Re: Li Tat Kong and Ex Parte: Official Receiver

HCB000741/1995

HCB741/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO.741 OF 1995

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Coram: Hon Le Pichon J in Court

Dates of Hearing: 12 and 19 May 2000

Date of Handing Down of Judgment: 2 June 2000

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J U D G M E N T

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1. This is a summons issued by the Official Receiver and Trustee ("the Trustee") on 13 October 1999 objecting to the automatic discharge of Li Tat Kong ("Mr Li"). The objection is supported by Kevin T.H. Wu & Co. Ltd, a creditor ("the Creditor"). The adjudication order was made on 22 November 1995.

2. At the hearing on 12 May, counsel for Mr Li raised a preliminary issue as to whether the Creditor was entitled to be heard. After hearing submissions, I ruled that the Creditor did have locus and that written reasons would be given later. These appear below.

3. A further preliminary matter was then drawn to the court's attention. Counsel for the Creditor referred the court to Jacobs v. Official Receiver [1998] 3 All ER 250 which appeared to hold that in the absence of an express interim order, the discharge would take effect automatically by operation of law. This authority had come to his attention shortly before the hearing and whilst not in his client's interest, he felt he was duty bound to raise it. Since no express interim order had been made, irrespective of whether the period expired on 21 November 1999 as was Mr Li's position or on 22 November 1999 as was the stance of the Trustee and Creditor, the point was critical. It was also a point of general application. As the time allotted for the hearing was in any event going to be insufficient were I to proceed with the hearing, it was adjourned so that the court would have the benefit of considered submissions on jurisdiction.

4. As preliminary issues, I propose first to deal with the jurisdictional point before giving reasons for my ruling on locus.

JURISDICTION

Whether an automatic discharge from bankruptcy had already taken place

5. Section 30A provides as follows :

" (1) Subject to this section, a bankrupt is discharged from bankruptcy by the expiration of the relevant period under this section.

(2) The relevant period referred to in subsection (1) is as follows-

(a) where a person has not previously been adjudged bankrupt, the period of 4 years;

(b) ....

beginning with the commencement of the bankruptcy."

Section 30(a) of the Ordinance reads :

"The bankruptcy of a person against whom a bankruptcy order has been made-

(a) commences with the day on which the order is made;

....."

6. Mr Li was adjudicated bankrupt on 22 November 1995. The question which arises is whether the 4-year period expired on 21 November 1999. This in turn depended on how the 4-year period was to be computed.

Commencement of the period

7. Counsel for the Creditor submitted that in computing the 4-year period, the day on which the event happened, i.e. the bankruptcy, cannot be counted so that the relevant period did not commence on 22 November 1995 but on 23 November 1995. On this reckoning, the 4-year period did not elapse until 22 November 1999.

8. In Pritam Kaur v. S. Russell & Sons Ltd [1973] 1 QB 336 at 348E and 350G, a case which concerned the computation of the relevant period for the purposes of the Fatal Accidents Act 1846 and the Law Reform (Miscellaneous Provisions) Act 1934, applying the decision of Havers J in Marren v. Dawson Bentley & Co. Ltd [1961] 2 QB 135, it was held that the day of the accident was to be excluded in the computation of the time for the bringing of proceedings. As stated in 37 Halsbury's Laws of England, 4th Ed. para.26, it reflected the general rule for the computation of time, which is that where a period of time after or from a specified date is prescribed as the period within which a specified act is to be done, the day of that date is to be excluded in reckoning that period.

9. But the general rule does not apply "where the act is expressly required by rule or order to be done within a period beginning on a specified date". In such a case, "the period begins on that date". See 37 Halsbury's Laws (supra). So in Hare v. Gocher [1962] 2 QB 641, it was held that the wording in sections 14 and 50(4) of the Caravan Sites and Control of Development Act 1960, viz. "beginning with the commencement of this Act" and "at the expiration ... of one month beginning with the date on which it is passed" had been adopted by the legislature to prevent the construction that the period of time should exclude the date from which time commenced to run. As stated by Winn J (at 645-646) :

"... the general rule, if any, to be applied ... to the construction of such words, [is] subject to controlling terms which would indicate a contrary intention ... [T]hese words are to be taken to have been adopted in order to avoid equivocation, and to exclude the application for the purposes of this statute of ... the general rule in so far as any general rule could be accepted as existing."

Brabin J and Lord Parker CJ concurred. See also Trow v. Ind Coope (West Midlands) Ltd [1967] 2 QB 899.

10. Turning to the legislation under consideration, the wording in sections 30(a) and 30A(2) is clear and, in my view, indicates a contrary intention such as to displace the application of the general rule. Section 71(1)(a) of the Interpretation and General Clauses Ordinance, Cap.1 which excludes the day on which an event happens reflects the general rule and is subject to a contrary intention : see section 2 of Cap.1. It affords the Creditor no assistance. In my judgment, the provisions of Cap.6 fall within Hare v. Gocher. Accordingly, I hold that the period of four years commenced on 22 November 1995, the day of the adjudication order and not, as counsel for the Creditor sought to submit, 23 November 1995, the day after the adjudication order.

