In Re First Bangkok City Finance Ltd. and Thai Mercantile Development Finance Ltd.

HCCW000215A/1986

CWU Nos.202 & 215 of 1986

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H E A D N O T E

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Application to reverse a decision of the Official Receiver rejecting a proof of debt.

Issue raised with regard to the point in time when a set-off should take place under s.35 of the Bankruptcy Ordinance which deals with mutual credits, mutual debts or other mutual dealings between a debtor and a proving creditor which applies to the liquidation of a company by s.264 of the Companies Ordinance.

IN THE SUPREME COURT OF HONG KONG

COMPANIES WINDING-UP

NOS. 202 & 215 OF 1986

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Coram: Hon Jones J. in Chambers

Dates of hearing: 1, 2 and 3 February 1993

Date for handing down judgment in Court: 26 February 1993

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J U D G M E N T

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1. This is an application by Vichit Cholsaipant, also known as Goh Tao Yick (the applicant) for an order that the decision of the Official Receiver made on the 12th July 1991 rejecting his proof of debt for US$2,871,792.76 and DM840,000 in the liquidation of First Bangkok City Finance Limited (FBCF) which was wound up compulsorily on the 28th July 1986 be reversed.

2. The facts reveal that at the date of the winding up order four deposits had been made by the applicant with FBCF. Of those four deposits, the applicant subsequently signed letters of lien for three to secure loans made by FBCF to a company named Bangkok Polysack Co. Ltd. (Polysack) of which he was the Managing Director and a shareholder. Polysack was a private limited company incorporated in Thailand and was a family business. The deposits were for DM840,000 on the 4th July 1985, secured as a loan for the same amount on the 6th January 1986, US$1,400,000 on the 19th February 1986 secured for two loans of US$1,000,000 and US$400,000, made on the 20th May 1986, and US$500,000 on the 20th February 1986 secured for the same amount on the 20th May 1986. The remaining deposit for US$971,792.76 has been accepted by the Official Receiver as security for another loan, but the applicant disputes that it was made as security for a loan to Polysack in the absence of evidence to show that there was a lien. The applicant had authorised FBCF to transfer to itself the whole of the principal and interest from the deposits to repay the loans in the event of default.

3. After the winding up order was made, the Official Receiver demanded repayment of the loans from Polysack on the 5th September 1986 but no payment has been made.

4. The proof of debt of the applicant was filed on the 19th May 1987.

5. At a meeting with the Official Receiver on the 3rd December 1990, the applicant's advisers agreed that there should be a mutual set-off of all debts between the applicant and FBCF and that the applicant should prove for the balance.

6. A personal loan of HK$100,000 by FBCF to the applicant was outstanding at the date of the winding up and it has been agreed that this sum is to be set off against any sums found to be due to the applicant.

7. The Official Receiver originally rejected the applicant's proof of debt on three grounds, but now accepts as I have said that the deposits may be set off by the loans to Polysack when the applicant requested this to be done on the 3rd December 1990. After calculating interest on the four loans up to and including the 3rd December 1990 and setting off the principal and interest against the four deposits the Official Receiver is prepared to admit the sum of HK$1,207,172 to proof.

8. However, the applicant contends that the set-off should take place as at the date of the winding up order, the 28th July 1986, in the sum of approximately US$971,000 which, it is contended, is the net sum that should be admitted to proof. Accordingly, although it is agreed that there should be a set-off, there is an issue in dispute between the parties as to the point in time when the set-off should take place.

9. The relevant provision governing set-off is s.35 of the Bankruptcy Ordinance which is derived from s.31 of the Bankruptcy Act 1914. Section 35 operates by virtue of s.264 of the Companies Ordinance. Section 264 provides :-

"264. In the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable and to the valuation of annuities and future and contingent liabilities as are in force for the time being under the law of bankruptcy with respect to the estates of persons adjudged bankrupt, and all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company may come in under the winding up, and make such claims against the company as they respectively are entitled to by virtue of this section."

Section 35 of the Bankruptcy Ordinance provides :-

"35. Where there have been mutual credits, mutual debts or other mutual dealings between a debtor against whom a receiving order is made under this Ordinance and any other person proving or claiming to prove a debt under the receiving order, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings and the sum due from the one party shall be set off against any sum due from the other party and the balance of the account, and no more, shall be claimed or paid on either side respectively; but a person shall not be entitled under this section to claim the benefit of any set-off against the property of a debtor in any case where he had, at the time of giving credit to the debtor, notice of an act of bankruptcy committed by the debtor and available against him."

