RE: NG YAT CHI and Ex Parte: THE OFFICIAL RECEIVER

HCB242/92

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS

NO 242 OF 1992

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D E C I S I O N

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1. This case deals with the new provisions in the Bankruptcy Ordinance cap.6 on discharge of bankrupts. It raises a novel point which is interesting and not easy.

2. Before I set out my understanding of the legislation and its application to the facts in this case, it may be helpful to briefly describe the new statutory scheme.

Discharge of bankrupts

3. Ordinance No. 76 of 1996 amended the Bankruptcy Ordinance to introduce a scheme whereby bankrupts could be discharged. The main provisions are sections 30, 30A, 30B and 30C.

4. Although these provisions came into operation only on 1 April 1998, they apply to bankruptcy orders made before that date [s.30C(1)]. Accordingly there were transitional provisions, and the present case is one falling within the transitional provisions [s.30C(2)].

Modes of discharge

5. The statutory scheme comprises 2 main modes of discharge:-

(1) discharge by expiration of time, or "automatic discharge" [s.30A]; and

(2) discharge upon the bankrupt's application, or "early discharge" [s.30B].

6. The present case deals with automatic discharge, and the interaction of s.30A and s.30C.

Automatic discharge by expiration of time

7. Automatic discharge allows bankrupts to be discharged simply by the expiration of a period of time, called the "relevant period" in s.30A.

8. In the case of persons made bankrupt for the first time ("1st- time" bankrupts), the relevant period is 4 years from the commencement of the bankruptcy. For "subsequent" bankrupts, the period is 5 years. (As the Bankrupt in the present case is a "1st-time bankrupt", I have excluded references to subsequent bankrupts in this Decision).

9. In general, the relevant period starts with the day on which the bankruptcy order is made, and it continues until the 4th anniversary of that date, when the bankrupt is automatically discharged. That is the scheme for, as it were, "uneventful" bankruptcies.

Variations on the relevant period

10. However, there are (at least) 3 variations on this theme which apply in special circumstances.

(1) Relevant period not commence to run

11. The 1st variation is where the relevant period does not commence with the day of the bankruptcy order. This is the case under s.30A(10)(a), which provides that the relevant period shall not commence to run, in circumstances relevant to the bankrupt's whereabouts which I will discuss later. It is important to note that this provision is mandatory.

(2) Relevant period not continue to run

12. The 2nd variation is where the relevant period does not continue to run within the 4 years. This is the case under s.30A(10)(b), which is again related to the Bankrupt's whereabouts after the commencement of bankruptcy. This provision is also mandatory.

(3) Suspension of relevant period

13. The 3rd variation is where a Court orders that the relevant period ceases to run or in other words, is suspended [s.30A(3)].

14. If the trustee in bankruptcy or a creditor considers for example, that the bankrupt had failed to co-operate in the administration of his estate, or that the bankrupt's conduct has been unsatisfactory, he may lodge an objection to the bankrupt's automatic discharge[s.30A(4)].

15. This is done by making application to the Court [s.30A(5) and (6)]. A number of rules have been put in place in the Bankruptcy Rules to regulate this procedure.

16. The Court then considers whether the objection has been made out on any of the grounds in s.30A(4). If it is so satisfied, it may order that the relevant period may "cease to run" for a period.

17. For a 1st - time bankrupt, this suspense period is a maximum of 4 years; for subsequent bankrupts, the suspense period is a maximum of 3 years.

18. When these periods are considered with the 4/5 year "pre-suspense" relevant period, the arithmetic shows that the legislature intended all bankrupts to be discharged, at the latest, 8 years after the commencement of bankruptcy. This is shown by the fact that a subsequent bankrupt whose conduct has been unsatisfactory can have his relevant period suspended for only 3 years, less than that for a 1st-time bankrupt.

19. It is important to note that unlike the previous 2 variations, the power of the Court to suspend the relevant period is discretionary.

Old bankruptcies - deemed discharge on 1.4.1999

20. As I have said, the statutory scheme came into operation on 1 April 1998 but applied to bankruptcy orders made before that date.

21. The legislature thus had to deal with a class of "old" bankrupts, persons who had been made bankrupt several years ago, for whom automatic discharge 4 years after the date of the adjudication of bankruptcy could not apply - because that period had already expired before 1 April 1998 (say, a person adjudicated bankrupt in 1992).

22. Section 30C(2) was enacted to apply to these persons, specifically, 1st - time bankrupts adjudicated bankrupt before 1 October 1994, and subsequent bankrupts adjudicated bankrupt before 1 October 1993.

23. For these bankrupts, s.30C(2) does not refer to any "relevant period" at all. It simply "deems" them to be discharged from bankruptcy on 1 April 1999.

24. One might infer from this that jurisprudentially, deemed discharge is different from automatic discharge. However, since s.30 of the Ordinance seems to recognise only 2 modes of discharge: "automatic discharge" under s.30A or "early discharge" under s.30B, and there is no reference to "deemed discharge" under s.30C(2), it would appear that the legislature regarded deemed discharge as only a sub-mode of automatic discharge.