Expiration of the period

11. If (as I have held) the 4-year period commenced on 22 November 1995, the relevant period would have elapsed on 21 November 1999. But that fell on a Sunday. The question which further arises is whether that made any difference.

12. Counsel for the Trustee submitted that where the last day of the period fell on a public holiday, the period included the next following day not being a public holiday. She relied on section 71(1)(b) of Cap.1. In pertinent part, section 71(1) provides as follows :

" (1) In computing time for the purposes of any Ordinance-

(a) a period of days from the happening of any event or the doing of any act or thing shall be deemed to be exclusive of the day on which the event happens or the act or thing is done;

(b) if the last day of the period is a public holiday ... the period shall include the next following day, not being a public holiday ...;"

It is common ground that Sunday is a "public holiday" for the purposes of Cap.1 : see section 3 of Cap.1, section 2 of the General Holidays Ordinance, Cap.149 and the Schedule thereto.

13. Counsel for Mr Li submitted, first, that Cap.1 does not apply except in the case of an ambiguity and since no ambiguity arises in the present case, section 71(1)(b) has no application. He further submitted that, in any event, section 71(1)(b) does not apply because the phrase "the period" in section 71(1)(b) is referable to "a period of days ..." in paragraph (a) of section 71(1) and section 30A(1) of Cap.6 has nothing to do with "a period of days".

14. In my judgment, the Trustee is correct that Cap.1 is of general application save where a contrary intention appears from either Cap.1 itself or from the context of any other ordinance. That is evident from the preamble and section 2 of Cap.1. I do not agree that it is applicable only where an ambiguity arises as was Mr Li's contention. As to the construction of section 71(1)(b), it is to be noted that there are four separate paragraphs under section 71(1). When read as a whole, it is plain that different situations were being addressed. The Trustee submitted, correctly in my view, that those paragraphs must be read disjunctively. That being so, subject to any contrary intention, the last day of the period was Monday, 22 November 1999, being the next following day rather than Sunday, 21 November 1999. No contrary intention is discernable, whether from Cap.1 or Cap.6. It follows that the 4-year period did not elapse until 22 November 1999 and I so hold.

The "slip rule"

15. The Trustee's summons was taken out some five weeks or so before the expiration of the relevant period. The first hearing came before the master on 17 November 1999. Prior to that hearing, the solicitors for Mr Li sought to agree "mutually acceptable directions with a view to vacating the forthcoming hearing and fixing a more realistic time estimate". This was followed by their confirmation that the matter be adjourned for argument with two hours reserved and proposed that the hearing on 17 November be vacated. On this basis, Mr Li's appearance at the hearing on 17 November 1999 was dispensed with and as the application was opposed, it was adjourned to 22 November 1999 to be dealt with by the Companies Judge.

16. At the hearing on 22 November 1999, the parties sought an adjournment and placed proposed directions before the court. Neither the summons nor the proposed directions made any reference to any interim order suspending the discharge of Mr Li. The substantive relief sought was that the relevant period for the automatic discharge should cease to run for such period as submitted in the Trustee's Report dated 12 October 1999. The order dated 22 November 1999 provided, inter alia, as follows :

"(4) The application be adjourned and restored for further directions (in Chambers)..."

17. Counsel for the Trustee and the Creditor submitted that the omission of an interim order for the suspension of time was merely accidental and can be corrected by the court under Order 20, rule 11, being an error arising therein from an "accidental slip or omission". Order 20, rule 11 generally referred to as the "slip rule" provides :

"Clerical mistakes in judgments or orders, or errors arising therein from any accidental slip or omission, may at any time be corrected by the court on motion or summons without an appeal."

In Tak Ming Co. Ltd v. Yee Sang Metal Supplies Co. [1973] WLR 300, an award of interest was omitted. The trial judge corrected the original judgment under the "slip rule" by the inclusion of an order for interest on the ground that the order had been accidentally omitted, explaining that :

"A most important matter for me to consider is what I would have done at the time I gave judgment had this matter of interest been in my mind. ... had I thought the matter through further, as I should have done, I am in no doubt whatever, having a very clear recollection of the case ... that I would have made an award of interest."

The Privy Council held (at 304E) as follows :

"On the basis of that explanation it can be said both that there was an accidental omission by the judge to order interest in his judgment of January 3, 1969, and that there was an accidental omission by counsel to ask for it. Under the slip rule an accidental omission by counsel can suffice to bring the rule into operation : In re Inchcape [1942] Ch.394, 399, per Morton J."

