CHIN WAI KAY GEORDIE v. MOK YU HON

CACV 118/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 118 OF 2011

(ON APPEAL FROM HCB NO 7469 OF 2010)

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J U D G M E N T

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Hon Lam J (giving the judgment of the court):

1.  In this appeal, the Debtor (who was the subject of a voluntary arrangement under the Bankruptcy Ordinance) seeks to overturn the bankruptcy order made against him by Deputy Judge Coleman on 9 June 2011 on the petition of the Petitioner under Section 3(1)(c). The voluntary arrangement was approved by the creditors at a meeting held on 17 March 2009. The legal ground of the petition pursuant to Section 20L was that information which was false or misleading in any material particular or which contained material omissions was contained in the statement of affairs and other documents or information supplied by the Debtor in the course of the proceedings leading to the approval of the voluntary arrangement.

2.  The specific grounds relied upon by the Petitioner are set out as particulars under para 3 of the Petition.  For present purposes, it is sufficient to refer to the summary of irregularities summarized by Harris J in the earlier proceedings concerning the voluntary arrangement in HCBI 1396/2008 at para 23 of the judgment of 11 June 2010 [2010] 3 HKLRD 456, which the learned deputy judge had adopted and agreed with (see paras 15 to 16 and 26 and 27 in the judgment below).  The irregularities, as put forward before Harris J and the Deputy Judge, were summarized into 3 categories.

“First, a failure to provide accurate information in the statement of affairs and the proposal; secondly a failure to comply with Rule 122(2)(c)(ii) and identify a liability owed to an associate (Cheery) and thirdly a failure to disclose liabilities arising after the presentation of the petition, namely, as a borrower of money secured on a property owned by Cheery and as a guarantor of a transaction between Wealthy Eagle and Net Pacific.”

3.  Harris J went on to find as follows,

“I accept that the debtor’s undisputed failure to include all creditors in the statement of affairs and proposal is an irregularity. I also accept that Cheery is an associate of the debtor and that the failure to include this information in the proposal was an irregularity. … In my view the various matters referred to above, the underlying facts of which are not in dispute, allow me to infer that on the balance of probabilities Cheery is a company over which the debtor has control. It was, therefore, an associate of the debtor and this should have been stated in the proposal. This conclusion suggests that Cheery is the debtor’s nominee and the Cheery should have been included as an asset in his statement of affairs.”

4.  The background regarding the underlying transactions was fully set out in the judgment of Harris J and repeated again in the judgment of the Deputy Judge, see para 8 of the judgment below.

5.  At this juncture, it is necessary to refer to the history of the proceedings in order to explain the relevance of the judgment of Harris J in this appeal against the order made by the Deputy Judge.

6.  A bankruptcy petition was presented by a creditor against the Debtor on 17 July 2008.  On 22 September 2008, the Debtor issued an application for interim order under HCBI 1396 of 2008.  In the proposal filed in support of the application, the Debtor stated he had 3 unsecured creditors.  The application was opposed.  On 9 December 2008, the master made an interim order.  The interim order stayed the bankruptcy proceedings until 24 February 2009 to enable a creditors’ meeting to be held on 6 January 2009.  The nominees were engaged by the Debtor. 

7.  At the meeting of 6 January 2009, according to the summary of creditors prepared by the nominees, altogether 6 creditors attended the meeting (either in person or by proxy).  There was only 50.61% in value of debts in favour of accepting the proposal.  The requisite statutory majority of 75% could not be met.  The total debt value as set out in the summary was $15 million odd.  The meeting was adjourned to 13 January 2009.

8.  After the adjournment, the requisite majority was again not achieved on 13 January 2009 when the meeting resumed.  An additional creditor Yip Wai Kuen appeared with a claim of $5 million odd against the Debtor.  He was in favour of accepting the modified proposal.  Still the requisite majority could not be achieved.  In the supplemental report of the nominees of 18 February 2009, it was said that only 62.95% of debts in value accepted the proposal.  The proposal was rejected at the meeting.

