Re Chow Shun Yung

HCB 5334/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 5334 OF 2004

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Before : Hon Kwan J in Chambers

Date of Hearing: 10 June 2005

Date of Decision : 10 June 2005

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D E C I S I O N

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1.This is a summons taken out by Wei Pih Stella and Ethel Lew, the petitioning creditors, on 20 May 2005, under section 12(1) of the Bankruptcy Ordinance, Cap 6 and the inherent jurisdiction of the court, seeking leave to proceed with four legal proceedings against Chow Shun Yung (“Mr Chow”).  A bankruptcy order was made against Mr Chow on 21 December 2004.  On 10 January 2005, I made an order (“the Stay Order”) under section 104 of Cap 6 to stay the bankruptcy order  pending the determination of the Court of Appeal of an appeal brought by Mr Chow against the bankruptcy order.  This is CACV No. 388 of 2004.

2.The four legal proceedings for which the petitioners seek leave to proceed with are as follows:

(1)	proceedings for taxation of costs against Mr Chow in respect of bill No. 4 in HCCA No. 780 of 1998;
(2)	proceedings for taxation of costs against Mr Chow in respect of bills No. 1 and 3 in HCCA No. 780 of 1998;
(3)	the applications against Mr Chow in respect of two summonses issued by the petitioners in HCCA No. 780 of 1998 on 15 July 2002 and 2 March 2004, which were adjourned by a Master on 17 December 2004 to be heard before a judge on 26 September 2005; and
(4)	DCCJ No. 2007 of 2005, which was commenced by Mr Chow against the petitioners on 3 May 2005.

3.This summons was served on Mr Chow and the Official Receiver.  Mr Chow indicated by his letter to the petitioners’ solicitors dated 24 May 2005 that as a bankruptcy order has been made against him, he would abide by the position of the Official Receiver in this application.  The Official Receiver wrote to the court on 31 May 2005, stating that he does not propose to attend the summons unless otherwise directed by the court, in view of his doubts whether he has locus to attend as the bankruptcy order has been stayed.  Having read the earlier correspondence exchanged between the Official Receiver and the petitioners’ solicitors and noting the Official Receiver’s position taken in such correspondence, I directed the Official Receiver to attend to give assistance to this court.

4.At the hearing today, Mr Wong for the petitioners informed the court that he will not proceed with this summons in respect of the 3^rd and 4^th items of the legal proceedings for which the petitioners seek leave to proceed, and that the petitioners will only ask for leave to proceed with the taxation proceedings against Mr Chow, being the 1^st and 2^nd items in the summons.  This position was taken by Mr Wong after he has had opportunity to consider an additional authority of Mrs Sit for the Official Receiver, Re Wong Siu Ki Oswald & Others, HCMP No. 6025 of 2000, 12 November 2001.  It was held by Burrell J in that decision after a thorough review of authorities that leave to proceed under section 12(1) should only apply to creditors to whom the bankrupt is indebted in respect of any debt provable in bankruptcy.  It is quite clear that the proceedings in the 3^rd and 4^th items of the summons do not relate to any debt provable in bankruptcy, so no leave to proceed is required under section 12(1).  I think that must be correct.

5.As for the proceedings for taxation against Mr Chow in the 1^st and 2

6.I will first state the background leading to this application before I deal with legal submissions. 

7.After a stay of the bankruptcy order pending appeal was granted, Mr Chow has not set down his appeal for hearing for 6 months.  The reason for the delay is because Mr Chow has applied for leave to appeal to the Court of Final Appeal against the judgment of the Court of Appeal in CACV No. 127 of 2004.  That other appeal is in respect of Mr Chow’s unsuccessful application to set aside the statutory demand.

8.On 27 April 2005, it was ordered by a Master that the directions hearing on the setting down of the appeal against the bankruptcy order is to be postponed, until after the Court of Final Appeal has disposed of Mr Chow’s application for leave to appeal in respect of the setting aside of the statutory demand.

9.In the meantime, the petitioners’ solicitors sought to proceed with hearings for taxation in respect of various costs orders they obtained against Mr Chow.

10.On 24 March 2005, the Official Receiver wrote to the petitioners’ solicitors drawing their attention to section 12.  The Official Receiver took the view that the Stay Order does not affect the operation of section 12, and leave of the court is required if the petitioners should wish to proceed with any legal proceeding against Mr Chow.  The Official Receiver also stated that notwithstanding the Stay Order does not affect the operation of section 12, it does have the effect of staying any application for leave to proceed under section 12.  So on the Official Receiver’s view, the petitioners are not able to proceed at all.

