EX PARTE THE OFFICIAL RECEIVER, THE TRUSTEE OF THE PROPERTY OF JOHNNY YIU v. TOPMA (HONG KONG) CO LTD

IN THE HIGH COURT OF HONG KONG

IN BANKRUPTCY

NO. 179 OF 1996

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J U D G M E N T

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1. This is an application which is made under the Bankruptcy Ordinance. The application is by Notice of Motion and today the Applicant, who is the trustee in bankruptcy of the Bankrupt, seeks two declarations and a consequential declaration.

The First Declaration

2. The first declaration which I shall take is that the holding by the Chief Bailiff of the goods and chattels of the debtor firm, which were seized by the Chief Bailiff on 9th March 1996 pursuant to Writ of Fieri Facias, for a period of more than 21 days from the said day of seizure, was an act of bankruptcy committed by the debtor within the terms of S.3(1)(e) of the Bankruptcy Ordinance, Cap.6; and that notice of the said seizure and/or the period of such holding was notice of the commission of an available act of bankruptcy against the debtor, within the terms of S.45(1) of the Bankruptcy Ordinance, which is to be imputed to the Respondent.

3. The facts of this case can be dealt with fairly simply. The bankrupt carried on business under the name of Polytec Industrial Company. Clearly by the end of 1995 the bankrupt was in considerable difficulties. It seems that there were no less than 3 cases which had reached conclusion and Writs of fi. fa. seem to have been taken out in respect of each. Coupled with that, the Bankruptcy Notice in this matter was served by the Legal Aid Department as a result of a Labour Tribunal Order of 19th May 1995 and also in respect of claims of two other employees who together were owed a sum of $100,000.00 or more. The Bankruptcy Notice was served on 29th February 1996. On 1st March 1996, the goods of the debtor were seized by the Bailiff under a Writ of fi fa. The Bankruptcy Notice was not complied with.

4. Although there is some doubt about it, on 8th March 1996, the debtor had committed an act of bankruptcy. The commission of that act of bankruptcy did not come to the notice of the present Respondent. On 9th March 1996, goods were seized by the Bailiff under the Respondent's Writ of fi. fa. There was a further seizure in respect of another Writ of fi. fa. on 18th March. This bankruptcy petition was then presented on 19th March. There was some dispute, and I will deal with it later, as to the ownership of some of the goods which the Bailiff had seized under the Respondent's Writ of fi. fa. and on 28th March 1996, the Bailiff took out an interpleader summons. That was disposed of by consent on 24th April. On 29th April 1996, the goods which had been seized, were sold at public auction by auctioneers.

5. The Applicant's case in respect of this declaration is based upon S.45 of the Bankruptcy Ordinance which reads as follows:

Where a creditor has issued execution against the property of a debtor or has attached any debt due to him, he shall not be entitled to retain the benefit of the execution or attachment against the trustee in bankruptcy of the debtor unless he has completed the execution or attachment before the date of the receiving order and before notice of the presentation of any bankruptcy petition by or against the debtor or of the commission of any available act of bankruptcy by the debtor.

It is those last words which are of significance in this case because the Bailiff had seized goods, as I have indicated, on 9th March and these were retained by him and not sold until 29th April. This caused, in itself, an act of bankruptcy. Under S.3(1)(e) of the Bankruptcy Ordinance it is provided that if execution against the bankrupt has been levied by seizure of his goods under process in an action and the goods have either been sold or held by the Bailiff for 21 days an act of bankruptcy is committed.

6. There is a proviso to that subsection which excludes the period of time during which there was an interpleader. That period of time is not to be taken into account in the calculation of the 21 days. But even taking that into account, as there was indeed an interpleader in this case, some 23 days, or at the very minimum 22 days, had elapsed, and therefore, an act of bankruptcy was complete.

