RE LEUNG YAT TUNG

HCB 2019/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDING NO. 2019 OF 2000

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Re: LEUNG YAT TUNG, the Bankrupt

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D E C I S I O N

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The Application

1. This is the application of the Official Receiver and Trustee (the trustee) under section 30A of the Bankruptcy Ordinance (the Ordinance) for an order that the relevant period of 4 years shall cease to run for 4 years so that Mr. Leung, the bankrupt shall be discharged on 1st March 2009.  The petitioning creditor Healthy Wharf Limited supports this application.  Mr. Leung opposes it.  At the hearing the petitioning creditor has not attended.

The Law

2. Section 30A of the Ordinance provides that subject to other provisions under this section, a bankrupt will be discharged from bankruptcy by the expiration of the relevant period of 4 years beginning with the commencement of the bankruptcy.  Section 30 of the Ordinance provides that the bankruptcy of a person commences with the day on which the order is made.

3. Section 30A(3) provides that where the court is satisfied on the application of the trustee or one of the bankrupt’s creditors that a valid objection based on one or more of the grounds set out in subsection (4) has been made, the court may order that the relevant period shall cease to run for such period, not exceeding, in the case of a bankrupt, who has not previously been adjudged bankrupt, 4 years.

The trustee’s grounds for the application

4. Section 30A(4) sets out the grounds on which an objection can be made to the discharge of a bankrupt.  The trustee relies upon the following grounds:

(a) that the discharge of Mr. Leung would prejudice the administration of his estate;

(b) that Mr. Leung has failed to co-operate in the administration of his estate.

The legal principles

5. The trustee also relies upon the following legal principles as adopted and decided by Madam Justice Le Pichon, as she then was, in Re Li Tat Kong [2000] 3 HKC 360:

(a) If the bankrupt 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. (377B)

(b) 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. (377D)

(c) 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. (377G)

(d) The court will have regard to the scope and purposes of the statutory provisions conferring the discretion.  There should be an adequate investigation of the conduct and affairs of the bankrupt.  In a case presenting features, which call for an exercise of discretion upon the question when and on what terms the bankrupt should be discharged, the investigation should generally be carried to a conclusion before a discharge is granted or permitted to occur. The bankrupt cannot complain unfairness of delay in the investigation where there has been concealment or lack of cooperation on his own part. (377H-I)

(e) The court will also have regard to the interests of commercial morality and the public interest. (378B)

Mr. Bartlett, counsel for the bankrupt does not dispute the above legal principles.

The factual background

6. Mr. Leung was the chairman of UDL Holdings Ltd., a listed company.  There were and still are numerous associated or subsidiary companies.  A petition was presented on 14 June 2000 for Mr. Leung’s bankruptcy.  Mr. Leung agreed to pay the debt by instalments before Madam Justice Le Pichon.  He also agreed to make full disclosure of his financial position.  He filed the affirmations but the petitioner rejected his proposal of payment by instalments.  The hearing of the bankruptcy was adjourned.  Meanwhile before hearing of the bankruptcy petition, Mr. Leung filed the application for an interim order.  This application was heard together with the petition before Mr. Justice Cheung.  Cheung J. in his judgment delivered on 1 March 2001 ruled that the starting and fundamental point in the application must be that Mr. Leung should make a full and frank disclosure of his finance.  In his view, Mr. Leung at that time had failed to do so.  Cheung J. rejected his application for an interim order. (209B) The references following refer to the page numbers of the bundle of documents in this proceeding.

7. What attracted more attention and criticism from Cheung J. is the Family Trust, viz. The 747 Trust and The Harbour Front Unit Trust created by 2 Trust Deeds both dated 2 September 1991.  The trustee suspects that Mr. Leung used the trust device to hide all his assets behind the Family Trust from his creditors.  Mr. Leung claimed that he was not a beneficiary under the Family Trust.  Evidence showed that he was in a position to deal with the assets of the Family Trust.  In September 1999, Standard Chartered Bank informed him that it would lend $20 million on the security of the Yau Tong property, which is part of the assets of the Family Trust.  The value of this property, as according to his own valuation in 1991, was HKD90 million.  In November 1999, Mr. Leung offered to sell to his brother, Leung Yuet Keung, a director of the petitioner, the whole or part of the interest of the Yau Tong property for $80 million or $50 million respectively. (220H) The judge also commented that Mr. Leung would either assert that he was able to deal with the property under the Family Trust or distance himself from the Family Trust when the matter suited him. (220R-221B) Harbour Front Trust Ltd. is the trustee of Harbour Front Unit Trust and is wholly owned by him.  Cheung J. expressed his view in the judgment:

“In my view, whether the debtor owns beneficiary interest in the Family Trust, is clearly one of the matters that need to be investigated in bankruptcy so that any hidden asset should be made available for distribution. (223E)”

8. The fact claimed by Mr. Leung in the hearing before Cheung J. that he always held as the trustee only of the shares of Money Facts Ltd. and Fonfair Co. Ltd., both of which hold the beneficial interest of the Yau Tong property, has been held to be contradicted by the prospectus and annual reports of UDL.  The judge also took the view that whether the transfer of the shares of these 2 companies to Harbour Front Ltd. for nominal value or no consideration and that whether the transaction was caught by section 49 of the Ordinance should be investigated (224N-Q).

9. Mr. Leung appealed to the Court of Appeal against the decisions of Cheung J.  His appeal was dismissed.  The Court of Appeal held that Mr. Leung had failed to disclose his assets fully and frankly.  Rogers J.A. in his judgment commented on the Family Trusts, both of which are BVI companies.  In particular, he said that on the face of the documentation, it appeared that Mr. Leung had both control over the trustee and almost the entire beneficial interest in the Harbour Front Unit Trust (245K).  He further commented that if Mr. Leung no longer had any beneficial interest in or to be derived from the Harbour Front Unit Trust, then there was no explanation from Mr. Leung as to how he came to divest himself of the interest in the units, which he had at the inception of the Trust (249L).  Le Pichon J.A. also called into question the fullness or candour of Mr. Leung’s information, particularly in relation to the unexplained dramatic increase in earnings, his beneficial interest (if any) in the Harbour Front Unit Trust, the transfer of assets into that Trust and the true extent of his liabilities, etc. (255H) She also asked for explanation of how Mr. Leung had divested himself of his beneficial interest in the Harbour Front Unit Trust (256C-M).

10. The above are the events leading to Mr. Leung’s bankruptcy in February and April 2001.  I set out those facts to show that as early as the commencement of the his bankruptcy, Mr. Leung had already known that the courts were concerned about his non-disclosure of his assets, especially his transfer of his shares in Fonfair Co. Ltd. and Money Facts Ltd. to Harbour Front Ltd., the trustee of Harbour Front Unit Trust, his beneficial interest in The Family Trust etc.  The trustee in bankruptcy has a duty to clear all these issues raised by the courts in the administration of Mr. Leung’s estate.

11. In recent proceedings, the above matters remain to be the courts’ concern.  In an application for winding up of Money Facts Ltd. taken out by Harbour Front Ltd., which Cheung J. and the Court of Appeal had suspected to be controlled by Mr. Leung, 4 Declarations of Trust were brought to the attention of Kwan J.  Two of the Declarations of Trust are dated 5 September 1991, by which Mr. Leung declared that he held the Money Facts Ltd.’s shares on trust for Harbour Front Ltd. and Harbour Front Ltd. in turn declared that such shares are held on trust for the Harbour Trust Unit Trust.  The other two Declarations of Trust are dated 12 September 1991, by which Mr. Leung declared that he held the Fonfair shares on trust for Harbour Front Ltd. and Harbour Front Ltd. in turn declared that such shares are held on trust for the Harbour Trust Unit Trust. Mr. Leung did not produce these 4 Declarations of Trust to Cheung J. and the Court of Appeal in 2001.  Kwan J. has highlighted some 9 irregular features and suspicions on these Declarations of Trust in her judgment (176-180).  The Judge also observes that Mr. Leung took a cavalier attitude towards truthfulness in his cross-examination (145C-D).