18. There is absolutely no doubt in my mind that the parties, as well as the court, proceeded on the basis that there would be a suspension of the automatic discharge period until the application could be properly argued and this could not have taken place on 22 November since Mr Li had not yet filed any evidence in opposition to the application. Indeed, that was the purpose of the directions. Therefore, had counsel raised the question of an interim order, there is no question but that I would have granted one. Equally, had I spotted the omission at the hearing, I would have raised it myself and made the order. The court's jurisdiction to suspend the automatic discharge was engaged upon the issuance of the summons in accordance with section 30A. There is no question but that the court did have jurisdiction on 22 November to make an interim order. See Jacobs v. Official Receiver (supra). Accordingly, the order made on 22 November 1999 falls to be corrected under the slip rule.

19. In Jacobs v. Official Receiver the learned deputy judge said (at 252g) :

"... if no order be made by a court the discharge at the end of the three-year period is automatic. Thus if there be no order extending the period under s 279(3) the period would have expired on the day after the hearing, and the adjourned hearing of this matter when it came on would have been pointless, because the bankrupt would already have been discharged ..."

That observation was obiter since in Jacobs there was an express interim order. In so far as it held that any interim order had to be made expressly, not only was it obiter, there is dicta to the contrary. In Hardy v. Focus Insurance Co. Ltd [1997] BPIR 77 at 81 where Robert Walker J observed :

" It seems to me that that is plainly right in a case where no application under s 279(3) has been made before the expiry of the three year period. If an application has been made by the Official Receiver, I would be very doubtful whether a bankrupt could, simply by managing to obtain an adjournment for any reason, good or bad, defeat the court's power to adjudicate on an application which had been properly launched."

Although Deputy Judge Michael Burton in the Jacobs case thought that there must be an error in that passage in that the word "order" ought to be substituted for the word "application", it is not at all obvious, reading the judgment of Robert Walker J, that there was any error in the passage as suggested. In any event, the Jacobs decision is not binding on this court. Accordingly, nothing in Jacobs prevents the application of the slip rule to the 22 November order.

LOCUS STANDI

20. At the hearing on 12 May 2000, counsel for Mr Li objected to the Creditor being heard on the ground that it had no locus.

21. Section 30A(5) requires the trustee to advise the creditors, inter alia, whether the trustee intends to object to the automatic discharge and the grounds of the objection and that each of the creditors has a right to object to the discharge and the procedure for making an objection. The following provisions of section 30A are also relevant :

" (6) Where the trustee or a creditor objects to the discharge of a bankrupt, he shall-

(a) notify the court; and

(b) in the case of a creditor, also notify the trustee,

not less than 14 days before the end of the relevant period under this section, stating the grounds of his objection and applying for an order under subsection (3)."

" (3) Where the court is satisfied on the application of the trustee or one of the bankrupt's creditors that a valid objection based on one or more of the grounds set out in subsection (4) has been made, the court may order that the relevant period under this section shall cease to run for such period, not exceeding, in the case of a person who-

(a) has not previously been adjudged bankrupt, 4 years; or

(b) has previously been adjudged bankrupt, 3 years, as may be specified in the order."

22. It was submitted that as statute had prescribed a route for objecting to an automatic discharge, any creditor wishing to avail itself of the right to object must follow the procedure laid down. In the present case, the Trustee's advice was dated 20 July 1999. On 24 July 1999, the Creditor notified the Trustee of its intention to object. It did not notify the court as required by section 30A(6)(a). The Trustee made his application pursuant to section 30A(3) on 13 October 1999. The Creditor did not issue its own summons. The Creditor's objection to the automatic discharge set out in its letter to the Trustee dated 24 July 1999 was exhibited to the Trustee's Supplemental Report filed pursuant to the court's directions on 26 November 1999.

23. It was submitted that the fact that the trustee made an application pursuant to subsection (3) did not relieve any creditor who wished to object of its own obligation to apply for an order under subsection (3). The question is whether a creditor who has not himself made an application pursuant to section 30A(3) is entitled to be heard on an application made by another interested party objecting to the automatic discharge.

24. The court's jurisdiction is engaged upon an application being made under section 30A(3). Although on its face section 30A(6) appears to require any person (whether the trustee or creditor) wishing to object to make an application, multiple applications of themselves serve little purpose save where they are based on different grounds. The primary purpose of subsections (3) and (6) of section 30A is clear : unless an application is made, the court's jurisdiction will not be engaged. They also serve to inform the bankrupt of the specific grounds of objection. Where different grounds are relied on by different parties, separate applications would ensure that the bankrupt is not taken by surprise.

25. The court has power to waive irregularities. Section 124(1) provides :

"Formal defect not to invalidate proceedings

(1) No proceeding in bankruptcy shall be invalidated by any formal defect or by any irregularity unless the court is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by any order of the court."