7. The position, in my view, is clear enough on its face but if authority is needed for the proposition that the Respondent had indeed notice of the act of bankruptcy in circumstances such as this, that can be found in the case of The Trustee of John Burns-Burns v. Brown [1895] 1Q.B. 324 where a strong Court of Appeal consisting of Lord Halsbury, Lindley L.J. and A. L. Smith, L.J. so held. Lord Halsbury made the position quite clear in this passage where he said at page 327:

"If while the Sheriff has the goods in his possession an available act of bankruptcy comes to his knowledge, it is his duty to hold the goods for the creditors generally, not for the execution creditor. The present question could not have arisen under the Bankruptcy Act 1883, itself. But the Bankruptcy Act 1890, s.1, created a new act of bankruptcy, viz., the holding of the goods by the sheriff under an execution for 21 days. I cannot read in the Act anything which exempts the execution creditor himself from the operation of this clause. In the present case the sheriff had had possession of the goods in question for more than 21 days. To my mind, it is clear that an act of bankruptcy was thus committed to the knowledge of the execution creditors and the sheriff had made notice of it. The result is that under the combined operation of the Bankruptcy Acts 1883 and 1890, all the conditions existed which are necessary to give the trustee in the bankruptcy a title to the goods. Putting the two sections together the point taken by the Appellant appears to me unarguable. On both grounds, I think the appeal should be dismissed with costs."

8. It seems to me that the same position prevails here.

The Second Declaration

9. I then turn to the second declaration which is based on S.46(2). The declaration sought is that the Bankruptcy Petition presented on behalf of Chan Wai Hong, (a judgment creditor) against Polytec Industrial Company (the debtor firm) on 19th March, 1996 was a petition presented within 14 clear days of the sale of property of the said debtor firm, which sale took place on 29th April 1996, within the terms of S.46(2) of the Bankruptcy Ordinance Cap.6 of the Laws of Hong Kong.

10. The point on this provision is that what the S.46(2) says is as follows:

"Where, under an execution in respect of a judgment for a sum exceeding $100, the property of a debtor is sold or money is paid in order to avoid sale, the Bailiff shall deduct his costs of the execution from the proceeds of sale or the money paid and pay the balance into court, and if within 14 clear days of such sale, or payment as aforesaid a bankruptcy petition is presented by or against the debtor, the said balance shall remain in court and if the debtor is adjudged bankrupt the balance shall be paid out to the trustee in the bankruptcy, who shall be entitled to retain the same as against the execution creditor, but otherwise it shall be dealt with as if no bankruptcy petition had been presented."

11. The point taken by the Respondent on this is a simple one. It is said that the bankruptcy petition was presented a long time before the sale of the goods seized under the Writ of fi. fa. and therefore the condition of the subsection is not satisfied. Just looking at the scheme of the Ordinance and all the other provisions of this Ordinance, it would be an alarming result to be achieved, that if a creditor had presented a petition before the sale, then the proceeds of sale would not go for the general benefit of the creditors, but if he presented the petition in the narrow time slot of 14 days after the sale, then those proceeds would go to the general benefit of the creditors. That as I say is a potentially alarming proposition and it would run contrary to the spirit of the Ordinance which is there to see pari passu distribution of such assets of the debtor as are available between all creditors of equal rank.

12. In my view, such a construction of the Ordinance is not only contrary to common sense but is one to which the Court is not required to come. My attention in this respect has been drawn to two cases. The first is the case of the Earl of Morton's Trustees v. Macdougall [1944] SLT 409 and the second is R. v. I.R.C. ex parte Knight [1973] 3 All ER 721.

13. In construing a provision of the Agricultural Holdings (Scotland) Act, 1923 in the case of Earl of Morton's Trustees v. Macdougall. The Lord Justice-Clerk (Cooper) construed the words which related to the giving of a notice within one month after the expiration of a calendar year in respect to which the claim is made as being the last day upon which such claim could be made and not that the claim had to be made between 1st January and 31st January of the year following the year in respect of which the claim was made. The Lord Justice-Clerk observed in that case that it was to be noted that the words were within "one" month and not within "the" month and then went on to say:

"According to its normal significance, as evidenced by the dictionaries, "within" when applied to a period of time most usually means "before the end of";

and then he goes on to refer to commentators in respect of that particular Act.

14. That construction and method of construction was followed in the case of R.v. Inland Revenue Commissioners and in particular by Russell L.J. who approved the approach which had been taken by the Lord Justice-Clerk, and he said at the bottom of p.727:-

"I think there are two answers to this: First, that on the true construction of S.103(2), it means that proceedings may be commenced at any time not later than the expiration of 3 years from the final determination etc, etc. For this construction, we were referred to a similar approach to language indeed in a different statue which was considered in the Court of Session in the Earl of Morton's Trustees v. Macdougall to the details of which I need not refer except to say that this was a case in which a phrase requiring notice to be within a month after the expiration of a calendar year was treated as meaning 'not later than the end of the month', so that a notice served during the calendar year was a sufficient notice."

