RE LO SHIU MUI

HCB 10596/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCYPROCEEDINGS NO. 10596 OF 2007

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J U D G M E N T

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1.   This was an application by Ms Lo Shiu Mui, a bankrupt, seeking an early discharge from her bankruptcy pursuant to section 30B of the Bankruptcy Ordinance (Cap. 6).

2.   Ms Lo was made bankrupt on 26 March 2008, when Master Levy made a bankruptcy order against her. This was the first occasion on which she had been made bankrupt. The bankruptcy petition against her was presented by the Industrial & Commercial Bank of China (Asia) Ltd ( the Bank ) on 11 December 2007. It was based on the balance of a judgment debt which the bank had obtained against Ms Lo in earlier proceedings against her and a company called United China International Limited ( United China ). Those proceedings arose out of an all monies legal charge and mortgage ( the Mortgage ) which Ms Lo had granted to the Bank on 1 March 1995, over property which she owned, as security for the debts of United China, a company which she says was owned by her husband (from whom she is now separated). Ms Lo says that, although named as a director of United China, she was never involved in its management or its business.

3.   Ms Lo did not dispute her liability to the Bank under the Mortgage, and the Bank recovered judgment against her in a sum of slightly over HK$7.6 million in September 1999. Some years later, in October 2004, the Bank sold the mortgaged property for some HK$4.77 million, leaving a debt of about HK$3 million outstanding. By the time the bankruptcy petition was issued, the outstanding debt had risen to HK$3,814,244.54 as a result of accrued interest.

4.   Ms Lo appears to have been unaware of the bankruptcy petition against her. At any rate, she did not appear at the hearing when the bankruptcy order was made against her. She says that she became aware of it later the same day, when she was informed of it by the issuer of a credit card which she held.

5.   At the time of the bankruptcy order, Ms Lo was employed by a company called Eversense International Limited ( Eversense ), earning an annual income of HK$216,000 per month. She has worked for the same company since about 1996. It appears from corporate records of Eversense that she was until 17 March 2008 a director of that company, and that she was the registered owner of 50% of its issued shares (100,000 out of 200,000 shares).

6.   When she became aware of the bankruptcy order, Ms Lo contacted the solicitors acting for the Bank. With the assistance of Eversense, she reached an agreement with the Bank to accept HK$300,000, plus HK$56,000 in respect of the Bank s costs, from Eversense in order to discharge her liabilities to the Bank. Eversense paid these amounts to the Bank on 22 April 2008, and on the same date, the Bank s solicitors informed Ms Lo that on receipt of the payment, the Bank would not object to an application by Ms Lo seeking the annulment of her bankruptcy pursuant to section 33 of the Bankruptcy Ordinance.

7.   Thereafter, on 23 April 2008, Ms Lo filed a Statement of Affairs in her bankruptcy, and on 30 April 2008, she completed a Preliminary Examination Questionnaire.

8.   Meanwhile, on 24 April 2008, the Bank s solicitors wrote to the Official Receiver informing them of the settlement that the Bank had reached with Ms Lo and Eversense, and enquired whether the Official Receiver would have any objection to the annulment application which Ms Lo intended in due course to make. On 6 May 2008, the Official Receiver indicated that in the light of the decision in Re Lo Cheuk Chiu (unreported), CFI, Deputy Judge A To, HCB 8036/2006, 25 January 2008, it did not appear that a compromise or accord and satisfaction would provide grounds for an annulment order under section 33(1)(b), as the court in that case had held that the court only had jurisdiction to annul a bankruptcy order if the debts and expenses in the bankruptcy had been either paid in full, or secured to the satisfaction of the court, to be paid in full after annulment.

9.   In the light of that response, Ms Lo appears to have decided against making an application for annulment of the bankruptcy order pursuant to section 33 of the Bankruptcy Ordinance. Instead, on 6 June 2008, she made this application, pursuant to section 30B.

