LEUNG YAT TUNG v. THE OFFICIAL RECEIVER

CACV 271/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 271 OF 2006

(ON APPEAL FROM HCB 2019 OF 2000)

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Re: LEUNG YAT TUNG

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JUDGMENT

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Hon. Yuen JA:

1.  This is the Bankrupt’s appeal from an order made pursuant to s.30A(3) of the Bankruptcy Ordinance Cap. 6 (“BO”) that the period for discharge from bankruptcy should cease to run for a period of 4 years from 1 March 2005, i.e. that the Bankrupt’s discharge would take place only on 1 March 2009.  The master also ordered the Bankrupt to pay the costs of the Official Receiver (“OR”). 

2.  The grounds for the order were set out in the recital viz. that the Bankrupt had failed to cooperate in the administration of his estate (the ground specified in s.30A(4)(c) BO) and also that his discharge would prejudice the administration of the estate (the ground specified in s.30A(4)(b) BO).

Background facts

3.  The background facts are somewhat complicated and since they are pertinent to the appeal, it is necessary to set them out first before I turn to the master’s decision and the arguments on appeal. 

4.  The Bankrupt was the chairman and by his own admission the “driving force” of the UDL group of companies, UDL Holdings Ltd being a listed company.  They were originally substantial family companies carrying on the business of dockyards which had been started by the Bankrupt’s father.  After the father’s death the Bankrupt acquired most of the shares in the companies from his siblings. 

5.  In 1991 UDL was floated but land in Yau Tong was kept within the family and held by a company called Fonfair Ltd. 

6.  Fonfair was held as to 1/3 by the Bankrupt personally and as to 2/3 by a company called Money Facts Ltd.  Money Facts was owned   equally by the Bankrupt and his brother Leung Yuet Keung (“YK Leung”).  In other words, the Bankrupt controlled shares representing 2/3 of the Yau Tong land.

7.  In the few years before 2000 however, it would appear the companies’ financial position had deteriorated, resulting in a scheme of arrangement sanctioned by the court in 2000. 

8.  The Bankrupt was also personally involved in litigation.  In May 2000 in an action commenced against him by Healthy Wharf Ltd. a company controlled by YK Leung, judgment was given against him in the sum of about $3.5 million plus interest.

Petition for Bankruptcy

9.  When that judgment debt was not paid, on 14 June 2000 a petition for his bankruptcy was presented.  The Bankrupt opposed the petition and proposed repayment by way of instalments.  The Petitioner raised the issue of the Bankrupt’s non-disclosure of assets.  The Bankrupt agreed to give full disclosure and the hearing of the petition was adjourned to September 2000. 

10.  Shortly before the adjourned hearing, the Bankrupt filed some affirmations relating to his assets, but as the Petitioner remained concerned with non-disclosure, it rejected the offer of instalments and the petition was again re-fixed to be heard in February 2001.

Application for Interim Voluntary Arrangement

11.  Shortly before the hearing in February 2001, the Bankrupt served on the Petitioner an application for an interim voluntary arrangement (“IVA”). 

Non-disclosure and misrepresentation found by Cheung J (March 2001)

12.  The petition and the application for IVA were then heard at the same time in February 2001 by Cheung J (now Cheung JA).  The judge refused the application for an IVA and made a Bankruptcy Order as he considered that there were “serious deficiencies“ in the Bankrupt’s disclosure which caused him to have “grave doubts” over the Bankrupt’s candour.

13.  The judge strongly criticized the Bankrupt for his failure to make full disclosure of his affairs, only disclosing materials during the hearing and after the Petitioner’s counsel had made submissions (p.7):

“... he [the Bankrupt] chose to keep other information close to himself and only disclosed them when it is clear that his situation has become desperate”.

14.  As will be seen below, the judge criticised the Bankrupt’s reticence about his relationship with two trusts (called the Harbour Front Unit Trust and the 747 Trust) which at some point received shares in Money Facts and Fonfair itself (which as we have seen, owned the land in Yau Tong).

