Modern Terminals (Berth 5) Ltd v. States Steamship Co

HCA001277/1979

Coram: Trainor, J. in Chambers

Date of Judgment: 17 September 1979

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JUDGMENT

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1. The plaintiff is a limited liability company incorporated in Hong Kong; the defendant is incorporated under the laws of the State of Nevada in the United States of America. The plaintiff claimed in a writ, issued on the 21st March, 1979, for the sum of $416,708.00 for services rendered. The defendant entered an appearance to the plaintiff's writ and the plaintiff sought judgment under Order XIV of the Rules of the Supreme Court. The defendant moved to have the proceedings stayed on the ground that it had obtained protection under chapter XI of the Federal Bankruptcy Act of the United States, to which I shall refer in this judgment as the Act.

2. The Courts of Hong Kong will recognise and adjudication in bankruptcy of another country which purports to control the property of a bankrupt wherever situated as vesting the bankrupt's movable property in Hong Kong or elsewhere in the trustee or other representative of his creditors if the bankrupt was domiciled in that other country or invoked or submitted to its jurisdiction. See Re Blithman⁽¹⁾. In re Anderson⁽²⁾ is also in point. That was a case where a person domiciled in England and who was entitled to a reversionary interest in personality in England had been adjudicated bankrupt in New Zealand. Through an oversight the reversionary interest in England was not disclosed in the New Zealand bankruptcy. The bankrupt was later adjudicated bankrupt in England. It was held that the Official Assignee in New Zealand was entitled as against the trustee in bankruptcy in England, to the reversionary interest. In his judgment Phillimore J. said at 902:

"Therefore I think the adjudication (in New Zealand) passed as against him and, therefore, as against anybody claiming under or through him, his personal property wherever situate .... In the present case, if the New Zealand bankruptcy passed as against the debtor all his movable property wherever situate, it passed it equally against all persons claiming under later titles from him .... even an official trustee or assignee in bankruptcy."

3. That case was not cited to me but Galbraith v. Grimshaw⁽³⁾, to which I shall again refer, where the decision was to the same effect, was.

4. That is the position where there is an adjudication in bankruptcy. What were the proceedings that were instituted in the United States and what is their effect?

5. It would be helpful at this stage, I feel, to consider the bankruptcy laws of the United States. I have had the assistance of the opinions of two American lawyers who have filed affidavits in this case.

6. The first lawyer to whom I wish to refer is a Mr. Cary who has been practising in the State of California for the past twelve years, specialising in corporate, maritime and bankruptcy matters. He deposes to having "considerable familiarity with the knowledge of proceedings under Chapter XI of the United States Bankruptcy Act, and before the Bankruptcy Court for the Northern District of California". The other lawyer is a Mr. Stinnett who is one of the court-appointed attorneys for the defendant. He commenced in private practice in September 1970 having obtained a Juris Doctor degree, magna cum laude, and gaining first place in his graduating class. Before commencing to practise he served as research attorney for the Honourable Thomas Caldecott of the Californian Court of Appeal. Since he commenced in private practice Mr. Stinnett has been engaged almost exclusively in the fields of bankruptcy, corporate re-organisation and insolvency law. In 1977 he was chairman of the Bankruptcy and Commercial Law section of the Bar Association of San Francisco.

7. There is no doubt that both these gentlemen are experts in the fields in which they specialise.

8. Mr. Cary has outlined his opinion of the bankruptcy laws of the United States with particular reference to chapter XI. Mr. Stinnett filed two affidavits and he produced as exhibits sections of the Act with his comments on their application, extracts from a learned work and photostat copies of United States authorities.

9. The bankruptcy law of the United States is, it would appear, substantially the same as the bankruptcy law as it is known in the Courts of Hong Kong but it also appears that matters which would be dealt with in Hong Kong under the Companies Ordinance are in America dealt with under the Act, e.g. a debtor includes a body corporate. Provision is made for voluntary and involuntary winding up in a way similar to that with which we are familiar in Hong Kong, both of which proceedings are, according to both lawyers, commonly known as "straight bankruptcies". Chapters I - VII of the Act govern such proceedings.

