RE LEE RAYMOND CHO MIN

CACV 112/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 112 OF 2014

(ON APPEAL FROM HCB NO. 7453 OF 2009)

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AND

CACV 113/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 113 OF 2014

(ON APPEAL FROM HCB NO. 7452 OF 2009)

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(Heard Together)

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REASONS FOR JUDGMENT
AND
ORDER NISI FOR COSTS

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Hon Lam VP:

1.  I agree with the judgment of Yuen JA and the order she proposes.

Hon Yuen JA:

2.  These are appeals by Raymond Cho Min Lee (“RL”) and his wife Priscilla Hwang Lee (“PL”), collectively referred to as “the Bankrupts”, from the orders of Master Hui given on 9 May 2014 suspending their discharge from bankruptcy.  The appeals were heard together.  At the conclusion of the hearing, we dismissed the appeals and said we would give our reasons in writing later.  My reasons appear below.

Background

3.1   In April 2009 petitions for bankruptcy were presented against RL and PL in Hong Kong by Value Partners Strategic Equity Fund (“Value Partners”).  Subsequently on 27 May 2009 petitions for bankruptcy were presented against them by Winchesto Finance Co Ltd (“Winchesto”). 

3.2   RL and PL sought an order that the petitions be consolidated.  This was resisted by Winchesto.

3.3   RL and PL defended Winchesto’s petitions but on 31 August 2009 bankruptcy orders were made against them.  Value Partners’ petitions were stayed. 

3.4   On 23 September 2009 John Lees and Mat Ng were appointed trustees in bankruptcy (“the Trustees”).

Trustees’ applications for suspension of discharge

4.1   Pursuant to s.30A(1) and (2)(a) Bankruptcy Ordinance, Cap 6 (“BO”), the Bankrupts would have been discharged from bankruptcy on the fourth anniversary of the bankruptcy orders ie. on 30 August 2013. 

4.2   However on 26 July 2013, the Trustees filed applications under s.30A(3) BO for an order suspending their discharge for two years.

4.3   The Trustees’ applications were made on two grounds:

(1) under s.30A(4)(c) BO - that the Bankrupts have failed to co-operate in the administration of their estates; and

(2) under s.30A(4)(d) BO - that the conduct of the Bankrupts, both before as well as after the bankruptcy orders, had been       unsatisfactory.

4.4   Evidence was filed by the Trustees and by RL for himself and on behalf of PL.

Master’s judgment

5.1   The hearing before the master took place on 7 January 2014 and 19 March 2014.

5.2   On 9 May 2014 the master handed down judgment.  He found the Bankrupts had failed to co-operate in the administration of their estates, and that their conduct, both before as well as after the bankruptcy orders, had been unsatisfactory. 

5.3   In the exercise of his discretion the master suspended their discharge of bankruptcy - in the case of RL for 18 months, and in the case of PL, for 15 months.     

 Principles applicable to deciding applications for suspension

6.  It is well-established that an application for suspension of discharge from bankruptcy should be considered in two stages:

(1) the court should first determine whether one or more of the grounds mentioned in s.30A(4) has been established; and if established,

(2) the court would then move on to consider whether or not, in the exercise of its discretion, a suspension of discharge should be ordered,

- having regard to all the circumstances of the case, including the nature of the acts complained of and the post-bankruptcy order conduct of the bankrupt, and

- bearing in mind the two main objectives of this part of the BO:

(a) the rehabilitation of the bankrupt by allowing him to resume a normal commercial life, as well as

(b) the public interest in ensuring that the return of the bankrupt to the commercial world would not carry with it an unacceptable risk to persons who may be engaged in commercial relations with him, and in preserving commercial morality.

(Re Wong Hing Wah Michael, a bankrupt HCB26018/2002, para. 14 and Fred Lee v Lau Chi Kam [2008] 3 HKLRD 627, para. 10 ).

7.  There had been some debate in the past about the standard of gravity of conduct which would warrant suspension if the unsatisfactory conduct complained of is pre-bankruptcy order conduct.  It is now clear that suspension may be ordered only if the pre-bankruptcy order conduct was grave but it need not be “exceptionally” grave: Tang Kai Mo v Fred Lee [2009] 1 HKLRD 87, paras. 30-32.