10. Mr Neoh counsel for the applicant submitted that three loans were made by FBCF to Polysack which were guaranteed by the applicant by way of security given on three deposits of corresponding sums. Accordingly, the applicant was immediately liable to pay to FBCF any of the deposits when the corresponding guaranteed loan to Polysack was not repaid on the due date. In fact, the applicant had authorised FBCF, as I have said, to pay the deposit to itself. Mr Neoh contended that prior to the date when repayment was due on a secured Polysack loan, the applicant was a contingent debtor to FBCF. After that date, the applicant was immediately liable to FBCF by the terms of the letters of lien. He went on to say that FBCF's liability to the applicant on his deposits and the applicant's liability to FBCF, whether arising from his personal loan to FBCF, or the Polysack loans are mutual credits or mutual debts within the meaning of s.35 of the Bankruptcy Ordinance.

11. A great deal of the argument presented to me was concerned with the decision of In re Daintrey Ex parte Mant [1900] 1 QB 546 which is relied upon by Mr Neoh, but has been challenged by Mr Smith, counsel for the Official Receiver, who contends that it was wrongly decided.

12. In that case Daintrey, a solicitor, was indebted to another solicitor Mant, for the sum of ?86 when he committed an act of bankruptcy on the 24th December 1892 of which Mant had no notice. Daintrey sold his business to Mant on the 31st December 1892 under an agreement which fixed as the price a portion of the profits expected to be earned for three years from the business sold. On the 17th January 1893, a receiving order was made against Daintrey at which time no profits had been earned from the business. After three years, a sum of ?300 was found to be due from Mant to Daintrey under the agreement as the price of the business and was paid by Mant to Daintrey's trustee in bankruptcy after deducting the ?86 due from Daintrey to Mant. However, the trustee objected to the set-off by Mant, stating that he must pay the ?300 in full and prove for a dividend on the debt of ?86. The County Court judge allowed the objection and an appeal by Mant to the Divisional Court was dismissed. However, the two judges in the Divisional Court Wright J. and Bigham J. came to different opinions. On a further appeal by Mant to the Court of Appeal, it was held that the dealings between Mant and Daintrey were mutual dealings within s.38 of the Bankruptcy Act 1883, the predecessor of s.31 of the Bankruptcy Act 1914 so that Mant was entitled to set-off the ?86 due to him from Daintrey against the ?300. It was also held that the date of the receiving order was the proper date to ascertain what those dealings were in order to determine the issue of set-off. Both counsel, upon this application, accept that this date is correct. In re Daintrey was followed in two Australian cases : Hiley v The Peoples Prudential Assurance Co Ltd [1938] 60 CLR 468 and Day & Dent Constructions Pty Ltd v North Australian Properties Pty Ltd (1982) 40 ALR 399, and Re Charge Card Services Ltd [1986] 3 All ER 289. However, it was distinguished in In re A Debtor (No.66 of 1955) [1956] 1 WLR 1226 a case relied upon by Mr Smith.

13. Mr Smith submitted that In re Daintrey was wrongly decided or if it was right, the reasons of the majority were erroneous. In any event, Mr Smith contended that this case does not apply to the law of Hong Kong and is therefore not binding. He invited me not to follow In re Daintrey and the subsequent cases in which it has been applied. He went on to support the minority opinion of Wright J. in the Divisional Court who held that the demands were separate and independent transactions and that Mant was under no obligation to carry on the business which he had bought. In any event, he might have made no profit whilst on the date of the sale of the business there was no liability on Mant to pay anything. Wright J. considered whether at the date of the receiving order there were mutual demands capable of being made so that account could be taken for the purposes of a set-off. At pages 556 and 557 he said :-

"... It is, of course, immaterial whether the amount of the demand on either side was then ascertained or not. If there was then an existing liability such as is capable of being brought into an account, it is in general immaterial whether its amount could then have been ascertained, provided it can be ascertained when the account is taken. A liability to do or pay something in future will suffice, although the time for doing or paying it has not arrived. In the present case there was at that date no existing liability at all, but merely a contract under which there was a possibility of liability contingent upon things being done which Mant had not by the contract bound himself to do, and contingent on those things, if done, resulting in a profit. Such a contingent liability if it had attached to the bankrupt might have been matter of set-off, because by the express provision of s.37 it is made the subject of estimation, and the estimated sum would have been a debt provable against the bankruptcy unless declared by the Court incapable of estimation. But there is no corresponding enactment compelling a valuation to be made of a merely possible or contingent liability of another person to the bankrupt, and in the absence of any such enactment the difficulty is to see how an account of 'sums due' taken with reference to a particular date can include anything in respect of such a merely possible liability."

