RE WU WING LUNG

HCB 1415/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY NO. 1415 OF 1999

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DECISION

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1. This is an application taken out by the Official Receiver and Trustee ("the Official Receiver") objecting to the automatic discharge of the bankrupt Mr. Wu Wing Lung ("the Bankrupt") under Section 30A(3) of the Bankruptcy Ordinance ("the Ordinance").

2. The bankruptcy order against the Bankrupt was made on 3 August 1999 upon a petition presented by the Bankrupt himself. Pursuant to Section 30A(1) and (2)(a) of the Ordinance, the Bankrupt would have been discharged from bankruptcy on 3 August 2003 if no objection was raised.

3. According to the report filed by the Official Receiver, 13 proof of debts amounting to a total sum of $363,651.85 were received. The amount of assets realized was only $0.58.

4. On 16 July 2003, an order was made by the Court suspending the automatic discharge of the Bankrupt pending the determination of this application by the Official Receiver.

Grounds of Objections

5. In this application, the grounds of objection relied on by the Official Receiver are as provided under Section 30A(4)(c) and (d) of the Ordinance namely:-

i) that the Bankrupt has failed to co-operate with the Official Receiver in the administration of his estate; and

ii) that the conduct of the Bankrupt, either in respect of the period or the period after the commencement of the bankruptcy, has been unsatisfactory.

6. In support of the application, the Official Receiver relied on the following conduct of the Bankrupt which the Official Receiver considered to be unsatisfactory or amount to a failure to co-operate:-

i) obtaining credit without disclosing his bankruptcy;

ii) non-disclosure of money source in the Annual Statement of Earnings and Acquisition ("Annual Statement") submitted by the Bankrupt;

iii) failure to make contribution to his estate; and

iv) failure and delay in providing documents specifically requested by the Official Receiver.

7. For the application, the Official Receiver has filed 3 reports. The Bankrupt has filed 2 affirmations in opposition. At the hearing, the Bankrupt elected not to give evidence. I shall now deal with the above alleged conduct or complaint by the Official Receiver.

Obtaining credit without disclosing his bankruptcy

8. On 11 February 2003, the Official Receiver received a facsimile message from the Bankrupt seeking for the consent of the Official Receiver to his application for a non-means tested loan from the Student Financial Assistance Agency ("SFAA"). The loan was for payment of his tuition fee for the course that he had enrolled. However, investigations by the Official Receiver revealed that the Bankrupt had since September 2001 obtained 5 loans from SFAA without disclosing his bankruptcy status and without disclosing his applications for the 5 loans to the Official Receiver. The 5 loans amount to a total sum of $53,968.80. Particulars of the 5 loans ("the 5 Loans") are as follows.

Date of Application (as stated in the Application Form)	Amount of the loan (HK$)
7 September 2001	12,654.50 ("1st loan")
17 January 2002	12,393.00 ("2nd loan")
1 February 2002	12,750.00 ("3rd loan")
31 May 2002	13,931.30 ("4th loan")
22 June 2002	2780.00 ("5th loan")

It is the case of the Official Receiver that the Bankrupt should have disclosed his bankruptcy status when he applied for the 5 Loans from SFAA.

9. In a letter from SFAA to the Official Receiver dated 7 April 2003, SFAA confirmed that the Bankrupt had not disclosed his bankruptcy status when he applied for the 5 Loans. The SFAA stated that if an applicant has informed them that he is a bankrupt, it is their internal procedure to request the applicant to supply more details regarding his bankruptcy such as the date of the bankruptcy order and whether the Official Receiver's Office has consented to the loan application. However, according to the records of SFAA, the Bankrupt has not informed them of his bankruptcy status nor have they received any letter from the Official Receiver consenting to the Bankrupt's application for the 5 Loans.

10. In further support of this ground, the Official Receiver has exhibited (in his 2nd report) 9 statements made by the staffs of SFAA confirming that they had not been notified by the Bankrupt of his bankruptcy status. The statements were made by the staffs on various dates between 26 to 31 March 2003. They are of the same contents save the statement made by a Ms. Doris Liu Mei-fong dated 28 March 2003.

