RE TANG YIU HONG ERIC

HCB 72/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 72 OF 1999

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REASONS FOR JUDGMENT

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Background

1. This is an application taken out by the Official Receiver and Trustee ("the Official Receiver) on 4th March 2003 objecting the automatic discharge of the bankruptcy order against the Bankrupt, Mr. Tang Yiu Hong Eric under Section 30(A)(3) the Bankruptcy Ordinance("the Ordinance") .

2. The bankruptcy order against the Bankrupt was made on 12 April 1999 by Madam Justice Le Pichon (as she then was) upon petition by a creditor. Pursuant to Section 30A(1) and 2(a) of the Ordinance, if no objection was raised, the Bankrupt would have been discharged from bankruptcy on 12 April 2003.

3. The application was originally fixed to be heard on 9 April 2003. The Bankrupt was then serving a term of imprisonment at the Shek Pik Prison. Shortly prior to the said hearing, the Bankrupt through the Commissioner of Correctional Services wrote to the Court seeking an adjournment of the said hearing on ground that he was suffering from influenza. At the hearing on 9 April 2003, Master Ho formally adjourned the matter to 30 April 2003 and made an interim order that the automatic discharge be suspended pending the determination of the application.

4. The adjourned application was first heard before me on 30 April 2003. The Bankrupt appeared in person and indicated that he would oppose the Official Receiver's application. I accordingly gave directions for the Bankrupt to file and serve affirmation in opposition and the Official Receiver to file and serve a Report in reply. While adjourning the application for full arguments, I made an interim order suspending the automatic discharge of the bankruptcy pending the determination of the application ("the Interim Order").

5. The substantive hearing was fixed on 2 September 2003. After the Bankrupt filed his Affidavit in opposition and the Official Receiver file his Report in reply in May 2003, the Bankrupt wrote to the Court in July 2003 seeking to call 2 witnesses: Ms. Fung Ha Wai ("Ms. Fung") and Mr. Chan Hung Tuen ("Mr. Chan") to testify at the adjourned hearing. The Bankrupt also applied to adjourn the said hearing in September since according to the Bankrupt, Ms. Fung was not available to attend Court to give evidence until mid- October 2003. On my direction, the Bankrupt had sent along a witness statement of Ms. Fung. By a letter dated 27 August 2003, the Bankrupt confirmed that while he still intended to call Ms. Fung to give evidence for him, he decided not to call Mr. Chan.

6. At the hearing on 2 September 2003, Ms. Mckenna for the Official Receiver did not oppose the adjournment of hearing by the Bankrupt. The Bankrupt maintained that he wanted to call Ms. Fung to prove that Ms. Fung had sent a letter dated 1 June 2002 to the Official Receiver in response to the Official Receiver's allegations against him. Since Ms. Mckenna could not confirm whether the Official Receiver had received such letter and had to investigate further, I acceded to the request of the Bankrupt to further adjourn the hearing and gave leave to the Bankrupt to call Ms. Fung to give evidence and the Official Receiver to cross-examine. I also granted leave for the Official Receiver to file a Supplemental Report to deal with the alleged letter dated 1 June 2002 sent by Ms. Fung.

7. Subsequent to the said hearing, the Official Receiver filed and served a 3rd Report on 11 September 2003. The adjourned substantive hearing was fixed before me on 11 December 2003. Prior to the hearing, the Bankrupt filed and served his 2nd and 3rd Affidavits in support of his opposition to the present application. The Official Receiver at the outset of the hearing confirmed that they had no objection for the Bankrupt to file and rely upon the said additional affidavits. The Bankrupt confirmed during his submission that since the Official Receiver accepted that they had received a letter dated 31 May 2002 written by him, he decided not to call Ms. Fung to give evidence.

