Patrick Cowley and Another (The Joint and Several Trustees in Bankruptcy of the Property of the Bankrupt) v. All Powerful Holding Ltd and Another

HCB 104/2017

[2019] HKCFI 1731

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 104 OF 2017

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J U D G M E N T

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Introduction

1.On 12 February 2018, the trustees in bankruptcy of the bankrupt issued a summons which was amended on 19 April 2018 seeking various orders. Paragraph 1 sought the requirement for the bankrupt to attend court to be examined on oath concerning his property dealings and affairs and other relevant matters including but not limited to the company’s matters and/or transactions set out in schedule 1 to the summons, together with certain questions.

2.Paragraph 4 consequently sought an order that the trustees and/or their legal representatives should be at liberty to attend court for the purpose of conducting that examination.

3.When the matter came before Mr Justice Ng on 20 November 2018, he made an order in the terms of those two paragraphs, but he adjourned for argument the remaining parts of the summons which I have now dealt with yesterday and today. 

4.Paragraph 2 of the amended summons seeks an order that the bankrupt should produce the documents, books, correspondence, papers, files and information in hard copy or electronic media format set out in schedule 2 to the summons defined as “the documents”, and to do so within 28 days of the order to be made.

5.Paragraph 3 seeks an order that if the bankrupt is unable to provide any of the documents in schedule 2, the bankrupt do file within 28 days of the order to be made an affirmation or affidavit and, I paraphrase, in essence, identifying what documents he had, when they ceased to be in his custody or power and why that is.

6.Schedule 2 to the summons also includes materially for the purposes of resolving the argument today a paragraph which says:

“The documents set out in Appendix 1 to the letter dated 13 November 2017 issued by the trustees to Messrs Huen & Partners, the bankrupt’s former solicitors up to 19 November 2017.”

7.I can usefully identify at this stage that that letter was sent by the trustees to those former solicitors of the bankrupt identifying a list of outstanding information which the bankrupt had agreed to locate and/or to provide to the trustees at a meeting on 30 October 2017.  It is fair to say that some of the outstanding information is simply information, though it might be evidenced in documents, though there are also references to documents in that appendix to the letter.

8.I should say at once that insofar as paragraph 2 might be read as requiring the production of original documents, it has been made clear on behalf of the trustees that they are perfectly satisfied, at least at this stage, with copy documents, and insofar as that paragraph appears to have no time limit, they are for present purposes, whilst reserving the right possibly later to extend the period back for which they would seek documents, currently content to limit the request to two years before the date of the bankruptcy order which was made on 5 September 2017.

9.In his directions on 20 November 2018, Mr Justice Ng made provision for further exchange of affidavit material and directed the trustees and the bankrupt to deal by way of supplemental submissions with the explanation as to why the trustees say each category of documents sought in schedule 2 of the amended summons might satisfy the first and second requirements laid down in paragraph 5 of Re Lai Kwok Ying (A bankrupt), (2009) HKCFI 671, a decision given on 7 August 2009 and for the bankrupt to identify what disputes he would have in that respect.

10.Paragraph 5 of the Re Lai Kwok Ying case states as follows:

“The legal principles are not in dispute. The power of the court under section 29 to order an examination and production of documents is to be exercised in the same way as an application for private examination and production of documents under section 221 of the Companies Ordinance, Cap. 32.”

11.A reference is made to the Re Hau Po Man Stanley case at first instance and on appeal.   As stated in paragraph 21 of the judgment of the Court of Appeal, the approach in an application of this kind is as follows:

“(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.”

12.It is probably fair to say at this stage that the bulk of the argument has been directed to whether or not the applicant in this case has established a prima facie case that the bankrupt is able to provide the information or documents being sought rather than establishing the first condition that the provision of information or documents is reasonably required for the trustees to carry out their functions.

The Law

13.Section 29 of the Bankruptcy Ordinance Cap. 6 provides in subsection (1) that:

“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.”

14.Subsection (1A) identifies that:

“The court may require a person referred to in subsection (1), other than the bankrupt, to submit an affidavit to the court containing an account of his dealings with the bankrupt or to produce any documents in his possession or under his control relating to the bankrupt or the bankrupt’s dealings, affairs or property.”

15.I think I can deal shortly now with one point which is made by Mr Isaac Chan on behalf of the bankrupt that no affidavit can be required of his client in answer to paragraph 8 of schedule 2 to the amended summons because of the terms of subsection (1A) of section 29 because the bankrupt is expressly excluded from the court’s power as a target for the submission of an affidavit.

16.In my view, the reason for that is obvious.  That is because the affidavit is from a person containing an account of his dealings with the bankrupt and so, plainly, the bankrupt would be excluded from such an affirmation.  However, it cannot be pretended otherwise than that the bankrupt must be under a general duty to assist the trustees with their trusteeship during the bankruptcy.

