Alan Chung Wah Tang and Another v. Lee Siu Fung, Siegfried and Others

HCB 345/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 345 OF 2001

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RE: LEE SIU FING, SIEGFRIED

(A DISCHARGED BANKRUPT)

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__________________________________

REASONS FOR DECISION

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Background

1.The summons of the trustees in bankruptcy (“trustees”) of the 1^st respondent, issued on 19 July 2016, for an order for private examination of the 3 respondents pursuant to s 29 of the Bankruptcy Ordinance (Cap 6) (“Ordinance”) came before me on 28 September 2016.  At the end of the hearing I adjourned the application as against the 2^nd and 3^rd respondents and gave directions for further conduct, but granted the application as against the 1^st respondent.  These are my reasons for doing so.

2.The 1^st respondent was the founder, Chairman, CEO and the largest single shareholder of Siu Fung Ceramics Holdings Limited (“SFCH”), a company whose shares were listed in Hong Kong in the 1990s.  I shall refer to SFCH and its subsidiaries and associated companies together as “the Group”.  The 2^nd respondent is the younger brother and the 3^rd respondent is the son of the 1^st respondent.

3.Petitions to wind up SFCH and several other companies in the Group were presented by HSBC in March 1999.  On 9 May 2000, winding up orders were made.  Claims of creditors admitted for the Group total approximately HK$8,436 million.  To date no dividend has been paid to the creditors of SFCH.  Aggregate dividends paid to the creditors of some of the companies in the Group are less than 1% of their admitted claims.

4.On 18 January 2001, a bankruptcy petition was presented by HSBC against the 1^st respondent for a debt of HK$322 million based on a guarantee.  He was adjudged bankrupt on 8 May 2001.  Proofs of debt filed in the bankruptcy to date (pending adjudication) amount to some HK$458 million.

5.Soon after the adjudication the 1^st respondent submitted a statement of affairs stating assets of HK$265 only.  Between 2001 and 2004 he submitted 3 annual statements reporting zero income and zero expenditure.  Nothing has been contributed by the 1^st respondent to the bankruptcy estate.  Not a single cent of dividend has been paid to the creditors.  The 1^st respondent had stayed mostly in the Mainland in the years immediately following the adjudication of bankruptcy.

6.In 2004, the Insider Dealing Tribunal, chaired by Lugar‑Mawson J, found that the 1^st respondent had used the securities accounts of 3 persons to sell 16.94 million shares in SFCH in June 1996 and also counselled or procured his wife to sell 80 million shares in SFCH in July 1996 when he had price-sensitive information adverse to the Group, thereby avoiding losses of HK$69.87 million.  The proceeds of sale were deposited by his wife into his bank account.  The Tribunal imposed an order for disqualification of the 1^st respondent from management of any company for the maximum period of 5 years (from 25 October 2004), ordered him to pay HK$69.87 million being the amount of loss avoided, HK$139.74 million in penalty, and HK$9.19 million in costs.[1]  In making these orders, the Tribunal stated:

“In this regard, we are aware that Siegfried Lee is now bankrupt in Hong Kong. He has not responded to the publication of the first part of this report. He is believed to reside in Beijing, but neither the Tribunal nor the SFC knows his present address. There are however reasons to believe that Siegfried Lee is not totally without assets. In Chapter 11, at page 146, we referred to Daniel Chan admitting squirreling away $25 million offshore for Siegfried Lee’s benefit. We propose to proceed on the basis that Siegfried Lee remains a wealthy man and that eventually his assets will be tracked down. To do otherwise would be to reward mendacity.

…

Siegfried Lee has made no representations to us in mitigation of penalty. We can find none. He was motivated by greed throughout all his dealings. He displayed a cavalier attitude towards his duties as the chairman of a listed company. He was prepared to use his family members, as well as his subordinates and their family members, to execute his dishonest schemes. There is evidence that he has feathered a nest offshore to avoid his creditors in Hong Kong and he has expressed no remorse for his wrongdoing.” (emphasis added)

7.An order for payment was also made against Daniel Chan, an employee of SFCH whom the Tribunal found to be the “trusted lieutenant” of the 1^st respondent.  When Daniel Chan failed to pay, an order was made for his oral examination as a judgment debtor.  The explanation he gave there was accepted by the Master in a subsequent (unsuccessful) application by the Government as judgment creditor for an order of imprisonment under Order 49B rule 1B (unreported, HCMP 2851/2004, 23 October 2006), at §39:

“I accept the explanation of [Daniel Chan] that he was instructed by Lee Siu Fung to transfer the money of HK$25 million through his own HKBC account to the Singapore BNP account on the same day when he received cheques from Lee Siu Fung. The Singapore account did not belong to him and … apparently belonged to Lee Siu Fung. After the money was transferred to such account, [Daniel Chan] did not know what had happened to the money.”

