RE SO TSZ MAN

HCB 7033/2020
HCB 7299/2020
HCB 7569/2020
HCB 3930/2021

[2021] HKCFI 3732

HCB 7033/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7033 OF 2020

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AND

HCB 7299/2020

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7299 OF 2020

AND

HCB 7569/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7569 OF 2020

AND

HCB 3930/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3930 OF 2021

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R E A S O N S   F O R   J U D G M E N T

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1.  At the hearing of the petitions presented by the debtors under s.10 of the Bankruptcy Ordinance (Cap. 6) (“BO”), I dismissed each of the petitions on the ground that it constituted an abuse of process. These are the reasons for my judgment.

2.  It is a matter of concern that many debtors chose to present a petition for his own bankruptcy (“self-petition”), which comes at a significant cost as the debtors are required to pay a deposit to the Official Receiver (“OR”) pursuant to rule 52(1)(a) of the Bankruptcy Rules (Cap. 6A) (currently at $8,000), a filing fee of $1,045 to the Court and  other fees which may be charged by the agents or solicitors for assisting the debtor in the preparation and filing of the petitions and the statement of affairs (“SOA”). 

3.  At the hearing, each of the debtors confirmed that they did not wish to seek a bankruptcy order from the Court, whereupon the petitions were dismissed with the costs of the OR in the amount of $5,300 be deducted out of the deposit paid by the debtors.  Upon the Court’s enquiry with the debtors, it is clear that they were told by persons who have some knowledge of bankruptcy proceedings that by presenting the self-petitions, they can achieve what is in effect a moratorium with the creditors as the creditors would not require the debtors to repay the debts pending determination of the petitions. 

4.  In HCB 7033/2020 the debtor, Ms So Tsz Man (“Ms So”), presented a petition on 20 October 2020 seeking a bankruptcy order on the ground that she is unable to pay her debts. 

(1)  According to her SOA filed on the same day, she has a job with monthly income of $18,500 and she owed an aggregate amount of $310,033 to 2 banks. 

(2)  Prior to the hearing before this Court, there were 5 hearings scheduled before a Master on 25 January 2021, 13 April 2021, 6 July 2021, 24 August 2021 and 18 October 2021, but she only attended the first hearing.  This was despite the warning letters issued by the Court informing her that the petition would be dismissed if she failed to attend the next hearing.

(3)  Ms So filed 4 affirmations on 2 July 2021, 20 August 2021, 15 October 2021 and 2 December 2021 stating that she had been discussing debt restructuring proposals with the creditors and asked for an adjournment of the petition for 8 weeks so as to discuss the proposals with the creditors.  

(4)  When asked by the Court as to whether she wished to seek a bankruptcy order and, if not, why she chose to present the petition, Ms So said that she did notwant to seek a bankruptcy order, and she confirmed that she was not required to make any repayment to the banks after she had presented the petition. 

5.  In HCB 7299/2020 the debtor, Ms Lee Wing (“Ms Lee”), presented  the petition for her own bankruptcy on 2 November 2020 on the ground that she is unable to pay her debts. 

(1)  According to her SOA filed on the same day, she has a job with monthly income of $13,000 and she owed $134,392 to one bank. 

(2)  Prior to the hearing before this Court, there were 6 hearings scheduled before a Master on 1 February 2021, 29 March 2021, 27 April 2021, 12 July 2021, 23 August 2021 and 12 October 2021, but she only attended the first hearing.  This was despite the warning letters issued by the Court informing her that the petition would be dismissed if she failed to attend the next hearing. 

(3)  Ms Lee filed 5 affirmations on 26 March 2021, 23 April 2021, 9 July 2021, 19 August 2021 and 7 October 2021 stating that she had been discussing a debt restructuring proposal with the creditor and asked for an adjournment of the petition for 8 weeks so as to discuss the proposal with the creditor.    

(4)  When asked by the Court as to whether she wished to seek a bankruptcy order and, if not, why she chose to present the petition, Ms Lee said that she did notwant to seek a bankruptcy order, and she confirmed that she was not required to make any repayment to the banks after she had presented the petition. 

6.  In HCB 7569/2020 the debtor, Mr Tam Wai Yiu (“Mr Tam”), presented the petition for his own bankruptcy on 12 November 2020 on the ground that he is unable to pay his debts. 

(1)  According to his SOA filed on the same day, he has a job with monthly income of $21,000 and he owed $328,599 to 2 banks.

(2)  Prior to the hearing before this Court, there were 5 hearings scheduled before a Master on 8 February 2021, 13 April 2021, 6 July 2021, 24 August 2021 and 12 October 2021, but he failed to attend any of the hearings.  This was despite the warning letters issued by the Court informing him that the petition would be dismissed if he failed to attend the next hearing. 

(3)  Mr Tam filed 4 affirmations on 9 April 2021, 2 July 2021, 18 August 2021 and 8 October 2021 stating that he had been discussing debt restructuring proposals with the creditors and sought an adjournment of the petition for 8 weeks so as to discuss the proposals with the creditors.

(4)  Mr Tam said that he did not attend the hearings because he had not reached any agreement with the creditors. When asked by the Court as to whether he wished to seek a bankruptcy order and, if not, why he chose to present the petition, Mr Tam said that he did notwant to seek a bankruptcy order, and he confirmed that he was not required to make any repayment to the banks after he had presented the petition. 

7.  In HCB 3930/2021 the debtor, Mr Qiu Wenjun (“Mr Qiu”), presented the petition for his own bankruptcy on 8 July 2021 on the ground that he is unable to pay his debts. 

