LAU WILLIAM JOHN v. WAN YUK LIN, ALISON AND OTHERS

HCB 4198/2014

BANKRUPTCY PROCEEDINGS NO 4198 OF 2014

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D E C I S I O N
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Introduction

1.  This is an application by Mr Lau William John (“the Bankrupt”) for an order to remove the Joint and Several Trustees of his property viz Stephen Briscoe and Chan Pui Sze of Briscoe Wong Ferrier (“Trustees”) under section 96(2) of the Bankruptcy Ordinance, Cap 6 (“Ordinance”) and to appoint the Official Receiver (“OR”) in their place. The application is opposed by the Trustees.

Background

2.  The Petitioners were the 5 defendants in HCA 1255/2006 instituted by the Bankrupt. On 2 September 2011, Harris J dismissed the Bankrupt’s claim against them with costs. On 21 September 2012, the Court of Appeal dismissed the Bankrupt’s appeal in CACV196/2011, again with costs.

3.  On 5 June 2014, the Petitioners presented a bankruptcy petition against the Bankrupt. According to the amended Petition dated 20 August 2014, the Bankrupt is said to be indebted to them in a sum of about HK$1.47m, consisting of taxed costs with interest under an Allocatur dated 13 January 2014 in HCA 1255/2006 and another Allocatur dated 13 January 2014 in CACV196/2011.

4.  On 20 August 2014, a bankruptcy order was granted against the Bankrupt at a hearing in which the Bankrupt was absent. The OR became the provisional trustee.

5.  The Petitioners were represented by Messrs Hart Giles in this petition. Messrs Hart Giles also previously represented the Petitioners in CACV196/2011.

6.  On 31 October 2014, the first general meeting of creditors was held at the OR’s office. At that meeting, the Bankrupt and 3 creditors who had filed proofs of debt viz. the 1^st Petitioner (“Madam Wan”), the Bankrupt’s wife Madam Katherine Ma and her brother Mr. Johnny Ma (collectively “Mas”) were present. Mr Wong Teck Meng (“Mr Wong”) and Ms Chan Pui Sze (“Ms Chan”) of Briscoe Wong Ferrier were also in attendance. The proofs of debt submitted by Madam Wan and the Mas were as follows:

(1) Madam Wan : HK$1,226,106

(2) Madam Ma : HK$600,000

(3) Mr Ma : HK$485,000

7.  Madam Wan nominated and voted for Mr Stephen Briscoe and Ms Chan as Trustees. The Mas did not nominate any one and abstained from voting. By virtue of Madam Wan’s vote, Mr Briscoe and Ms Chan were duly appointed Trustees.

8.  On 31 October 2014, immediately after the conclusion of the meeting of creditors, Mr Wong suggested to have a short interview with the Bankrupt in order to explain to him his duties and responsibilities as a bankrupt and to answer any questions that he might have. The Bankrupt did not object to that and attended the interview with Mr Wong and Ms Chan. His wife was also present at the initial interview. What transpired at the initial interview was recorded in a 2-page attendance note prepared by one of the Trustees. [1]

9.  After the initial interview and in accordance with standard industry procedure, the Trustees commenced work by sending letters to the Bankrupt seeking information relating to his assets.

10.  In their first letter to the Bankrupt dated 17 November 2014, the Trustees stated:

“Property and Assets

You are required to provide me with details of all your property and assets, whether located in Hong Kong or in other jurisdictions. Further, should you be aware of any of your property that is not currently in your possession, please advise me of its whereabouts. Alternatively, please provide me with written confirmation that you hold no property and/or are not aware of the location of any such property.

Books and Records

Please arrange to deliver to my office the following documents:-

· bank statements and credit card statements for the two‑year period immediately prior to the date of the bankruptcy order of all the accounts that you maintained with the banks in your name and in the name of Good Times Company (business registration no. 54460068-000-09), your sole proprietorship;

· tax returns for the most recent five years;

· contact details of the recipients of the payments set out in your letter of 27 October 2014 addressed to the Official Receiver’s Office;

· any books and records that are relevant to your property, assets and claims by creditors against you; and

· any papers in your possession relating to HCA 517 of 2014 including copies of all correspondence between you and your solicitors.

Good Times Company

I understand that since 24 September 2012, you operated as a sole proprietor under the trading name of Good Times Company.  I would be grateful if you would confirm the status of that company.  Please provide me with copies of the audited and management accounts of Good Times Company.”