8.Shortly before the expiry of 4 years from the adjudication of bankruptcy, on 5 May 2005, the trustees made an application, first, under s 30A(10) of the Ordinance, for a declaration that time had not run during the period in which the 1^st respondent was absent from Hong Kong (the trustees alleging that the 1^st respondent had gone to Beijing the day after he was adjudged bankrupt), and secondly, to object to automatic discharge on various grounds under s 30A(3) & (4) such as the 1^st respondent’s alleged failure to cooperate with the trustees.  In the light of the Court of Final Appeal’s decision in Re Chan Wing Hing (2006) 9 HKCFAR 545 (handed down on 20 July 2006) which declared s 30A(10)(b)(i) unconstitutional, the first part of the trustees’ application was withdrawn with leave in August 2006. 

9.The trustees, however, failed to proceed with the second part of their application.  On 2 February 2008, the 1^st respondent, represented by the solicitors’ firm of Messrs Anthony Siu & Co, took out an application to strike out the trustees’ summons of 5 May 2005.  In the end, on 27 August 2008, Barma J (as he then was) struck out the trustees’ summons on the ground that it was an abuse of process for the trustees to have taken out the application (and thereby obtained an interim suspension of discharge) and failed to proceed with it.  The 1^st respondent was as a consequence regarded as having been discharged from bankruptcy in May 2005.  It should be noted that Barma J did not deal with the merits of the trustees’ objection based on s 30A(3) & (4).  In fact, the 1^st respondent had not yet by then filed evidence to respond to the allegations made against him because it had been agreed that the point on s 30A(10) would be dealt with first.  Barma J took into account that an objection to automatic discharge should be made at a reasonably early stage and proceeded with expeditiously since delay would mean the bankrupt may be unfairly denied his discharge until some time after he should have obtained it.  An interim order should not be left in place for longer than necessary to enable the objection to automatic discharge to be determined.  The learned judge also noted that in this case while the maximum postponement of automatic discharge was for 4 years, by the time an application could be heard after the filing of evidence relating to the grounds in s 30A(3) & (4), there would have had been a de facto suspension of discharge for over 3.5 years.

10.As I shall explain further below, the 1^st respondent’s discharge from bankruptcy did not in law end his duties to assist the trustees in their functions which continue notwithstanding the discharge.  On 6 January 2012, the trustees wrote to the 1^st respondent’s then solicitors, Messrs Anthony Siu & Co, asking the 1^st respondent to attend on the trustees to answer various questions and provide information as set out in a letter issued by the trustees to the 1^st respondent on 1 February 2005 (attaching previous letters) which had not been answered by him.  On 10 and 23 February 2012, the trustees wrote to the same solicitors asking the 1^st respondent to attend on the trustees to provide information.  The 1^st respondent refused to do so.

11.On 28 August 2012, the trustees wrote to Anthony Siu & Co again, pointing out that despite previous letters (including earlier letters of 4  October  2005, 12  January  2006 and 3  March  2008) to the 1^st respondent, no information had been received from the 1^st respondent, and asking the solicitors to remind the 1^st respondent of his legal obligations and statutory duties.  On 3 October 2012, the solicitors replied that their client, the 1^st respondent, was “not obliged to entertain” the trustees’ requests because they had not provided particulars or documentary evidence to support their allegations.

12.From December 2015 onwards, the trustees have sent written questionnaires to the 1^st respondent and various persons connected with him including the 2^nd  and  3^rd respondents seeking answers and explanation.  The one sent to the 1^st respondent was delivered by post and by hand to an address at Village Garden, 45 Fa Po Street, Yau Yat Chuen, Kowloon (“the Village Garden address”).

13.There is evidence that, after the trustees took these steps, on 8 April 2016, the 1^st respondent and another man attended the trustees’ offices in Causeway Bay without prior notice.  He complained that the trustees had disturbed him and his family members, and threatened that he could send 6 men to the trustees’ offices every day for a month.  The trustees’ solicitors’ letter of the same date recording the incident was sent to the 1^st respondent by post and by hand at the Village Garden address and also at another address at Inno Centre, 72 Tat Chee Avenue, Kowloon (“the Inno Centre address”).  A further solicitors’ letter dated 14 April 2016 was sent by post and by hand to the 1^st respondent at the Inno Centre address, complaining about the incident and also reminding him to respond to the questionnaire.  The 1^st respondent did not respond.

Service of the Summons

14.On 19 July 2016 the trustees caused the summons for private examination to be issued.

15.On the morning of 28 September, just before the commencement of the hearing, a skeleton argument of Mr Kok who appeared for the 1^st respondent and an affirmation of the 1^st respondent were handed in.  It was, for the first time, indicated that the 1^st respondent would seek an adjournment of the hearing of the summons.  It was alleged that the summons had not been properly served on him.

