It is rare that liquidators would be denied remuneration for work done in liquidation.  The case of In the matter of Rainbow Gate Limited illustrates one such incident, where the liquidator’s conduct of the liquidation has deviated so far from the duties prescribed by the Companies Ordinance that the court made an order for the liquidator’s removal from office and the disallowance of his remuneration.

Background

Since the passing away of the other joint and several liquidator of Rainbow Gate Limited (the “Company”) in 1999, Mr. K (the “Liquidator”) has been acting as the sole liquidator.  The Companies Ordinance (the “Ordinance”) prescribes a number of duties to be performed by the liquidator.  The Official Receiver took out a summons for the removal of the Liquidator from his office on the basis of serious misconduct under the Ordinance and failure to conduct the liquidation effectively, efficiently and vigorously.

Elements of the Liquidator’s misconduct

Under section 202(2)(a) and (b), the liquidator is required to pay without deduction any money which he receives in such capacity into the Companies Liquidation Account not later than 14 days after its receipt if the sum in question does not exceed HK$50,000; for any other sum payment must be made to the Companies Liquidation Account forthwith.

The Official Receiver authorised the Liquidator to open a current bank account to hold a fund balance of up to HK$10,000 for administrative convenience.  The Company received funds in the total sums of HK$23,245.15 and HK$46,640.30, but when the Official Receiver requested remittance of funds in the current account in excess of HK$10,000 the Liquidator did not make any such payment and did not provide any explanation or response to the Official Receiver, in contravention of section 202(2).  Under section 202(2A), unless the Liquidator provides the court with a satisfactory reason for such retention of funds, he would be liable to pay interest on the amount retained at the rate of 20% per annum; he shall be liable to disallowance of all or part of his remuneration as the court may in its discretion think just, and to pay any expenses incurred as a consequence of such default; and he shall also be removed from office by the court.

Since the joint and several liquidators have been appointed without a committee of inspection, payment of the Liquidator’s remuneration is subject to approval by the court pursuant to section 196(2)(b).  The Official Receiver however found that the Liquidator had made unlawful payments of his own fees and disbursements out of the assets of the Company without first seeking the approval of the court, in contravention of section 196(2)(b).  Further, contrary to Rule 179 of the Companies (Winding-Up) Rules (the “Rules”), the Liquidator failed to pay the Official Receiver’s fees which in fact have priority over the Liquidator’s own remuneration.

The Official Receiver further found that the Liquidator failed to submit the liquidator’s accounts in accordance with section 203(1); he failed to send reports to the Official Receiver on the position of the liquidation of the Company in accordance with rule 162(1) of the Rules for the previous 5 years; as there has been a lapse of 9 years since the Liquidator was appointed and yet there was not much progress, he had failed to proceed with the liquidation with reasonable expedition, and moreover, the Liquidator had persistently failed to respond to enquiries and reminders raised by the Official Receiver.  Indeed, the Liquidator had even failed to appear at the hearing of the summons for his removal as a liquidator.

The Court’s Ruling

The court was therefore satisfied that the Liquidator’s misconduct in the handling of the liquidation has shown that he is not a fit and proper person to act as the liquidator for the Company.  Under section 196(1) of the Ordinance the court has a wide discretion to remove the liquidator from his office (Re Liote Property Management Limited [2006] 2 HKLRD 106), and in the present case the court was satisfied that the Liquidator’s misconduct warranted his removal from office.  As the Liquidator did not appear at the hearing to provide an explanation for his contravention of section 202(2) to the court’s satisfaction pursuant to section 202(2A), the court made an order disallowing the Liquidator’s remuneration, while allowing disbursements conditional upon his delivery up of the books and documents of the Company to the Official Receiver within a certain period of time, and the filing of a schedule of the disbursements incurred for the court’s approval.  Lastly, the liquidator was also ordered to pay the Official Receiver’s costs of the application for his own removal from office.