Official Receiver, The Trustee of the Estate of Chan Kwok Keung, A Bankrupt v. Chan Kwok Keung, A Bankrupt
Read the full judgment text of HCB 20722/2002 on BabelCite. This HCB judgment before Master Au-Yeung.
Bankruptcy Ordinance – s.30A – automatic discharge – interim order – jurisdiction to backdate discharge – withdrawal of objection – Official Receiver – Chan Kwok Keung – HCB 20722/2002 – Master Au-Yeung – 5 July 2007 – The Official Receiver applied to suspend the automatic discharge of a bankrupt under section 30A of the Bankruptcy Ordinance on the ground of unsatisfactory conduct. An interim order was granted suspending discharge pending determination of the application. The Official Receiver subsequently withdrew the application after finding it difficult to prove fraudulent intent in the bankrupt's failure to disclose a property transfer. The Court was asked to determine whether it had jurisdiction to backdate the discharge to the original automatic discharge date when the objection was withdrawn after the original discharge date had passed. The Court held that it had the power to backdate the discharge. The interim order only held the ring and preserved the status quo; it was not determinative of civil rights. Upon withdrawal of the objection, the situation was as if no objection had ever been made. The Court relied on Australian authorities (Re Hall, Re Wood) where discharge was backdated when objection was invalid or withdrawn. The Court found no prejudice to creditors or the Official Receiver. The draft order was approved setting aside the interim order and discharging the bankrupt on the original date of automatic discharge. No costs were awarded. The Official Receiver subsequently appealed the decision.
Legal issues: Jurisdiction to backdate discharge upon withdrawal of s.30A objection
Outcome: Court held it has power to backdate discharge to original date when objection withdrawn. Interim order set aside. Bankrupt discharged on 2 January 2007.
Cited by 3 cases · Cites 5 cases
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HCB 20722/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE BANKRUPTCY PROCEEDINGS NO. 20722 OF 2002 ______________________ BETWEEN
______________________ Coram : Before Master Au-Yeung in Court Date of Hearing : 26th April 2007 and 27th April 2007 Date of Judgment : 5th July 2007 ______________________ J U D G M E N T ______________________ 1.Under section 30A(3) and (4) of the Bankruptcy Ordinance[1], the Official Receiver can, apply to the Court for an order that the bankruptcy period should cease to run for a period of not more than 4 years from the original date of discharge. If the application were withdrawn or dismissed on a date beyond the original date of discharge, and an interim order is in place, can the Court declare that the bankrupt is deemed to be discharged on the original date of automatic discharge (“the backdating order”)? The Facts 2.On 11 July 2002, by consent of Mr. Chan Kwok Keung and his ex-wife, the Family Court in FCMC 7172 of 2002, ordered that Mr. Chan do transfer his half share in the former matrimonial home to his ex-wife. Three months later, on 9 October 2002, Mr. Chan petitioned for his own bankruptcy. On 30 December 2002, Mr. Chan executed an assignment formally transferring his interest to his ex-wife. A bankruptcy order was made against him on 2 January 2003. On 26 March 2003, the property was sold. Admittedly, Mr. Chan failed to report the transfer to the Official Receiver. In August 2003, the Official Receiver discovered the transfer and raised queries with Mr. Chan. Mr. Chan made certain replies. By then, the ex-wife and the proceeds of sale had became untraceable. The Official Receiver took the view that Mr. Chan was evasive. The Official Receiver objected to the automatic discharge of Mr. Chan on the ground that his conduct before or after commencement of the bankruptcy has been unsatisfactory: section 30A(4)(d) of the Bankruptcy Ordinance. 3.Master Ho granted an interim order, which was extended by Master Kwang, pending the supplemental report of the Official Receiver and determination of the application. 4.Mr. Chan filed an affirmation asserting that he had informed the solicitor about the transfer. He also claimed that he had informed the Official Receiver of such transfer at the preliminary interview in Janaury 2003. He also asserted that he thought upon the Court order, he no longer had any interest in the former matrimonial home which he needed to disclose when filling in his Statement of Affairs. 5.On my directions, the Official Receiver filed his 4th report. The Official Receiver maintained his view that it was wrong for Mr. Chan to omit to state his interest in the property when submitting his Statement of Affairs and to disclose the transfer of the property during the preliminary interview. However, the Official Receiver considered that (i) it may be difficult to prove that there was fraudulent intent in such omission; and (ii) it was unlikely that evidence of what actually was said at the preliminary interview could be obtained. Under such circumstances, the Official Receiver decided to give Mr. Chan the benefit of the doubt and sought to withdraw the application under section 30A. 6.On 15 March 2007, upon granting leave to withdraw, I ordered, amongst others, that:
7.Prior to perfecting the order, the Official Receiver challenged my jurisdiction to make an order in terms of paragraph 6(ii), which carried retrospective effect (“the Jurisdiction Issue”). He invited me to alter the date of discharge to 15 March 2007. I therefore directed the present hearing to be held for the Official Receiver to address me on the Jurisdiction Issue. 