Later in his judgment at p.564 he said :-

"On the whole, therefore, the considerations governing the present case appear to be as follows: The proceeding being in bankruptcy, the question is whether there was a matter of set-off at the time with reference to which the account is to be taken under s.38 - that is, the date of the receiving order. At that date there was no sum due, certain or uncertain, nor any existing liability, and without new and entirely uncertain events and the voluntary action of Mant nothing would become due. Mant could not be compelled at the time of the receiving order to admit any kind of liability as then existing, nor could he have forced the bankrupt or the trustee to accept any valuation or composition. Suppose that on the one hand the agreement had been unlimited in time, and on the other hand the bankrupt's debt to Mant had been so large as to exceed any probable liability of Mant under the agreement during Mant's life or continuance in business, and Mant had proved in the bankruptcy for his whole claim, how could it have been ascertained what sum the trustee could set off?"

14. On the other hand, Bigham J. came to the opposite opinion when he said at pages 568 and 569 :-

"... The dealings are mutual - that is to say, they are in the same right, and they are between a debtor against whom a receiving order has been made, and a creditor claiming to prove a debt under the receiving order - that is to say, having a right to prove a debt in the bankruptcy proceedings initiated by the receiving order.

It was argued for the respondents that the account directed to be taken by s.38 must be taken as at the date of the receiving order, and it was said that, inasmuch as there was nothing payable by Mant & Mant at that date, no such account could possibly be taken, and that therefore the case did not fall within the section.

The judgment of Lord Selborne in In re Milan Tramways Co., Ex parte Theys 25 Ch.D.587, was referred to as supporting the contention. That case has nothing to do with the point now under consideration; but in his judgment Lord Selborne, referring to the mutual credit section of the Bankruptcy Act of 1869, said 25 Ch.D. at p.591: 'The line is drawn at the time of the bankruptcy, and the rights of the parties are not to be altered by subsequent transactions. A person comes in to prove a debt against the bankrupt's estate; if there are mutual credits between the bankrupt and the creditor, then an account is to be taken, and the balance is to be proved against the estate, or paid to the estate, as the case may be.' The answer to this argument is that the appellants are not seeking to alter the rights of the parties by reference to subsequent transactions, but are seeking to ascertain them by reference to the natural outcome of previous transactions, and Lord Selborne's observations, so far from supporting the respondent's contention, seem to me to show that the account which the section of the Act directed should be taken is to be taken when the claim on the one side or the other is presented. In the case before the Court there are no subsequent transactions; the debt on the one hand, and the agreement out of which the cross-debt arises on the other hand, both came into existence before the date of the receiving order, and the account must, in my opinion, be taken by placing the one debt against the other and ascertaining the difference."

Later at page 571 he said :-

"Both in Booth v. Hutchinson LR 15 Eq 30 and in Palmer v Day & Sons [1895] 2 QB 618 there was a debt due by the bankrupt before the bankruptcy, and there was a debt which fell due to the bankrupt's estate after the commencement of the bankruptcy arising out of contracts entered into before the bankruptcy. In neither case could any account have been taken at the commencement of the bankruptcy, for it was quite uncertain whether anything, and if anything how much, might become due to the bankrupt's estate; yet the account was allowed to be taken when the demand against the creditor on the estate was put forward. The Court, in their judgment in Palmer v Day & Sons, said there was a debt on the one side and a delivery of property with directions to turn it into money on the other [1895] 2 QB at p.623. So, in the present case, there was a debt due by Daintrey on the one side, and there was a transfer by him of his business on the terms that it should be worked so as to produce money payable to him on the other. Thus the cases seem to be identical."

15. The Court of Appeal disagreed with Wright J. 's construction of the contract that at the date of the receiving order there were no mutual debts and agreed with Bigham J. In the Court of Appeal, Romer L.J. at pages 573 and 574 had this to say :-

"... There was a certain sum due from Daintrey to Messrs Mant. On the other hand, Messrs Mant were under a liability to Daintrey by virtue of the agreement of December 31, 1892. I agree that the amount which ultimately became payable by them could not be ascertained until some time later than the date of the receiving order, and it was possible that the amount might be very small; but, whatever sum eventually became payable, became payable to Daintrey by virtue of this agreement of December 31, 1892, and of nothing else. For Messrs Mant to obtain the advantage of the mutual credit clause, it was not necessary that the money payable under the agreement should be immediately payable to the bankrupt at the date of the receiving order; nor were the circumstances such that the account could be taken as between Messrs Mant and the bankrupt at that date. It is quite sufficient if the account can be taken when the set-off arises."

