RE MADAM YAU CHUK YING

HCB000073A/1981

No. 73 of 1981

                Bankruptcy - Termination of employment of Employees - acts constituting a repudiation of contract on the part of the Employer - position of the Official Receiver in such circumstances.

IN THE HIGH COURT	In Bankruptcy
	No. 73 of 1981

Re:	Madam Yau Chuk Ying trading as Kwok Fu Restaurant lately carrying on business at Shop 29, Wo Che Estate Commercial Complex, Shatin, New territories
Ex parte:	The Official Receiver and Trustee

_________________

Coram: The Hon. Mr. Justice Mayo in Court

Date: 15 October 1982

 

__________

DECISION

__________

1. The Official Receiver made an application to the court for directions concerning various proofs of debt which were lodged in this bankruptcy by employees of a restaurant business at Shatin and a retail shop of Chinese products. Madam Yau Chuk Ying was the sole proprietor of both of these businesses.

2. By an Order dated the 26th June, 1982, which was subsequently amended, Mr. Justice Liu ordered that issues he framed between one of the employees of each of the businesses and Madam Yau to determine when the respective employee had been dismissed. For the purposes of each of the framed issues the employee was to be treated as, the plaintiff and Madam Yau as the defendant. Before dealing with the merits of this application I would observe that it appeared to be common ground between all parties concerned that neither of the employees referred to in the Orders had been specifically dismissed by either firm. It was however evident that if any directions given were to be meaningful it would be necessary to determine whether the contract of service of either employee had been terminated by implication having regard to all of, the surrounding circumstances. Mr. Robertson who was representing the Official Receiver requested me to deal with the application in this manner and Mrs. Osborne, who was representing the employees, likewise agreed to this approach. Madam Yau was unrepresented. During the course of the proceedings she indicated that she had not dismissed the employees in question and this reinforced my view of the matter that I should determine the issue as to whether these employees' services had been terminated by implication rather than deciding whether Madam Yau had dismissed either employee.

3. There were a large number of employees of the Kwok Fu Restaurant (hereinafter referred to as the restaurant) and a smaller number of employees of the Kwok Fu Chiu Products (hereinafter referred to as the shop). The Official Receiver proposed to treat these cases as test cases and apply the principles I laid down for all of the other employees concerned.

4. Because of the approach I have adopted to these proceedings it is desirable that I should provide a short background to them. Madam Yau had been experiencing financial difficulties for some time prior to the employees' of the restaurant making an approach to the Labour Department about their wages being in arrears. This approach was made on the 1st July, 1981 and a Petition for a receiving order to be made against Madam Yau was lodged in the Court on the 15th July. Prior to the restaurant discontinuing business on the 30th June the bailiffs had on several occasions attended at the restaurant premises and had seized goods and chattels belonging to the restaurant. In addition to this, evidence was given to the effect that suppliers of food stuffs had for some time only been supplying food to the restaurant on the basis of cash being paid on delivery. Bailiffs had also on several occasions attended at the shop and it is very obvious that the business was in' financial difficulties.

5. I decided, with the agreement of the parties, that the best way of conducting these proceedings would be to hear the evidence of the employees of both the restaurant and the shop and then hear Madam Yau's case. One reason for adopting this approach was that Madam Yau experienced a considerable amount of difficulty in separating the various issues and directing her attention to each separate case.

6. Madam Yeung Mui Chu gave evidence that she was a clerk in the Accounts section of the shop. On the 27th June the bailiffs attended at the shop and seized the contents thereof. The effect of this was to effectively bring an end to the trading activities of the shop. Madam Yeung said that she was employed upon month to month terms and her wages were paid twice monthly on the 1st and 15th days of the month. She agreed that she had received her wages for the period from the 1st to the 15th of June 1981 but that she had received no payment since then. When the bailiffs attended at the shop on the 27th June she remained at the shop and continued her work in the Accounts section. Notwithstanding the fact that the shop was no longer trading there was still some work to be done in the Accounts section making up the records of the shop. She was definite in her evidence that neither Madam Yau nor Mr. Wan Kung Lok, the manager of the shop, had ever terminated her employment. On the contrary Mr. Wan had by his conduct clearly indicated that she should continue with her work and she understood that other employees had received similar instructions. She continued with her duties until the 16th of July which was the date when representatives from the Official Receiver's office came to the shop and took it over. She did however concede that in the period shortly before the Official Receiver cane to the shop she did not have much work to do in the Accounts office if indeed she had any at all. She claimed however that she had attended the shop throughout this period. She also agreed that there had been various attempts at discussions or negotiations and that she had received a message that Madam Yau had proposed a meeting with employees of the shop on the, evening of the 3rd July. However she had waited at the shop with other employees for Madam Yau to arrive and as she had not come by 11.00 p.m. all of the employees including herself had departed. Madam Yeung also made reference to the problems which had arisen at the restaurant at Shatin and she was clearly aware that employees of the restaurant were placed in a similar predicament to herself and her colleagues. Madam Yeung claimed to be entitled to her wages up to the date when the Official Receiver took over the shop on the 16th July. Mr. Hung Ming Shuen, a salesman at the shop, gave similar evidence to that of Madam Yeung. He was claiming wages for a similar period. His evidence was similar to Madam Yeung's and Supported hers on essential details. I do not propose commenting in any detail on his claim for arrears of wages because unlike Madam Yeung his claim is not being treated as a test case.

7. Mr. Yip Wai Lun, who was an assistant chef at the restaurant, was the other employee whose test case is the subject of this application. Like Madam Yeung he was employed on a monthly basis and no written terms were deduced as evidence of the contract of employment. He was also paid twice monthly on the 1st and 15th days of each month. He said that on previous occasions the bailiffs had entered upon the restaurant and seized goods and chattels but notwithstanding this the restaurant had continued to trade and customers were served with food. However when the bailiffs levied execution on the 30th June the business had discontinued. He gave evidence that he and his colleagues had not received their wages for the period from the 1st June to the 15th June. They had decided to remain at the restaurant overnight on the 30th June. On the next day the employees went to the Labour Department and a meeting was arranged with Madam Yau. At this meeting Madam Yau had referred to her financial difficulties and had signed a document containing a promise that arrears of wages would be paid on the 3rd July. She also had made reference to negotiations which had been proceeding for another party to purchase the business in the hope that it could be continued thus providing employment for the employees. Madam Yau had failed to implement her promise to make payment and there had been a further discussion with a representative of the Labour Department when he had relaid a message to the employees that Madam Yau would fulfil her promise on the 7th July. This further promise had not been fulfilled. Mr. Yip agreed that after the restaurant had closed on the 30th June he and. his colleagues had hot performed any work whatever and the reason he gave for this was that he had received no instructions from the head chef to do any work. Madam Wong Lai Chun, a cashier at the restaurant, was called to corroborate Mr. Yip's evidence. On all the essential details Madam Wong gave similar evidence to Mr. Yip. The final witness to give evidence for the employees was Mr. Wong Woon Ming a captain at the restaurant. He gave similar evidence to Mr. Yip However in cross-examination he admitted that the main reason why the employees had remained at the restaurant was that they were seeking to preserve the assets of the restaurant. He did however confirm that after the closure of the restaurant none of the workers did any work.

