RE WAN FONG HUNG

HCBI 1026 of 2003
HCBI 1027 of 2003
HCBI 1219 of 2003
HCBI 1233 of 2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS

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JUDGMENT

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1. The applicants of the four different cases before me apply for grant of interim orders pursuant to Section 20 and 20A of the Bankruptcy Ordinance (Cap. 6) to facilitate individual voluntary arrangements through two different firms of solicitors: one represented by Messrs. Chan Chun Tim & Co. (re HCBI 1233 of 2003) and the remaining three by Messrs. Paul W. Tse (re HCBI 1026, 1027 and 1219 of 2003).

2. I have heard their cases separately and have dealt with them one after another.

3. With the consent of Ms. Chan of Paul Tse representing the debtor in case of HCBI 1027 of 2003 I adjourn the hearing to the 29th day of August 2003 except on one problem i.e. the appointment of nominee which I will deal with now.

4. In all the four applications the four different debtors, though represented by two different firms of solicitors, appoint the same two persons as joint nominees. They are Mr. Wu Yan Mo, Wilfred and Ms. Yu Tak Yee, Beryl.

5. This gives rise to two issues:

6. I intend to deal with the four cases together in respect of these two issues and this judgment is restricted to the two issues only. As to other issues of each individual case I will consider them separately at other places.

Joint Nominees

7. On the first issue whether joint nominees can be appointed, Stephen A. Lawson, the learned writer of Individual Voluntary Arrangements, a leading authority on the subject, at page A1-17 (Update 5) in Paragraph 1 [26] has this to say:

" It seems from the wording of Section 253(2) (of Insolvency Act 1986) 'some person', that there cannot be joint nominees."

Section 253(2) reads as follows:

"(2) The proposal must provide for some person ('the nominee') to act in relation to the voluntary arrangement either as trustee or otherwise for the purpose of supervising its implementation and the nominee must be a person who is qualified to act as an insolvency practitioner, or authorized to act as nominee, in relation to the voluntary arrangement."

In Paragraph 9[2] at page A9-1 (Update 5) Mr. Lawson's comment on Section 253 is that:

" It is clear from the wording of the Act that there can only be a single nominee"

In footnote 2 of the same page he further states "Section 253(2) uses the singular term 'some person'." He gives no authority and simply relies on his own interpretation of the phrase itself to come to that conclusion. No further explanation has been given why the appointment of joint nominees is objectionable.

8. The Hong Kong counterpart is slightly different from the UK legislation. Section 20A(2) states as follows:

" The proposal must provide for a nominee to act in relation to the voluntary arrangement either as trustee or otherwise for the purpose of supervising its implementation."

9. The word "nominee" in the section is also singular. I do not know the position in England but in Hong Kong Clause 7(2) of Interpretation and General Clauses Ordinance (Cap. 1) provides: "Words and expressions in the singular include the plural and words and expressions in the plural include the singular."

10. By a letter dated 19 August 2003 Mr. De Witt for the nominees submits that Section 122T of the Bankruptcy Rules (Cap. 6A) as amended does provide for a situation where two or more persons are appointed to act as nominees. I agree with his view.

11. I do not find any reason why the appointment of joint nominees is objectionable. The law does not expressly prohibit the appointment of joint nominees and in fact contemplates that such situation may happen. In my judgment, the law permits two or more persons to be appointed as nominees if circumstances so require.

Wu Yan Mo, Wilfred

12. We now come to the second issue whether Mr. Wu Yan Mo, Wilfred should be appointed as a nominee of four different arrangements.

13. In England it is an offence to act as an insolvency practitioner when a person is not qualified to do so (Section 389). If a person performs any of the functions conferred on a nominee under Part VIII of the Insolvency Act, he is regarded as doing the work of an insolvency practitioner.

14. As explained by Mr. Briscoe, an expert giving evidence on behalf of Mr. Wu, the UK legislation has set up an elaborate system of granting licences to members of certain professional bodies recognized by the Secretary of State. According to Section 393(2), the competent authority will only grant licence to an applicant "if it appears to it from the information furnished by the applicant and having regard to such other information, if any, as it may have-

(a) that the applicant is a fit and proper person to act as an insolvency practitioner, and

(b) that the applicant meets the prescribed requirements with respect to education and practical training and experience."

15. Mr. Briscoe told us that any person who wants to become a licenced insolvency practitioner now has to pass certain examination conducted by the Joint Insolvency Examination Board. It is a test on three papers including a subject on individual voluntary arrangement. The insolvency practitioners usually come from the accountancy profession but some are lawyers.

16. Hong Kong legislation does not have such a system. It gives the power to the court to consider on "case by case" basis whether a person is suitable to act as a nominee. The definition of Section 2 of the Bankruptcy Ordinance (Cap. 6) provides as follows:

" "nominee" means the Official Receiver or some person who by reason of his experience and qualifications is, in the opinion of the court, a suitable person to perform the duties of the nominee specified in sections 20A, 20D, 20E and 20G;"

17. In Hong Kong it does not have an objective system of assessment and the court has to decide each case on its own merits. In the past, I have appointed different persons: most of them are certified public accountants and some are solicitors; both must have had good experience in handling insolvency work. I have never appointed any person who does not fall within either category.