16. If contrary to his submission that In re Daintrey was correctly decided, Mr Smith submitted that the reasoning of the majority of the judges was wrong. He emphasised that Wright J.'s analysis of the relevant date for deciding whether there were mutual credits, debts, or other mutual dealings has never been challenged. Further, his conclusion that only matters of which an account can be taken at that time, i.e. at the time of the making of the receiving or winding up order naturally follows from this. If an estimate of the probable future profits of the solicitor's practice could have been made at the time of the winding up, the decision is right on the facts.

17. In the alternative Mr Smith submitted the true construction of In re Daintrey appears from In re A Debtor where it was held that the ascertainment of the debt may take place after the relevant date provided that liability was established at the date of the winding up order. In that case the debtor agreed to sell to W on credit goods for which he had paid cash. In order to pay for the goods, the debtor borrowed money from his bank and W in consideration of the credit which he received, agreed to guarantee the debtor's overdraft to an extent not exceeding ?200 which guarantee was secured by a deposit of title deeds of some property owned by W. The debtor supplied goods to W valued at ?201 Ids. 6d. and W paid ?100 into the debtor's bank, leaving a balance due of ?101 Ids. 6d. A receiving order was made against W and W's trustee in bankruptcy, during the course of realisation of the assets and in order to complete a sale by him of the property secured by the deposit of the title deeds, paid to the debtor's bank the sum of ?133 ids., the amount with interest of the debtor's overdraft, and obtained the release of the deeds. It was held that the amount due to the debtor from W, ?101 Ids. 6d. was not automatically discharged by payment by W's trustee in bankruptcy to the debtor's bank of the overdraft amounting to ?133 Ids. At the relevant date which ~~ was conceded was the date of the receiving order in W's bankruptcy, there was no debt due from the debtor to W capable of forming the subject matter of a set-off under the section against the debt due from W. The rights of W against the debtor were the special but contingent rights of a surety who had not been called upon to make any payment by the principal creditor and had not exercised the protective right of a surety to require the principal debtor to relieve him of his liability by paying the debt owed to the principal creditor. Nor was all that remained to be done the quantification of the extent of an obligation already incurred with the result that In re Daintrey was distinguished.

18. Mr Smith submitted that upon this authority whilst quantification of the claimed set-off can take place after the date of the making of the order, the decision on liability cannot.

19. The decision in In re Daintrey was, as I have said, followed in Hiley v The Peoples Prudential Assurance Co Ltd (1938) 60 CLR 468 where Hiley, a policy holder in a life assurance company borrowed money from the company and as security for its repayment, gave a mortgage over certain land and deposited his policy. The mortgage was transferred by the assurance company by way of security to another company which in turn transferred the mortgage as security to a bank. Subsequently the assurance company was ordered to be wound up and the official liquidator gave notice to Hiley that the company would not carry out its obligations to him under the policy. After the commencement of the liquidation, the bank retransferred Hiley's mortgage to the assurance company. The liquidator sued for a declaration that Hiley's mortgage was valid and subsisting. Hiley sought to set-off against the mortgage debt the damages sustained by him by reason of the company's repudiation of its obligations under the policy. It was held that the mortgage was valid and subsisting and that Hiley was entitled to the set-off. It is significant that although Latham C.J. dissented, holding that the debt due from Hiley to the assurance company was not a debt which existed at the time of the liquidation but arose from a transaction subsequent to the liquidation, he held that a debt arising after the winding up out of a contract made before could become the subject of a set-off for at 483 he said : "... it is sufficient to justify a set-off if at the date of the winding up there existed contractual obligations the enforcement of which might give rise to a claim provable in the winding up." In considering this matter, Dixon J. in his judgment at pages 496 and 497 had this to say :-

"... the general rule does not require that at the moment when the winding up commences there shall be two enforceable debts, a debt provable in the liquidation and a debt enforceable by the liquidator against the creditor claiming to prove. It is enough that at the commencement of the winding up mutual dealings exist which involve rights and obligations whether absolute or contingent of such a nature that afterwards in the events that happen they mature or develop into pecuniary demands capable of set off. If the end contemplated by the transaction is a claim sounding in money so that, in the phrase employed in the cases, it is commensurable with the cross-demand, no more is required than that at the commencement of the winding up liabilities shall have been contracted by the company and the other party respectively from which cross money claims accrue during the course of the winding up (Naoroji v Chartered Bank of India (1868) LR 3 CP 444, at pp 451, 452; Astley v Gurney (1869) LR 4 CP 714; Palmer v Day & Sons (1895) 2 QB 618, at p.622; In re Daintrey; Ex parte Mant (1900) 1 QB, at pp.568, 574).

