OSMAN MOHAMMED ARAB AND ANOTHER v. CHU CHI HO IAN

HCB 4344/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4344 OF 2012

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D E C I S I O N

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Introduction

1. There is before this court an application by Sun Willie Financing Limited (“Sun Willie”), Dragonite Resources Limited (“Dragonite”) and Forefront Finance Company Limited (“Forefront”) (collectively “Applicants”) for an order removing Osman Mohammed Arab and Wong Kwok Keung (“Trustees”) for misconduct[1] and appointing the Official Receiver in their place pursuant to section 96(2) of the Bankruptcy Ordinance (“Ordinance”). At the hearing, Sun Willie and Dragonite were represented by Mr Bell SC leading Mr Kim while Forefront was represented by Mr Ko, although for a period of time, the Applicants were represented by the same firm of solicitors.

Background

2. On 5 July 2012, Forefront presented a bankruptcy petition against Mr Chu Chi Ho Ian (“Bankrupt”). The bankruptcy petition was based on a judgment against the Bankrupt in default of Defence in HCA207 of 2012 entered on 21 May 2012. Sun Willie also obtained a judgment against the Bankrupt in default of notice of intention to defend in HCA317 of 2012 on 28 May 2012. Dragonite is not a judgment creditor.

3. On 5 September 2012, a bankruptcy order was granted and the Official Receiver was appointed as provisional trustee. 

4. The first general meeting of creditors was held on 14 December 2012. At that meeting, the Trustees as well as the Creditors Committee (comprising the Applicants and Melco Crown Gaming (Macau) Limited) were appointed.

5. The Trustees’ remuneration was approved by written resolution of members of the Creditors Committee, signed in counterpart, on or about 15 January 2013. The Creditors Committee resolved that “…the Joint and Several Trustees’ remuneration be calculated on the actual time spent by the Joint and Several Trustees, their partners and staff, in connection with the Bankruptcy, based on the standard scale of fees of the “Panel A” scheme as agreed between the Official Receiver’s Office and the Hong Kong Institute of Certified Public Accountants and effective as at 14 December 2012…”

6. The Applicants and others have submitted proofs of debt to the Trustees as follows which have yet to be adjudicated:

1. Forefront	HK$21,134,794.62
2. Sun Willie	HK$11,035,220.06
3. Dragonite	HK$10,132,268.06
4. Marina Bay Sands Pte Ltd	HK$6,350,081.16
5. Melco Crown Gaming (Macau) Ltd	HK$3,596,686.66
6. American Express International Inc	HK$2,333,437.14
7. American Express International Inc	HK$2,085,616.75
8. Hong Kong and Shanghai Banking Corporation Ltd	HK$816,668.80
9. Enhanced Securities Ltd	HK$765,977.75
10. Commissioner of Inland Revenue	HK$47,772.00
11. Commissioner of Inland Revenue	HK$6,740.00

7. As to be expected, after their appointment, the Trustees carried out investigation into the Bankrupt’s affairs in accordance with their statutory duty. Putting it neutrally, it appears to the Trustees from such investigation that there were a number of apparently suspicious transactions arising from the relationship of the Bankrupt with Forefront, Sun Willie and Dragonite. In consequence, the Trustees also had doubts about their proofs of debt. These transactions are set out in paragraph 8 of the 3^rd Affirmation of Wong Kwok Keung. For the purpose of highlighting the seriousness of the suspicions and the necessity of further investigation, a number of examples should be given here:

(1) Between 18 July 2011 and 27 July 2012, the Bankrupt borrowed, for reasons unexplained, over HK$42 million from Forefront, Sun Willie and Dragonite. These loans were unsecured. Save for HK$5.4 million, the majority of the monies borrowed were paid by Forefront, Sun Willie and Dragonite, not to the Bankrupt, but directly to HEC Finance 92 Limited (“HEC Finance”).

