RE LING KAM CHUNG

HCB 12052/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPCTY PROCEEDINGS NO. 12052 OF 2003

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D E C I S I O N

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Introduction

1. The bankruptcy petition herein was presented on 20 June 2003 in respect of a debt owed by the Debtor ("the Debtor") pursuant to a judgment entered against him in the Small Claims Tribunal on 28 March 2003. The judgment debt was in the amount of $51,078.19, being service charges due to the Petitioner in respect of the incorporation of seven companies, interest and costs in the Small Claims action. A Statutory Demand dated 3 April 2003 was duly served on the Debtor personally on 16 May 2003. The Debtor neither complied with the Statutory Demand nor applied to have it set aside.

2. In essence, the Debtor opposed to the petition on the ground that he is not liable for the debt which was the debt of Sino Team Holdings Limited ("Sino Team"), a company of which he was one of the directors. In his affirmation filed in opposition to the petition, he stated that the seven companies were provided by the Petitioner to Sino Team which is now insolvent. The services were rendered during the period from 25 June to 24 September 2002. The company kits of these seven companies were delivered to Sino Team with bills addressed to the persons to be appointed to the respective boards of the seven companies. As he was not the intended recipient, he took the view that he should not be solely responsible for paying the bills.

3. In court, the Debtor supplemented that he was not a director of any of the seven companies and the Petitioner did not demand for the service charges until January 2003, six months after the services were rendered. He said he was not aware of the Small Claims action as he seldom returned to his home in Sai Kung. He alleged that he had lodged an appeal on 30 July 2003 and was granted leave to appeal but no date has been fixed for hearing. He produced a machine printed receipt from the Small Claims Tribunal. Even accepting what he said about his application to the Small Claims Tribunal, the "appeal" he referred to must have been an application to set aside an ex parte award of the tribunal under section 32A of the Small Claims Tribunal Ordinance, which has not yet been heard and not that he has been granted leave to appeal by the Court of First Instance or that the award has been set aside with an order for re-trial on a date to be fixed.

Whether the conditions for granting of bankruptcy order are satisfied

4. There is no dispute that the Debtor is domiciled in Hong Kong. The Petitioner is allegedly a creditor of the Debtor. The questions for me to decide are (1) whether the conditions under section 6 of the Bankruptcy Ordinance are satisfied and (2) whether I should exercise my discretion to stay or to dismiss the petition.

5. The amount of the debt is a liquidated sum well exceeding $10,000 as fixed by section 6(2)(a) and is payable immediately. The Statutory Demand was served on the Debtor on 16 May 2003 and he has made no application to have it set aside within 18 days of service on him of the demand. As three weeks have elapsed since the demand was served and the demand has neither been complied with nor set aside, the Debtor is deemed under section 6A(1)(a) to appear to be unable to pay the debt. Thus, the Petitioner has proved the grounds of the petition under section 6.

6. The Debtor's opposition does not touch any of those grounds. In effect, he disputes his liability to the debt. However much this may be appealing to a layman, this is not the issue to be determined in these proceedings. Thus, prima facie, a bankruptcy order may be issued. The next question is whether I should exercise my discretion to stay or to dismiss the petition.

Discretion to stay or to dismiss a petition

7. In considering whether to exercise its discretion to stay or to dismiss a petition, the court has to decide which is more just and convenient. The interests of justice require the court to have regard, among other things, to the conduct of the parties and the chances of the debtor's success in his dispute on liability. The Bankruptcy Ordinance provides a regime for personal insolvency which is not intended and should not be used as a machinery for resolving substantial disputes on liability. Thus under this regime, the bankruptcy proceedings begin with a statutory demand. Part III of the Bankruptcy Rules provides for the form and contents of the demand and the procedures for service and for setting it aside where there is a genuine dispute as to liability for the debt which formed the subject matter of the bankruptcy petition. Section 6(d) of the Bankruptcy Ordinance imposes a condition that there is no outstanding application to set aside the statutory demand before a bankruptcy order will be made. The purpose is to filter away cases where there are disputes as to liability so that genuine insolvency cases will be processed under the regime in an expeditious and cost effective manner. If a debtor deliberately allowed himself to be filtered through into this stage of the process when a bankruptcy order will be issued almost as a matter of course, he cannot complain if he receives what his conduct would bring him in the normal course of event. If he was guilty of wilful default, it is not for the court to rush to his assistance and exercise its discretion to deliver him from the consequence of his own wrong doing. If the court forms the view that he has a bona fide defence to the claim, it is a powerful consideration in favour of staying the petition or even dismissing it altogether. If on the other hand, the court forms the view that the Debtor would not succeed or would probably not succeed, that is a powerful consideration not to exercise the discretion.

