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HCB 1201/1998
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
BANKRUPTCYPROCEEDINGS NO. 1201 OF 1998
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Before: Hon Kwan J in Chambers
Date of Hearing: 15 July 2008
Dates of Further Written Submissions: 16 and 17 July 2008
Date of Handing Down of Decision: 23 July 2008
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D E C I S I O N
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The application
1. This is an application for directions of the Official Receiver and trustee of the property of Ng Shiu Fan, a former bankrupt. The summons was issued on 19 April 2007 pursuant to sections 82(3) and 97 of the Bankruptcy Ordinance, Cap. 6 and rule 158 of the Bankruptcy Rules. The Official Receiver seeks directions on the following questions:
(1) whether the entitlement of Mr. Ng under the Subsidized School Provident Fund Rules, Cap. 279D (“the Benefits” and “the Rules” respectively) formed part of his estate under sections 43 and 2 of Cap. 6 and vested in the Official Receiver and trustee pursuant to section 58 of Cap. 6;
(2) whether on Mr. Ng’s automatic discharge from bankruptcy the Benefits remained vested in the Official Receiver and trustee;
(3) whether section 85(3) of the Education Ordinance, Cap. 279 prevents the Benefits from automatic statutory vesting in the Official Receiver and trustee;
(4) whether the Official Receiver and trustee is entitled to all payments due under the Rules which would otherwise be due to Mr. Ng; and
(5) whether Mr. Ng is entitled to claim any proportion of the Benefits attributable to his service and contribution after bankruptcy or his discharge from bankruptcy.
2. These questions are of general importance as there are a number of similar cases in which the same issues arise and they have not been considered by the Hong Kong courts[1]. Mr. Ng has obtained legal aid for this application.
The underlying facts
3. Mr. Ng presented a petition for his own bankruptcy on 3 November 1998. A bankruptcy order was made against him on 23 December 1998. At a general meeting of creditors on 1 February 1999, the Official Receiver was appointed his trustee in bankruptcy without a creditors’ committee. On 23 December 2002, Mr. Ng was discharged from bankruptcy automatically pursuant to section 30A(1) of Cap. 6.
4. Nine proofs of debt were received, claiming a total sum of $1,931,134.35. Excluding the Benefits under the Rules, assets of $9,292.32 were recovered in the estate. During his bankruptcy, Mr. Ng made monthly contribution to the estate. His total contributions amounted to $145,376.25. On 2 July 2002, a dividend of 4.601% was declared and on 21 April 2005 a dividend of 1.206% was declared.
5. Mr. Ng was employed as a teacher in a subsidized school on 2 September 1977. Since June 1998, he was employed as a librarian in the same school until his employment was terminated on his retirement on 31 August 2005. During his 28 years of service, he was a contributor to a provident fund (“the Fund”) controlled by a board established under the Rules. At all material times, Mr. Ng was the sole supporter of his family as a single parent.
6. The Rules came into operation in 1961. Save for exceptions which are immaterial for present purpose, every teacher in a subsidized school is required to contribute to the Fund (rule 7(1) of the Rules) at the rate of 5% of the basic salary (rule 8(1)). Contributions are deducted from each contributor’s salary monthly by the management authority of the school (rule 8(2)). For each contribution made by a contributor, the Hong Kong Government pays to the Fund a sum referred to in the Rules as a Government donation, varying from 5% to 15% depending on the length of continuous service of the contributor and such donation is credited to the contributor’s account (rules 9(1), (2) and (3)). In the case of Mr. Ng, his account consisted of his contributions, Government donations, and dividends or interest accruing from investments or deposits of the accumulated capital of the Fund.
7. Under rule 13, whenever a contributor ceases to be employed as a teacher in a subsidized school for any of the specified reasons, including retirement, his account shall be closed and the amount standing to the credit of his account at the date of cessation of employment, including all Government donations and all dividends that have been declared up to and including that date, shall be paid to him or his personal representative. This is the entitlement mentioned earlier as the Benefits.
8. As contribution to the Fund is mandatory and Mr. Ng had continued in his employment in a subsidized school, he continued to make contribution under the Rules after the commencement of bankruptcy (being the date of his bankruptcy order as provided in section 30 of Cap. 6) up to the cessation of his employment.
