RE LEE SIU FUNG SIEGFRIED

HCB 345/2001

[2025] HKCFI 462

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 345 OF 2001

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DECISION

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Introduction

1.  This is an application made by the Trustees in Bankruptcy of the Discharged Bankrupt (the “Applicants”)  by way of summons dated 27 February 2024 (the “Summons”)  for discovery of documents from the respondent (“R”)  and for R to be examined, pursuant to section 29 of the Bankruptcy Ordinance, Cap 6 (the “Ordinance”).

2.  The Applicants have previously obtained two separate orders against the Discharged Bankrupt, his brother, his son and his two sisters from Godfrey Lam J (as he then was)  in 2016 and 2017 in the present bankruptcy proceedings for them to attend examination and to produce documents[1].

3.  Eight years later, the Applicants now seek a similar order against R, the Discharged Bankrupt’s daughter.

Background

4.  The background of the case was set out in the reasons handed down on 12 October 2016 by Godrey Lam J[2] (the “2016 Decision”)  in §§2 – 13 and 36, which I gratefully adopt herein:

“2.  The [Discharged Bankrupt] was the founder, Chairman, CEO and the largest single shareholder of Siu Fung Ceramics Holdings Limited (“SFCH”), a company whose shares were listed in Hong Kong in the 1990s.  I shall refer to SFCH and its subsidiaries and associated companies together as “the Group”. The 2^nd respondent is the younger brother and the 3^rd respondent is the son of the [Discharged Bankrupt].

3.  Petitions to wind up SFCH and several other companies in the Group were presented by HSBC in March 1999.  On 9 May 2000, winding up orders were made.  Claims of creditors admitted for the Group total approximately HK$8,436 million.  To date no dividend has been paid to the creditors of SFCH.  Aggregate dividends paid to the creditors of some of the companies in the Group are less than 1% of their admitted claims.

4.  On 18 January 2001, a bankruptcy petition was presented by HSBC against the [Discharged Bankrupt] for a debt of HK$322 million based on a guarantee.  He was adjudged bankrupt on 8 May 2001.  Proofs of debt filed in the bankruptcy to date (pending adjudication)  amount to some HK$458 million.

5.  Soon after the adjudication the [Discharged Bankrupt] submitted a statement of affairs stating assets of HK$265 only.  Between 2001 and 2004 he submitted 3 annual statements reporting zero income and zero expenditure.  Nothing has been contributed by the [Discharged Bankrupt] to the bankruptcy estate.  Not a single cent of dividend has been paid to the creditors.  The [Discharged Bankrupt] had stayed mostly in the Mainland in the years immediately following the adjudication of bankruptcy.

6.  In 2004, the Insider Dealing Tribunal, chaired by Lugar-Mawson J, found that the [Discharged Bankrupt] had used the securities accounts of 3 persons to sell 16.94 million shares in SFCH in June 1996 and also counselled or procured his wife to sell 80 million shares in SFCH in July 1996 when he had price-sensitive information adverse to the Group, thereby avoiding losses of HK$69.87 million.  The proceeds of sale were deposited by his wife into his bank account.  The Tribunal imposed an order for disqualification of the [Discharged Bankrupt] from management of any company for the maximum period of 5 years (from 25 October 2004), ordered him to pay HK$69.87 million being the amount of loss avoided, HK$139.74 million in penalty, and HK$9.19 million in costs.  In making these orders, the Tribunal stated:

‘In this regard, we are aware that Siegfried Lee is now bankrupt in Hong Kong. He has not responded to the publication of the first part of this report. He is believed to reside in Beijing, but neither the Tribunal nor the SFC knows his present address. There are however reasons to believe that Siegfried Lee is not totally without assets. In Chapter 11, at page 146, we referred to Daniel Chan admitting squirreling away $25 million offshore for Siegfried Lee’s benefit. We propose to proceed on the basis that Siegfried Lee remains a wealthy man and that eventually his assets will be tracked down. To do otherwise would be to reward mendacity.

…

Siegfried Lee has made no representations to us in mitigation of penalty.  We can find none.  He was motivated by greed throughout all his dealings.  He displayed a cavalier attitude towards his duties as the chairman of a listed company.  He was prepared to use his family members, as well as his subordinates and their family members, to execute his dishonest schemes.  There is evidence that he has feathered a nest offshore to avoid his creditors in Hong Kong and he has expressed no remorse for his wrongdoing.’ (emphasis added)

7.  An order for payment was also made against Daniel Chan, an employee of SFCH whom the Tribunal found to be the “trusted lieutenant” of the [Discharged Bankrupt]. When Daniel Chan failed to pay, an order was made for his oral examination as a judgment debtor.  The explanation he gave there was accepted by the Master in a subsequent (unsuccessful)  application by the Government as judgment creditor for an order of imprisonment under Order 49B rule 1B (unreported, HCMP 2851/2004, 23 October 2006), at §39:

‘I accept the explanation of [Daniel Chan] that he was instructed by Lee Siu Fung to transfer the money of HK$25 million through his own HKBC account to the Singapore BNP account on the same day when he received cheques from Lee Siu Fung. The Singapore account did not belong to him and … apparently belonged to Lee Siu Fung. After the money was transferred to such account, [Daniel Chan] did not know what had happened to the money.’

8.  Shortly before the expiry of 4 years from the adjudication of bankruptcy, on 5 May 2005, the trustees made an application, first, under s 30A(10)  of the Ordinance, for a declaration that time had not run during the period in which the [Discharged Bankrupt] was absent from Hong Kong (the trustees alleging that the [Discharged Bankrupt] had gone to Beijing the day after he was adjudged bankrupt), and secondly, to object to automatic discharge on various grounds under s 30A(3)  & (4)  such as the [Discharged Bankrupt]’s alleged failure to cooperate with the trustees.  In the light of the Court of Final Appeal’s decision in Re Chan Wing Hing (2006)  9 HKCFAR 545 (handed down on 20 July 2006)  which declared s 30A(10)(b)(i)  unconstitutional, the first part of the trustees’ application was withdrawn with leave in August 2006.

