LAU CHI WING v. DENG LAN BIN AND ANOTHER

Headnote

Bankruptcy

                Necessity for more than formal affidavit of verification to provide prima facie proof of an act of bankruptcy.

IN THE COURT OF APPEAL

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JUDGMENT

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Barker, J.A.:

1. This is the judgment of the Court.

2. On the 14th January, 1985 Jones, J. made a Receiving Order against Glory Garment Factory, a firm consisting, at the time when the firm was extant, of three partners. The Petitioning Creditors are two former employees of the firm. The Appellant is one of three of the erstwhile partners, the partnership having been dissolved in October 1984. The alleged debts are in respect of wages due up to the 17th September, 1984, severance pay, wages in lieu of notice and annual leave pay. The Petition alleges that the debtor firm within 3 months before the date of the presentation of this petition had committed the following act of bankruptcy, namely that on the 24th October, 1984 Mr. Lau Chi Wing, one of the partners of the debtor firm (the Appellant), gave verbal notice to us, Creditors of the debtor firm, that the debtor firm had suspended payment of its debts. (We assume that by 'verbal notice' was meant oral notice).

3. For the purposes of this judgment, it is first necessary to set out the relevant provisions of the Bankruptcy Ordinance Cap.6 and of the Rules made thereunder.

4. By section 5 of the Ordinance it is provided:-

"Subject to the conditions hereinafter specified, if a debtor commits an act of bankruptcy the Court may, on a bankruptcy petition being presented ......... make an order, in this Ordinance called a receiving order, for the protection of the estate."

Section 6(1) provides:

"A creditor shall not be entitled to present a bankruptcy petition against a debtor unless -

Section 3(1) provides:

"A debtor commits an act of bankruptcy in each of the following cases

Section 9 provides -

Rule 70 of the Bankruptcy Rules reads -

"In the case of a creditor's petition any matters which the debtor has given notice that he intends to dispute shall. be proved."

5. Prior to the hearing of the Petition, the Petitioning creditors filed an affirmation, paragraph 2 of which stated -

"The said debtor firm committed the act of bankruptcy stated to have been committed in the said before-mentioned Petition."

6. It is to be noted that the whole of this affirmation follows closely the form prescribed by. Form 12 of the Bankruptcy (Forms) Rules, which is the form (so far as a joint petition is concerned) applicable to the affidavit of verification required by section 9(1) of the Ordinance.

7. The main argument for this Appellant was therefore that such an affirmation was insufficient to found prima facie proof of the commission of an act of bankruptcy, being in fact no more than a formal verification as required by section 9(1).

8. From a mere reading of section 9 this argument would appear to be correct.  Section 9(l) deals with matters prior to the hearing, namely the affidavit of verification. Section 9(2) provides that proof is required at the hearing (the emphasis is ours). Clearly something more than an affidavit of verification is required at the hearing.

9. The matter is to our minds placed beyond a peradventure by Ex paste Lindsay⁽¹⁾. It is sufficient to quote the headnote.

"At the hearing of a bankruptcy petition, even though the respondent has given no notice of his intention to shew cause against the petition, and does not appear, the allegations contained in the petition must be supported by further evidence than the common affidavit. That affidavit is made only for the purpose of justifying the sealing of the petition."

10. The affirmation of the Petitioning Creditors in the present case is to be equated with the common affidavit referred to in Lindsay's case. It should have been supported by further evidence at the hearing of the Petition. It was not. For this reason alone we would allow the appeal.

11. However, in deference to the able arguments of Counsel for the Appellant, there is one further matter to which we should refer. There was before the Judge an affirmation from the Appellant which the Judge clearly read because he refers to it in his judgment. It is not entirely clear how he came to read it. If he did so simply because it had been filed in the proceedings then he was wrong to do so. Ex parte Child⁽²⁾ is clear authority for this proposition.

12. The headnote reads:

13. We emphasize that this authority, with which we respectfully agree, relates only to proceedings in bankruptcy.

14. But it would seem to be probable that the affidavit was read to the Judge on behalf of the respondent. However it is clear from the judgment that he relied on this affirmation as reinforcing his view that an act of bankruptcy had been committed.

15. The burden of proving an act of bankruptcy lies on the Petitioner, and, as appears from the reasons given heretofore, in our opinion, at the end of the Petitioner's case this burden was not discharged. In these circumstances, at that stage the Judge should have dismissed the petition. It is not permissible to rely on any evidence adduced, unnecessarily, thereafter, to establish a non-existent case.

16. Accordingly, we allow the appeal, set aside the Receiving Order and dismiss the Petition.

(1)    (1874) L.R.19 Eq. Cases 52

(2)    [1882] 20 Ch. D. 126