(2) The intermediate holding company of HEC Finance is HEC Capital Limited (“HEC Capital”). HEC Capital’s shareholders include Forefront Group Limited and Willie International Holdings Limited. Forefront Group Limited is the sole shareholder of Forefront and Willie International Holdings Limited is the sole shareholder of Sun Willie.

(3) Forefront and Sun Willie issued legal proceedings against the Bankrupt in February 2012 and obtained judgments against the Bankrupt in May 2012.

(4) On 27 July 2012, the Bankrupt as borrower entered into a loan agreement with Dragonite as lender for HK$10 million. This loan transaction was entered into about five months after Forefront and Sun Willie had commenced legal proceedings against the Bankrupt, and about three weeks after the presentation of the bankruptcy petition by Forefront.

8. On 3 September 2013, the Trustees wrote to members of the Creditors Committee seeking approval to engage solicitors to assist in their investigation. Approval was not given – on the evidence, at least Forefront refused to approve the engagement. This prompted the Trustees to apply to Court for sanction to appoint solicitors which was subsequently granted on 6 November 2013.

9. On 18 September 2013, the Trustees received a letter from Ching & Solicitors acting on behalf of Forefront requesting the Trustees to summon a meeting of creditors to consider their removal.

10. On 24 September 2013 the Trustees advised Ching & Solicitors that they considered Forefront’s claim against the Bankrupt to be suspicious and that it would not be appropriate for the Trustees to entertain Forefront’s request until such time as Forefront had duly proved its claim.

11. On 27 September 2013, Ching & Solicitors, acting on behalf of Forefront, forwarded a letter to the Trustees and to “all creditors” purporting to convene a meeting of creditors to be held on 9 October 2013. This letter gave notice that at the proposed meeting a resolution would be put forward to remove the Trustees from office.

12. On 9 October 2013, Mr Wong Kwok Keung attended the creditors’ meeting convened by Forefront. What happened at the meeting can be glimpsed from a Memorandum to Court of Minutes of the meeting:

“2. The following creditors were present (by their proxy or attorney) at the Meeting-

	Name	Value of proof of debt
i	Forefront Finance Company Limited	21,134,794.52
ii	Sun Willie Financing Limited	11,035,220.06
iii	Dragonite Resources Limited	10,132,258.06
iv	Melco Crown Gaming (Macau) Limited	3,596,686.66

3. Mr Wong Kwok Keung (“Mr Wong”), one of the joint and several trustees …acted as the chairman of the Meeting notwithstanding the expressed objection from Forefront, Sun Willie and Dragonite on the grounds of conflict of interest.

4. Mr Wong gave Notice of Rejection of proof for the purpose of voting to each of Forefront, Sun Willie and Dragonite rejecting all of them to vote in the Meeting (the “Rejection”).

5. Forefront, Sun Willie and Dragonite did not accept the Rejection and each of them, by their respective special proxy, voted “for” the Resolution…”

13. Skipping the minute details in between, the present proceedings then entered into a “litigious” phase involving a number of applications to Court by the Trustees and the Applicants. The controversies between the Trustees and the Applicants have been recorded in a decision of A. Chan J dated 18 November 2014 and need not be repeated here. Two applications are worth specific mention:

(1)   By summons dated 12 March 2014, the Trustees applied for the examination of the Bankrupt regarding inter alia his dealings with Forefront, Sun Willie, Dragonite, HEC Finance and others.[2]

(2)   By summons dated 29 April 2014, the Applicants, then represented by the same firm of solicitors, made the present application.

Deliberation

14. Section 96(2)(a) of the Ordinance reads:

“(2) If the court is of opinion-

(a) that a trustee, other than the Official Receiver, is guilty of misconduct or fails to perform his duties under this Ordinance;

…

the court may remove him from his office and appoint another person in his place.”