16.According to the affirmation of service filed on behalf of the trustees, the summons and the 7^th affirmation of Alan Tang together with the exhibits were:

(a) left at the Inno Centre address on 20 July 2016.  At that time, a woman confirmed to the process server that the 1^st respondent worked there but was not there at that moment.  The woman acknowledged receipt of the documents by signing on a copy of the cover letter;

(b) sent by ordinary post and registered post respectively on 3 August 2016 to the 1^st respondent at the Inno Centre address; and

(c) sent by ordinary and registered post respectively on 3 August 2016 to the 1^st respondent at the Village Garden address.

17.In his affirmation, the 1^st respondent said the Inno Centre address “was never, and still is not, my correspondence or any address at all”.  He also claimed that the Village Garden address “was never, and still is not, my residential or correspondence address”. 

18.As pointed out by Mr Siu who appeared for the trustees, however, the Village Garden address was stated as the 1^st respondent’s address in a Form ND2A (Notice of Change of Director) relating to his appointment on 8 May 2015 as a director of a company called World Cheer Enterprise Limited (“World Cheer”).  The Inno Centre address was stated as the correspondence address of the 1^st respondent as the company secretary of World Cheer in a Form NAR1, being its Annual Return made up to 19 March 2016.  Both forms were signed by the 1^st respondent.  Incidentally the same Annual Return stated that the 3^rd respondent was a director of World Cheer and the Inno Centre address was also World Cheer’s registered office.  These documents are public documents registered at the Companies Registry and any person making a false statement in them is liable for an offence punishable by imprisonment: s 895 of the Companies Ordinance (Cap 622).

19.When these public records were pointed out to Mr Kok, he told the court, on instructions, that World Cheer is a “paper company” (what that means is not apparent) and that the addresses were put in “as a matter of formality” and the Village Garden address was in fact the address of the 1^st respondent’s wife.

20.In the 1^st respondent’s affirmation, it was stated that so far as he knew, the Inno Centre is used by a company called Lion Legend Holdings Limited (“Lion Legend”), which is a subsidiary of a German company for which he works, as one of its premises in Hong Kong.  He claimed he has “no relationship with Lion Legend” and is prohibited under German law from visiting its office and premises in Hong Kong.  As shown by public documents in the evidence, however, the 1^st respondent appears to be the CEO and Chairman of the “German company” he referred to, namely, ROY Ceramics (see §43(6) below).  Moreover, in the Form NN6 exhibited to the 1^st respondent’s affirmation, Ms Yang Lei, the present wife of the 1^st respondent, was stated to have succeeded the 3^rd respondent as a director of Lion Legend in July 2015.

21.It is remarkable that in his affirmation, the 1^st respondent tried to give the impression that the two addresses had nothing to do with him at all, when in fact he has only recently used them as his addresses in public documents.  Even if these are not his work or residential addresses, they must have some connection with him enabling him to use them as his addresses.  The evidence is that the woman working at the Inno Centre address said the 1^st respondent worked there.  She signed on the cover letter to acknowledge receipt of legal documents addressed to him.  The 1^st respondent’s affirmation was notably silent on this.

22.Nothing in the Ordinance or the Bankruptcy Rules (Cap 6A) requires an application under s 29 to be personally served on the bankrupt.  Order 65 of the Rules of the High Court (Cap 4A), which has application to bankruptcy proceedings through s 99 of the Ordinance, allows such a summons to be served by leaving the document at or by post to the usual or last known address of an individual.  For the reasons above, the 1^st respondent’s affirmation has failed to show that neither the Inno Centre address nor the Village Garden address is his usual or last known address.

23.Furthermore, even taking the 1^st respondent’s affirmation at face value, conspicuously absent in it is any allegation that the trustees’ application did not come to his attention in July or August 2016.  He said that on about 24 September 2016 his brother urgently contacted him and told him there might be some court documents in these proceedings concerning him.  (I note that the trustees’ skeleton argument was lodged with the court and presumably served on 23 September 2016.)  He said he then instructed solicitors (Messrs David Y Y Fung & Co) who informed him that the trustees said they had served the papers on him at the Inno Centre address and Village Garden address.  He asserted he was “never personally served” with those documents in the last few months.  He said the two addresses were not his addresses.  These statements are all, in my view, consistent with the 1^st respondent having actually received notice of the application and the papers in July 2016.  There was no denial of that in the affirmation.  Nor was there anything about what transpired between the 1^st respondent and his son who is the 3^rd respondent herein (and who is represented in this application by Messrs. Anthony Siu & Co, the firm that had been acting for the 1^st respondent himself in relation to the bankruptcy at least between 2008 and 2012), or between the 1^st respondent and his wife whose address, according to Mr Kok, is the Village Garden address and who is apparently a director of Lion Legend which occupies the Inno Centre address.

24.In these circumstances I declined to adjourn the matter insofar as the 1^st respondent was concerned.

