RE FOK PO LUN ALLEN

HCB 3942/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 3942 OF 2003

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D E C I S I O N

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Application

1. This is an application for suspension of automatic discharge of bankruptcy.

Background

2. Mr. Fok Po Lun Allen (“the Bankrupt”) was born in April 1964.  On 3 March 2003, he filed a petition with this Court asking for his own bankruptcy.  He was then an Assistant Investigator of ICAC earning about $25,000.  However, due to loss in stock market and gambling, he incurred debts of over $1.5 m towards a number of banks and finance companies.  He was unable to pay his debts.

3. A bankruptcy order was made against him on 10 April 2003.  Under the current bankruptcy regime, the Bankrupt should have been discharged after a period of 4 years, i.e. on 10 April 2007.  However, the Trustee found the Bankrupt’s conduct uncooperative and unsatisfactory.  By summons filed on 6 March 2007, the Trustee objected the discharge of the Bankrupt.

4. On 2 April 2007, Master Ho granted an interim order to suspend the discharge and direct the parties to file and serve affidavit evidence.

5. On 29 August 2007, I heard the substantive argument of the application.  Mr. Gopaoco acted for the Trustee and the Bankrupt appeared in person.

The Trustee’s case

6. Having decided to drop the complaint against the pre-bankruptcy conduct of the Bankrupt, the Trustee made 2 complaints against the Bankrupt.

The Bankrupt’s Position

7. At the hearing, the Bankrupt clarified his position with this Court.  He did not dispute the complaints as a matter of fact and would try to mitigate only.  On the one hand, he begged the Court not to suspend his discharge, failing which, for a lenient period only.  On the other, he also sought a conditional discharge.  He represented that he was willing to contribute a monthly sum of $3,500 for 12 months or such period as the Court deems fit.

8. In relation to the Trustee’s complaints, he explained that the followings.

The Ruling

9. Upon consideration of the parties’ evidence authorities and submission, I have decided that the discharge of the bankruptcy against the Bankrupt should be extended for 1 year and 3 months in the circumstances.  My reasons appear in below.

Conditional Discharge?

10. To start with, I agree with Mr. Gopaoco that conditional discharge is not appropriate in the circumstances.  As commented by Madam Justice Kwan in her Judgment of Fred Lee, trustee in bankruptcy v Leung Yuk Man & Others, [2001] 1 HKC 164:

“38.   (1)     ……

(2)     An order of continued contribution to the estate as a condition to discharge should be made with restraint and circumspection.  As mentioned earlier, rehabilitation in the sense of enabling the bankrupt to resume a normal life in society is a key consideration of the bankruptcy legislation.  Where continued contribution is likely to bring about anticipated dividends that would be negligible, the trustee should not use contribution to the estate as leverage to a discharge.  For those cases where the bankrupts were required to make continued contribution for as little as $9,600.00 over two years or $800.00 a month for a year, I am very skeptical if this would be conducive to rehabilitation.  Further, contribution to the costs of the trustee in the objection summons as a condition to discharge is outside the scope of section 30A(9).

(3)     The joint application for discharge subject to condition is as much the trustee’s application as it is the bankrupt’s.  The consent of the bankrupt alone is not sufficient.  Sufficient material should be placed before the court if it is asked to make an order of continued contribution.  This should be similar to that required in an application for an income payments order in section 43E.  There is no reason why there should be a different test for an order of continued contribution.  The court would need to be satisfied that the effect of its order under section 30A(9) would not reduce the income necessary for meeting “reasonable domestic needs”.  If the bankrupt is subsequently unable to comply with the order for continued contribution and is committed for contempt, the problem would only escalate.

(4)     If there were indeed good grounds to object to automatic discharge, the court would need to be cautious in allowing the objection to be withdrawn.  In each of these cases in which a consent summons was filed, the court was not 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 is involved in considering an objection to automatic discharge.  An undertaking by the petitioning creditor’s solicitors not to attend at a debtor’s public examination or to oppose his discharge in consideration of payment of their costs was held to be illegal in Kearley v. Thomson & Anr. (1890) 24 QBD 742.  In In re Shaw [1917] 2 KB 734, the trustee in bankruptcy entered into an agreement with the bankrupt to bind himself beforehand to use his best endeavours to prevent the creditors from opposing the annulment or discharge of the bankruptcy and this was held to be highly improper.  For some grounds of objection, it may be quite inappropriate for the trustee to withdraw his objection even if the bankrupt is prepared to make continued contributions to the satisfaction of the trustee.