8. Madam Yau gave evidence. In addition to this she submitted to me various letters which I made available to Mr. Robertson and Mrs. Osborne. Madam Yau gave rather conflicting and unsatisfactory evidence which was not of much assistance in resolving the essential issues which have to be determined. She said that the employees of the restaurant had proved to be unsatisfactory and that many of them had approached her for loans. She had been compelled to grant the requests which had been made as she was faced with the alternative that if she refused their requests they would absent themselves from their work. She did not even agree that the salaries of employees had been in arrears. She said that when she offered to make payments to them on the 3rd of July the workers had refused her offer. She did not go so far as to claim that she had offered to make payment to them of all wages due and owing to them. She chose to deal in generalities and' was not prepared to specifically direct her attention to any details. In any event she did agree that she had not dismissed the employees or any of them. She made reference to fact that she had had negotiations or discussions with a Mr. Cheung and that he had taken advantage of her position. If I understood her correctly she was attempting to fix the blame for almost everything which had transpired upon him.

9. To enable me to deal with the law in this rather difficult area it is necessary for me to make specific findings of fact. I found all of the employees who gave evidence to be truthful and reliable witnesses. There were no significant disparities between themselves. On the other hand I regret that I did not find Madam Yau to be a very satisfactory witness. I do not know whether she was deliberately attempting to mislead the court or whether she is unable herself to fully recollect the essential details of what transpired. Be that as it may where there are conflicts between the evidence given by any of the employees on the one part and Madam Yau of the other part I am much more disposed to accept the testimony of the employees. I find as a fact the restaurant employees did not receive their wages for the period from the 1st of June to the 15th of June or for any period thereafter.  I also find as a fact that the employees of the shop did receive wages up to the 15th of June but received no wages thereafter.

  

10. I also find as a fact that the shop ceased trading on the 27th of June.  I am also satisfied that the manager of the shop Mr. Wan had given instructions to the employees to continue with their work notwithstanding the fact that some of the employees had little or no work to do. Equally I am satisfied that the employees obeyed this instruction and continued to regard their employment as continuing up to the 16th of July which was the date when the Official Receiver attended at the premises and instructed the employees to leave. At first sight it might appear to be rather odd that the employees should have agreed to remain in their jobs from the 27th of June to the 16th of July even though the shop had ceased trading. It will however be noted from the earlier part of this decision that Madam Yau had been experiencing financial difficulties for some time and that on previous occassions she had succeeded in resolving these difficulties. It may well have been the case that the employees were still optimistic that Madam Yau would get over the problems which were being experienced and that the shop would be able to resume normal trading. I find that the employees of the shop did receive specific instructions to remain in their jobs and they agreed or elected to continue their employment. I have considered the position: concerning Madam Yeung. She worked in the Accounts Office and did have some work to do certainly during the earlier part of the period. It is true to state that some of the other employees, particularly the salesmen in the shop may have had little or no work to do. I do not though consider that it is necessary or desirable to attempt to distinguish the position between Madam Yeung and the other employees. As I have said they were instructed to continue working and they agreed to accept these instructions.

  

11. The position concerning the restaurant employees is rather different. I accept as a fact that many or most of the restaurant employees remained at the restaurant premises after it ceased business on the 30th of June. However there is a vital difference between the situation of the restaurant employees and the shop employees. None of the restaurant employees who gave evidence claimed that anyone in authority requested them to continue with their work. I regard this as being a matter of some importance. I do not think on any fair interpretation of the evidence that it can be established that the restaurant employees did any work after the 30th of June. I accept that they remained at the premises.   There was a meeting on the 1st of July and Madam Yau made various promises including a promise to pay the workers their arrears of wages on the 3rd of July. I have no hesitation in accepting the evidence of the employees who gave evidence in: this connection that this is what transpired and I reject Madam Yau's evidence to the contrary, to the effect that the workers refused to accept their wages as was claimed by Madam Yau.

  

12. I have given careful consideration to the evidence of the restaurant employees who gave evidence and I am satisfied that although they remained at the restaurant premises after the 30th of June, they not only did not do any work but also did not regard themselves as being on the premises as employees after that date. The captain, Mr. Wong, admitted in cross-examination that the main reason the employees remained at the restaurant was to protect the assets of the restaurant. I accept that this was in fact the case. In coming to this conclusion I have also borne in mind the fact that none of the employees claimed that they had received instructions to continue work. The closure of the restaurant would, in my opinion, have amounted to a repudiation by Madam Yau of the respective contracts of employment and the employees were in a position to choose whether they would continue their employment or discontinue it. On the facts as I understand them the employees adopted the latter course and chose not to continue with their work. The reality of the situation was that they regarded the restaurant premises as being a base where they could foregather and discuss and decide what collective action should be taken by them. In addition to this they were taking measures to safeguard whatever assets remained at the premises.

  

13. Both Mr. Robertson and Mrs. Osborne made most helpful submissions. Because of the rather restrictive findings of facts that I have made much of the case law cited to me does not have a direct relevance or bearing on the circumstances of this particular case. Mr. Robertson submitted that the failure of an employer to pay wages to employees constituted a unilateral breach of the contract of employment. The question though which has to be decided is whether such a breach amounts to a repudiation of the contract and whether such a repudiation brings the contract to an end or whether such a repudiation has to be accepted by the employees. There have been a proliferation of cases on this subject in England and most of these cases have been brought with a view to proceedings in industrial tribunals which have rules and procedures which are different to anything which exists in the colony. I have not been able to derive a great deal of assistance from these cases. In particular some of the cases which were cited to me related to constructive dismissal of an employee by himself. I am not prepared to draw any analogy that the position of an employer is the converse of that of an employee and accordingly these cases were of very little assistance. I also found that I was able to derive very little assistance from the case of Gunton v. the London Borough of Richmond⁽¹⁾.   I found it to be impossible to reconcile the judgments of the three Lord Justices, so far as it related to the issues arising in the present case. Some assistance can however be obtained from the judgment of Lord Justice Salmon in the case of Denmark Productions Ltd. v. Boscobel Production Ltd. ⁽²⁾.   He had this to say concerning the position of an employee after there has been a unilateral repudiation of a                          contract of employment.

"

It has long been well settled that, if a man employed under a contract of personal service is wrongfully dismissed, he has no claim for remuneration due under the contract after the repudiation. His only money claim is for damages for having been prevented, from earning his remuneration. Goodman v. Pocock(3) ; French v. Brookes(4) ; and Fewings v. Tisdal. (5).  A managing director, for example, engaged at $10,000 a year, who has ten years of his service agreement to run, is dismissed without cause. He cannot sit in the sun for ten years drawing his salary on the basis that he is ready, able and willing to serve as managing director if only the company would allow him to do so. His sole money claim is for damages and he must do everything he reasonably can to mitigate them."

Lord Justice Salmon again considered this problem in a later case Decro-Wall International S.A. v. Practitioners in Marketing Ltd.⁽⁶⁾ At page 369 he said:

"If the master, in breach of contract, refuses to employ the servant, it is trite law that the contract will not be specifically enforced.  As I hope I made plain in the Denmark Productions case, the only result is that the servant, albeit he has been prevented from rendering services by the master's breach, cannot recover remuneration under the contract because he has not earned it. He has not rendered the services for which remuneration is payable. His only money claim is for damages for being wrongfully prevented from earning his remuneration. And like anyone else claiming damages for breach of contract he is under a duty to take reasonable steps to minimise the loss he has suffered through the breach. He must do his best to find suitable alternative employment. If he does not do so, he prejudices his claim for damages. I doubt whether, in law, a contract of service can be unilaterally determined by the master's breach. Perhaps the servant could sit still whilst the contract ran its course with the knowledge that the contract was, in law, still alive.  But, in practice, this knowledge could be of little real comfort to him because he would be failing to take reasonable steps to minimise his loss - and since a claim for damages is his only money remedy, he would be prejudicing that claim by doing nothing. Accordingly he would, as a rule, be far better off to treat his contract as if it were at en end; and this is usually what happens."