18. Mr. Wu is not a certified public accountant or a solicitor. He is a partner of an accountancy firm which can carry out full practices of an accountant firm including audit work. But, he himself cannot do it. According to the way he conducts his practice, he confirms my view that it is unlikely that he be qualified as a certified public accountant in the foreseeable future.

19. Is the qualification of certified public accountant an important factor for consideration in the appointment? According to the definition of "nominee" in Section 2, the court has to consider the experience and qualification. As stated above Hong Kong does not have any qualifying examination for persons who want to act as nominee. The High Court Masters have collectively considered the subject about qualification for the appointment and are of the view that persons from the two professions viz. solicitor and public certified accountant must have studied insolvency law. They can carry out full practices in their respective professions and are well regulated. The Masters agree not to object to any proposal to appoint a member from either profession provided that they can demonstrate that they have sufficient experience and knowledge in dealing with insolvency matters.

20. Voluntary Individual Arrangements have become fashionable only within these two years. The statistics show that for the year 2000 the Court had two cases filed and year 2001, 13 cases. Suddenly the figure for year 2002 jumped to 1,287. For the first seven months of this year we have an average of 244 per month. Most of the applicants appointed their nominees among the few certified public accountants proposed. It almost becomes an area of work monopolized by the profession of certified public accountants and solicitors. As to persons who come from a profession other than these two, we become more cautious and make more enquiries about their qualifications and experience. The case of Mr. Wu is one of those.

21. According to the statutory declaration of Mr. Wu given to me at the hearing (the contents of which I have no reason to doubt) he has been qualified pursuant to Section 24 of the Professional Accountants Ordinance (Cap. 50) as a professional accountant since 1996 and also registered with Hong Kong Society of Accountants as an associate member. His practice is regulated and governed by the Society pursuant to the Ordinance, the rules as well as its own regulations.

22. He has shown to me, and I have no doubt about it, that he has specialized himself in insolvency work and is an active member of the Insolvency Interest Group of the Society. The Official Receiver accepts his firm's tender to take up work as provisional liquidators. However, Mrs. Sit for the Official Receiver acting as amicus curiae has drawn my attention to the following features of the tender:

(a) it relates to companies winding up cases;

(b) it deals with estates with assets of $200,000 or less; and

(c) one of the requirements for tender is a Recognized Professional. The term "Recognized Profession" includes a number of different bodies: "the accounting profession, the legal profession, the company secretariat profession and any other profession which the Official Receiver may recognize in writing ......"

23. Mrs. Sit also informs us that according to the approved cases reported, over 80% of the nominees appointed are accountants and the rest are mostly solicitors. The question is whether Mr. Wu who has the experience in insolvency work and is a professional accountant should be disqualified because he is not a certified public accountant.

24. Before making a decision it will be helpful to examine the duties that a nominee has to perform. The duties are identified in the definition provided in Section 2 of the Ordinance by reference to the following sections:

Section 20A(2):	" To act in relation to the voluntary arrangement either as trustee or otherwise for the purpose of supervising its implementation."
Section 20D(2):	" ...... the nominee to prepare a report."
Section 20D(1):	" ...... the nominee shall ... submit a report to the court stating-
	(a)	Whether, in his opinion, a meeting of the debtor's creditors should be summoned to consider the debtor's proposal; and
	(b)	If in his opinion such a meeting should be summoned, the date on which, and time and place at which, he proposes the meeting should be held."
Section 20E:	" ...... the nominee shall ... summon that (creditors') meeting ......"
Section 20G:	" ...... the nominee shall report the result of the meeting to the court and, immediately after so reporting, shall give notice of the result of the meeting to such persons as may be prescribed."

25. There are many incidental and ancillary functions that a nominee has to carry out relating to the duties mentioned above. For example, in preparing the nominee report he has to analyse the proposal critically and make investigation and enquiries into the facts relied on by the debtor. In conducting the creditors' meeting he acts as chairman and shall consider who should be admitted to vote. After the proposal being approved he will act as supervisor or trustee to implement the arrangement. Arising from the latter, he has a number of statutory duties. The work of a nominee is not a simple one.

26. Most of the cases I have seen including the four subject cases are for composition which is much simpler than scheme. The latter will involve disposal of assets or carrying on the debtor's business. In such case the nominee has to act as trustee which will involve more and burdensome work.

27. In the present four cases the debtors intend to repay their debts out of their monthly incomes. The nominee is required to act as supervisor only. He will receive the monthly contributions, distribute them and keep accounts thereof. He shall report any irregularity or default to the creditors and seek court direction at the appropriate time.

28. For these four cases, with the experience of Mr. Wu I have no doubt that he can discharge all the duties without difficulty. In my view, the lack of power to do audit work will not affect his function as nominee in these four cases.

29. My conclusion is that as Mr. Wu has demonstrated to me that he has the experience and qualification to justify his appointment as nominee in these four cases, I raise no objection to appoint him together with Ms. Yu Tak Yee, Beryl as nominees of the four individual voluntary arrangements.