15.  The judge also criticized the Bankrupt for misrepresentation of “the most blatant kind” over the true extent of his unsecured liabilities.  The judge held that the Bankrupt’s unsecured liabilities were $123 million, less than half of the $275 million which he had stated on affirmation and on the basis of which he had offered the dividend under the IVA.   

16.  The judge further noted that the Bankrupt exercised “tremendous authority” in the operation of his companies in that he arranged for a fourfold increase in his remuneration within 3 months in late 2000 to early 2001.  The judge remarked (p.14):

“It raises a fundamental question as to the extent of the money under his disposal”.

If this was the case when the companies were experiencing financial difficulties in 2001, then an inference may arise whether he could have done the same when the companies were making substantial profits in the previous years.   

Bankruptcy Order

17.  The judge dismissed the Bankrupt’s application for an IVA and made a Bankruptcy Order against him on 1 March 2001.

18.  The Bankrupt appealed.  On 19 April 2001 his appeal was dismissed.  In addition to the matters raised before Cheung J, the Court of Appeal also pointed out that the Bankrupt had failed to disclose the source of funds which enabled one of his personal bank loans to be reduced in January 2001 by half a million dollars in the space of 3 weeks (p.13).

19.  The Court of Appeal upheld the judge’s refusal of the application for an IVA.  Rogers V-P held (p.24):

“Particularly in respect of the transfer of assets, namely the Fonfair Limited and Money Facts Limited shares, it seems to me, as mentioned in the course of argument, that it would be absurd for a court to express its satisfaction with the proposal without being fully informed as to the facts which lay behind the nominees’ apparent expression of satisfaction”.   (Emphasis added).

Le Pichon JA held (p.26-27):

“Where, as in the present case, ‘the fullness or candour’ of the appellant’s information has properly come into question (for example ...his beneficial interest (if any) in the Harbour Front Unit Trust, the transfer of assets into that Trust ... ), it is not sufficient for the appellant to assert that he has disclosed all necessary information to the nominees and for the nominees to express satisfaction with the information provided without more”.   (Emphasis added).

20.  I have referred to the judgments of Cheung J and the Court of

Appeal to highlight the fact that the Bankrupt must have been aware that the transfer of assets to the trusts was a focal target on which he was being expected to make fuller disclosure.

OR’s questions for the Bankrupt

21.  Shortly after the judgment of the Court of Appeal, on 27 August 2001 the OR sent the Bankrupt a set of questions.

22.  This was followed on 11 January 2002 by an order made by Master Ho for the Bankrupt’s public examination.  The examination hearing took place before Master Hui in February 2006.  The master made certain discovery orders requiring the Bankrupt to disclose documents of Harbour Front Ltd on the basis that the Bankrupt “equals” Harbour Front Ltd.  This court (Tang JA and Stone J) held in July 2006 that that assumption was not justified on the evidence before the master and set aside the discovery order.  The master had adjourned the examination sine die.  He took the view that the examination was largely futile because of the Bankrupt’s attitude and made an order for costs against him.  The Court of Appeal upheld that decision. 

23.  Meanwhile on 3 June 2002, the OR sent the Bankrupt a further set of questions.

24.  On 11 August 2004, the OR sent the Bankrupt yet a further set of questions.

25.  Needless to say, the purpose of the OR’s investigations was to find out what assets the Bankrupt had available, or if he had already disposed of some of his assets, to find out when he had done so, so as to see if the retroactive provisions of the Bankruptcy Ordinance could be applied to any antecedent transactions.

26.  As a matter of completeness, I should add that between the time of the 2^nd and 3^rd sets of questions, there were proceedings in the High Court in which Harbour Front Ltd unsuccessfully sought to wind up Money Facts and Fonfair.  The Bankrupt gave evidence, on which Kwan J’s comment was that he had a “cavalier attitude towards truthfulness” (para. 13). 