9.  Upon the conclusion of that meeting with the rejection of the proposal, the nominees should have reported to the court within 7 days in accordance with Section 20G of the Bankruptcy Ordinance and Rule 122V(3) of the Bankruptcy Rules.  Had such report been furnished, the master might have discharged the interim order pursuant to Section 20G(2).

10.  What happened was that on 16 January 2009, another new creditor, Becentral International Limited, appeared and indicated through its solicitor that it intended to support the proposal.  Becentral claimed to be a creditor of a debt of $15 million odd.  The Debtor submitted a further proposal on 19 January 2009 and took out an application for extension of time for holding another creditors’ meeting.  The nominees, instead of filing a report within 7 days of 13 January 2009, filed a report on 18 February 2009 supporting the application for extension of the interim order.

11.  On 23 February 2009, the master granted an order extending the interim order.  The order extended the interim order to 21 April 2009 “to enable a further meeting of the Debtor’s creditors be summonsed to re-consider the Debtor’s proposal”.  The order also extended the time for reporting on the result of the creditors’ meeting pursuant to Section 20G and Rule 122V “from the date of summoning creditors’ meeting to re-consider the Debtor’s proposal”.

12.  We have some doubt as regards the legal basis for this order.  Under the statutory scheme for IVA regime, if a debtor intends to avail himself of the protection of an interim order, he should act with candour and care in the preparation of his proposal.  The statutory IVA regime has to strike a balance between the interest of a petitioning creditor and the debtor by minimizing the disruption that may be caused to the bankruptcy process occasioned by an interim order.  Thus, Section 20C(1)(c) provides that a debtor cannot make IVA application more than once within 12 months.  A debtor should put all his cards on the table when he puts forward an IVA proposal.  Whilst modification of proposals is permissible (and may sometimes even be necessary in light of unforeseen developments in the course of the process), a debtor must try his best in putting forward a serious and viable proposal with candour.  Incomplete and inaccurate information as to the affairs of a debtor would, very often, hamper the proper assessment by his creditors as to the viability and bona fide of a proposal.  Repeated modifications of proposal and revisions of the statement of affairs would inevitably damage the confidence of creditors as regards the good faith of the debtor and diminish the likelihood of approval of an IVA scheme.

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.

15.  The present case illustrates the potential unsatisfactory consequences of not keeping the IVA process within its proper confines.  New, and, as explained below, questionable creditors emerged who, at the reconvened meeting of creditors, tipped the balance to approve a proposal which yields much less dividends for the creditors under the original proposal (dropping from 25.12% in the first proposal considered in January 2009 to 5.24% in the third proposal finally approved in March 2009, see paras 42 and 43 of the judgment of the Deputy Judge).  Substantial costs and time were incurred before a bankruptcy order was finally made. 

16.  Be that as it may, the interim order was extended and a third meeting was convened on 17 March 2009.  More creditors appeared.  Apart from Becentral, a company called Cheery Group Limited claimed to be a creditor of the Debtor for a debt of $4.1 million odd.  As mentioned earlier, the court subsequently found Cheery to be a nominee for the Debtor.  Harris J considered that its assets should be regarded as the assets of the Debtor and it should have been so stated in the statement of affairs.

17.  The proposal was approved by a majority of 78.75%.  Even without taking into account the debt of Cheery, there was still a majority exceeding 75% (see para 25 of the judgment of Harris J[1]). Though there was also a challenge in respect of Becentral as being connected with the Debtor, neither Harris J nor the Deputy Judge made any finding in that regard.

18.  Soon after the approval in March, the Petitioner and another creditor applied by Notice on 7 April 2009 to challenge the meeting’s decision.  According to the notice, the challenge was advanced pursuant to Section 20J of the Bankruptcy Ordinance on the ground that there have been material irregularities at or in relation to the meeting.

