RE CHAN CHI LOI

[English Translation – 英譯本]

HCB 8632/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT BANKRUPTCY PROCEEDINGS NO. 8632 OF 2006

-------------------------------------

-------------------------------------

---------------------------------------

REASONS FOR JUDGMENT

---------------------------------------

1. On 13 July 2007, this Court made a bankruptcy order (hereinafter “the Order”) against Mr Chan Chi Loi, a debtor (hereinafter “Mr Chan”). On 23 July 2007, Mr Chan lodged an appeal to the Court of Appeal against the Order (Case No.: CACV 227/2007).

2. On 6 August 2007, Mr Chan took out a summons applying for a stay of execution of the Order pending the outcome of CACV 227/2007.

3. At the hearing, Mr Chan indicated that the summons, taken out pursuant to section 104 of the Bankruptcy Ordinance, is for an order setting aside the Order rather than staying the execution of the Order pending appeal.

4. The Creditor opposed Mr Chan’s application. Nor did the Official Receiver support the application.

5. Having heard submissions by the parties, I dismissed Mr Chan’s application and ordered Mr Chan to pay costs of the Creditor and the Official Receiver. I now set out the reasons for my judgment.

Progress since the making of the Order

6. In response to Mr Chan’s summons, the Official Receiver submitted his first report to the Court on 17 August 2007.

7. According to the report, the Order was gazetted on 27 July 2007. Mr Chan had a meeting with staff members of the Official Receiver’s Office on 9 August 2007 and filed a Statement of Affairs with the Court on 14 August. That Statement reveals that, apart from holding 50% interest in the Tung Chung property, Mr Chan also holds bank deposits in the sum of $274,472.69 and shares of an estimated market value of $4,495,000. In the Statement, Mr Chan assessed the value of his interest in the Tung Chung property at $1,650,000. As at the time of preparing the report, the Official Receiver has received a sum of $147,628.95 being bank deposits.

8. As regards debts, apart from the Creditor’s debt, the Official Receiver has to date not received any proof of debt against Mr Chan.

Grounds for application

9. From his affirmation and submissions, the grounds in support of Mr Chan’s application can be summarized as follows:

(1)  The value of the security held by the Creditor exceeds the amount of debt owed by Mr Chan. Furthermore, the value of the assets held by him is sufficient to discharge the debt owed by him to the Creditor. Therefore, the court should not have made the Order.

(2)   As the Creditor has contravened Rule 44(5)(a) of the Bankruptcy Rules and section 6B(1)(a) of the Bankruptcy Ordinance, his petition for bankruptcy should have been dismissed.

Reasons for judgment

10. Section 104 of the Bankruptcy Ordinance provides as follows:

The court may at any time, for sufficient reason, make an order staying the proceedings under a bankruptcy petition, either altogether or for a limited time, on such terms and subject to such conditions as the court may think just.

According to section 104, only where an applicant for stay gives sufficient reason will the court exercise its discretion to stay the bankruptcy proceedings.

11. It is a well-established legal principle that the fact that the bankrupt is proceeding with an appeal against the bankruptcy order does not constitute a sufficient reason for staying the bankruptcy proceedings. As the Official Receiver has pointed out, Mr Chan’s appeal against the Order is not affected by the Order. He can still pursue the appeal in CACV 227/2007.

12. The main reason put forward by Mr Chan for applying to stay the Order is that he is not unable to pay his debt, and there is already a charge over the Tung Chung property in favour of the Creditor as security for the debt, and therefore the court should not have made the Order. However, the undisputed fact is that, after the statutory demand was served on Mr Chan, he neither paid any part of the debt nor sought to set aside the statutory demand.

13. Regarding Mr Chan’s arguments that the Creditor has contravened Rule 44(5)(a) of the Bankruptcy Rules and section 6B(1)(a) of the Bankruptcy Ordinance etc, I have dealt with it in the Judgment of 13 July 2007. I do not consider those arguments a compelling or sufficient reason for staying the Order.

14. On the other hand, staying the Order would cause inconvenience and hindrance to the administration of Mr Chan’s assets by the Official Receiver and would also cause prejudice to the Creditor. Pursuant to section 12(1) of the Bankruptcy Ordinance, Mr Chan’s assets are taken over by the Official Receiver from the date of the making of the Order. In order to protect the Creditor’s interest, the Official Receiver has to speedily ascertain and take over all assets and ensure that the assets are not lost or dissipated. If the Order were stayed altogether, which would serve to relieve Mr Chan of all liabilities under the Bankruptcy Ordinance, then the Official Receiver’s work would certainly be hindered, thereby causing prejudice to the Creditor’s interest.

15. In view of the serious impact of setting aside a bankruptcy order on the Official Receiver’s work and the creditors, the court will normally not stay the order altogether and will only stay part of the bankruptcy proceedings (e.g. gazetting) in appropriate cases: see Re David C Buxhaum, HCB 7637/2004.

16. As for Mr Chan’s argument that he is not unable to pay the debt, as the Official Receiver has pointed out, Mr Chan may, after satisfying the debt, apply to set aside the Order pursuant to section 33(1) of the Bankruptcy Ordinance.

17. At the hearing, Mr Chan also indicated that he was prepared to pay $50,000 or $100,000 into Court as a condition of staying the Order. However, as the solicitor for the Creditor and the solicitor for the Official Receiver have pointed out, as against the amount of the debt involved in the petition, neither $50,000 nor $100,000 is a reasonable figure.

18. Upon dismissal of his application by this Court, Mr Chan proposed to pay the full amount of the debt involved in the petition into Court as security, although he could not do so until he had sold the shares under his name. Mr Chan’s proposal is obviously not feasible at law. As from the date of the making of the Order, all assets of Mr Chan, including the shares under his name, are taken over by the Official Receiver and held by him as trustee. Even if the Court ordered that the Order be stayed, such an order, which did not have any retrospective effect, would not alter the fact that the Official Receiver had taken over Mr Chan’s assets and was holding them as trustee. Therefore, Mr Chan cannot pay the proceeds of sale of the shares into Court as security for staying the Order.

19. Mr Chan also said that his wife, who also held shares, could provide him with funds to be paid into Court. However, Mrs Chan did not attend the hearing and there is no information on her financial condition. I therefore cannot, solely on the basis of what Mr Chan said, accept that Mrs Chan is able to provide him with funds for making payment into Court and make an order accordingly.

CACV 282/2006

20. Mr Chan also applies for leave to proceed with the appeal in CACV 282/2006, the hearing of which has been fixed for 12 September 2007.

21. Ms Chow for the Official Receiver pointed out that the Official Receiver’s Office had notified Mr Chan that, before they decided whether or not to allow Mr Chan to proceed with CACV 282/2006, they would have to consider the prospects of success of the appeal and whether Mr Chan could provide sufficient security against the prejudice that the appeal might cause to the Official Receiver. I agree that these two factors are relevant and important in determining whether Mr Chan is to be allowed to proceed with CACV 282/2006. Mr Chan should therefore make a separate application by summons. In the absence of the relevant evidence and material, I cannot deal with this request in the present proceedings.

Conclusion

22. For the above reasons, I dismiss Mr Chan’s application. Following the principle of costs in the cause, I also order that costs of the Creditor and the Official Receiver be paid out of Mr Chan’s assets. Having considered the bill of costs submitted by the Official Receiver, I fix the Official Receiver’s costs at $6,750. Costs of the Creditor are to be taxed if not agreed.