RE CHEN MIAUW SHEN JAMES

HCB 809/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 809 OF 1998

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J U D G M E N T

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Introduction

1. This is an application by the Official Receiver and Trustee ("the OR") for an order that the automatic discharge from bankruptcy under sections 30A(1) and (2)(a) of the Bankruptcy Ordinance, Cap. 6 ("the Ordinance") be suspended for such period as the Court may order under section 30A(3) thereof.

2. The OR objects to the automatic discharge of the bankrupt Mr. Chen Miauw Shen James ("Mr. Chen") which should have taken place on 8 September 2002. On 21 August 2002, Master Ho ordered, inter alia, that the said automatic discharge be suspended until the determination of the OR's application. If the objection is valid, the court has power and discretion to suspend the discharge for a period not exceeding four years from 8 September 2002.

3. The OR's objection is based on section 30A(4)(d) which read as follows:

" (4) The grounds on which an objection can be made to the discharge of a bankrupt under this section are as follows-

......

(c) that the conduct of the bankrupt, either in respect of the period before or the period after the commencement of the bankruptcy, has been unsatisfactory"

The Official Receiver's Case

4. There are three complaints by the OR upon Mr. Chen's conduct.

(a) Gold Coast Yacht Club Individual Membership ("the Membership")

On 18 September 1998, at the preliminary examination, Mr. Chen declared that he owned the Membership with an estimated value of HK$100,000.00. Further, he expressly confirmed that there was no property he held in trust for others. However, when Mr. Chen submitted his statement of affairs on 22 September 1998, he did not mention the Membership. Thereafter, he alleged that it belonged to his cousin, of which OR had rejected such submission.

(b) Cash at bank

At the said preliminary examination, Mr. Chen declared that he had about HK$10,000.00 cash at bank. He also said that he held no trust property for others. However, again, in the statement of affairs dated 22 September 1998, he insisted that the cash at bank, which was then about HK$20,000.00 was trust properties. He could not adduce any evidence to prove the trust at all.

(c) 5 vessels

Mr. Chen never mentioned that he had any vessel. It was only after the OR conducting the search with the Marine Department, thereby revealing that he had 5 vessels registered in his name. Worsestill, it was found that 4 out of the 5 vessels were transferred to third parties shortly after the bankruptcy order was made against Mr. Chen without the consent from the OR.

Further, the explanation offered by Mr. Chen and the third parties are inconsistent.

(i) vessel licence no. 54528

On 23 September 1998, Mr. Chen transferred it to one Mr. Cheung Pak Wai ("Mr. Cheung"). Mr. Chen said that he was trustee for Mr. Cheung only. However, Mr. Cheung replied that he bought it at HK$80,000 and paid it by cash. However, subsequently, Mr. Chen produced a copy of cash cheque dated 17 June 2000 in the sum of HK$60,000, purportedly to be the price of this vessel.

(ii) Vessels licence nos. 100108, 91808 and 94188

On 12 September 1998, Mr. Chen transferred them to one Tonshin International Limited ("Tonshin"). By a letter dated 9 May 2002, Tonshin informed the OR that Mr. Chen was named as registered owner for convenience sake only. He was only responsible for maintenance and driving of the vessels, and not the actual owners. However, it was subsequently revealed that Mr. Chen had been a director of Tonshin but resigned on 14 February 1997. Further, Tonshin was deregistered and dissolved on 24 February 2002.

(iii) Vessel licence no. 59118

Mr. Cheng said that it had been stolen for a long time. The record at the Marine Department revealed that there was no record of renewal of the licence for this vessel after 30 October 1995.

5. Although the aforesaid matters relating to the Membership, the cash at bank and vessel 59118 did not harm the administration of the estate, they were unsatisfactory by themseleves. However, as to the aforesaid 4 vessels, Mr. Chen's conduct seriously prejudice the administration. Despite the OR had given notice to the transferees that the transactions were void and demanded for the return of the vessels, they refused. The whereabout of the vessels was unknown. The depreciation rate of vessels is great and as such, a lapse of several years renders the vessels worthless of recovery.

Mr. Chen's Explanation

6. By various letters written in August 2002, Mr. Chen attempted to offer his explanation.

(a) the Membership

"Gold Coast Yacht Club membership was bought by my cousin Djohan Pandra because at that time Yacht membership could be a good investment since many had gone up in values. I persuaded my rich cousin to buy and I agreed to pay for the expenses for him because I was the one using it mostly and he was just the investor." (letter of 23 August 2002)

"Regarding to my cousin Mr. Pandra, the payment of yacht membership did not come to the exact amount because we had other small expense account involved but the big amount is very clear. I am sorry that I did not organize well for you to understand. He first paid half of the amount (one cheque of HK$118,500.00 is half of HK$237,000.00), then he paid in split amounts because he still had some money left with us." (letter of 30 August 2002)

(b) Cash at bank

No explanation was offered.