The Trusts

27.  As prefaced, a prominent focal target in these investigations was the Bankrupt’s involvement with the two trusts.  In fact the Petitioner had drawn attention to these trusts as early as October 2000 shortly after the second adjournment of the petition.  However, at that time the Bankrupt was prepared to divulge even less material and as Cheung J said “there is a complete absence of evidence on how the two trusts relate to each other” (p.19). 

28.  Information about the two trusts came in bits and pieces, but to cut a long story short, what is so far known about these trusts is as follows.

Harbour Front Unit Trust

29.  The Deed of Trust was dated 2 September 1991. The trustee of this trust is a BVI company called Harbour Front Ltd.  The Bankrupt was the sole director, sole shareholder, company secretary and sole signatory of its bank accounts.   (Apparently he transferred his shareholding to his daughter after the bankruptcy order was made without first seeking a validation order). 

30.  It is clear that the Bankrupt was closely connected to this trust. After the petition was lodged, in September 2000 the trust indicated that it was prepared to repay the Bankrupt’s judgment debt.  Indeed Cheung J quoted the affirmation of Irene Leung (the Bankrupt’s wife) who acknowledged that the Bankrupt made the decisions relating to administration of the trusts (p.20).

31.  There were originally 101 units in the Harbour Front Unit Trust, with 1 unit held by a BVI company called Guardian Trustee Ltd and 100 units held by the Bankrupt. 

32.  The Deed provided that the unit holders shall have no interest in the assets of the trust, but shall have the right to have the trust administered in accordance with the deed.  The trustee may also pay the income from the assets to the unit holders.   At the termination date, the corpus of the trust is held on trust for the unit holders.

33.  However, by a Power of Attorney dated 30 August 1991, the Bankrupt appointed various persons his attorneys to execute (amongst other things) a Deed of Gift in favour of Pierson Trust (Asia) Ltd the trustees of the 747 Trust (which will be referred to later in paragraph 37) of  4,000,100 units of the Harbour Front Unit Trust.  (The Deed of Gift was subsequently signed by his attorney on 9 September 1991).

34.  The 4,000,100 units were the Bankrupt’s original 100 units together with new 4,000,000 units.  The new 4,000,000 units were issued as part of a scheme in which the Bankrupt sold to Harbour Front Ltd (as trustee for the Harbour Front Unit Trust) his shares in UDL Holdings (which will be referred to later in paragraph 43).

35.  Accordingly when it was recorded in the minutes of a meeting between the Bankrupt and a representative of Pierson dated 30 August 1991 that “a substantial proportion of [the Bankrupt’s] assets consists of shares in companies incorporated in Hong Kong” and the Bankrupt proposed to “transfer his assets to the Unit Trust and then gift the units of the Unit Trust to the 747 Trust”, prima facie that would be a reference to the UDL shares, because those were the assets transferred to the Unit Trust for units which were then gifted to the 747 Trust.

36.  It appears that apart from the Bankrupt’s holdings in UDL, the trust has also had the Bankrupt’s shares in Fonfair and Money Facts transferred to it.  The question is whether and if so when the transfers of those latter assets took place.

747 Trust

37.  This was established on the same day as the Harbour Front Unit Trust (2 September 1991).  The Bankrupt was the settlor and is excluded from both the corpus and the income.  The trust is a discretionary trust and the beneficiaries include the Bankrupt’s wife and issue.  As I have noted above, 4,000,100 units in the Harbour Front Unit Trust were gifted by the Bankrupt to the 747 Trust. However, in a plan proposed by the Bankrupt to YK Leung well after 1991, the Bankrupt said that Harbour Front Ltd was still wholly owned by himself (the Bankrupt).

Question as to date of transfer of assets to the trusts

38. Of course in the context of bankruptcy, what is important is when the Bankrupt transferred his assets to the trusts and for what consideration.

39.  In the present case, the Yau Tong land was held by Fonfair, which as I have said kept the land within the Leung family when the dockyard business was floated on the Stock Exchange in September 1991.  A number of questions arise, which I shall examine in chronological order of (alleged) events.  In this connection I do not think it is necessary to “classify” what was said by Cheung J or the Court of Appeal or Kwan J as “findings of fact” or “observations or comments”.  There are simply questions arising from the Bankrupt’s actions and documents that cry out for answers from him.