Deemed discharge subject to section 30C(2)

25. However the legislature obviously intended that "old" bankrupts should not be discharged without any consideration of their affairs and conduct. Section 30C(2) provides:-

"Where a bankrupt -

(a) has not previously been adjudged bankrupt and the bankruptcy order was made not less than 42 months or

(b) has previously been adjudged bankrupt and the current bankruptcy order was made not less than 54 months

before sections 30 to 30B came into operation, he shall be deemed to be discharged from bankruptcy 12 months after the day this section comes into operation [i.e. on 1 April 1999] unless, during that 12 month period, the trustee or a creditor files an objection on a ground set forth in section 30A(4)(a) to (h), in which case section 30A applies and the court shall deal with the matter as it sees fit." [emphasis added]

Issue

26. The issue for consideration in the present case is whether the words italicized above meant that all the 3 variations discussed above (i.e. the relevant period not commencing to run [s.30A(10)(a)]; the relevant period not continuing to run [s.30A(10)(b)]; and suspension of the relevant period [s.30A(3]) apply, or whether none or some or one of them. Before I examine the issue, I should recount the relevant facts.

Date of adjudication of bankruptcy - 28 August 1992

27. The Bankrupt in the present case was adjudicated bankrupt on 28 August 1992, and the Official Receiver (OR) became trustee in bankruptcy.

Arrest of Bankrupt in Hong Kong - 4 November 1996

28. According to the Bankrupt's own evidence, he had left Hong Kong on 8 February 1992 for the Mainland. In October 1992, a warrant was issued in Hong Kong for his arrest, presumably on the request of the OR.

29. However, it was not until 4 November 1996 that the staff of the OR first found the Bankrupt in Hong Kong. The date of the Bankrupt's return to Hong Kong prior to 4 November 1996 is unknown, although he was in Hong Kong on 10 June 1996 when he filed a petition in person in CW321/96. There is evidence that the Bankrupt had a diplomatic passport, so Immigration Department records cannot assist.

Whereabouts of Bankrupt between August 1992 and November 1996

30. It is not disputed that the Bankrupt never presented himself to the OR in Hong Kong during this period. This was so notwithstanding the warrant for his arrest in Hong Kong throughout this period.

31. The Bankrupt says in his Affirmation that he "was prevented from returning to Hong Kong before March 1995" due to health problems (although he did travel to the United States and Canada on a few occasions during this period) .

32. It is to be noted that the Bankrupt has not actually said in his Affirmation that he did return to Hong Kong in March 1995. The Affirmation of Choy Bing Wing says that he met the Bankrupt in Macau in March 1995. Further, in a letter dated 22 April 1995, the Bankrupt informed the OR that he "may consider returning to Hong Kong", inferring that he was not in Hong Kong at the time. In a letter the next month, the Bankrupt again informed the OR that "I shall not return to Hong Kong unless the trustee who is not worthy of trust is replaced".

33. I note that Choy Bing Wing has in his Affirmation deposed to his having informed the OR that the Bankrupt "would then stay in Hong Kong, Macau and Zhuhai but he could not have a permanent address because he would stay with his son or daughter in Hong Kong, friends in Macau, and friends and relatives in China, from time to time." However the periods of such stays in Hong Kong are not deposed to.

34. Indeed, nowhere in his Affirmation does the Bankrupt actually say that he was in Hong Kong in the period between August 1992 and 4 November 1996 (although I note he was obviously in Hong Kong on 10 June 1996). Nor does he say that he notified the OR of his return to Hong Kong. The fact that he may have communicated with the OR either by correspondence (without giving any Hong Kong address) or through other persons in Hong Kong is not to the point.

Conclusion of facts

35. That being the case, the conclusion that I have to draw from the available evidence is that the Bankrupt was not in Hong Kong between August 1992 and 4 November 1996, save on 10 June 1996, and in any event if he had returned to Hong Kong during this period, he never notified the OR of his return until 4 November 1996.

Non-commencement of relevant period under s.30A(10)(a) not applicable

36. I then have to consider the OR's submission that s.30A(10)(a) applies so that the relevant period for the Bankrupt did not commence to run until 4 November 1996. Section 30A(10)(a) provides:

"Notwithstanding subsections (1) to (3), where a bankrupt -

(a) has, before the commencement of the bankruptcy, left Hong Kong and has not returned to Hong Kong, the relevant period under subsection (1) shall not commence to run until such time as he returns to Hong Kong and notifies the trustee of his return".

37. There is no doubt on the evidence that the Bankrupt here left Hong Kong before the day the bankruptcy order was made, and did not notify the OR of his return to Hong Kong until 4 November 1996.

38. However I do not think that the purposive canon of statutory interpretation permits me to accept the OR's submission.

39. One begins with s.30C(1) which enables s.30A to apply to bankruptcy orders made before 1 April 1998. However s.30C(1) is expressly subject to s.30C(2).