15. The principles governing an application under section 96(2) are set out in Re Wong Wah [2004] 2 HKLRD 73 at para. 21:

“21. When the court’s jurisdiction under s.96(2) of the Ordinance is invoked, it needs to be satisfied firstly that one or more of the conditions set out in s.96(2)(a) to (e) are met which justify the removal of the current trustee. The court then next decides whom to appoint as trustee in his place. In this regard, the court has a wide discretion. It is not bound by the determinations of the meeting of the creditors, although the court would have due regard to those determinations: see Re Akai Holdings Ltd & Another [2001] 2 HKLRD 411 at p.417J. Nor is the court bound by the wish or choice of any individual creditor or the Official Receiver. These are just matters that the court would take into account...”

16. The relevance of bias (of the proposed replacement trustee) was discussed at para. 29:

“29.  I have already set out Mr Alan Tang’s involvement in the matter and the position that he took as revealed in the correspondence. He was obviously very determined to push forward with SEG’s proposal and obtain the appointment. In the course of lobbying for the appointment, he had unfortunately gone well over the top. He cast grave doubts on the validity of the claims of those creditors who did not support his appointment and more importantly attacked the veracity and integrity of GEH and GXI when, it is now accepted, he simply did not have the requisite information or materials at the material times to enable him to do so at all…Having made those unwarranted and wholly unjustified attacks against them, would Mr Alan Tang possibly be seen to be acting with fairness and impartiality when adjudicating on the disputed claims of GEH and GCL? The answer must be a resounding “no”. A case of apparent if not real bias against GEH and GCL has clearly arisen. By his own conduct, Mr Alan Tang had excluded himself from the appointment. He only had himself to blame.” (emphasis added)

17. Although that passage concerns bias which precludes a proposed trustee from being appointed, it cannot seriously be disputed that bias of an incumbent trustee may be a legitimate cause for his removal.

18. In the present application, Sun Willie and Dragonite submit (whose submission is adopted by Forefront) five grounds for removing the Trustees.

19. First, it is said the Trustees have mishandled their trusteeship in (i) unreasonably incurring disproportionate fees as to put them in a position of competition for the Bankrupt’s estate and (ii) not keeping the Applicants updated or informed of their investigation.

20. Regarding (i) above, the fact relied upon by the Applicants is that on 9 September 2013, the Trustees informed the Applicants that around HK$740,000 in fees and disbursements had been incurred from their appointment on 14 December 2012 to 31 July 2013. Regarding (ii) above, the Applicants rely on a letter from the Trustees dated 14 March 2013 setting out a brief summary of their investigation and their preliminary findings. The Applicants complain that the letter contained very limited information concerning the Bankrupt and the administration of the bankruptcy. The letter also failed to disclose the Trustees’ “suspicions” concerning the Applicants’ dealings with the Bankrupt. The Applicants further complain that this failure to report to the Creditors Committee all such matters as appear to him to be of concern with respect to the bankruptcy amounts to a breach of the Trustees’ duty under Rule 122ZF(1) of the Bankruptcy Rules (“Rules”).

21. This court is unable to accept the Applicants’ submission.

22. When the Trustees sent their letter dated 14 March 2013 to the Applicants, it was just 4 months after their appointment. The Trustees’ investigation and findings were at that time necessarily preliminary in nature and limited in scope. By September 2013, however, the investigation has proceeded to such a stage at which the Trustees felt the necessity to appoint solicitors to assist – hence the request in their letter dated 3 September 2013 for the sanction of the Creditors Committee. At the request of Forefront by letter dated 4 September 2013, the Trustees replied on 6 September 2013 giving details of the proofs of debt received, the amount of recovery and the costs incurred in the administration of the bankruptcy thus far as well as the major potential areas that would likely result in a recovery. By letter dated 9 September 2013, the Trustees gave a breakdown of their fees and disbursements of around HK$740,000. Again at the request of Forefront, the Trustees gave further details of their investigation by letters dated 13, 18 and 24 September 2013. In particular, in the letter dated 24 September 2013, the Trustees stated in detail their preliminary findings and suspicions regarding the loans made by the Applicants to the Bankrupt.

