In a recent decision of Re MF Global Hong Kong Ltd [2015] HKCU 459 (2 March 2015), the Court of Appeal clarified that the ad valorem fees were payable on the conversion of the compulsory liquidations of MF Global Hong Kong Limited and MF Global Holdings HK Limited (collectively, the “Companies”) to creditors’ voluntary winding up.

Background

On 4 October 2012, Harris J made orders that the compulsory liquidation of each of the Companies were converted to creditors’ voluntary winding up (the “Orders”).  In particular, the Orders provided the following:

1.       the provisional liquidators (the “PLs”) (who were appointed under section 193 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“CWUMPO”)) be appointed as the liquidators of the Companies in the creditors’ voluntary liquidation; and

2.       the realisation made by the PLs up to the date of conversion should be paid to them as liquidators “without any deduction being made in respect of ad valorem fees”.

 

The Official Receiver appealed on the basis that the Companies should pay the ad valorem fees on the assets realized by the PLs up to the date of conversion into the creditors’ voluntary winding up.

The Court of Appeal’s analysis

Whether the PLs were “liquidator” under Section 2(1) of CWUMPO

Pursuant to section 2(1) of the CWUMPO, liquidator includes “a provisional liquidator holding such office by virtue of section 194 of CWUMPO”.

In considering Re Lehman Brothers Securities Asia Ltd (No 2) [2010] 1 HKLRD 58 (“Lehman Brothers (No 2)”), the Court of First Instance decided that the provisional liquidation only came to an end at such time as the provisional liquidators (or other persons) were appointed liquidators by the Court.  It was further decided that in Lehman Brothers (No 2), the definition of “liquidator” under section 2(1) of the CWUMPO should be read as applying only to provisional liquidators appointed under section 194(1A) but not section 193 of the CWUMPO.

The Court of Appeal in Re MF Global Hong Kong Ltd reconsidered the interpretation of section 2(1) of the CWUMPO in Lehman Brothers (No 2) and decided that such interpretation should no longer be adopted. The Court of Appeal held that section 2(1) of the CWUMPO shall include all three types of provisional liquidators mentioned in section 194, and can cover section 193 provisional liquidators continuing to act as provisional liquidators after the making of a winding up order, pursuant to section 194(1)(aa). Such provisional liquidators can be said to hold their office by virtue of section 194.

Pre and post-winding up order:
difference in the nature of the office of the PLs

The making of the winding up order marked a fundamental change in respect of the status of the Companies.

Prior to the making of the winding up order, the Companies continued in existence and could pursue its general operations, subject to some constraints.  However, after the winding up order was made, the position of the Companies changed.  The Companies would no longer exist as a going concern.  The Companies could only continue to exist for the purpose of being wound up, i.e. for its assets to be realised and applied to satisfy its debts, on a pari passu basis.

The change in status of the company indicated the difference in roles between the provisional liquidators under sections 193 and 194 of the CWUMPO.  The role of the provisional liquidators under section 193 of the CWUMPO was to preserve the company’s assets so that they would be available for distribution if a winding up order was made, but not to realise them.  On the other hand, the provisional liquidators under section 194 of the CWUMPO held office at a time when it was known that the company was to be wound up, and could be regarded as being little different from the liquidator eventually appointed.

Implications

Re MF Global Hong Kong Ltd was an important case, in which it clarified that the provisional liquidators continuing in office after the Court made a winding up order would be considered as “liquidators” for the purpose specified under the CWUMPO. The company would still be liable to pay a substantive ad valorem fee even though the court compulsory winding up is converted into creditors’ voluntary liquidation before the appointment of liquidators.

  

For enquiries, please contact our Litigation & Dispute Resolution Department:

E: insolvency@onc.hk                                   T: (852) 2810 1212 W: www.onc.hk                                             F: (852) 2804 6311 19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2015