RE CHIN WAI KAY GEODIE

HCB 7469/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7469 OF 2010

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D E C I S I O N

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APPLICATION

1.  This is an application by the sole Trustees (“Trustee”) under Section 30A(3) of the Bankruptcy Ordinance (“BO”) and Rule 88 of the Bankruptcy Rules (Cap 6) for an order against the automatic discharge of Chin Wai Kay Geordie (“Bankrupt”).

BACKGROUND

2.  On 9 June 2011, a bankruptcy order was made by DHCJ Coleman SC against the Bankrupt.  The background of these bankruptcy proceedings was set out in paras 3 to 14 of the Decision by Harris J in HCBI 1396/2008 dated 11 June 2010 and quoted by DHCJ Coleman SC in para 8 of his Judgment herein dated 9 June 2011.  I will not repeat here.  Unless otherwise stated, I will also use the same nomenclatures in the said decision and judgment eg Cheery, Miss Wong, Wealthy Eagle, Net Pacific etc. 

3.  The Trustee makes the application on the grounds that:

(a) the discharge of the Bankrupt  would prejudice the administration of his estate under section 30A(4)(b) of the BO;

(b) the Bankrupt has failed to co-operate in the administration of his estate under section 30A(4)(c) of the BO; and

(c) the conducts of the Bankrupt, either in respect of the period before or after the commencement of his bankruptcy were unsatisfactory under section 30A(4)(d) of the BO.

4.  The Trustee mainly relied on the followings matters in support of the above grounds:

(a) Findings against the Bankrupt made by Harris J in his Decision in HCBI 1396/2008 dated 11 June 2010 and DHCJ Coleman SC in his Judgment herein dated 9 June 2011;

(b) Omissions in the statement of affairs submitted by the Bankrupt;

(c) Default and/or delay in filing annual statements by the Bankrupt;

(d) Default and/or delay in making contributions by the Bankrupt;

(e) Default and/or delay in making disclosure, furnishing information and responding to inquires.

LEGAL PRINCIPLES

5.  It is not disputed by the parties’ Counsel that the court shall adopt a 2-stage approach[1]. First, the court has to determine whether the conduct complained of is unsatisfactory within the meaning of section 30A(4)(d) of the BO and if yes, then, the court has to consider whether to exercise the discretion under section 30A(3) to suspend the running of the relevant period in the light of all the circumstances.

6.  As to what conduct is regarded as unsatisfactory, the appropriate test is whether the conduct is such as society would be prepared to condone without any expression of disapproval[2]. In my view, it is indeed a hypothetical reasonable man test having regard to all relevant circumstances.

7.  It is noteworthy that the Trustee did not apply for an order to cross-examine the Bankrupt.  In my view, the court shall not conduct a mini-trial on affidavit evidence where there are material factual disputes and I have to accept the face value of these affirmations unless they are inconsistent with incontrovertible facts[3].

DISCUSSION

Findings against the Bankrupt made by Harris J and DHCJ Coleman SC

8.  To start with, I have to identify the findings against the Bankrupt made by Harris J in his Decision in HCBI 1396/2008 dated 11 June 2010.  The learned judge in that case was dealing with an application by 2 of the creditors challenging a decision of a meeting of the creditors of the Bankrupt held on 17 March 2009 under section 20E of the BO, at which a voluntary arrangement was approved. 

9.  It is not in dispute that the main findings by the learned judge are set out in paras 23, 24 and 28 in his Decision as follows:

“23. ….. I accept that the debtor’s (the Bankrupt’s) undisputed failure to include all creditors in the statement of affairs and proposal is an irregularity. I also accept that Cheery is an associate of the debtor and that the failure to include this information in the proposal was an irregularity. I have come to the latter conclusion for the following reasons. In paragraph 10 I have listed the various matters on which the applicants rely as demonstrating that Cheery is an associate of the debtor. Clearly Miss Wong and the debtor have had a close on-going relationship, which has resulted even on the debtor’s case in Miss Wong letting property to him and he assisting her with various transactions. Section 51B defines various circumstances in which a creditor is to be treated as an associate of the debtor. The relevant circumstance is to be found in sub-section (6):

     “A company is an associate of a debtor if that debtor has control of it or if that     debtor and persons who are his associates together have control of it.”

In my view the various matters referred to above, the underlying facts of which are not in dispute, allow me to infer that on the balance of probabilities Cheery is a company over which the debtor has control. It was, therefore, an associate of the debtor and this should have been stated in the proposal. This conclusion suggests that Cheery is the debtor’s nominee and that Cheery should have been included as an asset in his statement of affairs.

24. I also find that as there is no evidence that Net Pacific knew of the petition that the liability to Net Pacific should have been included in the statement of affairs.

