Re Union Electric (HK) Corporation

HCB 1135/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 1135 OF 1999

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Coram: Master S. Kwang in Court

Date of Hearing: 22 April 2004

Date of Judgment: 22 April 2004

Date of Handing Down Reasons for Judgment: 22 July 2004

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REASONS FOR JUDGMENT

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Background

1.Mr. Ma Yue Chow ("Mr. Ma") was the sole proprietor and used to carry on business in the name of Union Electric (HK) Corporation ("Union"). In May 1999, a creditor filed a Bankruptcy Petition against Union. On 15 September 1999, Master Lok (as he then was) granted a bankruptcy order against Union. Pursuant to Section 30A(1) and 2(a) of the Bankruptcy Ordinance ("the Ordinance"), if no objection was raised, the bankrupt would have been discharged from bankruptcy on 15 September 2003.

2.On or about 25 April 2003, the Official Receiver and Trustee ("the Official Receiver) sent out notices to creditors under Section 30A(5) of the Ordinance giving his intention to object the automatic discharge of the bankruptcy against "Ma Yue Chow trading as Union Electric (HK) Corporation". A summons was later issued by the Official Receiver on 4 August 2003 against the "Bankrupt" seeking an order that the discharge of the "Bankrupt" should cease to run. However, the summons did not mention clearly who is the "Bankrupt": either the business Union or its proprietor Mr. Ma.

3.The application was first heard before me on 3 September 2003. Mr. Ma was legally represented at the hearing. Mr. Yeung indicated that his client would oppose against the Official Receiver's application. Mr. Ma had filed an affirmation before the said hearing and I accordingly gave directions for the Official Receiver to file and serve a Report in reply. While adjourning the application for full arguments, an interim order was made suspending the automatic discharge pending the determination of the application ("the Interim Order"). I also invited the parties to make submission whether in case the Court was minded to suspend the automatic discharge of the bankruptcy, whether the order should direct against Union or Mr. Ma.

4.The matter restored before me on 22 April 2004. At the outset of the hearing, Mr. Yeung confirmed that Mr. Ma decided not to oppose the Official Receiver's application but would submit grounds of mitigation on the period of suspension. Mr. Yeung further stated that subject to what Mr. Ma has said in his Affirmation, he has no objection to the facts pleaded in the 2 Reports of the Official Receiver.

5.After hearing the submissions of both sides, I find that the Official Receiver had established his ground under Section 30A(4)(c) of the Ordinance for objecting the automatic discharge of the bankruptcy. Both parties agreed during their respective submission that the order should direct against Mr. Ma trading as Union Electric (HK) Corporation. Taking into account of the mitigating factors put forward by Mr. Yeung, I made an order suspending the automatic discharge of the bankruptcy of Mr. Ma trading as Union Electric (HK) Corporation for a period of 18 months so that the bankrupt shall not be discharged until 15 March 2005.

6.The Official Receiver in this case applied for costs against the Bankrupt assessed gross sum by the Court. After considering the skeleton bill submitted by the Official Receiver at the hearing, I ordered that the costs of the summons dated 4 August 2003 including all costs reserved in the previous hearing be to the Official Receiver assessed gross sum at $30,000 payable by the bankrupt after his discharge from the bankruptcy.

7.At the conclusion of the hearing, I indicated that I would give my reasons in writing later, which I now do.

Suspension Order Against the Individual Bankrupt

8.The Petition in this case was issued against Union as a firm and the bankruptcy order was accordingly made against Union as a firm. A preliminary issue was raised at the call over hearing whether objection of the Official Receiver against the automatic discharge of the bankruptcy under Section 30A of the Ordinance should direct against the individual bankrupt no matter he/she used to be a partner or the sole proprietor of the firm and the order for suspension of automatic discharge if so made by the Court should be granted against the individual bankrupt than the firm.

9.Ms. Yiu for the Official Receiver has rightly pointed out that under law, a business in form of a sole proprietorship or a partnership has no legal personality distinct from its member or members.

