RE LAU YIM FUN

HCB 1657/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1657 OF 2000

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REASON FOR DECISION

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THE APPLICATION

1.  This is the debtor’s application to annul the bankruptcy order made against her on 16 August 2000 pursuant to section 33(1)(b) of the Bankruptcy Ordinance which gives the court a discretion to make such an order if it appears that, among other things, all provable debts have been either paid or secured to the satisfaction of the court.

2.  The main issue in this case is whether the debt stated in the proof of debt lodged by China CITIC Bank International Limited on 7 September 2012 has become non-provable on the ground that the limitation period for the lodging of the proof of debt had already expired by then.

DISCUSSION

Limitation period

3.  Ms Lau submitted on behalf of the debtor that by the operation of section 4(1)(a) and 4(3) of the Limitation Ordinance, the Bank ought not to be allowed to seek repayment of the outstanding debt.  She argued that after the expiry of the limitation period as imposed by the said sub-sections, the Bank would be debarred from lodging any proof of debt, and any debt included in such a proof lodged after such expiration would become non-provable.

4.  The aforesaid sub-sections in the Limitation Ordinance provide for different lengths of limitation period.  However, for the present purpose, it does not matter because, with respect, I do not accept Ms Lau’s argument.  I am of the view that no limitation period is applicable to the lodging of proofs of debts.

5.  First of all, section 4 of the Limitation Ordinance only sets time limits in respect of bringing of actions.  Pursuant to section 2 of the Limitation Ordinance, the word “action” has been defined to include any proceedings in a court of law.

6.  In my view, the lodging of a proof of debt does not among to “bringing an action”.  Hence, the said sub-sections in the Limitation Ordinance are inapplicable in the present case.

7.  Secondly, there are English authorities which held that time does not run against a claim in the insolvency.  There is no reason why such authorities should not be applicable in Hong Kong.

8.  The first of those cases, provided by Ms Chan for the Official Receiver, is In re General Rolling Stock Company (1871-72) LR 7 Ch App 646.  It was held that the Statute of Limitations did not run against a claim which was subsisting at the time of adjudication.  As long as there were assets which remained to be administered, the creditors were at liberty to come in and prove their claims, and the dividends formerly distributed would not be disturbed.

9.  The same principle was applied in the bankruptcy context in Cotterell v Price [1960] 1 WLR 1097.  It was held that the law on limitation ceases to operate in respect of claims in the bankruptcy.

10.  Ms Lau submitted that this authority is actually in the debtor’s favour because the court held (at page 1105) that:

“Although the bankruptcy takes away the rights of ordinary creditors to sue for their dues and regulates their right of proof in the bankruptcy, the rights of secured creditors are unaffected under that section, and there is no reason, in my judgment, why time should not continue to run under the Limitation Act as regards those right and remedies which the secured creditors have outside the bankruptcy.”

11.  With respect, this argument is misconceived, because the Bank in the present case is not lodging its proof as a secured creditor.  While its debt was once secured, the secured property had already been realized in May 2002. Since then, the outstanding debt owed to the Bank has become unsecured.  By lodging its proof of debt, the Bank is making a claim in the bankruptcy of the debtor, and as a result the Limitation Ordinance should have no further application anyway upon the making of the bankruptcy order, or alternatively, upon the realization of the property.  The debtor’s argument cannot avail either way.

12.  Thirdly, as accepted by Ms Lau, there is nothing in the Bankruptcy Ordinance, the Bankruptcy Rules or the Proof of Debts Rules which fixes any time limit on the lodging of proofs of debt.

13.  Be that as it may, Ms Lau has referred this court to a number of statutory provisions.  It suffices for me to refer to Rule 1 of the Proof of Debt Rules (Cap 6E) which provides that every creditor should prove his debt as soon as possible upon the making of the bankruptcy order.  The rationale behind that rule is clear as it is obviously desirable to have the bankrupt’s estate administered sooner rather than later.  Further, if a creditor does not lodge his proof of debt early enough, he may subsequently find that all the assets available have been distributed and he may end up with nothing.  Hence, he would have to take his own risk if he does not lodge his proof of debt early. Having said that, if it was intended by the legislature to impose a time limit, a definite period of time would have been provided for in the Bankruptcy Ordinance or the rules enacted thereunder.  Without such express provisions, I do not accept that there is any time limit as submitted by the debtor.

14.  While the trustee in bankruptcy may impose a time limit from time to time for the lodging of proofs of debt (see Rule 123(1) of the Bankruptcy Rules), the effect of such a time limit is only that the creditors who lodge proofs of debt after such a time limit would not be entitled to participate in that particular round of distribution of dividends.  That does not mean that the proofs of debt lodged after such a time limit are invalid.  If further dividends are declared in future, the creditors are still eligible for distribution in the event that their proofs are admitted.

15.  It follows from my decision above that the Bank was entitled to lodge its proof of debt as it did on 7 September 2012.  It was not time-barred.

Transformation from provable debt to non-provable debt

16.  Ms Lau submitted that, in the event this court rules against her on limitation, that is not the end of the matter, as the debtor has a number of fall-back arguments.

17.  The amount of debt stated in the proof of debt is in the total sum of around HK$2.66 million.  Out of this sum, around HK$1.4 million is interest said to be payable from 23 May 2002 to 8 August 2012.

18.  Ms Lau submitted that no interest should be payable for the said period of time.

19.  Ms Lau further argued that because of the Official Receiver’s mismanagement of the debtor’s estate and the Bank’s failure to put down adequate particulars in the proof of debt, the entire debt (including the principal sum) should be regarded as non-provable debt.

20.  In my view, the last point is a very bold argument which must be rejected. I cannot see how a debt may become non-provable even if the complaints against the Official Receiver and the Bank are accepted by this court (which are not).

21.  Hence, even if Ms Lau’s argument on interest is accepted (which is not), a principal sum of more than HK$1.25 million is still outstanding.  The said sum has neither been paid nor secured.

CONCLUSION

22.  It is therefore my conclusion that the requirement under section 33(1)(b) of the Bankruptcy Ordinance has not been satisfied.  For this reason, the debtor’s application should be dismissed.

COSTS

23.  Costs should follow the event.  I therefore order that the debtor should pay the costs of the Official Receiver.  This includes the costs of the adjourned hearing on 8 May 2014.  On that occasion, even though it was the Official Receiver’s application for adjournment for the purpose of filing a further report, that was necessitated by a complaint made by the debtor in respect of the Official Receiver’s administration of the debtor’s estate.  That complaint was not referred to in any previous affirmations filed by the debtor and was only made for the first time in the debtor’s skeleton submission lodged for the 8 May 2014 hearing. 

24.  Both parties accept that this is a suitable case for costs be summarily assessed pursuant to Order 62 rule 9A(1)(a).  The Official Receiver produced a statement of costs and asked for HK$36,912.  Despite Ms Lau’s argument, I am of the view that the Official Receiver’s costs should be allowed in full.  I therefore order that the debtor do pay the costs of the Official Receiver summarily assessed at $36,912 within 14 days from the date of the hearing.