IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
BANKRUPTCY PROCEEDINGS NO 3819 OF 2011
|RE: HO YUK WAH DAVID (“the Bankrupt”)
||Ip Pui Lam Arthur
||Ip Pui Sum
||(Joint and Several Trustees in bankruptcy)
||Alan Chung Wah Tang and Alison Wong Lee Fung Ying, the Joint and Several Liquidators of CWT Textile Supplies Company Limited (in creditors’ voluntary liquidation)
||JBPB & Co (formerly known as Grant Thornton)
|Before: Hon To J in Chambers
|Date of Hearing: 24 June 2014
|Date of Decision: 18 March 2015
D E C I S I O N
1. This is an application for enforcement of a discovery order and for a fresh discovery order, pursuant respectively to Order 45, rule 7 of the Rules of the High Court (“RHC”) and section 29 of the Bankruptcy Ordinance.
2. On 2 August 2011, a bankruptcy order was made upon the bankrupt (the “Bankrupt”) on his own petition. In a general meeting of creditors held on 30 September 2011, the Applicants were appointed the joint and several trustees in bankruptcy of the Bankrupt (the “Trustees”).
3. The 1st Respondents, Alan Chung Wah Tang (“Tang”) and Alison Wong Lee Fung Ying (“Wong”) are the joint and several liquidators of CWT Textile Supplies Company Limited (in creditors’ voluntary liquidation) (“CWT”). At the time, they were partners of an accounting firm known as JBPB & Co (“JBPB”), formerly known as Grant Thornton. JBPB is the 2nd Respondent herein. Subsequently, JBPB had a split into two camps consisting of Tang and Wong (the “minority partners”) in one camp and the other ten partners (the “majority partners”) in another camp. The 2nd Respondent is now represented by its majority partners (the “majority partners”).
4. The Bankrupt declared negligible assets. To investigate the financial affairs of the Bankrupt, the Trustees successfully obtained a number of disclosure orders against third parties pursuant to section 29 of the Bankruptcy Ordinance. As result of the investigation, the Trustees believe that the Bankrupt has been operating a complex scheme using about 30 offshore companies and nominees to conceal his assets; carry on his business ventures and litigations; and pay his personal and family expenses. The investigation also revealed that through those offshore companies and his family members the Bankrupt had diverted significant amount of funds out of reach of his creditors.
5. On 1 November 2013, upon the joint application and by consent of the Trustees and the 1st Respondents, in their capacity as liquidators of CWT, Deputy High Court Judge Le Pichon made an order pursuant to section 29 of the Bankruptcy Ordinance (“R1’s Order”). Under paragraph 1 of the R1’s Order, Tang and Wong are required to produce certain documents set out in a schedule attached to the order, or if those documents are no longer in their possession, custody and/or power, to make an affirmation under paragraph 2 of the order. At the time, the 1st Respondents were represented by Messrs Cheng Yeung & Co (“CY”).
6. Similarly, on 5 November 2013, upon the joint application and by consent of the Trustees and the majority shareholders of JBPB, who were then represented by Messrs Chiu, Szeto & Cheng (“CSC”),Deputy High Court Judge Le Pichon made an order requiring JBPB, under paragraph 1 of the order, to produce certain other documents set out in the schedule attached to that order or under paragraph 2 to make an affirmation if those documents are no longer in their possession, custody and/or power (“R2’s Order”). The 1st Respondents dispute that they are bound by the R2’s Order which was made by the consent and instructions of the majority partners of JBPB. They also deny CSC had authority to represent them in that application.
7. On 2 December 2013, in purported compliance with the R1’s Order, the 1st Respondents served a copy of a consultancy agreement between 1st Respondents and Topmark Asia Ltd (“Topmark Asia”) and a funding agreement between the 1st Respondent and Sun Ascent International Limited (“Sun Ascent”) (collectively, the “CWT Agree-ments”). Thereafter, they refused the Trustees’ request for production of other documents required to be produced under the R1’s Order.