……

28.  ….It does look like the debtor has added friendly creditors when he needed them to vote for the voluntary arrangement.  There does appear to be unanswered questions about the debtor’s financial interest in Cheery.  The evidence suggests that Ms. Wong has been acting at his behest and his use of Cheery’s assets and his involvement in its financial affairs suggests that he controls Cheery.  This and the generally unsatisfactory way in which the debtor has compiled his statements of affairs and proposal lead me to conclude that there is good reason to question whether he has dealt honestly with his creditors.”

10.  In making the bankruptcy order against the Bankrupt, DHCJ Coleman SC said in paras 27 and 59 of his Judgment herein dated 9 June 2011:

“27. In any event, having looked at the materials, I am in full agreement with Harris J both as to his conclusions and comments, and as to the underlying reasons for them. Even looking at the matter entirely afresh, it seems to me that there is real force in Ms Tjia’s submissions that Mr Chin (the Bankrupt) has acted in a way which fulfils the criteria set out in section 20L(1)(b), in that the information contained in the statement of affairs or other documents supplied by Mr Chin under sections 20 to 20K was false or misleading in material particulars or contained material omissions.

..….

59.  In all the circumstances, just as was Harris J, I am satisfied that information put forward by Mr Chin which was false or misleading in a material particular and/or which contained material omissions was contained in the statements of affairs or other documents supplied by him as debtor, or was otherwise made available by him to his creditors at or in connection with a relevant meeting.”

11.  The Bankrupt’s appeal against the Judgment of DHCJ Coleman SC was dismissed by the Court of Appeal[4]. In my view, the findings against the Bankrupt made by Harris J and DHCJ Coleman SC in their respective judgment must be binding on the Bankrupt.

12.  I have no doubt to accept that, the conduct of the Bankrupt already found by Harris J (before the commencement of bankruptcy) to add friendly creditors to vote for the voluntary arrangement was unsatisfactory since it was not the conduct the society to be prepared to condone without any expression of disapproval.  Similarly, the conduct of the Bankrupt already found by DHCJ Coleman SC (before the commencement of bankruptcy) to supply false or misleading information in a material particular and/or have material omissions in the statements of affairs or other documents supplied by him as debtor to his creditors at or in connection with a relevant meeting shall also be regarded as unsatisfactory.

13.  However, Mr Suen for the Trustee invited this court to draw inference or implications from the aforesaid findings of the 2 learned judges that Wealthy Eagle, to whom a property at Monte Carlton was assigned by Cheery on 6 June 2009 (ie about 2 years before the date of the bankruptcy order) and for which the Bankrupt acted as company secretary, is an associate of the Bankrupt.  With respect, I cannot agree and refuse o draw to draw such inference simply based on the said findings or based on any other evidence before me.  In my view, if the Trustee has got sufficient evidence to prove such allegation, the 2 learned judges would have already made such findings in their respective decision and judgment.

14.  Mr Suen for the Trustee submitted that the Trustee may commence proceedings against Miss Wong, Cheery and/or Wealth Eagle for recovery of the property at Monte Carlton as being held on trust for the Bankrupt. Nonetheless, the Trustee has not yet commenced any proceedings up to now, probably due to shortage of fund[5].

Omissions in the statement of affairs

15.  As to the omission to include Cheery as his assets in his statement of affairs by the Bankruptcy, I accept that such conduct after the commencement of the bankruptcy is unsatisfactory although the Bankrupt all along maintained that he had no beneficial interest in Cheery.  Despite the fact that Harris J did not expressly find that Cheery belongs to the Bankruptcy, I consider that the Bankrupt has no choice but to accept the findings by Harris J regarding his relationship with Cheery.  In my view, the Bankrupt at least has to state in his statement of affairs that he has some interest in Cheery, though may not be 100%.

16.  Based on para 24 of Harris J’s Decision, I think that the Bankrupt should also include his liability to Net Pacific in the statement of affairs after the bankruptcy.  Nonetheless, he failed to do so.  I consider that such conduct is also unsatisfactory.

Default and/or delay in filing annual statements

17.  There is no dispute by the Bankrupt that in spite of repeated warnings, he has delayed in submitting annual statements for 2011-2013 and eventually done so in May 2014 almost 3 years after the date of bankruptcy order.  For the annual statement for 2014, he only submitted at the meeting on 3 July 2014.  I consider that the Bankrupt is highly uncooperative in this regard and such conduct must be unsatisfactory.

Default and/or delay in making contributions

18.  The Trustee alleged an oral agreement with the Bankrupt that he would make monthly contribution of $10,000.  The Bankrupt denied but agreed that he would lump sum contribution for 2011 to 2013.  In my view, it is a very serious factual dispute.  Since the Trustee did not apply for an order to cross-examine the Bankrupt, I find that there is insufficient evidence before me to conclude that the Bankrupt did reach such alleged agreement of monthly contribution with the Trustee.  I cannot agree that he was in default of making the monthly contribution of $10,000 as alleged.  