19.  The substantive hearing of the challenge came before Harris J on 27 April 2010.  When the case was argued, counsel for the challenging creditors contended that there were three avenues by which the court could interfere with the decision of the meeting of creditors: (1) inherent jurisdiction; (2) Section 20J; and (3) Section 20L.  Harris J held that the court did not have any residual inherent jurisdiction and held against the challenge under Section 20J on the ground that it has not been shown that if the irregularities had not occurred the result of the meeting would be different.  This court is not concerned with an appeal against these decisions.

20.  As regards the possibility of intervening under Section 20L, Harris J held that the section can only evoked by a fresh bankruptcy petition to be issued after the approval of the voluntary arrangement.  As no such petition was before the court, Harris J was unable to make a bankruptcy order under Section 20L.  However, His Lordship also made it plain that had that been done, he would have granted a bankruptcy order on the basis of Section 20L(1)(b).

21.  On 18 October 2010, the Petitioner issued the bankruptcy petition in the present case.  The matter was heard by the Deputy Judge on 9 June 2011 and he granted the bankruptcy order on the same date.

22.  In the judgment of the Deputy Judge, it was held that the application of the test for materiality under Section 20L was different from that under Section 20H.  Therefore the rejection of the challenge under Section 20J by Harris J (and the absence of any appeal against such decision) would not bar the court from entertaining a petition under Section 20L.  At para 38 of the judgment, the Deputy Judge said,

“In [the case of Section 20L], the focus is not on whether or not the decision [at the meeting] would have been the same anyway, but whether the consideration which led to the decision is likely to have been materially influenced. This is looking not just to the decision made, but to the process by which any decision was considered. Hence, in contrast to the other approach under Section 20J, regard may be had to more general considerations concerning manipulation of the statutory regime.”

23.  On the facts, the Deputy Judge held that considering the matter with regard to the whole IVA process as opposed to focusing on the meeting, the criteria of Section 20L had been satisfied.  Further, His Lordship addressed the question whether the court’s discretion should be exercised in favour of granting a bankruptcy order despite the lapse of time between the approval and the issue of petition.  He concluded that this is a proper case for making a bankruptcy order.

The statutory scheme for IVA and the interface between Sections 20J and 20L

24.  Before we consider the grounds of appeal advanced on behalf of the Debtor, it is perhaps useful to remind ourselves of some fundamental principles in the statutory scheme for IVA.  The genesis of the modern statutory scheme for IVA was discussed by Lindsay J in Greystoke v Hamilton-Smith [1997] BRIP 24.  At p 26B to E,

“The [Committee on Insolvency Law and Practice under Sir Kenneth Cork] suggested new proposals which, at para 364(1), it recognized would place heavy responsibilities upon the insolvency practitioners involved. The proposals envisaged practitioners being given full details by the debtor of his financial position and transactions (para 371(a)), supported by a statutory declaration as to the truth of the information provided (para 374). The intention was that a distinction should be made between insolvencies due primarily to incompetence ‘and insolvency where, for reasons of conduct, commercial morality or public concern, a full investigation is necessary’: para 682. The committee recognized the distinction would not always be readily observable and added,

‘It is essential that no opportunity should be given to the unscrupulous debtor to bypass the procedures which we have devised to identify those who should be subject to the full investigation process of bankruptcy.’

From the committee’s proposals grew the IVA provisions of the Insolvency Act 1986 (although the committee’s suggestions were not wholly adopted by Parliament).  The dependency foreseen by the committee upon both a full and candid disclosure by the debtor and the discharge by the relevant insolvency practitioner of heavy responsibilities cast upon him is carried into the statutory provisions.”

25.  Similar statutory provisions are in place in our Bankruptcy Ordinance and Bankruptcy Rules.  With regard to the duty of a debtor to give full and frank disclosure of his affairs, Rule 122H(5) requires that the statement of affairs of a debtor (which has to be supplied within 7 days of his proposal under Rule 122H(2)) to be certified by him as correct to the best of his knowledge and belief.  Further, Section 129(1)(f) provides for criminal liability of a debtor (if he were eventually adjudged bankrupt) if he makes any material omission or misstatement in any statement relating to his affairs, unless he proves that he had no intent to defraud.

