreed by the Court. The recent Lehman Brothers cases appeared to change the way in which the process operates, particularly in relation to the bills of solicitors and other agents employed by the provisional liquidators. For a detailed analysis you can do no better than go to the Hong Kong Lawyer to an article written by James Wood and Ashley Bell who acted for the provisional liquidators in this case.
In the past, a provisional liquidator and his solicitors often had to wait many months, and sometimes more than a year, for the approval of their fees by the Court. However, in this case the provisional liquidators applied to the Court for an interim payment of their fees and for permission to make an interim payment in respect of the fees of their solicitors and agents.
In a landmark judgement the Court (Barma J as he was then) approved payments of 75% on account to the provisional liquidators of the various Lehman Brothers companies. The payment was subject to an undertaking that if their fees, when subsequently taxed by the Court were lower than the payment on account, that the provisional liquidators would repay the difference.
The Court also allowed the provisional liquidators to make payments on account of 90% in respect of fees and 100% of disbursements to their agents, mainly solicitors, employed during the course of the administration. However, the Court made it clear that it was the responsibility of the provisional liquidators to critically scrutinse the invoices of their agents before making any payments to them. The Court did not require the bills to be subject to taxation.
However in a subsequent ruling in the case of MF Global, the Court (this time in a decision handed down by Harris J) seemed to change its mind in a number of significnat aspects.
Firstly, the Court made it clear that in respect of the bills of the provisional liquidators' agents, in this case those of their solicitors, they would need to be approved by the Court through the usual taxation process.
Secondly, that any application by the provisional liquidator for a payment on account of their fees would only be allowed if the amounts involved were material. The wording of the decision seemed to imply that such applications would only be considered in the case of what have been referred to as "Mega Insolvencies". The reality is that most provisional liquidations are not mega-insolvencies, which means that provisional liquidators must continure to wait for several months for their fees to be approved by the Court.
Provisional Liquidator Appointed Under s.194(1A)
The Ordinance says that a provisional liquidator appointed under section 194(1A) should be remunerated in accordance with a scale of fees approved by the Official Receiver. In practice this means the scale of charge-out rates agreed by the provisional liquidator when he submits his tender to be appointed to the panel.
The decision in Sweetmart Garment Works clarifies that applications for remuneration by a provisional liquidator appointed under this section must be submitted to the Court, rather than to the Official Receiver as was previously the practice.
Liquidators
The remuneration of a liquidator in a compulsory liquidation is agreed either by the committee of inspection or, if there is no committee, by the Court. If it is agreed by the committee, the liquidator will have to satsify the Official Receiver that he has complied with the Court Guidelines (see below) regarding the provision of information to the committee of inspection before he will agree to funds being drawn down from Companies Liquidation Account.
Court Guidelines
In April 2004 the Court issued new guidelines in relation to the remuneration of liquidators and provisional liquidators. A copy of the guidelines can be found here. These came into force on 3 May 2004.
The effect of the guidelines is as follows:
The guidelines apply to all liquidations where there is no Committee of Inspection (“COI”). However, following the decision in Lehman Bros, it appers that they do not apply to applications for remuneration by provisional liquidators appointed under s.193. They also cover applications by the liquidators’ agents, usually their solicitors for payment of their fees.
The following is a summary of the guidelines and how they work.
Overview
All such applications are dealt with by Masters, not by judges. The guidelines will also cover claims by liquidators appointed in summary cases.
In terms of procedure, the most important aspect is to note that all bills are to be lodged with the High Court Registry, rather than being sent to the Judiciary Administrator as was the case previously.
All bills have to be submitted in duplicate and be signed by the liquidator and have to be lodged with a “Notice of Appointment for Taxation/Determination”. This is a pro-forma document which the Court will then complete and return to the liquidator with the date of the first hearing.
First Bills
If the bill is the first one being lodged in a particular case, it should also contain what the Court refers to as a “Source Document” in the form of a report. It also includes an “Asset Schedule” showing the nature, location, estimated value and prospects of recovery of all the assets of the company, except those with minimal value.
The Source Document and the Asset Schedule need only be lodged with the first bill. However, if there are changes (most likely in respect of the Assets Schedule) an updated document highlighting the changes will need to be lodged with subsequent bills.
Subsequent Bills
The following documents are required to be lodged with every bill:
- a written confirmation as to whether a Committee of Inspection (CoI) has been appointed for the Liquidation and if so, whether the bill has been submitted to the CoI for approval. In cases where the CoI has refused to approve the bill, the Liquidator is required to set out the items disallowed and the reasons given, if any, by the CoI. Note that a liquidator will only be submitting a claim to Court if there is no CoI or it its members have refused to approve the liquidators' remuneration claim;
- a brief running narrative of the nature of work covered by the bill and the costs incurred with a short explanation justifying the time spent;
- if the bill relates to work done on the recovery of assets, a list setting out the estimated value of the assets, the likelihood of recovery and an explanation for pursuing or abandoning recovery efforts. The "Assets Schedule” updates should also include the following particulars:
- the estimated value of the assets recovered since the lodging of the last bill and the costs incurred for recovering the assets;
- a list of the items of work done, divided into different categories with the time spent (chargeable and non-chargeable) by the fee earners concerned on each item, their hourly charge-out rates and the amount charged;
- a brief statement on whether there have been any write-offs, whether disbursements have been charged at cost or with a mark-up and if so, on which disbursements and at what rate of mark-up; and
- a schedule showing the total amount charged by each fee earner with the time spent and their charge-out rates in respect of the different categories of work undertaken.
The above requirements are designed to provide the Master with an overview of the liquidation. For expediency and cost saving, documents in support of the information lodged with the bill (e.g. time sheets or documents proving assets and realisations) do not need to be produced unless expressly required.