RE HO SUET HUNG

HCB 5205/2018

[2021] HKCFI 3836

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5205 OF 2018

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REASONS FOR DECISION

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1.  At the hearing of a summons issued by Ms Ho Suet Hung, a bankrupt (“Bankrupt”), on 22 November 2021 under s.83 of the Bankruptcy Ordinance (Cap. 6)  (“BO”), I dismissed the summons with no order as to costs. These are the reasons for my decision.

2.  In the summons, the Bankrupt appeals against the decision and act of Mr Wong Ka Sek and Mr Wong Ka Lam King (“Mr Wong”), the joint and several trustees of the property of the Bankrupt (together “Trustees”), as follows:

(1)  to reverse the Trustees’ assessment on the Bankrupt’s monthly living expenses at $19,352 and replace by an order that the Bankrupt’s monthly living expenses be assessed at $26,712, to take effect from 27 December 2019;

(2)  to reverse the Trustees’ act in freezing the Bankrupt’s bank account at Standard Chartered Bank (“SCB Account”); and

(3)  to allow the Bankrupt to withdraw the difference between the amount withdrawn from the SCB Account ($19,352)  and the amount assessed by the Court.

Background

3.  A bankruptcy order was made against the Bankrupt on 16 October 2018 upon a petition presented by herself on 10 September 2018.  The Official Receiver (“OR”)  became the provisional trustee of the property of the Bankrupt by virtue of s.12(1A)  of the BO. 

4.  At the time of her bankruptcy, the Bankrupt was employed as an assistant accountant at the monthly salary of $24,000. 

5.  As with all the bankrupts, upon presentation of the petition, all the bank accounts opened in the name of the Bankrupt were frozen, and she was not able to open any new bank account. 

6.  On 22 October 2018, the Bankrupt applied to the OR for permission to open a new bank account at SCB for the purpose of receiving monthly salary from her employer.  On the same day, the OR qua provisional trustee issued a letter dated 22 October 2018 addressed to SCB (“Letter”)  which stated as follows:

“I am the provisional trustee of the properties of the Bankrupt against whom a bankruptcy order was made on 16 October 2018.

This is to certify that the Bankrupt has been authorised by me to open a savings account with you. And the Bankrupt can operate the account as a normal customer except that no credit facilities should be granted to the Bankrupt.

  The Bankrupt will approach you to open an account with this letter.  Please note that photocopy of this letter should not be accepted.”  

7.  Ms Ariel Kwok, solicitors of the Official Receiver’s Office (“ORO”), informs the Court that it is the usual practice of the OR, where she is the provisional trustee of the property of a bankrupt, to issue a letter in similar terms as the Letter so as to facilitate the bankrupt to operate or open a bank account for the purpose of receiving monthly salary from the employer. 

8.  The Bankrupt provided the Letter to SCB and successfully opened the SCB Account and, since then, has been using it to receive her monthly salary. 

9.  At the general meeting of creditors held on 4 January 2019, the Trustees were appointed whereupon the OR ceased to be the provisional trustee of the property of the Bankrupt. Mr Wong informs the Court that the creditors fixed the remuneration of the Trustees at 16% of the assets realised and brought to credit during the bankruptcy of the Bankrupt. The rate of remuneration seems to be in line with the rate charged by the OR where she acts as a trustee, as prescribed in Items 3 and 9 of Table B in the Schedule to the Bankruptcy (Fees and Percentages)  Order (Cap. 6C). 

10.  On 27 December 2019, the Trustees’ representative interviewed the Bankrupt and was told that the monthly salary of the Bankrupt and of her husband was $24,700 and $30,000 respectively.  The Trustees took the view that each of the Bankrupt and her husband should bear 50% of the family expenses and, on this basis, assessed the Bankrupt’s monthly living expenses at $19,352 (“Assessment”). In their letter dated 27 December 2019 addressed to the Bankrupt (“Assessment Letter”), the Trustees set out the breakdown of the Assessment and the reasons therefor in a table.