40.  The Bankrupt has alleged that he made 2 Declarations of Trust as long ago as September 1991 declaring that he held his Money Facts shares and Fonfair shares as trustee on trust for Harbour Front Ltd (which in turn, in declarations signed by the Bankrupt, declared that it held them on trust for the Harbour Front Unit Trust).  However, it would appear that he did not produce these 2 declarations of trust before Cheung J (nor even before the Court of Appeal in April 2001).  The Bankrupt has not explained why he did not do so. 

41.  The originals of the declarations of trust have not been produced.  The Bankrupt has not explained where the originals were kept (although in September 2001 his solicitors said that  it was thought that they were with solicitors for the Standard Chartered Bank).

42.  Perhaps more importantly, the copies showed that they were not attested despite the documents themselves containing the words “in the presence of ...”.  Despite having been asked by the OR as early as 24 May 2001, the Bankrupt has not explained why these declarations of trust were not attested – in contrast with a declaration of trust of his shares in UDL Holdings Ltd in favour of the Harbour Front Unit Trust which he signed at about the same time (9 September 1991) which was attested, and another declaration of trust  of his shares in Giant Lead Enterprises also in favour of the Harbour Front Unit Trust which he signed at about the same time  (19 September 1991) which was attested and stamped. 

43.  It would thus be noted that there is no contemporaneous evidence supporting the Bankrupt’s allegation that he had divested himself of the beneficial interest in Money Facts shares and Fonfair shares as long ago as September 1991.  In contrast with the Money Facts shares and Fonfair shares, the Bankrupt’s holding of UDL Holdings Ltd shares were apparently sold by the Bankrupt to Harbour Front Ltd at about the same time at a total consideration of HK$31,125,000 (US$4 million) which was used to subscribe for 4,000,000 new units in Harbour Front Unit Trust (which as we have seen were then gifted to the 747 Trust).  Adopting the same modus operandi, one would have expected the Money Facts shares and the Fonfair shares to have been sold to the Unit Trust for a sum used to subscribe for units.  The question arises why that was not done.  

44.  It is also interesting to note that as far as Money Facts was concerned, Kwan J had found that this company had been acquired by the Bankrupt and YK Leung under an agreement made on 3 September 1991 following a Shareholders Agreement made between them on 5 June 1990 in which it was agreed amongst other things that neither would be allowed to sell his shares before 4 June 1992 and only on certain terms including giving the first right of refusal to the other (para. 21(7)).  Accordingly, the question arises why the Bankrupt purportedly made the declaration of trust in September 1991 disposing of his beneficial interest in Money Facts, in apparent breach of his agreement with YK Leung made only 2 days earlier.

45.  Further, it would appear that long after the Bankrupt’s alleged declarations of trust in September 1991 in favour of Harbour Front Ltd, the Fonfair and Money Facts shares were still acknowledged to be held beneficially by the Bankrupt.  The acknowledgments were contained in documents which the Bankrupt would have had to approve, and as Kwan J noted in her judgment, the Bankrupt has an English law degree.  These were important documents, mostly for public use, e.g. in UDL Holdings Ltd’s prospectus dated 10 September 1991 the Bankrupt is said to be beneficial owner of his shares in Money Facts and Fonfair; in UDL’s Annual Report of 1996 and 1997, the Bankrupt is said to have direct or indirect beneficial interests in Fonfair; and in a share mortgage dated 22 November 1996 in favour of Standard Chartered Bank, the Bankrupt is said to be the beneficial owner of his shares in Fonfair. The question arises as to why the Bankrupt did that. 