12. In the course of administration of Mr. Leung’s estate, the trustee had sent him a list of questions on the Family Trusts before the interview with him on 29 August 2001.  Mr. Leung replied on 28 August 2001, giving answers that, in the trustee’s view, are not meaningful.  At the interview on 29 August 2001, Mr. Leung said that he was not a beneficiary of the Family Trusts and advised that the Family Trusts were arranged in 1991 to avoid the impact of his sudden death on the operation of UDL Holdings Ltd. and that his immediate family members, including his wife and children, were the beneficiaries of the Family Trusts (19).  The trustee says in the report that Mr. Leung was uncooperative and refused to provide her with the information and document requested.  As a result, the trustee held a public examination of Mr. Leung before Master Hui under section 19 of the Ordinance.  At the end of the public examination on 17 February 2006, Master Hui made an order that Mr. Leung shall within the next 21 days supply information or produce documents by way of affirmation to the trustee.  The documents or information are:

(a) All profit and loss accounts of Harbour Front Limited, audited or otherwise from inception to 1991 to present;

(b) Management accounts/ledger account of Harbour Front Limited from inception to present;

(c) All assets of Harbour Front Limited and supporting documents from inception in 1991 to 2005;

(d) Company register of members of Harbour Front Limited from inception in 1991 to present;

(e) All documents relating to investments of Harbour Front Limited from inception in 1991 to present;

(f) All bank statements of Harbour Front Limited from inception in 1991 to present.

Mr. Leung has failed to comply with the above order.  I have been told that Master Hui’s order is being appealed.  Mr. Leung has applied to stay the above orders.  His application has failed.

The supplemental report

13. The trustee has filed one supplemental report, which brings in the transcripts of the public examination of Mr. Leung before Master Hui.  Mr. Bartlett opposed this supplemental report.  In the end, I allowed it to be filed and I will consider it, bearing in mind that Mr. Leung will appeal against Master Hui’s order.  Having considered the findings of the Court of Appeal and the Courts of the First Instance, I consider that the trustee is perfectly entitled to the information as ordered by Master Hui.  The trustee reports that he has received proofs of debt claiming the total sum of HKD173,331,915.23, SDG4,844,265.30 and USD9,587,639.50.  The total assets realized amount to HKD92,307.84.  No dividend has been declared.

14. The trustee relies on the ground that Mr. Leung had deliberately resisted investigation in his affairs, dealings and his properties.  The trustee is of the view that the discharge of the bankruptcy would prejudice the administration of his estate.  Further, the trustee also submits that the discharge of Mr. Leung will make her unable to proceed with the public examination of him.

15. Mr. Leung disputes the trustee’s allegation that he was uncooperative in her investigation into his assets.  He argues that he has been cooperative with the trustee all along and the trustee was not dealing with the investigations reasonably.  He says that if the trustee was dissatisfied with the answers given in June 2002, the trustee should have made further investigations and to proceed with the public examination without waiting.  Instead the trustee has chosen to wait until a few weeks before the automatic discharge and applied for suspension on 3 February 2005 without having previously taken any steps towards fixing the hearing date of the public examination.  He complains that the trustee’s conduct is prejudicial to him (33-34).

The Family Trust enquiries

16. I now review the enquiries made by the trustee in relation to the Family Trust and see how Mr. Leung had responded to the enquiries.  On 1 March 2001, the court made the bankruptcy order against Mr. Leung.  On 27 August 2001, the trustee wrote to Mr. Leung and requested him to answer those questions on a list attached to the letter.  Question 1 asked Mr. Leung to provide, inter alia, the history of the Family Trust, including but not limited to the past and present beneficiaries and the assets under the Family Trust.  Question 3 asked him to account for his control and interest (past and present) in Fonfair Co. Ltd., Money Facts Ltd., Harbour Front Ltd. and Y T Leung Trading Co. Ltd.  The answer that Mr. Leung gave to question 1 was that he was not in a position to disclose any information relating to the trust.  He asked the trustee to refer to the officers of the trust or trust documents already in her possession.  To question 3, he simply said that he was director to those companies but held no beneficial interests in any of those companies.  The trustee pursued the matter by obtaining an order from Master Ho on 11 January 2002 to have Mr. Leung examined under section 19 of the Ordinance.  On 2 April 2002, the trustee sent a letter enclosed with a list of questions for the public examination to him.  By a letter dated 3 June 2002, Mr. Leung answered the questions.  To those questions concerning the particulars of the 747 Trust and the Harbour Front Unit Trust (The Family Trust), he answered that he had nothing to add in addition to his previous submission.  He referred the trustee to the administrators of the trust in question for detail of the administration and other information.  The trustee pursued the matter by conducting a public examination of Mr. Leung before Master Hui, who has made the order ordering Mr. Leung to answer the questions in paragraph 12 above.  Mr. Leung has refused to answer these questions.  In my view, the trustee is justified to say that Mr. Leung has been uncooperative to her investigations into the Family Trust.

