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 CACV 247/2007 on BabelCite. This Court of Appeal judgment was delivered on 17 October 2008.
1. I agree with the reasons for judgment of Le Pichon JA.
Cited by 3 cases · Cites 2 cases
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CACV 247/2007 AND CACV 261/2007 CACV 247/2007 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 247 OF 2007 (ON APPEAL FROM HCB NO. 20722 OF 2002) ----------------------
---------------------- AND CACV 261/2007 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 261 OF 2007 (ON APPEAL FROM HCB NO. 5082 OF 2000) ----------------------
---------------------- Before: Hon Rogers VP, Le Pichon JA and Stone J in Court Date of Hearing: 17 October 2008 Date of Judgment: 17 October 2008 Date of Handing Down Reasons for Judgment: 28 October 2008 ------------------------------------------- REASONS FOR JUDGMENT ------------------------------------------- Hon Rogers VP: 1.I agree with the reasons for judgment of Le Pichon JA. Hon Le Pichon JA: 2.These appeals by the Official Receiver concern the power to ‘backdate’ the discharge of a bankrupt. At the conclusion of the hearing, the appeals were allowed with written reasons to be handed down, which we now do. Background 3.The Official Receiver appealed from orders of Master Au-Yeung (as she then was) dated 5 July 2007 in HCB 20722/2002 and of Madam Registrar Au-Yeung dated 9 August 2007 in HCB 5082/2000 declaring, in each case, that the bankrupt was discharged from his bankruptcy as of an earlier date than the date on which the discharge order was made. 4.CACV 247 relates to the bankruptcy of Chan Kwok Keung (“Chan”) and CACV 261 relates to the bankruptcy of Wong Siu Fai (“Wong”). In each case, shortly prior to the expiration of the relevant period (being four years commencing with the date of the bankruptcy), the master made an interim order suspending the automatic discharge of the bankrupt pending the determination of the Official Receiver’s summons under section 30A of the Ordinance objecting to the automatic discharge. 5.In Chan’s case, in the light of evidence filed by him, the Official Receiver sought to withdraw the application under section 30A. That application was heard on 15 March 2007, approximately 2½ months after the expiration of the four-year period. The registrar granted the Official Receiver leave to withdraw, made an order setting aside the interim order for suspension, and ordered that Chan be discharged from bankruptcy not on the day the summons was disposed of but on 2 January 2007, being the end of the four-year period. 6.On the Official Receiver's application for variation, on 5 July 2007, the registrar substituted an order discharging the interim suspension order in lieu of the order setting it aside, but refused to substitute 15 March 2007 (the date leave was granted for the withdrawal of the section 30A summons) for 2 January 2007. 7.In Wong’s case, the bankruptcy order was made on 21 March 2001 and the interim order on 16 March 2005 but, for reasons not relevant on this appeal, the adjourned hearing of the section 30A summons when it was finally disposed of did not take place until 1 August 2007. On 9 August 2007, the registrar made an order declaring the bankrupt discharged from bankruptcy on 21 March 2005, which was almost 2½ years earlier. These appeals 8.The sole issue that arises is whether, on the proper construction of section 30A, a court is empowered to ‘backdate’ the discharge of the bankrupt in the sense of declaring that the discharge be of a date earlier than the date the objection summons finally is disposed of by the court. At the appeal hearing, this court had the assistance of Mr Beresford who represented the Official Receiver and of Ms Cheng who, on the instructions of the Official Receiver, appeared as amicus curiae. Mr Chan was in person but Mr Wong was absent. The statutory framework 9.Section 30A governs a bankrupt’s discharge from bankruptcy. It comprises 11 subsections. In pertinent part, section 30A reads as follows:
10.It will be seen from subsection (1) that the right to automatic discharge by the expiration of the “relevant period” defined in subsection (2) is not an absolute right: the four or five-year period under subsections (1) and (2) is “subject to” the provisions of section 30A as a whole. Of particular relevance are subsections (3) and (10) both of which affect the ‘running’ of the relevant period. The former empowers the court to postpone the date of automatic discharge if it is satisfied that a valid objection has been made by the trustee or one of the creditors on one or more of the grounds set out in subsection (4), provided that the total period of bankruptcy does not exceed eight years in any given case. The latter deals with how a period of absence of the bankrupt from Hong Kong would affect the computation of the relevant period. If applicable, either subsection would have the effect of postponing the discharge date of the bankrupt. 11.It is an almost invariable consequence of subsection (6) that, normally, objections would only be lodged shortly before the end of the relevant period. Realistically, they cannot be dealt with substantively before the expiration of the relevant period and, if the evidence before the court justifies it, an interim order would be made to ‘hold the ring’ until the matter could be dealt with substantively. Interim orders 12.In the cases under appeal, shortly before the end of the relevant period as defined in subsection (2), the master made an interim order “suspending the automatic discharge of the bankruptcy of the Bankrupt pending the determination of the Summons of the Official Receiver”. The first matter to consider is the power to make interim orders. 13.That question was considered by the English Court of Appeal in Bagnall v Official Receiver [2004] 1 WLR 2832 in the context of section 279 of the Insolvency Act 1986 on which section 30A was modelled. Arden LJ’s analysis appears from the following passage from her judgment:
14.Ms Cheng submitted that an alternative source of jurisdiction for the making of interim orders would be the court’s inherent jurisdiction, on the basis that such orders are necessary to prevent applications under section 30A(3) from being inefficacious. I do not understand Ms Cheng to be saying that the reasoning in Bagnall is wrong. If so, I fail to see the need to find another source of jurisdiction. For my part, I consider the reasoning in Bagnall to be impeccable and gratefully adopt it. Accordingly, I am of the view that section 30A(3) enables the court to make interim orders. 15.The next matter to consider is the effect of such orders. It should be stated that these appeals do not concern interim orders that are nullities. It is not suggested that the interim orders made in the cases with which we are concerned ought not have been granted in the first place, or were improperly obtained. 16.Mr Beresford submits that once an interim order is made and so long as it is extant, it would operate to suspend the running of the relevant period and so continue the bankrupt’s status as a bankrupt. Rights and obligations flow from interim orders that are in force since they relate to a person’s status as an undischarged bankrupt . That status has wide-ranging ramifications. It is relevant not only to the application of a number of provisions in the Bankruptcy Ordinance such as section 43A (which deals with a bankrupt’s after-acquired property) and Part VIII which deals with bankruptcy offences, but also to provisions in other ordinances such as the Companies Ordinance, Cap. 32 (see, for example, section 156 which prohibits undischarged bankrupts from acting as directors, sections 278 and 297A (which disqualify undischarged bankrupts from being appointed liquidator, receiver or manager), the Legal Practitioners’ Ordinance, Cap. 159 and the Professional Accountants Ordinance, Cap. 50 (which have provisions determining the validity of practising certificates on bankruptcy). The applicability of those provisions depends on the status of the individual concerned at a particular point in time (whether or not he was an undischarged bankrupt). Thus the ability to state with certainty whether a person is an undischarged bankrupt at any time is an essential feature of the statutory scheme. 17.Mr Beresford reasoned that to ‘backdate’ an interim order would be to treat it as if it had never been made when, in reality, rights and obligations do flow from the making of an interim order. ‘Backdating’ would destroy the cohesiveness and workability of the statutory scheme, he said, because it would introduce uncertainty as regards the application of various provisions. Mr Beresford proceeded to illustrate the difficulties that would arise if the discharge is of an earlier date than that on which the discharge order was made. 18.Section 43A provides as follows:
If property were to devolve on a bankrupt during the currency of an interim order, the trustee may claim that property for the bankrupt’s estate by serving the requisite notice. The subsequent discharge of the interim order would not alter the legal effect of what has taken place pursuant to section 43A. If, on the other hand, the date of a bankrupt’s discharge could be backdated, it would create a great deal of uncertainty. For example, would it mean that what then was a perfectly legitimate exercise of the trustee’s powers would become invalid? To whom would the property belong? Would it have to be repaid? 19.Ms Cheng’s response was that the trustee should hold his hand and await the outcome of the objection procedure before exercising section 43A powers. But there is nothing in the Bankruptcy Ordinance that so provides. If Ms Cheng’s construction were correct, it would mean that during the period an interim order is in force, the trustee’s powers under section 43A are to be held in abeyance. Section 43A itself does not support such a reading. In my view, it is not open to this court to adopt a construction that would be tantamount to rewriting the statutory provision. 20.Then there are the bankruptcy offences in Part VIII which prohibit the bankrupt from doing certain specified things, such as obtaining credit while he remains an undischarged bankrupt. Suppose that during the currency of an interim order, a bankrupt were to obtain credit. The interim order is subsequently discharged but the date of discharge from bankruptcy is backdated. Would this mean that he could neither be prosecuted nor convicted for obtaining credit while an undischarged bankrupt? Even Ms Cheng refrained from adopting such an extreme position. She accepted that at the point in time when the act was done the bankrupt had not been discharged from bankruptcy. 21.In my view, interim orders are analogous to ex parte injunctions. An ex parte injunction may ultimately be discharged for reasons such as material nondisclosure etc. Nevertheless, until such time as it is discharged, it is in force and must be obeyed. Its discharge does not mean that history can be rewritten and the slate wiped clean as if the injunction had never been issued in the first place for, meanwhile, the party subject to the injunction must comply with the injunction and any breach of the injunction during the period it was in force remains a breach notwithstanding its subsequent discharge. Analytically, interim orders are no different. 22.In conclusion, the court has no power to ‘backdate’ the date of discharge of a bankrupt. The proper order to make when an interim order has been made, and the objection summons is finally disposed of without any substantive order being made under section 30A(3) is to discharge the interim order, and to declare that the bankrupt is discharged from bankruptcy with effect from that date. In this regard, I consider that in Wong’s case, the objection summons was, by implication, dismissed by the registrar on 9 August 2007. Unfairness 23.In an ideal world, objection summonses for an order under section 30A(3) should be disposed of finally before the automatic discharge date i.e. the date the bankrupt would have been discharged but for the objection. But, as earlier noted, given the timeframe stipulated by section 30A for the making of objections to the discharge of a bankrupt, such objections are invariably lodged shortly prior to the expiration of the relevant period, with the unavoidable consequence that the hearing of the substantive objection will almost invariably have to take place after the expiration of the relevant period. 24.A number of different scenarios could arise: (1) the objection summons is finally disposed of some months after the automatic discharge date (Chan’s case); (2) an order is made under section 30A(3) at the substantive hearing extending the bankruptcy period beyond the date of the substantive hearing; (3) an order is made under section 30A(3) at the substantive hearing extending the relevant period by three months, but the substantive hearing itself did not take place until six months after the automatic discharge date. Those within scenarios (1) and (3) have a legitimate grievance. 25.Whilst, operationally, it may not be practicable wholly to eliminate the prejudice that a bankrupt might suffer through the de facto postponement of the date of his discharge, it does not mean that nothing can be done to ameliorate the situation and so minimize the resulting prejudice. For that reason, I consider it of cardinal importance that all reasonable and practicable steps be taken to ensure that objection summonses are heard and disposed of upon an expedited basis. I would suggest that consideration be given to a Practice Direction that would achieve this objective. Hon Stone J: 26.I respectfully agree with the reasons for judgment of Le Pichon JA.
Mr Roger Beresford, instructed by the Official Receiver, for the Applicant/Appellant Chan Kwok Keung, the Respondent/Respondent in CACV 247/2007 in person (Present) Wong Siu Fai, the Respondent/Respondent in CACV 261/2007 in person (Absent) Ms Yvonne W S Cheng, Amicus Curiae, appointed by the Official Receiver |
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