46.  Further the Money Facts and Fonfair shares were the subject of bought and sold notes dated 13 February 1998 (less than 5 years before the commencement of bankruptcy ), by which the shares were sold by the Bankrupt to Harbour Front Ltd.  The Fonfair shares were said to be sold by the Bankrupt to Harbour Front Ltd at a consideration of about HK$6.55 per share and the Money Facts shares at a consideration of HK$1 each.  And yet, by assignments bearing the date 16 February 1998 (in which the sole signatory was the Bankrupt and which were not attested despite the existence of attestation clauses), he assigned the shares to Harbour Front Ltd purportedly in order to “perfect the intention of the Declarations of Trust by way of the Assignor [the Bankrupt] transferring all his interest in the shares to the Assignee [Harbour Front Ltd]”, the documents also providing that the parties “shall within 14 days hereof execute instruments of transfer”.  The Bankrupt has not explained why that was so when the shares had already been bought and sold, and the transfers approved by the respective boards of Money Facts and Fonfair. 

47.  The transfer of the shares in 1998 was shortly before the UDL group faced pressing financial difficulties (in circumstances set out by Kwan J in paras. 27-29 of her judgment in the Money Facts and Fonfair winding-up proceedings).

48.  It is clear from the above that the circumstances as to whether, and if so when, the beneficial interests in the Money Facts and Fonfair shares were transferred away from the Bankrupt have led to a number of questions the answers to which are relevant to the applicability (or otherwise) of retroactive provisions of the Bankruptcy Ordinance.

Question as to value of transfers

49.  Further, if the beneficial interests in the Money Facts and Fonfair shares had not been disposed of earlier, then in February 1998 the Bankrupt would have transferred both the legal and beneficial interests in the Money Facts shares for only $25,919 and in the Fonfair shares for only $3,950, which leads to the question of whether there had been a transfer at an undervalue.  This is a question that Cheung J specifically noted (p.21).

Objections to automatic discharge

50.  It was against this background that the OR sent his 3 sets of questions to the Bankrupt.  The Bankrupt did provide answers but the OR regarded them as inadequate and as I noted earlier, the Bankrupt’s attitude at the public examination before Master Hui was such that the examination was rendered futile.

51.  The Bankrupt being a first time bankrupt, he would have been automatically discharged 4 years after 1 March 2001, i.e. on 1 March 2005 (see s.30A(2)(a) Bankruptcy Ordinance). 

52.  However on 8 November 2004 before the period expired, the OR lodged an objection under s.30A(5) BO on the grounds that the Bankrupt had failed to cooperate in the administration of his estate and that his discharge would prejudice it, i.e. the grounds in s.30A(4)(c) and (b) respectively.

53.  The Petitioner, Fonfair and YK Leung also objected to automatic discharge, citing 3 additional grounds under the BO (specifically,that the Bankrupt is likely within 5 years of the commencement of bankruptcy to be able to make a significant contribution to his estate, that his conduct has been unsatisfactory and that he had committed an offence of fraudulent conduct or certain other offences under the BO). 

54.  Master J Wong held on 10 October 2005 that the Petitioner would be allowed to take part in the OR’s application but only to the extent of the 2 grounds relied upon by the OR, and not their own additional 3 grounds.

Master Lung’s order

55.  The hearing of the OR’s application took place before Master Lung on 27 March 2006 and 12 June 2006.  As events transpired, none of the creditors took part.

56.  For reasons given in his written decision, Master Lung ordered in effect the postponement of the automatic discharge period by another 4 years, i.e. to 1 March 2009.

Exercise of discretion

57.  The decision was one made after the exercise of the master’s discretion.  It is well-established law that an appellate court would not interfere with the exercise of a judge’s discretion unless it is satisfied that the judge has erred in law or in principle, or if he has taken into account some matter which he should not have taken into account, or has left out of account some matter which he should have taken into account, or if the decision was so plainly wrong that it must have been reached by a faulty assessment of the weights of the different factors which have to be taken into account. 