11.  In the Assessment Letter, the Trustees stated inter alia that:

(1)  If there are any changes on her financial condition including her family income and expenses or if she received any property during her bankruptcy, she must inform the Trustees forthwith;

(2)  she has to provide on each anniversary a statement of her earnings during the preceding year and details of any property she acquired during that period.  A failure to do so constitutes an offence and is liable to imprisonment for 6 months;

(3)  she has to provide within the next 14 days her identity documents, bank statements for the period from January to October 2019, bills on mobile expenses, MPF documents, documents relating to the expiry of 2 insurance policies, identity cards of her sons and husband, marriage certificate and written explanation on why in the 6 months prior to her bankruptcy, there were substantial cash payments into her bank accounts and what have become of such cash; and

(4)  based on her monthly income, the Trustees requested the Bankrupt to make a monthly contribution of $5,728 to her estate (“Specified Amount”), which shall be paid into the account opened by the Trustees at SCB (“Estate’s Account”). 

12.  The Bankrupt did not comply with the above requests.

13.  Instead, in January 2020, the Bankrupt sent emails to the OR to complain about the Assessment.  In response, the OR enquired if the Bankrupt agreed with the Assessment and, if not, whether she had provided reasons in support of her disagreement to the Trustees for their consideration.

14.  On 5 February 2020, the Bankrupt informed the Trustees that she would apply to the Court to reverse their decision on the Assessment, but no such application was made. 

15.  In the meantime, the Bankrupt continued to withdraw money from the SCB Account and used it to defray her expenses.  Except for documents evidencing payment of $5,000 registration fee to JUPAS for her son, the Bankrupt did not provide any further documents relating to any of her expenses.

16.  On 27 October 2020, the Trustees instructed SCB to freeze the SCB Account.  This prompted the Bankrupt to issue the summons on 22 November 2021.   

Applicable principle

17.  It is well established that in considering an appeal against any act or decision of the trustee under s.83 of the BO, the Court would only interfere if it is shown that the trustee’s act or decision was perverse or clearly wrong (Re Tyndall (1977)  30 FLR 6, at 10)  or was utterly unreasonable and absurd that no reasonable trustee would so act (Re Chew Kean Kor [1957] 23 MLJ 34, following Sear v Lawson (1880)  15 ChD 426; Re Chung Kau [2004] 1 HKLRD C3, HCB 581/2003, 5 February 2004, at §13, per DHCJ Poon (as he then was)).    

18.  As stated above, the Bankrupt seeks to reverse or set aside the Trustees’ decision on the Assessment and their act in freezing the SCB Account.   

Trustees’ decision on Assessment

19.  In her affirmation filed in support of the summons, the Bankrupt says that her current salary is $26,000 and, after deducting the mandatory contribution to MPF, the net amount available is $24,700.  The Bankrupt claims that her total reasonable living expenses is $26,712 per month, and she sustains a deficit of $2,012 per month.  She disagrees with the Assessment. 

20.  The items in dispute, the amounts claimed by the Bankrupt and the amounts assessed by the Trustees are summarised as follows:

Item in Assessment Letter / Summons	Expense	Amount claimed by Bankrupt	Amount allowed by Trustees
(1)  /1d	Management fee	1,105 x 65% = 718.25	1,035 x 50% = 517.50
(2)  /1b	Gas	325.13 x 65% = 211.33	318 x 50% = 159
(3)  /1a	Electricity	876.40 x 65% = 569.66	819 x 50% = 409.50
(4)  /1c	Water	251 x 65% = 163.15	128 x 50% = 64
(5)  / -	Internet	150	300 x 50% = 150
(6)  /1h	Family meal expenses	/	Refer to Item 13
(7)  /-	Travel expenses	1,352	1,352
(8)  /-	Household expenses	1,000	2,000 x 50% = 1,000
(9)  /1i	Mobile phone expenses	1,199	500
(10)  /1j	Personal care expenses	1,000	1,500
(11)  /-	Maintenance for father	3,000	3,000
(12)  /1k, 1l	Maintenance (2 sons)	3,700 x 65%=2,405 4,080 x 65%=2,652 Sub-total: 5,057	13,000 x 50% = 6,500
(13)  /1g	Personal meal expenses	4,200	4,200
(14)  /-	MPF	/	/
(15)  /-	Tax expenses	/	/
(16)  /1e	Rates and government rent	2,031 x 65% = 1,320.15	/
(17)  /1f	Medical expenses	1,000	Refer to Item 10
(18)  /-	Meal expenses for elder son	4,400 x 65% = 2,886	/
(19)  /-	Meal expenses for younger son	4,400 x 65% = 2,886	/
	TOTAL	26,712.54	19,352