10.Section 7 of the Ordinance provides:

"(1) The following provisions shall have effect in the case of a firm carrying on business in Hong Kong -

(b) it shall be sufficient that a bankruptcy order against the firm be made in the firm name, without mentioning the names of the partners, and such bankruptcy order shall affect the joint and separate property of all the partners;

(c) the right of a creditor to present a bankruptcy petition against the firm, and the jurisdiction of the court to make a bankruptcy order against the firm, shall not be affected by the fact, if it is so, that all or any of the partners of the firm are not resident or domiciled in Hong Kong.

(2) The provisions of this section shall, so far as the nature of the case will permit, apply to any person carrying on business in Hong Kong in a name or style other than his own name."

11.The Ordinance clearly anticipates and indeed permits a Petition be issued and eventually the bankruptcy order be made in the firm name without mentioning the names of the partners. However, when we turn to the discharge from bankruptcy or any objection to the automatic discharge, it appears that the notion of "firm name" is no longer applicable.

12.Section 30A of the Ordinance stipulates that a bankrupt is discharged from bankruptcy by the expiration of 4 years beginning with the commencement of the bankruptcy where a person has not been adjudged bankrupt. Further, where the court is satisfied on the application of the trustee or the creditors of the bankrupt that a valid objection on any grounds as specified under subsection (4) has been made, the court may order that the relevant period shall cease to run for a period not exceeding 4 years in case of a person who has not previously been adjudged bankrupt. The Section refers to "the bankrupt" and "a person".

13.The word "bankrupt" is not defined in the Ordinance. The English Insolvency Act 1986, however, defines under its Section 381(1) that the bankrupt means an individual who has been adjudged bankrupt, and in relation to a bankruptcy order, the individual adjudged bankrupt by that order. Although the Ordinance does not provide a definition of the word "bankrupt", I cannot see any reason why such word in the Ordinance cannot share the same meaning in our English counterpart and in particular taking into account the followings:-

(a) under the Shorter Oxford English Dictionary, the word "person" has the meaning as an individual human being; and

(b) "bankruptcy order" as defined under Rule 2 of the Bankruptcy Rules means an order adjudging an individual bankrupt.

I, therefore, take the view that the word "bankrupt" must be referring to an individual person rather than the firm even though the bankruptcy order was made against the firm. In case of a partnership, it should be the individual partner and in case of a sole proprietorship, its proprietor.

14.Further, it would be sensible for the word "bankrupt" been defined as the individual bankrupt in order to achieve a fair and just result especially in the context of discharge of bankruptcy. It must be the individual person who is discharged from his/her bankruptcy. If the conducts of an individual partner of the firm call into question whereby the trustee has to apply for the suspension of the automatic discharge, such application must be directed against that individual partner rather than the firm. Therefore, even though the bankruptcy order was made against a firm, those partners who cooperated with the trustee in the administration of the estate and complied with the duties imposed under the Ordinance would get automatic discharge after 4 years and those partners who were found guilty of misconduct or in breach of their duties, the discharge of their bankruptcy may be suspended.

15.In the premises, in my judgment, any application by the trustee or the creditors for suspension of the automatic discharge of bankruptcy and any order made thereunder by the Court should be made against the individual named bankrupt even though the bankruptcy order was made against the firm. In this case, while the notice issued under Section 30A(5) has correctly referred to "Ma Yue Chow trading as Union Electric (HK) Corporation", the Summons issued was, in my view, defective as it only referred in the heading the name of the firm but failed to refer in the body of the summons who was the bankrupt in question. However, Mr. Yeung acting for Mr. Ma raised no issue and did not challenge the validity of the Summons. In fact, he agreed that the order for suspension should be made against Mr. Ma trading as Union. In any event, I would exercise my discretion under Section 124 of the Ordinance to waive the irregularity, since I see no injustice suffered by Mr. Ma as a result such defect in the Summons.

Official Receiver's Grounds of Objections

16.The Official Receiver relied upon Section 30A(4)(c) of the Ordinance to object the automatic discharge, namely, the bankrupt failed to co-operate in the administration of his estate. The Official Receiver filed 2 Reports in support. It is the Official Receiver's case that Mr. Ma was aware of his bankruptcy but failed to contact the Official Receiver to render his co-operation.