10.   Since the making of the application, the Official Receiver has filed a number of reports, as he is required to do pursuant to Rule 91 of the Bankruptcy Rules, to apprise the court of the relevant information in relation to the bankruptcy that are specified in that rule, and any other matters which ought, in his opinion, to be brought to the court s attention.

11.   In the reports which he has filed, the Official Receiver has drawn the court s attention to a number of matters, including the level of Ms Lo s indebtedness at the time the bankruptcy petition was presented and the bankruptcy order made, the failure of Ms Lo to mention her 50% shareholding in Eversense in her Statement of Affairs or Preliminary Examination Questionnaire, and Ms Lo s apparent failure to answer accurately a number of questions in her Preliminary Examination Questionnaire. These related to directorships held by her in the five years preceding her bankruptcy (she had during this period been a director of four companies, but had referred to none of them in her responses), to her repayment of a debt of HK$500,000 to Eversense in the two years prior to her bankruptcy, and to her transfer of a share in a company called Besen International Limited to her son shortly before her bankruptcy.

12.   At the hearing, the Official Receiver appeared through counsel (Miss Man) to draw the court s attention to his concerns as to whether or not the court had jurisdiction to grant an early discharge in the circumstances of this case, and to bring the other matters referred to in the previous paragraph to the court s attention. Miss Man made it clear, however, that the Official Receiver did not object to the discharge of Ms Lo on any of the grounds set out in section 30A(4) of the Bankruptcy Ordinance.

13.   Section 30B of the Bankruptcy Ordinance provides:-

(1) Notwithstanding that the relevant period under section 30A has not yet expired, a bankrupt who C

(a) Has not been previously adjudged bankrupt may, at any time apply to the court for an order discharging his from bankruptcy.

(2) The court shall not make an order under this section if the bankrupt C

(a) Has previously entered into C

(i) A composition or scheme of arrangement under this Ordinance, as it existed before the Bankruptcy (Amendment) Ordinance 1996 (76 of 1996) came into operation; or

(ii) A voluntary arrangement;

(b) Has unsecured liabilities that exceed 150% of the income that the trustee determines was derived by the bankrupt during the year immediately before the date of the bankruptcy order;

(c) Has failed to disclose a beneficial interest in any property;

(d) Has failed to disclose any liability that existed at the date of the bankruptcy order;

(e) Has failed to disclose in his statement of affairs income that he expected in the 12 months following the filing of the statement;

(f) Has engaged, after the date of the bankruptcy order, in misleading conduct in relation to a person in respect of an amount or amounts exceeding $15,000;

(g) Has after the date of the bankruptcy order continued to act as a director or taken part in the management of a company, except with the leave of the court, contrary to section 156 of the Companies Ordinance (Cap. 32);

(h) Has failed or refused to give his passport or other travel document to the trustee when requested to do so; or

(i) Has failed to co-operate with the trustee.

14.   These provisions were based on Australian legislation C section 27 of the Bankruptcy Amendment Act 1991, which introduced new provisions relating to the early discharge of a bankrupt. The provisions of section 30(2) closely follow those of sections 149X to 149ZE of the Australian Bankruptcy Act, which were introduced by section 27 of the 1991 Amendment Act. As we shall see, however, they are not identical, and it is on the differences in wording between the Hong Kong and Australian provisions that Mr Chan, appearing for Ms Lo, has focussed.

15.   For present purposes, the relevant parts of section 30B(2) are paragraphs (b) and (c).

16.   So far as section 30B(2)(b) is concerned, the Official Receiver submits that as Ms Lo s debts at the time of her bankruptcy were in excess of HK$3.8 million, they exceeded by well over 150% the income derived by her in the year preceding the making of the order (which was HK$216,000), so that this subsection deprives the court of jurisdiction to make the order sought.

17.   Mr Chan, however, submits that the wording of section 30B(2)(b) directs the court s attention not to the situation as at the time when the bankruptcy order was made, but as at the time of the application for annulment. He places reliance on the fact that the Hong Kong legislation is phrased in the present tense, referring, as it does to the situation where the bankrupt has unsecured debts that exceed 150% of his or her income in the relevant period before the bankruptcy order (my emphasis).