11.  In November and December 2014, the Trustees have also attempted[2] to solicit information from the Inland Revenue Department and the Bankrupt’s former solicitors in HCA1255/2006 viz Messrs Tam, Pun & Yipp.

12.  On 17 December 2014, barely more than 6 weeks into the Trustees’ appointment, and before any substantive reply was given to the Trustees’ 17 November 2014 letter, the Bankrupt issued the present summons seeking their removal (“Summons”).

Deliberation

13.  Section 96(2) 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;

(b) that his trusteeship is being needlessly protracted without any probable advantage to the creditors; or

(c) that he is by reason of lunacy or continued sickness or absence incapable of performing his duties; or

(d) that his connection with or relation to the bankrupt or his estate or any particular creditor might make it difficult for him to act with impartiality in the interest of the creditors generally; or

(e) that the interests of the creditors require it,

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

14.  This court shall first remind itself some of the relevant legal principles.

15.  In Re A Debtor, Ex Parte Debtor v Dodwell (the Trustee) [1949] 1 Ch 236, at 241, Harman J held:

“… there must be circumstances in which the court can interfere at the instance of a bankrupt to control the actions of the trustee… They cannot, I think (in the absence of fraud) justify interference in the day-to-day administration of the estate, nor entitle the bankrupt to question the exercise by the trustee in good faith of his discretion, not to hold him accountable for an error of judgment. Administration in bankruptcy would be impossible if the trustee must answer at every step to the bankrupt for the exercise of his powers and discretions in the management and realization of the property.”

16.  In Re Goodway Limited unrep.; HCCW 162/1998, 11 January 1999; at p 5, Yuen J (as she then was) set out the three basic principles governing liquidators which, in my view, are equally applicable to trustees in bankruptcy:

“Mr Winston Poon SC, counsel for Hong Bridge, 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...”

17.  In Smedley v Brittain [2008] BPIR 219, the Court summarised its approach in dealing with a removal application taken out by a bankrupt at [24] – [26]:

“[24] I am satisfied that a trustee should be acting efficiently and vigorously and unbiased within the conduct of a bankruptcy. It is often the case that a creditor seeks to show that there has been a lack of vigorous and unbiased conduct. The application before this court is more on the basis that the debtor considers there has been an over-zealous approach in the circumstances that will be set out.

[25] I conclude that if the trustee has gone about his or her actions effectively, honestly, reasonably, without misconduct or maladministration, the court must think carefully and long and hard before deciding to remove him or her and that is especially the case if an application is made by a debtor. It should not be seen to be easy to remove a trustee, because, say one or two actions are subject to criticism and especially if that comes with hindsight. The trustee has a statutory duty to act as an officer of the court in the best interests of the creditors and to act honourably, and it is the debtor who has a statutory duty, as under s 333, to do all things as a trustee may reasonably require.

[26] Having reviewed these authorities, I am satisfied that the trustee must act reasonably in his dealings with the debtor, but the test to be achieved by the debtor is a particularly high one, if he is to be successful in removing from office the trustee, and he must show a very real and substantial cause. I am also satisfied that the court must have due regard to the process being undertaken, namely the realisation of assets for the benefit of creditors, and the general purpose for which the trustee is appointed.” (emphasis added)

18.  Smedley v Brittain was recently cited with approval in Re Tam Mei Kam unrep.; HCB3777/2011; 21 February 2014, L. Chan J at [56].

Deliberation

19.  Towards the end of his written submissions, at paragraph 65, the Bankrupt summarised his reasons for seeking to remove the Trustees as follows:

“(i) Have not carried out their duties in the normal manner, i.e., independently, professionally and ethically; [(“Ground 1”)]

(ii) Have shown preferential treatment towards the major creditor; [(“Ground 2”)]

(iii) Have not disclosed the whole truth to the Court in relation to their close connection with related parties in an attempt to hide the core issue of conflict of interest; [(“Ground 3”)]

(iv) Are derelict in their duties; [(“Ground 4”)] and

(v) Have abused their office on account of their acts of bad faith, bias, oppression, trickery, harassment and abuse of process against me and my family members. [(“Ground 5”)]”

20.  It would appear from these grounds that the Bankrupt is really alleging that the Trustees are guilty of misconduct or failure to perform their duties within section 96(2)(a) and their connection with the major creditor ie Madam Wan might make it difficult for them to act with impartiality within section 96(2)(d).

21.  Regrettably, however, these grounds are not arranged in any logical order – rather, particulars of the Bankrupt’s complaints are scattered all over the place in protracted correspondence exchanged between them since the Trustees’ appointment, his affirmations and written submissions. Many of the complaints against the Trustees are just bare assertions without any logical explanation.