11.On 8 April 2005, the Official Receiver wrote to the petitioners’ solicitors stating that if they wish to seek leave under section 12, they must apply to this court.  For the reasons given in his earlier letter, the Official Receiver is unable to support such an application.  It was also stated that as the Official Receiver’s power to deal with the property of Mr Chow has been stayed, the Official Receiver will not attend the hearing.

12.On 3 May 2005, Mr Chow issued the writ against the petitioners in DCCJ No. 2007 of 2005.  While the Official Receiver has taken objection against the petitioners proceeding against Mr Chow in any legal proceeding, Mr Chow apparently considered that in view of the Stay Order, he is at liberty to proceed against the petitioners.

13.This summons was issued on 20 May 2005 and was served on the Official Receiver.

14.On 31 May 2005, the Official Receiver wrote to the petitioners’ solicitors expressing doubt if he has locus to attend.  The Official Receiver also drew the attention of the petitioners’ solicitors to paragraphs 3, 4 and 7 of a decision I gave in Chinese on 9 May 2005 in Re Pang Shun Hing, HCB No. 1319 of 1999.  Mrs Sit, who is the author of the letter, stated that my decision would appear to cast doubt on the position of the Official Receiver that leave to proceed under section 12 is required and that it is desirable it should be determined by the court if such leave is required notwithstanding the Stay Order.

15.Mrs Sit had appeared for the Official Receiver in the hearing in HCB No. 1319 of 1999 and that part of my decision quoted in her letter was concerned with a preliminary objection taken by Mr Chow that the Official Receiver had not sought leave of the court to proceed against him in a summons for directions issued in HCB No. 1319 of 1999.  I had acceded to a submission made by Mrs Sit at the time, without the citation of authorities, that section 12(1) of Cap 6 did not apply and no leave to proceed against Mr Chow was required because of the Stay Order.  I should say that Mrs Sit’s submission in the present hearing is to the opposite effect.

16.Mr Wong, who appeared for the petitioners, also submitted that leave to proceed under section 12 is required.

17.If leave to proceed with this summons is required, I see no obstacle at all in giving such leave.  As with all stays, they can be removed or lifted, generally or for a specific purpose, where good reason is shown.  The present situation provides an appropriate reason why the stay (if there were such a stay with the effect as contended by the Official Receiver) should be lifted, to enable an applicant to bring an application for leave to proceed.  The Official Receiver also indicated at the hearing today that he has no strong views if leave should be granted to proceed with the taxation hearings; if the petitioners are aware of the implication that they may not be able to recover against Mr Chow the additional costs to be incurred in proceeding with taxation and wish nevertheless to proceed, it is a matter for them.  I can discern no good reason to withhold leave to the petitioners to proceed with the taxation proceedings against Mr Chow.  The only question that remains outstanding is whether leave to proceed is required.

18.Section 12(1) provides as follows:

“On the making of a bankruptcy order the Official Receiver shall be thereby constituted receiver of the property of the bankrupt, and thereafter, except as directed by this Ordinance, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the bankrupt in respect of the debt, nor shall proceed with or commence any action or other legal proceedings, unless with the leave of the court and on such terms as the court may impose.”

19.The first thing I wish to say is that I find the Official Receiver’s doubt if he has locus in the application somewhat puzzling.  The Official Receiver is still the trustee in bankruptcy of Mr Chow.  He is not discharged from that office.  The Stay Order is only to stay the bankruptcy order for a limited time, pending the determination of Mr Chow’s appeal.  The bankruptcy order is not stayed altogether or permanently.  Moreover, the opening words of section 12(1) read: “on the making of a bankruptcy order the Official Receiver shall be thereby constituted receiver of the property of the bankrupt.”  The Stay Order has not altered or affected that.

20.The next thing I wish to point out is that when I made the Stay Order pending appeal, I had simply stayed the bankruptcy order without giving any thought as to what particular effect or consequence of the bankruptcy order or which specific proceeding or proceedings under the bankruptcy petition should be stayed pending the appeal.

21.I do not think this kind of order should be made in future, as it is undesirable to grant a general stay of the proceedings under the bankruptcy order pending an appeal. 

22.The jurisdiction to stay a bankruptcy order pending appeal is under section 104, the equivalent of which was section 113 of the Bankruptcy Act 1914, which had been repealed.  Section 104 provides as follows: “The court may at any time, for sufficient reason, make an order staying the proceedings under a bankruptcy petition, either altogether or for a limited time, on such terms and subject to such conditions as the court may think just.”  So this expressly provides that terms and conditions as the court thinks just may be imposed in granting a stay.  If the Official Receiver thinks it desirable, for the avoidance of doubt, that the Stay Order should be varied by restricting the effect of the stay to certain proceedings or consequences, an appropriate application should be taken out under section 98 for this court to review or vary the Stay Order.  But that would be for another occasion.