11. The Bankrupt disputed that he had not disclosed his bankruptcy status to SFAA when he applied for the 5 Loans. His arguments as set out in his 2 affirmations can be summarized as follows:-

a) The Bankrupt admitted that he is under a duty to disclose his bankruptcy status when he obtains credit from another person. But for the 5 Loans, he argued that he had on each occasion that he applied for the loan, verbally informed the staff of SFAA of his bankruptcy status over the telephone. He had also made enquiry with the staff as to whether a bankrupt was eligible to apply for the loan. He said that on each of these occasions, he was advised by the staff that he was entitled to apply despite that he was a bankrupt. He was further advised that he needed not disclose his bankruptcy status in the application form. He stated that if SFAA had installed a telephone recording system, the record of his telephone conversations with the staffs could be produced to prove that what he said was true.

b) The Bankrupt submitted that in the SFAA application form for year 2000/2001 and year 2001/2002, there is no requirement that the applicant (which includes the Bankrupt) has to declare his bankruptcy status in the application form. It is only in the new application form issued by SFAA for year 2002/2003 that there is such a requirement.

c) The Bankrupt stated that in October 2002, he had submitted another loan application to SFAA (i.e. his 6th application). On that occasion, he personally attended the office of SFAA to make the same enquiry namely whether a bankrupt could apply for loan. He was then advised by the staff of SFAA that a bankrupt was not eligible to apply and that application by a bankrupt would certainly be refused. He stated that on that occasion, he withdrew his application and obtained a refund of $165 being the administration fee. In April 2003, he submitted another application again (i.e. his 7th application). For that application, he had disclosed his bankruptcy status in the application form and it was approved by SFAA.

d) In response to the 9 statements made by the staffs of SFAA, the Bankrupt argued that they are not reliable as the staffs had not specified in their statements for which loan application the Bankrupt had not notified them of his bankruptcy status. The Bankrupt argued that at most, the staffs were only confirming that between 26 to 31 March 2003 (i.e. the dates they signed the statements), they had not been notified by the Bankrupt of his bankruptcy status. He submitted that the statements cannot prove that at the time he applied for the 5 Loans, he had not disclosed his bankruptcy status.

12. Having considered all the evidence, I do not accept that the Bankrupt had disclosed his bankruptcy status to SFAA or that he had been advised by SFAA that he needed not disclose his bankruptcy status in the application form. I find the Bankrupt's evidence and arguments unconvincing and not believable.

13. Based on the Bankrupt's version of facts, I find it difficult to understand why SFAA had been acting in such a contradictory manner. According to the Bankrupt, SFAA is fully aware that he is a bankrupt. If that is the case, I fail to see why for the first 5 applications by the Bankrupt, SFAA had advised him that he was eligible to apply for the loan but for his 6th application (made in October 2002), a contrary advice was given to him namely a bankrupt was not eligible to apply and that application by a bankrupt would be refused. Then within a short period of about 6 months, when the Bankrupt applied again for the 7th time (i.e. in April 2003) SFAA approved his application despite their earlier advice that application by a bankrupt would be refused. This is hard to understand.

14. Further, it is inconceivable that on each of these 5 occasions that the Bankrupt applied for the loan, the staff of SFAA would have advised him that he needed not disclose his bankruptcy status in the application form. As a quasi-government body responsible for the granting of loan to students, SFAA must be very concerned as to whether the applicant is a bankrupt or not as this would have serious implications on the applicant's ability to repay. It would not be in the interest of SFAA to grant a loan to a person who has no means to repay at all. In my view, whether the applicant is a bankrupt is an important and a material factor that SFAA has to take into account when considering whether a loan should be granted or not. There is no good reason, and it is simply against common sense, that the staff of SFAA would have advised the Bankrupt not to disclose his bankruptcy status in the application form. In my judgment, the Bankrupt's allegation that he was advised not to disclose his bankruptcy status in the application form absurd and not believable. On the contrary, I find the evidence of the Official Receiver reasonable and credible. I accept, as per the letter from SFAA to the Official Receiver dated 7 April 2003, that all along SFAA do have an internal procedure dealing with applications by bankrupt. It is part of their procedure to require the bankrupt person to obtain the consent of the Official Receiver to the loan application. I also accept the records of SFAA that the Bankrupt had not disclosed his bankruptcy status to SFAA when he applied for the 5 Loans. I find such conduct of the Bankrupt unsatisfactory.

15. In respect of the statements made by the staffs of SFAA, I do not agree with the argument of the Bankrupt that the SFAA's staffs were only confirming that between 26 to 31 March 2003, they had not be notified by the Bankrupt as to his bankruptcy status. I think the matter has to be looked at in context. In my view, the 9 statements were prepared in response to the further enquiry by the Official Receiver regarding whether the Bankrupt had disclosed his bankruptcy status when he applied for the 5 Loans. These statements were prepared in reply to such enquiry and must be read in that context. Indeed, in the statement of the said Ms. Doris Liu Mei-Fong dated 28 March 2003, she specifically stated that:

"......to the best of my knowledge, I have not been notified of Mr. Wu Wing-lung's bankruptcy (i.e. the Bankrupt) in approving his application under the 2001/2002 Non-means Tested Loan Scheme" - words in bracket added.

