ARTICLE
15 March 2024

Court Slashes Receiver And Manager's Fees Of Over S$1,350,000 By Close To 47%; Orders Refund Of Over S$633,000 To Our Client

In Hang Huo Investment Pte Ltd v Wong Pheng Cheong Martin [2024] SGHC 32, the High Court found that the receiver and manager's fees of S$1,358,142.50...
Singapore Real Estate and Construction
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In Hang Huo Investment Pte Ltd v Wong Pheng Cheong Martin [2024] SGHC 32, the High Court found that the receiver and manager's fees of S$1,358,142.50 for work done in just 49 days were excessive, and discounted the fees by about 47%, ordering the R&M to account for the excess remuneration of S$633,142.50 as well as the GST paid on that amount.

This case sets out for the first time the court's interpretation of sections 78(2)(c) and 78(3) of the Insolvency, Restructuring and Dissolution Act 2018 (IRDA), including the requirement of "special circumstances" under section 78(3).

Under section 78(1)(a) of the IRDA, the court may, on the application of a company, fix the amount to be paid by way of remuneration to any person who has been appointed as receiver or manager of the property of the company.

Section 78(2)(a) extends this power to retrospectively fixing the remuneration for any period before the making of, or the application for, the order. In a case where the receiver or manager has already been paid for any period before the making of the order, section 78(2)(c) empowers the court to order the receiver and manager to account for the amount paid to them in excess of the remuneration fixed by the Court (Excess Fees). However, under section 78(3), such an order for an account cannot be made in respect of any period before the making of the application unless the court finds that there are special circumstances making it proper for the power to be so exercised.

Brief facts

Our client, the Applicant (HHI), owns Link Hotel Singapore and had mortgaged the property on which the hotel is sited along with the link bridge (Mortgaged Properties) to DBS Bank. HHI had also executed a debenture under which HHI charged in favour of DBS all its property, assets, undertakings and income (Charged Property).

On 11 April 2023, the R&M (Senior Managing Director at FTI Consulting (Singapore) Pte Ltd (FTI)) was appointed as the receiver of the Mortgaged Properties and the receiver and manager (R&M) of the Charged Properties. His main task was to organise a sale of the Mortgaged Properties by public tender, and he did not operate Link Hotel.

On 15 June 2023, HHI served a redemption notice on DBS. On 20 June 2023, HHI received the redemption statement including FTI's invoice stating that their professional fees were S$1,358,142.50. No breakdown was provided. HHI was informed that the R&M had intended to announce the accepted bid for the Mortgaged Properties imminently and the latest date to complete the redemption was 27 June 2023.

On 23 June 2023, HHI filed an Originating Application (OA) under section 78(1)(a) of the IRDA. This was served on the R&M in July 2023, after a breakdown of the R&M's fees was provided to HHI. On 26 June 2023, HHI made full payment of the amounts stated in the redemption statement and the R&M was removed and discharged from his appointments.

HHI's arguments

HHI took the position that it was not required to show special circumstances under section 78(3) of the IRDA as the OA was filed before it had paid the R&M's fees. In the alternative, special circumstances were present as:

  1. HHI could not jeopardise the redemption by querying or disputing the fees;
  2. no breakdown of the fees was provided at the time of payment; and
  3. the fees were prima facie excessive given that the receivership lasted only about 50 working days.

HHI also argued that the burden of proof is on the R&M to satisfy the court that his remuneration is justified.

R&M's arguments

The R&M raised four preliminary objections, and further submitted that HHI was required to show special circumstances under section 78(3), that the burden is not on the R&M to justify his fees since he was neither a court-appointed R&M nor the applicant in the OA, and that his fees were "fair, reasonable and proportionate" to the work carried out given the complexity of the receivership.