Position of a discharged bankrupt

25.Discharge from bankruptcy releases the bankrupt from all the bankruptcy debts (s 32(2) of the Ordinance) and brings the bankruptcy to an end for many purposes (s 30(b)), but it does not discharge the bankrupt from all obligations or reverse all consequences flowing from the bankruptcy.  It has been said by Sir Wilfred Greene MR in In re a Debtor [1939] Ch 489, 501, that “the discharge of the bankrupt does not put an end to the bankruptcy regarded as a series of judicial and administrative acts and rights and powers”.  In particular, s 32(2)(a) makes it clear that an order for discharge “has no effect … on the functions (so far as they remain to be carried out) of the trustee and the operation of the provisions of this Ordinance for the purposes of carrying out those functions”.  Likewise, in the case of automatic discharge, s 30A(8) provides as follows:

“Where a bankrupt has been discharged, he shall, notwithstanding his discharge-

(a) continue to give such information respecting his affairs; and

(b) attend on the trustee at such times, and do such other things,

as the trustee requires for the purpose of completing the administration of the estate, and if a discharged bankrupt does not comply with the requirements of this subsection, he shall be guilty of a contempt of court and may be punished accordingly on the application of the trustee.”

26.It is of course the function of a trustee to collect, realise and distribute the assets of the bankrupt that fall within the estate.  It is the duty of a bankrupt to assist the trustee in the carrying out of that function; the statute speaks of a bankrupt’s duty “to aid to the utmost of his power” in the realisation of his property and distribution of the proceeds (s 26(3)).  This duty does not expire upon discharge, but continues afterwards so long as the administration of the estate remains incomplete: Ex parte Waters (1874) LR 18 Eq 701.

27.Upon a bankruptcy, the property of the bankrupt vests in the Official Receiver and subsequently in the trustee when he is appointed (s 58(1) & (2)).  This generally includes all property belonging to or vested in the bankrupt at the commencement of the bankruptcy (s 43(1)).  Property includes any power exercisable by the bankrupt over or in respect of property (s 43(4)).  Any property of the bankrupt so vested in the trustee does not re-vest in the bankrupt upon discharge: see Cheung Wing Kwan Tommy v Hong Kong Export Credit Insurance Corp [2012] 2 HKLRD 1255 at §§20-23.  Thus any assets concealed by a bankrupt prior to his bankruptcy are vested in the trustee and continue to be so vested after and despite discharge.

28.Since the functions of a trustee continue after discharge, it is not surprising that the power to order a bankrupt (among others) to attend for private examination under s 29 – a power provided to enable a trustee to carry out his functions – also continues to apply notwithstanding the discharge of bankruptcy: Re Poulson [1934] Ch 45; Re a Debtor, ex p the Trustee of the Property of the Bankrupt v Clegg [1968] 1 WLR 788, 791F-792D, 801F; Oakes v Simms [1997] BPIR 499, 501D-H; Re Chang Hyun Chi (unrep, HCB 5227/2006, 2 May 2013), per Chung J, at §§24‑29.[2]

Principles on s 29 of the Ordinance

29.The principles applicable to guide the exercise of the discretion under s 29 of the Ordinance are well established, and have been canvassed in cases on that section as well as on the equivalent provision in company liquidations, including Hau Po Man Stanley (in bankruptcy) v Joint and Several Trustees [2008] 1 HKC 256 (CA); Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 766; Re Lai Kwok Ying (A Bankrupt) (unrep, HCA 8750/2007, 7 August 2009), per Kwan J.

30.In particular, in Hau Po Man Stanley, the Court of Appeal stated at §21:

“(a) the applicant must satisfy the court the essential condition that the provision of information or documents is reasonably required for him to carry out his functions;

(b) the applicant must also establish a prima facie case that the respondent is able to provide such information or documents;

(c) if the above criteria are met, the court must carefully strike a balance between the applicant’s reasonable requirements and the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to the person concerned.  The burden is on the applicant to satisfy the court, after balancing all the relevant factors, there is a proper case for such an order to be made.”

31.It was said in Hau Po Man Stanley at §32 that a mere “fishing” expedition by the applicant is not permissible under s 29.  At first sight there might appear to be a conflict with what was said by Lord Millett NPJ in Kong Wah Holdings Ltd at §33, namely, that the liquidator is “necessarily engaged in just such an expedition and the purpose of s 221 is to enable him to carry it out effectively”.  But on closer analysis it seems to me there is no real conflict.

32.The feature highlighted by Lord Millett’s remark is that in the context of private examination, which is inquisitorial in nature, the officer in question, whether a liquidator or trustee, does not advance a case or specific pleaded allegations.  He may not in fact have the material to do so; yet the procedure “may be used to discover facts and documents relating to potential claims by the liquidator against third parties”: Kong Wah Holdings Ltd at §26.  The object is to gather for the office-holder information about the affairs of the company or the bankrupt to enable him to carry out his functions effectively. 

