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Following is a question by the Hon Tam Heung-man and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (April 26):
Question:
Regarding liquidators' professional liability system and service charges, will the Government inform this Council:
(a) whether it will consider reviewing the professional liability system for liquidators, so that in creditors' claims for compensation arising from liquidators' negligence, the liquidators are required to bear proportionate professional liability; if it will, of the details; if not, the reasons for that;
(b) whether it will consider establishing a more explicit system of liquidator charges to ensure that liquidators will have reasonable income; if it will, of the details; if not, the reasons for that; and
(c) whether it will step up the regulation of liquidators so as to maintain the quality of their professional services; if it will, of the details; if not, the reasons for that?
Reply:
Madam President,
To begin with, I would like to briefly explain the ways in which a company can be wound up under the Companies Ordinance (Cap. 32) (the Ordinance):
(a) compulsory winding-up;
(b) members' voluntary winding-up; and
(c) creditors' voluntary winding-up.
The appointment of a liquidator is governed by the provisions set out in the Ordinance. In a compulsory winding-up, the liquidator is appointed by the court. In a members' voluntary winding-up (where the relevant company is solvent), the liquidator is appointed by way of an ordinary resolution passed by the members of the company at a general meeting. In a creditors' voluntary winding-up (where the relevant company is insolvent), the liquidator is appointed by the majority in value of the company's creditors present and voting at a creditors' meeting.
I now turn to the question and reply in the same sequence:
(1) In a winding up, the liquidator is obliged to exercise his powers and discharge his duties in a manner commensurate with the requirements imposed by law. If there is negligence on the part of the liquidator in the administration of the case, he may be subject to claims by third parties such as creditors for compensation arising from the breach of duty. The level of compensation will be determined by the court in accordance with the long established legal principle that the full cost of any wrongdoing should be borne by the wrongdoer. We therefore do not see the need for a review of the professional liability system for liquidators.
(2) There are provisions in the Ordinance, which govern the remuneration of liquidators. In a compulsory winding-up, the liquidator's remuneration is determined either by his agreement with the committee of inspection (CI) (which can comprise both creditors and contributories) or, where no agreement can be reached between them or where there is no CI, the remuneration will be determined by the court. Usually, a liquidator's remuneration is charged on a time-cost basis.
Since late 2000, the Official Receiver's Office (ORO) has been outsourcing compulsory winding-up cases, where the value of assets is likely not to exceed $200,000, to qualified private sector insolvency practitioners (PIPs) selected through open tender exercises. Under the terms of the contract, where the assets are insufficient to pay part or all of the liquidator's remuneration, the government will pay the balance of the liquidator's remuneration up to the limit sought by the PIP in the tender bid.
In a members' voluntary winding-up, the liquidator's remuneration is usually determined by an ordinary resolution passed by members of the relevant company at the meeting appointing him. In a creditors' voluntary winding-up, the liquidator's remuneration is determined either by the CI or by the creditors (if there is no CI). In case of a dispute over the remuneration in either type of voluntary winding-up, a liquidator may apply to the court to resolve the dispute.
In essence, the remuneration of a liquidator in a winding-up is usually determined either with his agreement or by the court. Every PIP should thus assess the work required and calculate his anticipated remuneration before submitting a tender bid or accepting the appointment as liquidator. In case of a dispute over his remuneration, a liquidator may apply to the court to resolve the issue. Therefore, the present remuneration system is clear and that there is no need to change it at this time.
(3) There are clear and adequate statutory provisions on the monitoring of liquidators in a compulsory winding-up. Liquidators are required to submit their accounts to the Official Receiver (OR) for checking or auditing every six months. Upon receipt of a complaint about the liquidator's conduct, the OR can investigate and, where necessary, take action either by reporting the matter to the court or seeking the removal of the liquidator. Any creditor or contributory may also seek the court's direction if he is aggrieved by a liquidator's decision.
The ORO may also conduct field audits and visits to the PIPs to ensure compliance with the Ordinance. In the event of a PIP's substandard performance or professional misconduct, the OR may apply to court for an order to remove a liquidator appointed. Furthermore, creditors and the OR may also report liquidators' professional misconduct to the professional bodies.
There are also statutory provisions to monitor liquidators in both members' and creditors' voluntary winding-ups. The liquidators' accounts have to be audited unless decided otherwise by the relevant company in a members' voluntary winding-up or by the CI in a creditors' voluntary winding-up. If the winding-up continues for more than one year, the liquidator must call a general meeting of the company, and also a meeting of creditors in a creditors' voluntary winding-up to account for his acts and dealings and the conduct of the winding-up during that year. In addition, when the affairs of the company are fully wound up, a final meeting has to be conducted by the liquidator to lay before it an account of the winding up and to give any explanation thereof. For a members' voluntary winding-up, a liquidator may be removed by an ordinary resolution passed by the members at a general meeting. In both members' and creditors' voluntary winding-ups, the court may, on cause shown, remove the liquidator and appoint another to take his place. Any creditor or contributory in a voluntary winding-up may apply to the court to have any question determined and power exercised and in all modes of winding-up, they can seek damages against a delinquent liquidator.
There are already in place sufficient measures to maintain the quality of the professional services provided by liquidators.
Ends/Wednesday, April 26, 2006
Issued at HKT 12:36
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