8.At the hearing, I have made clear that my intention was not to set aside the interim order retrospectively in the sense used when e.g. it was obtained without full and frank disclosure of relevant circumstances to the Court, but to have it discharged there and then. In any event, an interim order lapses upon disposal of the substantive matter. My intention rather was to leave no one in doubt that Mr. Chan’s bankruptcy was deemed to be discharged on the original date of discharge. Nothing, therefore, turns on the order in paragraph 6(i) but only 6(ii). 9.I shall start the analysis by explaining why I made the backdating order in the terms of paragraph 6(i). The Grant of An Interim Order and Its Effect 10.The Court can make an interim order suspending the automatic discharge of a bankruptcy where it is opposed on the grounds which, if unchallenged, will justify a final order of suspension under section 30A(4) and there is insufficient time for the issue to be argued: In re Jacobs (A Bankrupt) [1999] 1 WLR 619. 11.The interim order can be made shortly before the automatic discharge takes effect. Hearing of the substantive application can be after the original date of discharge. “It is clear that it must have been in the contemplation of those who enacted the ordinance that it would be necessary on many occasions to adjourn the application and that the application under s 30A(3) could not be dealt with before the time for automatic discharge would otherwise have arrived.” See Li Tat Kong v. Official Receiver [2001] HKC 207, 215. 12.The purpose and effect of an interim order is to hold the ring and preserve the status quo, just like any other interim relief.
13.Some prejudice will be caused to the bankrupt.
14.However, an interim order is not determinative of any civil right: Bagnall v. Official Receiver [2004] 1 WLR 2832; On Demand Information Ltd v. Michael Gerson (Finance) Plc [2003] 1 AC 368. 15.In the context of objection to discharge, the substantive right is the status of a person upon lapse of 4 years from the making of a bankruptcy order. His right is to have his bankruptcy terminated if there is no valid objection to his discharge; or to have his bankruptcy status extended if the objection meets the criteria in section 30(4). 16.Section 30(3) and (4) requires, broadly, a 2-stage test:
It is after (a) is satisfied that (b) comes into play. Upon determination of the substantive issue, the interim order will lapse. Analysis 17.I accept that the Official Receiver had a strong prima facie case when he took out the application. As Madam Justice Le Pichon says in Re Li Tat Kong [2000] 3 HKC,
18.However, Mr Chan has since been given an opportunity to contest this application by way of affirmation evidence. Having read his affirmation, I remain in doubt as to whether or not he had the intention of flouting the law. He asserted that he had disclosed to his then solicitors that there was an order for transfer of property in favour of his ex-wife but he had no idea why his solicitor did not disclose this in his statement of affairs filed in support of his bankruptcy petition. When I asked him why he did not disclose his interest in the property in List C3 of the statement of affairs, Mr. Chan claimed that he did not consider he had interest in the property anymore. 19.I consider that there might be some truth in what Mr. Chan said. It can be seen from List E of his Statement of Affairs that he has disclosed the order in FCMC 7172 of 2002, which contained the subject property transfer order. There was no reason why he would wish to hide the property transfer order when it could readily be discerned by his solicitors and the Official Receiver from the FCMC order. To him, a layman, he no longer had an interest in the property after the Family Court has ordered a transfer in favour of his ex-wife. He retained a bare title with a duty to execute an assignment in favour of his ex-wife pursuant to the court order. As revealed in his affirmation, his relationship with his ex-wife deteriorated to the extent that they did not keep contact. 20.If I have to determine the merits of the objection to discharge, I would not have found there to be a valid objection proved to my satisfaction and I would not have extended the period of bankruptcy. (I make clear that this is my view on the facts of this case. In no way should it be taken as a condonement to those who transfer assets to others before bankruptcy under the disguise of divorce proceedings.) 21.Anyway, the Official Receiver withdrew the application with reasons which I found to be acceptable. The situation became as if no objection had ever been made. Alternatively, the Court had not been called upon to decide whether or not a valid objection had been sufficiently proved under section 30A(3). The power to order the relevant period to cease to run was not engaged. The force of section 30A(1), (2) and hence the original date of discharge applied. 