8.  As to what is meant by “unsatisfactory” pre-bankruptcy order conduct, it was held in Lau Chi Kam (para. 10) that the test for determining whether pre-bankruptcy order conduct was unsatisfactory was whether society would be prepared to condone such conduct without any expression of disapproval.  Examples of unsatisfactory pre-bankruptcy order conduct were preference of creditors, concealment of assets and fraud.  At the other end of the scale were poor judgment, misfortune, supervening events and circumstances beyond the bankrupt’s control.  In between these two extremes were situations associated with human weakness, indulgence, rashness, recklessness and irrational decisions, which, depending on the circumstances, may or may not be unsatisfactory conduct.      

9.  There is no dispute about these principles.  Nor is it suggested that the master was not aware of them. The Bankrupts’ arguments on appeal were that:

(1) the Trustees had failed to establish any of the grounds of       complaint;

(2) even if the Trustees had established one or more of the grounds, the court should not have exercised its discretion to suspend discharge;

(3) even if suspension was warranted, the periods of suspension should be reduced to nine  months in the case of RL and six months in the case of PL.

Matters supporting the Trustees’ application

10.  The Trustees referred to the following facts as showing unsatisfactory conduct and failure to co-operate:

pre-bankruptcy order - 

(1) the withdrawal of an amount of HK$5m from the Bankrupts’ joint bank account, which amount was paid by way of “loan” to a company they controlled, which company then paid for the Bankrupts’ expenses even after the bankruptcy petitions had been presented;

post-bankruptcy order - 

(2) the actions taken by the Bankrupts in proceedings taken out by the Trustees in the United States - the proceedings comprised first, an application under Chapter 15 of the US Bankruptcy Code (“the Chapter 15 application”), and then a motion for the Bankrupts to turn over their shares in a number of US companies (“the Turnover Motion”);

(3) RL’s failure to provide a copy of a family settlement agreement to the Trustees;

(4) RL’s change of position regarding a sum owed to him;

(5) the Bankrupts’ delay in supplying documents sought by the Trustees regarding their income.

Pre-bankruptcy order -

(1) Withdrawal of HK$5m for “loan” to OCHKL for payment of expenses

11.1   The Bankrupts had a joint bank account.  On 25 February 2009 (about two months before Value Partners’ petition and three months before Winchesto’s petition), when the Bankrupts were “heavily engaged in litigation”, PL signed a cheque for HK$5m drawn on the account in favour of a company called Oasis Consulting Hong Kong Ltd (“OCHKL”) of which the Bankrupts were directors.

11.2   This amount was recorded in OCHKL’s books as a “loan” from PL. However according to information disclosed by the General Manager of OCHKL at an examination ordered by the court, it was not a loan but a “prepayment to cover [the Bankrupts’] expenses”.

11.3   From 7 May 2009 to 31 August 2009 (the date the bankruptcy orders were made), a total of HK$2,638,927.99 was paid out by OCHKL on behalf of the Bankrupts.  It is undisputed that of this total amount, a sum of at least HK$1.6m was paid out after the Winchesto petitions were presented on 27 May 2009.

11.4   These payments were made by OCHKL on the Bankrupts’ direction.  According to the General Manager, all payments were authorized by RL.  Accordingly even though the amount of HK$5m was withdrawn from the joint bank account by PL and was recorded on OCHKL’s books as a loan from PL only, it is clear that RL was not only aware of the transfer of this amount from his joint bank account, but was also actively involved in OCHKL’s use of the funds.  Indeed no point has been taken by RL that this ground did not apply to him as well as PL. 

11.5   The payments by OCHKL covered, amongst other things, the Bankrupts’ personal credit card expenses (about HK$81,000), travel and domestic expenses (about HK$126,600) and their legal and financial advisory fees ($850,000 and $300,000 respectively) throughout the three months between the presentation of Winchesto’s petitions and the bankruptcy orders. 

12.1   The master found that the Bankrupts, in making this arrangement, were putting their financial resources out of the reach of the general body of creditors. 