26.  The integrity of the IVA process depends very much on the candour of a debtor in his statement of affairs and other information provided by him concerning his financial position.  The nominee has to form a professional opinion on the viability of a proposal based on such information.  The court, in turn, places substantial weight on the nominee’s opinion in deciding whether an interim order should be granted.  As chairman of a creditors’ meeting, the nominee also depends on the accuracy of the information provided by the debtor to perform the tasks of admitting or rejecting creditors’ claims as to the entitlement to vote.  As Lindsay J said in Greystoke v Hamilton-Smith at p 27B to C,

“These points all underline the nominee’s reliance upon the information provided by the debtor and the consequential need for complete candour by the debtor. A further indication of the importance of the Act attributes to the supply of full and accurate information by the debtor to the nominee is that the supervisor of the IVA is entitled to petition for a bankruptcy order against the debtor if the latter shall have supplied false or misleading information in his statement of affairs …”

27.  Lindsay J also discussed how a nominee should perform his duty when there is doubt as to the fullness or candour of a debtor’s information.  At p 28C to F,

“But within the scheme of the Act as discernible from the powers and duties given to the nominee it is, in my judgment, to be expected, as a minimum, of the nominee, at least in those cases where the fullness or candour of the debtor’s information has properly come into question, that the nominee shall have taken such steps as are in all the circumstances reasonable to satisfy himself and shall have satisfied himself on three counts. Leaving aside compliance with the formal requirements of the Act and rules they are, first that the debtor’s true position as to assets and liabilities does not appear to him in any material respect to differ substantially from that which it is to be represented to the creditors to be. Secondly, that it does appeal to him that the debtor’s proposal as put to the creditors’ meeting has a real prospect of being implemented in the way it is to be represented it will be. A measure of modification to proposals is possible under s 258 so this question is to be approached broadly. Thirdly, that the information that he has provides a basis such that (within the broad limited inescapably applicable to what have to be the speedy and robust functions of admitting or rejecting claims to vote and agreeing values for voting purposes) no already-manifest yet unavoidable prospective unfairness in relation to those functions is present.”

28.  Then at p 29A to D,

“Plainly, the less inquiry the nominee undertakes, the more important, in terms of reliance upon it, becomes the fullness and candour of the information provided by the debtor. If, for whatever reason, the nominee’s inquiries in questionable cases have been so restricted or unsatisfactory that the nominee would be unable to assure creditors that he had satisfied himself that those three minima were met, then he should not unequivocally report, under s 256(1)(a), that in his opinion a meeting of creditors should be summoned. Where such doubts have reasonably arisen it cannot be right for the nominee unquestioningly to accept whatever it put in front of him on the supposed basis that it is not for him but for the creditors to accept or reject the proposal; it is fundamental to the intended operation of IVAs that what the creditors vote upon is not the debtor’s raw material but a proposal that, at least to the qualified extent I have described, has survived scrutiny and which, to at least that extent, has commended itself to an independent professional insolvency practitioner as proper to be put to, and capable of being not unfairly voted upon by, the creditors.”

29.  What is said by His Lordship at p 31D to E also has significance in the present context,

“But there is a fourth requirement that arises … It is this: if it shall have 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 as his opinion that a meeting of creditors should be summoned. In such a case the meeting would be pointless; it would serve no useful purpose and would be just a waste of money…”

30.  The implication is that a debtor should supply full and accurate information about his creditors to the nominee to enable the latter to form a proper view as to the likelihood of achieving the statutory majority.  Such information should include all necessary information regarding the nature of the debts in question and, if a debt of a particular creditor is likely to be challenged (not only by the debtor but also by other creditors), information to enable the nominee to admit or reject that creditor’s claim as to entitlement to vote.  

31.  Given what had happened in the present case, insolvency practitioners including those who take up the role of nominees and those advising debtors should be reminded to bear these observations in mind.

