Money Matters | Leung the politician needs to explain arrangement with UGL

Businessmen have a very different mindset from politicians. Which is why many of them are finding it difficult to understand the criticism directed at Chief Executive Leung Chun-ying for taking HK$50 million from an Australian firm. To them, the deal is only a "skilfully crafted" arrangement by Leung the businessman, well within legal bounds. Whether that description applies to Leung the politician is another matter. Let's focus on Leung the businessman first. The deal took place amid Australian engineering and property services company UGL's talks with its debt-ridden British peer DTZ Holdings to buy its business. Under the arrangement, UGL paid Leung - a director and the Asia-Pacific chairman of DTZ - an agreed sum for not forming or joining a rival firm, and to promote UGL and support the acquisition. He would be paid only when UGL got DTZ. The first criticism against Leung is that he should have disclosed the deal to the board of DTZ instead of keeping it a secret. Laws in Britain, where DTZ was listed, require directors to disclose conflicts of interest. Leung's defence would be that he was no longer a director of DTZ when he signed the deal with UGL. The fact is that Leung had resigned from both DTZ jobs on November 24, 2011. He left the board immediately but his resignation from the Asia-Pacific chairmanship was to be effective from January 2012. It is difficult to point to any rules that Leung the smart executive breached at the time he cut the deal So when he sealed the deal with UGL on December 2, he was not under any obligation as a director to disclose. That also means Leung did not take part in the DTZ board's decision two days later in getting an administrator to sell its business while knowing that UGL would be the sole buyer. That protected him from any conflict of interest issue. The second criticism is that he has short-changed shareholders and creditors. The argument is that if the latter knew the amount Leung was being paid, they would have considered whether they should be paid more. But this is not exactly applicable in the case of the DTZ sale. Shareholders and unsecured creditors did not have a say in the sale anyway. That is because DTZ did not go for an ordinary liquidation. Instead, its prime business was sold under the so-called pre-package insolvency. In a "pre-pack", the sale of a firm's assets is negotiated with a buyer before the appointment of an administrator, and the administrator executes the sale immediately on, or shortly after, its appointment. DTZ made UGL its preferred bidder on October 3, 2011. On December 4, 2011, the court appointed Ernst & Young the administrator, which immediately sold the asset to UGL and applied for DTZ's delisting the next day. By the time shareholders and unsecured creditors got the news, it was all done. Knowledge of the sum paid to Leung would not have helped them in any way. Secured creditors, mainly the banks, have a say in such deals as they control the pledged asset. E&Y, which represented the banks in this case, said it expected UGL to "seek to enter into arrangements to secure key personnel" because DTZ's people were being actively targeted by competitors. Noting that it has no detailed knowledge of any of the arrangements, the administrator said the £77.5 million (HK$964.6 million) offer by UGL "was the most attractive of the offers received and the only one capable of completion". The problem with this type of non-transparent pre-pack is obvious. That is why the British authorities introduced a new guideline last year that demands the administrators disclose the interests of directors and the management in an asset sale. But by then, too, Leung's arrangement with UGL was already history. In short, it is difficult to point to any business or corporate governance rules that Leung the smart executive breached at the time he cut the deal. There are other questions, though. Shouldn't someone vying for the top job in the Hong Kong government have appeared cleaner than clean by disclosing the UGL arrangement? Should a Chief Executive of Hong Kong have terminated the business deal instead of accepting the second tranche of UGL payment a year into his office? These are valid queries for Leung the politician. shirley.yam@scmp.com

.css-1m2rp1p{color:#34b8b5;}Money Matters | Leung the politician needs to explain arrangement with UGL

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}As a businessman, the Chief Executive is under no obligation to disclose deal with Australian property services company over sale of DTZ

Money Matters | Leung the politician needs to explain arrangement with UGL

As a businessman, the Chief Executive is under no obligation to disclose deal with Australian property services company over sale of DTZ