IN RE BOON VOON KING and Others

HCB632, 633 & 634 of 1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY NOS.HCB632, 633 AND 634 OF 1998

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R E A S O N S

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1. These are creditors' bankruptcy petitions filed pursuant to section 6D of the Bankruptcy Ordinance, Cap.6. Each of the petitioning creditors is a limited company. These petitions came before Master Lok on 15 July 1998. Two issues arose at that hearing, namely :

(i) whether Practice Direction 4.1 applies to the new Bankruptcy Forms 3, 10, 10A, 10B and 10C; and

(ii) whether an affidavit of continuing debt must be filed verifying that the debt has neither been paid, secured nor compounded immediately before the hearing.

2. The learned Master refused to make any order on the petitions but adjourned them for hearing before me. At the hearing, counsel for the petitioning creditors sought leave to file an additional affidavit in each of the three petitions to forestall any further point being taken on the two issues. The debtors did not appear and bankruptcy orders were made on the petitions. Nevertheless, counsel for the petitioning creditors made submissions on the two issues as did the Official Receiver.

3. Whilst any ruling on the two issues is no longer necessary, I apprehend that there is considerable uncertainty amongst practitioners as to the two issues raised. For this reason, it is desirable that the court should rule on these issues.

Practice Direction 4.1

4. The new forms were introduced by the Bankruptcy (Amendment) Ordinance which came into effect on 1 April 1998 and specifically applies, inter alia, to Form 10 of the pre-amendment Bankruptcy Ordinance (the old Form 10). It was submitted by counsel for the petitioning creditors that the Practice Direction lapsed upon the coming into effect of the Bankruptcy (Amendment) Ordinance.

5. Practice Directions are issued under the inherent power of the court to regulate its own process and not under the Rules of the High Court or other statutory power. See Clark & Wilkinson on Hong Kong Civil Court Practice Vol.1 at I [339] - [377].

"They are designed, in consultation with the profession, to ensure the efficient, expeditious and economical despatch of the court's business."

See per Kaplan J in Tong Yi Sang & Another v. Fung Law & Ng & Others [1993] 2 HKC 665 at 669F.

6. Practice Direction 4.1 focuses on a corporate petitioner's authority to act. It is meant to ensure that the petitions in bankruptcy filed by corporations are presented with proper authority, to avoid adjournments and unnecessary expense. It sets out the manner in which that proper authority is to be established. See generally Fletcher on The Law of Insolvency (1996 Ed) pp.84-5.

7. The question whether the Practice Direction lapsed or whether it survives must depend on the nature of the new forms seen in the context of the purpose and intent of the Practice Direction and what it sought to achieve. Effectively, the old Form 10 which was a creditor's petition has been replaced by four separate forms which may be described as four sub-categories of a creditor's petition depending on the type of debt upon which the petition is based. That being the case, the new forms which replace the old Form 10 are not intrinsically different in nature. It is not the case that the new forms are part of a new regime supplanting and completely altering the nature and content of the old Form 10. In the circumstances, the submission that the Practice Direction has 'lapsed' as a result is neither attractive nor convincing. The submission might have had some force had the new forms been of a different nature altogether which is not the case here.

8. In my judgment, the Practice Direction continues to apply to the new forms.

9. I should mention that it is common ground that the Official Receiver does not have either the power or authority to decide whether or not a particular practice direction applies. Mr Glen for the Official Receiver clarified that it was never the intention behind the Official Receiver's letter to the Law Society dated 22 June 1998 reminding members of the Law Society that the Practice Direction applies to the new forms to suggest that the Official Receiver had power to give 'directions' in relation to Practice Direction 4.1. The Official Receiver does not purport to arrogate to himself what is the proper function of the court. It was simply an expression of the Official Receiver's view.

10. Having come to the conclusion that Practice Direction 4.1 is unaffected by the amendments introduced on 1 April 1998, it is nevertheless appropriate that I should express my personal view that the time has come for Practice Direction 4.1 to be revisited. A primary consideration is the fact that many off-shore companies do not possess a seal. The requirement that due authorization requires the seal of the corporation is ill-suited to companies other than those incorporated in Hong Kong or in England.

Affidavit of continuing debt

11. This issue has nothing to do with the amendments recently introduced to the Bankruptcy Ordinance. The issue here is whether section 9 of the Bankruptcy Ordinance read together with rule 69 requires an affidavit of continuing debt before any order may be made on a petition. Counsel for the petitioning creditors invited attention to the fact that there has never been any provision in either theBankruptcy Ordinance, the rules or the forms, whether under the former legislation or present legislation, requiring such an affidavit.

12. When a petition is presented, rule 56 requires that it be verified by affidavit. Section 9(2) of the Ordinance provides that the court "shall require proof of the debt". At the hearing, the petitioning creditors submitted that it is satisfied by the affidavit supporting the petition.