14. Lord Sachs L.J. considered this problem in the case of Hill v. C.A. Parsons & Co. Ltd⁽⁷⁾ . At page 318 of the report of the case, he made it clear that an innocent party must have a right to accept any repudiation there may be as a pre-condition to termination. Stamp L.J. also appeared to accept this position.

15. I consider that it is necessary to have regard to the factual situation which pertained. In my view a very different situation prevailed at the restaurant premises to that which existed at the shop. At the restaurant the employees had not received their wages since the beginning of June and they should have received a payment in the middle of the month. No doubt they would have been restless. It may well be the case that they did continue working with some measure of normality up to the end of June. They did not continue working after the 30th of June and I am satisfied that by their conduct they accepted Madam Yau's repudiation of their contract of employment. Their continued presence at the restaurant, in the absence of any instructions to continue work, did not constitute employment in any real sense of the term. They simply attended at the restaurant premises as a convenient meeting place and to protect the assets of the restaurant which had not already been removed.

16. On the other hand, the situation at the shop was very different. When the shop discontinued business on the 27th of June the wages of the employees were not in arrears. Payment of their wages for the period from the 15th of June to the 30th of June was not due until the end of the month. It may well have been the case that the employees considered that there was every likelihood that they would receive their wages in due course. They also received instructions from Mr. Wan to continue with their work. I do not consider that it was unreasonable for the employees of the shop to remain at the shop from the 27th of June to the 16th of July, When the Official Receiver attended at the premises on the 16th of July the employees wages would only have been in arrears for a period of 16 days. On the available case law I am doubtful whether it could be successfully argued that Madam Yau had at that stage repudiated the employees' contract of employment. In any event, even if she had I do not think that the employees had accepted any such repudiation.

17. I am required under this application to give directions to the Official Receiver. I will do so by reference to the two trial cases. For the reasons I have given I direct that Madam Yeung continued as an employee of the shop until the Official Receiver took over on the 16th of July. On that day she was requested by the Official Receiver to leave the premises and she complied with that request. Her employment terminated on that day. As regards Mr. Yip the Assistant Chef at the restaurant I direct that his employment came to an end on the 30th of June. I received considerable assistance from both Mr. Robertson and Mrs. Osborne and I order that their costs will be paid out of this estate.

	(Simon Mayo)
	Judge of the High Court

(1)    (1980) 3 A.E.R. page 577.

(2)    (1968) 3 W.L.R. 841.

(3)    (1950) 15 Q.B. 576.

(4)    (1830) 6 Bing. 354.

(5)    (1847) 1 Exch. 295.

(6)    (1971) W.L.R. 361.

(7)    (1972) Ch. 305.

Representation:

Mrs. Osborne (D.L.A.) for Plaintiff

Mr. A. Robertson for Official Receiver

Defendant, Madam YAU CHUK YING, in person.

IN THE HIGH COURT OF JUSTICE	In Bankruptcy
	No. 73 of 1981

Re:	Madam Yau Chuk Ying trading as Kwok Fu Restaurant lately carrying on business at Shop 29, Wo Che Estate Commercial Complex, Shatin, New Territories.
Ex parte:	The Official Receiver and Trustee

___________________

Corma: The Hon. Mr. Justice Mayo in Court.

Date: 19 November 1982

___________

ADDENDUM

___________

18. In pursuance of the powers of review reposed in me by the Ordinance and having considered Mr. Robertson's further submission I order that the following addendum be added to my Decision dated the 15th October.

19. By the 16th July 1981 the employees were entitled to assume that Madam Yau had repudiated their contracts of employment. In particular 4 weeks salary was then outstanding. Added to this was their knowledge of the problems of the employees at the restaurant premises. When the Official Receiver entered the premises his prime concern was to safeguard the assets of the business - He did not dismiss the employees. He asked them to leave and they complied with his request. Their acceptance of this request constituted an acceptance of Madam Yau's repudiation by their contract of employment.

	(Simon Mayo)
	Judge of the High Court

Represetation:

Mrs. Osborne (D.L.A.) for Plaintiff

Mr. A. Robertson for Official Receiver.

HCB000073/1981

Bankruptcy No. 73 of 1981

Bankruptcy - S.37(1) of the Ordinance - where goods of the debtor remain on leasehold property in the custody of the Official Receiver as interim receiver and are sold before adjudication the landlord is not entitled to unpaid rent during that period but must prove for it with other creditors in the bankruptcy - the company law principle that the full rent is payable for period liquidator remains in possession of leasehold property "for the convenience of the winding-up" is not applicable to bankruptcy proceedings.

IN THE HIGH COURT OF HONG KONG

IN BANKRUPTCY

No 73 of 1981

_________

Re:	Madam Yau Chuk Ying trading as Kwok Fu Restaurant lately carrying on business at Shop 29, Wo Che Estate Commercial Complex, Shatin, New Territories, Hong Kong, a Bankrupt.
Ex parte:	City and Urban Properties Limited, a Creditor.

_______________

Coram: The Hon Mr. Justice Fuad.

Date: 28 July 1982

___________

JUDGMENT

___________

1. By this summons, City and Urban Properties Ltd. ("the Company" or the "landlords") put forward certain claims in the bankrupcy of their lessee, Madam Yau Chuk Ying. The facts are largely to be found in affidavits sworn by Mr. Gerald To, a partner of the firm of solicitors acting for the Company and by Mr. A.L. Robertson, the officer in the Official Receiver's department who has the conduct of the bankruptcy. The Company let five shops on the respective ground floors of five adjacent buildings at the Whampoa Estate, Kowloon to the bankrupt for a term of four years from the 8th January 1979 at a total monthly rent of $41,490 exclusive of rates. I understand that the shops were run as a "Chinese Emporium". On the 8th June 1981 Madam Yau was behind in the payment of rent and the Company instituted an action in the High Court to recover possession of the premises and arrears of rent. On the 15th July 1981 a bankruptcy petition was presented: against Madam Yau (whose interests included running a restaurant) by a number of her employees. On the following day Liu J. appointed the Official Receiver interim receiver "of all the property of Madam Yau Chuk Ying lately trading as Kwok Fu Restaurant that may be found at shop 29, Wo Che Estate Commercial Complex, Shatin, N.T. or any other premises." [Emphasis added.] On the next day (the 17th July 1981) the Official Receiver seized the contents of all the shops leased to Madam Yau by the Company.

2. What happened next is of crucial importance and this is how Mr. To put it in his first affidavit -

	"5.	I have been informed by Mr. Terence Wong, a clerk of my firm who was then in charge of the tenancy of the premises on behalf of the Applicant, and verily believe that on or about the same day, the Official Receiver as the Interim Receiver of the properties of the Bankrupt telephoned him seeking from my firm a copy of the tenancy agreement and further requesting the Applicant not to take any further action in High Court Action No.4644 of 1981.
	6.	On 27th July 1981, the Official Receiver as Interim. Receiver of the properties of the Bankrupt wrote to my firm formally stating that he appointed Interim Receiver of estate of the debtor pending the hearing of the Bankruptcy Petition on 15th September 1981. In that letter, of the Interim Receiver sought the confirmation of the Applicant that it would not take any further steps in the High Court Action or any other steps in relation to the premises without giving him prior notice on the ground that the Bankrupt was taking steps "to dispose of certain of those interests in of the letter dated 27th July 1981, from the Official Receiver to my firm is now produced and shown to me marked 'GT-3'."