23. In the view of this court, the contemporaneous correspondence speaks for itself. Hence, as far as the Trustees’ alleged failure to report to the Creditors Committee is concerned, this court finds the Applicants’ complaint wholly unwarranted.

24. The same can be said of the complaint regarding the Trustees’ fees.

25. As I mentioned earlier, the Trustees’ hourly rate was agreed and approved by the Creditors Committee on or about 15 January 2013. A detailed breakdown of the hours spent was set out in the Trustees’ letter dated 9 September 2013. Apart from a bare assertion that the Trustees’ fees are disproportionately high, the Applicants have not been able to explain in what respect(s) the number of hours spent was excessive or inflated, and why that was so. The assertion that the Trustees’ fees are disproportionately high is apparently put forward in view of the very limited recovery so far made by them. But, in the view of this court, the Trustees have a statutory duty to properly adjudicate proofs of debt received and maximize recovery. It is precisely because of the limited recovery and the prospects of creditors receiving next to nothing from the bankruptcy estate that trustees should be astute in their investigation into “suspicious” transactions.

26. Second, it is said the Trustees have shown real and/or apparent bias against the Applicants by actively concealing their concern about the suspected connection and dealings between the Bankrupt and the Applicants.

27. This court does not accept the Applicants’ submission.

28. As this court has just dismissed the Applicants’ complaint against the Trustees for failing to report to the Creditors Committee, the underlying factual premise of the complaint of bias completely falls apart. In particular, in their letter dated 24 September 2013, the Trustees had already detailed their preliminary findings and suspicions regarding the loans made by the Applicants to the Bankrupt, and hence their proofs of debt, so there is really no substance in the assertion of active concealment.

29. What the Applicants seem to really mean is that the Trustees should have revealed their suspicions to them earlier than 24 September 2013. In particular, the Applicants submit that the Trustees should have revealed their suspicions in their letter dated 14 March 2013 to members of the Creditors Committee. Alternatively, the Trustees should have done so when they wrote to members of the Creditors Committee in early September 2013 seeking approval to engage solicitors.

30. The Trustees’ explanation is that, given the serious nature of the suspicious transactions and the fact that they involved the Applicants and related companies, they took the view that it was inappropriate, while such investigations were ongoing, to provide details to the Creditors Committee earlier.

31. This court accepts the explanation.

32. As this court sees it, how the Trustees go about their investigation, whether, when and the extent to which they should disclose their preliminary findings to the subject of investigation ie the Applicants is essentially a matter of professional judgment. Subject to the court’s supervisory jurisdiction, section 82(4) of the Ordinance mandates a trustee to use his discretion in the management of the estate and its distribution among the creditors. The reluctance of the Trustees to disclose their suspicions to the Applicants is entirely reasonable and understandable. Their decision not to reveal their suspicions earlier than 24 September 2013 is no evidence of real or apparent bias against the Applicants, any more than their decision to reveal their suspicions by letter dated 24 September 2013 is evidence of real or apparent bias in favour of the Applicants.

33. Third, it is said the Trustees have displayed real and/or apparent bias in rejecting the Applicants’ proofs of debt for the purpose of voting at the meeting of creditors held on 9 October 2013.

34. This court does not accept the Applicants’ submission.

35. What happened at the meeting has already been outlined above.

36. The Trustees’ explanation for rejecting the Applicant’s proofs of debt is that, prior to the meeting, none of the Applicants had provided the information requested by the Trustees so as to put them into a better position to consider the validity of their proofs of debt. Details of the information requested by the Trustees and the Applicants’ failure to substantiate their proofs of debt were set out in a “Notice of Rejection of Proof For the Purpose of Voting” given to Mr Eric Yung, proxy for the Applicants, at the meeting. Under such circumstances, Mr Wong Kwok Keung, chairman of the meeting, felt he had no option but to reject the Applicants’ proofs of debt for the purpose of voting.

