WONG KWOK KI STEPHEN AND ANOTHER v. CHOI MUK CHUNG

HCB 9785/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 9785 OF 2003

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J U D G M E N T

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1. This is an application made by the trustee on 15 June 2007 under section 30(A)(3) and section 30A(4)(c) & (d) of the Bankruptcy Ordinance to withhold the automatic discharge of the bankrupt after the 4 years statutory period on the following grounds: -

(a)    Mr. CHOI has failed to co-operate in the administration of the estate of the bankrupt; and

(b)   his conduct after commencement of his bankruptcy has been unsatisfactory.

2. An interim suspension order was granted by court on 13 July 2007.

3. In the year of 2003 the Bank of China petitioned for Mr. CHOI’s bankruptcy for non-payment of a judgment sum of about HK$3.6 million.  A bankruptcy order was made in respect of Mr. CHOI on 23 July 2003.

4. According to the statement of affairs filed by Mr. CHOI, the amount of Mr. CHOI’s unsecured debts was about HK$3.9 million.  According to the proofs of debt filed by the creditors, the unpaid debts of Mr. CHOI were about HK$5.96 million.  During the 4 years of his bankruptcy Mr. CHOI made a contribution of about HK$310,000, i.e. a repayment of roughly 5.2% of his indebtedness.

5. Mr. CHOI was the director of a company Excellence (China) Limited in the year of 2000.  After his adjudication of bankruptcy, his trustee met him on 27 October 2003 to discuss his monthly expenses and make calculation for the affordable payment of his monthly contribution towards his estate in bankruptcy.

6. Mr. CHOI worked as a photographer for a magazine.  His grandmother lived with him.  He earned a monthly salary of HK$19,000.  The domestic expenses of Mr. CHOI, inclusive of a sum of HK$1,200 contribution to his grandmother, was estimated to be HK$13,310.  Mr. CHOI signed on 27 October 2003 to signify his agreement to contribute a monthly sum of HK$5,690 towards the repayment of his debts.

7. The events which culminated in the trustee’s complaint were: -

(a)    For the first 2 months after the commencement of Mr. CHOI’s bankruptcy, Mr. CHOI paid only a monthly contribution of HK$1,500 as opposed to the agreed sum of HK$5,690.

(b)   Mr. CHOI was interviewed in January 2004 about his payment shortfall for the preceding 2 months.  Mr. CHOI gave the reason he needed to make payment of a monthly sum of HK$2,000 to his grandmother who had moved out of his flat to live in the mainland.  Mr. CHOI’s explanation was not accepted by the trustee, as a financial allowance had been set aside for the grandmother in Mr. CHOI’s monthly expenditure calculations.  Mr. CHOI also complained he did not have enough money to spend.  Mr. CHOI told the trustee he overspent an extra HK$2,000 each month since December 2003.  The trustee, however, made no enquiry with Mr. CHOI as to why Mr. CHOI needed an extra monthly sum of HK$2,000 in addition to his original forecast of HK$13,310 monthly expenses.

(c)   In the same interview the trustee learnt from Mr. CHOI that in January 2004 Mr. CHOI had received a sum of HK$5,000 bonus payment for the year of 2003.  Mr. CHOI gave the trustee the blank answer that he had already spent the bonus payment HK$5,000.

(d)   In this meeting the trustee attempted to negotiate with Mr. CHOI for a new payment schedule.  The trustee proposed to increase Mr. CHOI’s monthly allowance to HK$14,000 while Mr. CHOI had to repay the arrears of his monthly contribution for the months of November and December of 2003 as well as the bonus he received for the year of 2003 by way of instalment payments.  Mr. CHOI did not agree to the proposal of the trustee and no agreement was reached regarding the monthly contribution of Mr. CHOI.

(e)    The trustee subsequently recovered the 2003 bonus payment of HK$5,000 from Mr. CHOI’s bank account.

(f) Mr. CHOI finally reached agreement with the trustee on 1 April 2004.  The agreement was for Mr. CHOI to have a monthly allowance of HK$14,000 and the contribution to be paid to the estate was HK$5,000 per month.  Mr. CHOI also undertook in the same agreement to pay over to the estate his receipts when his income or payment exceeded the monthly wages of HK$19,000.  Such payment arrangement commenced on 1 May 2004.

(g)   In between the months of May 2004 and March 2007 Mr. CHOI made payment of the monthly sum of HK$5,000 to the estate.

(h)   On 13 March 2007 a staff of the trustee office noted a sum of HK$3,847 was paid into Mr. CHOI’s estate on 26 February 2007.  The staff of the trustee office contacted Mr. CHOI to make enquiry about the payment of HK$3,847.  Mr. CHOI told the staff of the trustee office that the sum of HK$3,847 was the balance of the bonus payment he received from his employer for the year of 2006 after he made payment for his salary tax.  As Mr. CHOI made no mention of the yearly bonus for 2005, staff of the trustee office asked Mr. CHOI whether he received any bonus payment for the year of 2005.  Mr. CHOI gave the answer that he received no bonus payment for the year of 2005.

(i)  Mr. CHOI was asked by the trustee office to supply his tax return and his salary statement for checking.  Mr. CHOI told the staff of the trustee office that he no longer had his salary statement.  From the tax statement provided, the trustee discovered the income Mr. CHOI reported to the Inland Revenue Department exceeded the monthly wages of HK$19,000 reported by Mr. CHOI to the trustee office.  As Mr. CHOI did not supply the trustee office with his salary statement, the trustee could not make proper calculation of Mr. CHOI’s monthly income.