8. The Debtor disputes his liability to the debt saying it was Sino Team's debt and not his. At the last hearing before Deputy High Court Judge Lam, as he then was, the Debtor raised his application to set aside the award as his ground of objection to the petition. He was directed to file an affirmation setting out the facts in support of his ground of objection. Despite that, he did not depose to the setting aside application in his affirmation. Instead, he repeated his allegation orally in court and produced a receipt from the Small Claims Tribunal. Had he applied to have the award set aside, he would have been given a hearing date in two to three weeks' time. Had he genuinely obtained leave to set aside the award as he alleged verbally in court, he would have been given an order to that effect and a hearing date for the re-trial of the claim. I consider his allegation very dubious. In view of his delay in his application and his failure to depose to the facts he intended to rely on in his affirmation and the dubious nature of his allegation, I can only give little weight to what he said in court.

9. Furthermore, according to his affirmation, he knew about the bills being presented to Sino Team for settlement by the directors appointed to the boards of the seven companies. He said six months later, he was presented with the bills for payment, which he thought was not his liability. In January 2003, the Petitioner demanded payment from him by writing to his home address in Sai Kung. Despite he had knowledge of all those events, he claimed he had no knowledge at all of the Small Claims action because he did not return to his home. He must have been served the claim form and the notice of hearing by post at his home address on one occasion and the subsequent award on a second occasion. It is incredible that the mails on both occasions went astray without his notice. If he subsequently received either of them, he has offered no explanation why he did not promptly apply to the Small Claims Tribunal to have the award set aside earlier. Even if he had no notice of the Small Claims award in March 2003, he must have notice of the award when the Statutory Demand was served on him on 16 May 2003 and again when the petition was served on him. Despite all these events, on his allegation, it was not until 30 July 2003, i.e. two weeks before the first hearing of this petition that he applied to have the Small Claims award set aside. The inordinate delay casts serious doubt on the truthfulness of his case that he had no knowledge of the Small Claims action.

10. There is nothing to suggest the award obtained by the Petitioner in the Small Claims Tribunal is irregular. Thus to set aside the award, the Debtor has to satisfy the Tribunal that he had not received the notice of hearing and that he has a reasonable explanation for his delay in making the application. In addition, he has to show a meritorious defence. Though he gave a plausible defence in his affirmation, the affirmation is wanting in particulars as to show that he has a reasonable chance of success and a reasonable explanation for his delay. Whether the award would be set aside is not a question for me. Suffice it for me to say that in view of the inordinate delay and lack of explanation for the delay, the application does not stand a good chance of success.

11. The Debtor said he was a layman and did not know the law and procedure. He was served the Statutory Demand on 16 May 2003. Rule 44 of the Bankruptcy Rules stipulates the contents to be included in the statutory demand. The various forms of statutory demand are also prescribed by the Bankruptcy (Forms) Rules. Form 163 which is the relevant form used in this petition contains a conspicuous warning that it is an important document and the recipient must deal with the demand within 21 days of its service upon him. It contains a succinct description of the debt, the amount and when it was incurred. It contains conspicuous and clear directions to the recipient as to how to comply with a statutory demand within 21 days or have it set aside within 18 days of service. Towards the end of the form are the following words in bold print:

"Remember: You have only 21 days from the date of service on you of this document before the creditor may present a bankruptcy petition."

The warning and caution are so conspicuous that there could be no excuse for a layman to say that he does not know the law and procedure, does not know that he should apply to have the statutory demand set aside if he wishes to dispute liability to the debt stated in the demand, does not know the appropriate court for making the application and does not know the consequence of not applying to have the statutory demand set aside. Yet, despite these clear instructions as to what he should do to set aside the Statutory Demand, the Debtor took no step to comply with it within 21 days or to apply to have it set aside within 18 days. He simply ignored it and resolutely determined not to pay. The Petitioner is put to the expenses and inconvenience of proceeding with the petition. In my view, the Debtor has deliberately allowed himself to be filtered into this stage of the process by reason of his wilful default.

Conclusion

12. The Debtor's unexplained delay in applying to set aside the award, the poor prospect of his success in the setting aside application and in the re-trial and his wilful default in his handling of the Statutory Demand weigh heavily against my exercise of discretion in the Debtor's favour.

13. I now turn to the balance of convenience in the event that I am wrong in refusing to exercise the discretion. If I exercise my discretion in favour of the Debtor and if he will be unsuccessful in his application to set aside the award or unsuccessful in the event of a re-trial, it will be a waste of time and a prejudice to the Petitioner to stay or to dismiss the petition even on terms that the Debtor shall pay the Petitioner's costs. On the other hand, if I am wrong in not exercising my discretion to stay or dismiss the petition in that the award will be set aside, the Debtor will still be able to timeously apply for a stay of the bankruptcy order pending adjudication of the claim as soon as a hearing date has been fixed for the re-trial. But in view of his history of wilful default, even if a date has been fixed for hearing the application to set aside the award, I have no confidence that he will prosecute the application or his defence at the re-trial with diligence, which will result in delay and prejudice to the Petitioner. The Debtor needs the force of the bankruptcy order to give him the impetus to prosecute his setting aside application and thereafter to defend the claim as the onus will then be on him to expedite the setting aside application and the final determination of his liability. In the circumstances, on balance, I think it a more just and convenient not to exercise my discretion to stay or to dismiss the petition. According, I make the usual bankruptcy order with costs.