17.A number of cases have considered the correct approach to section 29 and Re Lai Kwok Ying is one of them.  Another is Re Ho Yuk Wah David (Bankrupt) [2015] 2 HKLRD 603, a decision of Mr Justice Anthony To. The headnote of the report identifies the following holdings relating to the principles applicable to application under section 29 of the Bankruptcy Ordinance.  First, a trustee in relation to the bankrupt is in the same position as a liquidator in an insolvent company. 

18.The principles governing the court’s exercise of the discretion under section 29 of the Bankruptcy Ordinance and the equivalent section 221 of the Companies (Winding up and Miscellaneous Provisions) Ordinance were essentially the same.  A trustee needed far wider discovery to enable him to discharge his functions than what was permissible in the ordinary inter-party or third party discovery under Order 24.

19.That part of the headnote refers to a number of paragraphs of the judgment including paragraph 16 in which the judge held:

“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 license’ 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.”

20.That part of the principle is also to be found in the summary at paragraph 2 of the headnote which reads:

“The following principles were applicable to a section 29(1) application:

(a) the power conferred by the section was general, wide, unlimited, and discretionary in nature;

(b) to invoke the court’s exercise of this discretion, the trustee bore the burden of proving (i) that the provision of information or documents was reasonably required for him to carry out his functions in respect of which great weight should be given to his views and (ii) a prima facie case that the respondent was able to provide the same; and

(c)   as the exercise of the power might be oppressive to a third party or the bankrupt, the court must carefully strike a balance between the trustee’s reasonable requirements and the need to avoid making an order which was wholly unreasonable, unnecessary or oppressive to the person concerned; and the burden was on the trustee to satisfy the court that it was a proper case for such an order to be made.”

21.Headnote paragraph 6 refers to the fact that the applicant need not assume the higher burden, that is higher than a prima face case, of proving that the respondent actually had the documents or information in his possession.  Even if a person did not have physical possession or custody of a document, he might be deemed capable of producing it if it was within his control or power in the discovery context.  

22.That part of the headnote comes from paragraph 68 of the judgment where the judge said that:

“Under section 29(1), an order for discovery may be made against a person ‘whom the court may deem capable of giving information respecting the bankrupt, his dealings or property’. In Re Hau Po Man Stanley, the Court of Appeal held that an order may be made against a respondent if the applicant can ‘establish a prima facie case that the respondent is able to provide such information or documents’. The applicant need not assume the higher burden of proving that the respondent actually has the documents or information in his possession. In my view, even if a person does not have physical possession or custody of a document, he may be deemed capable of producing the document if the document is within his control or power in the discovery context. I would construe the words ‘deem capable’ in section 29(1) or the word ‘able’ as used by the Court of Appeal in Re Hau Po Man Stanley as having the same meaning as the word ‘power’ in the discovery context and adopt the following meaning of the word ‘power’ as construed in Gotland Enterprises v Kwok Chi Yau: ‘a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else.’”

23.That definition essentially comes from the decision in the Lonrho case, Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 and, in particular, the passage to which Mr Chan drew my attention at page 635G to 636A and 636F to H.  Those passages identify that the court is concerned to see not whether somebody might get a document if they ask a close relative or anyone else who is a stranger to the suit to provide him with it however likely that person might comply voluntarily, but whether there is a presently enforceable legal right to obtain from that person the document without requiring the consent of anyone else.

24.Ms Cheung on behalf of the trustees says that insofar as Mr Justice To appeared to be taking a narrow approach to the word “power” in the judgment I have just quoted, I should not take the same approach because ability to produce documents or information may be wider than power in the discovery context. 

25.But it seems to me that the point that Mr Justice To was dealing with related not to a request being made of the bankrupt direct, but of a request being made of a person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property.  It seems to me that the use of the words “deem capable” is because what is being requested is information rather than just documents but that the production of documents would be production of documents in any of the relevant person’s custody or power.  I am therefore not persuaded that the word “power” should be regarded as broader than the meaning in the discovery context. 

26.But in that context, Ms Cheung has rightly reminded me of some notes to Order 24 Rule 2 in the Hong Kong Civil Procedure 2019 at page 626, amongst other parts of which are the sentences, “However, separate or different legal personalities is no bar to the disclosure of documents.  The question is whether the party could procure the companies or partially owned companies or subsidiaries”, and here I would interpose, “or other individuals”, “to provide the documents based on the conduct between the parties and the companies or subsidiaries”, and here I would add, “or individuals”, “in the past.” 

27.The cases reiterate the major principle that separate or different legal personalities is no bar to the disclosure of documents.  So it seems to me that it would be open to an applicant under section 29 to establish by reference to past conduct or the nature of dealings between certain persons that documents in the possession of a third party might nevertheless be within the power of another.

