RE CHOW PING MAN

HCBI 141/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS

INTERIM ORDER APPLICATION NO 141 OF 2012

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D E C I S I O N

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1.  This is the appeal of the debtor against a Master’s order discharging the interim order.

The facts

2.  On 1 March 2012, the appellant debtor filed a notice of application for interim order and a supporting affirmation.

3.  On 25 April 2012, the Nominee’s Report and Comments was filed. 

4.  On 15 May 2012, the Nominee’s Supplemental Report and Comments was filed.

5.  On 1 June 2012, an interim order was granted by Master de Souza, which order was to have effect until 17 August 2012.  The application was adjourned to 31 August 2012.

6.  On 29 June 2012, the creditors’ meeting was held.  Of the 3 creditors, 2 of them holding 95.08% of the vote in aggregate rejected the proposal.  The debtor was then minded to accept the request from the 2 majority creditors for higher interest.  The nominee reported that all 3 creditors had been verbally consulted and they all agreed to the debtor making an application to the court for extension of time to hold a further meeting.  The nominee recommended an extension be granted.  The meeting was adjourned for 14 days to 13 July 2012.

7.  On 13 July 2012, the adjourned creditors’ meeting was held.  Once again, the creditors’ rejection rate was 95.08%.  A resolution was passed by all the creditors to apply to court for extension of time to hold the creditors’ meeting.  The Chairman’s Report and Nominee’s Supplemental Report and Comments were filed on 18 July 2012.

8.  On 19 July 2012, the solicitors for the debtor filed a notice of application for directions seeking time extension for holding a creditors’ meeting to 28 days from the date of the order, and that the interim order be extended until further order.

9.  On 8 August 2012, the time extension application was heard and dismissed by Master de Souza.  He discharged the interim order made on 1 June 2012 and vacated the date of hearing on 31 August 2012, hence this appeal.

The ground of appeal

10.  In his skeleton submission, Mr Yeung framed the issue as whether or not a Master of the High Court has power to direct an interim order to be continued or renewed under section 20D(3) of the Bankruptcy Ordinance, Cap 6 (“the Ordinance”).

Power of a master to continue or renew an interim order

11.  Section 20D provides as follows:

“(1) Where an interim order has been made on an application under section 20A, the nominee shall, before the order ceases to have effect, submit a report to the court stating-

(a) whether, in his opinion, a meeting of the debtor’s creditors should be summoned to consider the debtor’s proposal; and

(b) if in his opinion such a meeting should be summoned, the date on which, and time and place at which, he proposes the meeting should be held.

(2) For the purpose of enabling the nominee to prepare his report the debtor shall submit to the nominee [the proposal for voluntary arrangement and a statement of his affairs].

(3) The court may, on an application made by the debtor or the nominee in a case where the nominee has failed to submit the report required by this section, direct that the interim order shall continue, or (if it has ceased to have effect) be renewed, for such further period as the court may specify in the direction. (underline added)

(4) If the court is satisfied on receiving the nominee’s report that a meeting of the debtor’s creditors would be summoned to consider the debtor’s proposal, the court shall direct that the period for which the interim order has effect shall be extended, for such further period as it may specify in the direction, for the purpose of enabling the debtor’s proposal to be considered by his creditors.

(5) The court may discharge the interim order if it is satisfied, on the application of the nominee-

(a) that the debtor has failed to comply with his obligations under subsection (2); or

(b) that for any other reason it would be inappropriate for a meeting of the debtor’s creditors to be summoned to consider the debtor’s proposal.”

12.  Section 99(3)(c) of the Ordinance, provides that the Registrar sitting in open court shall have power to hear an application for an interim order in respect of a voluntary arrangement.  The definition of “Registrar” includes Senior Deputy Registrar and Deputy Registrar of the High Court, who are the Masters: section 99A(7) of the Ordinance.  Accordingly, the issue on appeal must be answered in the affirmative.

