Re Lo Che Keung

HCB000355/1984

BANKRUPTCY

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Coram: The Honourable Mr. Justice Jones in Court

Date of hearing: 20 December 1984

Date of delivery of judgment: 20 December 1984

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JUDGMENT

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1. The hearing to-day was originally a petition for a receiving order. However, on the 14th December 1984 the debtor filed a notice pursuant to Rules 45 and 46 of the Bankruptcy Rules that the bankruptcy notice upon which the petitioner relies as an act of bankruptcy should be set aside.

2. The petitioning creditor obtained judgment against the debtor on the 5th July 1984 for the sum of $111,688.32 with interest and costs.

3. A bankruptcy notice based on the judgment debt was issued on the 17th July 1984 and was served the same day upon the two partners of the debtor firm. Although Rule 45 of the Bankruptcy Rules prescribes a period of 3 days to file an affidavit to set aside a bankruptcy notice if the debtor has a counterclaim, set off or cross demand which equals or exceeds the judgment debt the petitioner's solicitors gave a period of 7 days for compliance. This is the time limit currently prescribed in England. The bankruptcy notice complies in all other respects with the relevant rule. No affidavit was filed by the debtors within the 7 day period.

4. The bankruptcy petition was filed on the 28th July 1984 and alleged failure to comply with the requirements of the bankruptcy notice. On the 3rd September 1984 the debtor firm instituted proceedings against the petitioner for specific performance and damages. I have been told that a defence and counterclaim has been filed and that the pleadings have closed. The subject matter of this action was the basis for the resistance to the order 14 proceedings heard by me on the 5th July 1984 which was an appeal from a Master. However, as the claim by the petitioner was in respect of a dishonoured cheque judgment was not to be held up by virtue of any counterclaim. Messrs. Francis Yim & Co. acted for the debtor firm in the Order 14 proceedings and in the action that was commenced on the 3rd September 1984.

5. On the 1st October 1984 the debtors appeared in person at the hearing of the petition when Mayo J. made a receiving order. However, after reconsideration the order was set aside and the hearing was adjourned until the 8th October 1984. Further adjournments were granted on the 8th and the 29th October 1984. In the meantime one of the debtors Mr. Liu Po Shing was sentenced to a term of imprisonment for 3 years for offences of fraud.

6. Mr. Chain who appeared for the debtors submitted that after the bankruptcy notice was served the debtors gave no instructions to their solicitors until the 6th October 1984 when the notice to act on their behalf was filed. Accordingly he seeks the indulgence of the court to set aside the bankruptcy notice out of time. However, there is no merit in this submission for the debtors were represented by the same firm, as I have already said, when judgment was obtained in  the Order 14 proceedings on the 5th July and also in September when the writ was issued against the petitioner. The debtors have had ample time to seek advice from their solicitors in respect of the bankruptcy proceedings. In fact I consider that it is unrealistic not to believe  that they had in fact not done so.

7. Mr. Griffith who appeared for the petitioning creditor submitted that the provisions of Rules 45 and 46 are mandatory. Rule 45(2) reads as follows:-

"There shall also be endorsed on every bankruptcy notice an intimation to the debtor that, if he has a counterclaim set-off or cross demand which equals or exceeds the amount of the judgment debt and which he could not have set up in the action in which the Judgment or order was obtained, he must within the time specified in the notice file an affidavit to that effect with the Registrar.".

Sub-rule (3) where relevant reads as follows:-

The relevant part of Rule 46 reads:-

"The filing of such affidavit shall operate as an application to set aside the bankruptcy notice and thereupon  the court shall fix a day for hearing the application, and not less than 3 days before the day so fixed the Registrar shall give notice thereof both to the debtor and the creditor and to their respective solicitors, if known. ...................................................................

...................................................................................".

Mr. Griffith cited In re A Debtor [1934] 1 Ch. page 347 where Lord Hanworth, Master of the Rolls considered Rule 141 of the Bankruptcy Rules 1915 which is in the same terms as Rule 46. In his judgment at page 349 he had this to say:

"The filing of an affidavit for the purpose of an application to set aside a bankruptcy notice, if the affidavit is one which complies with r. 140 of the Bankruptcy Rules, 1915, is to be treated as notice of an application to set aside the notice, and then the procedure under r. 141 follows. That rule is mandatory and clear.".

Mr. Chain prays in aid Rule 204 which reads as follows:-

"The court may, under special circumstances and for good cause shown, extend or abridge the time appointed by these rules or fixed by any order of the court for doing any act or taking any proceeding.".

However, I am of the opinion that having regard to the authority cited Rule 45 overrides the provisions of Rule 204. In my judgment the time limit prescribed by Rule 45 is mandatory. In any event if I am wrong in expressing this view I do not consider that the debtors have established that there are special circumstances in this case. Accordingly the appeal to set aside the bankruptcy notice is refused.

8. Nevertheless, Mr. Chain submitted that pursuant to Section 9(3) of the Bankruptcy Ordinance the petition should be dismissed on the grounds that sufficient cause had been shown. Section 9(3) reads as follows:-

"If the court is not satisfied with the proof of the petitioning creditor's debt or of the act of bankruptcy or of the service of the petition, or is satisfied by the debtor that he is able to pay his debts, or is not satisfied that the assets for division among the unsecured creditors, after payment of all costs, charges and expenses, and the debts which are preferential under this Ordinance, will be sufficient to pay a divider of 15 per cent, or considers that for other sufficient cause no order ought to be made, the court may dismiss the petition.".

He contends that the debtors have a genuine set-off or cross demand which is relied upon in the action begun in September. Mr. Chain further submits that no prejudice will be caused by dismissing the petition for the petitioner has at all material times known of the proposed claim. On the other hand, Mr. Griffith made the point that the evidence to support the claim is based upon the affirmation of Liu Po Shing who is now serving, as I have said, a term of imprisonment for fraud. The credibility of this deponent is therefore suspect to say the least.

9. No definition of sufficient cause is provided in Section 9(3), but Mr. Griffith referred to the definition of these words in Section 10(1) which relates to a debtor's petition. However, I have not been able to obtain any assistance from that definition in the context of Section 9(3).

10. No authority has been cited with regard to the interpretation of sufficent cause where the issue of set-off has been raised. In my opinion the construction of the words "sufficient cause" in relation to Section 9(3) must therefore depend upon the facts.

11. In this ease the debtors have been guilty of constant delay whilst one of them has been proved to be untrustworthy. Again it is by no means certain that the claim of the debtors is genuine. Nevertheless, if the debtors should succeed in their action the court has power to annul the order of adjudication under the provisions of Section 33 of the Bankruptcy Ordinance. Taking all matters into consideration I am satisfied that a receiving order should be made together with the usual order as to costs.

Representation:

Mr. R. Griffith (Leo K.W. Lok & Co.) for Petitioner.

Mr. J.W. Millican for Official Receiver.

Mr. B. Chain (Francis Yim & Co.) for Debtor.