10. But there is also provision in the Act to enable a corporation which is unable to meet its liabilities as they fall due to seek the protection of the court and obtain permission from it to carry on business with the intention of rehabilitation. Both attorneys agree on that, but Mr. Stinnett adds that the provision is frequently resorted to by an insolvent corporation to effect a complete liquidation and winding up of the company where a more orderly and more beneficial result would ensue if it were carried out by the corporation seeking protection.

11. The provision to which I have referred is to be found in chapter XI of the Act, headed "Arrangements" and is, as I said earlier, the procedure under which the defendant sought protection. Section 322 is the relevant section.

12. It would be helpful, I think, to refer to or quote what I consider to be the relevant sections of chapter XI.

13. Under section 302 all the provisions relating to a straight bankruptcy, in so far as they are not inconsistent, apply to chapter XI proceedings and to that end the date of filing a petition in bankruptcy shall be taken to be the date of the filing of an original petition under section 322 of the Act, and under that section the date of adjudication shall be taken to be the date of the filing of the petition.

14. Section 311 reads:

"Where not inconsistent with the provisions of this chapter, the court in which the petition is filed shall, for the purposes of this chapter, have exclusive jurisdiction of the debtor and his property, wherever located".

Section 312 reads:

"Where not inconsistent with the provisions of this chapter, the jurisdiction, powers and duties of the court shall be the same-

15. The defendant, as I said, filed a petition under section 322 which says:

"If no bankruptcy proceedings are pending, a debtor may file an original petition under this chapter with the court which would have jurisdiction of a petition for his adjudication";

and section 323 says:

"A petition filed under this chapter shall state that the debtor is insolvent or unable to pay his debts as they mature, and shall set forth the provisions of the arrangement made by him, or that he intends to propose an arrangement pursuant to the provisions of this chapter."

There are two other sections which I wish to recite:

16. The plaintiff filed the petition under section 322 on the 4th December, 1978 and, on the same day it was ordered, inter alia, that the defendant should remain in possession of its assets and property and it was, in the same order, authorised to conduct its business and operate it in the normal course until further order. That authorisation, obviously, was in pursuance of the provisions of s.343.

17. The effect of all that is that on the 4th December, 1978 the Bankruptcy Court of the Northern District of California acquired, at least so far as American law is concerned, exclusive jurisdiction of all the assets and property of the defendant wherever located, and the jurisdiction, powers and duties of the Court are the same as if a decree of adjudication had been entered on the 4th December, 1978. Both lawyers agree on that.

18. The defendant did not file a proposed plan with its petition but did on the 3rd April, 1979. In it it was proposed that all the defendant's assets be liquidated and the proceeds paid to a court appointed "disbursing agent" to be distributed among the creditors of the defendant pro rata, based on their allowed claims. Nothing was to inure to the benefit of the defendant unless all its creditors were paid in full; a most unlikely event, in the opinion of Mr. Stinnett. The plan was accepted by a majority in number and amount of the creditors who filed claims (the plaintiff is not one of them). On the 6th June the Californian Court, having recited that "the debtor's plan filed on the 3rd April, 1979 having been transmitted to creditors", found that the plan had been accepted "in writing by the requisite number and amount of creditors whose acceptance is required by law". However, according to Mr. Stinnett, the Court had, at the date of his affidavit, refused to confirm the plan for the reason to which I shall later refer. The Court, however, by a notice dated the 30th April, 1979 and signed by the Bankruptcy Judge gave notice to creditors that a considerable quantity of the assets of the defendant would be sold on the 13th June, 1979, and the hearing to consider the confirmation of the plan was adjourned to the 9th July. According to Mr. Stinnett the defendant has already liquidated most of its assets and is in the process of realising the remainder. It is no longer conducting business and it is not expected that it will ever be re-organised with a view either to continue or recommence operations.