33.In Re Ho Yuk Wah David (bankrupt) [2015] 2 HKLRD 603 at §16, To J said:

“As in the case of company insolvency, the jurisdiction conferred on the court by the section 29 of the Bankruptcy Ordinance is inquisitorial in nature. It must of necessity be general, wide and unlimited. The trustee has a wider agenda than a party seeking discovery under Order 24. His general mandate is to investigate the affairs and property of the bankrupt. His functions are to put the bankrupt’s affairs in order and administer his affairs to which he is a total stranger. He needs far wider discovery to enable him to discharge his functions than what is permissible in an ordinary inter-party or third party discovery under Order 24. He may not know what he had to unravel from the bankrupt’s affairs. He cannot be confined to pleaded issues. He is not required to prove any pleaded issues on a balance of probability. It is therefore inappropriate to compare the discovery sought under section 29 of the Bankruptcy Ordinance with that under Order 24. Public policy requires that the trustee in bankruptcy be given a ‘fishing licence’ for the benefit of the creditors. As in the case of company insolvency, the essential requirement is whether the information or documents sought are reasonably required to enable the trustee to carry out his functions in gathering information about the assets, affairs and dealings of the bankrupt as effectively as possible, and with as little expense as possible.”

34.On the other hand, it would appear that in Hau Po Man Stanley at §32 the Court of Appeal was concerned about expeditions that ignore costs and proportionality: see Re Lee Priscilla Hwang (bankrupt) [2012] 4 HKLRD 581 at §23 per Recorder A Chow SC (as Chow J then was).  What could also be regarded as impermissible fishing is to seek to extract information from persons in respect of a matter when there is no well-founded ground upon which to consider him prima facie capable of giving information: cf In re Maundy Gregory, ex parte Norton [1935] Ch 65, 74.  It would also be impermissible fishing to begin an examination without any clear suspicions and to conduct it to determine if matters or facts might emerge which may be of interest or assistance, though this does not mean a liquidator is not permitted to probe the circumstances relating to those on which the examination is centred, in the hope of determining whether there is another line of enquiry which should be pursued to ascertain the truth: Re Weihong Petroleum Co Ltd (No 2) [2003] 2 HKLRD 747 at §§40-41, 43.

35.Finally, so far as the general approach is concerned, it seems to me that the case for making an order for examination of the bankrupt, including a discharged bankrupt, will in general be stronger than in respect of a stranger who is not under an express continuing statutory duty to assist the trustee that I have described above: cf Kong Wah Holdings Ltd, supra, at §30(2); Re China Metal Recycling (Holdings) Ltd [2015] 2 HKLRD 747 at §70.

Discussion of the evidence

36.Apart from certain Hong Kong bank accounts the trustees have found the 1^st respondent to have held, which had not been reported by him, the trustees suspect that not only had the 1^st respondent concealed or not disclosed his assets held in nominee accounts or through offshore companies, but he had since around 1996 taken steps to put his assets beyond the reach of creditors.  The evidence was that in 1996 the Group experienced financial difficulties.  As found by the Insider Dealing Tribunal, the 1^st respondent, with private information, caused shares in SFCH to be sold before the share price dropped.  An overall loss of HK$252 million was announced by the Group on 27 September 1996.  Cash flow problems were announced in November 1996.  Restructuring attempts began in 1997 for the Group but were unsuccessful.  Meanwhile the evidence shows certain dispositions of assets which have aroused the trustees’ suspicion.  In the 7^th affirmation of Alan Tang the trustees have identified five specific areas and one general area that they particularly wish to probe into.

(1) The 1^st respondent’s 75% shareholding in SFPH

37.Siu Fung Pharmaceutical Holdings Limited (“SFPH”) was a private company through which the 1^st respondent had carried on pharmaceutical business since about 1994.  In 1996 he held 75% (2.4 million shares) in SFPH and his brother Mr Li Xiaoyi Benjamin, the 2^nd respondent herein, held the other 25% (0.8 million shares).  In May 1997, SFPH allotted 3.2 million shares at par value (HK$1 per share) to a company (Lee’s Machinery Ltd) owned by the 1^st respondent’s two younger sisters, with the result that the 1^st respondent’s holding was diluted to 37.5%.  In December 1997, a month after HSBC made a demand of HK$177.6 million on the 1^st respondent’s guarantee, the 1^st respondent transferred 800,000 shares out of his 2.4 million shares to the 2^nd respondent for a total sum of HK$1.  In March 1998, the 1^st respondent transferred his remaining 1.6 million shares to a company (Triumph Leader Ltd) held by his then wife, Ms Dusanee, again for a total sum of HK$1. 

38.As a result of some further share transfers and another allotment, by the end of 2001, the entire issued share capital of SFPH became 18.4 million shares, which were held as follows:

(1)  15.2 million shares (82.6%) were held by Huby Technology Ltd (a company held by the 1^st respondent’s two sisters);

(2)  0.8 million shares (4.4%) were held by Dynamic Achieve Investments Ltd (also a company held by the 1^st respondent’s two sisters);

(3)  1.6 million shares (8.7%) were by High Knowledge Investments Ltd (a company held by the 1^st respondent’s then wife); and

(4)  0.8 million shares (4.3%) were held by Techfarm Investment Ltd.