13.  Answering the issue, however, does not dispose of the appeal.  It transpired during oral submission that the learned Master relied on the authority of Chin Wai Kay Geordie v Mok Yu Hon, [2012] 2 HKLRD 657 to dismiss the application.  In that case, the Court of Appeal held that,

“13.  The IVA process should be conducted with expedition. Hence, Rule 122S provides that, even if adjournments of creditor meetings could take place, the last adjourned meeting has to be held within 14 days of the original meeting. Rule 122S(5) further provides that if the proposal is not agreed to by the final adjournment of meeting, it is deemed rejected.

14.   Once a proposal is rejected by the meeting, the purpose of the original interim order has been achieved: the creditors have duly considered the same at a meeting. We cannot find any statutory authority for an application for extension of an interim order to facilitate the reconsideration of a proposal. Though there is a power to direct an interim order to be continued or renewed under section 20D(3), that power can only be exercised in a case “where the nominee has failed to submit the report required by [section 20D(1)]”. It does not cover the situation where the proposal has been considered and rejected.” (emphasis added)

14.  Mr Yeung challenged the learned Master’s decision on the ground that (i) the paragraphs cited were obiter dictum; and (ii) under section 20D(3) the power to continue or renew an interim order can also be exercised where an application is made by a debtor. 

15.  With regard to (i), I am unable to agree.  In Chin Wai Kay Geordie v Mok Yu Hon, after 2 rejections of the proposal by the creditors, yet another creditor appeared. The debtor submitted a further proposal and successfully obtained an extension of time in holding a creditors’ meeting, well beyond the 14 days since the 2^nd meeting.  Subsequently, more creditors appeared but the proposal was eventually accepted.  The petitioner and another creditor petitioned for bankruptcy of the debtor under section 20L of the Ordinance on the ground that the debtor had given information that was false or misleading in a material particular.  In applying that section, the Court of Appeal had to review the IVA process by which the decision at the creditors’ meeting was reached.  The paragraphs cited were comments made in the reviewing process and were relevant to the issue before the Court of Appeal.  Even if the paragraphs cited were obiter, I cannot see why they are inapplicable to the situation before me.

16.  With regard to (ii), Mr Yeung effectively submits that the Court of Appeal misconstrued section 20D(3) to mean that the power can only be exercised in a case “where the nominee has failed to submit the report required by [section 20D(1)]” (“the condition”).  He submits that the condition does not apply when the application is made by a debtor.

17.  Again, I am unable to agree.  The condition applies equally to an application by a nominee as one by a debtor.  This construction is clearly borne out by the Chinese version of section 20D(3):

“ (3) 凡代名人沒有呈交本條規定的報告，則法院可因應債務人或該代名人提出的申請，指示臨時命令須在法院在該指示中指明的更長期間內繼續生效或(如該命令已停止生效)重新生效。” (underline added)

18.  Further, when one reads sections 20D(3) and (4) together, it can clearly be seen that the former applies where there is no nominee’s report whereas the latter applies where the nominee’s report is available. 

19.  In any case, even if the condition does not apply to an application by a debtor, and even if I were to exercise the discretion afresh, I would have arrived at the same decision as the learned Master.  This is because after the proposal had been rejected twice, no revised proposal was laid before the learned Master. No view was put forth by the nominee despite the apparent upward revision in interest rate and monthly payment sought by the majority creditors.  There was no indication as to when the next meeting would be held. 

20.  A nominee’s view is not just a formality.  The nominee has to form a professional opinion on the viability of a proposal based on information from the debtor concerning his financial position.  The court, in turn, places substantial weight on the nominee’s opinion in deciding whether an interim order should be granted.  If it shall become plain to the nominee, from his contact with creditors or otherwise, that the debtor’s proposal, with or without any likely amendment, has no prospect of achieving the statutory majority needed for its approval, he should not give his opinion that a meeting of creditors should be summoned as the meeting would be pointless and just a waste of money: Chin Wai Kay Geordie v Mok Yu Hon, at paragraphs 26 and 29.

21.  In the present case, there was simply no opinion from the nominee to assist the Master.  By the time the matter came on for hearing before the learned Master, over 14 days had elapsed since the last meeting was held by the creditors without another meeting being held.  The Master rightly dismissed the application for extension of time and discharged the interim order.

Conclusion

22.  There is absolutely no merit in this appeal.  The same is dismissed.