(5)     Whilst in these cases the creditors were notified of the trustee’s intended objection to discharge pursuant to section 30A(5), they do not appear to have been informed of the trustee’s proposed withdrawal of his objection and the consent applications.  Mr. Lam submitted that notice of this should also be given to all proving creditors.  I agree.  A creditor may have refrained from filing an objection himself because he assumes that the trustee will make the objection.  Similarly, a creditor, who probably has locus to appear on the trustee’s objection (Re Li Tat Kong [2000] 3 HKC 360 at 369I to 370G), may have chosen not to appear for the same person.  He should have notice of the trustee’s proposed withdrawal so that he may appear and object to this if he sees fit.

11. In the present case, the Trustee does not agree to a conditional discharge.  I do not have views of the creditors.  Further, it is not entirely clear as to whether $3,500 is an appropriate sum.  Last, but not least, while appreciating that it is the Bankrupt’s own initiation to suggest a contribution of $3,500 for 1 further year, I doubt very much if it is conducive to rehabilitation.

(a)       At the hearing, the Bankrupt was questioned as to why a conditional discharge is desirous, he explained that HKU Space had enrolled him for LLB course.  As a bankrupt, he thought that he could not apply for loan of the school fee.

(b)       He also said that he had paid $30,000 school fee already.  Upon being questioned as to how he managed to pay it, he replied that he made use of the monthly payment of $7,000 from April to July 2007, which he might need to contribute to his estate in case there would be an extension of his bankruptcy, to pay the same.  It was a considered decision.  After consulting persons with legal knowledge, he took the view that reasonable education expense should be allowed during bankruptcy.  However, he did not approach the Trustee to discuss the matter because he thought that the Trustee was always against him.

(c)       With respect, I do not consider that the Bankrupt really understand the concept of rehabilitation although he asks for one.

Suspension of the Discharge, if so, for how long?

12. I then move to consider whether this Court should in the circumstances of the case exercise his discretion to suspend the automatic discharge, and if so, for how long.  In so doing, I ask myself to bear in mind paragraphs 17.6 and 17.24 of the Law Reform Commissions Report on Bankruptcy (1995)

“17.16        The introduction of automatic discharge should, with the objection system, have two-folded effect.  Firstly, bankrupts should have a greater incentive than at present to co-operate with the trustee, as failure to co-operate could result in the trustee objecting to a bankrupt’s discharge.  Secondly, the rehabilitation of a bankrupt from bankruptcy would be assured, subject to rehabilitation being delayed as a consequence of a bankrupt’s own failings.”

“17.24        The introduction of automatic discharge would shift the emphasis from discharge being a privilege to its being a right.  This right, however, must be set alongside a bankrupt’s duty to co-operate with the trustee in the administration of the estate.  If he fails to co-operate with the trustee after bankruptcy, or if a bankrupt’s conduct before bankruptcy was unsatisfactory, he should not be automatically discharged.”

Further, useful guidance can be located in comment of Mrs. Justice Le Pichon (as she then was) in two authorities, viz: Re Hui Hing Kwok [1999] 3 HKC 683 and Re Li Tak Kong [2000] 3 HKC 360

“Rehabilitation is the sense of enabling the bankrupt to resume a normal life in society is a key, if not the key consideration.  It should only be delayed by bankrupt’s own failings ……”

“In exercising its discretion, the court would have regard to the scope and purposes of the statutory provisions conferring the discretion, the interests of commercial morality and the public interest.  Before a discharge was granted or permitted to occur, there should be an adequate investigation of a bankrupt’s conduct and affairs, and such investigation should generally be concluded.  It was incumbent on the bankrupt to make a full and frank disclosure and to proffer all pertinent information regarding his assets and financial dealings to the Official Receiver.  In seeking a discharge, the bankrupt had to show that he had taken all reasonable steps to ensure that his estate was available for distribution among his creditors and that the trustee was appraised of all relevant information; it was not good enough for him to adopt a purely passive or reactive role.  Where there had been concealment or lack of co-operation on the part of the bankrupt, it would not be unfair to delay his discharge.”

13. Mr. Gopaoco suggested that a period of not less than 1.5 year was appropriate because the Bankrupt simply disappeared in the eyes of the Trustee for more than half of the 4 years’ bankruptcy period, during which there was no contact or control, let alone contribution to the estate.  I agree that it is a serious breach.  Probably, I would have agreed to the entirety of Mr. Gopaoco’s suggestion but for the following mitigating factors:

Costs

14. Parties have not made submissions on the question of costs.  However, noting that it is the usual stance of Mr. Gopaoco not to ask for costs in situation when the Bankrupt does not object to his application, I make an order nisi, which will become absolute within 14 days from the date hereof, that there be no order as to costs.