Bankruptcy – Adjustment of Priority of Creditors’ Costs

The question recently arose in Hong Kong whether a creditor, who has taken action prior to the start of a bankruptcy and whose actions have resulted in the preservation of assets for the general body of creditors, should be able to receive any priority in respect of the costs they have incurred.

Strictly there is a priority of costs set down in the Section 37 of the Bankruptcy Ordinance, but at the same time the section gives the Court quite wide latitude in  adjusting the priorities, depending on the circumstances.

In this case the Court took the view that the costs incurred by this creditor had resulted in the preservation of some of the bankrupt’s assets, thus benefiting the creditors as a whole, and accordingly adjusted the priorities in favour of the creditor.

The Court granted the creditor the same priority as that afforded to the costs of the solicitors to the petitioning creditor. The effect, in this case, appears to be that they will get their costs paid in full rather than adding their costs to their claim against the bankrupt and only receiving a dividend.

The suggestion has been made that this might also be applicable to corporate insolvencies, although the differences in wording of the companies winding-up regime seem to mean that the hurdles may be greater than in a bankruptcy.