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PwC, 2 law firms could earn S$17m from Hin Leong's rescue bid

PwC, 2 law firms could earn S$17m from Hin Leong's rescue bid

Source: Business Times
Article Date: 24 Sep 2020
Author: Anita Gabriel

PwC and legal firms Rajah & Tann and Drew & Napier could pocket up to S$17.3 million in fees from the court-supervised bid to rescue debt-hit Hin Leong Trading (HLT), say court documents.

PricewaterhouseCoopers (PwC) and legal firms Rajah & Tann and Drew & Napier could pocket up to S$17.3 million in fees from the court-supervised bid to rescue debt-hit Hin Leong Trading (HLT), say court documents.

Some insolvency players say the sum (including actual and projected fees) is a sweet one for just over nine months of work on the case involving Singapore's largest oil trader, which has been brought to its knees by an oil slump and fraud allegations.

Of the S$17.3 million, more than half - S$10 million - is charged to PwC Advisory Services, whose executives Goh Thien Phong and Chan Kheng Tek were appointed by the Singapore High Court as interim judicial managers in April, and as judicial managers (JMs) last month.

Law firm Rajah & Tann's fees over the same period could work up to S$3.8 million, while Drew & Napier, the solicitors for the JMs and for the informal steering committee, could earn an estimated S$3.1 million.

These details, including the breakdown of costs incurred during the IJM period (April 27 to Aug 6, 2020) and those projected for the JM duration (Aug 7, 2020 to Feb 3, 2021) were provided by PwC's Mr Goh through court documents seen by The Business Times. This cost schedule is available to creditors upon request.

Over a little more than the three months of the IJM period, the total fees came up to around S$8.06 million, of which S$5.01 million was for work done by PwC; Rajah & Tann and Drew & Napier's charges were an estimated S$2.25 million and S$800,000 respectively.

The JMs have not entered into any special fee arrangements, such as a "value-added fee" (VAF) as happened in the case of The Royal Bank of Scotland vs TT International (TTI), noted Mr Goh.

(Faced with financial woes during the 2008 global financial crisis, mainboard-listed TTI had then hired nTan Corporate Advisory as financial advisor for a debt workout, and inked a success fee arrangement, which essentially included a VAF. That arrangement was, however, not disclosed to creditors before they voted on the scheme.)

In setting out the projections based on a time-based costing method, Mr Goh in his affidavit cited the complexity of HLT's case, given the allegations of fraud and misconduct and various other legal proceedings involving the firm.

In fact, more than half the actual and projected time costs are for investigations into irregularities in the company's affairs, the court document revealed.

Mr Goh added that the projections may need to be revised if matters become more complex, or if the proceedings are protracted.

HLT, which has buckled under a US$3.5 billion debt pile, had a cash balance of some US$38 million as at June 22, 2020, said the interim judicial manager's report issued in June.

Last month, the JMs filed a suit against HLT founder, tycoon Mr Lim Oon Kuin, better known as O. K. Lim, his son Evan Lim Chee Meng and his daughter Lim Huey Ching for US$3.5 billion. The trio are alleged to have breached their fiduciary duties as directors and engaged in fraudulent trading. The court-appointed managers from PwC are also seeking to claw back another US$90 million in dividends that the Lim family paid to themselves from out of Hin Leong's profits in previous years.

While HLT can hardly be deemed a straightforward insolvency case given its scale, the lucrative professional fees could make PwC and the law firms the envy among their rivals. The Singapore's insolvency circuit is seeing an uptick in insolvency and restructuring activities on the back of rising distress among businesses hit hard by the Covid-19 pandemic.

One insolvency practitioner said: "It's a big sum and may be shocking to the man on the street. But to me, it's not, especially if it involves a sizeable and complex firm.

"The fees charged need to be supportable, as they will be scrutinised by the court. Every single hour has to be well spent and it will be shown in the itemised invoice."

While it may be more constructive for a restructuring to be led by an independent judicial manager than by a company's existing management (which may well have been responsible for its collapse), the notion that JM-led firms face dim recovery prospects could train the spotlight on the fees charged by practitioners - especially in the current weak environment.

For example, offshore and marine firm Swiber Holdings has been under JM for more than two years - the JM period was extended in June to end-2020 - and the professional cost to date has surpassed S$50 million. The fates of its peers in the same sector which are under JM (Swissco Holdings and Ezra Holdings) also remain uncertain.

High professional advisor fees have also emerged as a bone of contention in the high-profile restructuring of ailing water-treatment firm Hyflux, now facing JM after protracted rescue efforts.

One seasoned restructuring expert said: "The question that needs to be asked is this: 'What will be left for creditors and/or shareholders of some insolvent firms, given the current state of affairs after the professional fees are paid?"

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.

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