19. The position of the defendant with relation to the company's assets was the matter of considerable argument before me. Mr. Tong contended that if this Court is satisfied that a foreign court is exercising jurisdiction over the movable property of a debtor wherever it exists then this Court will respect that jurisdiction. He referred me to 9th Edition of Dicey and Morris on The Conflict of Laws. Rule 131(2) p.687:

"The (English) court will recognise that the courts of any other foreign country have jurisdiction over a debtor if -

and the commentary at 688. One of the cases referred to in the commentary was In re Lawson's Trusts⁽⁴⁾. In that case a testator by his will dated the 2nd October, 1872 bequeathed a sum of money to his son. In 1866 the son had applied to the Court for the Relief of Insolvent Debtors within the Presidency of Bombay for the benefit of the provision of the Insolvent Debtors Act of India. An order was made in 1866 vesting all his property wherever situate in the official assignee. The son died intestate in 1873, in the father's life time, and letters of administration of his estate were granted in India. The father died in 1874, and in 1876 the trustees of the father's will paid into court in England the money bequeathed by the father and interest. The official assignee in India applied for the payment out to him of the money in Court in England without letters of administration being first taken out in England to the estate of the intestate son. North J., following In re Davidsons Settlement Trusts⁽⁵⁾, made the order sought.

20. Mr. Tong also referred to the case of Galbraith v. Grimshaw⁽³⁾ at 513:

"Now so far as the general principle is concerned it is quite consistent with the comity of nations that it should be a rule of international law that if the Court finds that there is already pending a process of universal distribution of a bankrupt's effects it should not allow steps to be taken in its territory which would interfere with the process of universal distribution; and that I take to be the doctrine at the bottom of the cases of which Goetze v. Aders 2 R. 150 is only one example".

Mr. Tong contended that in the present case there is "already pending a process of universal distribution of the bankrupt's effects" and the defendant is in possession as a trustee to that end. In the bankruptcy proceedings in the United States no receiver or trustee was expressly appointed as such but an order was made pursuant to sections 342 and 343 on the 4th December 1978, the same date as the petition, that the defendant remain in possession, and the order empowered it to conduct and operate its business in the normal way until further order of the Court.

21. Commenting on sections 312 and 342 Mr. Stinnett observed:

"Thus, as of the filing of a Chapter XI petition, the debtor in possession is vested with the powers of a trustee appointed pursuant to the provisions of the Bankruptcy Act and is in the same position as a trustee or receiver in bankruptcy. Thus, just as in the case of a straight bankruptcy where title to property passes to a trustee, title to the debtor's property passes to the debtor in possession, as an entity separate and distinct from the entity that filed the Chapter XI petition .... Title to such property passes pursuant to section 70 of the Bankruptcy Act".

22. As I understand Mr. Stinnett he is saying in effect that, just as in straight bankruptcy the bankrupt is divested of his property which is then vested in a trustee in bankruptcy, where the proceedings are commenced under s.322 it is as if adjudication were then ordered, and if the debtor remains in possession he is divested of and revested with all the assets with the attributes of a trustee in bankruptcy. Mr. Cary would appear to take a somewhat different view. Having dealt with the effect of the chapter XI proceedings on creditors and the status of their claims he suggests that there is no difference in the status of the petitioner after proceedings commence. The corporation is still the same with the same corporate structure and, generally, with the same management; as such it can continue to carry on business with the right to negotiate with its unsecured creditors and if successful in swaying a majority to its view to have that confirmed by the Court. He does concede that the debtor in possession has added responsibilities to the creditors and the Court. He further concedes that "..... a debtor in possession does become vested with the corporate assets upon the filing of the chapter XI petition".

23. The only importance of the matter, in my opinion, is the capacity in which the debtor retains possession. Does the debtor in possession hold the property for the benefit of creditors, as would a trustee in bankruptcy in Hong Kong, or is it in possession with the unchanged characteristics of ownership that it had before, though subject to some restrictions?