39.In February 2002, these four companies entered into a share exchange with Lee’s Pharmaceutical Holdings Ltd (“LPHL”) (1 SFPH share for 10 LPHL shares), so that SFPH became a wholly-owned subsidiary of LPHL and the four companies became shareholders of LPHL.  In July 2002, LPHL’s shares were listed on the GEM Board of the Stock Exchange of Hong Kong; the listing was transferred to the Main Board in 2010. 

40.In short, on the face of this series of transactions, a pharmaceutical business which was held as to 75% by the 1^st respondent as at 1996 became the business of LPHL in which the 1^st respondent had ostensibly no interest, and all that the 1^st respondent had obtained in return was HK$2.

41.The trustees consider that they require further information to investigate this matter; some of the questions for the 1^st respondent on this matter are set out in the questionnaire at Section E (p 3) of Schedule 1 to the summons.  The trustees have raised questions such as why 3.2 million shares were allotted to Lee’s Machinery Ltd in May 1997, why the allotment was at par, why 0.8 million shares were transferred by the 1^st respondent to the 2^nd respondent for just HK$1, why another 1.6 million shares were transferred to Triumph Leader Ltd in March 1998 again for only HK$1.

(2) Interest in Siu Fung Ceramics (Beijing) Sanitary Ware Co Ltd

42.Siu Fung Ceramics (Beijing) Sanitary Ware Co Ltd is a Mainland joint-venture company.  It has been referred to in the evidence as “BSW” and I shall continue to use this abbreviation.  It was one of the largest joint ventures within the Group in the 1990s, and has since 1993 owned a factory on a piece of land with an area of 150,000 m² in Beijing.  As at 1995, SFCH held a 36% interest in BSW; Kingbridge Investment Ltd (“KBI”) held 20%; Hillmond International Holdings Ltd (“Hillmond”) held 22%; and a Mainland entity (Beijing Glass No 2 Factory) held 22%. 

43.In July 2001, the 2^nd respondent using 3 investment companies, namely, World Cheer (see §18 above), Lion Legend (see §20 above) and Capital Ocean Enterprises Ltd (“Capital Ocean”), apparently acquired the 36% shareholding in BSW from the liquidators of SFCH.  The resultant holding was that World Cheer and Capital Ocean held 32% and 68% of Lion Legend, which held 100% of KBI, which in turn held 56% of BSW.  Mr Alan Tang, one of the 1^st respondent’s trustees, was at the time a joint liquidator of SFCH handling the sale.  It was then believed, and publicly announced, that the 2^nd respondent was the person beneficially acquiring the interest.  But the trustees now suspect that the 1^st respondent was not only behind the acquisition of the 36% interest, but also continued to hold and control the other stakes held by KBI and Hillmond in BSW.  The matters leading to the suspicion include the following:

(1)  The 1^st respondent had continuously been a director (from 1998) and the Managing Director and Legal Person’s Representative (from 2000) of BSW to date. 

(2)  Other directors of BSW included the 3^rd respondent, appointed in 2005 (who has been replaced by Yang Lei, the 1^st respondent’s present wife, since 2010) and Wong Ying, a shareholder of World Cheer and believed to be a former employee of the Group.

(3)  As papers filed with Beijing authorities in 2004 show, the 1^st respondent was also stated as the representative of KBI.

(4)  The consideration, in the sum of HK$19 million, was paid by cashier’s order as to HK$7.5 million, by a cheque of Wong Ying as to HK$3 million, and by cheques of a BVI company called Goldsmith International Ltd as to HK$8.5 million.  According to the information referred to in the following sub-paragraph, Goldsmith International Ltd was apparently wholly owned by the 3^rd respondent herein, who is the 1^st respondent’s son, and a high school student in 2001.

(5)  In May 2012, an announcement was made by China Eco‑Farming Ltd, a company listed on the GEM Board, that it had agreed to acquire from Lion Legend a 10% interest in KBI which held a 67.11% interest in BSW.  According to that announcement, major shareholders of Lion Legend included Goldsmith International Ltd, Capital Ocean and another company called Shine Eagle Holdings Ltd; all these three companies were wholly owned by the 3^rd respondent, who was also their sole director.  The 3^rd respondent was also said to be the sole director of Lion Legend (though he appears to have been replaced in that position by the 1^st respondent’s present wife in July 2015 – see §20 above).

(6)  In November 2014, Lion Legend was injected into a German-domiciled company called ROY Ceramics SE (“ROY Ceramics”), with Lion Legend’s shareholders obtaining shares in ROY Ceramics instead.  ROY Ceramics became listed in Germany in 2015.  In the listing prospectus issued in March 2015, it was stated that back in March 2001, Lion Legend was indirectly wholly owned by the 3^rd respondent, through two companies namely, Capital Ocean and Siu Fung Concept Limited, both BVI companies.