I accept the contents of the 9 statements and reject the Bankrupt's argument. I also accept the explanation by SFAA, as per their letter to the Bankrupt dated 14 August 2003, that the requirement to disclose the applicant's bankruptcy status in the new application form for 2002/03 was to serve as a reminder to the applicants only. All along, SFAA has internal procedure to deal with application by applicant who is a bankrupt.

Non-disclosure of money source in Annual Statement of Earnings and Acquisitions

16. It is the case of the Official Receiver that the Bankrupt has failed to disclose the 5 Loans he received from SFAA in his Annual Statements. The Bankrupt disputed that he is required to make such disclosure.

17. The Bankrupt explained that apart from the tuition fee in the sum of $12,750 (i.e. the 3rd loan) which was paid directly by SFAA to the course provider Hong Kong Open University, his tuition fees for the other courses (which relate to the 1st, 2nd, 4th and 5th loan) were all paid by his family on his behalf. When he received the loan from SFAA, the loan would be used to repay his family. He therefore contended that the payment of the tuition fees could not be treated as his expenditure as they were paid by his family not by him. The loans he received from SFAA could not be treated as his income as they were repaid to his family not to him. On that basis, he argued that he needed not disclose the 5 Loans he received from SFAA in the Annual Statement as they are not his income nor expenditure.

18. I find the above arguments of the Bankrupt sophistical and unacceptable. In my view, the 5 Loans he obtained from SFAA were financial assistance granted to and received by him not his family. He is the person who benefits from the 5 Loans and is liable to repay the loan not his family. These loans should have been disclosed in his Annual Statement for the period August 2001 to August 2002 under column for "source of income" as "money from other source". The payment of his tuition fees should also be disclosed as his expenditure. In my view, the Bankrupt has failed to make full and frank disclosure of the 5 Loans in his Annual Statement for August 2001/August 2002 and this amounts to unsatisfactory conduct. Indeed, I note that no documentary evidence such as receipts has been produced by the Bankrupt to support his contentions that the tuition fees were all paid by his family and that the loans had been paid back to his family. The Bankrupt's arguments are not credible.

Failure to make contribution to his estate

19. It is the submission of the Official Receiver that for the following 3 years after the bankruptcy order was made (i.e. year 2000, 2001 and 2002), the Bankrupt had incurred unnecessary and unacceptable expenses. He had also failed to make contribution to his estate. Particulars of the alleged unnecessary and unacceptable expenses are set out in the letter from the Official Receiver to the Bankrupt dated 13 February 2003 and are repeated as follows:-

Year	Clothing & Leisure	Long Distance Call	Cigarettes & Beer	Household Expenses (excluding utilities charges)
2000	12,000	1,200	16,800	42,000
2001	15,000	2,400	16,800	48,000
2002	15,000	2,400	16,800	54,000

20. In the said letter of 13 February 2003, the Official Receiver requested the Bankrupt to make contribution to his estate in the sum of $37,586.20. The Official Receiver took the view that had the Bankrupt controlled his expenses for year 2001 and 2002, he should be able to contribute the said sum of $37,586.20 to his estate.

21. However, in another letter from the Official Receiver to the Bankrupt dated 19 February 2003, the Official Receiver stated that he accepted the explanation given by the Bankrupt in respect of his expenses. The Official Receiver further agreed that the Bankrupt needed not pay the said sum of $37,586.20 as requested.

22. I agree with the Official Receiver that the expenses of the Bankrupt above are excessive and unreasonable. However, as the Official Receiver has subsequently accepted the explanation given by the Bankrupt and withdrawn the request for contribution from the Bankrupt, there is no evidence before the Court to support the contention that the Bankrupt has failed to make contribution to his estate. I find this complaint not proved.

Failure and delay in providing documents specifically requested by the Official Receiver

23. It is the case of the Official Receiver that the Bankrupt had been requested to provide a statement of his income and expenditure for the months from November 2002 to January 2003. The request was made on 19 February 2003. However, the Bankrupt had failed to provide the requested documents until 12 June 2003 and after the commencement of the present proceedings on 3 June 2003.