12.2   In my judgment there was sufficient evidence entitling the master to arrive at that conclusion. Although the Bankrupts had directors’ accounts with OCHKL before the HK$5m “loan” was made, the company had never made payments on their behalves before. No explanation was given by the Bankrupts as to why they chose to initiate this arrangement at a critical period of time when they were heavily engaged in litigation, nor as to why they continued the arrangement even though they knew petitions for bankruptcy had been presented against them. 

13.1   RL deposed that they “had not been advised” by their solicitors (Messrs Joseph Li & Co) that payments made after the date of filing of the bankruptcy petition were void under s.42(1) BO. 

13.2   However that statement without more does not assist the Bankrupts.  They have not disclosed whether they had told their solicitors beforehand of their plan to use OCHKL as a channel for the transfer of funds. As the master wrote in para. 69 of his judgment,

“Does it mean that they did ask Messrs Joseph Li & Co on this subject and they were told that the payments were valid? Or it only means that the Bankrupts did not ask and thus they were not advised. Assuming it is the former for the benefit of the Bankrupts, they said nothing about when did they ask, why did they ask and what exactly they were told. Most important of all is that there is no evidence from Messrs Joseph Li & Co in this regard”. (Emphasis added).

13.3   Before this court it was argued on behalf of the Bankrupts that the court should give the benefit of the doubt to the Bankrupts.  However in my judgment that principle cannot apply where the doubt is of the Bankrupts’ own doing.  They have chosen to disclose far too little evidence to the court, evidence of which only they are aware as the Trustees cannot verify their allegations with Messrs Joseph Li & Co who are subject to the constraints of legal professional privilege.

13.4   Assuming, contrary to the assumption the master made, that the Bankrupts had not told their solicitors of their plan, it is difficult to see why the solicitors should have anticipated it and given advice to pre-empt it. 

13.5   Further, given that the Bankrupts had access to legal advice throughout, it is striking that they nevertheless chose not to seek advice before proceeding with the new arrangement to channel payment of their expenses through OCHKL.

14.  As for the Bankrupts’ argument that at least the payments of their legal and financial advisory fees would have been validated had an application been made under s.42(1) BO, there has been no application for validation.  Further it is a matter for the discretion of the court whether to grant validation.  As far as legal fees are concerned, where fees are used in defence of a petition, factors to be considered include the viability of the defence.  No materials of this nature had been placed before the master in support of the argument that there would have been validation of legal and financial advisory fees.

15.  In view of the matters discussed above, I find the master was justified in finding that the Bankrupts’ pre-bankruptcy order conduct was unsatisfactory within the meaning of s.30A(4)(d) BO.

Post-bankruptcy order

(2)               Actions taken by the Bankrupts in the Trustees’ Chapter 15 application and Turnover Motion

16.1   I shall first consider certain relevant legal provisions.

16.2   First, there is a statutory duty on trustees to get in a bankrupt’s foreign property as s.55 BO provides:

“Where the bankrupt is possessed of any property out of Hong Kong, the trustee shall require him to join in selling the same for the benefit of the creditors and to sign all necessary authorities, powers, deeds and documents for the purpose, and if and so often as the bankrupt refuses to do so he may be punished for a contempt of court”.

16.3   Further, there is a statutory duty on the bankrupt to assist the trustees “to the utmost of his power” in the realization of his property as s.26(3) BO provides:

“[The bankrupt] shall aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors”.

16.4   These are the statutory duties that should inform and guide bankrupts in their conduct post-bankruptcy order.  In other words, not only should a bankrupt not resist the trustees in their efforts to get in his assets, he still fails in his statutory duty if he just remains inactive when called upon to act.  He has a positive duty to actively assist the trustees.  

17.  In the present case, the Bankrupts had shareholdings in a number of companies in the United States which owned and managed real estate properties there (collectively “the US Companies”).  Although the properties were mortgaged and their value had dropped due to the economic situation in the US, they nevertheless generated significant operating revenues, and in a number of cases, distributions in cash were made after servicing of the mortgage loans.    

18.  The Trustees first sought to freeze the Bankrupts’ bank accounts in the US.  The Bankrupts’ reaction was to instruct US lawyers to warn the banks that they (the banks) would have to bear the consequences if they acceded to the Trustees’ request.