(j)  On 17 April 2007 staff of the trustee office telephoned Mr. CHOI to enquire with Mr. CHOI about the discrepancy between his reported income to the Inland Revenue and the trustee office.  In this telephone conversation Mr. CHOI admitted that he had in fact received a bonus payment for the year of 2005.  When Mr. CHOI was confronted with the question why he previously lied to the staff of the trustee office about not receiving any bonus payment for the year of 2005, Mr. CHOI evaded his responsibility by suggesting he was not aware of his obligation to report to the trustee about his bonus payment.

(k)   The trustee subsequently compared the tax returns of Mr. CHOI and the annual statements furnished by Mr. CHOI to the trustee for the years of 2004, 2005 and 2006.  The trustee was unable to match the income of Mr. CHOI between the 2 sets of income statements.  On 27 April 2007 the trustee invited Mr. CHOI for an explanation between the amounts of his income in the 2 sets of statements.  In this conversation Mr. CHOI admitted he had received a bonus payment of HK$33,655.10 for the year of 2006 in January 2007.

(l)  In his annual statement supplied to the trustee Mr. CHOI crossed out “bonus” from his annual statement for the period of 23 July 2005 and 22 July 2006.

(m) Mr. CHOI did not inform the trustee about his tax refund of HK$7,299 which he received on 26 September 2005.  It was when Mr. CHOI was confronted about the difference in the amounts between his annual statements and his tax returns in the telephone conversation of 27 April 2007 that Mr. CHOI told the staff of the trustee office he had in fact received a tax refund of HK$7,299.

(n)   During the conversation of 27 April 2007 Mr. CHOI was requested to fax his rental receipt to the trustee for checking.  Upon receipt of Mr. CHOI’s rental agreement, the trustee’s staff came to realize Mr. CHOI had since 1 October 2005 moved to a smaller apartment.  Mr. CHOI’s rental outlay had been reduced by a sum of HK$1,500 per month since April 2005.  Mr. CHOI felt he had no obligation to inform his trustee about his change of financial needs or to pay over to his estate the sum of HK$31,500 (HK$1500 x 21 months) in respect of his reduced rental payments.

8. Mr. CHOI opposed the trustee’s application for suspension of his automatic discharge.  Mr. CHOI gave his explanations by way of affirmation.  In his affirmation Mr. CHOI suggested it was a misunderstanding on the part of the trustee to comment he had been uncooperative.  Mr. CHOI said his work took him out of his office.  Often he had no chance to answer his telephone calls.  Mr. CHOI said he made errors in his annual return because he did not understand his disclosure obligation.  In any event he had already paid back to the estate what the trustee demanded of him by 4 July 2007.  Mr. CHOI urged this court to exercise the court’s discretion in his favour and refuse the trustee’s application for the extension of his bankruptcy period.

9. According to the events related by the trustee, I accept Mr. CHOI’s conduct after the commencement of his bankruptcy has been unsatisfactory.  It is obvious that Mr. CHOI did not accept he has an obligation of frank disclosure with his trustee about his income and his financial outlay.  Mr. CHOI failed to make diligent payment of his contribution to his estate during the commencing months of his bankruptcy period.  Mr. CHOI failed to report his receipt of bonus payments, his reduction of rental outlay and his receipt of tax refund.  When specifically asked about his bonus payment for the year of 2005, Mr. CHOI lied and denied having received bonus payment for the year of 2005.  Mr. CHOI was not prepared to disclose the various payments he received until he was confronted with hard facts. 

10. I do not accept Mr. CHOI’s purported explanation that he was unaware of his obligation to make frank disclosure of his bonus payment or other receipts on top of his monthly income of HK$19,000.  It was clearly written in his agreement signed on 1 April 2004 by Mr. CHOI that he acknowledged an obligation to pay over income (inclusive of bonus, allowance, double pay and gratuity payments) above HK$19,000.  Further, the receipt of his bonus payment for 2003 was one of the key areas of discussion in the interviews and negotiations between the trustee and Mr. CHOI since the beginning of 2004.

11. Mr. CHOI made no voluntary disclosure of his income and his financial outlay throughout the 4 years of his bankruptcy.  He provided the trustee with no salary slip for checking purposes.  The trustee had to press Mr. CHOI for the supply of his tax returns and other information to discover the inaccuracy of Mr. CHOI’s reported income and expenses.  I accept the non-disclosure of Mr. CHOI was voluntary and deliberate.  It was towards the end of the 4 years period, after the taking out of the present application to suspend his bankruptcy period, that Mr. CHOI repaid the outstanding contribution of HK$52,458 to the estate in May 2007 by 3 different instalment payments and another sum of HK$30,000 on 4 July 2007 in respect of the difference of his rental outlay.

12. Minor breaches of Mr. CHOI such as his failure to make separate declaration of his change of residence can be ignored.  This minor breach can be condoned for the purpose of the present suspension application since Mr. CHOI did state his new residence in other documents supplied to the trustee.

13. I do bear in mind the rehabilitative approach of the bankruptcy regime.  Nevertheless the bankruptcy regime would not have worked without the full and frank disclosure on the part of the bankrupt [per Le Pichon, J (as she then was) in Li Tat Kong HCB 741/1995].

14. Mr. CHOI’s non-disclosure acts manifested persistently throughout the 4 years period. Mr. CHOI’s conduct and response has certainly made the administration of the estate more onerous.  Bearing in mind other suspension cases such as Yeung Kwok La HCB 813/1998; Tang Yiu Tong HCB 72/1999; WU Wing Lung HCB 1415/1999; Lo Man HCB 11719/2002, I consider it equitable in exercise of my discretion to order a period of 9 months suspension of Mr. CHOI’s bankruptcy period.

15. I also grant an order nisi for the trustee to have the costs of this application.