32.  It is also to be noted that the candour of a debtor in his proposal is relevant to the court’s consideration as to whether an interim order should be granted.  In Davidson v Stanley [2005] BPIR 279, Blackburne J refused an interim order because the court was not satisfied with the bona fide of a proposal.  At paras 21 and 22 of the judgment, it was said,

“It is established by decided authority (see Hook v Jewson Ltd [1997] BPIR 100) that in determining the appropriateness, or otherwise, of making an interim order the court will consider whether the debtor’s proposal for his IVA to be put to his creditors is ‘serious and viable’. In other words, the court must be satisfied of the proposal’s seriousness and bona fides, and therefore that there is substance in the application for an interim order because of the far-reaching effect which an order may have in staying proceedings by the debtors’ creditors.

Relevant to the exercise of the discretion is whether, in his proposal, the debtor has made a full and correct disclosure of his affairs ― in particular his assets and the extent to which they are subject to encumbrances ― and of his expected future earnings if, and insofar as, those earnings are to be relied upon as part of the benefits which are to be available to creditors under the arrangement.” (my emphasis)

See also para 43 where His Lordship observed on the persistent failure of the debtor to give full and frank disclosure of his financial affairs and said,

“Such conduct, as it seems to me, augurs badly for the success of a proposal of this nature.”

33.  Against such statutory backdrop, it can readily be appreciated that the duty of candour on the part of a debtor should permeate through every stage of the IVA process.  It is not enough for a debtor to come clean at the creditors’ meeting.  As mentioned, he should lay all his cards on the table right from the beginning in his proposal and the very first statement of affairs.

34.  We agree with Mr Ko (and Ms Tjia eventually accepted after considering the Chinese version of Section 20L) that the requirement of materiality is applicable to both false and misleading information.  However, we are of the view (contrary to the submission of Mr Ko) that both the Deputy Judge and Harris J were correct in holding that the focuses of the materiality test under Sections 20J and 20L are different.  This must follow from the above analysis. The question of materiality, in the context of Section 20L(1)(b), has to be considered in respect of the whole IVA process.  We are of the view that the jurisdiction to make a bankruptcy order is engaged if the information provided by a debtor is false or misleading in a material particular or contained material omissions at any stage of the process.  Materiality for that purpose has to be considered not only from the point of view of the creditors’ meeting, but also at the prior stages of the consideration of the matter by the nominee in the preparation of his report and the court in deciding whether an interim order is to be granted or extended.  Therefore, even though Harris J rejected a challenge under Section 20J on the basis that the irregularities identified were not material for the purpose of the creditors’ meeting on 17 March 2009, such holding did not,  as a matter of law, bar a court from granting a bankruptcy order under Section 20L(1)(b).

35.  At the same time, the court still has a discretion to grant or refuse to grant a bankruptcy order even when Section 20L(1)(b) is engaged, see Re Tack [2000] BPIR 164 at p 205G to 206E.  In the exercise of such discretion, the court will bear in mind that a bankruptcy order would unravel an arrangement agreed upon by a statutory majority at a creditors’ meeting.  The weight that the court will attach to such majority approval must depend on the facts of each case.

36.  The court will take into account the seriousness of the lack of candour on the part of the debtor and how it went against the spirit of the statutory scheme for IVA.  Thus, in Re Tack Rimer J said at p 206D to E,

“I have found that his proposal was in several respects materially misleading and in certain respects, deliberately so. I do not accept Mr Bhalla’s submission that the evidence establishes that there is no hidden pot or gold. He may turn out to be right about that, but I regret to say, by the end of the case, I was satisfied that Mr Tack has been untruthful about his affairs and that they merit through investigation. If a bankruptcy order is made, such an investigation can be made.”

37.  This echoes what was said by Lindsay J in Greystoke regarding the underlying basis for allowing a case to proceed under an IVA regime as opposed to the bankruptcy regime.