13. The Official Receiver submitted that as there is a time lag between the date of the petition (and therefore of the verifying affidavit) and the date of the hearing, an affidavit of continuing indebtedness is necessary to satisfy the court that there has been no change in circumstances since the date of the petition. This is so because rule 69 and section 6D(1)(a) of Cap.6 requires that proof of the debt be made at the hearing. Rule 69 provides :

"Non-appearance of debtor

If the debtor does not appear at the hearing, the court may on hearing the petitioning creditor and the Official Receiver either dismiss the petition or make a receiving order on such proof of the statements in the petition and of the amount of assets and liabilities as the court thinks sufficient."

14. At the hearing, neither Mr Fisher, counsel for the petitioning creditors nor Mr Glen for the Official Receiver could throw any light on the English practice under the Bankruptcy Act 1914 i.e. pre Insolvency Act 1986. Mr Fisher has since supplied the court and the Official Receiver with detailed written submissions. I am grateful to Mr Fisher for the trouble he has taken and the assistance rendered to the court. He has taken his professional duty seriously since the effect of his efforts undermined somewhat the submissions he urged upon the court at the hearing.

15. In brief, the English practice under the 1914 Act and its predecessor was that ordinarily, a supplementary, or verifying, affidavit was required to be filed at the hearing (normally sworn within 24 hours of the hearing) which would enable the court to satisfy itself that the debt was proved pursuant to, inter alia, the English provision corresponding to section 9(2) and rule 69 of Cap.6. See In re A Debtor (No.27 of 1943) [1943] 1 Ch 210, 212 (CA). The petition affidavit was not, as a matter of course, to be used to prove the debt. See In re A Debtor (No.7 of 1910) [1910] 2 KB 59 at 62-63 and 65; Williams and Muir Hunter on Bankruptcy, 19th Ed. at 56 and 591.

16. Whilst that was the 'general practice', it was not invariably the case. Where no notice has been given to dispute the debt it may not be necessary : see In re A Debtor (No.27 of 1943) (supra) at 212 where, however, the order was made subject to an affidavit being filed.

17. In Hong Kong, there is no practice direction that a hearing affidavit be filed. To what extent, if any, does the pre Insolvency Act English practice ("the former English practice") apply in Hong Kong? In this context, Practice Direction 4.4 which provides for uncontested petitions is relevant. It provides as follows :

" UNCONTESTED PETITIONS

1. Where no notice of intention to appear has been served, or no notice to show cause has been filed, it will not be necessary for the petitioner or his representative to attend the hearing.

2. The Judge or Master will on the hearing announce in open court that a winding-up or receiving order is being made by him.

3. This direction is designed to save expense to the parties and the time of the Court."

If the former English practice were to apply in Hong Kong, then there is little scope for the operation of Practice Direction 4.4 as the hearing affidavit would have to be filed within 24 hours of the hearing. This would mean having to seek leave to file it at the hearing which is contrary to what the Practice Direction seeks to achieve, i.e. to save expense to the parties and the time of the court by dispensing with the need for the petitioner or his representative to attend the hearing.

18. Whilst I agree that a hearing affidavit would put matters beyond doubt, in my judgment, it is entirely a matter for the court seized of the matter to decide whether or not it is satisfied, inter alia, that "the debt has been neither paid, nor secured, or compounded for", whether the evidence is sufficient or whether, for example, an affidavit of continuing indebtedness is required. It should not be constrained by any rigid or inflexible 'practice'. In an appropriate case, the court could properly be satisfied based on the petition and supporting affidavit. Where further evidence is required, it may be appropriate to make the order upon a suitable undertaking to file the requisite affidavit to obviate the need for a further hearing. I would not, however, espouse the view that the court can never make any order on a petition absent such an affidavit.

19. The current English practice under the Insolvency Act is instructive : this is set out in Practice Note (Bankruptcy : Certificate of Debt) [1987] 1 WLR 120. The relevant part reads :

" On the hearing of a petition for a bankruptcy order, to satisfy the court that the debt on which the petition is founded has not been paid or secured or compounded for the court will normally accept as sufficient a certificate signed by the person representing the petitioning creditor in the following form:

'I certify that I have/my firm has made inquiries of the petitioning creditor(s) within the last business day prior to the hearing/adjourned hearing and to the best of my knowledge and belief the debt on which the petition is founded is still due and owing and has not been paid or secured or compounded for (save as to )

Signed ...............Dated ....................'

For the convenience of practitioners this certificate will be printed on the attendance slips. It will be filed after the hearing. A fresh certificate will be required on each adjourned hearing."

The English practice has much to commend it. It is a simple, effective and cost efficient way of addressing the possibility of changes occurring in the interim. Serious consideration should be given as to whether or not Hong Kong should adopt a similar practice although the advantages will have to be balanced against those resulting from Practice Direction 4.4.

(Doreen Le Pichon)

Judge of the Court of First Instance
High Court