28.As regards the balancing part of the test, one can make useful reference to the decision of Cloverbay Ltd (Joint Administrators) v the Bank of Credit and Commerce International SA [1991] Ch. 90 and, in particular, the passage at 102(a) to (c) where by reference to the wording of the Insolvency Act [1986], it was held by the Vice Chancellor that:

“Those words do not fetter the court’s discretion in any way, circumstances may vary infinitely. It is clear that in exercising the discretion, the court has to balance the requirements of the liquidator against any possible oppression to the person to be examined, such balancing depends on the relationship between the importance to the liquidator of obtaining the information on the one hand and the degree of oppression to the person sought to be examined on the other. If the information required is fundamental to any assessment of whether or not there is a cause of action and the degree of oppression is small, for example, in the case of ordering premature discovery of documents, the balance will manifestly come down in favour of making the order. Conversely, if the liquidator is seeking merely to dot the I’s and cross the T’s of a fairly clear claim by examining the proposed defendant to discover his defence, the balance would come down against making the order. Of course, few cases will be so clear. It will be for the judge in each case to reach his own conclusion.”

29.I would emphasise the reference to merely dotting I’s and crossing T’s, which seems to me to be a million miles from the facts of this case.

30.Mr Chan in the same context drew my attention to the case of Morris v the Director of the Serious Fraud Office, [1993] Ch. 372, and in particular to the passages between 382F and 383D.  The reference to this passage was specifically to take account of the effect that an order might have on third parties.  In this case, two companies called All Powerful Holding Limited and All Powerful Investment Limited who are the defendants to a claim already brought by the trustees in relation to an attempt to set aside the transfer of a share previously held by the bankrupt in All Powerful Investment Limited to All Powerful Holding Limited at nominal value said to be a significant undervalue.

31.The relevant passage centrally reads as follows:

“When exercising the discretion the court has to weigh the advantages and disadvantages of making the order sought. The court will take into account any prejudice the officeholder may suffer in carrying out his duties if an order for the production of the documents is refused. Conversely, the court will regard to any prejudice the respondent may suffer if an order is made. When the documents whose production is sought belong to or relate to the affairs of a third party, in principle it must be right that the court should also take into account any prejudice the third party may suffer if production is ordered. By a third party, I mean a person other than the person who has possession or control of the documents, otherwise the position would be that the liquidator would be in a better position by bringing an application under section 236 against an agent of a third party than if he had made the application directly against the third party. That cannot be right and I can see nothing in the legislative scheme of which section 236 is part which would lead to that conclusion. Under the section, the court has an unfettered discretion. There is no reason why the court should have to wear blinkers when exercising this discretion and be unable to have regard to the interests of a third party who would be adversely affected by an order to produce documents.”

32.As regards the potential disadvantage or prejudice that might be suffered by another party in the context of looming or actual litigation, Mr Chan drew my attention to a decision of Mr Justice Megarry in Re Spiraflite Ltd [1979] 1 WLR 1096 and to the passage beginning at 1098H to 1099A and 1099H to 1100F.  I do not propose to quote those passages in whole, but at 1099H the judge said:

“I subscribe wholeheartedly to the view that the court should not allow the section to be used so as to enable a litigant in an action, that is being, to obtain an advantage over his opponent as in the North Australian case, 45 Ch. 87. At the same time where there is no litigation in being, I would be slow to refuse an order under this section which is fairly required by the liquidator in order to discharge his difficulty task merely because what emerges on the examination is likely to show that an action ought or ought not to be brought against the examinee or that the examination will probably yield information which may be helpful in an action. In this sort of case, I do not think that the right approach is to embark upon an analysis of phrases such as ‘about to start’, ‘imminent’, or ‘contemplated’. Purely as a matter of evidence, I am far from satisfied that it is established that any of these expressions is applicable to the present case. However, in any case, I think the real question is one of purpose rather than degree of imminence. What primarily must be considered is why the liquidator is seeking the order.”

33.There is a further reference between D and E on 1100 which in fairness I should read:

“Once proceedings have been commenced, the liquidator must normally have decided that there are sufficient grounds for risking the funds under his control on the hazards of litigation. At that stage, the effect of making an order under the section would normally be to improve the liquidator’s position qua litigant unless indeed the order is suspended until the litigation is finished. True it is only as liquidator that he is able to sue in the company’s name but at least qua the defendant I think that his function as plaintiff will often transcend his function as liquidator.”

34.I will approach the case by reference to these principles when or if I get to the balancing stage of the exercise.  Two other legal points can briefly be mentioned.  One is that Mr Chan reminded me that it is settled that once a person has been removed as a director of a company, his statutory right, or indeed at common law, to seek inspection of the company’s documents ceases, which proposition I accept as settled.

35.The other additional legal point arises from the operation of the Bankruptcy Ordinance and, in particular, that under section 58 which is headed, “Vesting and Transfer of Property”, subsection (1) provides that:

“On the making of a bankruptcy order, the property of the bankrupt shall vest in the Official Receiver.”

and subsection (2) says:

“On the appointment of a trustee the property shall forthwith pass to and vest in the trustee appointed.”