9.  The trustees, however, failed to proceed with the second part of their application.  On 2 February 2008, the [Discharged Bankrupt], represented by the solicitors’ firm of Messrs Anthony Siu & Co, took out an application to strike out the trustees’ summons of 5 May 2005.  In the end, on 27 August 2008, Barma J (as he then was)  struck out the trustees’ summons on the ground that it was an abuse of process for the trustees to have taken out the application (and thereby obtained an interim suspension of discharge)  and failed to proceed with it.  The [Discharged Bankrupt] was as a consequence regarded as having been discharged from bankruptcy in May 2005.  It should be noted that Barma J did not deal with the merits of the trustees’ objection based on s 30A(3)  & (4).  In fact, the [Discharged Bankrupt] had not yet by then filed evidence to respond to the allegations made against him because it had been agreed that the point on s 30A(10)  would be dealt with first.  Barma J took into account that an objection to automatic discharge should be made at a reasonably early stage and proceeded with expeditiously since delay would mean the bankrupt may be unfairly denied his discharge until some time after he should have obtained it.  An interim order should not be left in place for longer than necessary to enable the objection to automatic discharge to be determined.  The learned judge also noted that in this case while the maximum postponement of automatic discharge was for 4 years, by the time an application could be heard after the filing of evidence relating to the grounds in s 30A(3)  & (4), there would have had been a de facto suspension of discharge for over 3.5 years.

10.  As I shall explain further below, the [Discharged Bankrupt]’s discharge from bankruptcy did not in law end his duties to assist the trustees in their functions which continue notwithstanding the discharge.  On 6 January 2012, the trustees wrote to the [Discharged Bankrupt]’s then solicitors, Messrs Anthony Siu & Co, asking the [Discharged Bankrupt] to attend on the trustees to answer various questions and provide information as set out in a letter issued by the trustees to the [Discharged Bankrupt] on 1 February 2005 (attaching previous letters)  which had not been answered by him.  On 10 and 23 February 2012, the trustees wrote to the same solicitors asking the [Discharged Bankrupt] to attend on the trustees to provide information.  The [Discharged Bankrupt] refused to do so.

11.  On 28 August 2012, the trustees wrote to Anthony Siu & Co again, pointing out that despite previous letters (including earlier letters of 4 October 2005, 12 January 2006 and 3 March 2008)  to the [Discharged Bankrupt], no information had been received from the [Discharged Bankrupt], and asking the solicitors to remind the [Discharged Bankrupt] of his legal obligations and statutory duties.  On 3 October 2012, the solicitors replied that their client, the [Discharged Bankrupt], was ‘not obliged to entertain’ the trustees’ requests because they had not provided particulars or documentary evidence to support their allegations.

12.  From December 2015 onwards, the trustees have sent written questionnaires to the [Discharged Bankrupt] and various persons connected with him including the 2^nd and 3^rd respondents seeking answers and explanation…

13.  There is evidence that, after the trustees took these steps, on 8 April 2016, the [Discharged Bankrupt] and another man attended the trustees’ offices in Causeway Bay without prior notice.  He complained that the trustees had disturbed him and his family members, and threatened that he could send 6 men to the trustees’ offices every day for a month.  The trustees’ solicitors’ letter of the same date recording the incident was sent to the [Discharged Bankrupt] by post and by hand … A further solicitors’ letter dated 14 April 2016 was sent by post and by hand to the [Discharged Bankrupt] … complaining about the incident and also reminding him to respond to the questionnaire.  The 1^st respondent did not respond.

…

36.  Apart from certain Hong Kong bank accounts the trustees have found the [Discharged Bankrupt] to have held, which had not been reported by him, the trustees suspect that not only had the [Discharged Bankrupt] concealed or not disclosed his assets held in nominee accounts or through offshore companies, but he had since around 1996 taken steps to put his assets beyond the reach of creditors.  The evidence was that in 1996 the Group experienced financial difficulties.  As found by the Insider Dealing Tribunal, the [Discharged Bankrupt], with private information, caused shares in SFCH to be sold before the share price dropped.  An overall loss of HK$252 million was announced by the Group on 27 September 1996.  Cash flow problems were announced in November 1996.  Restructuring attempts began in 1997 for the Group but were unsuccessful.  Meanwhile the evidence shows certain dispositions of assets which have aroused the trustees’ suspicion.  In the 7^th affirmation of Alan Tang the trustees have identified five specific areas and one general area that they particularly wish to probe into.”

5.  The 6 areas of inquiry mentioned in the last sentence in the quotation above are[3]:

(1)  Gratuitous or undervalue transfer of the Discharged Bankrupt’s 75% holding in Siu Fung Pharmaceutical Holdings Limited (“SFPH”);

(2)  The interest in Siu Fung Ceramics (Beijing)  Sanitary Ware Company Limited (“BSW”)  in 2001;

(3)  Nominee accounts;

(4)  Unreported patents on designs of sanitary ware registered in the Discharged Bankrupt’s name during his bankruptcy;

(5)  Undisclosed cash receipts for disposals of joint venture interests; and

(6)  undisclosed assets generally.

6.  Godfrey Lam J (as his Lordship then was)  has held that the provision of information for the aforesaid areas is reasonably required for the Applicants to carry out their functions, when considering whether a section 29 Order should be granted against the Discharged Bankrupt, his brother, his son and his two sisters.

7.  R has filed a 2-page affirmation in opposition, contending that:

(1)  She had only been involved in the business of the Discharged Bankrupt since 2016, due to a family decision as her brother believed she was more capable and responsible person.

(2)  She has always been living her own way of life in self-founded business unrelated to that of the Discharged Bankrupt.

(3)  She was a minor when the Discharged Bankrupt was bankrupted.  Some questions date back to May 1996 when she was merely 9 years old.