- Chapter 15 application

19.1   The Trustees then issued a Chapter 15 application in the US Bankruptcy Court District of Massachusetts. This was not a bankruptcy petition.  The purpose of the application was to stay all creditors’ proceedings against the Bankrupts’ properties so as to preserve their assets.  

19.2   The Trustees’ application for an ex parte injunction was granted by Hon Judge Feeney, United States Bankruptcy Judge, on 25 November 2009.   

19.3   However the Chapter 15 application was opposed by the Bankrupts who filed a Response on 29 January 2010, and by the US Companies which filed an Opposition on the same day. 

19.4   In the Bankrupts’ Response, they argued that the proceedings in Hong Kong were not “foreign main proceedings” within the meaning of the Bankruptcy Code because Hong Kong was not the “center of main interest”.  The Response did not explicitly state for what purpose the Bankrupts denied that Hong Kong was the “center of main interest”.

19.5   However the US Companies’ Opposition expressly stated (at para. 15) that a finding that the Hong Kong proceedings were “non-main” would be “protective of, and serve the interests of non-Debtor interested parties in the United States, including the United States Companies, their employees, shareholders and creditors”.  It is clear therefore that the Bankrupts’ Response supported the US Companies’ Opposition. 

19.6   In addition on 1 March 2010 the Bankrupts filed a motion for summary judgment, for a ruling that their “center of main interest” was not in Hong Kong and that the Hong Kong proceedings should be regarded as “non-main”.

20.1   To cut a long story short regarding the Chapter 15 application, the parties (the Trustees, the Bankrupts and the US Companies) eventually executed a Stipulation on 25 February 2011 in which it was agreed, amongst other things, that the Bankrupts and the US Companies consented to the recognition of the Hong Kong proceedings as “main” proceedings, and that the US Companies would pay the Trustees the funds they owed to the Bankrupts, and that the Bankrupts would pay their salaries to the Trustees.  Clause 9 of the Stipulation further provided:

“Absent further order of the Bankruptcy Court or agreement of the Parties, the [Trustees] shall not take any action (other than commencing proceedings in the Bankruptcy Court) with respect to the [Bankrupts’] equity interests in the US Companies. All Parties’ rights are reserved with respect to the equity interests - including any Parties’ rights to bring an action in the US with respect to the equity interests. The equity interests are subject to the automatic stay imposed by §1520(a)(1)”.

20.2   The Stipulation was appended to an Order made by Judge Feeney on 28 February 2011 granting recognition of foreign main proceedings and related relief.

21.  Pausing here, it is clear that even though the Trustees’ Chapter 15 application was only to preserve the Bankrupts’ assets from execution by individual creditors, the Bankrupts did not assist the Trustees, nor did they just stay neutral, but took actions which served to advance the US Companies’ position, to the detriment of the Trustees.

22.1   The Bankrupts have sought to explain their actions by saying that the US Companies had separate lawyers, that they (the Bankrupts) were only minority shareholders in most of the US Companies, and that they owed a fiduciary duty to the other shareholders to adopt the same position. 

22.2   Taking the last point first, in my judgment that is ignoring the Bankrupts’ statutory duty under the BO to aid the Trustees to the utmost of their powers in the realization of their property.  It would seem unlikely that compliance with a statutory duty would be treated as a breach of fiduciary duty and there is no expert evidence on US law to that effect.  Further, the Bankrupts’ leading counsel agree that neutrality could not be regarded as a breach of fiduciary duty.  However the Bankrupts did not choose to remain neutral but actively challenged the Trustees’ application.  

22.3   The Bankrupts emphasized that the US Companies had separate lawyers and that they were minority shareholders.  In my view, these factors do not mitigate the Bankrupts’ conduct, because obviously the US Companies could look after themselves. 

23.  In these suspension proceedings, the focus is not whether the Bankrupts were responsible for what the US Companies did, but what they (the Bankrupts) themselves did.  They did not assist the Trustees but took an active part challenging the Chapter 15 application, thus rendering the Trustees’ work more onerous and leading to more costs being incurred in the administration of the estates.

- Turnover Motion

24.1   The next stage of the US proceedings was the motion filed by the Trustees for the Bankrupts to turn over their equity interests in the US Companies.  The Bankrupts filed an Objection and the US Companies filed an Opposition.