Cadburys Schweppes

38.  Mr Ko relies on the test of materiality set out in Cadbury Schweppes plc v Sonji [2001] 1 WLR 615 and contends that the same test is applicable to Section 20L.  Counsel submits that as Harris J had found, in the context of the Section 20J challenge, that the Cadbury Schweppes test was not satisfied, that would be binding even in the context of Section 20L as the test was the same.  He says the issue was res judicata between the parties.

39.  Whilst Harris J did refer to the Cadbury Schweppes test in rejecting the Section 20J challenge, he also said clearly in his judgment that had there been a  bankruptcy petition under Section 20L before him, he would have made a bankruptcy order.  Obviously, Harris J was of the view that there are differences in the application of the materiality tests under Section 20 L and Section 20J.

40.  The Deputy Judge agreed with Harris J and gave further reasons why there should be differences in the application of the criteria for materiality under the two sections at paras 27 to 44 of his judgment.

41.  We have already explained why we agreed with them by reference to the overall statutory scheme.  Did Cadbury Schweppes decide otherwise?

42.  Although in Cadbury Schweppes there were both a challenge under section 262(1)(a) of the Insolvency Act 1986 (the equivalent of our Section 20J(1)(a) of the Bankruptcy Ordinance) and a petition for bankruptcy under section 276(1)(b) of the Act (the equivalent of our Section 20L(1)(b)), there was no challenge under Section 262(1)(b).  In other words, unlike the case as presented to Harris J, the question of materiality in the context of “material irregularity at or in relation to” a creditors’ meeting did not fall for consideration.  Section 262(1)(a) is a challenge on the ground that the arrangement unfairly prejudices the interests of a creditor.  At first instance the court rejected the challenge under s 262 but granted a bankruptcy order under s 276.  The appeal was brought by the debtor against the bankruptcy order.  Though there was also a cross-appeal regarding the dismissal of the challenge under s 262, the Court of Appeal did not find it necessary to deal with it (see para 36 of the judgment).  The English Court of Appeal needed not and did not address the question whether there are differences in the application of the test of materiality in the two sections.

43.  What the Court of Appeal did consider is, however, the test of materiality in the context of Section 276(1)(b), viz our Section 20L(1)(b). But it is necessary to bear in mind the factual context in which the question arose in that case.  The case concerned a material omission instead of material false or misleading information.  The omission was in respect of a secret deal between the debtor and two creditors to influence how the latter voted at the IVA.  The focus, even in the context of s 276(1)(b), was therefore on the information placed before the creditors at the meeting.  There was no suggestion that there was any false or misleading information in the statement of affairs or other information put before the nominee and the court in the application for interim order.

44.  It was in such factual context that the English Court of Appeal agreed to adopt the approach of Rimer J in Re Tack on materiality.  Robert Walker LJ said at para 25 of the judgment of the Court of Appeal,

“In applying the terms of s 276(1)(b) to the facts of this case the deputy judge followed the approach of Rimer J in [Re Tack]. In order to determine whether there had been a material omission he asked himself whether, had the truth been told, it would be likely to have made a material difference to the way in which the creditors would have considered and assessed the terms of the proposed IVA. I consider that that is the correct approach, so long as the question is to be answered objectively, and so long as it is borne in mind that as well as the creditors which were represented at the meeting on 20 December 1999, Mr Cooper held proxies for a number of creditors which were not present by their own representatives. Had Mr Cooper been informed on that day of an important new development which ought to be reported to those for whom he held proxies it would on the face of it have been his duty to adjourn the meeting and report to the other creditors, even if that meant having to obtain an extension of time (under s 376 of the Act).”

45.  The following points should be noted.  First, as already mentioned, His Lordship very much had the facts of the case before the court in mind in endorsing the approach to be applied for determining whether an omission was material.  With respect, it is a misuse of the authority to extrapolate from this a general test of materiality for all cases brought under Section 20L(1)(b).  We cannot discern from the judgment in Cadbury Schweppes any suggestion that Robert Walker LJ intended this to be the test which is universally applicable irrespective of the facts of the case.  As Yuen JA observed in the course of the hearing, such a reading of the case would commit the error of reading it as if it were a statute. 