(4)  Since 2016, she has become a mother to 4 children.  She relied on her family to assist her with the day-to-day operations of the companies.

8.  R appeared at the hearing and was not legally represented.  She reiterated that since the transactions took place many years ago, she is not in a position to provide any useful information.

Legal Principles

9.  Section 29 of the Ordinance provides (where material)  that:

“(1)  The court may, on the application of the Official Receiver or trustee, at any time after a bankruptcy order has been made against a bankrupt summon before it the bankrupt or his spouse, or any person known or suspected to have in his possession any of the estate or effects belonging to the bankrupt or supposed to be indebted to the bankrupt, or any person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property, and the court may require any such person to produce any documents in his custody or power relating to the bankrupt, his dealings or property.

(1A)  The court may require a person referred to in subsection (1), other than the bankrupt, to submit an affidavit to the court containing an account of his dealings with the bankrupt or to produce any documents in his possession or under his control relating to the bankrupt or the bankrupt’s dealings, affairs or property.

……

(3)  The court may, by itself or by a commissioner appointed for the purpose, examine on oath, either by word of mouth or by written interrogatories, any person so brought before it concerning the bankrupt, his dealings or property and any other matter the court considers relevant.”

10.  The principles governing the exercise of power under section 29 are well settled.  In Hau Po Man Stanley (in bankruptcy)  & Ors v Joint and Several Trustees[4], the Court of Appeal stated at §21:

“(a)  the applicant must satisfy the court the essential condition that the provision of information or documents is reasonably required for him to carry out his functions;

(b)  the applicant must also establish a prima facie case that the respondent is able to provide such information or documents;

(c)  if the above criteria are met, the court must carefully strike a balance between the applicant’s reasonable requirements and the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to the person concerned.  The burden is on the applicant to satisfy the court, after balancing all the relevant factors, there is a proper case for such an order to be made.”

11.  Godfrey Lam J has set out in the 2016 Decision that :

“31. It was said in Hau Po Man Stanley at §32 that a mere ‘fishing’ expedition by the applicant is not permissible under s 29. At first sight there might appear to be a conflict with what was said by Lord Millett NPJ in Kong Wah Holdings Ltd at §33, namely, that the liquidator is ‘necessarily engaged in just such an expedition and the purpose of s 221 is to enable him to carry it out effectively’. But on closer analysis it seems to me there is no real conflict.

32. The feature highlighted by Lord Millett’s remark is that in the context of private examination, which is inquisitorial in nature, the officer in question, whether a liquidator or trustee, does not advance a case or specific pleaded allegations. He may not in fact have the material to do so; yet the procedure ‘may be used to discover facts and documents relating to potential claims by the liquidator against third parties’: Kong Wah Holdings Ltd at §26. The object is to gather for the office-holder information about the affairs of the company or the bankrupt to enable him to carry out his functions effectively.

33. In Re Ho Yuk Wah David (bankrupt) [2015] 2 HKLRD 603 at §16, To J said:

‘As in the case of company insolvency, the jurisdiction conferred on the court by the section 29 of the Bankruptcy Ordinance is inquisitorial in nature. It must of necessity be general, wide and unlimited. The trustee has a wider agenda than a party seeking discovery under Order 24. His general mandate is to investigate the affairs and property of the bankrupt. His functions are to put the bankrupt’s affairs in order and administer his affairs to which he is a total stranger. He needs far wider discovery to enable him to discharge his functions than what is permissible in an ordinary inter-party or third party discovery under Order 24. He may not know what he had to unravel from the bankrupt’s affairs. He cannot be confined to pleaded issues. He is not required to prove any pleaded issues on a balance of probability. It is therefore inappropriate to compare the discovery sought under section 29 of the Bankruptcy Ordinance with that under Order 24. Public policy requires that the trustee in bankruptcy be given a “fishing licence” for the benefit of the creditors. As in the case of company insolvency, the essential requirement is whether the information or documents sought are reasonably required to enable the trustee to carry out his functions in gathering information about the assets, affairs and dealings of the bankrupt as effectively as possible, and with as little expense as possible.’

34. On the other hand, it would appear that in Hau Po Man Stanley at §32 the Court of Appeal was concerned about expeditions that ignore costs and proportionality: see Re Lee Priscilla Hwang (bankrupt) [2012] 4 HKLRD 581 at §23 per Recorder A Chow SC (as Chow J then was). What could also be regarded as impermissible fishing is to seek to extract information from persons in respect of a matter when there is no well-founded ground upon which to consider him prima facie capable of giving information: cf In re Maundy Gregory, ex parte Norton [1935] Ch 65, 74. It would also be impermissible fishing to begin an examination without any clear suspicions and to conduct it to determine if matters or facts might emerge which may be of interest or assistance, though this does not mean a liquidator is not permitted to probe the circumstances relating to those on which the examination is centred, in the hope of determining whether there is another line of enquiry which should be pursued to ascertain the truth: Re Weihong Petroleum Co Ltd (No 2) [2003] 2 HKLRD 747 at §§40-41, 43.

35.  Finally, so far as the general approach is concerned, it seems to me that the case for making an order for examination of the bankrupt, including a discharged bankrupt, will in general be stronger than in respect of a stranger who is not under an express continuing statutory duty to assist the trustee that I have described above: cf Kong Wah Holdings Ltd, supra, at §30(2); Re China Metal Recycling (Holdings)  Ltd [2015] 2 HKLRD 747 at §70.”

Connections of R with the areas of inquiry

12.  Mr Patrick Siu, counsel for the Applicants submitted that the following corporate manoeuvres contributed to the transfer of the Discharged Bankrupt’s assets out of the creditors’ reach, and R would have knowledge of such manoeuvres by reason of her directorship / shareholding in various companies:

Funding for Acquisition of BSW

(1)  From the examination of the Discharged Bankrupt, his brother, his son and his two sisters, it transpired that a majority of the consideration for the brother’s acquisition of the 36% equity interest in BSW was from Goldsmith International Limited (“GIL”).  There is no explanation why GIL would pay for such an acquisition.