Applicable legal principles

58.  In the present case, the master had stated the following legal principles quoting from Re Li Tat Kong [2000] 3 HKC 360 when he said (para. 5):

“(a) If the bankrupt fails to cooperate with the trustee after bankruptcy, or if a bankrupt’s conduct before bankruptcy was unsatisfactory, he should not be automatically discharged (377B);

(b) It is incumbent on the bankrupt to make full and frank disclosure and to proffer all pertinent information regarding his assets and financial dealings to the trustee (377D);

(c)  It is not good enough for a bankrupt to adopt a purely passive or reactive role, responding when asked in the expectation that with any luck, pertinent matters might be overlooked (377G);

(d) The court will have regard to the scope and purposes of the statutory provisions conferring the discretion.  There should be an adequate investigation of the conduct and affairs of the bankrupt.  In a case presenting features which call for an exercise of discretion upon the question when and on what terms the bankrupt should be discharged, the investigation should generally be carried to a conclusion before a discharge is granted or permitted to occur.  The bankrupt cannot complain of unfairness of delay in the investigation when there has been concealment or lack of cooperation on his own part (377H-I);

(e) The court will also have regard to the interests of commercial morality and the public interest (378B)”.   

Factors

59.  It was not disputed that these were the correct legal principles. However when applying these principles to the facts, the master took into account the discovery orders made against the Bankrupt by Master Hui in February 2006 which Master Lung considered were justified.  As we have seen, those discovery orders were set aside by the Court of Appeal – after the hearing before Master Lung and in fact on the same day as the handing down of his decision. Master Lung had therefore taken into account a factor which has since been shown to be erroneous.

60.  However this was but one factor in the master’s decision.  I consider that when the other factors are examined, the master was justified in making an order extending the discharge period, although the length of that extension was not justified.

Bankrupt not forthcoming with information

61.  It is clear in my view that the Bankrupt has not been forthcoming with information on (amongst other things) the questions as to when he purportedly transferred his beneficial interests in Money Facts and Fonfair to the Harbour Front Unit Trust, and for what value. 

62.  As the courts have said, a bankrupt is not permitted to adopt a “catch me if you can” approach.  He cannot wait and see if the trustee in bankruptcy manages to piece together the jigsaw of his financial affairs, and then when he is required to answer the trustee’s questions, try to get away with revealing as little as he can according to the strict letter of the questions.  Instead he should pro-actively reveal the complete picture of his financial affairs to the trustee, and where pieces do not appear to fit, in that his conduct or transactions appear to be inconsistent, it is for him to explain the inconsistencies and convince the trustee of the true state of affairs. The more complex the bankrupt’s transactions, the more difficult the task of the trustee in bankruptcy, and so the more comprehensive the bankrupt’s disclosure should be.

63.  In the present case the Bankrupt had been reticent with information about the transfer of the Money Facts and Fonfair shares to the trusts and had been reprimanded by both Cheung J and the Court of Appeal for that.  Thus when the OR asked him to explain the circumstances leading to the transfer of the shares in Money Facts and Fonfair and the consideration, it was inadequate for him to simply answer that “given the financial crises of the companies to which I was chief operating officer [the UDL group], I was no longer the appropriate person to hold the properties [the shares] under trust for others”, leaving all the questions discussed above unanswered.

64.  As for his connection to the trusts, the Bankrupt could not blandly state that he was not able to provide any information other than the documents supplied or liken himself to a professional trustee being asked to disclose confidential information about beneficiaries and trust assets.  He knew full well that his previous dealings have left a great deal of unanswered questions (see paragraphs 39-46 above).

65.  The Bankrupt should have made a clean breast of all his dealings with the Money Facts and Fonfair shares, and state in as full a manner as possible when and why and how and for what consideration he purportedly transferred the beneficial and legal interests in the shares to the trusts, explaining the facts which appeared to be inconsistent (which have been recounted above and which I will not reproduce here). 

66.  However he made no attempt to do so at all.  He has in fact criticised the OR for having failed “to find anything new since the bankruptcy order” and for going back to the points raised by the courts.  But that is precisely because the questions raised have remained unanswered by him.

OR’s delay

67.  The Bankrupt has argued that the OR has delayed his investigations. It is correct that the OR did not proceed with the public examination for a period of time after the court gave an order for it in January 2002.