17.Ms. Yiu for the Official Receiver asked the Court to take into account the following facts of the case to draw inference that Mr. Ma should have knowledge of the bankruptcy order granted against him:-

(a) The subject Statutory Demand was served by the Legal Aid Department acting for the Petitioning Creditor on Mr. Ma personally on 9 April 1999. A clear notice was put in the Statutory Demand that Mr. Ma had 21 days to deal with the matter; otherwise, the creditor might present a bankruptcy petition and Mr. Ma could be made bankrupt;

(b) The Petition in this case was issued on 12 May 1999. The Petitioner through the Legal Aid Department had made various attempts to serve the Petition on Mr. Ma personally but failed. Application was made for substituted service of the Petition on Mr. Ma by ordinary post and advertisement. In support of such application, the process server deposed that on 12 July 1999 at about 11:15a.m., he received a telephone call from Mr. Ma who excused that since he had to attend urgent business matter and had gone back to China, he could not attend the appointment to receive the Petition. Mr. Ma promised to contact the process server again but eventually failed to keep his promise and no contact was made by Mr. Ma anymore. It was the belief of the process server that Mr. Ma tried to evade service. These facts were not disputed by Mr. Ma in this application;

(c) The Petition was eventually served on Mr. Ma by ordinary post at his last know addresses and by advertisement once in a Chinese language newspaper on 19 August 1999 in accordance with the substituted service order dated 11 August 1999. The said service was deemed to be good service of the Petition on Mr. Ma. Mr. Yeung confirmed that he had no dispute on the service of the Petition on his client;

(d) The bankruptcy order was later advertised and gazetted;

(e) Various bank accounts of Mr. Ma were closed after the grant of the bankruptcy order and credit balances were remitted to the Official Receiver. Mr. Ma admitted in his Affirmation filed in this application that he had knowledge of the closure of his bank accounts but he did not question about it; and

(f) According to the Statement of Affairs filed by Mr. Ma, his liabilities amount to HK$7 millions odd. Given that Mr. Ma had to face with such enormous claims of his creditors, he should have his own bankruptcy petition presented.

18.Ms. Yiu referred to Paragraph 30A.06 of the Butterworths Hong Kong Bankruptcy Law Handbook (2nd Edition) which states that the word "satisfied" under Section 30A(3) of the Ordinance does not mean the court must be satisfied beyond reasonable doubt of the existence of any of the statutory grounds of objection; but it merely has to be satisfied on the balance of probability that the grounds have been established. Therefore, the civil standard of proof applies despite the fact that the order for suspension of automatic discharge is said to be an exercise of the penal jurisdiction of the court.

19.Ms. Yiu submitted that from the abovementioned facts, on balance of probability, the court could draw inferences that Mr. Ma had knowledge of the bankruptcy order granted against him in 1999 but failed to co-operate.

Mitigating Factors of the Bankrupt

20.Mr. Ma has sensibly conceded not to object to the suspension of automatic discharge at the substantive hearing. Mr. Yeung urged the Court to impose a lenient period of suspension taking into account of the mitigating factors.

21.Mr. Ma did not dispute that he was aware of the bankruptcy petition. However, he maintained that he was not aware of the bankruptcy order and his primary obligation to co-operate. In the Affirmation filed by Mr. Ma, he alleged that he was only aware of the bankruptcy order in July 2003 when he instructed his solicitors to "reclaim the toolings from his suppliers". By then, Mr. Yeung conducted a bankruptcy search and found the bankruptcy order.

22.It appears that after Mr. Ma learnt about his bankruptcy and upon advice of Mr. Yeung, he immediately approached the Official Receiver and was asked to fill out various documents including the Statement of Affairs and the annual statements of earnings and acquisitions. With the assistance of his solicitors, Mr. Ma submitted the Statement of Affairs, the questionnaire and the 4 annual statements with the Official Receiver in August 2003 (the very last month before his automatic discharge).

