THE OFFICIAL RECEIVER AND TRUSTEE OF THE PROPERTY OF LEUNG YAT TUNG v. HARBOUR FRONT LTD

HCB 2019/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 2019 OF 2000

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RE: LEUNG YAT TUNG

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REASONS FOR DECISION

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1.  This is an application by the respondent, Harbour Front Limited (“Harbour Front”), for the following order:

(i) the application commenced by the applicant, the Official Receiver and trustee of the property of Leung Yat Tung, against the respondent for setting aside transactions under s 49 of the Bankruptcy Ordinance (Cap 6) and s 60 of the Conveyancing and Property Ordinance (Cap, 219) (“the Setting Aside Application”) be dismissed for want of prosecution (“the Want of Prosecution Application”); and

(ii) alternatively, the trustee shall proceed and complete the adjudication of proofs of debt and the Setting Aside Application be stayed pending such adjudication of proofs of debt and shall consult the creditors whose debts are so admitted in relation to the Setting Aside Application by way of convening a general meeting of creditors for such purposes.

2.  In the hearing on 4 June 2013, Harbour Front agreed to withdraw the Want of Prosecution Application.  For the other applications, I dismissed Harbour Front’s application to stay the Setting Aside Application pending the adjudication of proofs of debt (“the Stay Application”) and adjourned the other applications sine die with liberty to restore.  I now give my reasons for such decision.

Background

3.  This case has a long history involving the dispute of two brothers: the bankrupt Mr Leung Yat Tung (“the Bankrupt”) and his elder brother Mr Leung Yuet Keung (“Mr YK Leung”).

4.  Healthy Wharf Limited (“Healthy Wharf”), a BVI company controlled by Mr YK Leung and his associate, filed a bankruptcy petition against the Bankrupt on 14 June 2000.

5.  On 1 March 2001, the court made the bankruptcy order against the Bankrupt.

6.  On 14 June 2001 at an adjourned general creditors meeting, the Official Receiver (“OR”) was appointed as the trustee of the property of the Bankrupt with a creditors committee.

7.  Back in 1991, the Bankrupt was the registered owner of:

(i) 3,950 ordinary shares in Money Facts Ltd (“Money Facts”); and

(ii) 3,958 ordinary shares in Fonfair Co Ltd (“Fonfair”).

8.  Money Facts is holding approximately 65% of the ordinary shares of Fonfair.  Fonfair’s principal asset is the land situated at 44, Ko Fai Road, Yau Tong Bay, Kowloon.

9.  On 5 and 12 September 1991, the Bankrupt executed 2 declarations of trust of the said shares of Money Facts and Fonfair (“the Shares”) in favour of Harbour Front (“the Declarations of Trust”). Pursuant to the Declarations of Trust, the Bankrupt transferred the Shares to Harbour Front on 13 February 1998.

10.  The OR sought to challenge the authenticity of the Declarations of Trust.  On 29 March 2006, Mr Record Edward Chan SC granted leave to the OR and Healthy Wharf to enter into a funding agreement in respect of the intended Setting Aside Application.  On 13 July 2006, To DHCJ (as he then was) ordered the OR and Healthy Wharf to enter into a revised funding agreement.

11.  On 22 February 2007, the OR issued the notice for the Setting Aside Application asking the court, inter alia, to declare that the Declarations of Trust are void and to set aside the transfer of Shares made by the Bankrupt to Harbour Front on 13 February 1998.

12.  Pursuant to the order of To DHCJ dated 30 August 2007, pleadings and affirmations had been filed for the Setting Aside Application.  The court had also given directions later for the filing of expert evidence and the PTR will be held on 8 October 2013.

13.  On 1 March 2008, the bankruptcy order against the Bankrupt was discharged.

14.  On the other hand, proofs of debt in respect of the estate of the Bankrupt were submitted back in September 2001.   Up to now, the OR has not adjudicated upon the proof of debts.  According to the records of the OR, Harbour Front and its associates had filed proofs in excess of 60% of the total proofs of debt, while the proofs filed by Healthy Wharf and its associates account for about 12.8%.