36.Section 60, headed, “Powers of provisional trustee and trustee to deal with property of the bankrupt,” which in summary provides to the trustee the various powers to deal with the property taken under his control including any property to which the bankrupt appears to be entitled and to act as the true owner of that property.  For the avoidance of doubt, I have also borne in mind the definition of “bankrupt’s estate” as provided for in section 43 of the Bankruptcy Ordinance.

Prior Proceedings

37.In July 2018, Deputy High Court Judge Saunders, as he had by then become, heard an application for various forms of injunctive relief brought by the trustees against the two companies, All Powerful Holding Limited and All Powerful Investment Limited.  As it is a point relevant to the chronology later, I shall identify now that the injunction application was in essence begun on 12 February 2018.

38.In his judgment, the Deputy Judge gave a useful summary of some of the evidence which is also before me and identified his conclusions by reference to that evidence.  In paragraphs 24 and 25 of his judgment he referred to the first interview which the bankrupt had with the trustees on 30 October 2017, and the bankrupt’s admission on that occasion that the transfer of the relevant share was for no valuable consideration in that only a nominal consideration was given, and the bankrupt’s allegation that the family trust, which was said to be the true owner of APIL and had injected assets into APIL, had only engaged him as an investment advisor.

39.Consequently, he said to the trustees, the transfer of APIL back to its true owner was legitimate and the bankrupt denied that the trust was related to his own family and claimed that the trust was “confidential” and owned by “someone with background”, whose identity he must not disclose.

40.In paragraph 28, the Deputy Judge referred to the bankrupt’s spouse, Madam Tsang, and the fact that she had told one of the trustees that she had no knowledge about the bankrupt’s activities prior to this bankruptcy that involved her, and she referred to a fund or trust which was established in 2015.  The trustee, that is Mr Cowley, said that Madam Tsang said that the beneficial owners were “basically the boss and her and her three children” but would not make clear who was the “boss” to whom she referred.

41.Starting a series of paragraphs beginning with paragraph 41, the Deputy Judge explained why he accepted the trustees’ submission that there is ample evidence pointing to the bankrupt retaining control of both APIL and APHL.  Amongst the factors he took into account as relevant were that the bankrupt remained a director of APIL until 15 September 2017 when a Mr Xie was appointed, albeit that that man never offered any evidence in the case and still has not.

42.Also, the bankrupt transferred cash or cash equivalents in significant sums from his personal bank accounts to APIL’s bank accounts and no explanation had been offered as to why he might do that; that in December 2014, APIL had transferred $30 million to Evershine Group Holdings Limited, a GEM listed company of which the bankrupt became a shareholder in February 2015 after having purchased some 49.8 million worth of its shares when APIL had never been a substantial shareholder of Evershine; that between 2010 and 2015, the bankrupt had executed unlimited personal guarantees and an “all moneys” charges on six Hong Kong properties owned by him securing facilities granted by the Bank of East Asia to himself, APIL, APHL subsidiaries and another company owned by himself.

43.The judge ultimately came to the conclusion, accepting as he did that the allegations to which he made reference had not yet been tested, that that evidence went well beyond raising a serious matter to be tried and that there was, in fact, a very strong case on the evidence that the bankrupt was in reality in control of the JL Trust, APHL and consequently, ultimately, APIL.  My review of the same matters in evidence leads me to the same conclusion.

44.As regards whether or not the share transfer was at an undervalue, the Deputy Judge held that there was a good arguable case that the share transfer was, indeed, at an undervalue and, amongst other things, he referred to the audited annual accounts for APIL which had been signed by the bankrupt for the years ended March 2011 to 2016 which had been produced in evidence and which audited accounts demonstrated the growth in revenue of APIL from 2011 to 2014 and the profit amount for 2015; and that in the year ended 31 March 2016, the bankrupt in his capacity as the sole director of the company provided financial support to APIL to the extent of approaching HK$150 million which amount remained apparently outstanding and due to him at that date.  I should say that those accounts also identify the bankrupt as holding a significant controlling interest in numerous other companies.

45.In paragraph 86 of his judgment, the Deputy Judge referred to the history of the financial difficulties that faced a group of companies called GNR which might well have precipitated the actions that the bankrupt took in relation to, as it was put by the Deputy Judge, “ringfencing” assets.

46.In paragraph 87, the judge accepted that in the face of the bankrupt facing a very real prospect of personal bankruptcy on the basis of guarantees of the GNR debts, the creation of APHL and the establishment of the JL Trust in December 2014 were arguably steps that were taken by the bankrupt in the face of a very real prospect of personal bankruptcy and that the transfer of the shares were steps to remove the assets represented by APIL, a company solely owned by the bankrupt from the bankrupt’s creditors.

47.In doing so, he of course accepted, as do I, that though he was the only shareholder in APIL, the bankrupt did not own the company’s assets because they were owned by the company, nor were those assets held on trust for Mr Lau.  But the judge went on to deal with matters in the following discussion which identified that the assets owned by APIL, ostensibly a substantial company, are assets which may be accessed by the bankrupt’s creditors in order to satisfy his debts.