8. The CWT Agreements show that the 1st Respondents secured funding from Sun Ascent to sue CWT’s former auditors for professional negligence and with consultancy services agreed to be provided by Topmark Asia to the 1st Respondents. The litigation was settled and the 1st Respondents were paid a settlement sum, a significant part of which was paid to Topmark Asia and Sun Ascent, pursuant to the CWT Agreements. The Trustees believe that the CWT litigation was one of the Bankrupt’s investments in distress assets with himself being the person behind Sun Ascent funding the litigation and Topmark Asia pocketing on his behalf the proceeds of that successful investment.
9. Pursuant to the R2’s Order, the majority partners of JBPB produced some documents and filed an affirmation saying that they do not have any other documents specified in that order and that those documents, if they existed, were in the possession, custody and control of the 1st Respondents who were the partners responsible for handling the matters to which those documents related.
10. Hence, on 7 February 2014 the Trustees took out the present summons seeking:
(1) an order pursuant to Order 45, rule 7 of the RHC that Tang and Wong, in their capacity as the joint and several liquidators of CWT, to comply with paragraphs 1 and 2 of the R1’s Order within 14 days (the “R1’s Enforcement Order”);
(2) an order pursuant to section 29 of the Bankruptcy Ordinance that Tang and Wong, in their capacity as partners of JBPB, to produce certain documents set out in the schedule (which is the same schedule as the one in the R2’s Order) or to make an affirmation if those documents are no longer in their possession, custody and/or power (“R2’s Fresh Order”);
(3) an order that penal notice be indorsed on the order to be made (“Penal Notice Order”); and
At the hearing, Mr Yu, counsel for the Trustees, asks for personal service of the order to be made be dispensed with.
Legal principlesapplicable to an application under Section 29 of the Bankruptcy Ordinance
11. The legal issue at the heart of this application is what documents are discoverable by a trustee in bankruptcy under section 29 of the Bankruptcy Ordinance. In Re Lee Priscilla Hwang (bankrupt), Recorder Anderson Chow SC, as he then was, answered that question by making reference to discovery under the statutory regime in company insolvency under the Companies Ordinance for which there is a Court of Final Appeal authority: see Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd. I agree entirely with that approach and the conclusion he reached.
12. The functions of a trustee in bankruptcy and those of a liquidator in the company insolvency context are essentially similar in nature: ie to put the affairs of the bankrupt or the insolvent company in order and to administer his or its affairs in all their various aspects, including the getting in of any of his or its assets to pay creditors. For that purpose, the court is given very wide power under the Bankruptcy Ordinance and the Companies Ordinance to secure production of information and documents from third parties so as to enable the trustee or the liquidator to discover the truth and circumstances connected with and to gather information about the assets, affairs and dealings of the bankrupt or insolvent company as effectively as possible, and with as little expense as possible, to complete those functions.
13. The court’s power to order discovery is derived from section 29(1) of the Bankruptcy Ordinance in the case of personal bankruptcy and from section 221(1) and (3) of the Companies Ordinance in the case of company insolvency. Section 29(1) of the Bankruptcy Ordinance provides as follows:
“The court may, on the application of the Official Receiver or trustee, at any time after a bankruptcy order has been made against a bankrupt summon before it the bankrupt or his spouse, or any person known or suspected to have in his possession any of the estate or effects belonging to the bankrupt or supposed to be indebted to the bankrupt, or any person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property, and the court may require any such person to produce any documents in his custody or power relating to the bankrupt, his dealings or property.”
These provisions are essentially similar to those in section 221(1) and (3) of the Companies Ordinance, which reads:
“(1) The court may, at any time after the appointment of a provisional liquidator or the making of a winding-up order, summon before it any officer of the company or person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or any person whom the court deems capable of giving information concerning the promotion, formation, trade, dealings, affairs, or property of the company.
(3) The court may require him to produce any books and papers in his custody or power relating to the company …”
14. The court’s power to order discovery under these two sections is discretionary. These two sections serve the same purpose of arming the trustee or the liquidator as officers of the court with the necessary powers to investigate the affairs of the bankrupt or the insolvent company. A trustee in relation to the bankrupt is in the same position as a liquidator in an insolvent company. He is a stranger to...