24.2   The Bankrupts’ objection was based firstly on an argument that the Trustees’ request “disobeyed” the prior order of the court, viz Clause 9 of the Stipulation (which has been set out above).  Judge Feeney did not find that there had been any such breach.  It is notable that the US Companies did not advance this argument, even though they were also parties to the Stipulation.

24.3   Both the Bankrupts and the US Companies argued against the turnover contending that (1) there were provisions restricting transfers of shares in the companies’ articles and (2) the turnover would trigger off defaults under certain mortgages of which RL was a guarantor, and that the “interests of creditors and other interested entities, including the [Bankrupts]” would not be sufficiently protected.  

25.1   Judge Feeney held in favour of the Trustees on all points.  In respect of (1), she noted that the vesting of the Bankrupts’ shares in the Trustees was not a transfer that would trigger the rights of first purchase (Memorandum dated 4 June 2012, p.55) and that the Trustees had testified that, if entrusted with the Bankrupts’ equity interests, they would abide by the transfer restrictions in the articles (p.52).  In any event the US Companies had known of the bankruptcies for some time and had waived whatever rights of first purchase they had (pp.57-8). 

25.2   In respect of (2), the judge noted that the Hong Kong bankruptcy proceedings were themselves events of default (p.32) and that none of the lenders had challenged the Chapter 15 application in order to enforce the default provisions or RL’s guarantee (p.54).  Finally she noted that “the provisions of the Bankruptcy Ordinance also provide sufficient protection – indeed more protection than what would be available under the Bankruptcy Code” (p.60).

25.3   Accordingly the judge granted the Turnover Motion on 4 June 2012.

25.4   There was no appeal by either the Bankrupts or the US Companies against the order.  Hence the Trustees were finally able to get in the Bankrupts’ shares in the US Companies, but it took substantial resources and time.   

26.  The actions taken by the Bankrupts in the US proceedings are relevant to these suspension proceedings. It is clear that they did not assist the Trustees, nor even stay neutral, but instead sought to challenge the Trustees’ actions which were taken in the performance of their statutory duty.   

27.1   The Bankrupts said they considered their opposition to be for the overall benefit of the creditors. However the Trustees had obtained the consent of the creditors before filing the Turnover Motion.  Further one cannot see how the creditors would have benefitted from the Bankrupts taking points on the Stipulation and on transfer restrictions, which arguments were for the sole purpose of preventing the Trustees’ access to their shares in the US Companies.  One can understand the US Companies (under the direction of the other shareholders) taking such points, but it is difficult to see how the Bankrupts can say that they were acting for the good of the creditors, who had been consulted by the Trustees and who had access to legal advice themselves.    

27.2   The Bankrupts also argued that Judge Feeney recognized that they and the US Companies made “cogent and sincere” arguments (Memorandum, p.59).  In the context of the Memorandum, it is clear that the judge was saying that their arguments were not frivolous or put forward in bad faith, but the judge was not seized of the issues before this court, which are whether the Bankrupts had failed to co-operate with the Trustees, and whether their conduct was unsatisfactory. 

28.  It is not necessary for the Trustees to establish bad faith.  It is clear beyond argument that the Trustees had a statutory duty to obtain the Bankrupts’ property and the Bankrupts had a statutory duty to aid them.  Contrary to their statutory duty, the Bankrupts did not offer up the shares, did not assist the Trustees when they sought them, did not stay neutral and actively put up obstacles in the Trustees’ way when they had to file proceedings in court to obtain them.  In my view, there was adequate evidence for the master to find that the Bankrupts had failed to co-operate with the Trustees, and that their conduct was unsatisfactory. 

(3) RL’s failure to provide a copy of a settlement agreement to the Trustees

29.1   RL is a member of an extended family which was involved in certain disputes.  The Trustees became aware that there had been a settlement agreement called the Global Settlement Agreement (“GSA”) and sought to ascertain whether he had been, and/or would be, entitled to payments thereunder.

29.2   By a letter dated 14 September 2010, the Trustees sought a copy of the GSA. 

29.3   On 22 September 2010 RL’s solicitors replied stating that

“all parties to the GSA are subject to a Confidentiality Clause which states that ‘except and to the extent as may be required by law ... none of the Parties shall at any time ... disclose any term thereof which is not in the public domain and the Parties shall each use all reasonable endeavours to keep the ... terms of this Agreement ... strictly confidential”.