22.A contrary holding would, in my view, be wholly unfair to a bankrupt. This is because there are occasions sometimes owing to the busyness of the Court’s diary, sometimes owing to circumstances beyond the control of the bankrupt (e.g. pending the appeal on a point of principle in a similar case), the application cannot be heard until months afterwards. In some instances, the hearing date can be over 6 months since the application was taken out. In the end, the Court might not be satisfied that the objection is valid or that the suspension period should only be, say, 3 months. To say that the Court is still bound to hold that the discharge date is the date of hearing is to fetter the Court’s discretion unnecessarily. 23.I therefore made the backdating order. The Jurisdiction Issue 24.Mr. Suen submits that if the Court dismisses the application on a date beyond the period of automatic discharge, the date of discharge should be the date of the dismissal of the summons. The Court has no inherent jurisdiction to backdate the discharge. As a matter of principle and particularly on the facts of the present case, the Official Receiver had good reasons for the objection. Mr. Chan should only be discharged immediately after the date of the Order granting leave to discontinue the S.30A application, i.e. on 15 March 2007. 25.There is no direct authority on the Jurisdiction Issue. Mr. Suen’s bases for submission can be broadly classified as follows:
Mr. Chan made no submission. He was released from attendance shortly after Mr. Suen started his submission. (i) Authorities on the Dates of Discharge Affected by De Facto Extensions 26.In re Siu Ngai, HCB 733 of 1994 dated 4 November 1999, Madam Justice Le Pichon said,
She therefore refused to grant the 2nd adjournment of the hearing even though it was by consent. 27.In Re Raju Vasu Hiranandani, HCB 3738/2000, Master Kwang found the objection proved although the unsatisfactory conduct was minor. When considering the term of suspension, he said,
He therefore exercised his discretion to suspend the automatic discharge up to the date of hearing. 28.Whilst I appreciate that the learned judge and master have mentioned that the interim order has effectively extended the bankruptcy period, the words in italics were said by way of passing. In those 2 cases, the Courts’ minds were not addressed to the Jurisdiction Issue. Specifically, in those 2 cases, the Courts either considered the objections to be appropriate in the first place or found the allegations proved. In Re Siu Ngai, there was the added complication of the stance of the petitioning creditor who had not applied to intervene. The periods of de facto extension was part of the consideration of whether to continue the interim order and the period of suspension. Without disrespect to the learned judge and master, I do not think those words in italics laid down any principle of law applicable to the present case. The first basis for Mr. Suen’s submission does not assist me. (ii) The Need to Seek Leave Before Withdrawing the Summons Objecting to Discharge 29.Mr. Suen draws analogy to the situation where a party needs leave of the court to discontinue proceedings. In Covell Matthews & Partners v. French Wools Ltd [1978] 1 WLR 1477, it was held that the granting of leave to discontinue an application for a new tenancy was not a mere formality and until such leave was granted it was not known whether a tenant would accept the terms imposed. The date of withdrawal of the tenant’s application for the purposes of section 64(2) of the Landlord and Tenant Act 1954 could only be the date on which the order granting them leave to discontinue their application was made. The court had no inherent jurisdiction to back-date an order of discontinuance and, since such an order would have accrued right of occupation, there had to be clear statutory language before the court had power to make a retrospective order. The effective date of discontinuance was the date of the judge’s order. 30.In the present context, the Official Receiver has to give notice of the application to the creditors. If there were good grounds to object to automatic discharge, the court would need to be cautious in allowing the objection to be withdrawn. The court should be apprised of the circumstances in which the trustee consented to withdraw his objection and why he was of the view it would be appropriate to do so notwithstanding his initial objection to discharge. Public interest was involved in considering an objection to automatic discharge. Notice of the Official Receiver’s proposed withdrawal of his objection and the consent application should be given to all proving creditors. Leave should thus be obtained before withdrawal. See Lee Fred v. Leung Chin Yeung [2007] 1 HKC 164. The principles of Covell Matthews & Partners v. French Wools Ltd are, prima facie, applicable. 31.However, even accepting that there is no inherent jurisdiction to backdate a discontinuance or withdrawal, that only means the interim order was discharged and the substantive objection terminated at the last hearing. The 2nd basis for the submission does not answer the substantive question of the status of the bankrupt. Nor does it answer my proposition set out in paragraphs 21 & 22 above. (iii) Potential Prejudice to the Operation of Certain Provisions in the Bankruptcy Ordinance 32.Mr. Suen relies on various provisions in the Bankruptcy Ordinance to support his submission that the Court should not make a backdating order:
There is simply nothing in the Bankruptcy Ordinance to undo anything done under the above sections whilst the interim order is in force if the court backdates the discharge. 33.Without disrespect, the concern of Mr. Suen is more theoretical than real. Once it is accepted that an interim order only has the effect of holding the ring, both the Official Receiver and the bankrupt will be well advised to maintain the status quo as far as possible. If, e.g. the Official Receiver has received any contribution from the bankrupt, the former will be well advised not to make any distribution pending resolution of the section 30A summons. Likewise, the bankrupt will be well advised not to take up any office in the meantime. I do not consider the potential prejudice that may arise as set out in paragraph 32 above is a deterrent to a backdating order. 34.In any event, prejudice does not exist in the present case. There has not been any particular work done by the Official Receiver whilst the interim order was in force, save for the filing of supplemental reports in support of the section 30A summons. In the opinion of the Official Receiver, there was no property, dealings or affairs of Mr. Chan (apart from the disposal of the property in question) which warranted inquiry. There has been no further contribution to the estate by Mr. Chan in the meantime. The Official Receiver was not aware of any other property acquired by Mr. Chan during the period when the interim order was in force. I do not see any prejudice to anyone if I were to backdate the date of discharge. (iv) Reference to Australian Legislation 35.In Australia, a bankrupt is entitled to automatic discharge at the end of the period of 3 years from the date on which he filed his statement of affairs: section 149 of the Bankruptcy Act 1966 as amended by Act No. 131, 2002. However if an objection to the discharge of a bankrupt has taken effect in accordance with section 149G [i.e. when details of the notice of objection are entered in the National Personal Insolvency Index], then, unless the objection is withdrawn or cancelled, the reference to 3 years will be taken to be a reference to 8 or 5 years depending on the ground of objection: section 149A(1) & (2). 36.Section 149A(3) then provides:
In other words, under the Australian legislation, the Court cannot “backdate” the date of discharge of the bankruptcy if an objection is withdrawn. 37.However, notwithstanding section 149(3) of the Bankruptcy Act, Australian courts have backdated discharge dates where a notice of objection is invalid. 38.In Re Hall (1994) 14 ACSR 488, Branson J of the Federal Court of Australia found that the notice of objection failed to refer to the evidence or other material relied upon for the purpose of the objection and the reasons of the trustee for objecting to the discharge. It was ineffective to avoid the discharge from bankruptcy by operation of law. As requested for by the bankrupt, the learned judge declared that the bankrupt was discharged retrospectively on the original date of discharge pursuant to section 149 of the Bankruptcy Act. 39.Re Hall was followed in Re Wood, ex parte Wood v. Prentice [2001] 114 FCR 452. Tamberlin J said that section 149A was inapplicable as there was no withdrawal or cancellation. He commented, however, that:
40.Tamberlin J’s decision was upheld on appeal: [2002] 119 FCR 296. The Australian Court of Appeal held that:
41.If something was done on the strength of the notice of objection to discharge before the hearing, the court had power to hold that act to be of no force and effect as well. In Re Wood, ex parte Wood v. Prentice [2001] 114 FCR 452, the trustee issued a notice to the bankrupt requiring him to produce certain information. Having regard to the fact that the discharge was held to have taken place prior to the date of that notice, Tamberlin J held that that notice was also of no force and effect. 42.Looking at the Hong Kong position, section 149A(3) was in existence when the Bankruptcy Ordinance was enacted in 1996. I have no idea why it was not adopted in our Ordinance although our Ordinance was partly premised on the Australian Bankruptcy Act 1966. It is clear that my hands are not tied by section 149A(3). By analogy with Re Hall and Re Wood, ex parte Wood v. Prentice, and on a true construction of section 30(1) to (4), the Court does have power to backdate a discharge when the objection to discharge is withdrawn. It does not even have to rely on inherent jurisdiction. Accordingly, the 4th basis of submission does not assist Mr. Suen. Conclusion 43.I maintain my view that the Court has power to backdate the discharge to the original date of discharge when an objection is withdrawn. None of the 4 bases relied on by Mr. Suen persuade me otherwise. Accordingly, the draft order should be approved as follows:
44.The Official Receiver does not seek costs and I make no order accordingly. 45.Lastly, I am very impressed by Mr. Suen’s thorough research. Although I have not cited each and every authority he referred to, I have read them all and quoted only those more pertinent to the question before me. I am indebted to Mr. Suen for his able assistance.
Mr. Jenkin Suen instructed by the Official Receiver for the Official Receiver Mr. Chan Kwok Keung, in person
Appeals by the Official Receiver allowed. Please refer to CACV247/2007 & CACV261/2007 dated 28 October 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment