Re Lo Cheuk Chiu

HCB 8036/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCYPROCEEDINGS NO. 8036 OF 2006

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Before : Deputy High Court Judge To in Court

Date of Hearing : 14 December 2007

Date of Judgment : 25 January 2008

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J U D G M E N T

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The background

1.This is an application by the bankrupt (“Bankrupt”) to annul the bankruptcy order made on 29 November 2006, pursuant to section 33(1)(b) of the Bankruptcy Ordinance, Cap. 6, on the ground that the provable debts and expenses of the bankruptcy have all, since the making of the bankruptcy order, been either paid or secured to the satisfaction of the court.

2.The Bankrupt had two creditors only, namely Hang Seng Bank Limited and Citibank (Hong Kong) Limited (“Citibank”).  Hang Seng Bank Limited was the petitioning creditor.  The petitioning debt to the tune of some $11 million arose out of a guarantee given by the Bankrupt for the liability of Develop Component Company Limited.  Citibank was the only creditor who filed a proof of debt.  The debt was for a sum of $67,985.15 and has, since the making of the bankruptcy order, been paid in full. 

3.Hang Seng Bank Limited obtained judgment in High Court Action No 9686 of 1999 against Develop Component Company Limited, the Bankrupt and another for various substantial sums of money with interest thereon in August 1999.  Some six years later, Hang Seng Bank Limited issued a statutory demand for payment of the judgment debt which had by then accrued to a total sum of $11,909,192.69.  Almost a year later, Hang Seng Bank Limited presented the bankruptcy petition against the Bankrupt.  The bankruptcy order was made on 29 November 2006.

4.The statement of affairs filed by the Bankrupt disclosed that he had two debts only, namely the two owed to Hang Seng Bank Limited and Citibank.  The Official Receiver received only one proof of debt from Citibank.  In the meantime, Hang Seng Bank Limited entered into a settlement agreement with the Bankrupt and a third party by accepting a part payment of $700,000 from the third party.  Hang Seng Bank Limited as the petitioning creditor never filed any proof of debt.  On 6 June 2007, Hang Seng Bank Limited confirmed to the Official Receiver that no security had been provided for the remaining debt and it did not intend to claim the remaining debt. 

5.On 9 July 2007, the Bankrupt filed a motion for annulment of the bankruptcy order.  Neither Hang Seng Bank Limited nor Citibank objected to the motion.  However, the Official Receiver, who is appointed as the trustee of the property of the Bankrupt, takes the view that there may not be sufficient basis for making the present application.  The application raises a question of law of great general or public importance, namely whether it must be proved that the provable debts and expenses of the bankruptcy have been fully paid or secured to the satisfaction of the court in order to invoke the court’s jurisdiction to annul a bankruptcy order under section 33(1)(b) of the Bankruptcy Ordinance.

The legislative history and legislative intent

6.Mr Suen, counsel for the Official Receiver, has helpfully referred me to the legislative history of section 33(1)(b) of the Bankruptcy Ordinance.  The current section reads as follows:

“	(1)	The court may annul a bankruptcy order if it at any time appears to the court that –
		(a)	…
		(b)	to the extent required by the rules, the provable debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured to the satisfaction of the court.”

The section was introduced by section 24 of the Bankruptcy (Amendment) Ordinance 1996 and became effective from 1 April 1998.  Previously, the old section which was identical to section 29(1) of the Bankruptcy Act 1914 in the United Kingdom, provided as follows:

“

(1)

… where it is proved to the satisfaction of the court that the debts of the bankrupt are paid in full, the court may, on the application of any person interested, by order annul the adjudication.”

The essential changes in the current section are that the “debts” of the bankrupt under the old section has been substituted by the “provable debts” and the words “paid in full” have been substituted by “have all … been either paid or secured”.  Section 29(1) of the Bankruptcy Act 1914 was replaced by section 282(1) of the Insolvency Act 1986.

7.The position in the United Kingdom prior to 1986 was that full payment of the debts was required if a bankruptcy order was to be annulled.  The landmark decision is In re Keet [1905] 2 KB 666.  In that case, the English Court of Appeal was considering section 35 of the Bankruptcy Act 1883, which was identical to section 29(1) of the Bankruptcy Act 1914.  The Court of Appeal held that an unconditional release of the debt given to the bankrupt by his creditors was not sufficient for the court to annul a bankruptcy order.  Stirling LJ said at 677:

“

The language of the Act, interpreted according to its natural meaning, appears to me to require a payment in full, a payment of money, something which in an action of law could, under the old practice, have been pleaded as a payment.  If these releases had been given in consideration of a small payment, in my judgment they would not have satisfied the requirements of the Act; and still less can releases given without any consideration at all.”

The learned authors of Williams And Muir Hunter, The Law and Practice in Bankruptcy (19^th ed, 1979) commented at 148-149:

“

Where a friend of the bankrupt bought up all the debts for less than 10p in the pound, and assigned them at their full value to a third person on the bankrupt’s behalf, it was held that the debts had not been paid in full, and the bankruptcy could not be annulled on that ground.  Unconditional releases of debts are not equivalent to payment in full, and all debts which have been properly proved in the bankruptcy must be paid in full. …

The mere fact that all the creditors consent will no longer entitle the debtor to have the bankruptcy annulled.”

8.The position in Hong Kong prior to 1996 as regards annulment of a bankruptcy order was essentially the same as that in the United Kingdom under the old law.  The legal position in Hong Kong under the old section 33(1) as summarised in paragraph 7.5 of the Report on Bankruptcy (May 1995) of The Law Reform Commission of Hong Kong (the “1995 Report”) was as follows:

“

7.5

The second ground for annulment is where it is proved to the satisfaction of the court that the debts of a bankrupt have been paid in full.  This provision is viewed strictly by the court and devices that attempt to get around the provision for full payment, such as unconditional releases of debts, are not regarded as equivalent to payment in full.  A bankrupt is not entitled to annulment even if all his creditors consent.  Even where a bankrupt’s debts are paid in full the court has discretion to refuse to annul and may refuse on the ground of the bankrupt’s misconduct, such as concealment of assets or falsification of his statement of affairs.”

9.The pre-1986 position was considered too harsh and unsatisfactory in the United Kingdom.  In June 1982, the Report of the Review Committee chaired by Sir Kenneth Cork (“Cork Report”) proposed a reform of the annulment provision.  In paragraph 619 of the Cork Report, the committee recommended relaxing the requirement under the old law of payment in full to payment or ability to pay the debt in full.  The report reads:

“	Termination of insolvency proceedings
	619.	The present statutory provisions for rescission and annulment on the grounds of payment in full are in a number of respects unsatisfactory; their form and exercise are inconsistent with the principles which we have formulated and endeavoured to apply in this Chapter.  Under our proposals the Court will have power to terminate an Order for Liquidation of Assets or Bankruptcy if the debtor can satisfy the Court of his having paid or his ability to pay his debts in full.  The Court will possess a wide discretion to ensure that the interests of the creditors, commercial morality and public policy are each sufficiently safeguarded.”

The legislative intent in the United Kingdom was to relax the requirement that the bankrupt must have paid his debt in full to the bankrupt demonstrating his ability to pay in full but if the debts have not been paid in full before annulment, the debts have to be secured and will have to be paid in full at some future time post annulment. 

10.As a result, section 29(1) of the Bankruptcy Act 1914 was replaced by section 282(1) of the Insolvency Act 1986, which provides:

“	(1)	The court may annul a bankruptcy order if it at any time appears to the court –
		(a)	…
		(b)	that, to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured for to the satisfaction of the court.”

11.The effect of the new law is stated by the learned authors of Fletcher and Crabb, Insolvency Act 1986 (1986 ed) at 45/283 as follows:

“

… the ground for annulment contained in para. (b) is more liberally conceived than the former provision in that it does not require that all the debts should have actually been paid before the annulment of the bankruptcy order can take place, provided that all the debts and expenses of the bankruptcy are at least adequately secured for.”

Similarly, the learned authors of Muir Hunter on Personal Insolvency, Vol 1, paragraph 3-590 at 3094 wrote:

“	It is clear from the statutory provisions that disputed/proved but untraceable claims can be secured for and it would appear that bankruptcy expenses need also only be secured for …, but otherwise debts must have been paid for in full as a pre-condition of annulment …”

The learned author of Fletcher, The Law of Insolvency (3^rd ed, 2002) also considered that it was the intention of the legislature that the debts must be paid in full.  If the debts have not been paid in full, the court will not entertain an application for annulment unless it is satisfied upon adequate security of the prospect of payment.  The learned author commented at paragraph 11-029 as follows:

“

… the continued presence of the word “paid” in the relevant statutory provision, accompanied by the alternative possibility that the debts may be “secured for”, may furnish sufficient basis for it to be arguable that it is still the legislative intention that actual payment of all the bankrupt’s debts must be in prospect before the court can entertain an application for annulment.  Thus, the former case law to the effect that a mere unconditional release of their debts by his unpaid creditors does not suffice to enable a debtor to apply for annulment may still remain good law.”

12.The effect of the new law is that the requirement of payment of the debt in full is relaxed.  It is no longer necessary for the debts to have been actually paid in full before annulment of the bankruptcy order.  A bankruptcy order may be annulled if all the debts and expenses of the bankruptcy have been paid or at least adequately secured for.  This must of necessity include the situation where some of the debts and expenses of the bankruptcy have actually been paid in full while the balance have been adequately secured for and will have to be paid in full after the annulment of the bankruptcy order.  In other words, the law is more relaxed only in terms of the time of payment, i.e. it is no longer necessary for the debts to have been paid in full before annulment provided that they are adequately secured for and that payment must be in prospect.  In terms of the requirement to pay in full, albeit after the annulment, the requirement remains the same.  Thus, the principle of payment in full in In re Keet survived the amendment.  As it was under the old law, a mere unconditional release of the debts by unpaid creditors without payment in full is not sufficient to have the bankruptcy order annulled. 

13.Another change introduced by the new law is that the meaning of “debts” has been extended to cover “bankruptcy debts” which means provable debts, whether proved or not.  Under the old law, it was sufficient to prove that all debts admitted to proof had been paid in full: see In re Keet, per Vaughan Williams LJ at 675; per Romer LJ at 675 and per Stirling LJ at 676.  Under section 282(1)(b) of the Insolvency Act 1986, bankruptcy debt is defined in section 382(1) as meaning:

(a)	any debt or liability to which the bankrupt is subject at the commencement of the bankruptcy,
(b)	any debt or liability to which the bankrupt may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy,
(c)	any amount specified in pursuance of section 39(3)(c) of the Powers of Criminal Courts Act 1973 in any criminal bankruptcy order made against the bankrupt before the commencement of the bankruptcy, and
(d)	any interest provable as mentioned in section 322(2) in Chapter IV of Part IX.

Thus, the learned authors of Christopher Berry & Others, Personal Insolvency Law and Practice (3^rd ed) commented in paragraph 5.42 as follows:

“

The principal requirement is that all bankruptcy debts which have been proved must have been paid in full.  This does not mean that the bankrupt need only pay those bankruptcy debts which have been proved before the application to annul is heard; if there are known creditors who have not proved, steps to find them may be taken and the application adjourned for the purpose of enabling them to prove.”

In In re Robertson [1989] 1 WLR 1139, Warner J rejected the bankrupt’s submission that debts which have yet to be proved need not be paid.  Based on rule 6.209 of the Insolvency Rules 1986 which provided for notice to be sent to known creditors who have not proved their debt, Warner J accepted the Official Receiver’s submission that there cannot be annulment under section 282(1)(b) until the debts have been proved. 

14.That is the current legal position for annulment of a bankruptcy order in the United Kingdom.

15.In Hong Kong, the law was only brought in line with that of the United Kingdom after a lapse of ten years.  At paragraph 7.8 of the 1995 Report, the Law Reform Commission of Hong Kong recommended adoption of the provision of section 282(1)(b) of the Insolvency Act 1986.  It reads as follows: 

“

7.8

The Official Receiver also proposed the adoption of the provision [section 282(1)(b)] under the Insolvency Act that, if the bankruptcy debts and expenses have all, since the making of the order, been either paid or secured for to the satisfaction of the court, the court may annual the order.  This provision would change the emphasis under the Bankruptcy Ordinance as it is would no longer be essential that the debts have been fully paid in cash so long as the court is satisfied that the debts have been fully secured.  We recommend that it should be left to the discretion of the court to decide whether debts have been properly paid or secured for.”

