RE TANG TIM FOOK

HCB 8616/2014

[2019] HKCFI 2817

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 8616 OF 2014

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D E C I S I O N

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1.  On 23 December 2014, by an order made by Master S Lo, the Bankrupt was declared bankrupt on his own petition filed on 12 November 2014 (“the Bankruptcy Order”).

2.  On 23 November 2018, the joint and several trustees in the bankruptcy of the Bankrupt (“the Trustees”) issued a Summons seeking an order that the relevant period under section 30A of the Bankruptcy Ordinance[1] shall cease to run for such period not exceeding four years as the court may think fit (“the Discharge Suspension Application”).  That is, they object to the automatic discharge of the Bankrupt from his bankruptcy (which otherwise would have taken place on 22 December 2018).  The grounds relied upon are:

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

(2)  the conduct of the Bankrupt, either in respect of the period before or the period after the commencement of the bankruptcy,has been unsatisfactory (section 30A(4)(d)).

3.  By an application dated 15 February 2019 and filed on 25 February 2019, the Bankrupt applied for an order annulling the Bankruptcy Order on the ground that his provable debts and expenses have all been paid or secured (“the Annulment Application”).  He relies on section 33(1)(b).

4.  By orders made on 25 March 2019, Master Hui allowed the Discharge Suspension Application by suspending the running of the relevant period for 12 months from 22 December 2018, and dismissed the Annulment Application.

5.  This is the appeal against both orders made by Master Hui. 

6.  Even though, as the matter currently stands, the Bankrupt would be discharged from the bankruptcy on 22 December 2019, I shall deal with this appeal and the grounds relied on by both sides on their own merits.

7.  According to the Bankrupt, as at the commencement of his bankruptcy, he had four creditors with debts owed to them totalling HK$280,000.  These are the only four creditors which have filed proofs of debt.

8.  According to the records at the Land Registry, on 7 April 2000, the Bankrupt became the registered owner of 90A Wang Toi Shan,Lo Uk Tsuen in Pat Heung, the New Territories (“the Property”).  The assignor of the Property to the Bankrupt was a Mr Tang Hin Tat (“Tang”). It appears from the “Deeds pending registration” section of the land search of the Property produced before me, that a Ms Tang Caroline Jin-jin (“Caroline”) was assigned the Property by an assignment dated 23 August 2016.  Apparently, from the land search, Caroline was the purchaser under an agreement for sale and purchase dated 23 August 2016 (the same date as the assignment) for a consideration of HK$7,200,000.

9.  Therefore, on the face of it, as at the commencement of his bankruptcy, the Bankrupt was the owner of the Property.  However,he did not include in the Statement of Affairs dated 12 November 2014, or otherwise disclose to the Trustees (or the Official Receiver), his ownership of the Property, nor did he hand over any proceeds of sale to the Trustees from Caroline.

10.  The explanation of the Bankrupt for the above, contained in correspondence with the Trustees and in his first affirmation dated 14 February 2019, is as follows:

(1)  He was indebted to Tang, who comes from the same village, in the sum of HK$400,000 in about 2004 – 2005. He did not repay Tang.

(2)  By a Licence dated 27 July 2009 (“the Licence”) the Bankrupt, as an indigenous villager, was allowed by the Government to build a ting house on the Property.  He did not have the money to do so.  Therefore, after discussions, the Bankrupt orally agreed that he “would sell” [2] his beneficial interest in the Property to Tang for HK$400,000, thereby repaying the debt owed to Tang.  The Bankrupt handed over the title deeds and executed a power of attorney dated 31 July 2009 in favour of Tang (“the Power of Attorney”).  According to the Bankrupt:

“ From that point onward, the Property belonged to [Tang] beneficially. This is the reason why I did not include the Property in the List of Assets filed on the Debtor’s Bankruptcy Petition dated 12^th November 2014. That Transfer took place over 5 years ago in 2014 and I thought this Transfer was settled long time ago although it appears on paper that I was still the legal owner …. I did not sell the Property to anyone else but [Tang] in July 2009 …. From then on, I do not know nor would care about the legal ownership of the Property nor any subsequent transfer thereto since I cease to have any beneficial interests in any event.” [3]

(3)  He did not sell the Property to Caroline, or receive any money from the sale.  The sale was made by Tang.

11.  The basis of the Annulment Application is that the Bankrupt says that since the Bankruptcy Order, he has fully settled the debts owed to the four creditors, and each of the creditors has confirmed that it has no objection to the Annulment Application.  On being queried by the Trustees as to the source of the funds to make the repayments, he said that he received assistance from Tang.

12.  On their part, the Trustees object to the automatic discharge of the Bankrupt from the bankruptcy by reason of the failure of the Bankrupt to disclose the Property in the list of assets, his unaccepted allegation that he sold the Property to Tang in 2009 (which was not registered in the Land Registry), the sale of the Property to Caroline without the Trustees’ consent, and his failure to deliver up the sale proceeds which the Trustees regarded as belonging to the Bankrupt and not Tang.  In particular, the Trustees point to the condition in the Licence (“Condition 4”) that the Bankrupt was not allowed (except in limited circumstances) to transfer the Property.