The solicitors went on to say that unless there was consent from all the parties, they were unable to provide the Trustees with a copy of the GSA. 

29.4   The Trustees persisted and eventually instituted proceedings for discovery of various documents including a non-redacted copy of the GSA from the solicitors.  On 23 July 2012 they obtained an order from Recorder Chow for discovery of the GSA, amongst other documents.  The learned recorder held that the Trustees have effectively stepped into the shoes of RL by virtue of their appointment in relation to RL’s estate in bankruptcy and thus there could be no question of any breach of confidentiality arising from the production of the GSA to the Trustees (para. 44).

30.  The master accepted the Trustees’ submission that RL should have requested a copy of the GSA from his legal advisers and provided it to the Trustees, and that failure to do so was unsatisfactory conduct (para. 86). 

31.  It seems to me that that finding is not supported by the evidence.  RL’s solicitors did not refuse to provide the GSA on RL’s instructions.  Certainly that is not what their letter said, and there is no evidence that RL had influenced the solicitors in adopting the view they took.   The solicitors had also acted for various members of the Lee family in relation to the GSA back in 2004 (Recorder Chow’s judgment para. 8).  They asserted their professional view (rightly or wrongly) that the confidentiality clause would be breached if the GSA were supplied to the Trustees.  Recorder Chow held that that view was wrong.  However it seems to me that, as far as RL personally was concerned, there was no evidence for the master to hold that he (as a layman) should have known that the solicitors’ legal advice was wrong and should have risked breaching the GSA by providing a non-redacted copy of it to the Trustees. 

32.  Given the express provisions of the GSA, the solicitors’ view (though it failed to take into account the effect of the bankruptcy) would have appeared arguable to RL.  Importantly, given the solicitors’ view, had RL nevertheless provided the GSA to the Trustees, he would have been exposing himself to claims by the other parties that he had breached the GSA, with possibly significant ramifications.  In these circumstances I take the view that it has not been established that RL’s failure to provide a copy of the GSA to the Trustees was unsatisfactory conduct. 

33.  Having said that, it is important to emphasize that a bald assertion by a bankrupt that he was  acting on “legal advice” cannot be used as a defence to charges of failure to co-operate or unsatisfactory conduct.  As shown in my view that the Bankrupts’ challenge to the US proceedings did amount to  failure to co-operate and unsatisfactory conduct, but RL’s failure to provide the GSA did not, the court must consider all the circumstances, including the background of the case and the substance of the issue, and examine the legal advice (where available) to see if it was bona fide reasonably arguable, before determining whether the bankrupt’s conduct amounted to failure to co-operate or was unsatisfactory.

(4)  RL’s change of position regarding a sum owed to him

34.1   In OCHKL’s draft unaudited balance sheet as at 30 September 2009 which was supplied to the Trustees shortly after that date, a sum of HK$986,058.63 was stated to be “due to the Lees” (this amount is slightly different in other references, but the difference is minimal). 

34.2   On 29 January 2010, RL filed an affidavit in the Chapter 15 application, in which he said OCHKL owed him US$79,500.  (It would appear that the sum of HK$986,058.63 was derived from this US dollar sum). 

34.3   On 24 January 2011 the Trustees asked the Bankrupts when OCHKL would remit to them the sum due.

34.4   On 14 February 2011 the Bankrupts replied that they were not in a position to comment as they were no longer directors of OCHKL.  It was not asserted that the sum was not due and owing. 

34.5   On 16 August 2011 the Trustees demanded the sum from OCHKL, whose solicitors replied on 15 September 2011 saying that after OCHKL was formed in 2000, RL had advanced sums to it to meet its ongoing expenses, and these sums were “in the nature of quasi-capital or loan capital and not refundable”.  They said there was an “understanding” between RL and the ultimate holding company of OCHKL that the repayment of those funds would be “waived” and would be “non-refundable”.    

34.6   On 23 September 2011 (8 days after the reply from OCHKL’s solicitors) RL replied to the Trustees’s solicitors saying he too considered the sums to be “quasi-capital and non-refundable”, in other words, he took a position contrary to the one he had taken in his January 2010 affidavit, the “new” position being one which he had not asserted in his letter a few months previously.

