RE WONG SIU KI OSWALD

HCB 1017/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 1017 OF 1998

_________________________

_________________________

_______________

J U D G M E N T

_______________

The Application

1. This is an application by the Official Receiver and Trustee ("the Official Receiver") taken out on 13 September 2002 objecting to the automatic discharge of the bankrupt Mr. Wong Siu Ki Oswald ("the Bankrupt"). The Application is made under section 30A(3) of the Bankruptcy Ordinance ("the Ordinance"). In the 1st report filed by the Official Receiver in support of the present application, it is stated that the ground of objection is based on section 30A(4)(c) of the Ordinance. However, at the hearing of the application, Counsel for the Official Receiver confirmed that the grounds of objection are based on section 30A(4)(c), (d) and (h) namely:-

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

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; and

iii) that the Bankrupt has failed to prepare an annual report of his earnings and acquisitions for the Trustee.

2. The Bankrupt was a practicing solicitor before his bankruptcy. At the hearing, he acted in person and did not seek to challenge the above grounds of objection relied on by the Official Receiver. Indeed, and as stated in his written submissions, he admitted all the facts set out in the reports prepared by the Official Receiver in support of the present application. What he intended to do was to seek from the Court a conditional discharge under section 30A(9) of the Ordinance.

3. The Bankruptcy Order against the Bankrupt was made on 23 December, 1998. According to the 1st report of the Official Receiver dated 13 September, 2002, 15 proofs of debt were received which amounted to a total sum of HK$17,679,006.17. The assets recovered so far amount to HK$31.80 only.

4. On 23 October 2002, Registrar Chan granted an Interim Order suspending the automatic discharge of the Bankrupt pending the determination of this application.

5. As the Bankrupt did not seek to challenge the above grounds of objection nor the evidence in support of the present application, I will briefly set out the complaints of the Official Receiver and the explanations of the Bankrupt to those complaints.

Failure to Co-operate/Unsatisfactory Conduct

6. In respect of these two grounds of objection namely the failure to co-operate and unsatisfactory conduct, the Official Receiver relied on 3 complaints. The 1st complaint relates to the failure on the part of the Bankrupt to file his Statement of Affairs.

7. It is the case of the Official Receiver that since the making of the bankruptcy order and despite numerous requests and reminders, the Bankrupt has failed to submit his Statement of Affairs. The particulars of the repeated requests and reminders by the Official Receiver are set out in paragraph 3 of the supplemental report of the Official Receiver dated 9 December 2002 and are repeated as follows:-

(a)	4th January 1999:	The Bankrupt was interviewed. He was advised to submit (inter alia) the Statement of Affairs.
(b)	21st January 1999:	Letter from Official Receiver reminding him that the Statement of Affairs was overdue.
(c)	1st March 1999:	A further reminder was sent.
(d)	11th May 1999:	Official Receiver telephoned the Bankrupt to remind him again.
(e)	24th June 1999:	Official Receiver sent a further letter.
(f)	4th August 1999:	The Bankrupt gave an undertaking to the Official Receiver that he would submit his Statement of Affairs within the following 14 days.
(g)	8th November 1999:	Official Receiver wrote to the Bankrupt reminding him of his undertaking.
(h)	21st May 2001:
		The Bankrupt claimed to have lost the forms but would submit it in 2 days' time.
(i)	24th May 2001:	The Bankrupt advised that the Statement of Affairs would be completed, sworn and delivered to the Official Receiver on 28th May 2001.
(j)	30th May 2001:	The Bankrupt delivered a unverified Statement of Affairs in draft. He acknowledged that he was aware of the need to verify the Statement of Affairs.
(k)	31st July 2001:	Another reminder was sent by the Official Receiver.
(l)	10th October 2001:	Last letter reminding the Bankrupt.

8. The Bankrupt did not dispute the chronology of events set out above but contended that the failure to provide his Statement of Affairs had been "purged" as he had on 13 September 2002 submitted his Statement of Affairs to the Official Receiver. However, and as pointed out by the Official Receiver, the Statement of Affairs was submitted almost 4 years after the bankruptcy order was made against the Bankrupt in December 1998.

