Cash In Hand


Amid all the excitement about elected Legco members being denied their seats, unprecedented court action, Basic Law interpretation controversy et al, the decision by the Legislative Council to establish a Select Committee to look into the UGL affair may seem by contrast rather prosaic.

Yet the long term impact could turn out to be of great significance.

The facts as they have emerged in public so far are pretty straightforward: an Australian company called UGL bought the local arm of a property consulting firm called DTZ, which had become insolvent but had a recognised brand. Somehow in the process chief executive Leung Chun Ying, who had been a senior consultant at DTZ, emerged with a payment equivalent to $50 million, agreed before he became CE but paid to him afterwards.

Some have suggested the payment must have involved corruption, but the main subscribers to this view seem to be Jimmy Lai and hard core ABC advocates. I think we can leave this aspect in the capable hands of the Independent Commission Against Corruption, and put it on one side.

What interests me more are the political implications of the saga as it is investigated by the committee and the full story becomes more widely known.

Let us start with the payment itself. It was apparently (in the main) a standard non-compete clause, that is, Leung could not work in a rival firm after the takeover, or set up in the same industry on his own account, or poach staff from DTZ, for a given period of time. There were also some minor continuing obligations, for example giving advice, counselling senior staff to stay with the firm after the buyout, and so on.

The vast majority of Hong Kong people – something over 99 per cent – will not earn $50 million in the whole of their working lives. The idea that someone could be paid that much for not working will strike them as manifestly unjust. It will be an extremely powerful, and tangible, example of the inequality that exists in all societies but taken to the extreme here in Hong Kong.

Then there is the matter of other creditors of DTZ. Were they all paid off in full? If not, could or should part of the $50 million have gone to them instead? I am not talking legalities here – I am confident nothing unlawful took place – but public opinion will focus on what seems fair.

Then there is the tax issue. As Leung was paid a large sum of money, what tax obligation arose and where? Since the action, or non-action, was to take place here, was the sum treated as being Hong Kong income for an unincorporated business (clearly it was not salary) and taxed at 16.5 per cent? The Inland Revue Department will not tell the public or the committee, but the media and general public will want to know and the political pressure to come clean will be very strong. If a clever accountant found a legitimate way to avoid or minimise the tax, then money will have been saved, but at what political cost?

On taking up office, the chief executive must make a declaration of assets to the chief justice. At the time of making the declaration, Leung had yet to be paid the sum, but did he include it as an “account receivable” which in strict accounting terms it was? A layman might accept that only money in hand counted as an asset, but the professionals will argue otherwise.

Finally there is the matter of the continuing responsibilities. Once it became clear in March 2012 that Leung had won the election, did he revert to UGL and inform them that he would not be able to undertake these duties after 30 June? Did he offer a partial refund? Of course these are issues between the company and the individual but the committee may well ask.

It may not seem so from what I have written so far, but I have a sneaking sympathy for the chief executive in all this. These are essentially private matters. Seen from his perspective, he was an established professional highly regarded in his own field. He had built up many contacts and was well known. A non-compete clause is a standard condition of professional service buyouts of this kind. At the time of the agreement, he was not even a declared candidate for chief executive, and anyway another candidate was the overwhelming favourite for the position. Surely he should be entitled to some privacy in respect of his private life before he took up office?

But in fact the answer is no. Once you step into the political arena, every aspect of your life becomes a matter of public interest. Look at America, where Hillary Clinton has published 20 years of tax returns and Donald Trump has been pilloried for failing to do the same.

I am afraid once an individual enters politics, the name of the game is total transparency. Anything less invites suspicion and misunderstanding, and puts a powerful weapon in the hands of political foes.


 
Mike Rowse
email: mike@rowse.com.hk