8. After hearing the submissions of the Official Receiver and the Bankrupt, I find that the Official Receiver had established grounds under Section 30A(4)(c) and (h) of the Ordinance for objecting the automatic discharge of the Bankrupt and made an order suspending the automatic discharge of the bankruptcy of the Bankrupt for a period of 24 months so that the Bankrupt shall not be discharged until 12 April 2005. In this case, the Official Receiver applied for costs against the Bankrupt which according to the Official Receiver, would only be enforced against the Bankrupt after his discharge from bankruptcy. Since the Bankrupt opposed the application and failed, it is appropriate to award costs of the application to the Official Receiver to be paid by the Bankrupt himself. Pursuant to Order 62 Rule 9(4)(b) of the Rules of High Court, I also ordered that such costs to be assessed gross sum by me if parties fail to agree the same. If necessary, I directed that parties may restore a half-hour hearing before me for the gross sum assessment of costs and the Official Receiver shall file and serve a skeleton bill of costs 7 days before the adjourned hearing.

9. At the conclusion of the hearing, I indicated that I would give my reasons in writing later, which I now do.

Official Receiver's Grounds of Objection

10. In this application, the Official Receiver has filed altogether 3 Reports in support.

11. From the 1st Report dated 4 March 2003, it appears that the Official Receiver relies upon 2 grounds under Section 30A of the Ordinance in support of the application, namely:-

(a) the Bankrupt has failed to co-operate in the administration his estate under Section 30A(4)(c); and

(b) the Bankrupt has failed to prepare an annual report of his earnings and acquisitions for the trustee under Section 30A(4)(h).

Failure to Co-operate

12. In support of the Ground (a) of the objections raised by the Official Receiver, it is alleged that during the course of the administration of the estate of the Bankrupt, the Official Receiver discovered that there were a number of withdrawals of quite a substantial amount of money from the bank accounts of the Bankrupt maintained at the Hongkong and Shanghai Banking Corporation Limited ("HKSBC"), Hang Seng Bank Limited ("HSB") and the International Bank of Asia Limited ("IBA") between the period from November 1997 to December 1998. According to the Official Receiver, the suspicious withdrawals in question amount to a total sum of about HK$22 million.

13. It is not disputed by the Bankrupt that the Official Receiver wrote to the Bankrupt on 29 June and 7 July 2000 respectively, amongst other enquiries, asking the Bankrupt to supply information in respect of the suspicious withdrawals from the said 3 banks. The Bankrupt was specifically requested to name the recipients and state the purposes of such withdrawals.

14. The Bankrupt was aware of the request of information by the Official Receiver since he wrote back to the Official Receiver on 17 July 2000 indicating that he was not able to provide information required unless he was provided with the photocopies of the documents relating to the withdrawals.

15. The Official Receiver accommodated the requests of the Bankrupt and had sent the Bankrupt with supporting documents in relation to the withdrawals at the bank accounts with the HKSBC and HSB such as cheques, cashier orders, pay-in slips and bank statements.

16. Seeing no response from the Bankrupt, the Official Receiver chased up the Bankrupt in early November 2000. Eventually, the Bankrupt wrote a letter dated 27 November 2000 to the Official Receiver informing that he was fully engaged in a criminal prosecution against him and had no sufficient time to answer the queries raised until the conclusion of the criminal proceedings. Apart from giving an excuse not to supply the requested information for the time being, the Bankrupt failed to give full details of the alleged criminal prosecution against him and justify why he could not give the information.

17. The Official Receiver found such reply unsatisfactory and wrote back to the Bankrupt on 1 December 2000. The Official Receiver made clear in the letter that he was not convinced that the outstanding matters in the bankruptcy proceedings should only be dealt with after the criminal proceedings were over. The Official Receiver specifically asked the Bankrupt to first deal with 3 cash withdrawals from the HSB accounts on 9 December 1998 (within 6 months from the date of the bankruptcy order) amounting to HK$4.6 million before 11 December 2000 while particulars of other withdrawals could be supplied by 29 December 2000.

18. After receipt of such letter, the Bankrupt replied to the Official Receiver on 13 December 2000 seeking to withhold providing the requested information which according to the Bankrupt might amount to self-incrimination in light of his pending criminal charges. Except making a bare assertion and expressing his "wish" to co-operate with the Official Receiver in the administration of his estate, the Bankrupt again saw fit not to give any particulars of his criminal charges voluntarily and explained how the information requested by the Official Receiver might incriminate him in the pending criminal proceedings.