46.  Second, it is important to have regard to His Lordship’s reference to the position of the proxies and the duty to adjourn the meeting and the emphasis that the question is to be answered objectively.  This should be read together with the elaboration by Robert Walker LJ as to why the development in negotiations with the bank was a highly material fact for other creditors.

“They would then have known that they too had some prospect of achieving more [than what was offered in the proposal]… They would have known that the statement in para 2.9 of the IVA document, although literally true, gave a misleading impression that there was nothing further on offer from any of Mr Somji’s family, friends or business acquaintances.”

47.  In other words, materiality is not to be determined solely by reference to how the votes were actually cast at the meeting.  One must have regard to the position of those who did not attend in person and provided a proxy on the basis of information supplied before the meeting.  This was said in light of the facts of that case.  But this reinforces our above conclusion that the focus of materiality in Section 20L(1)(b) is on every stage of and every party (including the Court) involved in the IVA process as opposed to merely focusing on the outcome of the creditors’ meeting.

48.  Mr Ko also referred to the judgment of Rimer J in Re Tack [2000] BPIR 164.  On the facts, the learned judge was content to assume (and he emphasized that he was not deciding) that the exaggeration of the debts of family creditors was not material due to the proportion of the same towards the overall indebtedness.  This was because there were other matters which the court found to be materially misleading.  At p 205C, Rimer J said the following regarding some transactions in issue,

“If [the debtor] had disclosed these matters, I regard it as probable that the creditors would have wanted to know a great deal more about the 1994 transactions. They would not, without more, have been prepared to accept the proposal which was being put to them.”

49.  In our judgment, the same observation can be made with regard to the Debtor’s relationship with Cheery and the assets held in the name of Cheery (which Harris J found to be held on behalf of the Debtor).

50.  On a proper reading of the cases, neither Cadbury Schweppes nor Re Tack is inconsistent with our earlier analysis as to how one should approach the question of materiality in the context of Section 20L(1)(b).

The grounds of appeal

51.  Once the above difference in focus is appreciated, it can readily be seen that there is no merit in Mr Ko’s submission based on res judicata. Harris J did not decide that there was no material false or misleading information in the statement of affairs when he rejected the challenge under Section 20J.  On the contrary, he found otherwise, though he was prevented from making a bankruptcy order on the technical ground that no petition based on Section 20L was before him.

52.  The second ground of appeal criticized the Deputy Judge’s exercise of discretion to grant a bankruptcy order notwithstanding the time lapse between the approval of the IVA and the issue of the petition under Section 20L.  The learned judge was quite aware of the time lapse and took it into account before he decided to make a bankruptcy order.  Mr Ko submitted that the time lapse should start to run from the approval of the IVA as opposed to the judgment of Harris J.  The learned judge was fully cognizant of the history of the proceedings and the way he dealt with the delay point in the judgment was probably attributable to how the case was argued before him.  In any event, on the facts of the present case, we do not think this is a sufficient ground to warrant this court’s intervention of the judge’s exercise of discretion.

53.  The third ground of appeal was that the Deputy Judge did not have regard to the interests of the other creditors.  Mr Ko candidly told this court that the point had not been canvassed below.  Actually, according to the court record, none of the other creditors appeared at the hearing before Deputy Judge Coleman.  Presumably all creditors who voted at the IVA had had notice of the petition as its implementation was prevented by the issue of the petition.  If any one of them wished to oppose the petition, he had the opportunity to do so before the judge.  Their non-appearance indicates that they were prepared to leave the matter to the court and would not wish to advocate any particular course.  In such circumstances, quite apart from the fact that the point was not raised below, it also has no merits.

Result

54.  For these reasons, we will dismiss the appeal with an order nisi that the Debtor shall pay the costs of the Petitioner in the appeal.