RE PEREGRINE INVESTMENTS HOLDINGS LTD. and Others

HCCW20, 22 and 32/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NOS.20, 22 AND 32 OF 1998

------------

-------------------

-------------------

R E A S O N S

-------------------

1. Following the first meeting of creditors and contributories in Peregrine Investment Holdings Limited ("PIHL"), Peregrine Derivatives Limited ("PDL") and Peregrine Fixed Income Limited ("PFIL"), the Provisional Liquidators of each of these companies submitted their respective reports to the court, and at the same time, sought orders for the appointment of joint and several liquidators of PIHL, PDL and PFIL respectively and, inter alia, an order regarding the remuneration of such joint and several liquidators. The relevant remuneration orders which are in identical terms for each of PIHL, PDL and PFIL are :

"The remuneration of the liquidators to be such as may be agreed between the Liquidators and the Committee, and in default of agreement such remuneration shall be determined by the court as provided for in section 196(2) of the Companies Ordinance."

Each of the orders for remuneration was stayed pending the handing down of these reasons which are intended to assist the committee of inspection in determining how remuneration ought to be fixed for the liquidators. As the principles are of general application, it is appropriate to adjourn the proceedings into court for the reasons to be handed down.

The statutory framework

2. The remuneration order reflects the statutory position. In broad terms, the framework is that it is a matter for agreement between the liquidators and the committee of inspection. If however they fail to reach an agreement, the liquidators' remuneration will then be determined by the court. Section 196(2) of the Companies Ordinance provides as follows :

"(2) Where a person other than the Official Receiver is appointed liquidator, he shall receive such remuneration by way of percentage or otherwise as is determined-

(a) where there is a committee of inspection, by agreement between the liquidator and the committee of inspection; or

(b) where there is no committee of inspection or the liquidator and the committee of inspection fail to agree, by the court,

and if two or more persons are appointed liquidators, their remuneration shall be distributed among them in such proportions as may be determined by the committee of inspection or the court, as the case may be."

3. Whilst section 196(2) is silent as to the subject matter upon which the percentage is to be ascertained, it stands to reason that it must be the value of assets realized or distributed. This is certainly the current position in England : see rule 4.127(2)(a) of the Insolvency Rules 1986. Under those Rules, the percentage is of the value of assets realized or distributed or a combination of both. In determining that percentage, sub-paragraph 4 of that rule requires that regard be had to-

(a) the complexity (or otherwise) of the case,

(b) any respects in which, in connection with the winding up, there falls on the insolvency practitioner (as liquidator) any responsibility of an exceptional kind or degree,

(c) the effectiveness with which the insolvency practitioner appears to be carrying out, or to have carried out, his duties a s liquidator, and

(d) the value and nature of the assets with which the liquidator has to deal.

Although the Insolvency Rules are not a part of the law of Hong Kong, there is nothing in section 196(2) to prohibit a committee of inspection, if it thought fit, to adopt such of those criteria as appear appropriate.

4. Remuneration by way of percentage is mentioned specifically in section 196(2). Nevertheless that is but one of the possible bases of remuneration. An alternative basis for remuneration would be the so-called time cost basis. As explained in my judgment (handed down on 25 June 1998) in relation to the application of the Provisional Liquidators for remuneration for the period commencing with their appointment until the date the companies were wound up, this does not mean that office-holders are entitled to charge the number of billable hours that they assert have been spent on discharging their duties. Being fiduciaries, they have to justify that the time claimed to have been spent was properly spent in attending to matters arising in the liquidation.

5. In deciding whether or not the remuneration of the liquidators should be on a time cost basis, the committee of inspection needs to be alive to the problems highlighted by the court in that judgment concerning Price Waterhouse's fees. It must consider whether such a basis is going to be workable in the light of the problems identified and therefore how the apparent deficiencies in Price Waterhouse's internal office systems have been or can be remedied before agreeing to such a basis. I need hardly stress the importance of the committee being satisfied that proper systems are in place before any agreement on a time cost basis is reached. The committee is itself charged with looking after the interests of the general body of creditors and this factor should not be overlooked.

6. Finally, in reaching an agreement (if any) with the liquidators on remuneration, the committee of inspection should be aware that the winding-up order in respect of each of the companies was made on 18 March 1998. Such remuneration as may be agreed would therefore be retrospective in the sense that it will cover the period from 18 March down to the date of appointment of the liquidators. It is to be noted that during the period of provisional liquidation, the Provisional Liquidators were remunerated on a time cost basis pursuant to the order appointing them. By virtue of section 194(1)(aa), the Provisional Liquidators had to continue to act as such until they or other persons become the liquidators. However, this does not mean that the committee is under any obligation to agree to a time cost basis : it is a factor to be taken into account. The committee is at liberty to agree to the basis it considers appropriate having regard to the interests of the general body of creditors. It is only in default of any agreement being reached that, under the provisions of section 196(2), remuneration will fall to be determined by the court.