48.In this context, I might make the point that I would see no injury to those companies if that course were to be adopted, certainly not injury of the sort which would generally be weighty in the balancing exercise on an application under section 29.

49.The conclusion of the Deputy Judge was that he was satisfied that there is a good arguable case that with the knowledge of impending bankruptcy the steps taken by the bankrupt and ringfencing corporate/trust ownership was a disposition with which he intended to defraud creditors.  All in the context of the strong argument that the bankrupt retains in reality control of APIL.

50.Being satisfied also as to the risk of dissipation, understandably against his previous findings and the proper approach for a Chabra injunction, the judge was persuaded to grant the form of injunctive relief sought, and he specifically identified that to deny the creditors the opportunity to access those assets would be to enable the bankrupt by manipulation to evade his proper obligations.  To deny the creditors the opportunity to access those assets would enable the bankrupt by manipulation wrongfully to regain assets that he believed were placed in a shelter or ringfenced, at the expense of his lawful creditors.  That is paragraph 112 of the judgment.

51.Subsequent to the obtaining of the injunctive relief, a writ action was commenced, or perhaps the claim originally formulated was reformulated as a writ action with a specifically endorsed statement of claim, the contents of which I do not need to rehearse at length for present purposes save to record that one of the items of relief claimed by the trustees in the action against APHL and APIL is an order that APIL do hand over all books and accounts, records, documents and papers related to it and its subsidiaries to the trustees forthwith.

The Evidence 

52.The affidavit which led the application under section 29 was the fourth affidavit of Patrick Cowley, one of the trustees.  As with all of the evidential materials to which reference has been made and which are included in the bundles provided for the purpose of this hearing, I do not propose to rehearse vast tracts of them, though I have their contents well in mind.  But I do draw attention to one or two specifics parts of various pieces of evidence.

53.In Mr Cowley’s fourth affidavit, he deals with the bankrupt’s attitude of what he calls complete non-cooperation, saying that since the commencement of his bankruptcy the bankrupt has demonstrated an attitude of complete non-cooperation with the trustees’ investigations on his property dealings and affairs, and even at the date of that affidavit the bankrupt had wilfully failed to submit a statement of affairs and a preliminary examination form.  As I understand it, the statement of affairs only came as a result of the order made by Mr Justice Ng in November 2018, though it does not reveal much information and it is correct that the bankrupt has not produced a single piece of documentary evidence to assist with or to cooperate with the trustees.

54.It is no exaggeration to form the view, as I have, that the bankrupt has simply cocked a snook at the trustees and his obligations that arise by virtue of the bankruptcy order having been made.

55.Mr Cowley’s fourth affidavit also identifies that in the original, and I think to date only, meeting that the trustees have had with the bankrupt which took place on 30 October 2017, the bankrupt told the trustees that his books, records and papers, documents, relating to his property and affairs were kept at his former residence, a house in Wong Ma Kok Road, House D39, but said that his wife, Madam Tsang, who continued to reside at the house, with their three children was not allowing him to return to the house, with the result that he was not able to retrieve the documents and provide them to the trustees, albeit that he undertook that he would try to retrieve those documents from House D39.

56.Mr Cowley goes on to say that the trustees had, however, conducted an interview with Madam Tsang on 24 January 2018 where she said she was allowing the bankrupt to return to the house, but the bankrupt simply had not provided any of his documents to the trustees. 

57.It is not clear which books and records and papers and documents were being referred to by the bankrupt in that meeting, but it is clear that he was asserting that he had books and records and papers and documents which related to his property and his affairs and that, but for temporary inability physically to obtain them, he would try to do so and undertook to provide them.  He has not.

58.It seems to me that his reference to books and records and papers and documents relating to his properties and affairs that were kept at his residence almost certainly would have included those documents relating to the trust companies under the All Powerful Group chart which was provided by Madam Tsang in evidence and is updated to 23 November 2017.  It is perhaps less likely that he was making reference to books and documents of other corporate entities such as those under the GNR Group.

59.Also in Mr Cowley’s fourth affidavit, he refers to the trustees’ interview with Madam Tsang on 24 January and what she said about the AP Group and her lack of any role or involvement in that group until around September 2017.  In this context it is relevant to recall that the bankrupt resigned his directorship in a large number of companies on 4 September 2017, the day before the bankruptcy order was made against him on 5 September 2017.  There can be little doubt that he did so in anticipation of the bankruptcy being made and for 37 of the companies, his wife Madam Tsang was put in as replacement or substitute director.