15. In my view, the only construction of S.46(2) of the Bankruptcy Ordinance which accords with reason and common sense is one which puts upon the words within 14 clear days of such sale as being that as the last day upon which the bankruptcy petition can be presented to have effect under that subsection.

16. There remains to be dealt with the exemption subsections which are contained in both S.45 and S.46. These are in similar terms and I should read S.45(4):-

"The rights conferred by this section on the trustee in relation to executions against the property of the debtor and attachment of debts due to the debtor may be set aside by the court in favour of the creditor to such extent and subject to such terms as the court may think fit."

17. Miss Yew on behalf of the Respondent sought as best she could the operation of this section in her client's favour either wholly or limited only to the amount in excess of the amounts claimed in the petition and in default, she sought a special order in respect of costs which had been incurred by the Respondent in respect of the Bailiff's costs and the cost of levying execution and the fixed costs of the Bailiff under the interpleader summons which had been taken out and indeed the Respondent's costs on that summons.

18. The exercise of the court's discretion under these two subsections which, for present purposes, I shall treat as similar is a broad discretion and clearly the Court would have to take into account all the circumstances of the case. Doubts have been expressed in other cases as to whether the court would have sufficient knowledge of all the circumstances of the case and this would probably include not only the particular creditors' circumstances but the circumstances of the debtor and the circumstances of other creditors before a full exercise of discretion could be exercised.

19. What is clear on the cases, however, is, as was said by Harman L.J. in the case of In re Carribean Products (Yam Importers) Ltd. Tickler v. Swains Packaging Ltd. [1966] 1 Ch.331 at p.348, that "The general rule in winding up as observed by Pennycuick J. in re Redman (Builders) Ltd. is that all creditors rank pari passu if not secured, and weighty reasons are needed to set this aside. I do not feel that the court knows enough of the merits or demerits of all the other creditors to justify an intervention."

20. The same of course prevails here, I know nothing of the other creditors and it seems to me difficult even to begin to exercise a discretion. In other cases, it appears that the court's discretion has been sought on the basis that the debtor has induced the particular creditor concerned to defer his claim and thereby put him in a situation whereby he loses such advantage as he may have of having executed his judgment early. I see nothing of that in the present circumstances which could justify me in beginning to exercise my discretion in favour of the Respondent.

21. So far as the Bailiff's costs are concerned that was a matter of discussion during the hearing but it emerges quite clearly that the Bailiff's costs and the Bailiff's costs of the sale will be taken care of out of the proceeds of sale and hence nothing further needs to be said about that.

22. So far as the fixed costs of the Bailiff on the interpleader summons, the princely sum here being $1,500.00, it seems to me, having read such papers as seem to exist on the interpleader summons that the Respondent was the author of its own misfortune. Having been provided with the affirmation of a Mr. Chan, who claimed that the machinery which had been seized under the Writ of fi. fa. was his, and having been asked by the Chief Bailiff whether it disputed Mr. Chan's claim, the Respondent replied very promptly on the next day, even though it had been given 14 days to think about the matter, that it did dispute it. As a result of that, the summons was taken out. When the matter came to a conclusion, however, there was a consent order and the present Respondent consented to an order that Mr. Chan get his goods. There was no order as to costs either for or against Mr. Chan save that the Bailiff would get his fixed costs of $1,500.00 from the Respondent. As I say, in my view, it brought that on its head and again I cannot see a way to exercise my discretion in its favour.

23. In those circumstances, I would grant both declarations sought which I have already recited. There then follows the consequential declaration that the trustee in bankruptcy is entitled to be paid the net proceeds of sale, including any interest subsequently accumulated thereupon, of the goods and chattels seized by the Chief Bailiff of the Supreme Court on 9th March 1996 and sold on 29th April 1996 pursuant to Writ of fi. fa. dated 2nd November 1995 in execution of a judgment entered on 18th October 1995 in High Court proceedings 1995 No. A8797 (hereinafter "the proceeds of sale"), held, at the commencement of proceedings herein, by the Registrar of Supreme Court. The Applicant is further entitled to any interest which has accrued on the monies so held by the Bailiff.