22.  For ease of comprehension, this court shall deal with them in the following manner.

Grounds 1, 4 and 5

23.  These grounds are largely overlapping. So are the Bankrupt’s accusations against the Trustees. They should best be dealt with together.

24.  In his written submissions, the Bankrupt first and foremost complains against the Trustees of bad faith.

25.  It should be immediately apparent that this is a serious accusation against a professional person and an officer of the court. In deciding this issue, like any other issue in a civil matter, it must be proved according to the civil standard ie to have been more probable than not. However, common sense requires that in deciding this serious accusation, regard must be had to inherent probabilities – the more serious the act alleged, the more inherently improbable must it be regarded; and the more inherently improbable it is regarded, the more compelling will be the evidence needed to prove it on a preponderance of probability: Solicitor (24/07) v Law Society of Hong Kong (2008) 11 HKCFAR 117 at [1] and [116];  Re B (Children) (Care Proceedings: Standard of Proof) [2009] 1 AC 11 at [15] and [70]. 

26.  This complaint of bad faith consists of a number of sub‑complaints the first of which is that Mr Briscoe lied in his first affidavit dated 20 January 2015 filed in opposition to the Summons. The so-called lie was that at paragraph 23, Mr Briscoe said the Bankrupt refused to disclose to Mr Wong his residential address at the initial interview when asked.

27.  This court is not satisfied that the Bankrupt’s accusation of bad faith has any substance. 

28.  First, lying about the Bankrupt’s refusal to give his residential address has little benefit to the Trustees in resisting the removal application so there is no point for Mr Briscoe to do so. Second, the Bankrupt’s refusal to give his residential address at the initial interview was mentioned as a one-liner in the middle of paragraph 23 without particular emphasis. The paragraph was part of Mr Briscoe’s on-going narrative of what happened at the initial interview. Importantly, Mr Briscoe did go on to say at the end of paragraph 23 that Mr Wong “then requested a correspondence address, in response to which the Bankrupt provided an address at an office building in Wanchai”.

29.  Reading paragraph 23 fairly, what Mr Briscoe said was that during the initial interview, the Bankrupt refused to give his residential address to Mr Wong when first asked. But Mr Wong did not persist, knowing the Trustees would later receive the OR’s working files which would contain the Bankrupt’s residential address. Instead, Mr Wong asked the Bankrupt for a correspondence address which the Bankrupt did provide. Comparing this with paragraph 22 of the Bankrupt’s 2^nd affidavit, there is no real difference between Mr Briscoe’s and his description of what happened.

30.  The Bankrupt’s next sub-complaint of bad faith is that Mr Briscoe had made a misleading statement at paragraph 49 of his first affidavit where he mentioned the Bankrupt’s unwillingness to authorize the Inland Revenue Department to provide copies of his tax returns directly to the Trustees. The Bankrupt said the Trustees never asked him for authorization.

31.  This court is not satisfied that Mr Briscoe had made a misleading statement at paragraph 49. The truth of the matter is that the Inland Revenue Department had turned down the Trustees’ request for the Bankrupt’s tax returns owing to the absence of authorization. The Inland Revenue Department had also informed the Bankrupt about it by letter. The Bankrupt never gave the necessary authorization to the Inland Revenue Department. Putting two and two together, it is reasonable to infer the Bankrupt was unwilling to give the necessary authorization to enable the Trustees to have direct access to his tax returns. This is just common sense.

32.  The Bankrupt’s next sub-complaint of bad faith is that the Trustees have been evasive in giving him a straightforward answer to his request for consent to pursue various legal proceedings viz:

(1) His claim against RSM Nelson Wheeler Consulting Limited (“RSM Consulting”) in HCA517/2014, including (i) his request for consent to attend at RSM Consulting’s application to strike out the claim and (ii) his request for consent to attend a hearing to appeal the refusal of legal aid in that action;

(2) His application for release of an undertaking he made on 5 July 2010 in HCCW 576/2007.

33.  It is not at all clear to this court what a “straightforward” answer is supposed to mean. The fact that the Bankrupt subjectively considers the Trustees’ answer to be not “straightforward” is neither here nor there.