60.In his third affirmation filed in response to Mr Cowley’s fourth affidavit, the bankrupt complained about what he called a number of grossly erroneous assertions or assumptions in Mr Cowley’s fourth affidavit, although he did not descend into any real particulars of those points.  It is fair to say, as Ms Cheung invites me to find, that the content of Mr Lau’s third affirmation says rather little, is couched in vague perhaps deliberately crafted terms, takes a number of technical points and uses language such as “seems”, “understandings”, without identifying the sources of knowledge or understanding.

61.He said that his wife held the assets and directorships in her own right, although I must say that is difficult to reconcile with what the bankrupt said in his fourth affirmation when in respect of a number of the companies he seemed to be asserting that Madam Tsang is being put in as a trustworthy option for the other directors or shareholders.

62.There is also an affirmation from the other trustee, Wong Wing-sze Tiffany, and for present purposes I only need to make reference to paragraph 18 which identifies the material on which the Bank of East Asia and also the trustees consider that it may be that the bankrupt has a beneficial interest in an account maintained by a company called Rich All Limited with that bank.

63.In response to the order made by Mr Justice Ng, Mr Cowley filed his ninth affidavit which sought to categorise the various companies of which information was sought into categories A, B, C, D and E.  Category A relates to companies under or related to the JL Family Trust and/or the Forever Power Trust.  Essentially, those companies are set out in the AP Group chart.

64.Category B relates to companies in the General Nice or GNR Group of which Madam Tsang replaced the bankrupt as a director.  Category C relates to companies which are either one connected with a Mr Chai Sui-chin, a business partner of the bankrupt, or subsidiaries of Best Brand Trading Company Limited.

65.Category D relates to companies which were connected to a Mr Ng Sze-for, another business partner of the bankrupt, and Category E related to other companies in which the bankrupt had a direct or indirect interest.

66.In response to Mr Cowley’s ninth affidavit, Mr Lau filed his fourth affirmation to which I have already briefly made reference.  In paragraph 5, by reference to the resignations from directorships of companies in 2017, he suggested that he needed to resign from the directorship in those companies as he was prohibited by law to continue to hold such offices.  That is against the history shown by the evidence. 

67.It is difficult to accept as the motivation for the resignation and it seems to me much more likely that actually the purpose of resignation was to put in place a substitute director in the form of his wife, Madam Tsang, who was going to do his bidding, act as his agent, be his nominee, whatever language you want to use.  This was essentially as a means to prevent the operation of the Bankruptcy Ordinance from causing by operation of law or through the Articles of the companies the immediate cessation of his directorship and, therefore, influence in the companies without some prior substitution of that influence in the form of his wife.

68.I accept Ms Cheung’s submissions that throughout the fourth affirmation of the bankrupt is a notable absence of denial that he has custody or power over certain documents other than by reference to what he says “would be” the position under certain circumstances, and where he does appear at least implicitly to accept that he used to have custody or power over documents because he expresses on occasions a lack of understanding as to why it is asserted that he “still” has such custody or power over documents.

69.I can also briefly refer to the evidence of Madam Tsang and in particular to paragraph 12 to which Mr Chan drew my attention as identifying where it can be shown that it was Madam Tsang who gave instructions to a firm of accountants to conduct a preliminary analysis of the value of the share in APIL which was said to have been transferred at the undervalue.

70.In paragraph 12 of her affirmation made on 14 February 2018, she said, “After the bankruptcy order was made against the bankrupt in September 2017, I sought professional assistance to conduct a preliminary analysis of the value of the subject share,” and she produces an exhibit, a copy of the report prepared by the certified public accountants, Messrs Chang Leung Hui & Li, dated 2 January 2018.

71.I do not accept that evidence that it was Madam Tsang who sought the professional assistance of the accountants, and it seems to me that the chronology of events strongly suggests otherwise.  The first interview with the bankrupt and the trustees took place, as I have said, on 30 October 2017. Following that interview, follow-up was attempted by the trustees against the growing intransigence on the part of the bankrupt. 

72.The bankrupt replaced his former solicitors with the firm, TCW, that continued to act for him and later for his wife and he instructed them, it seems, on 20 November 2017.

73.The accountant’s report identifies that they were instructed to produce a report just a week or so later on 28 November 2017 and that they were provided with a wide range of documents relating to the various companies in the AP Group by the solicitors for the purposes of providing the report.  The report is dated 2 January 2018. 

74.At the wife’s interview on 24 January 2018, she professed to have little knowledge of the AP Group, at least prior to the making of the bankruptcy order.

75.The action which was commenced against APHL and APIL were, as I have identified, the first steps taken only on 12 February 2018, though it is fair to say that there was some discussion about the transfer of the share in the meeting with the bankrupt on 30 October 2017.  Against that material, it seems to me more likely, dare I say much more likely, that the solicitors acting for the bankrupt were acting for the bankrupt when they asked the accountants to produce their report and that they provided documents to the accountants because they had been given them by the bankrupt.

76.Another point that can be made by reference to the evidence, and in particular that on the chart, is that it is clear that a number of companies which were formerly held in the JL Family Trust line of companies, APHL, APIL and so on below them, were transferred either to being held under the other trust or to being held personally by Madam Tsang.