19. The Official Receiver dissatisfied with such reply and requested in his letter dated 23 January 2001 the Bankrupt to provide additional information to justify how disclosure of details of the suspicious withdrawals would amount to self-incrimination. The Bankrupt was also reminded his duties to supply information under Section 26 of the Ordinance.

20. The Bankrupt sent along copies of the Charge Sheets against him to the Official Receiver by a letter dated 8 February 2001. He also indicated that he would receive the Case Summary from the prosecution. He then stated in such letter : "I believe that upon perusal of the Case Summary, you will readily appreciate any claim of privilege on the self-incriminating ground." Since then, the Bankrupt had never sent the Official Receiver the said case summary nor justified how disclosure of the requested information would amount to self-incrimination.

21. Receiving no positive reply from the Bankrupt, the Official Receiver investigated the matter further with the Prosecution Division of the Department of Justice in October 2001. Upon request of the Department of Justice, the Official Receiver supplied them with particulars of the transactions in the bank accounts in question which the Bankrupt was asked to give information. The Commercial Crime Bureau of the Hong Kong Police confirmed that none of the cheques particularised by the Official Receiver were related to the criminal charges against the Bankrupt. The Official Receiver was later informed by the Department of Justice that the trial of the Bankrupt's criminal charges commenced on 15 January 2002. The Bankrupt was convicted after a trial by jury for various offences for conspiracy to defraud on 20 June 2002 and was sentenced to imprisonment of 10 years and be disqualified from being a director for 15 years after release.

22. It is the case of the Official Receiver that the Bankrupt failed to prove by way of solid or concrete evidence on how disclosure of the requested information would amount to self-incrimination and the responses from the Department of Justice did not support the same. Further, the Official Receiver contended that if the Bankrupt really honestly believed that he had grounds to withhold information for self-incrimination, he should have raised it in earlier letters written to the Official Receiver instead of waiting until the middle of December 2000 after the Official Receiver rejecting his request to answer the enquiries until conclusion of the criminal proceedings.

23. The Official Receiver submitted that the Bankrupt was evasive in answering the queries by using different reasons to avoid provision of the information requested. Since the total amount of the withdrawals in question exceeded HK$22 million and 3 of them were withdrawn by cash within 6 months before the making of the bankruptcy order, the Official Receiver argued that the Bankrupt should have knowledge thereof and should be able to provide the information readily. Despite the conclusion of the criminal trial back in June 2002, the Bankrupt still failed to provide the required information until very recently shortly before the hearing in December 2003 (which I shall deal with later). According to Ms. Mckenna for the Official Receiver, imprisonment did not prevent the Bankrupt from supplying the information and the Bankrupt failed to comply with his statutory duties.

Failure to Prepare Annual Report of Earnings and Acquisitions

24. The Bankrupt was first told his duty under Section 43(6) of the

Ordinance to submit an annual statement of earnings and acquisitions in the letter from the Official Receiver dated 29 June 2000 and a specified form was sent to the Bankrupt to fill out. It was the Official Receiver's case that the Bankrupt only submitted such annual statement for the period from April 1999 to April 2000 and failed to submit for the periods from April 2000 to April 2001 and from April 2001 to April 2002.

25. It is not in much dispute by the Bankrupt that he did not submit the annual statement in proper form as alleged by the Official Receiver. However, the Bankrupt said that he had sent a letter dated 1 December 2001 to the Official Receiver reporting that he was unemployed since June 2000 and was taking care by his girl friend. During the hearing, Ms. Mckenna confirmed that each year, the Bankrupt has to submit an annual statement in proper form which the Bankrupt failed. However, she conceded that the contents of the letter submitted by the Bankrupt might satisfy with the purpose of requiring the statement. Therefore, the breach committed by the Bankrupt in this case is most probably a technical one.