18.   By contrast, section 149Y(1) of the Australian Bankruptcy Act, which is the corresponding provision to section 30B(2)(b) provides that a bankrupt is disqualified from early discharge if the bankrupt s unsecured liabilities exceeded 150% of the income that the trustee determines to have been derived by the bankrupt during the year immediately before the date of the bankruptcy (again, my emphasis).

19.   Mr Chan submitted that whereas the Australian legislation, by the use of the past tense, appeared to make it clear that the relevant time at which the unsecured liabilities were to be ascertained was at some point earlier than the application for early discharge, and thus, logically, at the time when the bankruptcy order was made, the position under section 30B(2)(b) was different, being phrased in the present tense, so as to require consideration of the position at the time the application was made and heard.

20.   Against this, Miss Man submitted that the legislative history of section 30B did not disclose any conscious decision on the part of the legislature to depart from the approach adopted in the Australian legislation. She drew my attention to the Law Reform Commission s Report on Bankruptcy (May 1995) from paragraph 17.62 of which it would appear that its proposals in this respect (which were eventually enacted as section 30B) were intended to be based on the Australian legislation.

21.   She submitted further, that all of the Australian authorities on the interpretation of the Australian legislation were consistent with the view that the relevant point in time at which the unsecured liabilities should be ascertained was when the bankruptcy order was made. However, it seems to me that this is a conclusion that is necessitated by the terms of the Australian legislation, speaking, as it does, in the past tense, and the authorities are thus of little assistance in considering how the Hong Kong legislation should be interpreted.

22.   Miss Man also submitted that the construction proposed by the Official Receiver was more consonant with the rationale of the provision, which was, she suggested, to prevent a bankrupt who had recklessly incurred credit, but who had been able to reach a compromise with his creditors, from seeking an early discharge. However, it seems to me that it is not in every case where a bankrupt has incurred debts that exceed his income to the extent stated that it can be said that he has recklessly incurred credit C in this case, I do not think it possible to say that Ms Lo had necessarily, or even probably, acted recklessly C at the time at which she gave the Mortgage in favour of the Bank, the value of the property might have adequately covered the facility granted to United China, and her liability to the Bank may well have arisen (in part at least) as a result of a subsequent fall in the value of the property mortgaged.

23.   On balance, I am of the view that it is not possible to ignore the difference in the wording of section 30B(2)(b) as compared to section 149Y(1) in the Australian legislation. While it may not have been intended to alter the effect of the provision, it remains necessary to construe the provision as it stands, and the use of the different tense does, in my view, alter the meaning of the provision so as to suggest as a matter of language that the relevant time at which to consider the relationship between the debtor s liabilities and his income in the relevant period is as at the time of the discharge application.

24.   The effect in the present case is that as a result of the accord and satisfaction between Eversense, Ms Lo and the Bank, the liability of Ms Lo to the Bank was extinguished prior to the making of this application, with the consequence that Ms Lo has now no unsecured debts, so that the unsecured debts which she presently has do not exceed 150% of her income in the relevant period, so that the court s jurisdiction to grant an early discharge is not ousted on this basis.

25.   This, however, is not the end of the matter. The Official Receiver also submits that the court s jurisdiction is excluded by the operation of section 30B(2)(c), since Ms Lo had, in her Statement of Affairs, failed to disclose her beneficial interest in the 50% shareholding in Eversense.

26.   Ms Lo admits that she had failed to disclose this in her Statement of Affairs, and Preliminary Examination Questionnaire, but says that this was simply an oversight on her part, being an inadvertent slip.

27.   Miss Man submits that this does not assist Ms Lo, since section 30B(2)(c) is in straightforward terms. The only question for the court s consideration is whether or not there has been a failure to disclose a beneficial interest in any property, and (submits Miss Man) there clearly has been, whatever the reason for it may be.