(c) 5 vessels

"I may have done wrong technically by not doing the correct procedures (Hong Kong laws do not require to cancel the ownership for abandoned boats and I have never thought of declaring abandoned boats) but I have no intention to lie or being dishonest. Boating is my job and I often times organized partnership among friends to own boat(s). They used my name for convenience sake and therefore, I never consider myself as the owner although the licenses were under my name. (Hong Kong boat licence only allows one person's name as the owner)

Regarding the case of Cheung Pak Wai, he was one of the owners and he actually paid only HK$60,000.00 (his share was HK$20,000.00) to take over the ownership from the other partners." (letter of 20 August 2002)

"I have given up two sunk boats and I have witness to prove if necessary. One was given to Regetta Yacht (Sai Kung) and another one was given to Marina Cove's manager Mr. Ho in return for their help to tow away the boats. A better way to explain why I didn't declare is that the boats were either abandoned or they were not mine, so I transferred to the real owners before my bankruptcy. I could not transfer the yacht membership because it required a lot of money to do so ......

Tonshin International Ltd. is a partnership company holding a group of friends owning boats together and I was the one managing the boat maintenance. My personal account was used as maintenance boat account and everybody credited money to my account for the expenses of boats." (letter of 23 August 2002)

"In reply to your query of the dates difference on Cheung Pak Wai payment and the taking up of ownership, I do not want to drag the matter too far and irrelevant, but I can tell you that this is the fact and it shows how difficult it is to get rid of the boat. Mr. Cheung was the first to claim for full ownership and we had no alternatives but to wait for his actual payment. During that period, we could not find any buyer for that boat (it was not in good condition). Even the HK$60,000.00 was spent mostly in the expenses." (letter of 30 August 2002)

7. At the hearing of 12 November 2002, with no objection from the OR, Mr. Chen attempted to further elaborate his explanation orally. To sum up, he admitted that he was at fault in completing the statements at the preliminary examination and the statement of affairs. He insisted that the Membership belonged to his cousin. He insisted that the cash at bank were trustee properties belonging to some vessels owners who gave him the money for maintenance and expenses for running the vessels. However, his wife had repaid these money to the vessels owners.

8. Mr. Chen insisted that vessel licence no. 59118 had been stolen. Vessel licence no. 54528 belonged to one 帝程有限公司 owned by 4 persons, of which he and Mr. Cheung were two of the owners. Mr. Cheung bought the vessel at a price of HK$80,000.00. He paid only HK$60,000.00 of which was used up in repairing/maintaining the vessel. As to vessels licence nos. 100108, 91808 and 94188, they belonged to a syndicate of 10 persons. Ownership of it changed frequently and he just had been one of the owners. Finally, Mr. Chen concluded that it was too complicated to explain everything.

Ruling

9. I find all complaints made by the OR justified. Mr. Chen's aforesaid explanation is far from satisfactory. His written explanation contradicts one another. His oral explanation contradicts his written explanation. This oral explanation is full of contradiction in itself. Mr. Chen's explanation is also different from those of Mr. Cheung and Tonshin. Mr. Cheng's explanation is again different from that of Tonshin. All these matters concludes and points to the fact that Mr. Chen did, does and will not tell the truth.

10. When exercising my discretion over the matter, I bear in mind the underlying principle of the introduction of automatic discharge provision as described in para. 17.16 of the Law Reform Commissions Report on Bankruptcy (1995) which says:

"The introduction of the automatic discharge, with the objection system, have a two fold effect. Firstly, bankrupts would have a greater incentive than at present to co-operate with the trustee, as failure to co-operate could result in the trustee objecting to a bankrupt's discharge. Secondly, the rehabilitation of a bankrupt from bankruptcy would be assured, subject to rehabilitation being delayed as a consequence of a bankrupts own failings."

Certainly, as also commented by the Mrs. Justice Le Pichon in Re Hui Hing Kwok [1993] 3 HKC 683,

"Rehabilitation is the sense of enabling the bankrupt to resume a normal life in society is a key, if not the key consideration. It should only be delayed by bankrupt's own failings ......"

And, in Re Li Tak Kong [2000] 3 HKC 300, the applicable principle is stated as follows:

"In exercising its discretion, the court would have regard to the scope and purposes of the statutory provisions conferring the discretion, the interests of commercial morality and the public interest. Before a discharge was granted or permitted to occur, there should be an adequate investigation of a bankrupt's conduct and affairs, and such investigation should generally be concluded. It was 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 Official Receiver. In seeking a discharge, the bankrupt had to show that he had taken all reasonable steps to ensure that his estate was available for distribution among his creditors and that the trustee was appraised of all relevant information; it was not good enough for him to adopt a purely passive or reactive role. Where there had been concealment or lack of co-operation on the part of the bankrupt, it would not be unfair to delay his discharge."

11. In the circumstances, as there was, is and will likely be deliberate concealment on the part of Mr. Chen, the rehabilitation should be delayed by his own failings. I therefore agree with the OR's submission that the automatic discharge of Mr. Chen should be suspended for 4 years from 8 September 2002.

Costs

12. I do not have an opportunity to hear representation from the parties to the question of costs. Nonetheless, I believe that I should not make any costs order. Hence, there will be an order nisi for no order as to costs, which will be made absolute after the expiration of 14 days from today.