So, unless Mr Li has in some way been prejudiced by the non-compliance by the Creditor with subsections (3) and (6) of section 30A, I see no reason why the irregularity should not be waived. Mr Li had full notice of the grounds of the Creditor's objections as these had been exhibited to the Trustee's Supplemental Report dated 26 November 1999, well before any affidavit in opposition was filed by Mr Li. In fact, his affirmation was not filed until 14 January 2000, which was after a directions hearing on 6 January 2000 at which the Creditor was present and was granted leave to file a reply to Mr Li's affirmation. It is to be noted that the Creditor was represented at that hearing and no objection was taken as to his standing. In those circumstances, it is clear that the irregularities are technical and that Mr Li has not been prejudiced in any way. Accordingly, the discretion to waive any irregularity ought to be exercised in the Creditor's favour.

MERITS

26. The grounds on which an objection can be made to the discharge of a bankrupt are set out in section 38(4) of the Ordinance. The focus of the objection made by the Trustee and the Creditor was on paragraph (b), namely, that the bankrupt's discharge would prejudice the administration of his estate although in his letter of 24 July 1999 to the Trustee, the Creditor did raise additional grounds, viz., failure to co-operate in the administration of his estate; unsatisfactory conduct either in respect of the period before or after the commencement of the bankruptcy; and continuing trading after knowing himself to be insolvent, referable to paragraphs (c), (d) and (f) of section 38(4).

The facts

27. It is necessary first to set out the relevant background against which the present application is to be viewed.

28. In May 1994, the Creditor obtained summary judgment against Mr Li in a High Court action for approximately $970,000. It arose as a result of the trading carried on by Victor Foods Company ("VFC") in which Mr Li together with a Mr Chui were partners. VFC had a turnover of over $100 million through on-selling frozen meat to customers in China. Certain other creditors also obtained judgments against Mr Li. Mr Li was orally examined as a judgment debtor as to his means in November 1994 and January 1995.

29. At the end of the oral examination on 9 November 1994, Master Woolley, before whom the examination was conducted, warned Mr Li that he was not satisfied that Mr Li was telling the truth as to his income and expenditure or as to what happened to monies owed to VFC and advised Mr Li to produce documentary evidence to support his account of his financial affairs. At the conclusion of the resumed oral examination on 14 January 1995, Master Woolley had this to say :

"Mr Li, I have listened to your evidence at length on the last occasion and today and I am bound to agree with counsel for the plaintiff that in a number of instances it is clear you have not been telling the truth and have failed to make full disclosure of matters within your knowledge. In particular it is clear that there are other bank accounts which have not been disclosed and considerable sums of money have passed through your hands in your accounts which are not adequately explained. It is inevitable that I have to reflect the displeasure of the Courts when somebody like you, who is here to be cross-examined as to their means, has lied under oath and I can only do that under the rules of the Court by a term of imprisonment...."

He ordered Mr Li to be imprisoned for six weeks and to pay the debt of that creditor within six months failing which a further sentence of imprisonment would be imposed. The day prior to the expiration of the six-month period, Mr Li filed a petition for his own bankruptcy. According to his Statements of Affairs ("SOA"), he had assets of $107,591 and liabilities in excess of $15 million. In fact, the extent of his indebtedness exceeded $39 million.

30. A receiving order was made on 13 September 1995. On 16 October 1995, Mr Li filed his SOA. This was followed by an adjudication order on 22 November 1995. Seven months later, in June 1996, Mr Li submitted a proposal for composition to his creditors offering a settlement of his debts by the payment of 15%. The funds for settlement came from his mother. On 11 September 1996, the composition was approved notwithstanding the opposition of the Creditor. As a result an order was made rescinding the receiving order and annulling the adjudication order.

31. Twenty-one months later, on 11 June 1998, this order was set aside by Sears J on the ground that it was vitiated because the mandatory public examination of Mr Li had neither been held nor dispensed with as required by sections 20(6) and 25(1) of the Ordinance in its unamended state which applied to the bankruptcy of Mr Li.

32. Because of its size, being under $200,000, the administration of Mr Li's estate was dealt with by the Trustee as a summary case. Then within six months of the adjudication order, a proposal for composition was submitted. As noted above, the proposal resulted in a composition, leading to the annulment of the adjudication order in September 1996. Those events meant that no investigation as such and certainly none of any depth or seriousness was conducted into Mr Li's affairs by the time his bankruptcy was annulled. It was only after the order annulling the bankruptcy was set aside in June 1998 that the Trustee once again took up the administration of Mr Li's estate.

33. By letter dated 11 May 1999 ("the May letter"), Mr Li was asked to provide further information in relation to various matters. He did not respond for over two months. On the day of Mr Li's response, i.e. 20 July 1999, the Trustee sent out his notice pursuant to section 30A(5) indicating his intention to object to the automatic discharge. On 9 August 1999, the Trustee raised additional queries. The present summons was taken out in September 1999 and the Trustee's Report and Supplemental Report filed in October and November 1999 respectively. Mr Li did not file his evidence until January 2000 which was when he sought to deal substantively with the Trustee's queries.

