RE FEGARIDO SALVADOR F

HCB 850/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 850 OF 2005

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Re: Fegarido Salvador F

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D E C I S I O N

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1.  On 29 January 2005, Mr. Fegarido petitioned for his own bankruptcy and a bankruptcy order was made against him on 15 March 2005.  By an order dated 11 July 2005, the Official Receiver was appointed trustee of his property.

2.  Under section 30A of the Bankruptcy Ordinance, a bankrupt is automatically discharged from bankruptcy upon the expiration of 4 years from the commencement of the bankruptcy, unless the court is satisfied on application that a valid objection based on one or more of the grounds set out in section 30A(4) has been made.  If there is a valid objection, the bankruptcy period may be extended for a maximum of 4 years.

3.  This is the trustee’s application for an order that the bankruptcy period of the bankrupt should cease to run for a period not exceeding 4 years. 

4.  The application is not opposed by the bankrupt, although he has put forward some evidence and submissions in mitigation.

5.  In the absence of any objection, the bankrupt would have been discharged on 15 March 2009.  When the application first came before the court on 11 February 2009, an interim order was made suspending the automatic discharge of the bankrupt.  The interim order was subsequently extended until the disposal of this application.

The application

6.  The application is based on the following grounds:

(a)  that the bankrupt has failed to co-operate in the administration of his estate (section 30A(4)(c));

(b)  that the conduct of the bankrupt in respect of the period after the commencement of the bankruptcy has been unsatisfactory (section 30A(4)(d)); and

(c)  that the bankrupt has failed to prepare an annual report of his earnings and acquisitions for the trustee (section 30A(4)(h)).

7.  The facts in support of the application have been set out in three reports filed by the trustee.  The trustee’s case, which is not disputed, can be summarized as follows:

(a)  The bankrupt stated in his petiton that he was residing in Sai Ying Pun (“SYP address”).  According to his statement of affairs, he was indebted to the extent of $155,000.

(b)  After he was adjudged bankrupt, the bankrupt was interviewed by an agent of the trustee on 18 March 2005.  The bankrupt was explained his duties as a bankrupt and was given a booklet entitled “A Simple Guide to Bankruptcy” for his reference.  He was also given four blank “Annual Statement of Earnings and Property Acquired” forms for completion and submission on each anniversary of his bankruptcy.

(c)  By a letter dated 18 October 2005, the bankrupt informed the trustee that he had moved to Queen Victoria Street (“QVS address”).

(d)  By another letter dated 5 June 2006, the bankrupt informed the trustee that he had moved to Sham Shui Po (“SSP address”).

(e)  The bankrupt has failed to submit annual report at the anniversaries of his bankruptcy, in breach of section 43A(6) of the Bankruptcy Ordinance.  This is so despite the trustee’s reminder dated 12 April 2006, 25 July 2006, 12 April 2007 and 12 April 2008.

(f)  The bankrupt applied to Bank of East Asia (Trustees) Limited for payment out of the accrued benefits in his MPF account without prior approval of the trustee.  That prompted the trustee to send a section 43A(3) notice to Bank of East Asia (Trustees) Limited and the bankrupt respectively informing them that all the accrued benefits had been vested in the trustee and no payment should be made without the trustee’s consent.  There was no response from the bankrupt.

(g)  As stated above, the bankrupt did not respond to the trustee’s reminders.  The trustee had tried to contact him through his mobile phone and his wife’s mobile phone but to no avail, as these numbers were no longer in service.  Enquiries with the Commissioner of Registration in June 2008 confirmed that the bankrupt should still be residing at the SSP address.

(h)  Three proofs of debt have been submitted to the trustee claiming a total of $120,372.23.  Without the co-operation of the bankrupt and because of his failure to comply with his statutory duties, the trustee has been unable to assess whether any contribution could be made by the bankrupt towards his estate.  So far, no asset has been recovered for the estate. 

(i)  After taking out this application, the trustee went through past records and noted that the bankrupt might have applied for student assistance for their children.  The trustee enquired with the Controller of Student Financial Assistance Agency and was informed that the bankrupt had moved to Ma Wan (“MW address”).  The trustee therefore sent a letter to the MW address, which has finally prompted the bankrupt to respond.

(j)  Since then, the bankrupt has submitted his annual reports and other supporting documents to the trustee.  Be that as it may, the trustee still considers the bankrupt’s conduct unsatisfactory.

The bankrupt’s case

8.  The bankrupt has filed several written submissionswith supporting documents in mitigation.  It is his case that:

(a)  Shortly after he presented the petition, he became unemployed and his wife became ill.  The family was overwhelmed by financial difficulties and his wife obtained loans from friends and relatives to support the family.  The family moved to cheaper accommodation to cut down living expenses and he informed his trustee of the moves.

(b)  In July 2006, the bankrupt decided to leave Hong Kong for good.  He applied for payment out of his accrued MPF benefits so that his wife might use the money to repay some of the loans incurred for the family.

(c)  In September 2006, the family moved back to Hong Kong as therewere work opportunities in Macau and he wanted his children to continue their education in Hong Kong.