37. This court accepts the explanation.

38. The approach which should be adopted by a trustee in investigating proofs of debt submitted by creditors is laid down by Kwan J (as she then was) in re Global March Limited unrep.; HCCW180 of 1998; 13 May 2004[3] at para. 10:

“The position of a liquidator in adjudicating a proof of debt is the same as that of a trustee in bankruptcy and as stated in Re Van Laun [1907] 1 KB 135 at 162:

‘The trustee’s right and duty when examining a proof for the purpose of admitting or rejecting it is to require some satisfactory evidence that the debt on which the proof is founded is a real debt. No judgment recovered against the bankrupt, no covenant given by or account stated with him can deprive the trustees of this right. He is entitled to go behind such forms to get at the truth…’ ” [4] (emphasis added)

39. While that statement was made in the context of a trustee’s “substantive” adjudication of proofs of debt, in my view, the spirit of it applies equally when he adjudicates proofs of debt for other purposes e.g. voting at a creditors’ meeting. It seems to this court wholly untenable to suggest that for the purpose of “substantively” adjudicating proofs of debt, a trustee is duty‑bound to require some satisfactory evidence that the debt on which the proof is founded is a real debt, whereas for all other purposes, he must accept the proofs at their face value. No authority has been cited to this court which supports this rather artificial distinction.

40. The only authority relied upon by the Applicants is Rule 99L(2) of the Rules which states:

“(2) If the chairman is in doubt whether the proof of a creditor should be admitted or rejected he shall make a note of it and shall allow the creditor to vote, subject to the vote being subsequently declared invalid in the event of the objection being sustained.”

41. In the present case, there is no evidence that the chairman of the meeting, Mr Wong Kwok Keung, was in doubt whether the proofs of the Applicants should be admitted or rejected. On the contrary, for reasons given in his 3^rd Affirmation and summarised above, he had decided to reject the proofs. Rule 99L(2) is simply not applicable.

42. Fourth, it is said there is no good reason for the Trustees to withhold details of their funding arrangement with the funding creditor. The Trustees’ failure to disclose such details or even the identity of the funder exemplifies their bias against the Applicants. They further submit that if the Trustees are entering into a funding agreement with a creditor, the terms of the agreement should be made available to the other creditors in order for them to determine whether the Trustees are acting impartially. Re Goodway Limited unrep.; HCCW 162/1998, 11 January 1999; Yuen J (as she was then) was cited in support of the proposition.

43. In reply, the Trustees submit they are contractually bound by the terms of the funding agreement not to reveal its contents or the identity of the funder to anyone. In the absence of the Court’s approval or consent by the funder, they are simply not in a position to disclose the funding arrangement to the Applicants and it cannot be said they have acted unreasonably in abiding by the confidentiality clause in the funding agreement or that are biased against the Applicants.

44. This court rejects the Applicant’s complaint and agrees with the Trustees’ submission.

45. In relation to this complaint, what happened was as follows.

46. On 12 May 2014, the Trustees wrote to the creditors informing them they had entered into a funding agreement with a funder and would like to hold a meeting of creditors to discuss the general terms. At the meeting of creditors held on 21 May 2014, the Trustees’ solicitors declined to disclose the terms of the funding arrangement on the ground of confidentiality.  This led to the application by Sun Willie and Dragonite for an order compelling the Trustees to disclose the funding arrangement to them. The application was supported by Forefront. It was heard and dismissed by A Chan J.: see Decision dated 18 November 2014.

47. As it is well-known to insolvency and bankruptcy practitioners, the sanction of the court is required for such funding agreements, even if signed, to take effect. Under section 82(3) of the Ordinance, the Trustees may apply to the court for directions in relation to any particular matter arising under the bankruptcy.  It is common practice for trustees to apply for sanction under that section on an ex parte basis, sometimes simply in writing, as observed by Harris J in re Cyberworks Audio Video Technology Limited [2010] 2 HKLRD 1137 in the context of corporate insolvency.

