Re Lehman Brothers Asia Holdings Ltd (in Liquidation)

HCCW 443/2008

[2022] HKCFI 178

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 443 OF 2008

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D E C I S I O N

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1.On 23 July 2021 I delivered my judgment in respect of the Liquidator’s application for the court’s sanction of a payment out of the assets of the Company with the agreement of its sole creditor, of a payment of US$2.9 billion by way of a bonus for the reasons explained in the decision. I agreed to sanction the payment subject to the Liquidators providing clarification of the matters referred to in [16] of the decision. This has now been provided. The Official Receiver has no objection to the way in which the sum will be distributed (in short it will be paid to KPMG Hong Kong to be distributed in accordance with their normal procedures for use and distribution of fees) and I will, therefore, sanction the payment.

2.The remaining matter is costs.  The material dispute is (a) whether or not the Official Receiver should pay a proportion (the Liquidators suggest 70%) of the Liquidator’s costs from 26 May 2020 and bears her own costs or (b) the Liquidators bear their own costs and the Official Receiver’s costs be paid out of the assets of the Company.

3.The incidence of the Official Receiver’s costs is, like costs generally, a matter for the discretion of the court.  As a general rule in cases in which the Official Receiver comes to court in the exercise of her statutory function, but the court finds against the position advanced by the Official Receiver the court does not make an adverse costs order against the Official Receiver absent some impropriety and commonly her costs are ordered to be paid out of the assets of the Company[1]. However, this is only a general rule and a number of authorities demonstrate that if the court takes the view that the character of the application involves the Official Receiver taking a position that can properly be characterised as adversarial the normal approach, costs follow the event, can be adopted[2].  I do not find in the authorities criteria, which are of general application in determining where the dividing line between the first and the second situation lies in any particular case.  It seems to me, however, that certain relevant distinctions between the two situations can be identified.  Applications which concern components of the liquidation process, which have an administrative character, for example an application for a regulating order, I would expect to fall normally into the first situation.  An application for disqualification as a director or liquidator[3] would probably fall into the second situation.  The position of the respondent is also relevant.  I think it can be fairly readily appreciated that there is a difference between the position of an individual who is the subject of a costly and unsuccessful attempt to disqualify him and creditors, who dispute successfully the Official Receiver’s proposal that a liquidation be conducted in accordance with section 227A of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32.

4.The present case falls somewhere in the middle.  The Liquidators needed to come to the court and their application is unusual.  I think it understandable that the Official Receiver was concerned to ensure that the correct principles were applied in determining it; indeed I expected the Official Receiver’s assistance in this regard.  On the other hand this was an application, which concerned the Liquidator’s remuneration and viewed from the Liquidator’s perspective the application concerned their personal financial interests rather than the general administration of the liquidation—if I had declined the application it would have made no difference to the collection in and distribution of the Company’s assets or the method by which the Liquidator’s remuneration was to be assessed, because the sole creditor had agreed a lump sum.  I was not concerned to determine whether or not what the sole creditor had apparently willingly agreed to pay was in some relevant sense reasonable or otherwise.  It seems to me that in the circumstances the appropriate course is for both parties to bear their own costs.  I order that there be no order as to the costs of the Liquidator’s application including the hearing on 6 January 2022.