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Fred Lee v Leung Chin Yeung

Judgment Cited authorities 12 Cited in Precedent Map Related
Vincent
Judgment Date09 January 2007
Year2007
Judgement NumberHCB8779/2002
Subject MatterBankruptcy Proceedings
CourtHigh Court (Hong Kong)
HCB8989/2002 FRED LEE v. LEUNG SUI SUM

HCB 8779/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 8779 OF 2002

____________

BETWEEN

　 FRED LEE, trustee of the property of LEUNG CHIN YEUNG, a bankrupt Applicant
　 and 　
　 LEUNG CHIN YEUNG Respondent

____________

HCB 8989/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 8989 OF 2002

____________

BETWEEN

　 FRED LEE, trustee of the property of LEUNG SUI SUM, a bankrupt Applicant
　 and 　
　 LEUNG SUI SUM Respondent

____________

HCB 9461/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 9461 OF 2002

____________

BETWEEN

　 FRED LEE, trustee of the property of LEE YUK MAN, a bankrupt Applicant
　 and 　
　 LEE YUK MAN Respondent

____________

Before: Hon Kwan J in Chambers

Date of Hearing: 20 December 2006

Date of Handing Down of Judgment: 9 January 2007

_________________

J U D G M E N T

_________________

The applications

1. I have before me three applications by consent in three bankruptcy proceedings. They were chosen as test cases and adjourned to me by Master Hui because an issue of jurisdiction is involved and how the issue is resolved may affect a number of similar cases which have been held in abeyance pending the outcome of this hearing.

2. According to the statistics provided by the Official Receiver, 25,328 bankruptcy orders were made in 2002 and 24,922 orders were made in 2003. Thus, in 2006 and 2007, by virtue of sections 30A(1) and (2) of the Bankruptcy Ordinance, Cap. 6, many of these bankrupts would be discharged from bankruptcy by the expiration of four years (or five years where a person has been previously adjudged bankrupt) from the date of the bankruptcy order. I shall refer to this mode of discharge as “automatic discharge”.

3. Where the trustee objects to automatic discharge on one or more of the grounds set out in section 30A(4), the court may make an order under section 30A(3) that the relevant period in section 30A(2) shall cease to run up to four years (or three years where a person has previously been adjudged bankrupt), thereby prolonging the overall duration of the bankruptcy to a maximum of eight years.

4. The issue involved in these applications is whether the court has jurisdiction under section 30A(9) of Cap. 6 to order that a bankrupt be discharged from bankruptcy subject to condition, where the trustee in bankruptcy has objected to automatic discharge of the bankrupt and later sought to withdraw his objection by a consent application upon agreeing terms with the bankrupt to continue to make contributions to his estate and pay the trustee’s costs in the application.

5. The trustee in bankruptcy in each case is Mr. Fred Lee, a partner of a firm of solicitors, Messrs. Lee & Chow. It has come to the knowledge of the Official Receiver that Mr. Lee has filed a considerable number of similar consent applications. There were 35 such consent summonses issued by him between June and August 2006. In an affirmation of Mr. Lee, he disclosed that he has been appointed trustee in bankruptcy in 360 cases from June 2002 to January 2003 and has applied to object to discharge in about 150 of them. The Official Receiver is concerned if the court has power to make the orders sought on the consent applications and even if the court does have power, whether it would be an abuse of process to seek a conditional discharge of the bankrupt in such circumstances and by such mechanism.

6. The trustee appeared by Mr. John Kerr of counsel in this hearing. Mr. Jeremy Bartlett appeared for the Official Receiver and Mr. Godfrey Lam appeared as the amicus curiae. I have been greatly assisted by the submissions of counsel.

The background to the applications

7. In each of the three cases, the trustee first issued a summons in July 2006 under section 30A(3) and rule 88 of the Bankruptcy Rules, seeking an order that the relevant period for the purposes of section 30A shall cease to run for such period as the court deems fit on one or some of the grounds as stated in section 30A(4).

8. In each case, the trustee objected to automatic discharge on the ground set out in section 30A(4)(d), namely, that the conduct of the bankrupt in respect of the period before the commencement of bankruptcy had been unsatisfactory. In HCB No. 8779 of 2002, the trustee also relied on section 30A(4)(d) on the ground of unsatisfactory conduct after the commencement of bankruptcy.