The Bankrupt's Case

26. The Bankrupt has altogether filed and served 3 Affidavits in opposition to the Official Receiver's present application. In gist, the Bankrupt contended that:-

(a) he had put every effort to co-operate with the Official Receiver from the very beginning of his bankruptcy;

(b) he had reported not just annually but monthly to the Official Receiver of his earnings in proper forms for the 1st 2 years of his bankruptcy;

(c) before he was imprisoned, he had sent a letter to the Official Receiver stating that he had no earnings and expenses were taken care by his girl friend the contents of which, though not in a proper form, should have satisfied the requirements of the Official Receiver.

27. The Bankrupt admitted in his Affidavits filed that he was fully aware of his duty to co-operate with the Official Receiver. He maintained repeatedly that he had co-operated with the Official Receiver throughout the period and had not committed any bankruptcy offences.

28. On the request by the Official Receiver to disclose information relating to the withdrawals from his 3 personal accounts, the Bankrupt stated in his 1st Affidavit that he was "afraid" that the related information might amount to self-incrimination in light of his pending criminal proceedings. He further explained in such Affidavit:

"However, I was of the opinion that I am being charged of 'Conspiracy to defraud' and my personal accounts (the related withdrawals were all in connection with my personal accounts) had been referred on numerous occasions during the trial."

29. The Bankrupt submitted at the hearing that he was not aware of the enquiries by the Official Receiver with the Department of Justice in October 2001 and he only came to know the reply from the Police when the Official Receiver disclosed such letter in this application. At the hearing, it was first time disclosed by the Bankrupt that he had obtained Counsel's advice to withhold information on ground of self-incrimination. According to the Bankrupt, his letter dated 13 December 2000 (page 139 of the Bundle) addressed to the Official Receiver (referred in paragraph 15 above) was in fact drafted by Counsel and was signed by him.

30. The Bankrupt further explained that after he was imprisoned, he was not aware that he should continue to provide the information to the Official Receiver and at that time he was receiving psychological care. He argued that as the Official Receiver knew from his letter dated 31 May 2002 that he was imprisoned, if the Official Receiver still required the information, reminder letter should be sent to him but he received no such letter. He further excused that he was not able to access to the information about the withdrawals in question when he was a prisoner in Shek Pik Prison. At the hearing, I asked the Bankrupt how he would expect the Official Receiver to know where he was imprisoned. The Bankrupt had sensibly confessed that he should have written another letter to the Official Receiver after he was imprisoned to notify his whereabouts.

31. Ms. Mckenna submitted at the hearing that they were not informed where the Bankrupt was imprisoned not until April 2003. Although the Official Receiver received the said letter dated 31 May 2002 on 7 June 2002, it did not state that the Bankrupt was actually in prison. Further it did not state that the Bankrupt could no longer assist the Official Receiver in providing the information. In any event, she argued that it is the duty of the Bankrupt to provide the requested information and the Official Receiver has no duty to keep on reminding the Bankrupt to provide such information.

32. Shortly before the hearing on 11 December 2003, the Bankrupt had filed 2 additional Affidavits. In particular, in his 3rd Affidavit, the Bankrupt stated that he had prepared part of the information requested by the Official Receiver in respect of his HKSBC and HSB accounts and had sent along the same to the Official Receiver by his letter dated 4 December 2003. He tried to explain that he had prepared such information back in September 2003 but wished to wait for the copy documents relating to his IBA accounts which were still outstanding. At the hearing, the Bankrupt confirmed that he would give the information concerning his IBA accounts after he received the copy cheques and vouchers from the Official Receiver.

33. In addition, the Bankrupt also prepared the annual statements of earnings and acquisitions in proper form for the period April 2000 to April 2002 and exhibited in his 3rd Affidavit.

34. Ms Mckenna pointed out that the last minute supply of information by the Bankrupt might go to mitigating factor and the Official Receiver would require time to investigate and analyse the information provided further.

35. In support of his mitigation, the Bankrupt submitted that for the last 4 years since the grant of his bankruptcy order, he faced difficult time to find jobs. He had tried his best to co-operate with the Official Receiver and wrote many reply letters and attended interviews. According to the Bankrupt, he never intended to be evasive. Finally, the Bankrupt claimed that after graduating from the University of Hong Kong and had served the Government for 12 years, if he had the chance, he could serve the society to earn both his and his family's livings.