Holding of the High Court

The court dismissed all of the R&M's preliminary objections and held:

  1. The court cannot fix a receiver's remuneration under section 78(1)(a) of the IRDA if the receiver is appointed pursuant to sections 24(1) and 29(1) of the Conveyancing and Law of Property Act 1886 (CLPA) because section 29(6) of the CLPA provides for a receiver's commission. However, it may fix the R&M's remuneration as R&M of the Charged Property under section 78(1)(a) of the IRDA since this appointment was made by DBS pursuant to its right of appointment under the debenture which provides for the remuneration to be agreed between DBS and the R&M.
  2. The court may only order an account of the Excess Fees paid for work done before the application is filed if there are special circumstances making it proper to so order. The court interpreted the timeframe in section 78(3) of the IRDA as referring to the work period for which payment was made, and not when payment was made. This means that an applicant will always have to show special circumstances if they wish to seek a refund of Excess Fees paid for work done in the period before the application is filed, regardless of when payment of the fees was made.
  3. On what would constitute special circumstances, an inquiry similar to that under section 122 of the Legal Profession Act 1966 should apply to section 78(3) of the IRDA. The core question is whether it would be fair for the R&M to have to refund part of the fees he has been paid. The court agreed with us that there were special circumstances in the present case: (i) HHI was not approbating and reprobating by making payment of the FTI invoice and pursuing the OA; the invoice was paid after being presented in an opaque manner and in pressing circumstances, and (ii) the R&M's fees of S$1,358,142.50 were obviously excessive given that the nature of the matter and work undertaken by the R&M was not complex.
  4. The R&M bears the burden of justifying his remuneration because he owes a duty to account to HHI, arising from his appointment as agent of HHI under the debenture. Where private receivers are appointed as agents of the company, they (like receivers appointed by the court) also owe a similar duty to account to the company. Therefore, any doubts in relation to his remuneration would be resolved against him.
  5. As for the principles and approach the court will apply in determining the appropriate level of remuneration of insolvency practitioners (IP), the court considered three earlier cases and emphasised the following three points:
    1. the same principles apply to both court-and privately-appointed IPs where the court's determination of the appropriate level of remuneration is sought;
    2. the benchmark in the assessment process is fairness, reasonableness and proportionality; the remuneration awarded must be commensurate with the nature, complexity and extent of work which had to be undertaken; and
    3. the court need not accept what is submitted at face value but will carefully scrutinise the facts placed before it, in deciding what aspect of the remuneration claimed is reasonable or justifiable. The court's inquiry is not limited only to matters over which queries have been raised.
  6. The court discounted almost 47% of the R&M's billed professional fees:
    1. First, the court deducted an amount of S$145,395.50 from the fees of S$1,358,142.50 for the following reasons: (i) performance of administrative tasks, (ii) duplication of work, and (iii) duplication of legal work on the R&M's part as HHI had separately paid S$253,592.31 to the lawyers for DBS and the R&M.
    2. After deducting the sum of S$145,395.50, the court applied a further broad-brush deduction of about 40% and fixed the remuneration awarded at S$725,000. Amongst others, the court noted that (i) the nature of the matter and work undertaken was not complex, (ii) staffing of the matter with four persons charging above or close to S$1,000 per hour (the R&M himself charged an hourly rate of S$1,400) was disproportionate to the nature of the matter and work involved, (iii) there was "a not insignificant degree of overmanning and overservicing in the matter", and (iv) several billed items lacked justification notwithstanding the R&M's burden to justify his fees.

Key takeaways

For companies under receivership and management:

  • If they wish to seek taxation of the R&M's fees for work done in the period before the application is filed, they should, as far as practicable, hold back on making payment of the R&M's fees until the court has fixed the remuneration for this period, otherwise special circumstances must be shown before the court will order a clawback of any excess fees paid.
  • If, for any reason, payment has to be made before the application can be filed or determined by the court, as far as practicable, they should expressly reserve the right to seek taxation of the R&M's fees, and if special circumstances are present, to file the application at the earliest juncture.

For R&Ms:

The burden of proof lies on them to justify their fees and the fees charged should be reasonable and proportionate to the nature, complexity and work undertaken. R&Ms should not charge for purely administrative tasks and should be cautious not to overstaff/overservice a matter. If the court taxes their invoice, they should ensure that all the relevant documents/information evidencing the work done is presented to the court for consideration.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
15 March 2024

Court Slashes Receiver And Manager's Fees Of Over S$1,350,000 By Close To 47%; Orders Refund Of Over S$633,000 To Our Client

Singapore Real Estate and Construction

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