The test was succinctly encapsulated by Rich J at 487 when he said :-

"Rights must be vested in the creditor and in the company which, without any new transaction, grow in the natural course of events into money claims capable of forming items in an account or capable of settlement by set-off."

20. Hiley was followed in another Australian decision Day & Dent v North Australian Properties (1982) 40 ALR 399 where In re A Debtor was expressly disapproved. Indeed, the Court commented upon the fact that Hiley was not referred to in that case. After considering a number of authorities, Gibbs CJ in deciding what was meant by mutual credits had this to say at 406 :-

"Sheppard J, in his dissenting judgment in the Federal Court, referred to the fact that some of the cases cited by Dixon J as authority for the passage in his judgment (60 CLR at 497) which I have already cited, appear to accept the rule, laid down in Rose y Hart (1818) 8 Taunt 499 at 506; 129 ER 477 at 480, that mutual credits 'meant such credits only as must in their nature terminate in debts': see Naoroji v Chartered Bank of India (1868) LR 3 CP 444 at 450; Astley v Gurney (1869) LR 4 CP 714 at 722 and cf Palmer v Day & Sons [1895] 2 QB 618 at 622. However, I consider that no more was meant than that there may only be a set-off in respect of 'all such credits and dealings as in the natural course of business would end in debts' to use the words of Montague Smith J in Naoroji v Chartered Bank of India (at 452): see also per Keating J, at 452. The modern authorities favour this view - that it is enough that the dealing would naturally, and does, terminate in a debt. It is well understood that the law which relates to the set-off of mutual dealings in bankruptcy, which has a long history, exists to prevent the injustice of a man who has had mutual dealings with a bankrupt from having to pay in full what he owes in respect of such dealings while only receiving a dividend on what the bankrupt owed him in respect of them: see Ex parte Barnett; Re Deveze (1874) 9 Ch App 293 at 297. On the other hand it would be unjust to the creditors of the bankrupt if a debtor of the bankrupt could after the bankruptcy buy up liabilities of the bankrupt for the purpose of setting them off against his own indebtedness. Both injustices can be avoided by the application of the principle stated in Hiley v Peoples Prudential Assurance Co Ltd. In my opinion that decision should be followed and it governs the present case."

21. In Re Charge Card Services Ltd (1986) 3 AllER 289 Millett J said the law had been correctly stated by Dixon J in Hiley's case and at 311 had this to say :-

"... there is abundant Court of Appeal authority, that contingent liabilities of all kinds, including liability for breaches occurring on or after the receiving order of contracts entered into before that date, are debts provable in the bankruptcy, and that in general all provable debts resulting from mutual dealings are capable of set-off."

At p.319 he considered the ratio of In re A Debtor and the object of the section when he said :-

"... In my judgment, the true ratio of Re a debtor (No 66 of 1955) is that to come within s.31 the liability must be exclusively referable not merely to an agreement already existing at the date of the receiving order, but to an agreement between the same parties as the parties to the set-off, and that the liability of the principal debtor to indemnify a surety who has paid the principal debtor does not pass this test. Whether in fact it does so or not, there is nothing in the decision to compel the conclusion that, contrary to all the earlier authorities, liabilities still wholly contingent at the date of the receiving order are, for that reason alone, outside the scope of s.31.

The object of that section, like its predecessors, is to prevent the injustice of a man who has had mutual dealings with a bankrupt from having to pay in full what he owes to the bankrupt while having to rest content with a dividend on what the bankrupt owes him. Of course, a debtor to the bankrupt must not be allowed, after the date of the receiving order, to gain an advantage by buying up the bankrupt's liabilities in order to obtain the benefit of a set-off. But to disallow the set-off of a provable debt merely because it was still contingent at the date of the receiving order, where the contingency has since occurred and the liability which has arisen is exclusively referable to and has resulted in the natural course of events from a transaction between the same parties entered into before the receiving order, would in my judgment be productive of the very injustice the section and its predecessors were designed to prevent."