Rulings

36. In this case, there is no substantial dispute by parties as to their respective evidence given in the Official Receiver's Reports and the Bankrupt's Affidavits. The Official Receiver made his request for information relating to transactions in 3 bank accounts of the Bankrupt as early as June 2000. The Bankrupt was well aware of his duty to co-operate with the Official Receiver and he should know that he should supply the information requested as far as possible. It is not in dispute that the Bankrupt failed to give the requested information to the Official Receiver not until shortly before this application was heard by me in December 2003. The Bankrupt gave part of the information requested in relation to 2 of his bank accounts and filed an annual statement of earnings and acquisitions in proper form.

37. The Bankrupt originally sought to give information requested after the conclusion of his criminal proceedings. It was only in the middle of December 2000 (almost 6 months after the Official Receiver made his 1st request of information) that the Bankrupt first raised in his letter dated 13 December 2000 the issue of self-incrimination to withhold giving the information. The said letter was allegedly drafted by Counsel but surprisingly, no particular or reason was given in the said letter to justify the self-incrimination argument. Despite the further request of the Official Receiver to provide grounds to raise self-incrimination, no further reply was written by the Bankrupt. As the Bankrupt was then advised by Counsel, it is reasonable to expect that if he had genuine grounds to justify the claim of self-incrimination, he should have no difficulty to furnish particulars in support as requested. The Bankrupt further claimed in his 1st Affidavit that the withdrawals in question in his personal accounts had been referred on numerous occasions during his criminal trial. However, the Bankrupt apart from making such bare assertion adduced no concrete evidence at all to prove the same. I have real doubt as to the genuineness of his claim of self-incrimination.

38. After I read the contents of the Bankrupt's recent letter dated 4 December 2003 to the Official Receiver which was exhibited as Annex B of the Bankrupt's 3rd Affidavit (page 154 of the Bundle), they reinforce my said doubt. According to the Bankrupt, the 3 transactions in his HSB account were all related to his friend Mr. Chan (referred in paragraph 4 above) who was the final recipient of the money. Clearly, these transactions have no bearings at all with the criminal charges against the Bankrupt and therefore the Bankrupt has no justification to claim self-incrimination. I cannot see any reason why the Bankrupt withholds giving such information until recently.

39. So far as the transactions in the HKSBC account are concerned, the Bankrupt explained that most of the funds obtained from his account were for use of his company German Kitchen (HK) Ltd. Although the said company was involved in the criminal prosecution, the cheques in question (as confirmed by the Police) were not the subject matter of the criminal charges. Since the Bankrupt was then advised by Counsel, there should be no difficulty for him at all to identify the same even though he did not receive copies letters sent to the Official Receiver by the Department of Justice and the Police until he received the Reports of the Official Receiver. Again, I see no ground for the Bankrupt to claim self-incrimination on that account. The Bankrupt's belief that he could claim self-incrimination in this case even if I accept it as honest, must be a misguided one.

40. At the hearing, Ms. Mckenna relied upon 2 authorities: Re Asher& Company (Hong Kong) Limited (unreported) HCCW 150 of 1998 and Re Weihong Petroleum Company Ltd. [2002] 1HKLRD 541 to support her arguments that the Bankrupt has no right to raise self-incrimination in reply to any enquiries of the Official Receiver. In light of my ruling above, there is in fact no need for me to deal with such arguments. However, I would like to express my view that such cases do not assist the arguments of the Official Receiver. Firstly, such cases were decided on private examination of the directors of companies and other persons under oath before the Court under Section 221 of the Companies Ordinance. Similar provisions appear in Sections 19 and 29 of the Ordinance. However, the Bankrupt in this case was not asked to provide the requested information under examination pursuant to the said 2 sections.

41. Secondly, Madam Justice Kwan in Weihong Petroleum case decided that according to the facts of the case, there was no real danger of prosecution and conviction. In the present case, the Bankrupt was then prosecuted already for the offences of conspiracy. It is not surprise to see that person under such situation may worry that disclosure of documents relating to the criminal prosecution may incriminate him and prejudice his defence. We must be cautious not to abrogate the common law right of privilege against self-incrimination unless it is absolutely necessary.