34.7   The Trustees petitioned to wind up OCHKL.  The sum was then paid and the petition was dismissed on 25 February 2013.

35.  That RL had changed his stand (as to whether his estate was entitled to repayment of the debt) is obvious from the documentary evidence summarized above.  His later allegation that the sum was “non-refundable” was contrary to his affidavit in the Chapter 15 application and contrary to OCHKL’s own document showing a debt due and owing.  The fact that OCHKL eventually paid the Trustees is also evidence that contradicts his allegation. 

36.1   That is clear evidence on which the master was entitled to find failure to co-operate and unsatisfactory conduct.  On appeal it was argued on behalf of RL that the master had failed to take into account the fact that RL had voluntarily disclosed OCHKL’s debt to the Trustees, and that he would not have done so if he had wished to prevent the sum from forming part of his estate in bankruptcy.  If doubt remained, it should be resolved in RL’s favour. 

36.2   That argument ignores the fact that the Trustees had access to OCHKL’s draft balance sheet dated 30 September 2009 which acknowledged the sum owing to RL.  RL could not have concealed it.  What he tried to do was to argue that it was not payable, an argument that was clearly unmeritorius.

(5) The Bankrupts’ delay in supplying documents sought by the Trustees regarding their income

37.1   The Bankrupts’s leading counsel sought an amendment to the grounds of appeal to add that the documents sought by the Trustees were supplied on 26 March 2014, a week after the end of the hearing before the master.

37.2   I do not see how that helps the Bankrupts at all.  The Trustees’ US attorneys had asked for the documents on 5 August 2013, but they were not supplied even up to the second day of the hearing in March 2014.  Even if there had been any failure of communications initially between the legal advisers in the US and Hong Kong, by the time of the Trustees’ letter dated 31 December 2013 the Bankrupts would have been aware what documents were being sought. However they were not provided even by the second day of the hearing in March 2014. 

37.3   The documents sought were recent.  It should not have taken the Bankrupts any length of time to access and provide them.  No explanation has been proffered for their delay.  The master was clearly entitled to take the view that he did and it is difficult to see what is the Bankrupts’ complaint on this head.

Delay?

38.  The Bankrupts also contended that the court should have considered the delay of the Trustees in making the application for suspension in July 2013, shortly before the automatic discharge date.  I do not consider there was delay in the present case as this was not a simple administration.  The US proceedings were complex and time-consuming. The winding up petition against OCHKL was concluded only in February 2013 and the proceedings for discovery of (amongst other documents) the GSA were concluded only in May 2013.

Discretion

39.  Finally it was argued that as a matter of discretion, even if one or more of the grounds had been established, there should not be suspension, or at least suspension should be for a shorter period. 

40.  It would be seen from the discussion in this judgment that I take the view that the ground relating to the GSA has not been established.  However I do not see any ground for disturbing the master’s exercise of discretion in ordering an 18-month suspension for RL and a 15-month suspension for PL. 

41.  Their pre-bankruptcy order conduct in using OCHKL as a channel to pay for their personal expenses was clearly designed so that they could use the funds for their own benefit, and to put them out of the reach of the general body of creditors.  I do not think society would be prepared to condone payments for personal benefits (including domestic and travelling expenses) when petitions for bankruptcy had already been presented.  The Bankrupts had access to legal advice throughout.  Their evidence as to what they were “not” advised was neither full nor frank. 

42.  Post-bankruptcy order, in actively resisting the US proceedings launched by the Trustees, first for a stay and then to get in their US shares, the Bankrupts acted as if they were parties to ordinary hostile litigation with the Trustees as their adversaries. That was in stark contrast to their duty in law to aid the trustees to get in their assets for the benefit of the creditors. 

Order

43.  For the reasons set out above, we dismissed the appeal.  Although the Bankrupts have succeeded in overturning the ground based on failure to provide the GSA, that did not take up much time and I would make an order nisi that the Bankrupts pay the costs of the appeal.

Hon Kwan JA:

44.  I agree with the Reasons for Judgment and costs order nisi of Yuen JA.