At page 65 of the 1995 Report, the Law Reform Commission of Hong Kong recommended:

“	The court should have the power to annul a bankruptcy order if the bankruptcy debts and expenses have all, since the making of the order, been either paid or secured for to the satisfaction of the court; following the Insolvency Act, section 282.”

Section 33(1)(b) was amended and came into effect on 1 April 1998.  The current section adopted section 282(1)(b) of the Insolvency Act 1986, except that the words “bankruptcy debts” in the Insolvency Act 1986 were replaced by “provable debts”.  But I think the two terms are practically of the same effect.

16.With the case law which has developed in the past ten years in the United Kingdom on this topic in mind, it must be clear that the legislative intent behind the wholesale adoption of section 282 of the Insolvency Act was the same as that of the United Kingdom’s, i.e. to relax the requirement for payment in full before annulling a bankruptcy order.  The strict requirement that the debt must have been fully paid before annulment was relaxed but the requirement that it must be paid in full albeit at some future time after the annulment remains.  The emphasis was a shift from the bankrupt having fully paid the debts to the bankrupt demonstrating his ability to pay in full plus an adequate security for the debts to ensure their payment after the annulment. 

Construction of section 33(1)(b) of the Bankruptcy Ordinance - whether the debts have to be paid in full

17.On the construction of the new section 33(1)(b), counsel differ as to whether payment of the debts in full is required and whether the court has any discretion in determining if the debts have been paid. 

18.Mr Lee, Counsel for the Bankrupt, refers to the substitution of the words “paid in full” in the old section by the words “paid or secured” under the new section.  He argues that the courts in the authorities under the old law, including In re Keet, laid much emphasis on the phrase “paid in full”.  Hence, he submits that the conspicuous absence of the words “in full” reflects the legislative intention that payment in full is no longer required under the new law.  He also draws support for the above proposition from paragraph 7.8 of the 1995 Report quoted above which recommended that it should be left to the discretion of the court to decide whether the debts have been properly paid or secured for.

19.In my opinion, a debt is either paid or it is not.  A debt remains unpaid if it is only partially paid.  If a debt has been paid simpliciter, it must have been paid in full.  The words “in full” under the old section were superfluous and an unnecessary amplification.  Their absence in the new section is explicable.  The requirement under the new section is that the debts have either been paid or secured.  It was the intention of the legislature that the debts must have either been paid in full or that the bankrupt has demonstrated his ability to pay in full at some future time after annulment plus an adequate security to ensure payment.  Given the change in emphasis under the new law, the absence of the words “in full” is clearly to allow for the scenario where some of the debts have actually been paid in full or in part with the other unpaid debts and the outstanding balance of some of the partially paid debts being secured.  To have the words “in full” inserted after the word “paid” and/or  “secured” would give rise to all sorts of ambiguities and difficulties in interpretation.

20.Mr Suen also seeks to draw support for his argument of payment in full from rule 6.209 and rule 6.211 of the Insolvency Rules 1986 of the United Kingdom which provide as follows:

“	6.209  Notice to creditors who have not proved
	Where the application for annulment is made under section 282(1)(b) and it has been reported to the court under Rule 6.207 that there are known creditors of the bankrupt who have not proved, the court may –
	(a)	direct the trustee … to send notice of the application to such of those creditors as the court thinks ought to be informed of it, with a view to their proving their debts (if they so wish) within 21 days, and
	(b)	direct the trustee … to advertise the fact that the application has been made, so that creditors who have not proved may do so within a specified time, and
	(c)	adjourn the application meanwhile, for any period not less than 35 days.
	6.211  Matters to be proved under s 282(1)(b)
	(1)	This rule applies with regard to the matters which must, in an application under section 282(1)(b), be proved to the satisfaction of the court.
	(2)	Subject to the following paragraph, all bankruptcy debts which have been proved must have been paid in full.
	(3)	If a debt is disputed, or a creditor who has proved can no longer be traced, the bankrupt must have given such security … as the court considers adequate to satisfy any sum that may subsequently be proved to be due to the creditor concerned and (if the court thinks fit) costs.
	(4)	Where under paragraph (3) security has been given in the case of an untraced creditor, the court may direct that particulars of the alleged debt, and the security, be advertised in such manner as it thinks fit.
	If advertisement is ordered under this paragraph, and no claim on the security is made within 12 months from the date of the advertisement (or the first advertisement, if more than one), the court shall, on application in that behalf, order the security to be released.”