19.  In any event, the Trustee agreed that the Bankrupt did deposit the respective lump sums of $132,000, $118,000 and $73,000 on 16 May 2014, 17 July 2014 and 8 September 2015 as contributions.  The total amount of contributions made is $323,000, which is the exact total sum of the surplus as stated in the 4 annual statements submitted by the Bankrupt.  As there is no order for income payment or written agreement of contribution signed by the Bankrupt, I do not think that he has delayed in making contribution to the estate.  In the circumstances, I refuse to regard such conduct unsatisfactory.

20.  By the way, I consider that in case the Trustee found that the Bankrupt breached the oral agreement of contribution, the better course for the Trustee is to make application for an income payment order immediately, instead of just waiting until the application for objection to discharge.

Default and/or delay in making disclosure, furnishing information and responding to inquires

21.  The Trustee further submitted that the Bankrupt was evasive in providing information concerning his relationship with, inter alia, Cheery, Miss Wong and Wealth Eagle.  As Cheery is an associate of the Bankrupt, I agree with the Trustee's submission that he has duty to inform the Trustee of the event that Cheery was struck off in the BVI and has to explain to the Trustee as to why it was suddenly struck off.  In my view, such conduct must be unsatisfactory.

22.  However, there is no finding by the 2 learned judges that Wealth Eagle is an associate of the Bankrupt albeit the Bankrupt being the secretary of Wealth Eagle until 8 March 2014.  I do not agree that he has duty to inform the Trustee of the event that Wealth eagle cancelled the transaction with Net Pacific on 11 May 2012.

23.  As to Miss Wong, it is not disputed that she was the Bankrupt's former secretary and the only finding by Harris J is that Miss Wong has been acting at the Bankrupt's behest.  The Bankrupt said in his 4th affirmation that he could not do anything to compel Miss Wong to respond to the Trustee nor he had authority from her to provide her contact details to the Trustee.  First of all, the Trustee is able to obtain the contact address of Miss Wong from other sources, eg company search record, the affirmations filed by Miss Wong etc.  It seems unnecessary for the Trustee to insist the Bankrupt to provide her contact address.  Secondly, as the Trustee has been advised by his lawyers that a private examination of the relevant parties including Miss Wong pursuant to s29A of the BO is necessary, I cannot see why the Trustee still has to insist the Bankrupt to compel Miss Wong to respond.  In any event, I accept the Bankrupt's explanation that he had relayed the Trustee's questions to Miss Wong but no response from her since I shall not conduct a mini-trial on affidavit evidence where there are material factual disputes and I have to accept the face value of the affirmations unless they are inconsistent with incontrovertible facts.

24.  Mr Suen for the Trustee also made a very general submission on commercial morality, which I do not think that I need to go into detail.  In short, I agree that I shall consider whether the discharge of the Bankrupt will hinder severely the administration of his estate and adversely affect the interests of commercial morality and public interest.

25.  On balance of probability, I am satisfied that the Trustee has proved those grounds of objection to discharge the bankruptcy to the extent as discussed above.

Exercise of discretion

26.  The next issue is exercise of the discretion to suspend the automatic discharge. The 2 main objectives have to be considered by the court are[6]:

(a) The rehabilitation of the bankrupt by allowing him to resume a normal life in society; and

(b) The public interest of ensuring that the return of the bankrupt to the commercial world will not carry with it the unacceptable risk to persons likely to be engaged in commercial relations with him and also that commercial morality is preserved.

27.  I also need to bear in mind that he did make a total contribution for the sum of $323,000 out of his annual earnings of $260,000 for the respective periods from 1 July 2011 to 30 June 2012 and 1 July 2012 to 30 June 2013, annual earnings of $312,000 for the period from 1 July 2013 to 30 June 2014 and annual earnings of $260,000 for the period from 1 July 2014 to 30 June 2015.

28.  Nevertheless, I am of the view that based on my above findings, the Bankrupt had failed to co-operate in the administration of the estate and discharge of him would be prejudicial to the administration of the estate.  The failings of the Bankrupt justify the delay of his rehabilitation.  His unsatisfactory conducts warrant a suspension and a period of 18 months is appropriate to mark the court’s disapproval of his pre and post bankruptcy conducts.  Accordingly, I exercise my discretion to order that the automatic discharge of the Bankrupt be suspended for 18 months and that the relevant period under section 30A(3) of BO shall cease to run for a period of 18 months from 8 June 2015.

29.  I see no reason why the costs shall not follow event.  I make an order nisi that the Bankrupt do pay costs of this application to be taxed if not agreed with certificate for counsel, which shall become absolute unless any of the parties apply to vary it within 14 days.