Specific matters

34. Certain of the specific queries made of Mr Li by the Trustee are considered below. In addition, the Creditor has raised the question of Mr Li's connection with Kateford International Limited ("Kateford"), a matter which featured prominently in his previous examination and will also be considered below.

* Accounts with Hongkong Bank and Chiyu Bank

35. Mr Li was asked to explain transactions consisting largely of balancing credit and debit items appearing in Mr Li's bank statements for his accounts with the Hongkong Bank and the Chiyu Bank. No explanation was given until eight months later when Mr Li filed his affirmation on 14 January 2000 in opposition to the objection made to his automatic discharge.

36. Mr Li's explanation was to the effect that at that time, meaning between April 1991 and December 1993, "substantial remittances" from the PRC deposited into Hong Kong bank accounts attracted charges and in order to assist his company in the PRC and to avoid those costs, "whilst the company received certain substantial sums from the buyer, part of the remitted funds would be split and deposited into [Mr Li's] account and then [he] would deposit/credit same to the company".

37. The explanation given is far from satisfactory. To begin with, it is unclear what is meant by "substantial remittances" since the transactions under consideration ranged from a few thousand dollars to several hundred thousand dollars. Nor was there any explanation as to how the charges were computed, whether at a flat rate or on a sliding scale and how savings could be achieved. What is clear is that there is no basis for concluding that these particular queries have been properly and satisfactorily answered.

38. For completeness, it should be mentioned that Mr Li's account with the Chiyu Bank was not disclosed in his SOA. Quite when the existence of this bank account was disclosed and in what circumstances is unclear from the evidence although it would appear that the Trustee was aware of that account in June 1998 and possibly as early as August 1997.

* Returned deposit for the Canadian property

39. One of the queries raised in the May letter related to the whereabouts of the return of the CAD$81,957, representing part of the deposit monies returned to Mr Li after the cancellation of the purchase by him and his wife of a property in Canada. Mr Li had stated that his wife could not remember the account into which it was paid.

40. The Cancellation Agreement between (1) the vendor and (2) Mr Li and his wife provided for the deposit of CAN$101,957 held by the vendor to be paid as to CAN$81,957 to Mr Li's solicitors in trust for Mr Li and his wife; CAN$10,000 to be retained by the vendor to offset the vendor's liability, if any, to pay real estate commission and a further CAN$10,000 to be retained by the vendor to offset any loss or costs suffered by the vendor on the resale of the property. Any portion not required to offset any loss or costs would be repaid. It was signed by the wife on behalf of herself and as attorney for Mr Li on 18 August 1993 but it was not executed by the vendor until 28 September 1993.

41. Whilst the account was identified in the July letter, the Trustee could not find the relevant entry in the bank statements and clarification was sought from Mr Li. No clarification was given until six months later when Mr Li filed his affirmation in opposition. CAD$91,957 was allegedly paid to Mr Li's Canadian solicitors and the net sum of CAD$90,408.93 after deducting bank and solicitors charges was deposited into the account, equivalent to HK$528,214.17. But among the documents exhibited as "LTK3" to his January Affirmation is an incomplete copy of a cheque issued by Park Georgia Realty Ltd for CAD$84.14. Quite how this fitted into Mr Li's explanation is nowhere apparent.

42. The explanation given in Mr Li's affirmation is, to say the least, curious. If true, it meant that monies were released to the bankrupt some five weeks before the Cancellation Agreement was executed by the vendor and the amount so released was not the amount stated in that Agreement. Even if (assuming in Mr Li's favour) the sum in Hong Kong dollars deposited into Mr Li's wife's bank account represented the proceeds of the deposit so returned, the response to the Trustee's queries was woefully inadequate given its apparent inconsistency with the terms of the Cancellation Agreement.

43. From the bank statements of the account of the wife, it would appear that $428,000 odd of the amount deposited was disbursed on the day it was credited into the account. The balance of $100,000 appears to have been part of the amount withdrawn four days later. At the earlier examination, Mr Li stated that those monies were used to pay the penalty of RMB2 million imposed by the Guangzhou court. Whether and how this explanation was substantiated is unclear. In this connection, it is to be noted that Mr Li was imprisoned in Guangzhou in July 1993 but was not released until January 1994, five months after the monies were withdrawn and, presumably, disbursed.

44. In a superficial sense, the Trustee's queries were answered, albeit eight months later. But because the returned deposit did not remain in the account but was almost immediately withdrawn, it is the ultimate destination of this sum that is material. The question is one of tracing and the onus is on Mr Li to come forward with the relevant evidence.

45. Before moving to the next matter, I have to say that I find it extraordinary that a General Power of Attorney based on which the wife executed the Cancellation Agreement came to be executed by Mr Li on 12 August 1993. On that day Mr Li was supposedly in jail in Guangzhou. I note that the execution of the power of attorney was witnessed by a Hong Kong solicitor. Quite how all this came to pass remains a mystery.