24. In my opinion the position is as outlined by Mr. Stinnett: there has been a divesting, or at least a notional divesting, of the defendant of the assets of the corporation and a revesting of them in it. There is a change in the capacity in which it holds even if the "entity" remains the same. I think support for that view is to be found in a case cited by Mr. Stinnett, Weiss v. Fleetwood Bank⁽⁶⁾ where Lazansky, Presiding Justice said at 585:

"Under the act, the debtor is permitted to remain in possession and conduct business, but the title of the debtor is the title of a trustee. S.342. Thus, while the title of the one who becomes a trustee after the failure of the 'arrangement' and adjudication in bankruptcy vests as of the date of the filing of the petition, it is expressly provided that, during the pendency of the 'arrangement' proceeding, the debtor holds title as a trustee; and from the time the filing of an 'arrangement' petition, the property becomes a trust fund under the control of the court until the arrangement is consummated, or for creditors in bankruptcy if the arrangement fails and there is an adjudication in bankruptcy, or for the debtor if the 'arrangement' proceeding be dismissed for failure. So here, the business and its assets, after the filing of the petition for an 'arrangement', were not the property of the debtor, but were a trust fund under the control of the court".

25. Another case referred to by Mr. Stinnett is Urban Properties Corporation v. Benson⁽⁷⁾. The case was an appeal from a decision of the District Court of the United States for the Southern District of California. In that case a lessor sought to have a lease declared cancelled for breach of the covenant:

"It is agreed that if at any time during the term of this lease, in any judicial action or proceeding, a receiver or other officer or agent be appointed to take charge of the demised premises or the business conducted therein ..... excepting with the consent of the Lessor first had and obtained, the Lessor shall have the right at their (sic) option, immediately to terminate this lease, enter upon the said premises and remove all persons therefrom."

on the ground that by filing a petition under chapter XI the lessee became an officer or agent "to take charge of the demised premises or the business conducted therein". Reversing the decision of the court below the Court of Appeal held for the lessor. In his judgment Denman, Circuit Judge said, p.323:

"Our disposition of the contention that the lessee became an officer or agent to operate the business makes it unnecessary to consider the lessee's argument that under the statute a failure to appoint a receiver or trustee automatically gives to the debtor the right 'to continue in possession of his property' and that such continuation of possession constitutes no change in the lessee's status under the lease".

The argument there referred to is relevant as Mr. Cary would suggest in his affidavit and Mr. Kotewall in his argument would maintain that in the present case the Act in no way changes the capacity of the defendant so far as its assets are concerned and, therefore, they should be available in execution to the plaintiff because by the order of the 4th December, 1978 that the defendant remain in possession, the assets still belong to it.

26. At 324 the learned judge continues:

27. Also cited to me was Shopmen's Local Union and others v. Kevin Steel Products Inc.⁽⁸⁾: "a debtor in possession under Chapter XI ..... is not the same entity as the pre-bankruptcy company". Circuit Judge Feinburg at 704. On further analysis Mr. Cary in his affidavit does not seriously differ from the view on the law expressed by Mr. Stinnett but rather compares the position in a straight bankruptcy with that in a chapter XI case. He says that a straight bankruptcy results in the "almost immediate" divestment of the bankrupt of its title to the assets, but he does not express any positive opinion on this point where the proceedings are under chapter XI. He also refers to the procedure for filing claims by creditors in the two procedures and the fact that in a straight bankruptcy the assets are marshalled by the Bankruptcy Trustee "almost exclusively" for the benefit of creditors whereas they may be used by the debtor in possession in an endeavour to rehabilitate the corporation. Mr. Cary says:

"One can quibble over whether or not a Chapter XI debtor in possession is a new legal entity, separate and apart from the pre-Chapter XI corporate debtor and this question is not answered specifically by the Bankruptcy Act".

With respect for Mr. Cary I think whether the debtor in possession is a new juristic entity or not is beside the point. The all important point is how does a debtor in possession hold the assets of the debtor. He goes on to say, however,

"On the one hand a debtor in possession does become vested with the corporate assets upon the filing of the Bankruptcy Court Chapter XI petition .... and quite obviously as a practical matter the two entities are much the same ...."

It would appear from that that Mr. Cary recognises that on the filing of the petition the petitioner is divested of possession of what was its own otherwise it is difficult to see how it could be become "vested" by the filing of the petition.