The Official Receiver's letter referred to in para. 6 of Mr. To's affidavit was in the following terms-

"I am Obliged to you for the copy of the lease and of the endorsed writ in High Court Action No. 4644 of 1981.

I confirm that I have been appointed Interim Receiver of the estate of Madam Yau Chuk Ying. The bankruptcy petition is due to be heard on the 15th September 1981.   As you and your clients may be aware Madam Yau has various business interests. At present she is taking steps to dispose of certain of those interests in the hope that she can pay her creditors in full. I would, therefore be grateful if you would confirm that your clients are  prepared not to take any further steps in High Court Action No. 4644 of 1981 or any other steps in relation to the lease of the premises in Wing Fu Building, Yuen Fu Building, On Fu Building, Lok Fu Building and Kai Fu Building without prior warning to me."

There was no acknowledgment or reply to this letter.

3. On the 15th September 1981 Liu J. made a Receiving Order against Madam Yau. On the 22nd January 1981, after lengthy and hotly contested proceedings, I adjudicated Madam Yau bankrupt. Her subsequent appeal to he Court of Appeal failed. My judgment fully reviews what happened at the meetings of creditors and I need not repeat what I said.

4. Meanwhile, on the 8th October 1981 the Company had filed A Proof of Debt which included the arrears of rent which are the subject - matter of the present proceedings.

5. As regards the eventual surrender of the lease, this is what was deposed to by Mr. To in his first affidavit-

"9. Both before and after the making of the Receiving Order, negotiations took place between the office of the Official Receiver as the Interim Receiver of the Bankrupt and myself acting on behalf of the Applicant regarding the surrender of the premises. The negotiations resulted in a Deed of Surrender dated 20th January 1982, executed between the Applicant as landlord of the premises of the first part, the Bankrupt of the second part and the Official Receiver and the Interim Receiver of the estate of the Bankrupt of the third part. A copy of that Deed is now produced and shown to me marked 'GT-4'. The Deed provides that that the tenancy of the premises should terminate on 20th January 1982, and that the rent in the sum of $82,980.00 together with rates in the amount of $3,910.00 both for the period between 21st November 1981 and 20th January 1982, should forthwith be paid by the Bankrupt out of her estate. The payment of the rents and rates provided for in the Deed was duly paid by the Interim Receiver upon the execution of the Deed. So far as the rent and rates accrued before 21st November 1981 are concerned, no agreement was reached between the parties."

6. The claim which is now before me was formally put forward in a letter dated the 7th April 1982 from the Company's solicitors to the Official Receiver's office in these terms -

"We refer to the various telephone conversation between Mr. Gerald To of our firm and Mr. M.E. Brown, of your office in which your Mr. Brown expressed the view that part of the arrears of rent and rates in respect of the above-mentioned premises might not be treated by the official Receiver as actual expenses incurred in realizing the assets of the debtor.

 

            After examining the file on this matter and the law relating to the issue, it is our view that the arrears of rent and rates incurred between 15th July, 1981, when the Bankruptcy Petition was presented and 20th November, are part of the actual expenses incurred in realizing the assets of the debtor within the meaning of Section 37(1) of the Bankruptcy Ordinance. The premises during that period was retained by the Debtor and the Official Receiver for the convenience of the bankruptcy proceedings and with the view to the realization of the properties belonging to the Debtor therein to better advantage. As such, our clients City & Urban Properties Limited, as the landlord of the premises, ought to be entitled to priority in payment under Section 37(1) of the Ordinance. The sum owed to our clients during that period amounted to a total of $179,572.67, being $171,492.00 in respect of arrears of rent at $41,490.00 per month and $8,080.67 being arrears of rates at the rate of $5,865.00 per quarter.

 

            Because of the Proof of Debt filed dated 8th October, 1981, by our clients covers the sums owed to our clients up to 31st October, 1981, and thus included a portion of the sum stated in the above paragraph, we have further advised them that the Proof ought to be amended so as to discount the expenses and charges incurred in the bankruptcy proceedings for which our clients are not required to prove.

 

            Accordingly, we would be grateful if you could inform us at your earliest convenience whether or not our clients would be entitled to priority in payment in respect of the sum of $179,572.67 so as to enable us to advise them on what further steps they ought to take including an application to the Court for the amendment of the Proof of Debt."

7. By letter dated the 22nd April 1982 the Official Receiver rejected these contentions -

"Thank you for your letter of the 7th instant. The Official Receiver was appointed Interim Receiver of Madam Yau on the 16th of July 1981. As such he had no power of sale: see Section 13 of the Bankruptcy Ordinance and Bankruptcy Rule 61. The receiving order herein was made on the 15th of September 1981 at which time the official Receiver became the Receiver of the debtor's property. It is not until the debtor is adjudicated bankrupt that the debtor's property vests in her Trustee in Bankruptcy: see Section 22 of the Bankruptcy Ordinance. Accordingly, in my view your clients are not entitled to rent as expenses of the Bankruptcy."

8. To go back a little, the bankrupt's property on the landlord's premises was sold on the 9th November 1981, pursuant to an Order I made earlier that day, and this is what Mr. Robertson has to say about the matter in his second affidavit-

"2. The Official Receiver took no active steps to dispose of the contents of the premises described in paragraph 2 of Mr. Gerald To's affidavit sworn on the 17th May 1982, until the second part of October 1981: on the 26th October 1981 he advertised for sale of the contents by way of tender. The contents were eventually sold by way of tender on the 9th November 1981, this Honourable Court having sanctioned the said sale on that date. The Official Receiver had not previously takensteps to dispose of the contents because the bankrupt had maintained that either she was solvent or even if insolvent, her creditors would agree to a scheme of arrangement or composition whereby she could continue in business out of the said premises. Also, the power of sale of the Official Receiver as Interim Receiver is very limited and usually can only be exercised with the agreement of the debtor and sanction of the Court. At the First Meetings of creditors of Madam Yau held on 2nd and 9th October 1981 it appeared from, what was stated by creditors that the possibility of the creditors approving a scheme of arrangement or composition was very unlikely. Also, the Official Receiver had by this time formed the view that Madam Yau was insolvent."

9. Mr. Winston Poon, for the Company, asks me to declare that the unpaid rent for the period 15th July to the 20th November 1981(that is to say, from the commencement of the bankruptcy until rent was paid under the Deed of Surrender) was part of "the actual expenses incurred in realising any of the assets of the debtor" within the meaning of that expression in the opening words of Subsection (1) of S.37 of the Bankruptcy Ordinance, or that the rent formed part of "the actual expenses incurred by the Official Receiver in protecting or attempting to protect the property or assets of the debtor or any part thereof" as set out in paragraph (a) of that subsection. In other words Mr. Poon contends that the unpaid rent is payable and not provable. I will say at once that if I am satisfied that such is the case, I would not decline to grant the relief sought simply because the Company had earlier filed a Proof of Debt in respect of the same debt. I would, accordingly, give leave (which the summons also seeks for the Proof to be consequentially amended.