22. My attention was also drawn by counsel to M S Fashions Ltd v Bank of Credit and Commerce International SA [1992] BCC 571 where it was held that as a matter of law upon a company going into liquidation, an account was required to be taken at that stage of what was due from each party to the other and there was then to be a set-off between them. Once, there had been that set-off to the extent of the amount which was set-off, the company had been paid. That meant that not only was the guarantor or joint principal discharged to the extent of the set-off, but so was any other debtor who was liable in relation to the same sum.

23. Mr Smith asserted that it had not been established that there were mutual dealings between the same parties in the same right for in this case there was only a deposit of funds for a specified purpose whilst the loans were made to Polysack, the principal debtor. In support of this submission, Mr Smith cited Ex parte Morier [1879] 11 Ch 491 where the headnote reads :-

"An executorship account was kept with bankers in the joint names of the two executors, who were brother and sister. The brother, who was the residuary legatee under the will, kept another account of his own with the bankers. The bankers filed a liquidation petition, and at that time there was a balance standing to the credit of the joint account, but the other account was overdrawn. Securities had been set apart to answer the legacies bequeathed by the will, and the testator's debts and funeral and testamentary expenses had been paid. But the executors were jointly liable for some rates and taxes and a solicitor's bill of costs which had not been paid:-

Held, that the one account could not be set off against the other in the liquidation of the bankers.

The rules of equitable set-off or mutual credit could not apply unless the brother was so much the person solely beneficially interested in the balance of the joint account that a Court of Equity, without any terms or any further inquiry, would have compelled the sister to transfer the account into the brother's name alone."

24. In order to determine whether there were mutual dealings between the applicant and FBCF, it is necessary to look at the nature of the transactions. FBCF was not treating the deposits separately as between themselves and the applicant, but were looking to them as security for the loans to Polysack which had been guaranteed by the applicant. It is clear that the deposits made by the applicant and the loans to Polysack were inextricably linked. The applicant was in effect the guarantor for repayment so that the bank could look to the loans for this purpose. The debts clearly arise between the same parties and in the same right. The applicant was obliged to pay to FBCF any deposit when the corresponding guaranteed loan to the company was not repaid on the due date. In his position as guarantor, the applicant was a potential debtor to FBCF. The facts in Ex parte Morier have no relevance to the present proceedings.

25. Mr Smith contended that the effect of the two Australian cases and Re Charge Card Services Limited will result in the set-off taking place at the time when the applicant's claim reaches its maximum and at no other time. He also said that subject to the law of limitation the claim might not be made for several years which would cause unacceptable delay and render the taking of an account unworkable. However, I do not consider that these arguments have any merit. The object of s.35 is to do justice between the parties. As the transactions which took place between the parties before the date of the winding up order have resulted in cross claims, I cannot see any justification for the proposition that the applicant should be required to make payment in full and only prove for a dividend for his own debt. Indeed, it is significant that by s.34(3) of the Bankruptcy Ordinance the contingent debts of a debtor at the date of a receiving order to which he may become subject before his discharge by virtue of any obligations incurred before the date of the receiving order are deemed to be debts provable in the bankruptcy. Further by s.34(4) an estimate can be made by the trustee in bankruptcy of the value of any debt that is subject to any contingency.

26. I am satisfied that the pre-existing agreements between the parties at the date of the winding up order amounted to mutual dealings. However, it is not necessary that the quantification of the amounts due should be made at that date for it is sufficient that the dealings will eventuate in a money claim being made in the course of the winding up for the purpose of taking an account. Although the parties' rights, even if contingent, must be established at the date of the winding up order, the time for the account to be taken is when the claim is made. Accordingly, I reject the submission that In re Daintrey was wrongly decided. In my judgment, the law as set out in Hiley v The Peoples Prudential Assurance Co Ltd as applied in Day & Dent v North Australian Properties Pty Ltd and Re Charge Card Services Limited is correct.

27. Accordingly the applicant is entitled to be admitted to proof for the net sum after setting off all loans against the deposits on the date of the winding up of the company. In handing down this judgment, there will be an order nisi for costs to the applicant with a certificate for two counsel.

Representation:

Mr Anthony Neoh Q.C. and Mr Kam Cheung (Charles Yeung & Clement Lam & Co.) for Applicant

Mr Christopher Smith for Official Receiver