28. To conclude my reference to the authorities or texts referred to by Mr. Stinnett I would like to quote from a work to which he referred in his affidavit, 14th Edn. Collier on Bankruptcy. At page 923 under the heading "General Effect of Continuance in Possession" one finds:

"If a debtor continues in possession of his property .... he is not thereby empowered to deal with it as he did before the filing of the petition, 'unfettered and without restraint'. The property is in the hands of the court, although the debtor is left in possession, and the 'control of the court is then pervasive'. The factor that the debtor continues in possession does not authorise him to operate his business. That can be done only upon specific authorisation from the court....."

At page 929, writing on "Powers, Rights, and Duties of Debtor in Possession", the learned author says:

"Thus, it has been held that a debtor in possession holds his powers in trust for the benefit of the creditors, and that the creditors have the right to require the debtor in possession to exercise those powers for their benefit. It follows that a debtor in possession, in addition to his duty to exercise his powers for the benefit of creditors, is under a duty to preserve and protect his title and to maintain his possession for the benefit of creditors .... Furthermore, S.342 itself makes the debtor's possession, title, and powers subject 'at all times to the control of the court and to such limitations, restrictions, terms, and conditions as the court may from time to time prescribe ....'. The property is in the hands of the court, although the debtor is left in possession, and the 'control of the court is then pervasive'".

29. As I said earlier, the opinion expressed by Mr. Stinnett on the law of bankruptcy in the United States and the authorities relied on by him have not seriously been questioned in the affidavit of Mr. Cary. As a result I am satisfied that when the insolvent defendant filed a petition under section 322 the bankruptcy court obtained jurisdiction of the debtor and his property wherever situate and the jurisdiction, powers and duties of the court were as if a decree of adjudication in bankruptcy had been entered at the time the petition was filed. At that time the court had jurisdiction to vest the assets of the defendant in a person or body other than the defendant as a receiver or a trustee, but by the order of the 4th December, 1978 the court created it an officer of the court to deal with the assets of defendant as would a trustee in bankruptcy. It lost the "dominion of the conduct of the business for itself and that had been transferred to the court, which had the same exclusive jurisdiction of the debtor's property under chapter XI as if a voluntary petition had been filed and a decree of adjudication entered" as Circuit Judge Denman said in Urban Properties Corporation v. Benson⁽⁷⁾. It was for the creditors then to consider the arrangement proposed by the defendant and to accept or refuse it. In this case the creditors accepted the arrangement, as found by the court in its order of the 3rd July, 1979. That being so it was for the court to confirm the arrangement. The court has not yet confirmed the arrangement and Mr. Stinnett in his second affidavit, sworn on the 23rd July, 1979 states that it is not anticipated that it will be confirmed for several months. The reason for that, I have been given to understand, is that the court will not confirm the arrangement until sufficient money to meet the claims of preferred creditors is deposited in court. The present position of the proceedings is governed by section 376 of the Act. It provides:

"...., or if the money or other consideration required to be deposited is not deposited .... or if confirmation of the arrangement is refused the court shall -

30. I am satisfied that chapter XI proceedings in the United States are intended by the legislature primarily to be for the benefit of all creditors while at the same time affording an insolvent corporation the opportunity to recuperate. The proceedings are only possible with the consent of the creditors who hope that by consenting to them they will receive, at the least, a better dividend. The property and business of the petitioner is operated by him but in the same way as a liquidator in bankruptcy under the laws of Hong Kong might be empowered to carry on the business of a company in liquidation. The chapter XI debtor is a trustee for the creditors, and his primary function is to operate to their best advantage. In other words, when a debtor is in possession under chapter XI there is a position analogous to the "process of universal distribution" referred to by Lord Dunedin at p.513 in Galbraith v. Grimshaw⁽³⁾. I hold that by virtue of the law of the United States and the order of its court the property of the defendant is vested in it as if it were a trustee in bankruptcy and that such property wherever situate is under the control of the bankruptcy court in California and that the court in Hong Kong should respect that jurisdiction so far as movable property here is concerned.