21.  Although it appears that many of the items are in dispute, as pointed out by Mr Wong, the differences are largely attributed to the fact that the amounts assessed for the items were made in December 2019, whereas the amounts claimed by the Bankrupt (and the documents in support)  were incurred in the period between September 2020 and November 2020. Taking into account the supporting documents exhibited to the Bankrupt’s affirmation, the Trustees maintained that the Assessment for the period from January 2020 to August 2020 was reasonable, but increased the assessed monthly expenses to $20,744 with effect from September 2020 (“Revised Assessment”). Details as follows:

	Expense	From January 2020 to August 2020	Commencing from September 2020
(1)	Management fee	1,035 x 50% = 517.50	1,105 x 50% = 552.50
(2)	Gas	318 x 50% = 159	318 x 50% = 159
(3)	Electricity	819 x 50% = 409.50	880 x 50% = 440
(4)	Water	128 x 50% = 64	128 x 50% = 64
(5)	Internet	300 x 50% = 150	300 x 50% = 150
(6)	Family meal expenses	Refer to Item 13	Refer to Item 13
(7)	Travel expenses	1,352	1,352
(8)	Household expenses	2,000 x 50% = 1,000	2,000 x 50% = 1,000
(9)	Mobile phone expenses	500	500
(10)	Personal care expenses	1,500	1,500
(11)	Maintenance for father	3,000	3,000
(12)	Maintenance (2 sons)	13,000 x 50% = 6,500	17,651.67 x 50% = 8,825.84
(13)	Personal meal expenses	4,200	4,200
(14)	MPF	/	/
(15)	Tax expenses	/	/
(16)	Rates and government rent	/	/
(17)	Medical expenses	Refer to Item 10	Refer to Item 10
(18)	Meal expenses for elder son	/	/
(19)	Meal expenses for younger son	/	/
TOTAL		19,352	20,744

22.  The differences between the Bankrupt’s claims and the Trustees’ Revised Assessment are attributed to the fact that the Bankrupt claims medical expense ($1,000)  and medical expense at $2,886 for each of her 2 sons, whereas the Trustees consider that such expenses have already been included in personal care expenses ($1,500)  and the expenses for maintenance of 2 sons ($13,000 in total).

23.  In my judgment, the Bankrupt has failed to show that the Trustees’ Assessment or the Revised Assessment were perverse or clearly wrong.  It seems to me that the Assessment and the Revised Assessment are reasonable, having regard to:

(1)  the supporting documents provided by the Bankrupt, including those belatedly exhibited to her affirmation;

(2)  the age and state of the Bankrupt’s sons in particular, her elder son who is studying at University and is able to take on a part time job or to apply for the Non-means-test Loan Scheme for Full-time Tertiary Students to pay for some of his expenses; and

(3)  the Bankrupt’s husband or ex-husband has a full time job and earns $30,000 a month and has the means to share the family expenses. 

24.  There is therefore no proper basis for the Bankrupt to reverse or set aside the Trustees’ Assessment and the Revised Assessment.

Trustees’ act in freezing SCB Account

25.  In her affirmation, the Bankrupt says that after the SCB Account had been frozen, she had to approach the Trustees’ office to obtain a letter authorising her to withdraw $19,352 from the SCB Account to pay her living expenses for that month, which was very inconvenient and time consuming. 

26.  Other than confirming that they had instructed SCB to freeze the SCB Account, the Trustees have not in their affirmation addressed the issue, specifically what is the source of their power in freezing the SCB Account and why in the circumstances of this case, they were entitled to exercise such power.  This also calls into question whether the Trustees were entitled to require the Bankrupt to pay the Specified Amount into the Estate’s Account, and to freeze the SCB Account following her refusal to do so.     