24. By another letter from the Official Receiver to the Bankrupt dated 23 June 2003, the Bankrupt was requested to provide the following copy documents:-

i) marriage certificate

ii) documents or passbook showing the amount of income he received from August 2002 to May 2003; and

iii) documents relating to payment of his tuition fee for December 2002

Again, the Bankrupt only provided a copy of payment slip for his tuition fee dated 3 October 2002 but not for December 2002 as requested. A copy of his marriage certificate was also supplied but the particulars of his wife were blotted out.

25. By a letter from the Official Receiver to the Bankrupt on 4 November 2003, the Bankrupt was further requested to provide his passbook, his wife's name and the tax returns of his wife and himself. The Official Receiver required those information as the Bankrupt claimed that he was responsible for his wife's meals and clothing after their marriage. By a letter dated 6 November 2003, the Bankrupt only provided his tax returns for 1999 to 2002 but not his wife's tax returns nor other documents requested. At the hearing on 19 January 2004, the Court was informed that the Bankrupt had provided copy of his bank statements in December 2003.

26. In his 2nd Affirmation, the Bankrupt explained that he was unable to promptly reply to the request of the Official Receiver because he was very busy with his work and studies. He could only use his spare time to prepare reply to the Official Receiver. He argued that few months' delay could not be regarded as too long especially the Official Receiver had not imposed any deadline for him to response to the requests made.

27. I do not accept the explanations given by the Bankrupt above. As a bankrupt, he is under a duty to co-operate with the Official Receiver in the administration of his estate. This includes the supply of all the necessary documents requested by the Official Receiver without delay so as to enable the Official Receiver to make proper investigations as to his affairs. On the evidence before the Court, there is no good reason for the Bankrupt's delay or failure to provide the documents requested. I find the Official Receiver has proved the complaint namely that there are failure and delay on the part of the Bankrupt to supply the documents requested.

The Decision

28. The Law Reform Commission Report on Bankruptcy has set out the rationale behind the provisions for automatic discharge. Paragraphs 17.16 and 17.24 of the report state:-

"17.16 the introduction of automatic discharge should, with the objection system, have tow-fold effect. Firstly, bankrupts should have a greater incentive that 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."

29. In the case of Re Hui Hing Kwok [1999] 3 HKC 633, Madam Justice Le Pichon (as she then was) states at p. 687 that:-

"Rehabilitation in the sense of enabling the bankrupt to resume a normal life in society is a key, if not the key, consideration."

30. As for the present case is concerned, I am satisfied that the Official Receiver has established the grounds of objection relied on save the alleged complaint that the Bankrupt has failed to make contribution to his estate as stated above. In my view, there are failings on the part of the Bankrupt which justify the delay of his rehabilitation. I find the conduct of the Bankrupt after the commencement of this bankruptcy has been unsatisfactory. He has failed to disclose his bankruptcy status to SFAA when he applied for the 5 Loans. He has also failed to disclose the 5 Loans in his Annual Statement for August 2001 to 2002. I am also satisfied that he has failed to co-operate with the Official Receiver by failing to respond promptly to the request by the Official Receiver for the necessary documents. In my view, his unsatisfactory conduct should warrant a suspension of the automatic discharge for the maximum period. However, and having considered all the circumstances, in particular to the amount of money involved in the 5 Loans (i.e. $53,968.80) and the belated supply of the documents by the Bankrupt to the Official Receiver in December 2003 which would amount to a mitigating factor, I think the appropriate period of suspension should be 3 years and 9 months. Accordingly, I order that the automatic discharge of the Bankrupt be suspended for 3 years and 9 months. The discharge date would be 3 May 2007.

Costs

31. For the present application, I see no reason why costs should not follow the event. As such, I will order the Bankrupt to pay to the Official Receiver the costs of these proceedings. To save the costs of taxation, I will make a gross sum assessment of the costs of the Official Receiver under O.62, r.9(4)(b) of the High Court Rules.

32. According to Ms. Chung for the Official Receiver, she has spent approximately 6 hours on the whole matter. At her rate of $4,000 per hour, she claims a total sum of $24,000 ($4,000 x 6).

33. Having considered the time she has spent in drafting the reports; perusing the affirmations and various documents and the time for preparing and attending the hearings, I accept that the amount claimed is reasonable. However, as the Official Receiver has not been successful on the alleged complaint that the Bankrupt has failed to make contribution to the estate, the Official Receiver should not be entitled to costs on this issue. In my view, the appropriate amount of costs that the Official Receiver should be entitled is $20,000. I shall make an order nisi that the Bankrupt do pay to the Official Receiver the costs of these proceedings assessed in the sum of $20,000.