17. Counsel for the trustee explains in court that the trustee had to arrange funding for the public examination. Therefore she has taken time to obtain funds from the creditors.  Counsel submits that Mr. Leung has a duty to provide full particulars to the trustee in the administration of the estate without prompting by the trustee.  Mr. Leung cannot blame the trustee for taking time to make application to court for the appropriate order if he contributed to the delay himself.  She relies on the legal principles set out in paragraph 5 above in Re Li Tat Kong.

The UDL group companies

“Where a bankruptcy order has been made, the Official Receiver may at any time before the discharge of the bankrupt apply to the court for the public examination of the bankrupt.”

It follows that if the bankruptcy order is discharged, such right of the Official Receiver will be forfeited. It is not arguable that public examination is a powerful and efficient instrument for the Official Receiver to secure co-operation of Mr. Leung to obtain the information required for the administration of his estate. This may provide the answer to the submission by Mr. Bartlett that the court should not make the order sought for by the trustee as Mr. Leung is still under an obligation to co-operate with the trustee under section 30A(8) of the Ordinance after his discharge. The sanction is the punishment for contempt of court. Section 30A(8) is for the discharged bankrupt to co-operate with the trustee “for the purpose of completing the administration of the estate”. The trustee’s power for investigation into the assets of Mr. Leung will be curtailed once the bankruptcy order is discharged.

25. Mr. Bartlett also submits that this court should not take into consideration findings of Cheung J., the Court of Appeal and Kwan J. as they are the opinions, not the facts. With respect to counsel, I am unable to agree. It is obvious that the courts found facts, which were not disputed by Mr. Leung such as the Yau Tong property mentioned in paragraph 7 above. Kwan also found as the fact that the Declarations of Trusts were not disclosed to Cheung J. and the Court of Appeal. Cheung J. and the Court of Appeal did give directions to the trustee to make into investigations into the Family Trust in order to trace Mr. Leung’s assets for their distribution to the creditors. The trustee has a duty to carry out the court’s directions. As I have said above, all questions relating to the Family Trust remain unanswered up till now.

Findings

26. Having considered all the circumstances in this matter, I find that the grounds advanced by the Official Receiver are proved. I am satisfied that Mr. Leung had deliberately refused to supply the trustee with the information relating to the Family Trust, which will not assist Mr. Leung to dispel the trustee’s suspicion that he is hiding his assets behind the Family Trust. Mr. Bartlett submits that even if the court is satisfied the grounds under s.30A (4), the court has a discretion whether to make a suspension order. He further submits that a suspension order is not appropriate in light of the trustee’s inordinate delay and tardy progress of her investigation over the past 5 years.

Exercise of discretion

27. In considering exercising my discretion, I bear in mind the legal principles in Li Tat Kong’s case set out in paragraph 5 above. The court will have regard to the scope and purposes of the statutory provisions conferring the discretion. The discretion should be exercised to provide rehabilitation for the bankrupt. It must be on the basis that the bankrupt rehabilitates after discharging his obligations under the law. His obligations under the law include co-operation with the trustee for full and proper administration of his estate, so that the creditors would obtain their fair share of dividends from his estate. The legislation certainly does not allow the bankrupt a haven to hide his assets and obtain his automatic discharge after a statutory period of 4 years. On the facts before me, it is apparent that Mr. Leung will continue to refuse to co-operate with the trustee on any questions touching on the true identities of the beneficiaries and other related issues of the Family Trust. As I have said, I do not believe the trustee is able to obtain the answers without the co-operation of Mr. Leung. The authority decided that investigation should generally be carried to a conclusion before a discharge is granted or permitted to occur. (para.5 (d) supra) Mr. Leung complains delay by the trustee in applying for public examination. The trustee explains that she needs fund from the creditor to continue with the public examination. The burden is on Mr. Leung to co-operate with the trustee and give the information relating to the Family Trust. I accept the trustee’s explanation. To discharge Mr. Leung from bankruptcy simply means that the creditors will be denied their legitimate claims against his estate even though he has assets to paid them. This is contrary to the interests of commercial morality and the public interest. (para.5(e) supra.) I am convinced that the public interest will not be served by Mr. Leung’s early discharge from bankruptcy.

