RE WONG WAI GING

HEADNOTE

            Bankruptcy. S.9(3) of C.6. 15% rule. Burden of proof in satisfying Court that there are insufficient assets after relevant deductions to amount to a dividend of 15%.

            Factors to be weighed in the exercise of the Court's discretion to make a Receiving Order.

IN THE SUPREME COURT OF HONG KONG

IN BANKRUPTCY

Action No. B98 of 1985

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JUDGMENT

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1. This is an application by the judgment debtor to set aside the petition on the grounds that her assets available for division among the unsecured creditors, after payment of all costs, charges and expenses would not be sufficient to pay a dividend of 15 per cent. Unfortunately, there are several conflicting judgments on this subject and the law is by no means clear. At the conclusion of the hearing I informed the parties that I would make a Receiving Order and in due course give my written reasons to support the conclusion I had reached. This I now do.

2. The petitioning creditor, Citibank, N. A., obtained judgment against the judgment debtor on the 8th of October 1984 in the sum of $161,483.59 together with continuing interest at the rate of 19?per cent from the 21st of August 1984. The judgment debt related to the judgment debtor's failure to comply with the terms and conditions of a mortgage entered into in February 1982 which was secured on a flat situated at Shatin in the New Territories.

3. The petitioning creditor issued a bankruptcy notice on the 1st of February 1985. The judgment debtor both in the original proceedings and in the present bankruptcy proceedings filed a series of affirmations. In her affirmations, she refers to the fact that she recently obtained a divorce. She obtained a Decree Nisi on the 13th of April, 1983. She has three young children and it is her contention that it is a full-time job for her to look after her young children.

4. I regret that the contents of the various affirmations are by no means satisfactory. There is a lot of conflicting evidence contained therein. Originally it was contended by the judgment debtor that she was solely dependent for her support upon her elder brother. She then modified her position and referred to the financial support she was receiving from her ex-husband. However, the main problem which arises in connection with these affirmations is that exhibited to them are the pass sheets of a current account with the Hang Seng Bank and a savings account with the Hongkong & Shanghai Banking Corporation. It is immediately evident from a perusal of these pass sheets that substantial sums of money have been credited to the current account with the Hang Seng Bank and no information or explanation concerning these sums is contained in the affirmations. For example, approximately $15,000 in a number of remittances was credited to this account between January and April 1985. In April 1984 the sum of $117,000 was credited to the account. During the course of the proceedings before me the judgment debtor stated on affirmation that the said sum had been transferred from a savings account in her name at the Hang Seng Bank. She admitted that she had not furnished any particulars of this further savings account.

5. A further difficulty arising on the affirmations was that the judgment debtor exhibited a copy of an assignment of the flat at Homantin Street where she is presently residing with her children dated 18th of July, 1984 where she purports to assign to her brother her half share in the property for a consideration of $200,000. Nowhere in the affirmations does she provide any explanation as to what she did with this money.

6. Mr Frankie Leung who was representing the petitioning creditor and Mr Woollard for the Official Receiver both made submissions to me in relation to the unsatisfactory nature of the evidence which had been deduced by the judgment debtor and for the necessity for there to be an investigation into the judgment debtor's affairs.

7. I decided that the most appropriate cause of action to adopt would be to invite the judgment debtor to go into the witness box and attempt to clarify or explain the manifest inconsistencies. She accepted my invitation. The main thrust of her explanation was that a friend of hers, Mr Jim, also used the current account with the Hang Seng Bank. She said that he was a superstitious gentleman and he thought that it would bring him good fortune if he associated himself with her affairs. Later on in her evidence she said that her ex-husband also used this account and the reason she gave for him doing so was that he was too lazy to open a separate account of his own. Both Mr Leung and Mr Woollard subjected the judgment debtor to cross-examination and I think that it would be fair to state that the judgment debtor in no way satisfied me either that she was telling the truth from the witness box or that the contents of her various affirmations were true and accurate.

8. I will now turn to the legal position. Section 9(3) of the Bankruptcy Ordinance reads:

"If the court is not satisfied with the proof of the petitioning creditor's debt or of the act of bankruptcy or of the service of the petition, or is satisfied by the debtor that he is able to pay his debts, or is not satisfied that the assets for division among the unsecured creditors, after payment of all costs, charges and expenses, and the debts which are preferential under this Ordinance, will be sufficient to pay a dividend of 15 per cent, or considers that for other sufficient cause no order ought to be made, the court may dismiss the petition."