(2)  R has been a director of GIL since 2016.

Injection of assets belonging from SFPH into ROY Asset Holding SE (“ROY”)

(1)  This area of inquiry concerned a share transfer in SFPH in February 1996.  Before the transfer the Discharged Bankrupt was the sole shareholder and director of SFPH.  After the transfer, the Discharged Bankrupt held 75% of the shares whilst his brother held 25 % of the shares.

(2)  In May 1997, 3,200,000 shares were allotted to a company owned by the sisters of the Discharged Bankrupt, such that the Discharged Bankrupt’s shareholding was diluted by half.

(3)  In December 1997 and March 1998, the Discharged Bankrupt disposed of the entirety of his shareholding in SFPH to his brother and a company owned by his ex-wife at the consideration of  HK$1 respectively.

(4)  In December 2001, the shares of SFPH were held as follows:

(a)  Huby Technology Limited (of the sisters): 15,200,000 shares.

(b)  Dynamic Achieve Investments Limited (of the sisters): 800,000 shares.

(c)  High Knowledge Investments Limited (owned by the wife of the Bankrupt’s brother): 1,600,000 shares.

(d)  Techfarm Investment Limited: 800,000

(5)  In February 2002, the above four companies entered into a share exchange agreement under which the four companies transferred all their shares in SFPH in return for shares in Lee’s Pharmaceutical Holdings Limited (“LPHL”). 

(6)  LPHL’s shares were listed in July 2002.  Each of Huby Technology Limtied, Dynamic Achieve Investments Limited, High Knowledge Investments Limited and Techfarm Investment Limited became shareholders of LPHL instead of SFPH.

(7)  These series of transactions led to the end result that SFPH, which was originally held as to 75% by the Discharged Bankrupt as at 1996 became the business of LPHL in which the Discharged Bankrupt had ostensibly no interest, and all that the Discharged Bankrupt had obtained in return was HK$2.  On the other hand, LPHL is now listed on the main board in Hong Kong.

(8)  Of the 8 million shares Dynamic Achieve Investments Limited had, it disposed of 4 million shares at nil consideration, which the Applicants believe to form a partial consideration for Lion Legend Holdings Limited (“LLH”)  to acquire Hillmond International Holdings Limited, which held 22% equity interest in BSW.

(9)  In preparation for the listing of ROY, and in exchange for the injection of BSW and LPHL’s shares into ROY, shares in ROY were issued to LLH’s shareholders.

(10)  Following subsequent exchange agreements among LLH, BSW Trading Limited (“BSW Trading”), GIL, Hi Scene Industrial Limited (“HSI”)  and Shine Eagle Holdings Limited (“SEH”), Shine Eagle Trust reg (“SETR”)  took up 65% of the equity ROY.  Upon the listing of ROY, BSW was described as a major asset of ROY.

(11)  As at 2015, SETR was owned by the Discharged Bankrupt’s son (45.6%), the Discharged Bankrupt’s ex-wife (35.3%)  and R (19.1%). SETR was dissolved by the R in 2016, and substantial shareholdings in ROY were transferred to HSI, which is wholly owned by the R.  R currently holds 75.47% of the equity in ROY.

(12)  The Discharged Bankrupt was also immediately appointed as the CEO and Chairman of ROY.  He has remained as CEO and Chairman of ROY to date.  He also gave a high profile interview with Ming Pao announcing his personal comeback with the “Siu Fung” empire in 2015.  It was therefore contended that here are reasonable grounds to believe that R is holding ROY for and on behalf of the Discharged Bankrupt as there was no explanation as to how the R became such a substantial shareholder of ROY.

Sale of BSW

(1)  In November 2015, ROY announced that it had disposed of BSW to a White Horse Holdings Limited, and the consideration of HK$80 million was fully paid in 2018.  The son of the Discharged Bankrupt gave evidence during the private examination that the transaction was approved by the board of ROY but no other information had been forthcoming. As R is a shareholder and a director since 2017, Mr Siu submitted that she would be in a position to give information on the transaction.

House in the USA

(1)  HSI is the owner of a house situate at 1372 Edgehill Road, Pasadena, California, USA.  It was transferred to Hi Scene Industrial Inc. in August 2022 for nil consideration. 

(2)  There is also no explanation on why the Discharged Bankrupt could continue to reside in the house.

(3)  R is the sole shareholder and a director / CEO of Hi Scene Industrial Inc. since 2023 and should be privy to such arrangement and the reason behind it. 

Payments by ROY to HSI

(1)  Since January 2013, HSI has been providing consultancy services to ROY for a monthly consideration of HK$150,000.  Since March 2017, HSI has been receiving a monthly rent of US$7,000 from ROY.

(2)  There is no ostensible reason for such payments and it is suspected that they are incomes paid to the Discharged Bankrupt which he has failed to report.

13.  Based on the above, the Applicants submitted that despite the Discharged Bankrupt’s report of nil assets and zero income, he has still been in control and ownership of massive assets on his own and / or through his family members.

14.  R has associations with the following companies:

(1)  BSW Trading: R was the sole shareholder from 2010 to 2013 and from 2015 to present, and a director since 2016.

(2)  GIL: R was a director since 2016.

(3)  HSI: R was a shareholder since 2016 and sole shareholder since 2018, and a director since 2016.

(4)  LLH: R was a shareholder and secretary since 2017.

(5)  ROY: R was a shareholder and a director since 2017.

(6)  SEH: R was a director since 2016.

(7)  SETR: SETR used to be owned by R as to 19.1%, and it was dissolved by R in 2016.

