Approval of Liquidators' Fees - BVI Court Provides New Guidance
The liquidation of Titan Group Investment Limited ("Titan") was one of the most substantial and complex of recent years in the British Virgin Islands ("BVI"). It has now given rise to a significant decision of the BVI Commercial Court relating to the approval of liquidators' remuneration, which is of particular importance in relation to the many BVI liquidations which have a Hong Kong connection.
Titan was the holding company for a group of companies which operated the largest onshore petrochemical storage plants in the PRC. A joint venture between private equity giant Warburg Pincus and a Hong Kong stock exchange listed company, Titan Oil Storage Investment Limited ("TOSIL"), Titan was placed into liquidation by order of the BVI Court in July 2012. Experienced insolvency practitioners from KPMG in the BVI and Hong Kong were appointed as liquidators. Unusually, a fourth "non-executive" liquidator was also appointed, from Zolfo Cooper. Maples and Calder in the BVI and Hong Kong acted for the liquidators.
Pre-liquidation outcome estimates were that creditors might recover zero to 13 cents on the dollar. However the liquidation was extremely successful, and, in the face of severe operational problems, the liquidators were able to stabilise and sell the business, achieving a 100% return for creditors.
There being no creditors' committee, the liquidators were required to apply to the BVI Court for approval of their remuneration, pursuant to section 430 of the BVI Insolvency Act, 2003 (the "Act").
TOSIL (which had been a principal creditor of Titan as well as a shareholder) unsuccessfully opposed the application. Part of that opposition was based on assertions that some of the remuneration sought was excessive. That criticism was rejected by the Commercial Court Judge, the Honourable Mr Justice Edward Bannister QC.
A more technical element of the opposition was based on the significant Hong Kong element of the liquidation. Specifically, TOSIL argued that the remuneration of the liquidators appointed in Hong Kong should be assessable by reference to the standards that would apply to the liquidation in Hong Kong of a Hong Kong company. TOSIL further argued that this would result in a very considerable discount having to be applied to the Hong Kong appointees' fees, on the basis that the scale rates, which TOSIL said would be applicable in a Hong Kong liquidation, were considerably lower than the rates actually charged.
The Judge rejected TOSIL's arguments. He did not accept TOSIL's evidence as to the Hong Kong practice, but in any event he declined to (effectively) apply Hong Kong law to the Hong Kong appointees' fees. The Judge accepted that higher market rates would apply in Hong Kong than would apply to local BVI appointees and considered that the Hong Kong appointees' hourly rates were fair and reasonable. In light of the various criteria listed in the Act to which the Court must or may have regard to in determining the amount of remuneration, the Judge approved the liquidators' fees (with two de minimis exceptions).
The Judge also rejected TOSIL's argument that the liquidators' Hong Kong lawyers' fees should be taxed on a party and party basis, as TOSIL argued that they would be in a Hong Kong liquidation. The Judge found that (i) the liquidators obtained advice for the purposes of a BVI winding up, such that this was not the appropriate test; (ii) the liquidators were the legal advisers' clients and negotiated what they thought were appropriate rates and paid for what they thought was appropriate advice; and (iii) liquidators are entitled to recover properly incurred charges by service providers for work done, unless the charge is manifestly excessive.