RE TSANG WING LAM

HCB 1203/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1203 OF 2013

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J U D G M E N T

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1.  This is the hearing of the bankrupt’s application to stay the execution of the bankruptcy order made against him on 9 September 2013. The petition debt arose from a costs order (“the Costs Order”) made against the bankrupt in favour of the petitioner by Judge Ko in the Lands Tribunal.

2.  It appears that the bankrupt’s principal grounds in support of the stay application are that:

(1) He has filed a notice of appeal against the bankruptcy order and there is a good chance that the bankruptcy order would be overruled on appeal.

(2) In any event, he has one lot of “fiber optic fittings” goods (“the Goods”) which are worth $135,975.50.  The Goods are pending shipment to customers.  Once he receives payment from the customers, he would be able to settle the $40,000 petitioned debt immediately.

3.  The stay application is opposed by the petitioner and the Official Receiver (“the OR”).  The OR has become the provisional trustee of the bankrupt’s estate.  For that purpose, the OR has also filed a report (“the Report”) to support the opposition.

4.  As submitted by the OR, the principles applicable to a general stay of the execution of a bankruptcy order are:

(1) It is undesirable to grant a general stay of a bankruptcy order pursuant to section 104 of the Bankruptcy Ordinance (Cap 6) (“the Ordinance”).  This is because of the prejudice that might be caused to creditors and the administration of the estate of a bankrupt by a general stay.  Rather, even if warranted by the circumstances of the case, the stay should be limited to certain steps or consequences, such as the gazetting or advertising of the bankruptcy order, and on the condition that the bankrupt should attend the OR’s office and give an account of his assets and liabilities: see Re Chow Shun Yun (unrep., HCB 5334/2004, unreported 10 June 2005, Kwan J) at paragraphs 20-24, followed by Ng J in Re Zulifqar Ali (unrep., HCB 6146/2011, 15 October 2013) at paragraph 11;

(2) In Re David C Buxbaum (unrep., HCB 7637/2004, 16 September 2005), Kwan J (as she then was) at paragraphs 12-13, 15-16 reiterated her view against granting a general stay of a bankruptcy order.  The reason was that a general stay would not only release the bankrupt from all his statutory obligations and duties under the Ordinance but would also seriously hamper the ability of the OR (or the trustee in bankruptcy) to have control over the bankrupt and his property. Further, in the interest of the creditors, it was vital that there should be no undue delay in ensuring that the OR (or the trustee in bankruptcy) was put in a position in which he could ascertain the assets of the estate and take appropriate steps to preserve them.  See also: Re Zulifqar Ali, at paragraph 12.

(3) Furthermore, the mere fact that there is a pending appeal is usually not a sufficient ground to stay a bankruptcy order.  A stay pending appeal should be granted with circumspection, and only when the appeal is shown to be a bona fide one and the grounds of appeal are sufficiently arguable: Re David C Buxbaum, supra, at paragraph 14.

5.  Applying these principles, I would refuse the present stay application for the following reasons.

6.  First, in the pending appeal, the bankrupt is effectively repeating the arguments raised by him in resisting the bankruptcy petition.  Suffice to say that I do not think these grounds fair any sufficiently arguable bases. In particular, it is part of the bankrupt’s contentions (in the pending appeal) that (a) the petitioner is likely to owe him more than the petition debt by reason of its liability towards him in relation to his assertion that the petitioner (as the Incorporated Owners) should seek to recover from the Housing Authority compensation or damages relating to the Authority’s alleged trespass of some common areas of the bankrupt’s residential estate, and (b) in any event, the petition debt is likely to be set aside by his intended appeal against the Judge Ko’s judgment which gave rise to the Costs Order.

7.  These grounds had been argued before me when the bankrupt resisted the petition, which I rejected.  Nothing that has been placed before me today has added anything to the bankrupt’s contentions under (a) and (b) above.  In particular, as to (b) above, it is noted that even by now, Judge Ko has still not granted leave to appeal from the relevant judgment.  Judge Ko has recently adjourned the application and asked the bankrupt to notify the OR in relation to the future conduct of the intended application for leave to appeal.  It is clearly uncertain as to whether leave would be granted to allow the bankrupt to appeal Judge Ko’s judgment, and even if so, whether he would succeed in that appeal.