Discussion

15.  Looking at the transactions set out in paragraph 12 hereinabove, I agree with Mr Siu’s submission that the transactions are suspicious.  There seemed to have been an intricate scheme to transfer the interests of the Discharged Bankrupt to other parties when there were no discernible benefits to do so.  I agree the provision of information or documents is reasonably required for the Applicants to carry out their functions.

16.  R, having the associations that she has with the companies involved in such transactions as set out in paragraph 14 hereinabove, would prima facie to be able to provide the information sought.

17.  I am therefore of the view that the first 2 tests in Hau Po Man Stanley have been satisfied.

18.  As to the need to strike a balance between the Applicants’ reasonable requirements and the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to R, I have taken into account the following:

(1)  The bankruptcy of the Discharged Bankrupt had ended in May 2005, 6 months shy of 20 years ago.  The Applicants, in their last round of applications for a section 29 order 8 years ago, did not include R to be a respondent.

(2)  This might be explained by the fact that R’s involvement in the relevant companies only began some time in 2016, coinciding approximately with the time when applications against the Discharged Bankrupt, his brother, his son and his two sisters were taken by the Applicants under section 29 of the Ordinance. 

(3)  Requests to R to provide information and documents were first issued in 2019, and were repeated in 2020 and 2022.  There is no explanation on why the Applicants did not take out an application earlier when it became apparent that R was not going to comply with the request.

(4)  There is no doubt that such delay might affect R’s ability to provide the necessary information or document.

(5)  R, in her affirmation however, did not contend that there was any prejudice caused by the delay.  Instead, she merely suggested that she would not be able to provide any meaningful information on matters as she was a mere minor during some of the periods and that she is a mother to 4 young children.  There is no mention to the periods since 2016 after she began being involved in the various companies in the various transactions.

(6)  Although R is not the bankrupted person, and the case for examination is weaker than that against the Discharged Bankrupt himself, R seems to have been involved in the relevant transactions since her appointment as director to the various companies.  In light of the fact that examinations against the other related parties had been unfruitful, R would become a crucial source of information.

(7)  The oppressiveness of the delay is also partly mitigated by the fact that it is not the case that the Applicants had done nothing since the discharge of the bankruptcy order against the Discharged Bankrupt, they had all along been insisting that there were suspicions surrounding various transactions and that investigations had continued, although at a slow pace.  R should have been made aware of the challenge made by the Applicants to her other family members as early as in 2016, when she became involved in the various transactions.

(8)  I also take note of the observations by Godfrey Lam J in his decision dated 21 September 2017[5]:

“Overall, at the end of the day, one must not lose sight of the fact that this is a massive bankruptcy with a very large deficiency of assets. The bankrupt, hitherto the chairman of a listed group, had effectively produced no asset or income for the estate at all while continuing to run a business. The Insider Dealing Tribunal, after a lengthy inquiry, considered that the bankrupt remained a wealthy man who had feathered a nest offshore to avoid his creditors and whose assets remained to be tracked down, and that he was a man who was prepared to use his family members and others to execute his dishonest schemes. The administration of the bankruptcy started with no books and records. The Brother and the Son have featured prominently in the relevant transactions mentioned above. The trustees have, in my view, identified suspicious circumstances and the need for further investigation, with which the Brother and the Son have steadfastly refused to assist voluntarily. Within each sphere of investigation there may be certain matters on which the trustees already have some information and it may be said that in relation to such matters, private examination is not absolutely indispensable. But the jurisdiction is engaged once the trustees show a reasonable requirement; they do not have to establish an absolute need. In any event, considerable areas remain in which the trustees have no or little information and it does not appear, nor is it suggested by the respondents, that the information may be obtained elsewhere.”

19.  I am satisfied that the tests for the granting of a section 29 Order have been satisfied and that there should be an order for R to provide answers, information and documents and be examined before a master of the High Court.

Scope of the questions

20.  Mr Siu accepted that “an order for examination does not give carte blanche to the questions which may be asked of the witness at the examination; the examination takes place before a judge or a master who has the power, and indeed the duty, to prevent vexatious or oppressive questions[6].  As such, there is no dispute that despite the fact that I deem it appropriate for an order for discovery of documents an order for examination, it does not bind a judge or a master in future to the list of questions as set out in the Schedule to the Summons.

21.  Nonetheless, I have made some preliminary amendments to the Schedule annexed to the Summons such that questions 4, 5, 6.4, 6.5, 6.6 and 6.7 should have the timing amended to “since R’s appointment to the relevant companies”.  I have also deleted questions 11, 13 and 24 since they are either too wide or took place well before R’s involvement in the various companies and as such, there is insufficient basis to suggest that there is a prima facie case for R to provide those information.

Order

22.  For the reasons given, the Trustees have satisfied the tests for a section 29 Order. I therefore make an order as follows:

(1)  The Respondent do produce answers, or documents and information to the questions as set out in the Schedule to the Summons within 45 days of the day on which the Order is served on the Respondent.

(2)  If the Respondent cannot provide such documents/information  requested, she shall file and serve an affidavit within 45 days hereof whether they have been in her possession, custody or control (including power to procure the same from third parties); and if they had been in her possession, custody or control but no longer now, when and under what circumstances they have now become unavailable for production.

(3)  The Respondent do attend court to be examined on oath at such time and place as the court shall direct and that the Applicants be at liberty to examine the Respondent under section 29 of the Bankruptcy Ordinance (Cap. 6)  concerning the Discharged Bankrupt in relation to matters and transactions set out in the Schedule to the Summons, as well as answers, documents and information provided by the Respondent under paragraphs (1)  and (2)  hereinabove.;

(4)  Costs of the Summons be paid by the Respondent to the Applicants forthwith, to be summarily assessed (on a nisi basis).  The costs order nisi will become absolute if there is no application to vary it within 14 days hereof.

(5)  The Applicants to lodge and serve a statement of costs within 7 days hereof.  The Respondent do lodge and serve her list of objections, if any, within 7 days thereafter.  The court will carry out summary assessment on paper even if no list of objections is filed after the deadline has passed.