15.  There was serious dispute amongst the creditors about the proofs of debt filed by the other creditors.

16.  Harbour Front is not a member of the creditors committee.  Harbour Front has written repeatedly to the OR asking for the adjudication of proofs of debt.  However, the OR is reluctant to do so because there is insufficient fund for the exercise.  Further, if the OR were to lose in the Setting Aside Application, there would be minimal assets in the estate of the Bankrupt for distribution amongst the creditors, and so there is no point to proceed with the adjudication of proofs of debt.

17.  I understand that Harbour Front has made an open offer to settle the Setting Aside Application with the OR.  In the case that the proofs of debt filed by Harbour Front and its associates are admitted, Harbour Front would be entitled to vote in the creditors committee.  Being the majority creditor, Harbour Front would then be able to instruct the OR to settle the Setting Aside Application.  Mr Remedios, counsel for Harbour Front, agrees that this is the main object of the Stay Application.

18.  In the hearing, the trustee in bankruptcy is separately represented by two teams of legal representatives: Ms Chan from the OR’s Office who would deal with Harbour Front’s request for adjudication of proofs of debt, and Mr Maurellet who would act for the trustee in bankruptcy in the Setting Aside Application.

19.  Ms Chan’s position is that the OR is prepared to proceed with the adjudication of proofs of debt provided that there would be adequate funding for the exercise.  I understand that Harbour Front is prepared to provide such funding.  However, both Ms Chan and Mr Maurellet object the Stay Application, and so the only issue before me is whether the court should stay the Setting Aside Application pending the adjudication of proofs of debt.

Merits of the Stay Application

20.  I dismiss the Stay Application for one simple reason: Harbour Front has no locus to ask for an order in the specific terms of the Stay Application.

21.  One must bear in mind that Harbour Front is now wearing two hats in the present case: one as the respondent in the Setting Aside Application and the other one as a potential creditor of the estate of the Bankrupt.  These two roles are distinct and should not be mixed together.  In asking the court to stay the Setting Aside Application pending the adjudication of proofs of debt, Harbour Front is actually mixing up its two roles.

22.  Adjudication of proofs of debt is a matter within the internal administration of the estate of the Bankrupt.  Harbour Front, as a respondent in the Setting Aside Application, simply has no locus to get involved in the adjudication of proofs of debt.  On the other hand, Harbour Front, as a potential creditor of the estate of the Bankrupt, has the right to ask for the adjudication of proofs of debt.  However, Harbour Front, in such capacity, has no direct locus in the Setting Aside Application or to get involved in the Setting Aside Application which is a matter between the OR and a third party which happens to be Harbour Front.  In asking the court to stay the Setting Aside Application pending the adjudication of proofs of debt, Harbour Front is actually mixing up its two roles and the court should not therefore grant an order in terms of the Stay Application.

23.  In asking for the adjudication of proofs of debt, Mr Remedios concedes that Harbour Front is exercising the right as a potential creditor of the estate of the Bankrupt.  As mentioned above, Harbour Front, in such capacity, has no locus to interfere in the Setting Aside Application and so Harbour Front should not be entitled to ask for an order linking up the two matters, ie. the request for the adjudication of proofs of debt and the conduct of defence in the Setting Aside Application.

24.  As the OR agrees to adjudicate the proofs of debt provided there is adequate funding, there is no need for the court to make any order regarding the adjudication at this stage.  I therefore adjourned the other applications under the Harbour Front’s summons dated 30 January 2013 sine die with liberty to restore.  If necessary, the parties can always come back to the court to ask for further directions relating to the administration of the estate of the Bankrupt, but one has to be cautious about the capacity under which the party is making a particular application before the court.

25.  For the above reasons, I granted leave to Harbour Front to withdraw the Want of Prosecution Application and dismissed the Stay Application.  For the other remaining applications, I adjourned them sine die with liberty to restore.

26.  In this Reasons for Decision, I also make the following order nisi on the issue of costs:

(i) the costs of the Want of Prosecution Application and the Stay Application, including all costs reserved, be to the applicant; and

(ii) the costs of the remaining applications under the respondent’s amended summons dated 30 January 2013 be reserved; and

(iii) for the avoidance of doubt, the OR be entitled to claim for the costs of two teams of legal representatives to deal with the respondent’s said amended summons.

27.  I allow the OR to claim for two sets of legal costs because Harbour Front has sought to deal with matter within the internal administration of the estate of the Bankrupt and an application involving a third party in the same summons.  The order nisi shall be made absolute 14 days after the date of the handing down of this Reasons for Decision.