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HCBI 322/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
IN BANKRUPTCY PROCEEDINGS
INTERIM ORDER APPLICATION NO. 322 OF 2006
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RE: AU WAI YING
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Coram : Before Master J. Wong in Court
Date of Hearing : 14 August 2006
Date of Decision : 22 August 2006
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D E C I S I O N
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Application
1. This is an application by the Nominee for, inter alia, directions from this Court under section 20K(2) of the Bankruptcy Ordinance (Cap. 6) (“BO”).
Background
2. The Debtor is 48 years old, married and living with her husband and daughter in a public flat in Tsuen Wan. She is now working as a courier earning a monthly income of about HK$3,400. Due to overspending, she has incurred liabilities at around HK$178,904.58 which exceeds her means to repay.
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Particulars
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HK$ |
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1.
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AIG Credit Card Company (Hong Kong) Limited (“AIG”)
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83,907.33
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2.
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H.S.B.C.
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47,204.25
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3.
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Promise (Hong Kong) Company Limited
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47,793.00
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178,904.58
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3. In the circumstances, she looks to apply for an (individual) voluntary arrangement under BO, commonly known as IVA.
4. On 19 June 2006, upon consideration of all the papers filed, including the Proposal, the Statement of Affairs and the Nominee’s Report, I granted an interim order to protect the Debtor until 31 August 2006 so that the Nominee could summon a creditors’ meeting on 13 July 2006 at her office.
5. On the scheduled date, the three creditors of the Debtor gave proxies to the Nominee to vote for them in the meeting. However, since more than 25% of the creditors in value rejected the Proposal, the Nominee adjourned the meeting to 21 July 2006. The Debtor further revised her Proposal to increase the interest rate and monthly contribution.
6. In the meantime, the Nominee found the following paragraphs in the proxy given by AIG unsatisfactory.
“ 4. Upon the approval of the Arrangement by the creditors’ meeting, Catherine Cheung Kit Yim, a certified account[ant], of Catherine Cheung & Co., shall be appointed as the Nominee to act in place of the present nominee ……
5. Holder of this proxy should vote for the rejection of the proposed voluntary arrangement, if Catherine Cheung Kit Yim of Catherine Cheung & Co. could not be appointed as the Nominee to act in place of the present nominee.”
It was said that:
“ 8. Being the Chairman of the creditors’ meeting and the proxy-holder of the ordinary creditors, I found that the voting instructions of paragraphs 4 and 5 of the Modifications of AIG is contradictory in nature. On one hand, AIG requested for the replacement of the nominee after the approval of the voluntary arrangement under paragraph 4 and while on the other hand, AIG requested that in the event that the present nominee could not be replaced by their appointed nominee, the proxy-holder should vote for the rejection of the Debtor’s proposal under paragraph 5.
9. Furthermore, I have noted that the voting instructions of paragraph 5 of the Modifications of AIG for the replacement of the nominee may contravene Rule 122T(2) of the Bankruptcy Rules which stipulates that a creditor who wishes to move a resolution to replace the nominee with another person after approval of the voluntary arrangement, he must, at or before the meeting, produce to the chairman that person’s written consent to act and written confirmation that he is experienced in insolvency matters.
10. I verily believe that such request under paragraph 5 of the Modifications of AIG for the replacement of the nominee is a condition precedent for AIG’s acceptance of the Debtor’s proposal which may also contravene Rule 122R(2) of the Bankruptcy Rules.
11. Pursuant to the said Rule 122R(2), for such resolution for replacement of the present nominee to pass at the creditors’ meeting, there must be a majority in excess of one-half (50%) in value of the creditors present in person or by proxy and voting on the resolution. Save and except AIG’s request (which holds 46.09% voting power) for the replacement of the nominee, the remaining ordinary creditors, namely, HSBC and Promise, have no specific voting instructions in this respect.”
(Affirmation of the Nominee filed on 8 August 2006)
6. At the adjourned meeting on 21 July 2006, AIG’s new proxy still contained similar wordings as aforesaid. In the circumstances, the Proposal was not approved.
7. On 27 July 2006, the Nominee filed the present application seeking, inter alia, various directions to allow a further creditor’s meeting to be held as well as
“13. ……(i) for the directions as to whether the voting instructions of AIG to replace the present nominee in the manner prescribed in paragraph 5 of the Modifications and paragraph 2 of the New Modifications contravene Rules 122T(2) and/or 122R(2) of the Bankruptcy Rules and (ii) ……”
(Affirmation of the Nominee filed on 8 August 2006)
8. The matter came before me on 14 August 2006. Ms. J. Lam of Messrs. Hui & Lam acted for the Debtor. The Nominee was present but none of the said three creditors, including AIG, attended the hearing. Having heard from Ms. Lam and the Nominee, I reserved my decision to be delivered. I now do so.
Decision
9. Upon consideration of the evidence authorities and submissions before me, I have come to the conclusion that, save the directions sought by the Nominee under section 20K(2) BO, her application will be allowed in principle. My reasons appear as follow.
The scope of section 20K
10. Section 20K BO states that:
“20K. Implementation and supervision of approved
voluntary arrangement
(1) Where a voluntary arrangement approved by a creditors’ meeting summoned under section 20E has taken effect and the debtor, any of his creditors or any other interested person is dissatisfied by any act, omission or decision of the nominee, he may apply to the court; and on such an application the court may—
(a) confirm, reverse or modify any act or decision of the nominee;
(b) give him directions; or
(c) make such other order as it thinks it.
(2) The nominee may apply to the court for directions in relation to any particular matter arising under the voluntary arrangement.
(3) The court may, whenever—
(a) it is expedient to appoint a person to carry out the functions of the nominee; and
(b) it is inexpedient, difficult or impracticable for an appointment to be made without the assistance of the court,
make an order appointing a person who is experienced in insolvency matters, either in substitution for the existing nominee or to fill a vacancy.”
11. In my opinion, the whole provision, including sub-section (2) applies only to “implementation and supervision of approved voluntary arrangement” but not voluntary arrangement not yet approved by the creditors. To start with, in spite of section 18(3) of the Interpretation and General Clauses Ordinance (Cap.1), the section heading of section 20K certainly gives hints as to the legislative intention. Further, it is noted that similar provision of section 20K in England, i.e. section 263 of the Insolvency Act 1986 was drafted to include sub-section(1) as follows:
“This section applies where a voluntary arrangement approved by a creditor’s meeting…has taken effect.”
Since our section 20K is originated from the UK legislation, I see no reason why we should not interpret the local legislation with reference to a clarified version of the law.
12. The author of Individual Voluntary Arrangements, Stephen Lawson (Updated version in March 2006) at page A14[10] also gives the following useful comment on the role of the Court and that of the Nominee(called the Supervisor in England):
“APPLICATION TO THE COURT BY SUPERVISOR1 14[10]
The supervisor may apply to the court for directions in relation to any particular matter arising under the arrangement.2 The role of the court is apparently limited to giving directions on matters relating to implementation and supervision, although no provision is specifically made as to the nature of the order that the court may make.3 It seems that this subsection is limited to enabling the supervisor to seek the assistance of the court for a situation which is not envisaged by the proposal itself and which, for whatever reason, cannot be determined either by the supervisor exercising his own professional judgment or by reference, if the proposal so provides, to a meeting of the creditors’ committee or a meeting of the creditors themselves. Clearly, the particular matter is likely to be one of substance. The court does not exist to carry out the supervisor’s duties and responsibilities. The supervisor must exercise his own judgment and proper discretion.
1 See 14[7], fn 1 above. Compare with Insolvency Act 1986, s 303 which provides that the Bankruptcy Court can exercise general control over the trustee. The provisions are similar in form. Section 263(4) is wider than the equivalent provision under the 1914 Act which used the term ‘person aggrieved’, implying a wrongful act complained of. It seems that the word ‘dissatisfied’ in s 263(3) may mean no more than ‘disagreed with’, but the onus will be on the applicant to show not only that the supervisor is wrong in what he is doing or not doing, but also that relief should be given.
2 Insolvency Act 1986, s 263(4).
3 Otherwise, the legislature would surely have extended the scope of order which could be made under s 263(4) to bring it in line with s 263(3). In accordance with the wording of sub-section (3), there is difference between an order which confirms, reverses or modifies a direction and ‘such other order as it thinks fit’. It follows that a direction is relief in itself and it is likely to constitute the answer to a specific question relating to the implementation and supervision of the arrangement.”
Should directions be given?
13. Even if section 20K(2) may be construed to include voluntary arrangement in a wider sense, i.e. the one which is to be approved by the creditors, with respect, I believe that the question raised is within the Nominee’s duties and responsibilities. She should exercise her judgment and discretion to deal with it. Subject to the Nominee’s own opinion, she might consider the followings. AIG gave the proxy to the Nominee so that the latter could vote for the former at the creditor’s meeting. It is indeed the usual arrangement adopted by most of the creditors for saving time and costs. However, the Nominee does not accept any fee to act for the creditors. Indeed, she is not obliged to take the proxy unless she agrees to do so. If the Nominee considers that the instructions contained in the proxy and contradictory and she is unable to act upon it, I see no reason why she can simply refuse to take up the matter. The creditor will then have to make up its own mind either to amend the proxy or to attend personally for the purpose of voting.
Conclusion
14. In the circumstances, I will direct that:
(a) The period for holding the creditors meeting as stipulated under R122S(2) of the Bankruptcy Rules be extended for 14 days from the date hereof.
(b) The period for which the Interim order made herein be extended to 17 October 2006.
(c) The hearing date fixed on 5 September 2006 at 3:30 p.m. for consideration of the Report of the Chairman be vacated and re-fixed to be heard before me on 20 October 2006 at 3:30 p.m.
(d) There be no order as to costs of the application.
Ms. J. Lam of Messrs. Hui & Lam, for the Debtor.
The Nominee appeared in person.
All Creditors were absent.
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