Period of suspension

27. As to the appropriate period of suspension, the trustee asks for the maximum of 4 years whilst Mr. Bartlett submits that it should be no more than one year. Mr. Bartlett refers to the case of Li Tat Kong, in which the bankrupt was found guilty of not co-operating with the trustee, that he was hiding his assets from the trustee and the court found that the public interest would not be served by his early discharge from bankruptcy. That case is exacerbated by the fact that Mr. Li was imprisoned for six months by court for suppressing information relating to his financial affairs in the examination of judgment debtor. The Judge suspended the discharge for 3 years only. He submits that Mr. Leung in this case is in a much better position. He has never been ordered to imprisonment by the court. There has been tardiness in the investigation by the trustee. On these bases, Mr. Leung should be treated more leniently than Mr. Li Tat Kong.

28. Looking closely at these two cases, I find that this case is more serious than the case in Li Tat Kong. Mr. Li was ordered imprisonment for not telling the truth in court in his examination as a judgment debtor. Le Pichon J. did consider this factor in her judgment in her exercise of her discretion whether a suspension order should be made against him. There are unusual circumstances in Mr. Li’s case but not found in this case:

(a)   There were 21 months of the 4-year period Mr. Li was a free man. This was due to a composition approved by the court, which annulled the receiving order. This annulment order was set aside by the court on the ground that it was vitiated because the mandatory public examination of Mr. Li had neither been held nor dispensed with as required by ss.20(6) and 25(1) of the Ordinance in its unamended state which applied to the bankruptcy of Mr. Li. [2000] 3 HKC at 372A.

(b)  In summary administration, the trustee was erroneous to assume that the bankrupt with less than $200,000 estate had no assets to conceal and could not have been privy to serious misconduct. As a result, no in-depth investigation had been made into Mr. Li’s affairs by the trustee. [2000] 3 HKC at 379B.

29. On the other hand, I find the following aggravating factors in this case:

(a)  Mr. Leung had failed to make full and frank disclosure of his finance in his application for an interim order before Mr. Justice Cheung. The Judge had made it clear that the trustee suspected that Mr. Leung used the trust device to hide all his assets behind the Family Trust. As early as in March 2001, Mr. Leung was aware what the court and the trustee were concerned about – his Family Trust.

(b) In the appeal against Mr. Justice Cheung’s order, the Court of Appeal had also found that Mr. Leung had failed to disclose his assets fully and frankly. The court also expressed concerns about the assets of the Family Trust. The Court of Appeal also held that investigations should be made in the Family Trust.

(c)  Kwan J. had, in her judgment, highlighted suspicions about the Family Trust.

(d) The trustee had, before interviewing Mr. Leung, given the questions relating to the Family Trust. Mr. Leung refused to give answers to those questions.

(e)  In the public examination under the Ordinance, Master Hui had ordered Mr. Leung to provide answers relating to the Family Trust to the trustee. Mr. Leung refused to comply with this order.

(f)   The amount involved is substantial. The total sums of provable debts are HKD173,331,915.23, SDG4,844,265.30 and USD9,587,639.50. No dividend has been paid to the creditors.

30. I ask myself what mitigating factor there is for Mr. Leung for his discharge of bankruptcy. Unfortunately, I find none.

Orders

31. In the circumstances, I consider that a proper period by which Mr. Leung’s automatic discharge is to be postponed is 4 years. Accordingly, the appropriate order is that the relevant period for the purpose of section 30A of the Ordinance shall cease to run for 4 years.

32. Pursuant to Order 42 rule 5B(6) of the Rules of The High Court, I make an order nisi for costs in favour of the trustee. I consider the matter appropriate to be assessed gross sum under Order 62 rule 9(4)(b) of the Rules of the High Court. Subject to the application to vary the order nisi, I order that there be liberty to the Official Receiver to apply for gross sum assessment of the costs by filing and serving the schedule of costs within 14 days after the period for application to vary the order nisi has expired. The bankrupt shall be at liberty to file and serve the list of objections within 14 days thereafter. The hearing for the gross sum assessment shall be fixed to be heard by me for 30 minutes.