9. The creditors in each case were notified that the trustee intended to object to the automatic discharge of the bankrupt on the grounds specified. None of them had responded or expressed any intention to object to the discharge.

10. At the same time when the summons to object to automatic discharge was taken out, the trustee issued a summons for an interim order that time shall cease to run under section 30A pending the determination of the first mentioned summons.

11. Prior to the determination of the summons to object to discharge, the trustee and the bankrupt in each case entered into a consent summons, purportedly under section 30A(9) and the inherent jurisdiction of the court. Each consent summons provided for the automatic discharge of the bankrupt on the relevant statutory date but subject to these conditions:

(1) the bankrupts are to continue to make contribution to their bankruptcy estates after their discharge of a certain sum for a specified period. In HCB No. 8779 of 2002, the amount of contribution is $4,500.00 per month for 20 months; in HCB No. 8989 of 2002, it is $24,500.00 per month for 15 months; in HCB No. 9461 of 2002, it is $5,000.00 per month for 24 months;

(2) the bankrupts are to pay the trustee $30,000.00 as contribution to the costs of the application to object to their discharge; in two of the cases payment is by 12 monthly instalments, in the third case it is by 24 monthly instalments;

(3) the trustee would have leave to withdraw the application to object to automatic discharge; and

(4) there would be no order as to costs of the consent application.

12. On 18 August 2006, Master Hui made an interim order in each case as sought by the trustee and adjourned the application to object to discharge of the bankrupt and the consent application to a Judge for argument. Four issues were raised by the Master specifically:

(1) whether section 30A(9) is applicable in the light of the circumstances of these cases;

(2) whether the conduct of the bankrupt in each case in respect of the period before the commencement of the bankruptcy (obtaining credit when he should have known he would not be able to repay and misrepresentation of his financial position in the loan application) is unsatisfactory and warrants an order under section 30A(3);

(3) whether a single incident of non-compliance with the direction of the trustee in HCB No. 8779 of 2002 is unsatisfactory conduct after the commencement of the bankruptcy and warrants an order under section 30A(3); and

(4) whether it is appropriate for the trustee to instruct a firm of solicitors of which he is a partner to handle the applications to object to automatic discharge.

13. I will consider these issues in the order set out above.

Discharge from bankruptcy under the old regime

14. Before the extensive amendment of the Bankruptcy Ordinance in 1996 (which came into effect on 1 April 1998), there was no provision for the automatic discharge of a bankrupt. Although a bankrupt could apply for discharge at any time, the criteria were such that it made it extremely difficult for him to comply.

15. Under the old section 30(3) of the Ordinance, the court had various options on the hearing of a bankrupt’s application for his discharge. It could grant or refuse an absolute discharge, suspend the operation of the order for a specified time, or grant a discharge but subject to any conditions with respect to any earnings or income which might afterwards become due to the bankrupt or with respect to his after-acquired property.

16. Where the bankrupt had committed any indictable offence under the Ordinance or any other indictable offence connected with his bankruptcy or where any of the twelve facts mentioned in the old section 30(4) was proved, there would be no absolute discharge. Instead, the bankrupt would be dealt with in one of the four ways set out in the proviso to section 30(3), one of them being a conditional discharge from bankruptcy, by which he would be required to consent to judgment being entered against him for any balance or part of any balance of the debts provable under the bankruptcy which was not satisfied at the date of the discharge, such balance to be paid out of future earnings or after-acquired property in such manner and subject to such conditions as the court might direct.

17. The Official Receiver is not aware of any conditional discharge having been granted under the old regime.

Discharge from bankruptcy under the present legislation

18. The Law Reform Commission of Hong Kong published its report on bankruptcy in May 1995 (“LRC Report”) and made recommendations for substantial amendment to the law. The reforms introduced by the Bankruptcy (Amendment) Ordinance 1996 were largely based on these recommendations.

19. Automatic discharge from bankruptcy after a period of time is now provided for in section 30A(1). This was designed to shift the emphasis from discharge being a privilege to its being a right (LRC Report, para. 17.24).

20. At the same time, an objection system to automatic discharge was introduced, to provide the trustee and the court with the...

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