(d)  After the family had returned to Hong Kong, his wife got a part-time job despite her ill-health.  Their residence at the SSP address however was flooded by a burst pipe.  In November 2006, hefinally got an urgent job placement in Macau.  With their improved income, the family was able to move to better accommodation at the MW address in December 2006. 

(e)  In February 2007, his wife became sick again and was hospitalized.  She ceased working and was looked after by their children whilst the bankrupt continued his work in Macau.  In August or September 2007, the bankrupt’s daughter was robbed in the Philippines and the whole family visited her there.

(f)  Finally, his wife’s health improved and she was able to do temporary work.  The bankrupt also managed to hold down a better job in Macau in April 2008.  The couple decided to send their second son to college in the Philippines to study with his sister.  Whilst working in Macau, the bankrupt came back to Hong Kong on weekends to do charity work.

(g)  Unfortunately, the bankrupt’s employment was terminated in November 2008 as a result of the recent economic crisis.  The bankrupt is looking for a job and the family is planning to move to cheaper accommodation.

(h)  The bankrupt says he had no intention to avoid the trustee and was not aware of the letters sent to him.  He omitted to inform the trustee of his move to the MW address because of work and financial pressure. 

(i)  He was not aware of his duty to submit an annual report of earnings and acquisitions at each anniversary of his bankruptcy and denies having received the blank annual report forms.

(j)  He has cooperated with the trustee and submitted the outstanding annual reports after he became aware of this application. 

Discussion

9.  Although the bankrupt does not oppose the application, he nevertheless criticizes the trustee for:

(a)  not informing him of his obligation to submit an annual report on his earnings and acquisitions at each anniversary of his bankruptcy;

(b)  not informing him of his obligation to contribute to his estate, so that he might make provision in his budget; and

(c)  not responding to his queries in his letters at Bundle 73 and 74 and his statement at Bundle 46.

10.  I find the bankrupt’s criticisms most unjustified.

(a)  The bankrupt is under a statutory duty to submit an annual report on his earnings and acquisitions to his trustee at each anniversary of his bankruptcy: see section 43A(6) of the Bankruptcy Ordinance.  He was reminded of such duty at the interview held on 18 March 2005 and the booklet given to him also contains such a reference.  He was also given blank forms of annual report.  He signed to acknowledge receipt of the booklet and the blank forms (see Bundle 37).  In the premises, I reject the bankrupt’s case that he was not informed of such duty or that he was not supplied with blank annual report forms.

(b)  The booklet also contains reference to the bankrupt’s duty to contribute to his bankruptcy estate out of his income. I therefore reject his case that he was not aware of his duty to make a contribution.

(c)  It is not the function of the Official Receiver as his trustee to assist the bankrupt to further his stay in Hong Kong and on matters such as how he may obtain government subsidy, how he may apply for public housing, or how he may obtain education allowance for his children.

11.  Notwithstanding the information contained in the annual reports and supporting documentsrecently submitted by the bankrupt, the trustee still considers the bankrupt’s conduct unsatisfactory. 

12.  At the hearing, Ms. Sze (the solicitor representing the trustee) highlights the following aspects of unsatisfactory conduct on the part of the bankrupt as well as unsatisfactory aspects of the bankrupt’s case:

(a)  The bankrupt has not been consistent in accountingfor his income and expenditure.  The information contained in: (i) the financial statement for 2005-2009 at Bundle 164; (ii) the financial statement for 2005-2009 at Bundle 165; and (iii) the annual reports at Bundle 49-56 do not tally with each other.

For example, the bankrupt reported a net loss for 2005 and a net earnings for 2006-2008 in his statement at Bundle 164.  However, he reported a net loss for 2006 and 2007 and a net earnings for 2005 and 2008 in his statement at Bundle 165.  The annual reports submitted by the bankrupt at Bundle 49-56 reported a net loss throughout the 4 years of his bankruptcy! 

The bankrupt claims at the hearing that the discrepancies were caused bythe use of different accounting periodsfor the financial statements and the annual reports.  I don’t think that simple explanation is sufficient to account for the discrepancies.  I agree with Ms. Sze that the bankrupt is required to clarify further.

(b)  According to his financial statements, the bankrupt has had a surplus.  However, he has failed to contributehis surplus to his estate.

(c)  The bankrupt has failed to report to the trustee on his change of employment in December 2005 (see Bundle 182-191), in November 2006 (see Bundle 179-180), and in February 2008 (see Bundle 170-178).  Further investigation on the bankrupt’s stated income is also considered necessary.

(d)  The bankrupt received redundancy payment of $192,815.67 (see Bundle 169) or $193,018 (see Bundle 156) in November 2008 but has failed to make timely report to the trustee.  The bankrupt explains that he has already spent the redundancy payment on his family as he had been unemployed.  Further investigation is considered necessary to verify the explanation.

(e)  The bankrupt admittedly received MPF refund in the sum of $74,164.32 in 2006 (see Bundle 164 and 165).  This was apparently against the trustee’s express warning that such benefits had already been vested in the trustee.