* King Shan Court

46. Another query raised in the May letter was the origin of funds used to pay off the Daiwa Bank mortgage on King Shan Court. It was the Trustee's understanding that as at the date of the May letter, Mr Li and his wife were still the registered owners of that property and that the mortgage in favour of Daiwa Bank was paid off in November 1995. In response, a copy of an order made by Master Woolley on 8 January 1995 in Order 88 proceedings was produced and it was asserted that Mr Li delivered possession of the property as ordered. Mr Li disclaimed any knowledge as to what transpired after that. The order for possession was effective on the date it was made but execution was to be stayed until 31 March 1995 upon the payment of mesne profits for the period from January to March 1995.

47. If grounds existed for the Trustee's belief as stated in the May letter, then Mr Li's answer was plainly unsatisfactory. Even if the Trustee's understanding was incorrect, Mr Li's answer remained unsatisfactory : according to the SOA, the amount owed to Daiwa was $1,270,085. The property was estimated to produce $2 million. Against this backdrop, Mr Li's answer was decidedly unhelpful.

* The China State Bank account

48. By letter dated 9 August 1999, the Trustee raised further queries relating, inter alia, to an account with the China State Bank. That account was in the name of VFC of which Mr Li was partner. According to the Trustee, he had no knowledge of that account until he received the letter dated 20 July 1999 from Mr Li's solicitors. Mr Li asserted it was disclosed orally at a meeting with the Trustee in 1995 which was denied by the Trustee. Mr Li gave no particulars of the meeting at which he allegedly made the disclosure : it was a bare assertion. Even if it were assumed in his favour that he did so disclose, it does not sit happily with the fact that it was not listed in his SOA which was filed on 16 October 1995 and the SOA has never been amended.

* The wife's account

49. This account was opened by his wife with the Hongkong Bank to which the deposit refunded by the vendor was paid. It is the Trustee's case that it was not in fact disclosed until July 1999 which was three years and nine months after the filing of the SOA. Mr Li sought to suggest that the account had nothing to do with him and was only disclosed with a view to expediting the matter in relation to his bankruptcy. This is disingenuous since the returned deposit for his abortive purchase was paid into this account. It was plainly incumbent on Mr Li not only to disclose this account in his SOA but also, as mentioned above, to provide sufficient information to enable the Trustee to trace the deposit.

50. Further, in response to the question as to the date this account was opened, Mr Li stated in the letter of 8 September 1999 that it was 15 August 1994. That was plainly incorrect since the repayment of the deposit was made in 1993.

* Kateford

51. The Creditor submitted that the circumstances surrounding Kateford are suspicious and deserve further investigation.

52. Kateford was incorporated in August 1991. Its issued capital of two shares used to be owned by the brother of Mr Li's wife. In September 1994, shortly before Mr Li's earlier public examination, these were transferred to Mr Li's sister (then aged 29) and mother who also became Kateford's directors. Kateford carries on the same frozen meat trading business as VFC. Mr Li's wife commenced working for Kateford as an accountant in March 1994 earning $8,000 a month.

53. On 7 October 1996, Mr Li's sister resigned as a director and Mr Li's wife was appointed in her place. At that date, the wife was already residing in a flat in Peridot Court, Tuen Mun, purchased by Kateford in August 1996. Pausing there, it should be noted that it is somewhat unusual for an ordinary employee earning a modest salary to be provided with accommodation owned by the Company. When the flat was sold in January 1997 for $4.15 million, a property in Aquamarine Garden was acquired by Kateford in the same month for $13.38 million and this became the residence of Mr Li and his wife. Then in July1997, Kateford funded, at least partially, the purchase of a property at Villa Tiara, Tuen Mun in the name of the wife.

54. Mr Li's role in Kateford is obscure : his name card gave no description of his role in Kateford although at the time of his previous public examination he said he was a salesman. He commenced working for Kateford after VFC ceased business in March 1994 at a salary of $4,000 which later increased to $15,000. By October 1995 when he filed his SOA, he described himself as a food supplies manager. Kateford has a turnover of over $5 billion and several million dollars in annual profits. The Creditor retained Factfinders to conduct an investigation and as a result, it is the Creditor's belief that Mr Li in fact runs Kateford. If Mr Li did not, who did? Somebody had to be running Kateford's business whose turnover is in the billions. The only other candidates appear to be his aged mother and sister who has since emigrated. The Trustee has simply not seen the need to probe into these matters.

55. Given the above facts, it is difficult not to conclude that the circumstances surrounding Kateford are suspicious. Mr Li has chosen not to address any of the matters raised concerning Kateford. So one is left none the wiser than at the conclusion of his earlier examination about all these matters. It is a distinct possibility that Mr Li has an interest in Kateford and Kateford does have assets. The circumstances are such as to warrant a searching and in-depth investigation. It may well be necessary for Mr Li's wife, mother and sister to be examined pursuant to section 29 to get to the heart of Kateford's ownership if this question is not satisfactorily resolved in Mr Li's public examination.

