RE YIU YUEN KWOK

HCB 2385/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 2385 OF 2015

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D E C I S I O N

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1.  There is before the court a bankruptcy petition (Petition) of Mr Yiu Yuen Kwok (Yiu), seeking a bankruptcy order against himself on the ground that he is unable to pay his debts. The Petition is resisted by Yiu’s ex-wife (Ms Tang Kai Wing (Tang)), who is Yiu’s largest creditor according to the Statement of Affairs (SA) filed by him on 23 March 2015.

2.  According to the SA, a debt of HK$1,627,200 is owed to Tang.  That debt represents a lump sum payment ordered against Yiu in the ancillary relief proceedings (Proceedings) between them (see Judgment dated 29 January 2015 (Judgment)).  The debt owed to Tang has been increased by HK$719,747 on account of the costs of the Proceedings which Yiu has to bear. Apart from these debts, Yiu says that he owes another debt to his brother (YK) in the sum of HK$450,000.  These debts amount to HK$2,796,947 in total. 

3.  It should be mentioned that in addition to the lump sum payment, the court also ordered the payment by Yiu to Tang in the sum of HK$15,000 per month as periodical payments from 1 February 2015.  Save for the first 2 months[1], no such payment has been made by Yiu.  However, it is uncontroversial that outstanding periodical payments are not provable debts for purposes of bankruptcy (see Re Cheuk On Ching [2004] 3 HKC 192, at 195B-D).

4.  According to the SA, Yiu only has assets of HK$283,971.44[2]. Bearing in mind the periodical payment obligation, Yiu’s monthly expenditure exceeds his monthly income by HK$15,700. 

Issues

5.  There are 2 issues raised by Tang in opposing the Petition, namely, whether Yiu has made full and frank disclosure of his financial position and whether the Petition is an attempt to circumvent the order of the Family Court and an abuse of process.  On the other hand, Yiu says that he is clearly unable to pay his debts on the evidence before the court.

Applicable principles

6.  The court is not unfamiliar with cases involving a petitioning ex-husband seeking his own bankruptcy, which would impact upon the enforcement of an ancillary relief order made in favour of his ex-wife. These cases involve arguments similar to those before this court (see, eg, Re Lam Yik Kai, HCB 7865/2009, 8 June 2011). 

7.  The applicable principles of law are as follows :

(a) The burden of proving an abuse of process rests with the party making the allegation;

(b) Although the standard of proof is the ordinary civil standard of the balance of probabilities, more compelling evidence will be required to satisfied that standard given the seriousness of the allegation;

(c) A litigant in a financial claim (like Yiu here) is under a duty to make full and frank disclosure to the court of his financial circumstances.  Where he has wilfully withheld relevant information, the court is entitled to draw adverse inferences against him.

See Re Lam Yik Kai, supra, §§10-12

Full and frank disclosure

8.  Tang’s case here is based on the finding by the Family Court made in the Proceedings that Yiu had hidden assets in the sum of RMB 1,587,174 (Sum) which could be traced to a Mainland bank account (Account).  Appeared on behalf of Tang, Mr Wong submitted that the Judgment was never appealed against, and it is not open to Yiu to argue that the Sum did not form part of his assets.

9.  Yiu has completely failed to account for the whereabouts of the Sum or its equivalent.  There is therefore no answer to the complaint of lack of full and frank disclosure. 

Yiu’s ability to pay his debts

10.  Appeared for Yiu, Mr Lau argued that even if the Sum is added to Yiu’s assets he is still unable to pay his debts because they clearly exceed his assets. 

11.  I am unable to accept the argument.  With respect, it is a blinkered approach.  It ignores the possibility that Yiu had put the Sum to profitable use and therefore his claimed assets should be enhanced by more than the Sum.  Without the information on what has happened to the Sum, the court is kept in the dark and Yiu is not allowed to take advantage of his own default.

