Most Read Contributor in Hong Kong, September 2016
We have previously
reported that the Official Receiver retains its entitlement to
ad valorem fees on the conversion of a compulsory liquidation to a
creditors' voluntary winding-up (CVL).
This entitlement was challenged in the recent matter of Re
MF Global Hong Kong Ltd1 in which the Court of
Appeal confirmed that ad valorem fees were payable on the
conversion of the compulsory liquidations of two MF Global
companies to CVLs.
The matter came before the Court of Appeal in the following
The compulsory liquidations of MF Global Hong Kong Limited and
MF Global Holdings HK Limited
("Companies") were converted to CVLs by
orders made by the Honourable Mr. Justice Harris in October 2012
("Orders"). The Orders provided for the
appointment of the then provisional liquidators
(PLs) as liquidators of the Companies and for the
realisations made by the PLs up to the date of the conversion to be
paid to them as liquidators "without any deduction being
made in respect of ad valorem fees pursuant to the Companies (Fees
and Percentages) Order, such fees not being payable by a
provisional liquidator appointed under section 193 of the [then
Companies Ordinance, Cap 32]"2
(emphasis added). The Official Receiver appealed on the basis that
it should be entitled to its ad valorem fees. The hearing turned on
the question of whether the reference to "liquidator" in
each of the relevant statutory provisions which prescribe the
Official Receiver's entitlement to ad valorem fees includes
provisional liquidators appointed under section 193 of the now
Companies (Winding up and Miscellaneous Provisions) Ordinance,
Cap 32 (CO).
The argument advanced on behalf of the PLs and which was
accepted by Harris J at first instance was that having been
appointed under section 193 CO, the PLs were not
"liquidators" within the meaning of section 2(1) CO which
defines "liquidator" as including "a provisional
liquidator holding such office by virtue of section 194".
As a consequence, they were not obliged to pay the substantial ad
valorem fees on the amounts realised by them while acting as PLs;
that obligation was statutorily imposed on "liquidators".
The PLs relied on an earlier decision of Barma J (as he then was)
in construing the meaning of "liquidators". In the matter
of Lehman Brothers Securities Asia Ltd (No.2)3,
his Lordship held in the context of an application for payment of
interim fees incurred by provisional liquidators appointed under
section 193 CO that such provisional liquidators fell outwith the
definition of "liquidator" in section 2(1) CO. His
Lordship considered those provisional liquidators as not holding
their office by virtue of section 1944.
On this occasion, his Lordship reconsidered the interpretation
which he placed on section 2(1) CO in Lehman Brothers
Securities Asia Ltd (No.2)5 and confirmed that
having given the matter much consideration he:
...would accept that the
difference between the position of provisional liquidator in the
periods before and after the making of the winding up order is such
that all three types of post-winding up provisional liquidators
should be treated as being essentially similar in nature, and so
subject to the same treatment [in respect of the requirement to
account to the Official Receiver for ad valorem fees] under the
...notwithstanding that the
provisional liquidators here were initially appointed under section
193, following the making of the winding up orders in respect of
the Companies, they held their office as post-winding up
provisional liquidators by virtue of section 194, and so are caught
by the provisions [pertaining to ad valorem fees]...
I also note that a substantial
portion of the realisations were effected in the period prior to
the making of the winding up order, when the provisional
liquidators were clearly in office only by virtue of section 193. I
do not think, however, that this provides a justification for
exempting the realisations made in that period from the ad valorem
fee. While in office under section 193 prior to the determination
of the winding up petitions, the liquidators made and held such
realisations for the purpose of preserving the Companies'
assets pending the outcome of the petitions. It is only after the
making of the winding up order (when they will be holding office by
virtue of section 194) that they would have brought such
realisations to account in the respective
Appeal Justices Yuen and McWalters agreed with Barma JA on this
interpretation of section 2(1) CO, affirming that in Hong Kong,
provisional liquidators continuing in office after the making of a
winding-up order will be treated as "liquidators" for the
purpose of the CO.
As a final note, notwithstanding Barma JA's view in this
decision on the interpretation of section 2(1) CO, his Lordship did
confirm that the result in respect of interim payment of fees in
Lehman Brothers Securities Asia Ltd (No.2)7 was
Please see our
legal update on this earlier decision regarding interim
1unreported,  CACV 251 and 252 of 2012, 2
2Ibid at §2.
3 1 HKLRD 58.
4Ibid at pp.68-70.
5 1 HKLRD 58.
6unreported,  CACV 251 and 252 of 2012, 2
March 2015, at §25, 28 & 29.
7 1 HKLRD 58.
8unreported,  CACV 251 and 252 of 2012, 2
March 2015, at §27.
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