(7)  Following the listing of ROY Ceramics, the 1^st respondent became its CEO and Chairman.

44.The trustees consider that they need further information to investigate this matter; some of the questions for the 1^st respondent on this matter are set out in Sections F and G (pp 5–16) of Schedule 1 to the summons.  The trustees have raised questions such as whether the 1^st respondent held shares in Capital Ocean, Goldsmith International Ltd, KBI, Hillmond, Lion Legend, and Siu Fung Concept Ltd (BVI); and how KBI and Hillmond came to acquire a 20% and 22% interest in BSW respectively.

(3) Nominee accounts

45.As referred to above, Daniel Chan had revealed that at least HK$25 million belonging to the 1^st respondent paid to him and his mother had been squirreled away in 1996 to a nominee account held with BNP Singapore (account no JN 519).  The trustees’ investigations have revealed that that account was held by BNP Jersey.  Daniel Chan was authorised by the 1^st respondent under a power of attorney to give instructions to BNP Jersey in relation to Account JN 519.  The HK$25 million was then used to purchase shares in SFCH.  In August 1996, 7.5 million SFCH shares (worth about HK$9 million) were transferred from Account JN 519 to another nominee account no JN 302 at BNP.  On 6  September  1996, following a sale of 10.6 million SFCH shares in Account JN 519, a sum of HK$11 million out of the proceeds of sale was transferred from Account JN 519 to a Hong Kong bank account of Lee Siu Fong, one of the 1^st respondent’s sisters.

46.Documents obtained by the trustees under a Jersey court order in 2010 have further revealed that Account JN 302 was opened under the name of one Brian Law, an investment director of HSBC Private Equity Management Ltd at the time.  A Mr David Wong was one of the authorised signatories for that account.  David Wong was the person at CEF Brokerage responsible for operating the securities trading account of the 1^st respondent’s wife, found to have been used for insider dealing in 1996 (see §6 above).  Further trading of SFCH shares was conducted after 7.5 million shares were deposited into this account in August 1996.

47.The evidence shows that on about 22 August 1997, a sum of US$2.5 million was transferred from Account JN 302 to a Swiss account with the Union Bank of Switzerland, Zurich, no CQUE775.069.

48.When asked in 2012 for an explanation of the nominee accounts, the 1^st respondent (through his solicitors Messrs Anthony Siu & Co) asked the trustees to provide documentary evidence of any nominee accounts.  To help refresh his memory, the trustees provided him with a copy of an undated letter to BNP Jersey requesting nominee facilities signed by the 1^st respondent and countersigned by BNP Jersey.  Despite this, the 1^st respondent has failed and refused to provide any information.

49.As for the HK$11 million paid from Account JN 519 to Lee Siu Fong’s bank account, an action has been brought by the trustees (HCA 779/2013).  By way of defence, she has since said that the money was in turn transferred by her to NHD Systems (Asia) Ltd, a company over which the 1^st respondent had interest and control prior to its winding up.

50.The trustees consider they require further information and have raised further questions for the 1^st respondent on this matter, as set out in Section F (p 17) of Schedule 1 to the summons, such as whether the 1^st respondent was the owner of Account JN 519 and Account JN 302 at BNP and the account no CQUE775.069 at Union Bank of Switzerland, Zurich.

(4) Unreported patents

51.The trustees’ investigations have revealed that, of the sanitary ware products traded by BSW, patents for the design of 46 types of sanitary ware were registered in the name of the 1^st respondent with the State Intellectual Property Office of Mainland China and valid for a period of 10 years from 2003.  While these patents have now expired, there is reason to suspect that they had generated income and benefits that should form part of the bankruptcy estate.  There was a further US patent registered on 26 May 2005. 

52.None of these intellectual property rights had been declared by the 1^st respondent to the trustees.

53.The trustees consider they require further information and have raised questions for the 1^st respondent on this matter, as set out in Section E (p 16) of Schedule 1 to the summons, such as disclosure of all royalties, other payments or benefits in kind received by the 1^st respondent for use by BSW of the 46 patents registered in the Mainland and the patent registered in the US.

(5) Undisclosed receipts

54.The trustees’ investigations have revealed that shortly prior to or after the liquidation of the companies in the Group, many of the Group’s joint ventures in the Mainland were disposed of and that the consideration was in many cases, wholly or in part, paid in cash to the 1^st respondent. At least 18 written acknowledgments, signed by the 1^st respondent, of receipt of cash of approximately RMB 54 million between May 1998 and February 1999 have been found.

55.The 1^st respondent had refused to account to the liquidators of the Group, suggesting that these receipts related to his personal affairs.  But he has also failed to account for them to the trustees.

56.The trustees consider they require further information and have raised further questions for the 1^st respondent on this matter, as set out in Section H of Schedule 1 to the summons, asking for, inter alia, a full account of the monies received by the 1^st respondent.