13.  It appears that the Trustees object to the Annulment Application on the same grounds.  They accept, however, that all the provable debts of the Bankrupt that have been submitted have been paid.

14.  In the Trustees’ Report dated 14 March 2019, it is stated that at a hearing on 20 December 2018, the Bankrupt alleged that the HK$400,000 he borrowed from Tang needed not be repaid, and he denied that he had sold the Property to Tang.

15.  In his second affirmation dated 18 March 2019, made expressly in reply to the Trustees’ Report of 14 March 2019, the Bankrupt makes the following allegations.

(1)  He did not say in his first affirmation that he had sold the Property to Tang, but only agreed that he “would sell” it to Tang.  He was aware of Condition 4 and would not, and he did not, breach it.

(2)  The Power of Attorney was made to comfort Tang, and did not constitute a transfer of the Property.

(3)  Caroline is in fact the daughter of Tang.  He was told that Tang “passed” the Property to Caroline but received no cash.  That is, there were no sale proceeds.  (I note, however, in a letter dated 15 December 2016 from Messrs Leung Kin & Co, the solicitors acting for the Bankrupt in these proceedings as well as acting in the sale to Caroline, it was stated that “we did not have knowledge that a bankruptcy Order had been made against the Bankrupt before the proceeds of sale was released to [Tang]”.  That is, there were indeed proceeds of sale.  There is no reason for me to doubt what the handling solicitors said about the transaction.)

(4)  Crucially, the Bankrupt does not deny what the Trustees allege to have been said by him at the hearing on 20 December 2018.  Nor has he explained in the second affirmation why he did not include the Property in his list of assets if he had not sold anything to Tang.

16.  By a letter dated 22 March 2019, Tang confirms what the Bankrupt says regarding the dealings between them, and that he unconditionally assisted the Bankrupt in repaying all his debts upon learning his bankruptcy.

17.  In my judgment, the grounds relied on by the Trustees under section 30A(4)(c) and (d) in support of the Discharge Suspension Application are established:

(1)  In the absence of full findings of fact based on proper evidence and full submissions, and in the light of possible legal consequences including penal ones, I do not want to say anything about the effect, validity or legality of the alleged dealings between the Bankrupt and Tang in 2009. The crucial point is what the Bankrupt himself thinks he was doing in 2009, irrespective of the true effect or validity in law, as the issue is what was the Bankrupt thinking when he did not include the Property in the Statement of Affairs of 12 November 2014, when, as at that date, he was the registered owner of the Property.

(2)  I reject entirely the evidence of the Bankrupt regarding why he did not disclose the Property or the sale to Caroline.

(3)  His original case, in his first affirmation[4], is that he had sold the beneficial interest in the Property in 2009 to Tang, so as to repay a debt owed to Tang (and he had no money to build the ting house anyway), and so he did not include the Property in his list of assets. (That he only says “would sell” and not “sold” in his first affirmation is clearly an unjustified playing of words, and is contradicted by his own statement in the same affirmation that “I did not sell the Property to anyone else but [Tang]”.)

(4)  But this case is flatly contradicted by what he is alleged to have said at the hearing on 20 December 2018 and which he does not dispute in his second affirmation, that the loan from Tang was not repayable and he did not sell the Property to him.  Further, in his second affirmation, he is adamant that he did not breach Condition 4, meaning that he did not sell or transfer any interest in the Property to Tang.

(5)  The Bankrupt’s case that there was no payment by Caroline was also contradicted by the letter from his solicitors that there were proceeds of sale which were released to Tang, although I accept that the Bankrupt only claims that he was so told by Tang rather than knowing the position personally.

(6)  In his submissions, Mr George Chu, counsel for the Bankrupt, appears to revert to the original case.  He submits that what was done in 2009, by providing the Power of Attorney, was a mechanism to “empower” the purchaser to enforce the legal right to a transfer of ownership of the Property.  It is, he says, “a misperception that the property was legally and beneficially owned by the Debtor”.  In his oral submissions, he clarifies that by reason of the HK$400,000 consideration and the provision of the Power of Attorney, the Bankrupt ceased to be the beneficial owner of the Property (although he remained the legal owner) as from July 2009.

(7)  The first (and current) case of the Bankrupt simply cannot stand with the second case (as stated at the hearing on 20 December 2018 and in his second affirmation).  The first case suggests that the Bankrupt did sell, or at least he thought that he had sold, the beneficial interest of the Property to Tang, because he owed him HK$400,000 which he could not otherwise repay. The second case suggests that the “loan” of HK$400,000 was not repayable and in such circumstances it does not seem to me credible that the Bankrupt would “sell”, or attempted to sell, the Property by way of set-off of a sum which he did not have to pay.  He was in effect giving away the Property for free.  The Bankrupt’s case of whether he had, according to his own understanding, “sold” the beneficial interest of the Property to Tang also changes abruptly from yes to no and back to yes. There is no explanation of the change from one to the other and the reversion back. 