48. In line with the said practice, the Trustees made the “Sanction Application” to this court. This prompted the Applicants to seek leave to be heard at the “Sanction Application”. The application was heard and dismissed by this court on 4 December 2014. The reasons for dismissal were set out in paragraph 3 of this court’s Decision dated 4 December 2014:

“…I am not satisfied that it is right to order the Trustees to disclose the Funding Agreement to [the Applicants] by reason of the confidentiality clause contained in it and I am not satisfied that any useful purpose will be served by allowing the three Applicants to appear in the Sanction Application without ordering the Trustees to disclose the Funding Agreement to them. Further, I am not satisfied that it is right for the Applicants to even appear at the Sanction Application when the Trustees will have to explain to the court details of the investigation which they intend to pursue for which funding is required, when it is no secret that the Applicants are the subject of their investigation.”

49. In other words, the Trustees’ decision to withhold details of the funding arrangement to the Applicants has been vindicated by the Court.

50. Further, Re Goodway Limited supra does not stand for the legal proposition put forward by the Applicants - the question of whether a liquidator is under a duty to disclose the terms of a funding agreement to the creditors notwithstanding a confidentiality clause in it was not an issue or the subject of discussion in the Judgment of Yuen J (as she then was). Indeed, authorities apart, this court is not persuaded that there is any legal justification, practical need or policy reasons for a rigid rule that a trustee must, notwithstanding the confidentiality clause in a funding agreement, disclose its terms to other creditors in order to be seen to be impartial.

51. The factual context of Re Goodway Limited supra was an application by the Official Receiver for a decision by the Court between the different determinations of the meeting of creditors and the meeting of  contributories regarding the appointment of liquidators in place of the provisional liquidator ie the Official Receiver. The petitioning creditor had proposed two representatives of Nelson Wheeler as liquidators and signed a Deed of Indemnity in their favour, the terms of which had been severely criticised by other creditors as binding their hands. At the first meeting of creditors, the petitioning creditor’s choice was approved by reason of its majority in value - the other creditors preferred the Official Receiver to continue in office. At the first meeting of contributories, it was resolved that the Official Receiver continued as liquidators.

52. At p 5 of the Judgment, Yuen J set out the three basic principles governing liquidators:

“However, what does cause concern are the terms on which the proposed liquidators have accepted the nomination by Cables[5] to act as liquidators. Mr Winston Poon SC, counsel for Hong Bridge[6], has put forward 3 basic principles governing liquidators: (1) that liquidators occupy a fiduciary duty to the company, the creditors and the contributories; (2) that as such, liquidators have a duty to act impartially and to avoid any conflict of interests with inter alios the creditors or any of them; (3) that hence the liquidators must not only be independent but also be seen to be independent of any particular creditor.

These principles have not been disputed by Mr Jonathan Harris, counsel for Cables...”

53. At pp 7-8, Yuen J continued:

“Now it is clear that the mere fact that a particular creditor provides funds or an indemnity to a liquidator is not cause for criticism (Re Allebart Pty Ltd [1971] 1 NSWLR 24). This is so even though the funds or indemnity are made available for specific steps in the winding-up, such as the bringing of named proceedings.

However where this is the case and that particular creditor would be urging the liquidators to take a particular course of action (such as to seek to set aside the judgments obtained by Hong Bridge and Yook Tong[7]), the liquidators must be especially careful to be, and to appear to be, independent of the funding creditor. As expressed by Street J in Re Allebart, 28: ‘Where [the liquidator] draws upon financial assistance from a creditor, it is incumbent upon him to ensure that he does not place in jeopardy his independence in the discharge of his duties. It is indispensable that in point of substance the liquidator’s independence should be preserved; and it is undesirable that a liquidator should permit a situation to develop in which it might appear that he has yielded up in any degree whatever his exclusive independent control in the decision-making processes and administration of a winding up.’

