Re Cheuk on Ching

HCB10013/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDING NO.10013 OF 2001

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Coram: Deputy High Court Judge Poon in Court

Dates of Hearing: 4 February and 2 April 2004

Date of Judgment: 2 April 2004

Date of Handing Down Reasons for Judgment: 7 May 2004

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REASONS FOR JUDGMENT

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INTRODUCTION

1.By petition dated 6 November 2001, Mr Cheuk On Ching applied for bankruptcy on the ground that he was unable to pay his debts pursuant to section 10 of the Bankruptcy Ordinance. The petition was opposed by his ex-wife, Madam Chiu Yee Mei. It is not in dispute that at the time of the petition, Mr Cheuk owed Madam Chiu periodical payments as ordered by the Family Court in the total sum of HK$129,000.

2.One of the points taken by Madam Chiu in opposition was that Mr Cheuk was at the material time holding 9,800 shares in Sing Hing Machine and Chemical Company Limited ("Sing Hing"). Mr Cheuk's case was that in June 1999 he had already transferred his shares to three creditors of his at a nominal price to discharge his debts due to them.

3.In the judgment that I handed down 4 December 2001, I allowed the petition and ordered Mr Cheuk bankrupt. Dissatisfied, Madam Chiu appealed. She adduced before the Court of Appeal fresh evidence which was not disputed by Mr Cheuk, showing that on 8 March 2001, the creditors of Mr Cheuk had re-transferred the 9,800 shares in Sing Hing back to Mr Cheuk at the consideration of HK$1. He had not made disclosure of the same in his statement of affairs filed on 5 November 2001 in support of this petition.

4.The Court of Appeal took the view that the new evidence might affect my decision whether to make the bankruptcy order. Accordingly, the Court of Appeal remitted the case back to me for reconsideration whether Mr Cheuk was unable to pay his debts as alleged.

MADAM CHIU'S LOCUS

5.The Court of Appeal, however, has not set aside the bankruptcy order. That being the case, the Official Receiver, as the trustee in bankruptcy, continued to administer Mr Cheuk's estate. In that connection, the Official Receiver filed a report on 23 October 2003 ("the Report"). In the Report, the Official Receiver raised for the first time in these proceedings that the debt due to Madam Chiu is not provable in bankruptcy and that the debt will not be discharged by reason of Mr Cheuk's bankruptcy.

6.The Official Receiver's view gave rise to the obvious question, whether Madam Chiu, whose debt is not provable and will not be discharged by reason of Mr Cheuk's bankruptcy, has any locus to oppose the petition.

7.At the hearing on 4 February 2004, I raised the above matters with Miss Gwilt, counsel appearing for Madam Chiu. The Official Receiver was not present at that hearing. It was unable to resolve those matters there and then. I therefore adjourned the case and directed the Official Receiver to appear at the adjourned hearing.

8.It was my intention to resolve the following questions at the adjourned hearing :

(1) whether the debt due to Madam Chiu is provable in bankruptcy; and

(2) if the answer is "no", whether Madam Chiu has any locus in opposing the petition.

9.Today, I have Mrs Sit appearing for the Official Receiver and with her great assistance, these questions have now been resolved. I will deal with them in turn.

(1) Whether the debt is provable in bankruptcy

10.In her written submissions, Mrs Sit supports the proposition that the debt due to Madam Chiu is not provable in bankruptcy with authorities. She submits that alimony or maintenance accruing due either before or after bankruptcy are not provable for the reason that the matrimonial court has such an unfettered discretion whether to enforce such arrears or not that they are incapable of valuation : Williams on Bankruptcy (19th Edition) at p.168-169, Halsbury's Laws of England (4th Edition), Vol.3 at para.373. Thus, the arrears of money maintenance is not a provable debt and a bankrupt's liability under an order for periodical payment of maintenance to his ex-wife and/or his children will not be released upon the bankrupt's discharge from bankruptcy. Having considered Mrs Sit's submissions, Miss Gwilt accepts that the debt due to Madam Chiu is not provable in bankruptcy.

11.I am also satisfied that such debt is not provable in bankruptcy.

(2) Whether Madam Chiu has any locus

12.Now that the debt due to Madam Chiu is not provable in bankruptcy and will not be discharged by reason of Mr Cheuk's bankruptcy, it appears at a first glance that she does not have any interest and, hence, locus in this petition. Miss Gwilt initially concedes that Madam Chiu does not have any locus, but Mrs Sit, with her usual diligence and efficiency, comes up with a research in the course of this morning on the relevant authorities which support the contrary view.

