RE CHAN JOHN LOONG FAI

HCB 6991/2017

[2019] HKCFI 2434

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6991 OF 2017

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DECISION

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A.  INTRODUCTION

1.  The applicants are the joint and several trustees of the property of Mr Chan John Loong Fai (“the Bankrupt”).  This is the applicants’ application for an order requiring the respondent to (1) hand over to the applicants the official seal (公章) (“the Seal”) of Guangxi Desheng Universal Aluminium Company Limited (廣西德勝環球鋁業有限公司) (“Desheng”), and (2) submit an affidavit to the court containing an account of his dealings with the Bankrupt since 15 May 2012, and to produce the documents as specified in the applicants’ inter partes summons dated 11 April 2019 (“the Summons”).

B.  THE RELEVANT FACTUAL BACKGROUND

2.  On 17 January 2018, the Bankrupt was adjudged bankrupt by the Court.  On 18 May 2018, Mr Kan Lap Kee Terry, Ms Hou Chung Man Anita and Mr Tang Chung Wah Alan were appointed the joint and several trustees of the property of the Bankrupt.

3.  According to the applicants:

(1)  Desheng is a sino-foreign joint venture with its registered office and factory premises in Hechi City, Guangxi Province in Mainland China.  It has ceased operations for many years. However, the factory premises occupy a site with over 1,000,000 square metres, which is a major asset of Desheng.

(2)  Lanco International Holdings Limited (“Lanco”) is now in liquidation and owns 70% of Desheng.

(3)  The Bankrupt is the largest single shareholder of Lanco, holding 70% of the total issue share capital of the company.

(4)  On Sky Enterprise (HK) Limited (“On Sky”) is believed to be one of the largest known creditors of Lanco, and the respondent is a shareholder and one of the directors of On Sky.

(5)  The Bankrupt has been in office as the Legal Representative of Desheng for more than 10 years and was in control and had the custody of the Seal in such capacity.

(6)  The applicants have not been able to locate the Bankrupt ever since his bankruptcy.

(7)  On 15 May 2012, pursuant to the terms of a debenture granted by Lanco in favour of On Sky, Mr Terry Kan and Mr Alan Tang (two of the applicants) were appointed by On Sky as the joint receivers and managers of Lanco (“the Receivers”). The Receivers’ appointment was subsequently terminated by On Sky.  Lanco was wound up on 2 April 2014.

(8)  At a meeting on 23 January 2019, the respondent stated to the persons present (including the applicants) that he (the respondent) (a) was in possession of the Seal of Desheng, (b)had recently met the Bankrupt and (c) had lent some money to the Bankrupt to be on-lent to Desheng as a result of which the Bankrupt handed over the Seal to the respondent. 

(9)  Since February 2019, the applicants had made repeated requests to the respondent to hand over the Seal of Desheng but the respondent refused on the basis that the Seal was never the Bankrupt’s property.

4.  By the Summons, the applicants seek the following orders:

(1)  Pursuant to section 53(2) of the Bankruptcy Ordinance (Cap 6) (“the BO”), the respondent shall hand over to the Trustees, within 24 hours of the order made herein, the Seal of Desheng.

(2)  Pursuant to section 29(1A) of the BO, the respondent shall,within 14 days of the order made herein, submit an affidavit to the court containing an account of his dealings with the Bankrupt since 15 May 2012, and to produce any and all documents in his possession, custody or under his control relating to the Bankrupt or the Bankrupt’s dealings, affairs or property, including but not limited to (a) exchanges of communication (voice and/or text) via letters, notes, emails,WhatsApp, WeChat, Facebook, Telegram, Instagram, Skype,Line and/or any other communication software or means;(b) details of meetings (including meeting notes) and/or video conferencing (including recordings) with the Bankrupt; (c) the circumstances under which the respondent procured the Seal to be passed to him by the Bankrupt and (d)an account of monies passing and owing between the Bankrupt and the respondent.

(3)  Costs of this application (including the professional time costs of the applicants) be paid by the respondent.

C.THE RELEVANT LAW

5.  Sections 29(1) and 29(1A) of the BO provide as follows:

“(1)  The court may, on the application of the Official Receiver or trustee, at any time after a bankruptcy order has been made against a bankrupt summon before it the bankrupt or his spouse, or any person known or suspected to have in his possession any of the estate or effects belonging to the bankrupt or supposed to be indebted to the bankrupt,or any person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property, and the court may require any such person to produce any documents in his custody or power relating to the bankrupt, his dealings or property.