Applicable principles

56. The rationale behind the provision for automatic discharge coupled with the objection system is apparent from the following excerpts from the Law Reform Commission's Report on Bankruptcy :

"17.16 ... Firstly, bankrupts would have a greater incentive than at present to co-operate with the trustee, as failure to co-operate could result in the trustee objecting to a bankrupt's discharge. Secondly, the rehabilitation of a bankrupt from bankruptcy would be assured, subject to rehabilitation being delayed as a consequence of a bankrupt's own failings."

"17.24 The introduction of automatic discharge would shift the emphasis from discharge being a privilege to its being a right. This right, however, must be set alongside a bankrupt's duty to co-operate with the trustee in the administration of the estate. If he fails to co-operate with the trustee after bankruptcy, or if a bankrupt's conduct before bankruptcy was unsatisfactory, he should not be automatically discharged."

Thus, "failure to co-operate" with the trustee is a reason for delaying the bankrupt's rehabilitation.

57. What does co-operation mean? In Totterdell v. Nelson [1990] 97 ALR 341, the Full Court of Australia observed (at 346) :

" Nor is it really right to say, because no evidence was led of specified requests ignored by the bankrupt, that there was lacking any evidence of non-cooperation. Co-operation is a positive concept."

I would respectfully agree. In my judgment, it is incumbent on the bankrupt to make a full and frank disclosure and to proffer all pertinent information regarding his assets and financial dealings to the Trustee. As French J observed in Re Barrie Andrew Knight, No. WB 307 of 1988 (unreported) August 14, 1991, a decision of the Federal Court of Australia,

"... It is not sufficient, I think, for a bankrupt to say in relation to the deficiencies which the trustee complains are unexplained, that it is all there in the transcript of evidence and auditor's report put before the District Court in criminal proceedings. Nor is it sufficient to say that the trustee has not made inquiry of him. It is the bankrupt's duty, if he seeks the indulgence of discharge where discharge would not otherwise be automatically available, to show that he has taken all reasonable steps to ensure that his estate is available for distribution among his creditors and that the trustee is appraised of all relevant information."

Thus, it is not good enough for a bankrupt to adopt a purely passive or reactive role, responding when asked in the expectation that with any luck, pertinent matters might be overlooked.

58. Further, in exercising its discretion, the court will have regard to the scope and purposes of the statutory provisions conferring the discretion. In Re Weiss (unreported), 27 June 1986, a decision of the Federal Court of Australia cited in Totterdell v. Nelson (at 344), Burchett J observed :

"An essential part of the reciprocal provisions made by the bankruptcy law for the benefit of each of creditors, debtors, and the community itself, is that there should be an adequate investigation of the conduct and affairs of the bankrupt. In a case presenting features which call for an exercise of discretion upon the question when and on what terms the bankrupt should be discharged, the investigation should generally be carried to a conclusion before a discharge is granted or permitted to occur. There may be cases where it would be unfair to a bankrupt to delay his discharge by reason of an incomplete investigation, lethargically pursued, to the torpor of which he has not contributed. But no such unfairness may appear where there has been concealment or lack of cooperation on his own part."

The court will also have regard to the interests of commercial morality and the public interest.

"We are bound in the exercise of our discretion in such a matter, and I think I might almost say in all matters under this Act, to take a wider view. We are not only bound to regard the interests of the creditors themselves, who are sometimes careless of their best interests, but we have a duty with regard to the commercial morality of the country."

See per Fry LJ in Re Hester (1889) 22 QBD 632 at 641.

Exercise of the discretion

59. In the present case, I have gone into the relevant facts in some detail since that is a necessary exercise for a proper understanding of whether Mr Li has failed to co-operate and whether there are in fact matters that ought to be investigated. If one were to take the filing of the SOA by Mr Li as the starting point, what is indisputable and inexplicable is the omission of several bank accounts from the list given. Mr Li failed to disclose the VFC account, his wife's account with Hongkong Bank into which the deposit monies were paid as well as his account with the Chiyu Bank. This cannot be swept aside as a simple oversight. It assumes greater significance when that is put against the backdrop of the previous public examination, the admonitions of Master Woolley and the manifestation of the court's displeasure with Mr Li's dishonest answers and concealment of relevant information.

60. Counsel for Mr Li submitted that Mr Li has already been punished for what occurred during his previous public examination and that therefore those matters should no longer weigh with the court. I disagree. The facts of this case are somewhat unusual in that the previous public examination could be said to have engendered Mr Li's petition for his own bankruptcy. The matters pertinent to that examination are every bit as pertinent to any public examination following the adjudication order but which unfortunately has not yet occurred. They form a seamless whole.