68.  The OR has said that funding for it was required and that is obvious, but there was no specific evidence as to how long it took to obtain the necessary funds (although counsel for the Bankrupt before Master Lung apparently did not object to the OR informing the master of that fact).  The OR also says that the Money Facts and Fonfair shares were not the only valuable assets that purportedly used to belong to the Bankrupt.  For instance, there were shares of 22 other companies that the Bankrupt said he held on trust, and the OR has also had to consider the Bankrupt’s dealings with a number of shares in other companies after the commencement of bankruptcy. 

69.  Delay is a factor that has to be taken into account and it may be that had the OR wished he could have proceeded at a quicker pace.  The OR has not indicated how long it took him to obtain funding for the public examination and I think account has to be taken of that.  However I do not think it would be right to treat that as an overriding factor.  The court should not look at the time taken by the OR in isolation, oblivious to the facts of the particular case.  Where the Bankrupt has only disclosed information in dribs and drabs, it lies ill in his mouth to complain of delay on the part of the OR who, with limited financial and staff resources, has had to try to grapple with this complex case.

70.  As was held in  Re Zdenek Weiss ex p Official Trustee in Bankruptcy , No. W293 of 1978, unrep. (para. 7):

“There may be cases where it would be unfair to a bankrupt to delay his discharge by reason of an incomplete investigation, lethargically pursued, to the torpor of which he has not contributed.  But no such unfairness may appear where there has been concealment or lack of cooperation on his own part”.  (Emphasis added).

Lack of cooperation

71. The master correctly applied the law as stated in Li Tat Kong (376H - 377B) and in accordance with the philosophy of the Law Reform Commission as stated in its Report on Bankruptcy when he said that in exercising the court’s discretion “to provide rehabilitation for the bankrupt ... it must be on the basis that the bankrupt rehabilitates after discharging his obligations under the law.  His obligations under the law include cooperation with the trustee for full and proper administration of his estate, so that creditors would obtain their fair share of dividends from his estate.  The legislation certainly does not allow the bankrupt a haven to hide his assets and obtain his automatic discharge after a statutory period of 4 years”.

72. To that I would add that even if a bankrupt has successfully transferred his assets, so that they are no longer “his” to hide, he nevertheless has an obligation to provide a full picture so that the trustee in bankruptcy would know whether certain provisions in the Bankruptcy Ordinance could be employed against third parties for the benefit of the estate, and so that a fully informed decision could be made whether to “throw good money after bad”.

73. As the Full Court of Australia put it, “cooperation is a positive concept” (Totterdell v Nelson (1990) 97 ALR 341, 346).  In my view, in leaving so many questions unanswered, the Bankrupt in the present case has been “stone-walling”.  But he has a positive duty to cooperate with the OR in the administration of his estate.  It is his “own failing” that he has not done so. 

Prejudice the administration of the estate

74. I agree with the master that the Bankrupt’s discharge would prejudice the administration of the estate.  The Bankrupt has substantial liabilities and nothing worthwhile has been achieved so far for the estate.  The OR is still in the midst of investigations which may lead to the disgorgement of very substantial assets.Going by his attitude so far as a bankrupt, realistically it is unlikely that the OR would be able to gain any cooperation once he is discharged.

75. Accordingly I think this was a suitable case to order that the automatic discharge period should cease to run.

Appropriate period

76. Having said that, I consider the master should not have ordered the period to cease to run for the maximum period of a further 4 years. In arriving at that view I have considered the cases that both counsel have helpfully provided on periods of “suspension” of automatic discharge.  In my view, that maximum period should be reserved for the most egregious cases.  Whilst the Bankrupt was not cooperative in substance, he at least remained in communication with the OR and I think the OR’s failure to adduce evidence as to how long it took him to find funding for the public examination should also be taken into account.

Order

77.  I would order that the appeal be allowed only to the extent that the period cease to run for 3 years, in other words, that the discharge date be “extended” to 1 March 2008.  I would also make an order nisi that the Bankrupt pay the costs of the appeal.

Hon. Sakhrani J.

78. I agree.