(6) Undisclosed assets

57.Finally, given the circumstances, the trustees suspect that prior to and throughout his bankruptcy, the 1^st respondent had undisclosed funds beyond the HK$265 declared in his statement of affairs and the zero earnings declared in his annual statements.  The questions that the trustees propose to raise are set out in Sections A–D of Schedule 1 to the summons.

The exercise of power under s 29

58.In considering the question whether the trustees have made out a case that the information they seek is reasonably required for the performance of their functions, I bear in mind the principle established by the authorities that “great weight should be given to the views of the liquidator, for he is an officer of the court and alone has the necessary knowledge of the problems facing him in understanding the affairs of the company and his reasons for seeking production of documents in the terms proposed” (per Lord Millett in Kong Wah at §31).

59.In my view, many of the matters set out in the evidence arouse suspicion and raise questions, and it is entirely understandable that the trustees consider that further information should be sought from the 1^st respondent in order for them to consider what actions may be taken for the benefit of the creditors. 

60.While the 2^nd and 3^rd respondents have filed an affirmation which inter alia dealt with the topics of the shareholding in SFPH and the acquisition of BSW, the 1^st respondent has not adopted that evidence.  For example, the 2^nd respondent said that SFPH desperately needed capital in May 1997 and said there was no evidence the shares in SFPH were “highly valued”.  He also said that he did become an ultimate beneficial holder of 36% in BSW but the whole consideration was not contributed by him, nor did the announcement suggest it was.  I need not deal with the positions of the 2^nd and 3^rd respondents here.  In any event, I do not think that evidence is such as to preclude the trustees from obtaining the 1^st respondent’s version and explanation of the transactions in question. 

61.Mr Kok also submitted that the delay in this application threw doubt on the need of the trustees for the information.  I can understand the argument but the force of this inferential reasoning is in my view of limited weight for present purposes.  The trustees have raised many of the questions to the 1^st respondent quite some time ago; see the 1^st report of the trustees in 2007, the 2^nd report of the trustees in 2013 and the correspondence.  Other questions have arisen from the announcement by China Eco-Farming Ltd in 2012 (see §43(5) above) and more recently from the prospectus for the listing of ROY Ceramics in 2015 (see §43(6) above).

62.There is, in my view, a prima facie case that the 1^st respondent should be able to provide the requested information and documents, as all the matters raised relate to him.

63.There will inevitably be some burden placed on and inconvenience caused to a person subjected to private examination.  It must however also be borne in mind that as a bankrupt, albeit discharged, the 1^st respondent owes a continuing statutory duty to assist his trustees.  The trustees have written repeatedly to ask him for information and for meetings, and thereby given him ample opportunity of assisting them in a less formal and perhaps less burdensome manner.  In light of the lack of response, I do not think it was unreasonable or oppressive for the trustees to seek an order for private examination. 

64.Mr Kok submitted that the trustees’ application should be rejected on the ground of delay alone.  It is a feature of this case that there has been a very substantial lapse of time since the bankruptcy.  The evidence however is that the 1^st respondent went to the Mainland soon after the adjudication of bankruptcy.  The trustees started without any books and records, or any assets that could be realised to fund the administration. They received a small funding from HSBC.  In March 2006, HSBC assigned its debt to a company called Keentrade, which was expected to provide funding but after some initial funding, Keentrade became unable to provide any resources following the 2008 worldwide financial crisis.  Keentrade assigned the debt, which was further assigned in 2015 to China New Investment Ltd.  The trustees have said that no application had been made for private examination principally due to lack of funds.  See the 2^nd report of the trustees, §§13‑15; 7^th affirmation of Alan Tang, §§26-27.

65.Further, additional impetus was provided by the revelations made by the public announcement by ROY Ceramics only in 2015, which were highly relevant to the investigations relating to BSW: see §43(6) above.

66.The respondents have referred to two decisions[3] in which the court has expressed disquiet over the length of time taken by trustees in bankruptcy to apply for an order for sale of property co-owned by the bankrupt with another. The considerations in those cases are quite different and I do not find the comparison helpful.

67.The respondents have also relied on Barma J’s decision in 2008 striking out the trustees’ objection to the 1^st respondent’s automatic discharge from bankruptcy.  I see no reason why the principle that the bankruptcy court can regulate its process by striking out objections to discharge in appropriate cases cannot extend to applications for private examination under s 29.  Like Barma J, however, it seems to me such cases would be exceptional.  As can be seen from §9 above, his Lordship’s decision to strike out the objection to discharge was made in a wholly different context and does not in my view provide any support for dismissing the present application under s 29.

68.For the foregoing reasons, I was satisfied, after balancing all the relevant factors, that this is a proper case for an order for private examination to be made against the 1^st respondent. 

Mr Patrick Siu, instructed by ONC Lawyer, for the applicants

Mr Martin Kok, instructed by David YY Fung & Co, for the 1^st respondent

Mr Justin Ho, instructed by Anthony Siu & Co, for the 2^nd and 3^rd respondents