31. Should there be a stay of proceedings?

32. The proceedings in Hong Kong arise out of a contract between the parties whereby the plaintiff undertook to provide certain services for the defendant. It was a condition of that contract that the parties "submit exclusively to the courts of Hong Kong and this contract shall be governed by Hong Kong Law". When the plaintiff served the writ on the defendant an unqualified appearance was entered and the plaintiff then moved, under Order XIV of the Rules of the Supreme Court, for final judgment. The only reply of the defendant was to move to have the proceedings stayed because of the bankruptcy proceedings. No affidavit was filed to suggest any defence to the plaintiff's claim. In ordinary circumstances the plaintiff would be entitled to judgment in Hong Kong.

33. It has been argued before me that I should stay the proceedings: because to allow judgment would be in conflict with the principle that nations in comity should respect the decisions of the courts of each other; in this case the plaintiff would be in no worse position than any other creditor if he proves in the bankruptcy; and the plaintiff is still in time so to do.

34. I am satisfied from the affidavits that the defendant may claim in the United States bankruptcy and be in no different position to any other creditor of the same degree. I do not know, however, what the position in America would be were the plaintiff to try to prove in the bankruptcy. He might find that the contract had been repudiated (part at least of the plaintiff's claim arose after the filing of the petition) or that the defendant denied liability on the facts. The position might be the same as in Gibbs & Sons v. Societe Industrielle et Commerciale des Metaux⁽⁹⁾. In that case the plaintiff sued for damages for the breach of certain contracts by the defendant which refused to accept delivery of copper, the subject of the contract, which was to be delivered in England.

The defendant had been pronounced to be in judicial liquidation by a French Court and it was pleaded by way of defence to proceedings instituted in England that the judgment in France operated as a discharge from liability under the contracts. Lord Esher M.R. at 406:

"The law invoked is not a law of the country to which the contract belongs, or one by which the contracting parties can be taken to have agreed to be bound; it is the law of another country by which they have not agreed to be bound .... Why should the plaintiffs be bound by the law of a country to which they do not belong, and by which they have not contracted to be bound? Therefore, if it were true that in any of the modes suggested the defendants were by the law of France discharged from liability, I should say that such law did not bind the plaintiffs, and that they were nevertheless entitled, according to English law, to maintain their action upon an English contract."

35. In the case before me if the contract had been repudiated in the United States and that were pleaded I would, with respect, follow the decision of the Master of the Rolls; not knowing what the position may be I see no reason for taking a different attitude. Again, if the trustee, the debtor in possession, were to deny liability on behalf of the defendant, or part of it, where would the plaintiff establish his claim? If a court in the United States were faced with disputed liability it is likely that it would disclaim jurisdiction. There is, I think, only one answer to the question having regard to the choice of law and forum of the parties, Hong Kong.

36. As the proceedings are before me, and as I have the jurisdiction so to do I order that judgment be entered for the plaintiff on the Order XIV application with costs.

37. There is, however, a further aspect to be considered. I have held that by the law of the United States the bankruptcy court of that country obtained jurisdiction of the property of the defendant wherever situated as if an adjudication in bankruptcy had been ordered when the defendant filed its petition. The defendant has money in Hong Kong. In my opinion it is vested in the defendant as trustee for its creditors. Should I order a stay of execution? Not to do so would mean that the plaintiff would be entitled to take the money on execution, oust the jurisdiction and control of the courts of the United States and divest the defendant as trustee of the creditors of the property here.

38. I would have had no hesitation in ordering a stay, following In re Anderson⁽²⁾, and Galbraith v. Grimshaw⁽³⁾ were it not for a decision of Cons J. in the unreported amalgamated admiralty actions of Mobile Sales and Supply Corporation and others v. The Owners of the Pacific Bear⁽¹⁰⁾ cited to me and it is because of that case I have dwelt at the length I have on the Act and the American decisions. In that case eight parties took actions in rem in Hong Kong against ships, in some cases one ship and in others two or all four ships, the property of the defendants. At the time chapter XI proceedings had been commenced by the defendants. The defendants applied for a stay of the actions on the grounds that the court had no jurisdiction and by reason of the chapter XI proceedings, Cons J. refused to exercise his discretion to stay the proceedings.