10. Mr. Poon relies on a principle well established in the company law area which might be thus briefly stated. If the liquidator remains in possession, or takes possession, of property under a lease for the convenience of the winding-up, the rent accruing due under the lease must be paid in full to the lessor out of the assets of the Company - otherwise the landlord can only prove for the debt. Many cases were cited to me showing the application of this principle but after what I am sure was exhaustive research, no case was found which applied the same principle to the law of bankruptcy. There can be no doubt that the process of winding up a company if it is insolvent closely resembles bankruptcy proceedings. While the procedure is separate it has many common features. The main difference, perhaps, in the context of the matter before me is that the property of the Company does not vest in the liquidator, whereas the property of a bankrupt does vest in his trustee, upon his adjudication. But the making of a receiving order vests no estate or interest in the official Receiver.

11. Mr. Robertson for the Official Receiver contended that the principle advanced by Mr. Poon had no application to bankruptcy proceedings for there were material differences. A liquidator, on appointment, assumes the powers and functions of the directors and he takes into his custody all the property of the company. Although, subject to this, his duties are those which are spelled out in the order appointing him, usually his powers are restricted to taking possession of, and protecting the company's assets. Mr. Robertson points out that until his appointment as trustee (which might not happen) the Official Receiver has no interest in the lease, whereas a company must act through someone, and it does so through its provisional liquidator. He drew attention to the fact that the cases use the formulae "where a company remains in possession" and "where a liquidator remains in possession interchangeably - that is to say the liability of the company and that of its liquidator is one and the same. But the Official Receiver has no contractual obligation to pay rent as an interim receiver, either before or after the making of a receiving order. Mr. Robertson added that the Official Receiver could reasonably have assumed that the landlords would prove for the rent due in the normal way, as was borne out by events.

12. The effect of receiving order and the duties of the Official Receiver were explained by Williams J. in Re Wells and Croft, Ex parte The Official Receiver (1895) 72 LT 359, at p.360-

"It is quite true that upon the making of a receiving order, there is no transfer of the debtor's estate to anybody in trust for creditors. That does not take place unless and until there is an adjudication; but, at the same time, the power of the bankrupt to deal with his property or to give charges on his property comes to an end with the receiving order, and it is not convenient in my judgment that the official receiver should take a charge in the form taken here from the bankrupt. The Bankruptcy Act does not mean that the official receiver should administer the bankrupt's estate immediately; it only means that until it is known whether or not there will be an order for adjudication, the goods should remain in the custody of the law and the official receiver is the person appointed for that. He acts under sect. 70, and, except for the protection of the debtor's property and the disposition of perishable goods, it is not intended that the official receiver in his character as interim receiver should realise the estate or deal with it or encumber it. So that to take a charge of this kind is wrong though it may be occasionally a prudent thing to get the consent of the debtor to a particular dealing with property, but if the official receiver wishes to exercise any powers other than those defined in sect. 70, sub-sect. 2, he should apply to the Board of Trade."

13. Mr. Robertson also pointed out that the landlords had chosen not to exercise the right of distress accorded them by S. 40 of the Bankruptcy Ordinance. If they had sought to distrain, the official Receiver could have given them the usual binding undertaking to pay the rent for which they were entitled to distrain, out of the proceeds of the distrainable goods when sold (if he had been in a position to do so) as sanctioned by Re Chapman, Ex parte Goodyear (1894) 10 T.L.R. 449.

14. Mr. Robertson submitted that since the Company had not exercised their rights, their only remedy was to prove for their rent. If, however, the Court were to hold that there was no essential difference between the position of a liquidator and an interim receiver, he contended that even on the authorities cited by Mr. Poon, on the facts here the rent claimed was only provable.

15. He drew my attention cases which established that where a trustee in bankruptcy applies for leave to disclaim a lease, the Court will not order any compensation to be paid to the landlord unless the trustee kept him out of possession of the property and his occupation has resulted in a benefit to the bankrupt's estate (Ex parte Izard (1883) 23 Ch. D.115). And in Ex paste Arnal (1883) 24 Ch. D. 26 the Court of Appeal adopted the rule laid down by Cotton L.J. in Ex parte Isherwood (1882) 22 Ch D. 384 in these words -

"In determining what he (the trustee ought to pay, regard must be had to two things, whether the occupation has either in, fact produced a benefit to the bankrupt's estate, or was contemplated as likely to produce a benefit, and the circumstance that, in consequence of the disclaimer relating back to the date of adjudication, the owner of the estate is in the interval between the adjudication and the execution of the disclaimer in this position, that he has been lawfully kept out of the use of his property by virtue of the operation of the lease, and cannot after the disclaimer bring any action against the person who without his consent has been in the occupation of the property. These two things ought to be taken into consideration."

16. Mr. Robertson suggested that these authorities reveal the true principle in bankruptcy cases - a trustee after his appointment may in all the circumstances be ordered to pay rent but not an interim receiver.

17. Not without some difficulty I have reached the conclusion that Mr. Robertson is right. I find no warrant in the authorities cited to me to extend their application to bankruptcy cases. The severely limited powers of the Official Receiver as interim receiver do not give him the freedom allowed a liquidator (or the Company) to take possession or remain in possession of leasehold property. It is not without significance that Liu J.'s order of the 15th July 1981 appointed the Official Receiver as Madam Yau's interim receiver in respect of "all her property ..... that may be found [at specific premises at Shatin] or any other premises". I do not think it to be a sound proposition simply to equate the position of a company/liquidator to that of a debtor/interim receiver. If I am right this would explain why no case could be found stating the principle relied upon by Mr. Poon as applied to Bankruptcy Law - nor is the principle mentioned in the leading text-books on bankruptcy. However, in case I am wrong, I propose now to approach the matter before me on the assumption that there is no essential difference between the position of a liquidator and that of an interim receiver in relation to leasehold property.

18. The authorities relied upon by Mr. Poon are collected together and reviewed by Pennycuick V. -C. in In re Downer Enterprises Ltd. [1974] 1 W.L.R. 1460. I respectfully consider that I can do no better than to set out the Vice-Chancellor's analysis of the cases and the principles to be derived from them, at p.1465 -