34.  On the evidence, the Trustees have already answered the request for consent. In correspondence dated 28 July and 27 August 2015, the Trustees informed the Bankrupt that that they had no objection for him to continue with HCA517/2014 in the event that no creditor was willing to fund the litigation, which was what actually happened. Similarly, they indicated to the Bankrupt that they did not object to his attending his legal aid appeal in his personal capacity. As for the release of his undertaking in HCCW576/2007, based on the limited information provided by the Bankrupt, the Trustees had repeatedly advised him in correspondence between January and March 2015 that he did not require the Trustees’ consent. Then by letter dated 27 August 2015, the Trustees again told the Bankrupt “it was for you to decide what course of action you wish to take regarding the undertaking”.

35.  The last sub-complaint of bad faith is that the Trustees have repeatedly asked him for information but refused to provide him with any authorities (in the sense of case law) in support.

36.  The complaint is totally without merits. It is a typical example of the sort of “bare assertions without any logical explanation” that this court mentions earlier in this judgment. In the view of this court, it will put a wholly unnecessary and unwarranted burden on a trustee to have to provide authorities in support of each and every question he asks of a bankrupt. If the bankrupt believes any question or line of question raised by a trustee is against the law, he has the burden of proof.

37.  In these circumstances, this court is not and cannot possibly be satisfied that the Trustees have been guilty of bad faith.

38.  In his written submissions, the Bankrupt next complains against the Trustees of oppression. First, he accuses Mr Wong of acting in a hostile and intimidating manner towards him at the initial interview. Second, he accuses the Trustees intended to humiliate him by asking the janitor at his residence to accept service of Mr Briscoe’s 1st affidavit and their skeleton submissions[3] upon finding out that he was not there on 21 January 2015.

39.  These accusations have only to be stated for anyone to realize their lack of merits. Whether the Bankrupt subjectively feels Mr Wong has acted in a hostile and intimidating manner is a matter of impression, quite beyond the control of Mr Wong or any professional trustee. It is understandable that many bankrupts find the experience of bankruptcy distressing. It is also understandable that many bankrupts find a professional trustee acting his duties hostile and intimidating. But these subjective feelings are not and cannot be accepted as evidence of oppression or misconduct which would justify his removal. The trustee has a statutory duty to manage the bankrupt’s assets and distribute among his creditors under section 82(4) of the Ordinance and a bankrupt has a statutory duty to cooperate with the trustee under section 26 of the Ordinance. That is how the statutory bankruptcy regime is designed to work.

40.  The reason for and the circumstances under which Mr Briscoe’s 1^st affidavit and the skeleton submissions were served at the Bankrupt’s residence had already been explained in their letter dated 23 January 2015 and shall not be repeated here. Having considered the explanation, this court does not see any basis for the accusation that the Trustees intended to humiliate the Bankrupt by so doing.

41.  Next, the Bankrupt says the Trustees oppressed his family members ie the Mas by serving statutory demands on them without prior communication or discussion. He also says the Trustees have abused their office in so doing. On the evidence, the Mas, both being associates of the Bankrupt, admitted that they had received funds from him during the relevant period. Whether the Trustees were justified in issuing the statutory demands cannot be investigated here without evidence of the circumstances under which the funds had been received and the legal advice obtained by the Trustees. Suffice it to say that the Trustees had subsequently agreed to withdraw the statutory demands on condition that the Mas agreed to withdraw their applications to set them aside. On the basis of such limited evidence, this court is not satisfied that a case of oppression has been made out.

42.  Lastly, on the question of dereliction of duties, the Bankrupt criticizes the Trustees for failing to:

(1) obtain funding for the conduct of HCA 517/2014;

(2) pursue Madam Wan for certain alleged breaches of validation orders in HCCW576/2007.

43.  It appears to this court neither criticism is justified nor remotely amounts to misconduct.

44.  No trustee can guarantee he will be able to obtain third party funding to pursue a claim in the name of a bankrupt, even assuming that claim is prima facie arguable. As for the second criticism, quite apart from the lack of funding, the Trustees had explained that they were not able to properly assess the merits of the alleged breach at this stage owing to insufficient evidence. This is a matter of professional judgment on the part of the Trustees. The Bankrupt has not been able to demonstrate in what way that explanation is invalid, or, a fortiori, why it amounts to misconduct.

Ground 2

45.  The Bankrupt then complains that the Trustees have shown preferential treatment of Madam Wan because they have failed to (i)make a claim against her with respect to certain alleged breaches of validation orders in HCCW576/2007; or (ii) pursue her, by serving a statutory demand or otherwise, in respect of two outstanding debts due from her to the Bankrupt.