13.Mrs Sit submits that Madam Chiu has an interest in the bankruptcy proceedings because although Mr Cheuk's liability to pay the periodical payments will not be released by the discharge of his bankruptcy, the claims of the trustee in bankruptcy will prevail over the order of the Family Court during the bankruptcy : Albert v. Albert [1996] BP1R 232. Further, annulment of a bankruptcy order is available to "any person interested" : see section 33(6) of the Bankruptcy Ordinance, Butterworths on Hong Kong Bankruptcy Law Handbook at p.130. Madam Chiu may be an "interested party" with locus to apply for annulment of the bankruptcy order : Holliday v. Holliday [1981] 1 Ch 406. Thus, it would be fair to say that she has an interest in opposing the petition.

14.With the benefit of Mrs Sit's submissions, Miss Gwilt retracts her concession. I accept Mrs Sit's submissions in full and rule that despite the fact that the debt due to Madam Chiu is not provable in bankruptcy, she has an interest and, hence, locus in opposing the petition.

INABILITY TO PAY DEBTS

15.I now turn to consider the substantive question, namely whether Mr Cheuk was unable to pay his debt at the time of the petition as alleged.

16.The law has recognized that there are genuine advantages to permitting an insolvent debtor to invoke the bankruptcy jurisdiction on his own volition where he is unable to pay his debts. By doing so, he must come to the court with clean hands before being freed from the accumulative burdens of his debts and is given a chance in due course to make a fresh start. The burden is on the debtor and not for the creditors to prove that he has the funds to repay his debts.

17.Madam Chiu's complaint is that Mr Cheuk has failed to make a full disclosure of his assets and/or financial circumstances to discharge his burden in proving that he does not have sufficient assets to pay his debts. She also complains that Mr Cheuk has presented misleading and sometimes conflicting information in his many affirmations filed in the Family Court, the High Court and in the Court of Appeal.

18.In her oral submissions, Miss Gwilt raised, essentially, three points. The first point relates to the repayments of loans made by Mr Cheuk to his relatives. That can be found in paragraphs 8 and 9 of Miss Gwilt's written submissions. The matters relating to this issue, I believe, had already been canvassed at the previous hearings of this petition before me in 2002. I was aware of the evidence put forward by the parties on these matters. I am not persuaded that Mr Cheuk did not owe money to his creditors as contended by Madam Chiu. Even with the benefit of submissions from counsel, I am not so persuaded.

19.The second point raised by Miss Gwilt relates to the profitability of Sing Hing. She refers to certain transactions as disclosed in the documents, including some financial documents of Sing Hing. She complains that the documents are in a mess and until and unless the accounts of Sing Hing are properly audited, the court cannot be satisfied that the company is not profitable and that the shares owned by Mr Cheuk are of limited value.

20.Mrs Sit helpfully refers me to the Report. The financial position of Sing Hing was dealt with in paragraph 7 therein. According to the balance sheet of Sing Hing for the year ended 31 March 2001, it suffered a loss exceeding HK$500,000.

21.In my opinion, I should take a global view of all the evidence relating to Sing Hing's financial status. I take into account the submissions made by Miss Gwilt, but I am satisfied that on the evidence before me, Sing Hing is insolvent and the shares owned by Mr Cheuk are of minimal value.

22.The third matter raised by Miss Gwilt is that Mr Cheuk had failed to disclose to me in previous hearings that he had re-acquired the shares in the Sing Hing from his creditors. Having heard Mr Cheuk on this point, I accept his explanation. He did not consider that his shares in the Sing Hing were of any significant value because of its poor financial situation. It is not in dispute that voluntary winding-up proceedings had been begun by Sing Hing on the ground of inability to pay its debts.

23.I note from the various reports filed by the Official Receiver that Mr Cheuk simply does not have any means to discharge his debts, which is not contradicted by any evidence before me. In the circumstances, I am satisfied that Mr Cheuk was unable to pay his debts at the time of his petition.

CONCLUSION

24.For the above reasons, I confirm the bankruptcy order that I made on 4 December 2002.

Representation:

Miss Angela Gwilt, instructed by Messrs T.K. Cheng & Co., for the Opposing Creditor

The Debtor, in person

Mrs C.F. Sit of Official Receiver's Office