	"      The first question then which has to be determined is whether, if Prudential had not been paid these arrears by Granada, and ultimately by Schick through Granada, Prudential would have been entitled to have the arrears paid in full as an expense in the liquidation. By "arrears" I mean, of course, the arrears which have accrued since the commencement of the liquidation. I say "entitled". Strictly, the Court has a discretion as to whether to allow arrears to be paid in full in such circumstances, but that is a judicial discretion which the court exercises upon well established principles.                 The law on this point has been the subject of a number of judicial decisions, most of the leading cases having been decided just about a century ago; that is, in the 1870s. I do not propose to go directly to the earlier cases because the law on this point was fully reviewed by Plowman J. in In re A.B.C. Coupler & Engineering Co. Ltd. (No. 3) [1970] 1 W.L.R. 702.                 The effect of the earlier decisions may be gathered from quotations from two cases referred to in Plowman J.'s judgment, first from In re Lundy Granite Co. (1871) 6 Ch. App. 462, in which James L.J. said, at p. 466:
		'But in some cases between the landlord and the company, if the company for its own purposes, and with a view to the realization of the property to better advantage, remains in possession of the estate, which the lessor is therefore not able to obtain possession of, common sense and ordinary justice require the court to see that the landlord receives the full value of the property.'
	Mellish L.J. in the same case said, at p. 467:
		'If the official liquidator, for the convenience of the winding up, does not surrender the lease, but continues to keep possession for the purpose of obtaining a better price for the goods, the landlord should not be deprived of his right to recover his rent.'
	Then in In re Oak Pits Colliery Co. (1882) 21 Ch.D.322, Lindley L.J., delivering the judgment of the Court of Appeal, said, at p. 330:
		'Secondly as to rent accruing after the commencement of the winding up. 1. If the liquidator has retained possession for the purposes of the winding up, or if he has used the property for carrying on the company's business, or has kept the property in order to sell it or to do the best he can with it, the landlord will be allowed to distrain for rent which has become due since the winding up:...."
	He then cited a number of cases. Mr. Phillips, for the liquidator, pointed out what I have no doubt is true, that none of these earlier cases directly warrants the words or to do the best he can with it, 'but those are the words used by the Court of Appeal and must, I think, be treated as part of the principle established by the decision. Lindley L.J. continued:
		'2.    But if he has kept possession by arrangement with the landlord and for his benefit as well as for the benefit of the company, and there is no agreement with the liquidator that he shall pay rent, the landlord is not allowed to distrain ... But no authority has yet gone the length of deciding that a landlord is entitled to distrain for or be paid in full rent accruing since the commencement of the winding up, where the liquidator has done nothing except abstain from trying to get rid of the property which the company holds as lessee.
	There is no relevant distinction between a landlord's right to distrain and a landlord's right to receive payment of the rent in full.
	Applying all the passages dealt with in that review, Plowman J. said in In re A.B.C. Coupler & Engineering Co. Ltd. (No. 3) [1970] 1 W.L.R. 702, 709:
		'it appears that, apart from the question of some special equity (which, in my judgment, does not arise in the present case) the test of liability for payment in full of rent accrued since the winding up is whether the liquidator has retained possession 'for the convenience of the winding up,' and that whether he has done so or not, depends upon his purpose in retaining possession - upon what Mr. Arnold, for the official receiver, called his 'motivation.' '
	Plowman J. proceeded to apply those principles to the facts in the case before him and held that the landlord was entitled to payment of rent in full as from the date when the liquidator put the property in question on the market. I confess that I am not entirely happy at the expression 'motivation.' That seems to make the right of the landlord dependent on the subjective processes in the mind of the liquidator. However, the difficulty is perhaps not a very real one in most ordinary cases and there is nothing extraordinary about the case before me because the landlord's motivation will be found or will be inferred from what he in fact did."

19. I would remark here that right at the end of this passage, I think the Vice-Chancellor made a slip of the tongue and meant to say "the liquidator's motivation" and not "the landlords". In that case the Company went into liquidation in November 1971 and rent was in arrears at that date and accrued thereafter. The liquidator originally wanted to disclaim the tenancy but on advice decided to retail it with a view to selling the leasehold interest. He did not carry on the Company's business, nor did he make use of the property. However some five months later, in 1972, he give instructions to agents to find a purchaser. In January 1973 the leasehold interest was sold. On those facts, Pennycuick V.C. that from the date upon which the liquidator had given instructions to find a purchaser he must be treated as having remained in possession of the property with a view to its realisation to the best available advantage, or put another way he must be treated as having kept the property in order to sell it or do the best he could with it. The rent from the time the instructions to find a purchaser to the date of the sale of the lease-hold interest had to be regarded as an expense of the winding up and was, therefore, payable in full.

20. I would interpolate here the authorities which show that where possession of leasehold property has been retained for the benefit of both landlord and tenant, the landlord can only prove for the rent: Re Bridgewater Engineering Co. (1879) 12 Ch. D. 181, Re Lancashire Cotton Spinning Co., ex parte Carnelley (1887) 35 Ch. D. 656 and Re Higginshaw Mills and Spinning Co. [1896] 2 Ch. 544.

21. Mr. Poon relied heavily on the official Receiver's letter of the 27th July 1981 which I have already read. He submitted that this amounted to and interference with the property. If the landlords had sought to exercise their right to re-enter under the lease, he had no doubt that the Official Receiver Would have objected. They had complied with his request. Para 5 of Mr. To's affidavit (also set out above) is rather vague and I have no reason to suppose that the letter does not accurately reflect precisely what the Official Receiver was asking of the Company all along. I think Mr. Poon was putting the matter far too high, for the letter, surely, means exactly what it says. The Official Receiver was simply, asking to be informed if the civil action pending at the suit of the landlords was to be proceeded with. I would note here that when Liu J. constituted the official Receiver an interim receiver, while he stayed four actions pending against Madam Yau, he made no order in respect of H.C.A. No. 4644 of 1981. Mr. To's affidavits state the relevant facts but do not go on to assert what the company did, or refrained from doing, in consequence of the official Receiver's letter. However that may be, on the authority of the A.B.C Engineering Co. and the Downer Enterprises cases, if in fact the liquidator has retained possession "for the convenience of the winding up" it does not seem to matter what the Company did or did not do. And Re North Yorkshire Iron Company (1878) 7 Ch. D.661 is clear authority for the proposition that it is no answer to a claim of this sort that the landlord did not choose to exercise a power of re-entry that he had. On the other hand it must also be borne in mind that an interim receiver has no power to disclaim a lease on the grounds that it is onerous.

22. In my judgment, on the facts, apart from writing the letter just discussed (which I do not regard as interference with the landlords' interest) the Official Receiver did nothing in relation to the property. He did not remain in possession of it or obtain possession of it. He exercised no dominion over the property at any relevant time for the purposes of the bankruptcy. It is true the bankrupt remained in possession of the shops, and the contents were not sold until the 9th November 1981, but it seems to me that if the Company's claim were to succeed in these circumstances, it would mean that where a debtor's goods remain on leased property after the commencement of a bankruptcy and are eventually sold, the landlord would be able to claim rent in full. I do not think that this can be so - the landlord can protect himself in the usual run of things, to a certain extent, by exercising the power of distress given by s.40 of the Bankruptcy Ordinance and unless the Court grants a stay (no doubt a stay would only be granted on terms) he could recover possession of his property.

23. I reach the conclusion that the Company has not discharged the burden of satisfying me that the rent claimed was part of the "actual expenses incurred" within the meaning of that expression in the opening words of subsection (1) of s.37 of the Ordinance or in paragraph (a) of that subsection. The summons must therefore be dismissed and I make an order nisi under 0.42 r.5A against the Company in favour of the Official Receiver, as to costs.

	(K.T. Fuad)
	Judge of the High Court

Representation:

Mr. Winston Poon instructed by T.S. Tong & Co. for the Applicant.

Mr. A.L. Robertson for the Official Receiver.

HCB000073B/1981

	Bankruptcy
	No. 73 of 1981

Bankruptcy and involvency - s.s.17 and 22 of Bankruptcy Ordinance - resolution that debtor should not be adjudged bankrupt is not one that a creditors' meeting has power to make - an invalid resolution does not preclude an application for adjudication in terms of s.22 - debtor adjudged bankrupt.

	Bankruptcy
	No. 73 of 1981

IN THE HIGH COURT OF HONG KONG

IN BANKRUPTCY

_____________

Re:	Madam YAU CHUK YING trading as KWOK FU RESTAURANT
Ex parte:	THE OFFICIAL RECEIVER and INTERIM RECEIVER

_____________

Coram: Fuad, J.

Date: 22 January 1982

 

_______

ORDER

_______

1. This is an application by the Official Receiver to adjudicate a debtor (who traded as "The Kwok Fu Restaurant") bankrupt under S.22 of the Bankruptcy Ordinance. Since it is opposed by the debtor it is necessary to go into the history of the matter in some detail.