At the hearing, the bankrupt claims that he was not aware that he had to get the trustee’s prior approval before obtaining such payment.  He points out that the trustee had sent the warning letter to the wrong address (i.e. the QVS address, see Bundle 77) when he had already advised the trustee of his move to the SSP address.  After the hearing, Ms. Sze notifies the court by a letter dated 8 April 2009 that a written warning was also sent to the bankrupt at the SSP address.  I directed the bankrupt to submit an explanation (if any) by 22 April 2009 but he has not done so.

(f)  The bankrupt applied to Bank of East Asia (Trustees) Limited for refund of his accrued MPF benefits on the ground that he would permanentlyleave Hong Kong (see Bundle 75-76).  However, the bankrupt has admittedly returned to Hong Kong shortly thereafter.  Further investigation is considered necessary as to whether he really intended to leave Hong Kong for good.

(g)  Between 2005 and 2008, the bankrupt paid a total of $299,465.11 to his wife creditors.  The bankrupt had been informed of his duty not to make payments directly to individual creditors (see the booklet at Bundle 35).   Ms. Sze submits that the bankrupt is preferring his wife’s creditors over hisother creditors.  The bankrupt claims that his wife’s creditors had been pressing for repayment and that some of the loans were obtained under the name of his wife’s sister.

(h)  The bankrupt spent $205,299 on his children’s education in Hong Kong (see Bundle 164/165) and $248,674.18 (see Bundle 164) or $165,990.13 (see Bundle 165) on his children’s education outside Hong Kong.  Pending further investigation, the trustee considers these expenses unreasonable having regard to the bankrupt’s income.

(i)  The bankrupt also spent $185,055.33 on “Marketing & Others”, $165,500 on “Transportation Expenses”, $83,734 on “Equipment, Fixtures & Supply”, $43,323.02 on “Communication Expenses”, $12,000 on “Seminar & Training Fees”, $6,566 on “Xmas & Graduation – (Univ. March 09 & F.5 Jul 09)”, $3,000 on “Family visit to Disneyland” (see Bundle 164 and 165).  Pending further investigation, the trustee considers these expenses unreasonable.

(j)  Ms. Sze has identified 30 transactions in the bankrupt’s bank statements at Bundle 112-127 that require further investigation.  For example, the bankrupt is required to explain the source and the whereabouts of the $81,001 deposited into his account on 31 January 2008 (see Bundle 125).

(k)  The bankrupt remitted to the Philippines 65,000 pesos in August 2008, 10,000 pesos in November 2008, and 55,000 pesos in December 2008 (see Bundle 166-167).  The bankrupt claimsat the hearing that these payments were for his children’s overseas education and repayment of loans with interest (see Bundle 216).  Further investigation is considered necessary to verify these allegations.

13.  The bankrupt is basically blaming his failures on his ignorance and on the fact that he was too busy trying to make ends meet for his family.  He also alleges that some of the relevant documents might have been lost when the family moved house or damaged by the flood at the SSP address. 

14.  In Re Li Tat Kong [2003] HKC 360, Le Pichon J (as she then was) explained what true cooperation by a bankrupt with his trustee in the administration of his bankruptcy estate means:

“It is incumbent on the bankrupt to make full and frank disclosure and to proffer all pertinent information regarding his assets and financial dealings to the trustee …  Thus, it is not good enough for a bankrupt to adopt a purely passive or reactive role, responding when asked in the expectation that with any luck, pertinent matters might be overlooked.”

15.  The bankrupt is an engineer by profession.  He was explained his duties as a bankruptand should have appreciated what was required of him.  Yet, he failed to submit his annual reports in breach of section 43A(6) and failed to respond to his trustee despite the several reminders sent to him.  The financial difficulties faced by him and his family did not relieve him from complying with his statutory obligations. 

16.  The bankrupt has now submitted his annual reports.  This shows that he is finally cooperating with his trustee in the administration of his estate.  However, the trustee has demonstrated at the hearing that the bankrupt has still failed to make a full and frank disclosure of his financial circumstances and he might even have acted to the prejudice of his creditors by preferring his wife’s creditors.

17.  In my view, the evidence in this case clearly shows that the bankrupt has failed to co-operate with the trustee in the administration of his bankruptcy estate.  His conduct after the commencement of his bankruptcy has not been satisfactory.  An objection based on section 30A(4)(c), (d) and (h) has been made out.

18.  I bear in mind the main objectives of our modern bankruptcy legislation:

(a)  Rehabilitation of the bankrupt, by allowing him to resume a normal life in society after his bankruptcy.

(b)  Public interest in preserving commercial morality and to ensure that the return of the bankrupt to the commercial world will not carry with the unacceptable risk to persons likely to be engaged in commercial relations with him.

19.  In my view, the society would not be prepared to condone the bankrupt’s conduct in the circumstances of this case without any expression of disapproval.  The bankrupt’s conduct is so unsatisfactory that, in the exercise of my discretion, I should suspend his automatic discharge.

Conclusion

20.  In all the circumstances of this case, I order that the relevant period of the bankrupt’s bankruptcy shall cease to run for a period of 2 years starting from 14 March 2009.