9. A summary of the Benefits payable to Mr. Ng as at 23 December 1998 (the date of the bankruptcy order), 23 December 2002 (the date of his discharge from bankruptcy) and 31 August 2005 (the date of his cessation of employment) is set out in the table below:
| 23/12/98 |
23/12/02 |
31/8/05 |
| Contributions of Mr. Ng |
$246,645.82 |
$295,320.68 |
| Government donations |
$626,313.44 |
$772,338.03 |
| Dividends |
$1,097,546.76 |
$1,392,145.68 |
| Total entitlement |
$1,285,785.35 |
$1,970,506.02 |
$2,459,804.39 |
10. By a letter of 12 January 1999 from the Official Receiver, the Director of Education was informed that the Benefits payable to Mr. Ng vested in the Official Receiver under section 58 of Cap. 6 and the sum should be paid to the Official Receiver when due to be payable under rule 13 of the Rules. On 16 January 1999, an insolvency officer of the Official Receiver explained to Mr. Ng that on the legal advice received by the Official Receiver, the Benefits when due to be paid should be paid to the Official Receiver as they formed part of his estate. Thus, within a month of the commencement of bankruptcy, the claim was made by the Official Receiver and notified to Mr. Ng.
11. In response, Mr. Ng wrote to the Official Receiver on 21 January 1999 asserting that the Benefits did not form part of his estate relying on section 85 of Cap. 279. The Official Receiver rejected his contention in a letter in Chinese dated 29 January 1999, referring him to sections 2, 43 and 58 of Cap. 6. At the general meeting of creditors held on 1 February 1999 chaired by a senior insolvency officer, it was announced to the creditors that potential assets included the provident fund of $1,189,362.13 as at 31 December 1998 (a date after the bankruptcy order) and that the Official Receiver had written to the Education Department concerning the remittance of the said provident fund to the Official Receiver when the fund became payable to Mr. Ng. Mr. Ng informed the meeting the provident fund should not be applied to repay his liabilities and reiterated his objection to the remittance of the provident fund to the trustee.
12. On 26 May 2005, Mr. Ng submitted an application to the Education and Manpower Bureau for the withdrawal of the Benefits. The Official Receiver was informed of this by the Permanent Secretary for Education and Manpower in June 2005. On 7 October 2005, Mr. Ng was notified by the Permanent Secretary that $2,342,670.85, being payment of the Benefits accrued to his account at the date of cessation of employment, would be paid to the Official Receiver. Mr. Ng sought a refund of the amount from the Official Receiver in November 2005. In April 2006, the Official Receiver received from the Permanent Secretary $117,133.54, being dividend for the year ended 31 August 2005 and Mr. Ng was duly notified of this by the Permanent Secretary. The total amount of the Benefits received by the Official Receiver came up to $2,459,804.39.
If the Benefits formed part of the estate, in the absence of non-alienation provision
13. The starting point is whether the Benefits formed part of Mr. Ng’s estate, without taking into consideration for the time being section 85(3) of Cap. 279. Mr. Bernard Man, who appeared for the Official Receiver, and Mr. Jason Wong, who appeared for Mr. Ng, are in agreement that the answer is in the affirmative.
14. The relevant provisions in Cap. 6 are as follows.
15. Section 43(1) provides for the definition of the bankrupt’s estate. The relevant part reads: “Subject to this section and sections 43A to 43E, a bankrupt’s estate comprises – (a) all property belonging to or vested in the bankrupt at the commencement of the bankruptcy”. The term “property”, for the purpose of Cap. 6, is defined in section 2 to include “things in action … present or future, vested or contingent, arising out of or incident to property as above defined”. Further, section 43(4) stipulates that “references in this Ordinance to property, in relation to a bankrupt, include references to any power exercisable by him over or in respect of property …; and a power exercisable over or in respect of property is deemed to vest in the person entitled to exercise it at the time of the transaction or event by virtue of which it is exercisable by that person (whether or not it becomes so exercisable at that time).” Under section 53(4), “where any part of the property of the bankrupt consists of things in action, such things shall be deemed to have been duly assigned to the trustee.”
16. By section 58(1), “until a trustee is appointed the Official Receiver shall be the trustee for the purposes of this Ordinance, and immediately on a debtor being adjudged bankrupt the property of the bankrupt shall vest in the trustee”[2]. Under sub-section (2), “on the appointment of a trustee the property shall forthwith pass to and vest in the trustee appointed”. Sub-section (3) provides that “the...
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