23.Mr. Ma stated that his failure to cooperate is neither intentional nor deliberate. He would cooperate if he were made aware of the bankruptcy order.

24.In support of his mitigation, Mr. Yeung submitted that Mr. Ma was a salesman earning $5,000 per month. He did not own any assets and use any bank accounts during the period. After filing of the abovementioned documents with the Official Receiver, no further investigation was required. In fact, Ms. Yiu for the Official Receiver also confirmed at the hearing that the Official Receiver did not anticipate any further investigation required in this case against Mr. Ma in the future.

The Law

25.The legal principles applicable for suspension of automatic discharge of bankruptcy have been set out in details in various of my previous Judgments (see Re Yeung Kwok Lai [2003] 2HKLRD 45; Re Li Chiu Fun HCB 917/1999 and Re Tang Yu Hong, Eric HCB72/1999) and also Judgments of Madam Justice Le Pichon (as she then was) in Re Hui Hing Kwok [1993] 3 HKC 683 and Re Li Tat Kong [2000] 3HKC 360. I do not repeat the same here. When I consider how to exercise my discretion, I have borne in my mind all these applicable principles.

The Exercise of Discretion

26.Mr. Ma did not dispute that he had knowledge of the bankruptcy petition but he alleged that he had no knowledge of the bankruptcy order. Ms. Yiu urged the Court to find that Mr. Ma should have knowledge of the bankruptcy order.

27.From the facts of the case as listed out in paragraph 17 above, I have no difficulty to find that Mr. Ma should have knowledge of the bankruptcy order. Furthermore, while Mr. Ma was fully aware of the statutory demand and the bankruptcy petition issued against him, he should know quite well that if he did not have any ground to oppose the petition and took active step to oppose, the Court must grant the bankruptcy order against him. Mr. Ma should have obtained legal advice at that time instead of later in July 2003 to ascertain what his duties under bankruptcy were. In the circumstances, I find that Mr. Ma had failed to co-operate with the Official Receiver to administer his estate despite his knowledge of the bankruptcy order.

28.Ms. Yiu asked the Court to infer and find that Mr. Ma had actual knowledge of the bankruptcy order. In my view, it is not a requirement of law that the Court must satisfy the bankrupt has actual knowledge of his bankruptcy before making a suspension order under Section 30A of the Ordinance. It would impose a high burden on the Official Receiver. Unlike statutory demand and bankruptcy petition which the law requires personal service of the same on the bankrupt, there is no requirement for the bankruptcy order be served personally on the bankrupt (see Rule 75 of the Bankruptcy Rules and Section 123 of the Ordinance). It can be served by post on the bankrupt. The Official Receiver, however, has to advertise and gazette the bankruptcy order.

29.Of course, if the bankrupt had actual knowledge of his bankruptcy, it will make him more difficult to argue against his failure to co-operate and this will affect eventually how the court will exercise its discretion on the length of the suspension period.

30.In this case, Mr. Ma alleged that he was only aware of the bankruptcy order in July 2003. The Official Receiver casts doubt on such allegation. Although the reason why Mr. Ma decided to instruct his solicitors in July 2003 appears quite suspicious and in my view, unpersuasive, there is no direct evidence to contradict the same. Moreover, it is not disputed by the Official Receiver that after knowing the bankruptcy order, Mr. Ma took his own initiative to approach the Official Receiver and submitted all required documents shortly thereafter. Such belated co-operation, though not satisfactory and should not be encouraged, would constitute a mitigating factor. In addition, the Official Receiver found nothing which required further investigation from the documents submitted by Mr. Ma. No distribution of dividend will be expected in this case and apparently, no creditor is prejudiced by the belated co-operation.

31.Having regard to the above matters, I consider that the appropriate period for suspension in this case should be 18 months. Accordingly, I order that the automatic discharge of the Bankrupt be suspended for a period of 18 months so that the Bankrupt shall not be discharged until 15 March 2005.

Representation:

Miss Elsie Yiu, Counsel instructed by the Official Receiver's Office

Mr. Wilson Yeung of Messrs. Wilson Yeung & Co, solicitors for the Bankrupt