So far as the so-called 15 per cent rule is concerned, there are two matters which should be borne in mind. The first is the question of the court not being satisfied that the assets for division amongst the unsecured creditors after the deductions referred to will be sufficient to pay a dividend of 15 per cent. The second consideration is the discretion reposed in the court for deciding whether or not the petition should be dismissed.

9. It is in connection with this first consideration that difficulties have arisen. The problem which has arisen is where does the burden of proof lie. Does the burden of proof rest on the petitioning creditor or does it lie with the judgment debtor? The Court of Appeal in Re : Rite-Tex Garment Factory⁽¹⁾ held that the burden rested with the judgment creditor. In the course of his judgment; Silke, J. A., referred to the judgments of Leonard, J. in Re : Noel Earnest Lee⁽²⁾ and the judgment of Clough, J. in Re : Fan Hung Sang⁽³⁾ both of which judges supported this view. In addition to this, Mantell, j., reviewed the law in Re : CHUNCG Cheuk-man and CHUNG Cheuk-wi trading as Lee Kee Motors Co.⁽⁴⁾ Mantell, J. came to a similar conclusion. It is my understanding of the judgments in all of these cases that importance was attached to the specific wording of section 9(3). There is nothing in this section which imposes any duty or responsibility on the judgment debtor to prove anything. This cannot be read into or implied in the section.

10. Jones, J. who has been performing the duties of the Company & Bankruptcy judge takes a different view of the matter. He takes the view that the burden lies upon the judgment debtor. He gives his reasons for coming to this conclusion in Re : Antony Lo Hong Sui.⁽⁵⁾ If I understand the position correctly, Jones, J., attaches considerable weight to the English cases where the court exercises its discretion on the subject of making Receiving Orders. In particular, reliance is placed upon the judgment of Vice Chancellor, Sir Robert Megarry in Re : Field, a debtor.⁽⁶⁾ With the greatest respect to Mr Justice Jones I have come to the conclusion that the English cases are not very helpful as the 15 per cent rule does not apply in England. This part of our Ordinance is unique to Hong Kong.  I am further reinforced in coming to this conclusion by the judgment of Nourse, j. in Colchester Estates (Cardiff) v. Carlton Industries PLC.⁽⁷⁾ Here it was held that where there are conflicting decisions in judgments at the same level, it is proper to take cognizance of the last decided case. Mr justice Mantell's judgment was handed down on the 20th of August, 1985 whereas Mr Justice Jones' decision was delivered on 29th of March, 1985.

11. The next matter I have to consider is whether the judgment creditor has placed before me sufficient information to enable me not to be satisfied that the assets for division among the unsecured creditors after the various deductions will be sufficient to pay a dividend of 15 per cent. I do not think that the judgment creditor has been able to establish this. All they have succeeded in doing is to create grave suspicions concerning the evidence which has been given by the judgment debtor. I suspect that in the majority of cases judgment creditors will not be able to discharge this burden. However, for the reasons I will be giving I do not think that this is necessarily a matter of much importance. What is of importance is the manner in which the court will exercise the general discretion which is reposed in it under the sub-section.

12. The manner in which this discretion has been exercised has been considered in two cases. Noel Earnest Lee ⁽²⁾ and Hang Seng Bank Ltd. and HO Sum.⁽⁸⁾ In the former case Leonard, J. considered the factors which should be weighed in exercising the discretion and in the latter case I myself undertook a similar exercise. The making of a Receiving Order is a matter of public interest. There is no doubt in my mind that the factual situation I have outlined in the present case cries out for an investigation to be undertaken. I am fortified in this view by the submissions of Mr Woollard who submitted to me that he considered that it was necessary that the judgment debtor's affairs should be investigated and that on the information presently available he was by no means satisfied that if an investigation is undertaken, it will not be possible to trace or locate assets which will amount to more than 15 per cent of the present judgment debt. In any event the investigation would not be limited to this. There is no doubt in my mind that the affairs of this judgment debtor should be investigated and a Receiving Order should be made for this purpose. It was for this reason that I ordered that a Receiving Order should be made.

(1)(unreported) Civil Appeal 25 of 1985

(2)1974 HKLR 313

(3)(unreported) Bankruptcy No. 7 of 1982

(4)(unreported) B232 of 1985

(5)(unreported) No. 271 of 1984

(6)1978 2 All ER 981

(7)1984 Vol. 28 Solicitors' journal 664

(8)1983 HKLR 253

(2)(1974) HKLR 313