27.  I note that in the Assessment Letter, the Trustees said:

“若你沒有準時向受托人繳付供款，將構成違反破產人責任的行為。根據破產條例第6章第43E條,受托人將向法庭申請收入扣押令,通知閣下僱主將閣下薪金扣押以作供款用途。”

28.  The statement is plainly wrong in that:

(1)  the income earned by the Bankrupt during her bankruptcy did not form part of the estate and, therefore, the Trustees had no right to require or compel the Bankrupt to pay any part of her income to the Trustees; and

(2)  an income payments order under s.43E of the BO is a “收入付款令”, not a “扣押令” (akin to a freezing injunction).

29.  Under the bankruptcy regime, a bankrupt’s estate comprises (1)  all property belonging to the bankrupt at the commencement of the bankruptcy[1] and (2)  all property acquired by the bankrupt after commencement of bankruptcy and becomes part of the estate pursuant to ss.43A to 43E of the BO.  This can be seen from the following provisions. 

30.  First, the definition of “bankrupt’s estate” under s.43 of the BO, the most relevant part is s.43(1)  which provides as follows:

“Subject to this and sections 43A to 43E, a bankrupt’s estate comprises-

(a)  all property belonging to or vested in the bankrupt at the commencement of the bankruptcy; and

(b)  any property which by virtue of any of the provisions of this Ordinance is comprised in that estate or is treated as falling within paragraph (a).”

31.  Second, s.43A deals with after-acquired property. This section enables a trustee to claim any future-acquired property (but not income)  after commencement of the bankruptcy in this way:

“(1)  Subject to this section, the trustee may by notice in writing claim for the bankrupt’s estate any property which has been acquired by, or has devolved upon, the bankrupt since the commencement of the bankruptcy.

…

(5)  References in this section to property do not include any property which, as part of the bankrupt’s income, may be the subject of an income payments order under section 43E.

(6)  …

(7)  …

(8)  …”

32.  Third, s.43E deals with income.  It provides that the bankrupt’s income will only form part of the bankrupt’s estate if the court makes an income payments order requiring the bankrupt (or the person making the payment)  to pay the amount specified in the order to the trustee.  This is the effect of s.43E of the BO which provides:

“(1)  The court may, on the application of the trustee, make an order (an income payments order)  claiming for the bankrupt’s estate so much of the income of the bankrupt during the period for which the order is in force as may be specified in the order.

(2)  The court shall not make an income payments order the effect of which would be to reduce the income of the bankrupt below what appears to the court to be necessary for meeting the reasonable domestic needs of the bankrupt and his family.

(3)  An income payments order shall, in respect of any payment of income to which it is to apply, either—

(a)  require the bankrupt to pay the trustee an amount equal to so much of that payment as is claimed by the order; or

(b)  require the person making the payment to pay so much of it as is so claimed to the trustee, instead of to the bankrupt.

(4)  Where the court makes an income payments order it may, if it thinks fit, discharge or vary any attachment of earnings order that is for the time being in force to secure payments by the bankrupt.

(5)  Sums received by the trustee under an income payments order form part of the bankrupt’s estate.

(6)  For the purposes of this section the income of the bankrupt comprises every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled, including any payment in respect of the carrying on of any business or in respect of any office or employment.”

33.  As the Trustees had never applied for an income payments order requiring the Bankrupt to pay any part of her income to the Trustees, there was no proper basis for the Trustees to require the Bankrupt to pay the Specified Amount into the Estate’s Account.  It follows that there was no proper basis for the Trustees to freeze the SCB Account. 

34.  The aforesaid notwithstanding, Mr Wong confirms to the Court that the Trustees will take steps to unfreeze the SCB Account, to ensure that the Bankrupt will receive the amounts of living expenses in accordance with the Assessment and Revised Assessment or such other amount as assessed by the Court.  It is therefore unnecessary for the Court to make any order in terms of §§2-3 of the summons. 

35.  The failure on the part of the Trustees in applying for an income payments order, coupled with the Trustees’ act in requesting SCB to freeze the SCB Account, seems to be the common practice amongst some trustees in bankruptcy. This gives rise to a concern that the bankrupts may be left at the mercy of the trustees in that:

(1)  on the one hand, in not applying for an income payments order, the trustees have effectively bypassed the Court and the mechanism to ensure that the bankrupts will be able to use such part of their income to meet their reasonable domestic needs; and

(2)  on the other hand, if the bankrupts do not agree with the assessment made by the trustees, their bank accounts will be frozen by the trustees, assuming (without deciding)  the trustees have power to freeze the bank accounts of the bankrupts.    