(1A)  The court may require a person referred to in subsection (1), other than the bankrupt, to submit an affidavit to the court containing an account of his dealings with the bankrupt or to produce any documents in his possession or under his control relating to the bankrupt or the bankrupt’s dealings,affairs or property.”

6.  The relevant legal principles on the provision of information or documents under section 29 were recently summarised by this Court in Re Ho Yuk Wah David (bankrupt) (No 3) [2019] 1 HKLRD 961 at §14,and are repeated as follows:

(1)  The Court’s power under section 29 of the BO to order production of information or documents is to be exercised in the same way as an application under the now repealed section 221 of the Companies Ordinance (Cap 32): Re Lai Kwok Ying (a bankrupt) (unreported, HCB 8750/2007,7 August 2009) §5 (Kwan J (as she then was)).

Whether provision of information or documents is reasonably required

(2)  The applicant must satisfy the court the essential condition that the provision of information or documents is reasonably required for him to carry out his functions: Hau Po Man Stanley (in bankruptcy) v Joint and Several Trustees [2008] 1 HKC 256 at §21(a) (Chung J sitting in the Court of Appeal);Joint & Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd(2006) 9 HKCFAR 766 at §27 (Lord Millett NPJ).

(3)  In considering this question, great weight should be given to the views of the applicant, for he is an officer of the court and alone has the necessary knowledge of the problems facing him in understanding the affairs of the estate and his reasons for seeking production of documents in the terms proposed:Kong Wah Holdings Ltd (above) at §27.

Whether respondent is able to provide information or documents

(4)  The applicant must also establish a prima facie case that the respondent is able to provide such information or documents:Hau Po Man Stanley (above) at §21(b).

Balancing exercise

(5)  If the above criteria are met, the court must carefully strike a balance between the applicant’s reasonable requirements and the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to the person concerned.  The burden is on the applicant to satisfy the court,after balancing all the relevant factors, there is a proper case for such an order to be made.  See Hau Po Man Stanley (above) at §21(c).

(6)  The applicant may not embark on a “fishing expedition” that ignores costs and proportionality: Re Lee Priscilla Hwang (bankrupt) [2012] 4 HKLRD 581 at §23 (Recorder A Chow SC(as he then was)); Re Lee Siu Fung Siegfried [2017] 1 HKLRD 1155 at §34 (G Lam J).

7.  Section 53(1) and (2) of the BO provide as follows:

“(1)  The trustee shall as soon as may be take possession of the deeds, books and documents of the bankrupt and all other parts of his property capable of manual delivery.

(2)  The trustee shall, in relation to and for the purpose of acquiring or retaining possession of the property of the bankrupt, be in the same position as if he were a receiver of the property appointed by the court, and the court may on his application enforce such acquisition or retention accordingly.”

D.DISCUSSION

8.  The applicants make two requests in this application: (1) the request for the handing over of the Seal and (2) the request for provision of information and documents.  I will deal with them in turn.

D1. Request for the handing over of the Seal

9.  In his affirmation in support of the application, Mr Tang stated, amongst other things, that the applicants consider that the Seal of Desheng constitutes property belonging to the Bankrupt at the commencement of the bankruptcy, and falls within the definition of a bankrupt’s estate pursuant to section 43 of the BO. 

10.  However, in the applicants’ skeleton submissions, no reference was made to section 43 of the BO, and nothing was said as to why the Seal is considered by the applicants to be property belonging to the Bankrupt at the commencement of the bankruptcy.

11.  Section 43(1)(a) of the BO relevantly provides that “a bankrupt’s estate comprises…all property belonging to or vested in the bankrupt at the commencement of the bankruptcy”.  The Seal is the official seal of Desheng, and is therefore prima facie the property of Desheng. Apart from bare assertions, there is nothing before the Court to suggest the Seal has belonged to the Bankrupt at any time.