9. The 2nd complaint relates to the failure on the part of the Bankrupt to co-operate with the Official Receiver in the investigation of his investment of over HK$20 million in a land development project in Mainland China. According to the Official Receiver, the Bankrupt had on 17 March 1998 executed a deed of assignment assigning part of the investment in favour of a Mr. Tsui Chi Kin. The sum involved was $5.5 million. On 21 May 2001, the Bankrupt agreed with the Official Receiver that he would provide more information about the investment in a week's time. He again failed to do so. It was not until 20 November 2002, which was 2 months after the Official Receiver had taken out the present application that the Bankrupt filed a short affidavit giving a brief account about the said investment.

10. In an attempt to rectify the situation, the Bankrupt filed a further affidavit 3 days before the substantive hearing of this application on 25 February 2003. In his further affidavit of 22 February 2003, the Bankrupt stated that the $20 million investment was made in February 1994 for and on behalf of his former client, a Mr. Chan Fat Chu, Raymond ("Mr. Chan") who was then a chairman of a Hong Kong listed company called Tem Fat Hing Fung (Holdings) Ltd. He said that he was to act as Mr. Chan's agent and that he himself had also invested $5.5 million in the said land development project. However, as the property market in the Mainland plummeted at the end of 1994, the land development project was discontinued and neither himself nor Mr. Chan had received any money from the investment. On 17 March 1998, he assigned his interest in the said land development project amounting to $5.5 million to the said Mr. Tsui Chi Kin, one of his creditors.

11. Further, the Bankrupt explained that sometime in 2000, he had handed over all the documents relating to the land development project to Mr. Chan. The said documents were then passed on to Messrs. C.W. Heung & Partners, solicitors acting for him and Mr. Chan. Sometime in 2001, he had tried to obtain the said documents from Messrs. C.W. Heung & Partners but was informed that the said documents were mislaid and could not be located. He stated that the said documents were only recovered from the corner shelf of a solicitor's room on 19 February 2003.

12. The 3rd complaint relates to the failure of the Bankrupt to resign as director of 5 companies namely, Decision Company Limited, Leven Properties Limited, Noble Rank Management Limited, Noble Rank Nominees Limited and Noble Rank Secretaries Limited. The Official Receiver had on a number of occasions requested the Bankrupt to resign as directors of these 5 companies but in vain. By a letter of 24 May 2001, the Bankrupt advised the Official Receiver that he would resign as director of the companies. But it was not until 11 November 2002 that notices of resignation as director were filed with the Companies Registry; almost 4 years after his bankruptcy.

13. In his 1st Affidavit of 20 November 2002, the Bankrupt did not dispute that he had failed to resign as director of those companies, he submitted that all 5 companies were dormant at the time the bankruptcy order was made and that they had remained dormant since then.

Failure to Prepare Annual Report of Earnings and Acquisitions

14. This ground relates to the failure of the Bankrupt to file his 3rd annual report of his earnings and acquisitions (i.e. the annual statement of the 3rd anniversary of his bankruptcy). The Official Receiver submitted that the 3rd annual report of the Bankrupt should have been filed on 23 December 2001, but the Bankrupt only filed his 3rd annual report together with an amended 2nd annual report on 20 November 2002. This was 2 months after the present application was taken out by the Official Receiver.

15. Further, the Official Receiver found that the 3rd annual report was filed by the Bankrupt merely to satisfy the statutory requirement. It was not a properly completed annual statement. In his 3rd annual report (which is exhibited as "WSK0-2b" in the 1st Affidavit of the Bankrupt dated 20 November 2002), the Bankrupt only inserted his signature on the standard form of annual report without providing any information as to his expenditure save under the column for income, it is stated "HK $0".

16. The Official Receiver was also dissatisfied with the amended 2nd annual report filed. The Official Receiver found that the figures stated in the amended 2nd annual report were different from those stated in the original 2nd annual report previously filed.

17. The Bankrupt did not dispute that his 3rd annual report was filed late. He explained that the expenditure items were omitted in the 3rd annual report because during that period of time, he was unemployed. He had to rely on the support of his family and therefore he had no expenditure. As to the discrepancy in his 2nd annual report and amended 2nd annual report, he admitted that it was a mistake. He said that the total income in sum of $219,996 stated in the 2nd annual report was incorrect as his employer had failed to pay him salary for the months of November and December. As such, he filed an amended 2nd annual report amending the total income to $183,330.

Discharge Subject to Condition

18. As mentioned above, the Bankrupt did not seek to challenge the grounds of objection but wish to apply to the Court for a conditional discharge pursuant to section 30A(9) of the Ordinance.