28.   Again, Mr Chan suggests that the difference in the wording of section 30B(2)(c) as compared to the Australian legislation on which it is based, should lead the court to conclude that section 30B(2)(c) is not engaged. The equivalent Australian provision (section 149Z(1) of the Australian Bankruptcy Act) provides that a bankrupt is disqualified from early discharge if the bankrupt has at any time failed, whether intentionally or not, to disclose to the trustee the bankrupt s beneficial interest in any property.

29.   Mr Chan submits that the omission of the words at any time and whether intentionally or not indicate that section 30B(2)(c) is to be construed less strictly than section 149Z(1) in the Australian legislation would have fallen to be construed, and that to do otherwise would involve reading back into the section the words that have been omitted from it.

30.   Miss Man, however, submits that given that the legislative history does not disclose any intention to depart from the Australian approach, there is no basis for interpreting section 30B(2)(c) any differently, so as to impose a less stringent test on a bankrupt seeking an early discharge under that provision. She submits that unlike the position in relation to section 30B(2)(b), the difference in wording does not call for a different conclusion, since the natural construction of section 30B(2)(c) is apt to cover any failure to disclose a beneficial interest in any property, whatever the reasons for the failure. She also submits that on analysis, it is the interpretation proposed by Mr Chan that requires the reading into the provision of words that are not there, in that the adoption of his proposed interpretation would require the reading in of words such as other than through inadvertence so as to qualify the nature of the failure to disclose that would trigger the section.

31.   Although I was initially attracted to Mr Chan s interpretation of section 30B(2)(c), I am satisfied that Miss Man s arguments are well-founded. It seems to me that giving the words of the subsection in their natural meaning, they do lead to the conclusion for which the Official Receiver contends. Had it been possible to demonstrate from the legislative history that the difference in wording was the result of a decision to depart from the approach of the Australian legislation, the position might have been different, but there is nothing in the legislative history to suggest that this was the case. In these circumstances, I do not think that it is possible to read into the subsection some exception or limitation based on inadvertence of the failure to make disclosure of the asset in question.

32.   It follows that as Ms Lo has failed to disclose a beneficial interest in property, namely the shares held by her in Eversense, she is not entitled to seek her early discharge from bankruptcy pursuant to section 30B. Although Mr Chan submitted that this was contrary to the spirit of the provision, I do not think that it necessarily is C as was observed by the Chief Justice in Re Chan Wing Hing (2006) 9 HKCFAR 545, at paragraph 17 of his judgment, the possibility of early discharge is, as a result of the restrictions imposed by section 30B(2), in practice only available in a very limited number of cases. Unfortunately for Ms Lo, this is not, in my judgment, one of them.

33.   As I have noted, the Official Receiver also drew the court s attention to a number of other respects in which Ms Lo had failed to fully or accurately supply information requested by him in the Preliminary Examination Questionnaire. However, the Official Receiver did not, at the end of the day, submit that such failures should necessarily prevent the court from exercising its discretion in Ms Lo s favour, in the event that the court considered that it was not prevented by section 30B(2)(b) or (c) from granting an order of early discharge. For my part, had I been satisfied that section 30B(2)(c) did not apply in this case, I would, notwithstanding those matters, have been inclined to exercise my discretion in favour of granting the early discharge sought, having regard to the fact that Ms Lo had but one debt, which was incurred in circumstances which do not suggest any rashness or recklessness on her part, which has resulted in Ms Lo losing the mortgaged property, and the balance of which has been settled on terms acceptable to the petitioner, leaving Ms Lo with assets collected by the Official Receiver and no debts to which they should be applied.

34.   However, for the reasons which I have explained, I have concluded that I must, applying section 30B(2)(c), dismiss this application, leaving Ms Lo to receive her automatic discharge in due course, and make an order nisi that the Official Receiver s costs of the application be paid out of Ms Lo s estate in Bankruptcy.