40. Section 30C(2) provides that for bankruptcy orders made before 1 October 1994, the bankrupt is deemed discharged on 1 April 1999. There is no reference at all to "relevant period" for calculation of time for the purposes of discharge. So the commencement date for the relevant period (whether the date of the bankruptcy order, or a postponed date) is irrelevant for persons who had been adjudged bankrupt before 1 October 1994.

41. If the legislature had intended to say that irrespective of the date of the adjudication order (i.e. even for persons whose adjudication orders were made before 1 October 1994), if a bankrupt had left Hong Kong before the order and had not notified the trustee of his return, he should not be discharged until 4 years after his notified return, that would have been an easy provision to enact. But there is no such provision. The postponement by reason of absence is pegged to the "relevant period" in s.30A only, and s.30C(1) states expressly that s.30A is subject to s.30C(2).

42. It is only where there is an objection on s.30A(4) grounds that s.30A (with its reference to "relevant period") applies to s.30C(2) situations. Section s.30C(2) provides that "he shall be deemed to be discharged from bankruptcy 12 months after the day this section comes into operation [i.e. on 1 April 1999] unless, during that 12 month period, the trustee or a creditor files an objection on a ground set forth in section 30A(4)(a) to (h), in which case section 30A applies and the court shall deal with the matter as it sees fit." [emphasis added]

43. In my judgment, that enables the Court, in the exercise of its discretion under s.30A(3), to postpone the date of deemed discharge if a ground of objection under s.30A(4) is made out, but it does not bring s.30A(10) into play.

44. It would be noted that "s.30A applies" when the trustee or a creditor files an objection, before the Court considers whether it is a valid one or not, and (even if it is a valid one) before the Court considers whether in the exercise of its discretion it should act on it to the bankrupt's detriment.

45. It cannot be the case, in my judgment, that on the mere filing of an objection by the trustee or a creditor, the mandatory provisions of s.30A(10) - which are independent of the grounds in s.30A(4) - would come into play so as to affect the course of the bankruptcy by putting back the commencement of the bankruptcy by a possibly substantial length of time, depending on the length of the bankrupt's absence.

Non-continuation of relevant period under s.30A(10)(b )not applicable

46. The OR's second submission that s.30A(10)(b) applies is, in the light of my conclusions on fact, without factual grounds. The Bankrupt left Hong Kong before the commencement of his bankruptcy, not after, and no date or period was ever specified by the OR as his trustee in bankruptcy for his return.

Suspension under s.30A(3) applicable

47. Finally, there is the provision in s.30A(3) dealing with suspension of the relevant period. It would be noted that the applicability of s.30A is triggered off by the filing of an objection on any of the grounds in s.30A(4).

48. The making of such an objection leads to a determination by the Court of the validity of the objection, and the exercise of the Court's discretion whether to order the relevant period to cease to run. It is important to note that suspension is the only order provided for under s.30A(3), though the Court has a limited discretion as to the period of suspension and the subsequent lifting of the suspension.

49. So when the legislature provided in s.30C(2) that "unless, during that 12 month period, the trustee or a creditor files an objection on a ground set forth in section 30A(4)(a) to (h), in which case section 30A applies and the court shall deal with the matter as it sees fit", it must in my judgment have intended that the Court should deal with such an objection by considering its validity, and exercising its discretion in ordering a suspension of discharge.

50. I note of course that s.30A(3) refers to suspension of the "relevant period" and not a postponement of the date of discharge, and the relevant period has no bearing on a deemed discharge under s.30C(2). However, if the Court cannot order a suspension of discharge, then there seems little left that it can do, when s.30C(2) says that the Court shall deal with the matter as it sees fit.

51. The requirement that the bankrupt give information and assist the trustee under s.30A(8) is a mandatory duty of the bankrupt in any event. And if the Court cannot affect the discharge (by deciding whether to suspend the date of discharge), s.30A(9) does not apply either as it applies only to situations where the court "grants" a discharge.

52. Accordingly I conclude that on an objection made under s.30C(2), the Court can in the exercise of its discretion suspend the discharge to a date after 1 April 1999.

Facts warrant suspension

53. In my view, the facts in this case do warrant a suspension. The Reports of the OR show clearly that the Bankrupt has been obfuscating the orderly dealing with his affairs by the OR. Bankruptcy is not a merely business matter. It is a personal state, and the Bankrupt is obliged to assist his trustee personally when so required.

54. It is no answer to say that the bankrupt had appointed an attorney to deal with the OR. A bankrupt cannot have an attorney (Halsbury's Laws : Agency 437, 522, 529-530). The trustee cannot be expected to have to deal with a person whose very status is doubtful.

55. If the Bankrupt had grounds to show that the OR's staff were not acting properly, he has the proper redress in Court (s.83).

56. In all the circumstances, particularly bearing in mind the 8-year overall period for bankruptcy in s.30A and the Bankrupt's age and health, and in the exercise of my discretion, I would order under s.30C(2) that the discharge of the Bankrupt be postponed to 27 August 2000.