42. On the other hand, I agree with the Official Receiver that since some of the transactions in question in particular those 3 withdrawals at HSB were made less than 6 months prior to the date of the bankruptcy order and the amounts involved were quite substantial, the Bankrupt should have knowledge of them and should have no difficulty to furnish the particulars to the Official Receiver.

43. Despite the promise by the Bankrupt to give the information requested after the conclusion of his criminal trial, nothing has been given since June 2002 until December 2003. I agree with the Official Receiver that imprisonment should have no prevention for him to supply the information. In fact, the Bankrupt should have more time to prepare his reply to the Official Receiver if he chose to do so. He cannot complain that the Official Receiver did not remind him to give such information. Firstly, the Official Receiver has no such duty to remind. Secondly, how he could expect the Official Receiver to know his whereabouts when he did not even bother to notify the Official Receiver so.

44. I must conclude that the Bankrupt has failed to render his co-operation with the Official Receiver in administration of his estate during the past 4 years after the grant of the bankruptcy order.

45. Regarding the failure to provide annual report of earnings and acquisitions, I have already said that such breach is only a technical one and I would attach little weight to it when I consider the length of the suspension.

The Law

46. The rationale and the purpose of the automatic discharge of a bankrupt are set out at paragraphs 17.16 and 17.24 of the Law Reform Commission's Report on Bankruptcy issued in May 1995 which read as follows:

"17.16 The introduction of automatic discharge should, with the objection system, have a 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."

47. No doubt, "failure to co-operate" with the trustee is a reason for delaying the bankrupt's rehabilitation. Ms. Mckenna of the Official Receiver referred me to the often-cited passage in the Judgment of Madam Justice Le Pichon (as she then was) in Re Hui Hing Kwok [1993] 3 HKC 683:

"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 failings."

48. Further, in Re Li Tat Kong [2000] 3HKC 360, Madam Justice Le Pichon stated clearly in her Judgment that it is incumbent on the bankrupt to make a full and frank disclosure and to proffer all pertinent information regarding his assets and financial dealings to the trustee. It is not good enough for a bankrupt to adopt a purely passive or reactive role, responding when asked in the expectation that with any luck, pertinent matters might be overlooked. The court will also have regard to the interests of commercial morality and the public interest.

The Exercise of Discretion

49. For reasons as stated above, I am satisfied that the Official Receiver has established a case of an objection to the automatic discharge of the Bankrupt under the 2 grounds relied upon by the Official Receiver pursuant to Section 30A(4)(c) and (h) of the Ordinance. There were and are failings on part of the Bankrupt which failings justify the delay of his rehabilitation. It would not be appropriate for the Bankrupt to be automatically discharged in this case.

50. The maximum period of suspension that the court can impose under Section 30A(3) is 4 years. In considering the proper and appropriate period of suspension in this case, it must commensurate with the gravity of the conducts of the Bankrupt under complaint. I take into account that the amount involved in the transactions in question is substantial of about HK$22 million and the Bankrupt has failed to give information since June 2000 not until December 2003. The belated supply of information while may amount to a mitigating factor, no doubt, the Official Receiver would have difficulty to investigate the truthfulness of information given and to trace the money involved as a result of the lapse of time. The interests of the creditors must have been affected.

51. I have also taken into the mitigation factors put forward by the Bankrupt as mentioned above. The Bankrupt faced 2 traumas in his life within a few years: his bankruptcy and imprisonment as a result of criminal conviction. As claimed, he has to receive psychological care. I consider that the Bankrupt may thus not fully appreciate his statutory duty to supply the information requested when he was imprisoned but eventually has tried to rectify by supplying the information lately.

52. Having regard to the above matters in particular the mitigating factors in this case (without which I may impose a maximum suspension), I consider that the appropriate period for suspension in this case should be 2 years. Accordingly, I order that the automatic discharge of the Bankrupt be suspended for a period of 24 months so that the Bankrupt shall not be discharged until 12 April 2005.