36.  Both Ms Kwok and Mr Wong assure this Court that in most cases, the concern does not arise.  This is because it has been the usual practice of a trustee in bankruptcy to approach the matter in this way:

(1)  to discuss with a bankrupt on his living expenses with a view to agree on the amount of monthly contribution to the estate;

(2)  once the amount is agreed, the monthly contribution will be treated as the bankrupt’s “voluntary contribution” to the estate;

(3)  the agreement binds the bankrupt and the trustee until the financial position of the bankrupt changes in which case the parties will re-visit the amount of “voluntary contribution” to see if they can come to an agreement on the revised amount of “voluntary contribution”;

(4)  if and for so long as the agreement remains binding, the trustee does not have to incur time and costs in preparing an application for an income payments order;

(5)  it is only if the bankrupt acts in breach of the agreement and fails to make the “voluntary contribution” to the estate that the trustee will take step to freeze the bank account of the bankrupt; and

(6)  the trustee will inform the bankrupt that he has a right to appeal against the trustee’s act or decision under s.83 of the BO, whereupon the Court can determine whether or not the act of the trustee in freezing the bank account is perverse or utterly unreasonable.

37.  Similarly, it is the practice of the OR to try to agree with a bankrupt on the amount of “voluntary contribution” to the estate. This practice is both costs effective and provides the incentive to a bankrupt to cooperate with the trustee as the bankrupt does not need to disclose his bankruptcy to the employer. The only difference is that the OR rarely exercises the power to freeze the bank account of a bankrupt, and only does so when a bankrupt fails to make “voluntary contribution” agreed with the OR and the OR is unable to get in contact with the bankrupt.  

38.  It seems to me that if the trustee follows the above practice, there would be sufficient safeguard to ensure that the bankrupt’s interests would be protected, as he can seek to reverse the act of the trustee where the trustee has misused his power by forcing the bankrupt to make a “voluntary contribution” when his level of income and domestic needs do not permit him to pay the amount required by the trustee.    

39.  If, however, the trustee is not able to come to an agreement with the bankrupt on the amount of “voluntary contribution” to the estate, the trustee will have no alternative but to apply for an income payments order from the Court.  This does not mean that the bankrupt will not have the incentive to agree with the trustee on the amount of “voluntary contribution” to the estate, as the bankrupt will face the risk of having to bear the costs incurred by the application if he fails to satisfy the Court that the amount required for his domestic needs exceeds the amount assessed by the trustee. 

40.  I express no view as to whether the trustee has the power to freeze the bank account of the bankrupt.  It seems to me that this is an issue which requires further consideration, with the assistance of detailed submissions from the parties:

(1)  Ms Kwok submits (and Mr Wong agrees)  that the trustee has the power to freeze the bank account of a bankrupt under s.52(2)  of the BO. 

(2)  While s.52(2)  is wide enough to cover the banks at which a bankrupt holds a bank account and there is reference to “in accordance with the instructions from the Official Receiver or the trustee in bankruptcy”, the difficulty with the argument is that it assumes that the “deposit or credit balance” in question is part of the estate of the bankrupt. If the “deposit or credit balance” comes from the income of the bankrupt, one may argue that in the absence of an income payments order, such “deposit or credit balance” does not form part of the estate and, therefore, is not property over which the trustee has the power to deal with. 

(3)  On the other hand, one may see that if at the time the trustee gave the letter authorising the bankrupt to open or operate a bank account, the trustee imposed a condition to the effect that if the bankrupt fails to comply with the trustee’s request in relation to the use of the bank account, the trustee will revoke the authorisation previously given to the bankrupt.  Indeed, this is the practice alluded to by Mr Wong when he explains the usual practice of the Trustees in issuing letter authorising a bankrupt to open or operate his bank account. 

(4)  Ms Kwok says that the practice of the ORO is to issue a letter of authorisation without any condition.

41.  Mr Wong informs the Court that in accordance with the usual practice of the Trustees, they do not seek costs against the Bankrupt, as the bankrupt has the right to appeal against the decision of the trustee under s.83 of the BO.  This seems to me to be fair and reasonable.