2. On the 15th July 1981 a petition was presented by certain workers of the restaurant. The Court appointed the Officer Receiver as Interim Receiver on the following day; and a receiving order was made on the 15th September 1981. The first meeting of creditors was held on the 2nd October 1981. The minutes show the following. 66 creditors were present, either in person or by proxy, representing total claims of $1,755,410, under the chairmanship of an officer from the Official Receiver's Office. The chairman outlined the position regarding the debtor's assets and liabilities and explained why it was not possible to give definite figures although he was able to state that the debtor's total liabilities due to unsecured creditors was in the region of $5.7m.; however on the information at hand, this amount might well have to be increased. The purpose for which the meeting had been convened was explained and the chairman commented on the debtor's written proposals for a scheme of arrangement or composition. One of the creditors inquired whether since some of the creditors appeared to be prepared to reduce their claims as stated by the debtor, the Bank which was owed a mortgage debt would do the same. The Bank's representative said he would need to take instructions on the matter. Another of the creditors present suggested there should be an adjournment for the reasons fully set out in the minutes and a majority of those present resolved that the meeting be adjourned to the 9th October 1981.

3. The meeting duly resumed on that date with 49 creditors present (in person or by proxy), the total of the claims represented being $1,652,643. According to the minutes, the chairman reported on the then current position and said that on the information available to the Official Receiver, liabilities of $7.2m. were involved. The chairman told the meeting that he understood that the debtor had circulated certain written proposals to those attending and explained that the proper procedure under the Ordinance was that before any proposal for composition could be made the debtor had to submit her statement of affairs. At the present time her liabilities were still unknown and he could not conjecture when the debtor would be in a position to submit her statement. When she did so, then the debtor could put forward a proposal to the Official Receiver which would be circulated to creditors by him together with his report. A meeting of creditors would then be convened to consider the proposal, at which it would need to be approved by a majority in number, representing 3/4 in value of all proving creditors. If such approval were given the sanction of the Court would have to be sought. It was further explained that the Court would not accept any proposal if any reduction in claims had been procured by the debtor, nor would conditional reductions be acceptable - i.e. any reductions could not be conditional on the proposal being accepted. In reply to questions from the chairman, three creditors stated that they had not in fact agreed to reduce their claims. The chairman then remarked that this indicated that what the debtor had told the earlier meeting about the reductions, as reflected in her written proposals, was incorrect. The chairman then answered a number of questions from the floor and proposed that the debtor be adjudicated bankrupt, a motion which was defeated by a majority "in value" of those present. The meeting was thereupon declared closed.

4. On the 21st October 1981 the Official Receiver filed his report and applied for adjudication under S.22 of the Ordinance and the application was set down for hearing on the 30th October. On that day the application was adjourned by consent to the 27th November and it was further adjourned, again by consent, on the 27th November and then to the 18th December. The matter was eventually heard by me on the 19th January 1982.

5. In her affirmation filed in opposition to the application to adjudicate her bankrupt, the debtor says as follows. Having submitted her statement of affairs, she prepared a proposal for a scheme of arrangement with her creditors. The Official Receiver gave due notice to the creditors of a meeting to be held on the 17th December 1981 for them to consider her proposal. Almost all the creditors (to the best of her knowledge and belief) attended that meeting, and as far as she could recall there were "about or over" 140 creditors present. The creditors accepted her proposal for a scheme of arrangement. A certain Mr. Ngan Kin Tai (one of the creditors) proposed that she not be adjudicated bankrupt and this was also agreed to by the creditors.

6. On the 19th December 1981, another notice was sent to the creditors in identical terms to the previous notice. It was a notice to convene a meeting for the 23rd December to consider her proposal for a scheme of arrangement (which had previously been considered and accepted). She thought that the notice had attached to it her list of those who were prepared to act as trustees. Not unexpectedly, there was a comparatively small attendance at that meeting "as presumably, the creditors having previously accepted my proposal, they were not too concerned with who would be the trustees." On the 7th January 1982 another notice was sent to the creditors of another meeting, again in indentical language. It was not surprising, therefore, that the number of persons in attendance at this third meeting diminished considerably, "as it would appear obvious to the creditors that they apparently saw that no purpose would be achieved by their attendance". At this third meeting approximately 40 creditors were present. For reasons unknown to her, at this third meeting the creditors were then asked to vote on whether they wanted her adjudicated bankrupt. Again the creditors voted that they did not wish that to happen. She was therefore surprised that an application was now being made to have her adjudicated bankrupt. It was her case that on the 17th December the creditors by an overwhelming majority both in number and in value had accepted her proposal for a scheme of arrangement. It was neither just nor equitable that "by convening further meetings for the same purpose the unfair advantage taken of waiting until there are insufficient creditors at a meeting to put a second and similar proposal which, though again accepted by the creditors present at the meeting is to be treated as non-acceptance".

7. An affidavit in reply, filed on behalf of the Official Receiver and sworn by the officer in his department who chaired the three meetings of which complaint is made, is to the following effect [the deponent exhibited copies of the minutes of the meetings convened to consider the debtor's proposal under S.20 of the Ordinance]. At none of the meetings were the creditors present requested to vote whether or not the debtor should be adjudicated bankrupt. No vote was taken at the meeting of 17th December. As chairman, he had asked informally for a show of hands in order to have a rough idea whether those present were, in principle, for or against the debtor's proposal. No attempt was made to count the number of creditors in favour or to calculate whether they represented a 3/4 majority in value of proofs of debt lodged. Since the number of proving creditors was 339, there was in any event no question of an overall majority of creditors being present and in favour of the debtor's proposal. The notice of 19th December had been despatched with a copy of the debtor's further proposals regarding the depositing of money in the Official Receiver's hands, the proposed trustees and a certain proposed guarantee. In his view it was inconceivable that the creditors present at the meeting of 17th December were under the impression that the debtor's proposal had been accepted by the meeting. In any event the attendance at the meeting of 23rd December 1981 had not been significantly smaller. It was significant, however, that the debtor had omitted from her affirmation the fact that the creditors present at the meeting of 13th January 1982 had voted on her proposal, and the fact that on that occasion a record had been taken of the identity of the creditors voting in favour (and of the amounts of their claims) in order to ascertain whether or not the requisite majorities under S.20(2) of the Bankruptcy Ordinance had been attained.

8. The minutes of the 17th December 1981 meeting indicate that approximately 120 creditors were present but only 35 signed the attendance sheet despite requests from the Official Receiver's staff. The Official Receiver's Report dated 11th December 1981, which included the debtor's proposal in full, was translated into Cantonese. The debtor produced a further proposal wherein five proposed trustees were listed and it was stated that a Mr. Lai Kwong gave guarantee for $80,000. Mr. Lai Kwong himself indicated that he would be prepared to guarantee one % over and above the 40% mentioned in the debtor's proposal to the unsecured ordinary creditors, but then said he wanted to know how much one % would amount to. The debtor was not in a position to guarantee payment of the 40%. The chairman pointed out that the debtor's proposal as amended contained no machinery for its implementation and that it would be necessary for the meeting to be adjourned to give the debtor an opportunity of submitting a further amended proposal to the meeting. The creditors present indicated that they were largely in favour of approving the debtor's proposal, in principle. The meeting was then adjourned to the 23rd December.