12.  It should be added that the bank documents of the Account show that it was opened in February 2011 with a sum of about RMB 2.89 million.  During the period from opening of account to about October 2012, the Account was quite active with many large transactions.  They reflect the fact that Yiu had access to large sums of money.  The court has not been provided with a satisfactory account on how his fortune has taken a dramatic turn. 

13.  In respect of YK’s loan of HK$450,000, I accept that the Family Court did not make an express finding that it was not genuine. However, the Court clearly declined to include it in the computation of assets due to the fact that the loan “was not supported by evidence both as to the existence and the cause of it” (Judgment, §82). 

14.  In the evidence filed in these proceedings, Yiu had produced certain handwritten record from himself in support of the loan, which was made up of nothing but figures (no dates can be found), and a simple document containing only figures as the record of YK.  There is no explanation as to why such evidence was not before the Family Court, nor is there an affirmation from YK to verify his record.  I am unable to accept that the loan is genuine. 

15.  Further, there is evidence from Tang that Yiu may no longer be residing with YK as he was back in August 2015 when a Social Welfare Report was produced for the purpose of the family proceedings.  The contention is based on the change of address of telephone service.  The address of the telephone service used by Yiu had been changed to another address in Tai Wai indicating, Tang contends, that Yiu is not living with YK due to financial constraints as he alleged.

16.  The evidence adduced by Yiu in answer on this issue is quite unsatisfactory.  He said that the telephone service was required by YK.  However, Yiu did not even say (except possibly in an obscure manner) whether the Tai Wai property belonged to or was used by YK.  Nor is there any explanation why his brother required telephone service at Tai Wai when he was living in Shatin with his family and Yiu.  I am unable to accept Yiu’s evidence as credible.

17.  Finally, there is force in Mr Wong’s submission that if Yiu is living beyond his means as he contends, it is surprising that there is no evidence of outstanding credit card payments or any borrowing from banks or finance house or an increase in borrowing from YK. 

18.  In the premises, given the lack of full and frank disclosure and the state of the evidence, I am not satisfied that Yiu is unable to pay his debts. 

Abuse of process

19.  Mr Wong has fairly accepted that this part of his case is not without difficulty because it relies on inference to be drawn based on various factors, namely, the proximity in time between the sealing of the order of the Family Court and the filing of the Petition (18 days); the lack of full and frank disclosure; the suggestion in the evidence that Yiu is hiding his assets; the lack of diligence in the prosecution of the Petition (filed on 23 March 2015). 

20.  In my view, each of the above complaints is properly grounded, and this case bears the hallmark of an indignant ex-husband who is determined not to pay his ex-wife despite having been ordered by the court to do so.  Having considered these matters with care, I agree that these proceedings were launched with the aim to circumvent the Judgment, and constitute an abuse of process.

21.  However, as a matter of law, it is unnecessary for Tang to establish an abuse of process in order to defeat the Petition.  In Re Cheuk On Ching, supra, Deputy High Court Judge Poon (as Poon JA then was) held as follows at 196B :

“The law has recognized that there are genuine advantages to permitting an insolvent debtor to invoke the bankruptcy jurisdiction on his own volition where he is unable to pay his debts. By doing so, he must come to the court with clean hands before being freed from the accumulative burdens of his debts and is given a chance in due course to make a fresh start. The burden is on the debtor and not for the creditors to prove that he does not have the funds to repay his debts.”

22.  In my view, it is a matter of perquisite for a petitioning debtor to come to court with clean hands so that he may, to the great prejudice of his creditors, be relieved of his crippling financial burden.  Such a responsibility must include a full and frank disclosure of his financial situation.  Mr Lau did not seek to argue again such view.

23.  In this case, Yiu has failed to come to court with clean hands, and the Petition has no leg to stand on.

Conclusions

24.  For these reasons, the Petition is dismissed with costs to Tang, to be taxed if not agreed.  Tang’s own costs be taxed in accordance with Legal Aid Regulations.  I also award costs to the Official Receiver in the sum of HK$6,500 to be deducted from Yiu’s deposit.

25.  I thank counsel for their assistance.