I regret to have to say that the proposed liquidators here have, in my view, given the appearance that they have permitted themselves to be subject to Cables’ control, or at least, influence. What has caused me particular concern is that they have agreed to Clause 4, which stipulates that they must first obtain Cables’ approval before drawing remuneration from the Company’s bank account, even if such remuneration had been approved by resolution of a meeting of the creditors of the company. The requirement for this one particular creditor’s approval applies whether or not the monies in the Company are sufficient for the liquidators’ remuneration. As liquidators cannot realistically operate without fees, this clause in effect gives Cables the right to control the ordinary process of liquidation by controlling the liquidators’ remuneration.” (emphasis added)

54. In the present case, there is not a scintilla of evidence that the Trustees have yielded up his independent control in the decision‑making process and the administration of the bankruptcy. The funding agreement was examined by this court and sanction was granted in June 2015.

55. Fifth and lastly, it is said the Trustees’ decision not to invite the Applicants to provide funding amounted to actual or apparent bias.

56. What happened was that when the Trustees sought funding from creditors who had submitted proofs of debt, they, for reasons to be explained, had not extended their invitation to the Applicants. There was however some confusion as to which other creditors had been approached by the Trustees for funding. This led to the direction of this court on 7 October 2014 granting leave to the parties to file further evidence and to the hearing on 4 March 2015.

57. The Trustees’ explanation is this. When they sought funding from creditors, they decided to offer the opportunity to those who had lodged proofs of debt of over HK$1,000,000 and did not have a conflict of interest. The creditors who met these criteria and were invited to participate in the funding arrangement were Melco Crown (Macau) Limited, Marina Bay Sands Pte Ltd and American Express International Inc. The parties not meeting the criteria and hence were not invited were HSBC, Commissioner of Inland Revenue and Enhanced Securities Limited.

58. This court accepts the Trustees’ explanation.

59. Again, as this court sees it, subject to the Court’s supervisory jurisdiction, how the Trustees go about seeking funding is a matter of professional judgment.

60. Further, it should be immediately apparent that the Applicants were in a position of conflict as they were the intended subject of the Trustees’ investigation. There is nothing unreasonable or illogical for the Trustees not to invite those creditors who were in a position of conflict to fund their investigation. Indeed, quite on the contrary, it seems to this court wholly futile, if not absurd, for the Trustees to invite the Applicants to fund the investigation into themselves.

61. This court says futile because even if the Trustees extended their invitation to the Applicants and even if the Applicants, for whatever reason, tactical or otherwise, agreed to do so, the Trustees would not be able to accept the funding from the Applicants. Invariably and understandably, a funder will insist on being informed by a trustee of his use of the funds. If the funds are being used to continue with the trustee’s investigation, the funder will wish to know from time to time the progress of the investigation. If the funds are being used for obtaining legal advice and/or instituting legal proceedings, the funder will wish to find out what the advice may be and whether legal proceedings are really justified. In other words, if, in the present case, the Trustees accepted funding from the Applicants, they would have to keep the Applicants informed of every step in the investigative process and every piece of legal advice they obtain. This would wholly defeat the purpose of the investigation.

62. This court should add that it is most unlikely that a funding agreement with the Applicants will receive the sanction of the Court. Rather, such a funding agreement will open the Trustees to criticism of bias, actual or apparent, in favour of the Applicants.

63. For these reasons, the fifth ground is rejected.

Conclusion

64. To conclude, this court is not satisfied that the Applicants have made good any of the grounds relied upon in establishing the Trustees have been guilty of misconduct and/or should be removed.

65. Although not strictly necessary to do so, for completeness, this court shall record that, for the above reasons, it is also not satisfied that it is in the interest of creditors as a whole to remove the Trustees. If the Trustees’ investigation comes to nothing, only the funding creditor will lose out. However, if and in so far as the investigation leads to recovery by the Trustees or reduction of the total amount of claims against the bankruptcy estate, those creditors who have genuine and valid claims as a whole will benefit.

Disposition

66. The application to remove the Trustees is hereby dismissed.

67. There will be a costs order nisi that costs of and occasioned by the application be paid by the Applicants to the Trustees, to be taxed if not agreed.