61. That a bankrupt with assets of $107,000 only was able to run up debts to the tune of $15 million as stated in the SOA or, as it subsequently transpired, of $39 million, is a circumstance that would have warranted investigation. Regrettably, the practice of the Official Receiver's Office is to deal with cases where assets are thought to be less than $200,000 on a summary basis. This appears to be synonymous with dispensing with any need to investigate, and seems to be based on the dubious logic that the exercise would not be worthwhile since there are no assets with which to finance an investigation and/or no assets are likely to be recovered. Summary administration assumes, in my view erroneously, that bankrupts with minimal estates have no assets to conceal and could not have been privy to serious misconduct. Certainly no in-depth investigation has been made into the affairs of Mr Li.

62. The overwhelming impression gained from my reading of the papers in this matter is that the Trustee has not even begun to scratch the surface of matters that cry out for investigation. Mr Li was found to have been a liar when publicly examined. A spell in prison did not appear to have had any curative effect. Matters do not appear to have progressed much from the state in which they were left when Mr Li was sent to prison. The real extent of his assets remains unknown : it was found that considerable sums have passed through his hands in his accounts which have not been adequately explained. To this day they remain unexplained.

63. Then when one looks at the chronology of events, it took Mr Li's solicitors two months to reply to the Trustee's letter seeking information. For the most part, that letter was a holding operation because many of the queries remained outstanding. No further response was forthcoming until the filing by Mr Li of his affirmation in opposition to the Trustee's application. But for the objection to his automatic discharge, it is highly doubtful if he would have bothered to answer the remaining queries. It is also not without significance that Mr Li did not file any evidence relating to Kateford although the Creditor had as long ago as February 1998 made allegations concerning his role in Kateford. As noted above, whilst answers of sorts may have been given, the real question is whether they were full and satisfactory and, in my judgment, they were plainly not.

64. There is no doubt in my mind that Mr Li's estate cannot be properly and fairly ascertained, gathered in and distributed for the benefit of the creditors without further in-depth investigations into his financial affairs, including his connection with Kateford. In the present case, a public examination is plainly indispensable. As stated in Fletcher's Law of Insolvency, 2nd Ed., pages 157-8 :

"...The public examination has traditionally been regarded as one of the most important aspects of the bankruptcy process, for it is intended to serve one of the main purposes of the public policy associated with bankruptcy law, namely the protection of the public by the gathering of as much information as possible about the debtor and his affairs. The debtor is required to answer upon oath questions as to his conduct, dealings and property put to him by the official receiver (or by counsel acting on his behalf), by the trustee of the bankrupt's estate, by any creditors who have tendered a proof in the bankruptcy, and by any person who has been appointed as special manager of the bankrupt's estate or business (again, with the possibility that any of these parties may appear by solicitor or counsel). Questions may also be put by the court itself. The debtor must answer all questions which the court allows to be put to him and cannot avoid doing so even though his answers may incriminate him."

65. I am satisfied on the evidence that the administration of Mr Li's estate would be prejudiced by his discharge : there is much unfinished business in terms of further investigation and examination as to his means and his relationship with Kateford.

66. I am bound to say that the timing of his self-petition and the composition which followed hard on its heels when viewed against the factual matrix of the events that could be said to have precipitated the petition have the makings of a scheme calculated to defeat Mr Li's creditors. This is something which the Trustee ought to bear in mind in the further investigations and examinations to be conducted.

67. Further, I am also satisfied that he has failed to co-operate with the Trustee by failing to respond promptly and timeously to queries raised. The answers when given were in a manner not designed to assist the Trustee. Measured against the positive duty required of a bankrupt, Mr Li has failed miserably. In this connection, his lack of co-operation takes on a wholly different hue and can be said to be an egregious dereliction of his duty to co-operate given that it occurred only several months after the admonitions of Master Woolley and the term of imprisonment for, inter alia, suppressing information. The omission of several bank accounts from his SOA is very telling : Mr Li has not clearly learned that he must come clean. I have no doubt that the public interest would not be served by his early discharge from bankruptcy.

68. In considering what would be an appropriate period, there is the fact that for 21 months of the 4 year period he was a free man. That is a highly unusual state of affairs which the framers of the legislation do not appear to have expressly catered for. It is clearly a factor that I need to take into account. In all the circumstances, I consider that a proper period by which his automatic discharge is to be postponed is 3 years from 22 November 1999. Accordingly, the appropriate order is that the relevant period for the purposes of section 30A shall cease to run for 3 years from 22 November 1999.

69. I make an order nisi for costs in favour of the Trustee and the Creditor.

Representation:

Mr Godfrey Lam, instructed by Messrs Peter C. Wong, Chow & Chan, for the Creditor

Mr Nigel Kat (12 May 2000) and Mr Anthony Chan (19 May 2000), instructed by Messrs Finley & Co., for the Bankrupt

Miss Linda Chan, instructed by the Official Receiver

Appeal by the bankrupt to Court of Appeal dismissed. Please refer to CACV220/2000 dated 11 January 2001