12.  At the hearing, Mr Tang relied on section 43(4) of the BO and contended that the Seal is the “ultimate power” of Desheng:

(1)  Section 43(4) provides:

“ References in this Ordinance to property, in relation to a bankrupt, include references to any power exercisable by him over or in respect of property except in so far as the power is exercisable over or in respect of property not for the time being comprised in the bankrupt’s estate and cannot be so exercised for the benefit of the bankrupt; and a power exercisable over or in respect of property is deemed to vest in the person entitled to exercise it at the time of the transaction or event by virtue of which it is exercisable by that person (whether or not it becomes so exercisable at that time).”

(2)  This provision extends the meaning of the term “property” in the BO to “any power exercisable by [the bankrupt] over or in respect of property” and provides that such a power “is deemed to vest in the person entitled to exercise it at the time of the transaction or event by virtue of which it is exercisable by that person (whether or not it becomes so exercisable at that time)”.  However, as expressly stated in the provision,section 43(4) has no application insofar as the power in question is exercisable over or in respect of property not comprised in the bankrupt’s estate and cannot be so exercised for the benefit of the bankrupt.  

(3)  Given that the applicants have not demonstrated that the Seal is property comprised in the Bankrupt’s estate at any time, I do not believe section 43(4) assists the applicants.

13.  Further, although the applicants seek to bring their application pursuant to section 53(2) of the BO in respect of the Seal, the applicants have not in any way explained how that provision would provide a legal basis for them to obtain the Seal.

14.  In these circumstances, I refuse the applicants’ request for the handing over of the Seal.

D2. Request for provision of information and documents

15.  The applicants make the request for provision of information and documents pursuant to section 29(1A) of the BO.  As the applicants seek an order for the respondent to submit an affidavit to the court under section 29(1A), it must be the applicants’ case that the respondent is a person referred to in section 29(1).  Although this is not made clear in their skeleton or Mr Tang’s oral submission, it appears that the applicants contend that the respondent is a “person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property”.

16.  The applicants rely on the following matters to support their application under section 29(1A):

(1)  On 2 November 2017, the respondent received a telephone call from the Bankrupt requesting financial assistance.  On the same day, the respondent gave to the Bankrupt certain cash and the Bankrupt passed the Seal to the respondent.

(2)  At a meeting on 23 January 2019, the respondent stated that he had recently met the Bankrupt and had lent some money to the Bankrupt.

17.  On the basis of the above matters, the applicants argue that information/document(s) concerning the respondent’s dealings with the Bankrupt would be highly relevant and useful for the further investigation of the Bankrupt’s affairs generally.

18.  By their request, the applicants seek (1) an account of the respondent’s dealings with the Bankrupt since 15 May 2012, and (2) all documents in the respondent’s possession, custody or under his control relating to the Bankrupt or the Bankrupt’s dealings, affairs or property.

19.  Having given sufficient weight to the views of the applicants, I am not satisfied that the provision of requested information and documents is reasonably required for them to carry out their functions. The applicants seek an account of the respondent’s dealings with the Bankrupt since 15 May 2012, a date which was more than five years before the Bankrupt was adjudged bankrupt.  No explanation has been given by the applicants as to why an account that goes back such a long time before the Bankrupt’s bankruptcy is reasonably required for them to carry out their functions. 

20.  Further, I am not satisfied that the applicants have established a prima facie case that the respondent is able to provide the requested information and documents.  No evidence has been adduced to demonstrate that the respondent is able to produce (1) an account of his dealings with the Bankrupt since 15 May 2012, or (2) any documents in the respondent’s possession, custody or under his control relating to the Bankrupt or the Bankrupt’s dealings, affairs or property.

21.  In any event, I consider the applicants’ request for all documents in the respondent’s possession, custody or under his control relating to the Bankrupt or the Bankrupt’s dealings, affairs or property is too wide.

22.  For these reasons, I would not exercise my discretion to accede to the applicants’ request for provision of information and documents.

E. DISPOSITION

23.  For the reasons given above, I dismiss the Summons. 

24.  I make an order nisi that the respondent’s costs of and occasioned by the Summons be borne by the applicants personally (without prejudice to any right the applicants may have to recoupment from the Bankrupt’s estate) to be taxed if not agreed.  In making this costs order, I have borne in mind what Yuen JA said in paragraphs 44 and 45 of Osman Mohammed Arab and Wong Kwok Keung, the Joint and Several Liquidators of Kam Toys & Novelty Manufacturing Ltd (in creditors’ voluntary liquidation) v Cashbox Credit Services Ltd (unreported, CACV 67/2017,13 November 2017).