19. The Bankrupt submitted that he would like to be able to practise as a solicitor again so that he could work hard and make an honest living. He did not want to rely on his parents and sister to support his family. According to the Bankrupt, Messrs. Louis K.Y. Pau & Company, a firm of solicitors, has agreed to employ him as a solicitor if he could secure a discharge of his bankruptcy and obtain a practicing certificate from the Law Society. He stated that he had the support of his former clients who were prepared to instruct him should he resume practice as a solicitor. His creditor the said Mr. Tsui Chi Kin also supported his application.

20. The Bankrupt further submitted that if the Court grants the discharge of his bankruptcy, he would continue to co-operate with the Official Receiver in the administration of his estate. He would also make contributions to his estate in such amount and for such period as the court considers appropriate.

21. The Official Receiver strongly opposes the application for conditional discharge by the Bankrupt.

The Decision

22. The purpose of and the rationale behind the provisions for the automatic discharge are set out in paragraphs 17.16 and 17.24 of the Law Reform Commission Report on Bankruptcy. These two paragraphs had been referred to in the judgment of Madam Justice Le Pichon (as she then was) in Re Hui Hing Kwok [1999] 3 HKC 683. The 2 paragraphs read as follows:-

"17.16 The introduction of automatic discharge should, with the objection system, have two-fold effect. Firstly, bankrupts would have a greater incentive than 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."

23. As stated in the said judgment of Le Pichon J:-

"Rehabilitation in the sense of enabling the bankrupt to resume a normal life in society is a key, if not the key, consideration. It should only be delayed by a bankrupt's own failing."

24. In the present case, I am satisfied that the grounds of objection relied on by the Official Receiver have been established and that there were failings on the part of the Bankrupt which justify the delay of his rehabilitation. In my view, the complaints against the Bankrupt are so serious that it would not warrant a conditional discharge at all.

25. On the evidence, it is quite clear that the conduct of the Bankrupt amounts to blatant breach of his statutory obligations. As pointed out by the Official Receiver, the bankruptcy order against the Bankrupt was made on 23 December 1998, but despite repeated requests and reminders, and in breach of his undertaking to the Official Receiver, the Bankrupt only submitted his Statement of Affairs on 13 September 2002 which was almost 4 years after his bankruptcy. As submitted by the Official Receiver, the Statement of Affairs should have been filed at the beginning of his bankruptcy and not at the end of it. This has seriously affected the Official Receiver in the investigation and administration of his estate. In fact, this "unconcerned" attitude of the Bankrupt also applies to his resignation as director of the 5 companies concerned. Despite repeated advice from the Official Receiver, the Bankrupt only filed his notice of resignation as director almost 4 years after his bankruptcy. This is wholly unacceptable. Indeed, if not for the present application taken out by the Official Receiver to suspend his automatic discharge, I doubt whether the Bankrupt would have taken steps to file the requisite statutory documents and to resign as director of the 5 companies concerned. In my view, the Bankrupt has shown no regards whatsoever to the statutory obligations imposed on a bankrupt; bearing in mind also that he was a practicing solicitor, he should know better about all these statutory requirements and obligation than an ordinary lay person.

26. Further, in respect of the $20 million land project investment in the Mainland, I agree with the Official Receiver that the information provided by the Bankrupt at the eleventh hour was not only inadequate but also contradictory. According to the affidavit evidence of the Bankrupt, he stated that the $20 million investment was made for and on behalf of Mr. Chan, but when one examines the Deed of Assignment executed by the Bankrupt dated 17 March 1998 (referred to as exhibit "OR-1" in the Supplemental report of the Official Receiver dated 9 December 2002), it is stated in the recital that the HK$20 million was invested by the Bankrupt. This contradicts his own affidavit evidence. I agree that a more in-depth investigation should be made by the Official Receiver into this land development project as well as to his income and expenditure as set out in the annual reports. It should be reminded that the proofs of debt received by the Official Receiver amounted to HK$17,679,006.17. The assets recovered is only HK$31.80.

27. To conclude, I am satisfied that the above complaints against the Bankrupt warrant a suspension of his automatic discharge for the maximum period. It is entirely due to the Bankrupt's own failing that his rehabilitation has to be delayed. Accordingly, I order that the automatic discharge of the Bankrupt be suspended for 4 years and that the Bankrupt shall not be discharged until 23 December 2006. The costs of this application should follow the event. I also order that there be a costs order nisi in favour of the Official Receiver with a Certificate for Counsel.