8.  For these reasons, I do not find the grounds in support of the pending appeal against the bankruptcy order sufficiently arguable.

9.  Moreover, if the bankrupt is serious about the appeal and its merits, one would have expected him to be anxious to proceed with it.  This is not the case here.  Since the filing of the Notice of Appeal on 7 October 2013 and the Notice of Setting Down of an appeal on 15 October 2013, the bankrupt has not proceeded to apply to fix a date of the hearing of the appeal.  He said in court at the stay application that he was too busy in preparing the application for leave to appeal against Judge Ko’s judgment and thus had no time yet to proceed with the appeal against the bankruptcy order.  I do not accept this explanation.  As he is effectively repeating in the pending appeal the grounds that he has all along been relying on in the bankruptcy proceedings, it would not have required much of his time to enable him to apply for fixing a date, if he is serious about the appeal.  Coupled with his uncooperative attitude with the OR since the making of the bankruptcy order, as detailed at paragraphs 3 to 10 of the Report, I also have serious doubts about the bona fide of the pending appeal.

10.  Secondly, as to the alleged anticipated receipt of the sale price from the sale of the Goods, even if the assertion of the sale is true, that itself does not constitute a good ground of staying the bankruptcy order.  This is particularly so, as the bankrupt has failed to file the Statement of Affairs, and the OR is not in a position to ascertain the full extent of his liabilities.  In any event, if the bankrupt could eventually pay off all his debts, including the one owed to the petitioner, he could well apply to annul the bankruptcy order.

11.  But more importantly, as submitted by the OR and the petitioner, one also has serious doubts about the bankrupt’s allegation of the anticipated receipt of the sale price.  This is so because:

(1) The bankrupt had asserted this alleged sale of the Goods as early as in July 2013 before the bankruptcy order was made in September.  This has still not materialised and the bankrupt has not furnished any credible evidence to show his ownership of the Goods and the actual sale of them.

(2) Further, despite his assertion in the supporting affirmation of this stay application that he is waiting for the customers to pay for the Goods, he now confirmed at the present hearing that the Goods have not even been shipped, as allegedly the customers have asked to delay the shipment in light of the poor economy.  Thus, even taking the bankrupt’s assertion to the highest, it is simply unclear as to when he would receive the alleged payment from the customers.

(3) In any event, as set out in the Report, the bankrupt has now confirmed with the OR that the goods are in fact owned by his friend, who has allegedly agreed to give them to him as a gift. Not only is this mere assertion of gift not supported any credible evidence, it is also more important to note, as rightly submitted by the OR, that:

(a) If the bankrupt is the legal owner of the goods, the goods, are vested in the OR upon the making of the bankruptcy order.  See: section 58(1) of the Ordinance.  The bankrupt no longer has any capacity to sell (or otherwise deal with) the Goods.

(b) On the other hand, if the goods did belong to a friend of the bankrupt, there is no supporting evidence of the bankrupt’s friend giving the Goods to him as a gift.

(c) Further, even if it is the case that the bankrupt’s friend did intend to provide funding for settlement of the provable debts and while such fact may be helpful for the bankrupt to apply for an annulment of his bankruptcy order (if the funding are sufficient to cover all the provable debts and the expenses in the bankruptcy), it does not constitute a valid basis for staying the bankruptcy order in the present circumstances.

12.  Finally, as rightly submitted by the OR, before the service of the bankrupt’s stay summons on the OR, the bankruptcy order has already been gazetted, advertised and registered in the Land Registry against the bankrupt’s property.  As such, it appears that there are no specific steps that can be usefully stayed at this stage.  There is thus no point in granting a stay in any event.  Cf: Re Zulifqar Ali, supra, paragraphs 14-15.

13.  For the above reasons, the bankrupt has not raised any good grounds that could support a stay of execution of the bankruptcy order.

14.  I would dismiss the bankrupt’s application with costs.

15.  The OR has said that he would not seek any costs against the bankrupt.  I would therefore only order that costs of this application be to the petitioner, to be taxed if not agreed.