46.  The issue of breaches of validation orders in HCCW576/2007 has already been dealt with above.

47.  Regarding the two outstanding debts due from Madam Wan, they amount to approximately HK$192,000 which is far less than the proof of debt submitted by Madam Wan ie HK$1,226,106. As provided for in section 35 of the Ordinance, upon bankruptcy there shall be mutual set-off of sums due between the bankrupt and his creditor.  On the evidence, after the Trustees had made a demand for payment from Madam Wan of the two debts, solicitors for Madam Wan wrote back and indicated that they would exercise the right of set‑off. That, in the view of this court, answers the Bankrupt’s complaint.

Ground 3

48.  This ground is completely misconceived.

49.  Section 96(2)(d) requires the establishment of a connection or relationship between a trustee and “any particular creditor” which “might make it difficult for him to act with impartiality in the interest of the creditors generally”.

50.  There is no evidence from the Bankrupt that the Trustees have or have had any relationship with Madam Wan as such. The Trustees themselves have also stated that they have had no previous dealings with Madam Wan. It is true that it was Madam Wan who nominated and voted for them at the first creditors meeting. But, in practice, it happens all the time that a private professional trustee (or liquidator for that matter) is nominated by a creditor, usually the largest one. That per se does not mean as a matter of law there exists a sufficient connection or relationship between the two which justifies the trustee’s or liquidator’s removal. Otherwise, the law would not allow the appointment in the first place which, in turn, means a private professional trustee or liquidator can never be appointed. That proposition need only be stated to be refuted.

51.  What the Bankrupt is alleging is that firstly, there is a connection between the Trustees and RSM Consulting whom the Bankrupt is suing in HCA517/2014. But there is no evidence from the Bankrupt to that effect and Mr Briscoe has stated in his first affidavit that neither the Trustees (nor Mr Wong) have or have had any dealings with RSM Consulting. In the interest of transparency, Mr Briscoe has even disclosed that he and Mr Wong had previously worked at RSM Nelson Wheeler Corporate Advisory Services Limited between 2002 and 2005 and at RSM Nelson Wheeler Corporate Advisory Limited between December 2006 and March 2008.

52.  Not only is the Bankrupt’s allegation not supported by evidence, it is also irrelevant. To start with, a connection with RSM Consulting is not a connection with Madam Wan. Further, it seems to this court wholly tenuous to suggest that, by virtue of their employment years ago with two different RSM entities, they would be in a position of conflict in administering the bankruptcy or would be influenced in their assessment of the merits of HCA517/2014. In any event, as stated earlier, owing to lack of funding, the Trustees have indicated to the Bankrupt that he was free to continue with HCA517/2014 himself, without any participation by the Trustees. So there is no question of the Trustees assisting the Bankrupt’s “opponent” in HCA517/2014.

53.  Secondly, the Bankrupt alleges that there are previous dealings and thus there is a connection between Mr Briscoe (and his firm) and Mr Andrew Hart (“Mr Hart”) and Mr William Giles (“Mr Giles”), of Messrs Hart Giles, who are also his “opponents”.  The Bankrupt says he had made known to the Trustees in December 2014 that he had lodged a complaint against Mr Hart and Mr Giles with the Law Society for professional misconduct.

54.  Again, it seems to this court a wholly tenuous suggestion that, by virtue of the previous professional dealings between Mr Briscoe, Mr Hart and Mr Giles, the Trustees would be in a position of conflict such as to make it difficult for them to “act with impartiality in the interest of the creditors generally”.  Anyone who has any experience with insolvency practice knows that solicitors have professional dealings with private trustees and liquidators from time to time. But these are professionals and importantly officers of the court and subject to the court’s supervision. The mere fact that they have professional dealings with one another does not mean the trustees or liquidators cannot act with impartiality. If it can be proved that a trustee or liquidator has in fact acted with partiality, whether motivated by such professional dealings or otherwise, the court may grant whatever redress (including an order of removal) so as to meet the demand of justice of the case, but not before then.

55.  Further, the fact that Mr Hart and Mr Giles are the Bankrupt’s “opponents” in that they are the subject of the Bankrupt’s complaint is neither here nor there. The Trustees will have no involvement in the Bankrupt’s pursuit of his complaint, since that is not part of the administration of the bankruptcy.

Disposition and costs order nisi

56.  For the reasons stated above, this court finds none of the grounds put forward by the Bankrupt have any merits and accordingly will dismiss the application.

57.  The Summons is hereby dismissed. There shall also be an order nisi that costs of the Summons be to the Trustees.