Rule 6.209 provides for notice to be given by the trustee in bankruptcy to known creditors who have not proved their debts or come forward.  Rule 6.211 provides for matters which must be proved in an application for annulment.  Under this rule, the primary position is that all bankruptcy debts which have been proved must have been paid in full.  The only two exceptions where the debts may be secured for are where a debt is disputed or where a creditor who has proved can no longer be traced.  Mr Suen submits that these rules, in particular rule 6.211(2), support the proposition that the provable debts and expenses of the bankruptcy must have either been paid in full or secured.

21.Mr Suen has also fairly drawn my attention to the words “to the extent required by the rules” in section 33(1)(b) of the Bankruptcy Ordinance, which are also present in section 282(1)(b) of the Insolvency Act 1986, but that the Insolvency Rules 1986 have not been adopted in Hong Kong.  He submits that the Insolvency Rules 1986 have been in existence when the new section 33(1)(b) was introduced and it is likely that the legislature similarly intended that all bankruptcy debts which have been proved must have either been paid in full or otherwise be adequately secured for.

22.I respectfully differ.  The Insolvency Rules 1986 are not applicable in Hong Kong.  I think any support which the court may rely on the Insolvency Rules 1986 in the interpretation of section 282(1) of the Insolvency Act 1986 may not be available in the interpretation of section 33(1)(b) of the Bankruptcy Ordinance.  But I think, despite the inapplicability of the Insolvency Rules 1986 in Hong Kong, the intention of the legislature remains very clear that the debts must have either been paid before or will be paid after the annulment.  The absence of equivalent rules only gives the Hong Kong courts wider discretion in annulling a bankruptcy order even where the unpaid debts fall outside the two exceptions under rule 6.211(2). 

23.Mr Lee also refers to the substitution of the word “debts” in the old section by “provable debts and the expenses of the bankruptcy” in section 33(1)(b).  He argues that under the old law, the word “debts” meant debts which have been admitted to proof, or debts which have been proved, or debts which have been actually and properly proved in the bankruptcy.  Thus, the notion of such debts being properly proved debts has been abandoned and substituted by that of provable debts and expenses of the bankruptcy.  He argues that “provable debts” under the new law as defined under section 2 of the Bankruptcy Ordinance includes any debt or liability made provable by the Bankruptcy Ordinance and section 34 provides for a wide variety of such debts and liabilities.  He submits that these debts and liabilities are so wide as to make it quite impossible to require all provable debts to be paid in full and in cash.  On the other hand, creditors may not come forward to file proofs of debts even if invited, or may have filed proofs for amounts less than that which would otherwise be provable in misapprehension of their rights.  I think such difficulties are not insurmountable.  The courts have jurisdiction to adopt similar procedures as those under the Insolvency Rules 1986 to direct notices to be given or advertised and to assess on what security would be adequate in the circumstances if the bankruptcy order is to be annulled.

24.Mr Lee then refers me to the local decision of Re Chan Sai Kit, Ex parte Wong Yan Yan Amy & Others,HCB 3614 of 2001 in support of his proposition that under the new law in Hong Kong the debts need not be paid in full.  In that case, the bankrupt had three groups of creditors, one group being the petitioning creditors and the other two groups were secured creditors whose debts were fully secured.  The bankrupt reached a settlement agreement with the petitioning creditors, under which half of the debts were to be paid with funds from third parties and the remaining half were to be paid by instalments by the bankrupt.  In annulling the bankruptcy order under section 33(1)(b), Kwan J said:

“	I am satisfied under Section 33(1)(b) of the Bankruptcy Ordinance, Cap 6 that the provable debts and expenses have, since the making of the bankruptcy order, been either paid or secured to the satisfaction of the court.  There is no suggestion of misconduct on the part of the applicant.  In my judgment, this is a proper case for the exercise of my discretion to annul or rescind the bankruptcy order under Section 33 or Section 98 of the Bankruptcy Ordinance.
	I make the following orders:
	(1)	…
	(2)	upon the undertaking of the applicant to perform the terms of the agreement between himself and the petitioners set out in paragraphs 1, 2, 4 and 6 of the letter dated 10 October 2001 from the petitioners’ solicitors to the applicant’s solicitors (a copy of which was annexed to the draft amended summons), the bankruptcy order made on 17 September 2001 is rescinded and annulled;
	(3)	the costs of the Official Receiver for this application are to be borne by the applicant, agreed at the sum of HK$50,000; and
	(4)	the costs of the petitioners to date are to be borne by the applicant.”

Mr Lee submits that Re Chan Sai Kit was a clear case where the debts had not been paid in full and in cash, but at best a case where half of the debts had been paid in cash with the bankrupt remaining liable to pay the remaining half by instalments.  On the basis of that case, Mr Lee submits that under the current section 33(1)(b), it is no longer a requirement for annulment that the debts have been paid in cash and in full.

25.The full terms of the settlement agreement contained in the letter dated 10 October 2001 was not set out in the judgment.  It is not possible to tell the evidential basis upon which Kwan J was satisfied of the bankrupt’s ability to discharge the remaining half of the debts to the petitioner or if security was available.  However, Kwan J is a very experienced judge in charge of the bankruptcy list.  She is most knowledgeable about the requirements of section 33(1)(b).  The parties were legally represented and the Official Receiver was also a party.  When her Ladyship said that she was satisfied that the provable debts and the expenses of the bankruptcy have, since the making of the bankruptcy order, been either paid or secured to the satisfaction of the court, she must have been so satisfied on the evidence.  The debts of the other two groups of creditors were fully secured.  In respect of the remaining group of creditors, half of the debts were paid and the other half unpaid.  In making the ruling as she did under section 33(1)(b), her Ladyship must have been satisfied that the bankrupt had the ability to pay the remaining half of the debts at a future date and that those remaining debts have been adequately secured for.  Both issues were questions of fact for her Ladyship.  I certainly would not query that decision if on the basis of the evidence before her Ladyship, she was satisfied that the bankrupt had the ability to pay in accordance with the settlement agreement and that the bankrupt’s undertaking to court is on the particular facts of that case adequate security.  I am therefore unable to agree with Mr Lee that Re Chan Sai Kit is authority for the proposition that the debts need not be paid in full or be secured for.  Indeed in that case, the remaining debts were to be paid in full post annulment.

26.I have been referred to other decisions by Mr Suen in which bankruptcy orders were annulled upon proof that the debts and bankruptcy expenses had been paid in full.  I do not need to refer to those decisions.  Mr Lee is unable to refer me to any other decisions to the contrary.  I am satisfied that under the new section 33(1)(b), the court has jurisdiction to annul a bankruptcy order only if the debts and the expenses in bankruptcy have all, since the making of the order, been either paid in full or, if not, secured to the satisfaction of the court and to be paid in full post annulment.

27.The above conclusion is consistent with the views of the learned authors of Butterworths Hong Kong Bankruptcy Law Handbook, 3^rd ed, paragraph 33.05 at 170:

“	The word ‘paid’ means payment in full and in cash; a mere unconditional release of debts is not regarded as equivalent to payment in full …
	The entire debt and expense or part of them can be ‘secured’ provided the court is satisfied that the security is adequate.”

Construction of section 33(1)(b) of the Bankruptcy Ordinance - the court’s discretion

28.As for the court’s discretion under section 33(1)(b), Mr Lee refers me to paragraph 7.8 of the 1995 Report which recommended that it should be left to the discretion of the court to decide whether the debts have been properly paid or secured for.  He submits that the words “properly paid” imply a measure of discretion. On a plain reading of this recommendation, it is arguable that the intention of the legislature was to give the court the discretion to determine if a debt has been paid in full and, if not, what would be the adequate security.  However, this interpretation is inconsistent with the legislative intent that the debt must nevertheless be paid in full as clearly expressed in the Cork Report which was adopted in the 1995 Report.  Furthermore, a debt must either have been paid in full or it has not been paid in full, in which event the questions as to bankrupt’s ability to pay in future and whether the debts have been adequately secured for arise.  In the circumstances, the question whether the debts have been paid in full is not one which is open to the court’s discretion.  On the other hand, by its very nature, there could be different forms and amounts of security for the payment of a debt in respect of which the court may exercise discretion.  The Chinese version of section 33(1)(b) puts it beyond doubt that such discretion is only available in determining the adequacy of the security.  The Chinese version provides as follows:

「	… 破產案的可證債項及開支已獲償付或已在獲法院滿意的情況下予以抵押。」

29.I think, it is only within the realm of adequacy of the security and the bankrupt’s ability to pay that the court has a discretion.  Of course, the court also has overall discretion to refuse granting an annulment even if all the requirements under section 33(1)(b) are satisfied.  The court’s discretion may be called for, for example, when there is a dispute as the amount of debt, or if known creditors have neglected to prove their debts or failed to come forward.  The court may make an assessment of the extent of that liability, bearing in mind the nature of the claim and the likelihood of such creditors coming forward and coming to proof, and exercise its discretion to decide the amount and form of security required.  Another area where the court’s discretion is called for is in determining if the bankrupt has the ability to pay the remaining debts.  In addition, the court also has the undoubted discretion whether to grant the annulment even if the conditions under section 33(1)(b) are satisfied.  For that purpose, the court may take into account the conduct of the bankrupt and whether the debts have been paid in full or was merely secured.  But on the question whether a debt has been paid in full, there is no room for the court’s discretion.

Conclusion

30.Having construed section 33(1)(b) of the Bankruptcy Ordinance, I now turn to the Bankrupt’s application.  There were only two provable debts in the present case.  The provable debt owed to Citibank has been paid in full.  A settlement was reached in respect of the provable debt due to Hang Seng Bank Limited.  Mr Lee submits that the Bankrupt’s position is even stronger than that of the bankrupt in Re Chan Sai Kit as the debt has been wiped clean.  I respectfully differ.  As I have already observed, the bankrupt in Re Chan Sai Kit was, nevertheless, required to pay the remaining debts in full post annulment.

31.Mr Lee further argues that the evidence clearly shows that there has been accord and satisfaction of the debt or liability to Hang Seng Bank Limited by payment of the sum of $700,000 by a third party which has been accepted by Hang Seng Bank Limited in full settlement of the Bankrupt’s liability due to Hang Seng Bank Limited.  Mr Lee draws particular reliance on the confirmation by Hang Seng Bank Limited that it would not object to the annulment application, that it was prepared to withdraw the petition and that it would not take any further action or commence fresh proceedings against the Bankrupt in respect of the balance of the debt.  Mr Lee refers to the following dicta of Stirling LJ in In re Keet:

“

The language of the Act, interpreted according to its natural meaning, appears to me to require a payment in full, a payment of money, something which in an action of law could, under the old practice, have been pleaded as a payment.  If these releases had been given in consideration of a small payment, in my judgment they would not have satisfied the requirements of the Act; and still less can releases given without any consideration at all.”

He submits that such accord and satisfaction is a payment which can be pleaded as a valid payment.  I think that is a misinterpretation of the dicta of Stirling LJ.  His Lordship was clearly referring to payment of money in full which could have been pleaded as a payment and clearly excluded a part payment in satisfaction of the entire debt.

32.In conclusion, I am not satisfied that the debt owing to Hang Seng Bank Limited has been paid in full.  There is no agreement to pay the balance of the debt or was the balance of the debt secured for.  Indeed, the Bankrupt has no intention ever to pay the balance of the debt.  I am therefore not satisfied that the requirements under section 33(1)(b) have been satisfied.  I have no discretion but to refuse the application for annulment.  But even if I had, commercial morality would require me not to exercise the discretion in the circumstances of the case, particularly in view of the Bankrupt’s intention not to pay the remaining debt.

33.Accordingly, the Bankrupt’s application is dismissed with costs to the Official Receiver.

Mr. Lee Tung Ming, instructed by Messrs Vincent T.K. Cheung, Yap & Co., for the Bankrupt

Mr. Jenkin Suen, assigned for the Official Receiver