77.The transfers included the transfers of companies in which APIL had been only partial shareholders, the other shares, for example, being held by a Mr Frank Yu or it is said beneficially for a Mr Wilson Tang.  This, I will use the term “fluidity”, in the way in which these companies were dealt with and the fact that they were transferred from one trust entity to another trust entity or from one trust entity to Madam Tsang personally, tends to show firstly the connection between all these various companies; secondly, material which supports the inference that this activity was designed to ringfence assets from the bankrupt’s creditors; and, thirdly, that this was, in essence, all being done at the instigation of and under the control of the bankrupt himself.

78.During argument, I asked for and I have now been provided with a revised summary of the various companies which has grouped the companies together under their categories A, B, C, D and E, and I have been taken through some individual comments in relation to companies within those categories.

79.In Mr Cowley’s ninth affidavit, he asserted that all of the documents which were being sought were regarded by him and his co-trustee as reasonably required for the purposes of conducting their investigations.  As the authorities require me to do, but in any event it seems to me entirely appropriate, I give great weight to the trustees’ view as to documents which they say are reasonably required.

80.Ms Cheung candidly accepts that the requests are broad and wide in nature.  But she says, and I agree, that the reason for that is because of the complete lack of cooperation on the part of the bankrupt in the provision of any useful material in answer to the obvious inquiries the trustees were bound to have made of him and did make of him.

81.It seems to me it lies ill in the mouth of the bankrupt to complain about the width of the material that is sought against him when he has done nothing to provide appropriate assistance to the trustees who are charged with the statutory duty which flows from the making of the bankruptcy order. As a result, the real battleground, as I say, has been in relation to whether or not the bankrupt has the relevant custody or power over the documents which are sought.

82.In that regard, for the reasons identified by the Deputy Judge in the judgment which I have in part canvassed and with which conclusions I wholeheartedly agree, I am perfectly satisfied that a prima facie case has been made out that the bankrupt has power over the documents for the companies in category A. 

83.He is strongly arguably still in control of those companies and exercising that control he has power over their documents.  That he was able to produce vast numbers of documents, albeit on a selective basis, to his accountants or to his solicitors who provided them to the accountants, is also evidence that I have taken into account in forming the view that he retains control and power over documents of category A.

84.I, therefore, make order in the terms sought in paragraph 2 relating to the category A companies, save for items with a new reference number, 56 and 57, for the reason that neither of those were pursued by Ms Cheung this morning under category A, albeit item 57, I think, is pursued under category E.

85.Turning to category B, these are really companies relating to the GNR Group, which group is itself in liquidation as a result of the winding-up order made for the head company, if I might call it that, in, I think, December 2016.

86.Ms Cheung makes fair comment when she says that nowhere in the bankrupt’s evidence does he say when he could have that he does not have custody of the documents of the companies in category B.  And I accept the force in her submission that where the bankrupt resigned from his directorship in those companies with the substitution of his wife with the permission or acceptance of the other shareholders and directors that that might speak volumes about his continuing role in the companies.

87.However, it seems to me that where the GNR Group is being wound up, and it seems on the evidence that the winding up is proceeding down the lines of subsidiaries, that the documentation which is sought by category B is actually likely not to be still in the power of the bankrupt but insofar as those documents have been collated by the liquidators, FDI, in their hands, custody and power.

88.I take the point that in the face of the evidence as to the complete lack of cooperation by the bankrupt with the trustees in his bankruptcy, it is difficult to imagine that he has been any more cooperative with the liquidators of the GNR Group.  Nevertheless, it seems to me that the correct decision is to disallow the category B documents.  Indeed, if one got to the balancing exercise under category B, the fact that the trustees have another route to seek to obtain this material from fellow professionals in the form of FDI liquidators of the GNR Group might weigh against the requirement that they should be produced by the bankrupt.  As I say, less likely to have held those documents amongst those he said he held at home.

89.The same points seem to me to arise in relation to categories C and D where the bankrupt has ceased to be a director and where insofar as Madam Tsang was made a director in his stead, the evidence suggests that she no longer remains a director, at least as at today, of those companies.  So I decline to make the order in relation to categories B, C and D.

90.As to category E, the first named company is the listed company and Evershine Group Holdings Limited and Ms Cheung fairly accepted that there may be difficulties in bringing home her argument in relation to that company. That seems to me to be correct and I do not make an order in relation to that company’s documents, but I do make an order in relation to the other documents in category E except the items with the new reference number 105 and 106 where it seems Madam Tsang has resigned from her directorship of those two companies and there is no indication as to who if anyone has been put in her stead.

91.Insofar as the involvement of a Mr Jason Ling is concerned, it seems to me that there is enough material which identifies for me that the bankrupt nevertheless maintains the appropriate degree of control and power over those documents of those companies.  I should make it clear that the new reference item No 112, relating to Sure Vantage Investment Limited, Ms Cheung told me the trustees no longer raise questions about that company.

92.So by reference to those companies I have indicated within category A and category E, I make an order in terms of paragraphs 2 and 3 of the amended summons. 

93.I have considered whether in the light of the statement by the bankrupt that he at least implicitly had documentation relating to those other companies whether I should make an order in respect of paragraph 3 alone for any of the companies in category B, C and D, but it seems to me that paragraph 3 is really incidental and goes together with paragraph 2 of the amended summons, it is not standalone relief and I am not convinced it would actually provide the trustees any great assistance even if I were to order it.  So if I were to be exercising my discretion in that regard, I would not order paragraph 3 alone.

94.There is the wrinkle in relation to paragraph 8 of schedule 2, insofar as that paragraph and the appendix to the letter to which it makes reference, is seeking documents.  The objection taken by Mr Chan that you cannot get information by an order under section 29, obviously does not bite and those documents which are pursued by that paragraph are included in my order.

95.Insofar as the content of the annex or appendix to the letter simply pursues information, I acknowledge Mr Chan’s point that information can be sought by way of questions put at the examination of the bankrupt which has already been ordered by Mr Justice Ng in his November 2018 order. 

96.Nevertheless, this is pretty basic information properly required by the trustees for dealing with the duties imposed upon them and it seems, and I accept, that this is information which the bankrupt himself said he would provide; he just simply has not done it.  That is no great surprise against all of the other facts in this case, but if he will not do it willingly, I will order him to do it.

97.It seems to me that it is entirely open to me in the exercise of the inherent jurisdiction which flows with the statutory requirements imposed by the Bankruptcy Ordinance following the making of a bankruptcy order, not least the requirement that the bankrupt cooperate with the trustees, that if he will not do this kind of thing voluntarily, it need not await an order for his examination; he can be ordered to produce this material on affidavit and I, therefore, make a separate order that he do that within 14 days.

98.I am going to check with counsel that there is no part of the summons that I have not dealt with and then I am going to hear submissions on costs.

(Submissions re costs)

99.In relation to costs I have heard argument from Ms Cheung and Mr Chan.  Dealing first with the question of entitlement, Mr Chan has suggested that the costs relating to the March and the November 2018 hearings should either be paid by the trustees or there should be no order as to those costs in light of the fact that by the March hearing the bankrupt was already to agree to some orders against him but that the matter went to the November hearing which turned out to be insufficient for time as a result of the amendment made to the summons in the intervening period.

100.I accept Ms Cheung’s submission that those costs are not sufficiently separate from the remainder of the costs of the application to be dealt with on a separate basis and also that the November hearing ultimately proved of some use in that the judge made an order on that occasion and gave directions for the more efficient argument which has been able to take place yesterday and today.

101.So I do not make a distinction between those costs and the rest of the costs.  Insofar as Mr Chan says that there should be a division of costs to reflect the fact that there were mixed findings, that the trustees succeeded on some areas but failed on other areas and that their failure was on the first hurdle of failing to establish the relevant jurisdiction.

102.Again, it seems to me in the exercise of my discretion that the nature of the argument that has been conducted across all of the various categories broken down in accordance with the previous court order was essentially of some similarity and that though it is right that the trustees have not wholly succeeded they have substantially succeeded in circumstances where the bankrupt has been wholly intransigent in providing any prior cooperation without court order extending even to the circumstances of the failure to provide even the basic statement of affairs and answer to basic inquiries which seems to me fully to have justified the pursuit of this application even though not all of it was successful.

103.I am, however, persuaded that this is not a case in which an indemnity costs order is appropriate and I do take some note, therefore, of the fact that the trustees were not wholly successful in that context and so costs will be taxed on the usual standard party and party basis.

104.Mr Chan has informed me that the costs of the bankrupt are being paid by his wife as a third party and I do not think that he is objecting to an order along the lines of the order made by the Court of Appeal in the Allied Weli Development Limited case or Re Penta Investments where under section 52A(2)of the High Court Ordinance the court is empowered to order a non-party to pay costs when the court is satisfied that it is in the interests of justice to do so.  Plainly, here it is in the interests of justice that the third party who has financed the bankrupt’s costs should pay the costs, otherwise ordering costs against the bankrupt is an entirely circular exercise coming back to the trustees.

105.The funder having been identified, what I propose to do is to deal with the question of costs on paper by the exchange of a statement of costs on behalf of the trustees within seven days and a response from Madam Tsang, the funder, within the seven days thereafter stating any objections to the statement of costs provided by the trustees if she has any such objections, which I am sure she will.  And then I will deal with the matter in the light of the statement and those objections by paper to save the parties the time, trouble and expense of returning physically to a court hearing. 

Ms Janine Cheung, instructed by ONC Lawyers, for the applicant

Mr Isaac Chan, instructed by Tsang, Chan & Wong, for the bankrupt and the 1st respondent