News on 15 June 2000

June 15, 2000

HEADLINE: Transparency to come at a price Billing scrutiny proposal to hit creditors in pocket as practitioners clock in every six minutes

Liquidation fees would be driven up under a proposal by a government-appointed think-tank to make insolvency practitioners account for every six minutes of their work.

The tighter billing scrutiny is designed to make the system more transparent, but will ultimately hit creditors in the pocket.

A working group was appointed by the Official Receiver last year to consider an overhaul of the remuneration process amid mounting judicial and political concern over liquidators' fees.

The think-tank headed by the Official Receiver himself includes members of Big Five accountancy firms, the Hong Kong Society of Accountants and representatives from the Law Society.

It has drawn up a recommendation that insolvency practitioners stick to the time-cost formula of calculating fees but make it more detailed.

However, the amount of time required by accountants to fill in time sheets and the sheer volume of the paperwork involved will inevitably push up fees charged.

"Better-formulated billing, at the end of the day, is going to lead to more time being spent and more cost," acting Official Receiver Eammon O'Connell said yesterday.

"It's not an easy question to resolve."

However, it is hoped the system will appease the courts.

Companies judge Mrs Justice Doreen Le Pichon has been particularly critical of costly cases such as the HK$ 76 million liquidation of investment bank Peregrine Investment Holdings.

The judge last year ruled that an independent expert be enlisted to scrutinise the fees charged by PricewaterhouseCoopers (PWC) for 63 days' work. An appointment has yet to be made.

Working party member Chris Barlow, a partner at PWC, explained that the profession was faced with a situation where the courts and the Official Receiver needed to be satisfied that the process of calculating fees was acceptable.

"People must recognise there is a cost, and it's the price of transparency," he said.

"Clearly there is a political will and desire for this to happen - which is clearly understandable. Not unnaturally, it involves a lot more work, inevitably at some extra cost."

Large liquidations - such as Peregrine - can involve 40 to 50 practitioners working on the job at any given time, and the process can take years.

Under the proposals, the practitioners would describe what they are doing every six minutes of the day, even if they are doing nothing.

PWC has already adopted the practice.

"It's very rigorous," Mr Barlow stressed.

When the liquidator's bill is finally put together, it involves several hundred pieces of paper.

The usual practice would have been for a breakdown of the hours spent on a liquidation to be given to a committee of inspection every few months, depending on when it met.

There would be categories showing the different aspects of work, and how each hour was accounted for.

Other methods of calculating fees considered by the working party included charging on a percentage basis.

Although there were benefits, Mr O'Connell said, the scheme was rejected. If an estate had little or no assets, the percentage would be nothing.

Conversely, if the assets involved ran to the billions, this could also be seen to be unreasonable if liquidators charged on a percentage basis.

The period for comments ended yesterday and the think-tank will meet again soon before releasing a final draft in August.