23.I would also like to point out that in the United Kingdom, with the repeal of section 113 of the 1914 Act, the Insolvency Rules 1986 only provide for a stay or postponement of three steps that would be taken on the making of a bankruptcy order, namely, gazetting of the bankruptcy order, its advertisement, and notification of the Chief Land Registrar for registration of the bankruptcy order in the register of writs and orders affecting land, see rules 6.34(3) and 6.46(3).  There is no longer any power to stay all proceedings under a bankruptcy order.  As stated in the following passage in Muir Hunter on Personal Insolvency at paragraph 7-351:

“An order suspending action, i.e., restraining advertisement and registration, will presumably only be made where the debtor gives notice of his intention to appeal against the bankruptcy order, or applies to set it aside on the grounds that it ought not to have been made.  Under the Act of 1914, a stay of the advertisement of the receiving order, required by ibid., section 11, was obtained upon application under ibid., section 113.

Because of the possibility of prejudice to creditors, a stay of the proceedings is rarely granted; and the most which a court will be prepared to do is to stay advertisement of the bankruptcy order, on such terms as it considers just, e.g. ordering the debtor to attend upon the official receiver and give an account of his assets and liabilities, and particularly his bank accounts.  Although the court would not normally order a stay of the proceedings, it would expect the official receiver only to do the minimum necessary in the circumstances, pending a bona fide application by the debtor to appeal against, or to annul, the bankruptcy order.”

24.This seems to mirror the situation where the court does not grant a stay of a winding-up order pending an appeal as a matter of practice, but may order a stay of the advertisement of the winding-up order pending appeal.

25.Coming back to the present situation, in the Stay Order I made, rightly or wrongly, the effect of the stay is not confined to certain proceedings or consequences.  I have no quarrel with the submission of the Official Receiver that the Stay Order does not mean the bankruptcy order is ineffective for all intents and purposes as if the bankruptcy order had been nullified.  I also have no problem with the Official Receiver’s submission that the Stay Order does not operate with retrospective effect, so it does not alter or affect what had already come into effect by the time the Stay Order was made, such as the vesting of the property of the bankrupt in the trustee upon the debtor being adjudged bankrupt, as provided in section 58(1).

26.Mrs Sit referred to paragraph 90.0934 of Halsbury’s Laws of Hong Kong, 2003 reissue, volume 5(2), which contained the statement that “in the case of a stay of proceedings, whether conditional or absolute, the action still subsists; it is still ‘pending’.”  She submitted that in a stay of an interim nature, as in a stay pending appeal, this means that the subject matter of what is stayed is subsisting, or remains in force as Mr Wong has put it, although no further steps in the subject matter may be taken in the meantime.  Mr Wong cited paragraph 7-002 in The Law of Insolvency byIan F Fletcher, 3^rd ed, although I note that the learned author in that passage was concerned with the situation where there is a stay of advertisement of the bankruptcy order pending appeal, not a general stay of proceedings under the bankruptcy order.  I would accept these submissions.

27.This does not, however, follow that leave must be sought to proceed with the taxation proceedings under section 12(1), despite a general stay of proceedings under the bankruptcy order.  In contrast with the opening part of section 12(1), which provides for the consequence on the making of a bankruptcy order (which a stay of the bankruptcy order would not affect), the latter part of section 12(1) provides for the consequences after the making of a bankruptcy order.  It seems to me what is to happen after the making of a bankruptcy order can be affected by a general stay of proceedings under a bankruptcy order, when the stay is in force.  I do not think this is overriding the effect of section 12(1).

28.I do not agree with the submissions that leave to proceed under section 12(1) is required in this situation, when the Stay Order is in force.

29.Nevertheless, I will give leave to the petitioners to proceed with the taxation proceedings being the first two items of the summons, out of abundance of caution, and in case my views on the effect of the Stay Order should be incorrect.  Leave to proceed is granted subject to these conditions:

(1) no judgment or order obtained in the proceedings concerned shall be enforced against Mr Chow without leave of the court; and

(2) the petitioners are not to seek costs against the Official Receiver personally or against the trustee in bankruptcy in the proceedings concerned. 

Mr Wong has informed me that the petitioners will abide by the above conditions.

30.I order the costs of the petitioners and of the Official Receiver in this application to be in the cause of the appeal in CACV No. 388 of 2004.  In respect of the Official Receiver’s costs, I have assessed this on a gross sum basis at $16,000.00.

Mr Peter Wong, instructed by Messrs Rita Law & Co., for the Petitioners

The debtor: Mr Chow Shun Yung, appearing in person, present

Mrs Christine Sit, for the Official Receiver