(1)  According to his SOA filed on the same day, he has a job with monthly income of $17,600 and he owed $236,930 to 2 money lenders. 

(2)  Prior to the hearing before this Court, there were 3 hearings scheduled before a Master on 10 August 2021, 28 September 2021 and 1 November 2021, but he only attended the first hearing.  This was despite the warning letters issued by the Court informing him that the petition would be dismissed if he failed to attend the next hearing. 

(3)  Mr Qiu filed 3 affirmations on 23 September 2021, 28 October 2021 and 30 November 2021 stating that he had been discussing debt restructuring proposals with the creditors and sought an adjournment of the petition for 8 weeks so as to discuss the proposals with the creditors.    

(4)  When asked by the Court as to whether he wished to seek a bankruptcy order and, if not, why he chose to present the petition, Mr Qiu said that he did not want to seek a bankruptcy order, and he confirmed that he was not required to make any repayment to the banks after he had presented the petition. 

8.  As is clear from the above narratives, the debtors did not intend to seek a bankruptcy order from the Court.  Instead, they used the self-petitions as the means to suspend their obligations to make repayment of the debts and to negotiate with the creditors on the terms of repayment.

9.  Section 10 of the BO provides as follows:

“Grounds of debtor’s petition

(1) A debtor’s petition may be presented to the court only on the ground that the debtor is unable to pay his debts.

(2) The petition shall be accompanied by a statement of the debtor’s affairs containing—

(a) such particulars of the debtor’s creditors and of his debts and other liabilities and of his assets as may be prescribed; and

(b) such other information as may be prescribed.

(3) A debtor’s petition may be presented whether or not the aggregate amount of indebtedness is equal to or exceeds the amount provided for a creditor’s petition under section 6(2)(a)[1].”

10.  The statutory purpose of s.10 of the BO is to permit an insolvent debtor to invoke the bankruptcy jurisdiction where he is unable to pay his debts.  By doing so, the debtor gives up all his property in return for being freed from the burdens of his debts and, upon discharge from bankruptcy, to make a clean start.  The statutory scheme of bankruptcy is designed to avoid multiple executions and other forms of enforcement against the debtor’s assets and, at the same time, ensures that all creditors will be dealt with fairly and equitably through the bankruptcy process. 

11.  A self-petition is a serious matter.  The debtor is required to file a petition based on Form 3 of the Bankruptcy (Forms) Rules (Cap. 6B) (“Forms Rules”) which requires, amongst others, the debtor to state that he “request[s] the court that a bankruptcy order be made against [him]”.  The debtor is required to sign the petition in the presence of a witness, and to submit a SOA in Form 28C, which must be verified by an affidavit.  All these are designed to ensure that it is only if a debtor is unable to pay a debt and genuinely wishes to seek a bankruptcy order from the Court that he can present a petition to seek such an order.   

12.  Section 5(3) of the BO provides that the Court has a general power to dismiss or a stay a petition “if it appears to it appropriate to do so on the grounds that there has been a contravention of rules or for any other reason”.  Thus, the Court would dismiss a self-petition as an abuse of process if it is shown that the debtor is able to pay his debts (Re Painter, ex p Painter [1895] 1 QB 85, Re Betts, ex p Official Receiver [1901] 2 KB 39; Re Dunn, ex p Official Receiver v Dunn [1949] Ch 640; and Re a debtor (No 17 of 1966), ex p the Debtor v Allen [1967] Ch 590).

13.  In my judgment, it is an abuse of process for a debtor to present a self-petition and seeks to postpone the determination of the petition by not attending the scheduled hearing(s) or by asking for an adjournment for the purpose of negotiating with his creditors for the following reasons:  

(1)  Form 3 of the Forms Rules requires the debtor to state that he requests the Court to make a bankruptcy order against him.  It is not open to a debtor to make such a request in the petition (thereby confirming his intention to seek a bankruptcy order from the Court) when he does not in fact intend to seek the order when the petition comes to be heard by the Court.  If a debtor does not wish the Court to make a bankruptcy order against him, he should not present a self-petition in the first place. 

(2)  The right to present a self-petition is, as stated in §10 above, to allow an insolvent debtor to invoke the bankruptcy regime so as to achieve a fair and orderly distribution of his assets amongst his creditors.  It is not the function of a self-petition to allow a debtor to achieve a moratorium with his creditors, still less a bargaining tool to enable a debtor to negotiate with his creditors.  The debtor is free to negotiate with his creditors, and does not need to maintain a self-petition to carry on such negotiations. 

14.  To ensure that in future, the debtors will not be misled by others as to the purpose of self-petitions, and to prevent further abuse of process, save in exceptional circumstances, the approach of the Court in dealing with self-petitions will likely be as follows:

(1)  If a debtor does not attend the scheduled hearing before a Master, the Master will adjourn the petition to the Bankruptcy Judge for dismissal for want of prosecution. 

(2)  The Court will not allow an adjournment of the petition simply on the ground that the debtor needs more time to negotiate with the creditors. 

(3)  At the hearing before the Bankruptcy Judge, if the debtor does not attend the hearing, the petition will be dismissed for want of prosecution and/or abuse of process. 

(4)  If the debtor attends the hearing before the Bankruptcy Judge and informs the Court that he does not wish to seek a bankruptcy order, the petition will be dismissed for abuse of process. 

15.  In all of the above scenarios, the costs of the OR will be borne by the debtors and be paid out of the deposit.  It will be to the advantage of the debtors who do not wish to seek a bankruptcy order from the Court to withdraw the self-petitions at the hearing before Master so as to minimise the costs payable to the OR.