Mr Patrick Siu, instructed by ONC Lawyers, for the Applicants

The Respondent was not represented and appeared in person

HCB 345/2001

[2020] HKCFI 176

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 345 OF 2001

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D E C I S I O N

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1.  This is an application by the two respondents (both sisters the Bankrupt, the “Sisters”) for stay of execution pending appeal against the judgment of this court dated 21 September 2017. By that judgment this court made an order under s 29 of the Bankruptcy Ordinance (Cap 6) for the private examination of the Sisters (including both oral examination and production of documents).

2.  The circumstances of this application are unusual in that although the order for examination was made on 21 September 2017 and a notice of appeal was served on 19 October 2017 (CACV 236/2017), the Sisters failed to procure that their appeal be set down for hearing and to take out an application for stay pending appeal until nearly two years later on 15 and 23 October 2019 respectively.  Meanwhile, they have been in default of compliance with paragraph 2 of the order which requires the production of documents within 21 days of the date of the order and paragraph 4 of the order which requires an affidavit or affirmation to be made if they cannot provide the documents.

3.  On 6 November 2019, when the parties by consent sought directions from this court for the application for stay to be dealt with on paper, the appeal had been fixed to be heard on 1 April 2020, whereas the Sisters were due to be orally examined on 24 March and 23 April 2020 respectively.  Given the proximity of those dates, I suggested at that directions hearing that the parties might wish to consider whether a pragmatic way of resolving the matter by agreement could be found.  In the end no agreement was reached, and while it might be tempting to say that since the appeal will be heard in less than 3 months’ time and so a stay would not impose a great deal of delay, ultimately the application falls to be determined on the basis of established principles under Order 59 rule 13 as set out in cases such as Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84.

4.  In the context of the present case, under those principles, which underscore the rule that except otherwise directed, an appeal does not operate as a stay of execution (see Order 59 rule 13), it is necessary to see whether there are reasonable prospects of success of the appeal.  If not, it is not necessary to consider whether without stay of execution, the appeal would be rendered nugatory: Lee Theatre Realty Ltd v Tong Wah Jor & Others (unrep, CACV 279/2009, 2 March 2010).

5.  The decision being appealed was an exercise of the discretionary power of the court under s 29 of the Bankruptcy Ordinance (Cap 6) to order private examination for the purpose of enquiring into a bankrupt’s conduct, dealings and property: see, by analogy, The Joint & Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 766, at §§4, 18, 28, 29, 31, 45.  In relation to the equivalent statutory power in company liquidation, it has been said that the court has a “general” or “unfettered” discretion, although well‑established principles have been laid down in the cases over the years to guide the exercise of that power: Cloverbay Ltd (Joint Administrators) v Bank of Credit and Commerce International SA [1991] Ch 90, 99B, 105B‑D, 106E.  On this basis it seems to me that the Court of Appeal will not lightly intervene on appeal except where this court has proceeded on wrong principles or the exercise of discretion has been plainly wrong.

6.  Turning to the grounds of appeal, on Ground 1(i), it is difficult to see how imposing a monetary and temporal limit in favour of the Sisters could negative the conclusion that the Trustees had shown a reasonable requirement for the information.  As to the question of oppressiveness, this has been addressed by this court on a balancing exercise, leading to the conclusion that the examination should be confined to transfers over HK$100,000 each (or equivalent) from 1996 onwards. Lee Siu Fong’s affirmation used at the hearing merely said that they would be in a greatly difficult position in retrieving documents and that memories faded.  It does not seem to me that this ground shows any error in principle or that this court was plainly wrong in the exercise of discretion.

7.  As to Ground 1(ii), it is not disputed that Lee Siu Fong had been used by the Bankrupt as a conduit in respect of the sum of $11m.  There is no suggestion that this was a one‑off incident.  The Insider Dealing Tribunal had found that the Bankrupt “was prepared to use his family members … to execute his dishonest schemes” including feathering a nest offshore to avoid creditors.  The Trustees’ suspicions cannot be said to be unjustified.

8.  Ground 1(iii) contends that this court should have imposed on the Trustees a requirement to show a “strong prima facie case” that the Sisters will be able to provide the information sought.  Section 29 of the Ordinance refers to any person “the court may deem capable of giving information respecting the bankrupt, his dealings of property”.  In Hau Po Man Stanley (in bankruptcy) v Joint and Several Trustees [2008] 1 HKC 256 at §21, the Court of Appeal stated that one of the requirements placed on an applicant for an order under s 29 was to “establish a prima facie case that the respondent is able to provide such information or documents”, which was quoted in paragraph 9 of this court’s judgment on the application for private examination of the Brother and the Son of the Bankrupt dated 21 September 2017.  The Sisters did not submit at the hearing in August 2017 that that decision of the Court of Appeal should not be followed.  The case of Re Saunders, ex parte Leigh (1896) 13 TLR 108 referred to in the Notice of Appeal was not cited to this court.  In fact there was no doubt in that case that the relevant person had the documents; the question there was whether the documents related to the debtor, his dealings property.  It was in that context that the court said the trustee had to make out a strong prima facie case that the documents met that description.  Furthermore, doubt has been expressed in Butterworths Hong Kong Bankruptcy Law Handbook at §29.06 as to whether it can be said that a “strong prima facie case” is required, in light of subsequent authorities which speak of a prima facie case.  As pointed out in Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 766 at §§59 & 60, the courts have never made it a condition of granting an order for production under s 221 that the liquidator should establish that the documents actually exist, and that a court could properly order the production of a category of documents, even though it recognised that there would “probably [be] no documents”, in case “any such documents should turn up”.

