Introduction

The Companies (Fees and Percentages) Order (Cap 32C) (the “CFPO”) provides that ad valorem fees are payable to the Official Receiver on compulsory liquidation of a company.  The amount of such fees, as provided in section 7(2) and Item I of Table B of Schedule 3 to the CFPO, depends, by reference to a sliding scale, on the “aggregate amount of assets realised and brought to credit by a liquidator”. 

In the recent case of STX Pan Ocean (Hong Kong) Co. Limited (In Liquidation) HCCW 324/2013, the court has shed light on the interpretation of the word “realised” and has ruled in favour of the Official Receiver with respect to the calculation of fees payable to the Official Receiver’s Office.

Background

STX Pan Ocean (Hong Kong) Company Limited (the “Company”) went into creditors’ voluntary liquidation pursuant to section 228(1)(c) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (the “Ordinance”) on 26 August 2013 and two voluntary liquidators (the “CVL Liquidators”) were appointed.  More than HKD$160,000,000 had been realised until the court made an order on the petition that the Company be wound up whereupon the Official Receiver became provisional liquidator for the Company on 26 September 2014, who had realised around HK$13,000,000 until the joint and several liquidators of the Company (the “Liquidators”) were appointed by the court on 24 April 2015.  The Liquidators further realised around HK$8,500,000 from the company’s assets.

The issue arises as to whether the ad valorem fees are payable in respect of the funds transferred by former voluntary liquidators to the Companies Liquidation Account or by the court-appointed liquidators after the compulsory winding up order was made.

The Court’s Decision

1.    An ordinary meaning of realisation

It was argued by the Liquidators that the word “realised” should be given an ordinary dictionary meaning, i.e., to convert into cash or money. Since the amount of around $160,000,000 realised by the CVL Liquidator predated the winding up order, such amount was not relevant in considering the ad valorem fees charged by the Official Receiver. The Liquidators also put forward two cases, namely Lewis v Metropolitan Properties Realisations Ltd [2010] Ch 148 and Board of Trade v Block (1888) 13 App Cas 570 to assist the court in interpreting the meaning of the word “realised”. The court, however, found that these cases were decided in very different contexts and suggested that Re a Debtor (No 29 of 1986) [1997] BPIR 183 would be a more relevant case in such relation where the case concerned the question of the remuneration of a trustee in bankruptcy. Vinelott J in the case, by referring to section 82(1) of the Bankruptcy Act, suggested that the word “realised” simply means “got in or reduced into cash” and it is “immaterial whether the trustee has got to do something in the course of reducing the assets to a form in which they can be distributed”. 

The court also noted that the relevant phrase in Item I of Table B of Schedule 3 of the CFPO is not just “assets realised” but “assets realised and brought to credit” and sometimes in an alternative form “realised or brought to credit”.  By making reference to the legislative history of the Companies Ordinance 1911, which were modelled on the (UK) Statutory Rules and Orders 1903, the court acknowledged that the Official Receiver’s ad valorem fees were payable upon “the total assets realised or brought to credit by the Official Receiver”.   Such wordings also appeared in Item IV of the Companies (Fees) Order 1936 until 1987 when the scale fee became payable “on the aggregate amount of assets realised and bought to credit by a liquidator”.   The court expressed its doubt in understanding why there was change in the language of the law but found no Explanatory Note to the amendment of such language.  Therefore, having regard to the legislative history, the court found the alteration inconsequential and the words “realised” and “brought to credit” should be used interchangeably.

The fees, therefore, are charged on the amount of $144,383,785.66 paid over by the CVL Liquidators into the Companies Liquidation Account which constitutes assets realised and brought to credit from the point of view of the compulsory liquidation.

2.    Irrelevant as to the amount of work done by the Official Receiver

Counsel representing the Liquidators submitted that such interpretation of the word “realised” would lead to a large amount of fees payable to the Official Receiver for very little work done.

The court did not find it to be a weighty consideration in construing the statute as section 296(4) of the Ordinance expressly provides that the amount of fees prescribed shall not be limited by reference to the amount of administration costs incurred or likely to be incurred by the Official Receiver.  The charge itself is not to remunerate the Official Receiver for work done as a liquidator.

The court again cited Re a Debtor (No 29 of 1986) which stated that the scale fee “must take the rough with the smooth”, meaning that such system produces swings and roundabouts when spread over a large number of cases with fees consistently charged in the same way.  The court also acknowledged that it is not fundamentally wrong with the fees being fixed in a way that cases with larger assets subsidise the smaller.  The court therefore did not consider that the Official Receiver’s interpretation was so inequitable as to be incompatible with the purposes of the statute.

Conclusion

STX Pan Ocean (Hong Kong) Co. Limited (In Liquidation) clearly illustrates that the ad valorem fees payable to the Official Receiver should be calculated on amount realised or brought to credit by the Official Receiver.  Liquidators may have to take into account such interpretation in estimating the fees payable to the Official Receiver.

 

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 © 2018