39. In his judgment Cons J. p.8 considered three points made by the defendants

40. As to (a) the learned judge expressed a preference for the contention of the defendants on it but what concerned him was the identity of the beneficial owner. As to (b) he said, p.9:

"The affidavits again conflict with regard to the second proposition. However, section 342 of the Bankruptcy Act appears to support some notion of a trust and there are comments to this effect in at least one State authority: Weiss v. Fleetwood Bank⁽⁶⁾ Nevertheless when considering the matter I think I should bear in mind

41. It is with the greatest hesitation and diffidence that I would venture to disagree with any opinion expressed by Cons J. The passage from the Weiss Case to which he refers is the passage I have already cited. But the word "trustee" in the first sentence must be read in the context of what the judge said earlier, pp. 584/5:

"An 'arrangement' means any plan of an insolvent debtor for the settlement, satisfaction, or extension of the time of payment of his unsecured debts, upon any terms ..... In such proceeding, the court has exclusive jurisdiction of the debtor and his property, wherever located. S.311. When a petition is filed .... the jurisdiction powers, and duties of the court, the powers of its officers, and the rights of the debtor, are the same as if a voluntary petition for adjudication in bankruptcy had been filed and a decree of adjudication had been entered at the time the petition was filed. SS 312(1) and 341. When no receiver or trustee is appointed the debtor continues in possession of the property and has all the title, and exercises all the powers of a trustee appointed under the Act, subject, however, at all times to the control of the court .... If an 'arrangement' is withdrawn or abandoned or not accepted by the creditors or fails for other reasons, the court enters an order either adjudging the debtor bankrupt and directing that bankruptcy be proceeded with pursuant to the provisions of the Act or dismissing the proceeding and closing the estate whichever may be in the interest of the creditors. SS 376(2) and 380".

42. It will be noted there that Lazansky, P.J. says that the debtor in possession has all the title of a trustee under the Act i.e. the title of a trustee in bankruptcy and it will be remembered that in the passage I cited from the Urban Properties Case⁽⁷⁾ it was hold that a debtor in possession was a trustee and consequently an officer of the court. It will also be remembered that in the last sentence of the passage I first cited from the Weiss Case it was held that after the filing of a petition for arrangement the business and assets were not the property of the debtor but were a trust fund, and that must mean a trust fund for the benefit of the creditors.

43. Having regard to the dicta to which I have referred I feel constrained to differ from Cons J. and hold that a debtor in possession is not the beneficial owner of the assets but holds them in trust for the benefit of the creditors with the right to have the title as beneficial owner revested in it if the terms of the arrangement with the creditors are fulfilled. It is true that a debtor in possession is still interested in the business and assets of the company but only in so far as they may one day be revested in it. In the instant case all the assets are being realised for the benefit of the creditors.

44. In my opinion the assets of the defendant, including the money in Hong Kong, were vested in the defendant as trustee for its creditors when the petition under chapter XI was filed. S.342. That was confirmed by the court by its order of the 4th December, 1978 when the court authorised the defendant to operate the business and manage the property.

45. In my opinion the principle enunciated in Galbraith v. Grimshaw⁽³⁾ applies and there should be a stay of execution. Having heard counsel for the defendant and the solicitor for the plaintiff on the question of costs I allow costs to the plaintiff. Certificate for Counsel.

Representation:

Mr. R. Kotewall (Johnson, Stokes & Master) for plaintiff.

Mr. R. Tong (Denton, Hall & Burgin) for defendant.

(1) 1866 L.R. 2 Eq. 23

(2) 1911 1 K.B. 896

(3) 1910 A.C. 508

(4) 1896 1 Ch. 175

(5) L.R. 15 Eq. 383

(6) 26 N.Y.S., 2 d. 583

(7) 116 F. 2 d., 321

(8) 519 F. 2d. 698 (1975)

(3) 1910 A.C. 510

(9) 1890 25 Q.B.D. 399

(10) 17/1978