9.  Ground 1(iv) seems to me to be a thoroughly bad point.  The purpose of the application under s 29 was to seek information that the Trustees did not already have.  HCA 779/2013 was a simple action for the recovery of the known sum of $11m.  How some other transfers which the Trustees did not know about but wish to find out through private examination can be said to be matters that could and should have been litigated in the earlier action of HCA 779/2013, is beyond comprehension.  Further, as Mr Siu points out on behalf of the Trustees, this argument, which might have had an impact on the evidence, was not raised before this court in the hearing in 2017, and should not therefore be entertained now: Flywin Co Ltd v Strong & Associate Ltd (2002) 5 HKCFAR 356, §37.

10.  As to Ground 2(i) which concerns the allotment of 3.2m SFPH shares to Lee’s Machinery Ltd, the details of the transactions raising suspicions have been set out in paragraphs 11‑22 of my judgment on the Trustees’ application for private examination of the Brother and the Son of the Bankrupt dated 21 September 2017.  It should be borne in mind that the allotment was at par value, that the Sisters thereby acquired 50% of SFPH the business of which subsequently became the business of a listed vehicle (LPHL).  The concern is that, as stated in paragraph 14 of that judgment:

“ In short, on the face of this series of transactions, after the Group began to face financial difficulties, a pharmaceutical business which was held as to 75% by the bankrupt as at 1996 became the business of a listed company in which the bankrupt had ostensibly no interest, and all that the bankrupt had apparently obtained in return was HK$2.”

There can be no dispute that the Sisters were closely involved in the Bankrupt’s disposal of his 75% interest in SFPH.  It was against this background that this court considered that they should be able to and be required to provide information.

11.  Ground 2(ii) is difficult to understand.  This court did apply the requirements stated in Hau Po Man Stanley including a prima facie case that the Sisters were able to provide the information sought.

12.  Grounds 3(i) and (ii) miss the focus.  As Mr Siu submits, the Trustees’ suspicion is not only that the Sisters funded the Bankrupt’s living expenses with his own money in offshore accounts, but goes further.  The suspicion, which was indeed the conclusion of the Insider Dealing Tribunal, is that despite his bankruptcy, the Bankrupt had himself remained in control of substantial assets on which he relied for his living, contrary to the allegation that the Sisters paid for his living expenses.

13.  As to Ground 4(i), this court accepted that the case for examination of the bankrupt is usually stronger than that against third parties.  This court took into account the roles and involvement of the relevant third parties, and said at the end of paragraph 22 of the judgment that the Sisters were not entirely independent, commercial third parties vis‑a‑vis is the Bankrupt.  I fail to see how this can be faulted.

14.  As for Ground 4(ii), the issue of the time elapsed has been expressly considered by this court in the balancing exercise.  It seems to me that the question of how much weight to give to a matter is generally not a ground for appeal against an exercise of discretion.

15.  The proposition in Ground 4(iii) that the purpose of examination pursuant to s 29 is solely confined to the recovery of assets is in my view incorrect.  As submitted on behalf of the Trustees, pursuant to s 138 of the Ordinance the court may order a bankrupt to be prosecuted upon a report by the trustee.  Counsel for the Sisters have raised doubt about the legitimacy of s 138, based on the commentary in Butterworths Hong Kong Bankruptcy Law Handbook (6^th ed) at §138.03.  The part of the commentary relied upon by the Sisters is based on the first instance decision in Re Chu Wai Ha [2005] 2 HKC 36, which however was reversed on appeal in Re C (a bankrupt) [2006] 4 HKC 582.  In any event, this ground does not seem to me directly relevant to the appeal by the Sisters.

16.  Grounds 5(i) and (ii) contend that all possible causes of action that the Trustees may have against the Sisters or their associates would be time-barred.  This contention is simply incorrect.  Where a bankrupt has, prior to bankruptcy, placed assets in others’ hands as nominees (including but not limited to for the purposes of putting them beyond the reach of his creditors), an action by the trustee‑in‑bankruptcy, who steps into the shoes of the bankrupt, to recover such assets, would be an action by a beneficiary to recover trust property from his trustee.  Such an action is not subject to any statutory period of limitation: see s 20(1)(b) of the Limitation Ordinance (Cap 347); Liu Wai Keung v Liu Wai Man [2015] 1 HKLRD 490 (CA).  Moreover, and in any event, as submitted on behalf of the Trustees, the private examination in question is not sought only for the purposes of claims against the Sisters but for the purposes of the bankruptcy more generally including investigating potential claims against other parties such as the Bankrupt himself or his nominees.

17.  The allegation of ulterior motive on the part of the Trustees has been dealt with in paragraph 29 of this court’s judgment.  Ground 6 is nothing more than a repetition of the allegation without identifying any relevant error in the judgment.

18.  Grounds 7 and 8 simply state generally that private examination can be an onerous burden on a third party and that the court has to be mindful of the need to avoid oppression.  These are matters that were expressly taken into account by this court in the balancing exercise.  These grounds do not identify any relevant error in the judgment.

19.  As for Ground 9, there is undisputed involvement by the Sisters in the BSW matter.  As to Re Saunders, ex parte Leigh, it has been dealt with above.

20.  The last ground, Ground 10, appears to be a general conclusory averment and identifies no specific alleged error in the judgment.

21.  In these circumstances, there are in my view simply no sufficient prospects of success in the appeal to warrant a stay of execution.  It seems to me the Sisters’ application should be dismissed for this reason alone.

22.  Insofar as the Sisters contend that their appeal would be rendered nugatory without a stay of execution, the 2^nd respondent’s oral examination is scheduled to take place more than three weeks after the appeal.  It is not apparent that her appeal in relation to oral examination would be rendered nugatory without a stay.  As for the orders for production of documents or the making of an affirmation, it has not been established why the appeal would be rendered nugatory without a stay, which is a matter that needs to be supported by proper evidence: see Re Ho Yuk Wah David (bankrupt) (No 4) [2019] 4 HKLRD 379, §§12-14, per Linda Chan J.

23.  Although the appeal will be heard in April this year, there has already been, in my view, inordinate delay by the Sisters in prosecuting the appeal and having it fixed for hearing, and in issuing an application for stay.  Meanwhile, they have ignored the order for production of documents and the making of an affirmation.  I do not think that in these circumstances the imminence of the appeal is something that significantly weighs in their favour.