(8)  While I accept that the Bankrupt is not a trained lawyer and may not have fully understood all the niceties of the legal and beneficial ownership and the sale thereof, in particular in the context of a ting house with all the restrictions and peculiarities, he has no problem talking about such concepts in his affirmations, made whilst he has legal representation.  The point is, whatever he understands those concepts to be, and whatever he thinks he had done in 2009, whether he is right or wrong as a matter of strict law, his case has changed quite dramatically with no explanations, all while he has legal representation.

(9)  In the premises, I simply cannot accept any version of the Bankrupt’s case.  Without any acceptable and accepted evidence from the Bankrupt, there is simply no basis for me to find that the Property which was registered in the Bankrupt’s name on 12 November 2014, and therefore legally owned by him, did not belong to him beneficially.  Prima facie, the beneficial title follows the legal title. There is no allegation by the Bankrupt that he had forgotten about the Property by 12 November 2014, which remained registered in his name, and there is no basis to say so.  He ought to have disclosed the Property in the list of assets.  He did not.

(10)  The proper identification, collection and realisation of a bankrupt’s assets lie at the heart of the bankruptcy system.  See section 26(3).  Co-operation is a positive concept and is not limited to being responsive to queries by the trustee, and a failure to disclose a substantial asset can, and in my judgment in this case does, constitute a failure by the Bankrupt to co-operate.  As stated by Le Pichon J (as she then was) in Re Li Tat Kong [5]:

“What does co-operation mean? In Totterdell v Nelson (1990) 97 ALR 341, the Full Court of Australia observed (at 346):

Nor is it really right to say, because no evidence was led of specified requests ignored by the bankrupt, that there was lacking any evidence of non-cooperation.Co-operation is a positive concept.

I would respectfully agree. In my judgment, 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. As French J observed in Re Barrie Andrew Knight (WB 307/1988, 14 August 1991, unreported), a decision of the Federal Court of Australia:

… It is not sufficient, I think, for a bankrupt to say in relation to the deficiencies which the trustee complains are unexplained, that it is all there in the transcript of evidence and auditor’s report put before the District Court in criminal proceedings. Nor is it sufficient to say that the trustee has not made inquiry of him. It is the bankrupt’s duty, if he seeks the indulgence of discharge where discharge would not otherwise be automatically available, to show that he has taken all reasonable steps to ensure that his estate is available for distribution among his creditors and that the trustee is appraised of all relevant information.

Thus, 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.”

(11)  In the premises, I reject Mr Chu’s argument that the Bankrupt had been co-operative as he did answer the queries raised by the Trustees.  I also reject his submission that the Trustees could possibly have done more (for example by making direct enquiries of Tang or Caroline): even if it were so (and I am not saying that it is), that does not justify or mitigate the Bankrupt’s own failings.  His failure to inform the Trustees for his ownership of the Property, initially and at all times thereafter until the Trustees found out (when informed by the Inland Revenue Department), is, as explained in Re Li Tat Kong, a failure to co-operate.  I therefore also cannot accept Mr Chu’s point that any failure of the Bankrupt was one-off (relating only to the original failure to disclose in the Statement of Affairs).  In any event, as Mr Chu fairly accepts, a one-off incident, if sufficiently serious, can justify the suspension of discharge.  I do regard the failure by the Bankrupt to disclose the Property in the Statement of Affairs as sufficiently serious in itself to warrant a conclusion that section 30A(4)(c) is satisfied.  This is compounded by the unacceptable explanations given by him in these proceedings.

(12)  For the same reasons, I regard section 30A(4)(d) to have been satisfied.

18.  Bearing in mind the main objectives of this part of the Bankruptcy Ordinance as summarised by Cheung JA in Re Lau Chi Kam (a bankrupt) [6] and Yuen JA in Re Lee Raymond Cho-Min [7], I regard the public interest in ensuring that the return of the bankrupt to the commercial world would not carry with it an unacceptable risk to persons who may be engaged in commercial relations with him, and in preserving commercial morality, necessitates the exercise of my discretion in suspending the automatic discharge of the bankruptcy, which outweighs the objective of rehabilitating the Bankrupt.

19.  As for the Annulment Application, it is clear that the legislature does not consider the fact that all provable debts have been paid entitles a bankrupt to an annulment.  I have a discretion whether to grant the order annulling the bankruptcy even in such circumstances [8]. On the other hand, under section 30B(2)(c), a failure to disclose a beneficial interest in any property is a ground prohibiting the court from making an order for the early discharge of a bankrupt from his bankruptcy.  This shows that such a failure is considered by the legislature to a particularly grave matter, and is a reason in itself to maintain the bankruptcy irrespective of the circumstances.  The prohibition against early discharge in such circumstances should not be circumvented by an application for annulment. 

20.  In all the circumstances of this case, in the light of the serious failure of the Bankrupt, I do not see any basis for the exercise of my discretion in his favour.  In particular, the extent of the Bankrupt’s interest in the Property and his entitlement to any sale proceeds paid by Caroline ought to be investigated by the Trustees.

21.  I dismiss the appeal with costs, including the costs of the Summons dated 31 October 2019 for the admission of further evidence, on a nisi basis, against the Bankrupt.

22.  I thank counsel for their assistance.