9. The minutes of the meeting held on the 23rd December record that approximately 90 creditors were present but only 39 signed the attendance sheet despite requests to do so. The chairman opened the meeting by reviewing what had transpired at the meeting of 17th December, and the debtor had no further amendment to make to her proposal. Mr. K.K. Ho, a Treasury Accountant, commented at length on the figures contained in the debtor's proposal and cast doubt on a number of them. A solicitor present, who said he represented the trustees proposed by the debtor and a number of creditors, was permitted to address the meeting. After reading the Official Receiver's report dated 11th December 1981 and hearing Mr. K.K. Ho's comments, he said, he had some reservations about the debtor's proposal. At his request those present agreed that the meeting should be adjourned until the 13th January 1982 to enable the solicitor to consider the debtor's proposal in detail on behalf of his clients.

10. At the resumed meeting on that date, according to the minutes, approximately 50 creditors were present of whom only 19 signed the attendance sheet. The chairman opened the meeting by reciting the most recent occurrences of note, namely the withdrawal of instructions from the solicitor who had spoken at the second meeting and the falling through of the sale of one of the debtor's restaurants as a going concern. Further, the meeting was informed, the five persons who had previously indicated that they were willing to act as trustees in respect of the debtor's proposed composition or scheme of arrangement, had now declined so to act. The debtor had produced a written proposal that five other persons who were willing to act as trustees should do so. The chairman pointed out that since they were creditors the Court was unlikely to approve their appointment because of a possible conflict of interest. The chairman then explained to the meeting that since the number of creditors who had lodged proofs of debt was in excess of 300 there was no question of the debtor's proposal being approved that day in the absence of an overall majority in number of all the creditors. However, should a * majority of the value of all claims submitted vote in favour of the debtor's proposal, he would be prepared to adjourn the meeting for a further week. It is recorded that the debtor's proposal was then read out to the meeting in Cantonese and then put to the vote. Thirty creditors voted in favour of it. They represented total claims of $2,114,847.52. Nine other creditors voted in favour of the debtor's proposal, but were subsequently found not to have submitted proofs of debt in respect of their claims amounting to $170,600. Since the total amount of proofs of debt lodged to date was $5,486,480.48 the requisite three-quarters majority had not been attained.

11. The chairman then declared that the debtor's proposal had failed to be approved by the creditors and announced his intention of applying for the adjudication of the debtor.

12. Mr. Remedios began his submission on behalf of the debtor by pointing out that although S.22 of the Ordinance used the word "shall" the Court has a discretion in the matter. I would here accept that in certain circumstances the Court is not bound to accede to the application even though the provisions of S.22 are satisfied. He said that the 9th of October 1981 meeting had clearly resolved that the debtor should not be adjudicated bankrupt and so it could not be said that no resolution had been passed. There were no adequate grounds put forward to justify the debtor's proposals not being put to the vote - the reasons given by the Official Receiver were invalid. At the meeting of the 17th December 1981 the creditors were not asked whether they accepted the proposal; it was not for the Official Receiver to decide that it should not be accepted. As regards the number of creditors present, the preferential creditors (employees) should be counted as one since they could join together in their claim. At the 13th January 1982 meeting a resolution had been passed accepting the debtor's scheme. The scheme was one which would readily be approved by the Court. The Official Receiver had no right to bring the application under S.22, and the Court no right to accede to it.

13. Section 22 of the Ordinance sets out the four alternative grounds upon which an order for adjudication can be made; if -

	(a)	the creditors have resolved on adjudication;
	(b)	they pass no resolution;
	(c)	they do not meet; or
	(d)	if a composition or scheme is not approved within 14 days after the conclusion of the public examination.

14. The statute makes provision for other grounds - if the debtor fails to comply with the requirements regarding his statement of affairs (s.18(3)); where default is made in paying an instalment due under an approved composition or scheme, or where difficulties supervene so that the composition or scheme cannot be carried out without causing injustice or delay to the creditors, or if the court's approval was obtained by fraud (all in subsection (16) of s.20). It is to be noted however, that unlike the English Bankruptcy Rules 1952, our Rules do not make additional provision for adjudication (see rr. 217 to 220 of the English Rules). Rule 219 would be particularly apt for the situation here for it expressly provides that the debtor may be adjudicated bankrupt on the application of the Official Receiver or an interested party where a composition or scheme is not accepted by the creditors at the first meeting or one adjournment of it.

15. Mr. Brown, for the Official Receiver, who relies squarely on s.22 of the Ordinance, contends that the Court has power to make the order he seeks because the creditors passed no resolution within the meaning of that expression as used in the section. It will be recalled that at the meeting of creditors held on the 9th October 1981 a motion put by the chairman that the debtor be adjudicated bankrupt was defeated by a majority "in value" of the creditors present. It seems to me that the result of this application will turn on whether that decision was a resolution so as to remove the sole basis on which the application is made. Does the fact that the creditors rejected the proposal that the debtor be adjudicated bankrupt mean that they thereby resolved that she should not be so adjudicated? While it might be said that to hold that in such circumstances no resolution to that effect had been passed is conceptually possible, I think it would, perhaps, be unrealistic to reach such a conclusion.

16. I think it is now necessary to consider s.17(1) of the Ordinance which is in the following terms:-

"As soon as may be after the making of a receiving order against a debtor a general meeting of his creditors (in this Ordinance referred to as the first meeting of creditors) shall be held for the purpose of considering whether a proposal for a composition or scheme of arrangement shall be accepted, or whether it is expedient that the debtor shall be adjudged bankrupt, and generally as to the mode of dealing with the debtor's property."

In my view that subsection gives the creditors the right to choose between two alternative courses of action - either to accept a composition or scheme or to resolve that the debtor be adjudicated bankrupt. It does not seem to me that the creditors are given a third option i.e. to refuse to accept the composition (it should be noted that no concrete proposals had yet been made by the debtor and she could have made none because she had yet to file her statement of affairs) and yet resolve against adjudication. It follows therefore that if the decision made by the creditors on the 9th October 1981 could properly be regarded as a resolution (about which I maintain some lurking doubts) in my judgment it was not a resolution that the meeting had power to make. It seems clear to me that the words "or pass no resolution" in s.22 must be read as embracing a resolution that the meeting had no jurisdiction to pass. Otherwise the section could be circumvented by the passing of a wholly irrelevant resolution. The legislature could not have intended that.

17. I formed the opinion that the staff of the Official Receiver have conducted all the creditors' meetings that were held, with perfect propriety - in accordance with the law and carefully balancing the rights respectively of the creditors and the debtor. The progress of the bankruptcy must not be allowed, without good cause, to drag on indefinitely. The debtor's firm proposals for a composition were fully canvassed at the meetings of the 17th and 23rd December and the 13th January. At the conclusion of the last meeting the chairman declared, perfectly properly, that the debtor's proposals could not be accepted in accordance with the requirements of the statute. No request was made for an adjournment for further consideration of the proposals and no resolution passed to that effect, and so I can find no valid reason why the proceedings in bankruptcy should not now be taken further - the interests of all the creditors must be safeguarded.

18. I conclude that none of the complaints made by the debtor in her affirmation were well-founded. I would mention, too, that none of her allegations of fact can stand in the face of the minutes of the various meetings in view of the provisions of subsection (2) of s.116 of the Ordinance.

19. For the reasons I have given, and because I can find no valid cause to exercise the discretion I apparently have to adjourn the matter, I grant the application and adjudge the debtor bankrupt.

	(K.T. Fuad)
	Judge of the High Court

Representation:

Mr. L.J. Remedio of D'Almada Remedios & Co. for Debtor.

Mr. Brown for O.R. with Mr. Robertson

Mr. L. Kong of Louis Kong & Co. for 87 Creditors.