24.  For these reasons, the application is dismissed.  There will be an order nisi that the Sisters do pay the costs of the Trustees forthwith to be taxed if not agreed.

HCB 345/2001

[2019] HKCFI 2984

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 345 OF 2001

____________

BETWEEN

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D E C I S I O N

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1.  This is an application made by summons by Mr Lee Siu Fung Siegfried, the discharged bankrupt in these proceedings (“LSF”), for non-party discovery from Mr Ip Pui Lam Arthur and Mr Ip Pui Sum in their capacity as trustees in bankruptcy of Ho Yuk Wah David in HCB 3819/2011 (“DH Trustees”). The application is made for the purpose of obtaining documents to be used for an application brought by LSF for removal of the trustees in his own bankruptcy, Mr Alan Tang and Ms Anita Hou (“LSFTrustees” and “removal application”). The principal issues raised are whether the application is a fishing exercise, and whether LSF has a sufficient legitimate interest in the matter to which the documents are said to relate.

2.  The background to this bankruptcy has been set out in my Reasons for Decision dated 12 October 2016 ordering examination of LSF under s 29 of the Bankruptcy Ordinance (Cap 6) (“Ordinance”), and will not be repeated here.  Suffice it to recall that proofs of debt filed in the bankruptcy amount to some HK$458 million while LSF submitted a statement of affairs stating assets of HK$265 only, and that no dividend has been paid to the creditors at all.  The only avenue for recovery being pursued by the LSF Trustees appears to be claims against LSF and his associates.  There is, not surprisingly, no suggestion from LSF that there is any likelihood of a surplus of assets in the bankruptcy in which he may ultimately be interested.

3.  LSF’s removal application was issued by summons dated 1 February 2017.  On 27 March 2017, LSF’s younger brother and son (“Brother” and “Son”) also took out a similar summons for an order to remove the LSF Trustees.  On 12 April 2017, the Brother and Son issued a summons for non-party discovery from the DH Trustees.  On 14 July 2017, the Brother and Son took out a further summons against the LSF Trustees for specific discovery of documents, which were identical to those sought from DH Trustees based on the earlier summons (as subsequently amended).

4.  On 30 April 2018, both of the Brother’s and Son’s summonses were dismissed by this court on the ground that they had no legitimate interest in seeking discovery of the documents in question: see this court’s Decision [2018] HKCFI 939.  The documents sought and the circumstances which led to the Brother’s and Son’s attempt to obtain those documents have been described in that decision.  I am told that the Brother’s and Son’s appeal against my decision has been dismissed, with written reasons to be handed down.

5.  On 16 July 2018, LSF took out the present summons, seeking non-party discovery of the same documents from the DH Trustees (but not from the LSF Trustees).  He explained that he had taken a “wait and see” approach towards the Brother’s and Son’s discovery summonses and that eventually, because their applications were dismissed for want of standing, he believed he was justified to take out the present application.

6.  The documents sought are as follows:

“ 1. All documents disclosed in HCB 3819/2011 and/or HCMP 450/2016 showing that any sum of money:

1.1 recovered during the course of the liquidation of CWB Textile Supplies Company Limited (in creditors’ voluntary liquidation) by its liquidators; or

1.2 paid to Grant Thornton (subsequently known as JBPB & CO),

was at any time diverted for the use of the “Lee Siu Fung Matter”, as further elaborated in the Affirmation of Hung Hoi Chun dated 12 April 2017 (the “Diverted Funds”);

2. All documents disclosed in HCB 3819/2011 and/or HCMP 450/2016 showing the payer and payee of the Diverted Funds;

3. All documents disclosed in HCB 3819/2011 and/or HCMP 450/2016 showing the date of diversions in relation to the Diverted Funds;

4. All documents disclosed by the Applicants to the Joint and Several Trustees in Bankruptcy of the Property of Ho Yuk Wah David (whether pursuant to the Order of the Honourable Madam Justice Au-Yeung on 7 April 2017 or otherwise) in HCB 3819/2011 which make reference to the proceedings herein, the Bankrupt herein or the “Lee Siu Fung Matter”.”

7.  The application is opposed by the LSF Trustees. The DH Trustees have taken a neutral stance.

8.  The grounds relied upon by LSF for the removal application are, as summarised in LSF’s affirmation dated 25 January 2017, that (a) the LSF Trustees are guilty of misconduct or have failed to perform their duties under the Ordinance; and (b) the interests of the creditors require it. 

9.  In LSF’s affirmation, the only issue to which the documents sought in the present discovery application are said to be relevant is whether the funds of David Ho (while an undischarged bankrupt) had been used to fund the administration of the present bankruptcy.  There is also a reference to the liquidation of CWT (defined below) but, as explained below, it seems to me to go nowhere.  On behalf of the LSF Trustees, Mr Siu submits that the application is a fishing expedition.

10.  To see the relevance (or lack of it) of the documents sought, it is necessary to examine what now appears from the facts and evidence.  On the information available at present, the position seems to be as follows:

(1) In December 2003, Sun Ascent International Ltd (“Sun Ascent”) entered into a consultancy agreement, and Topmark Asia Ltd (“Topmark”) entered into a funding agreement, with the liquidators of CWT Textile Supplies Co Ltd (“CWT”), namely, Mr Alan Tang and Mrs Alison Wong, in relation to CWT’s action for professional negligence against its former auditors.  There is evidence that David Ho was connected with Sun Ascent and Topmark, and for present purposes I proceed on that basis.[1]

(2) Mr Alan Tang and Mrs Alison Wong were also the LSF Trustees (until around 2014 or 2015, when Mrs Alison Wong retired and was replaced by Ms Anita Hou). 

(3) In 2005, the LSF Trustees entered into a funding agreement dated 4 August 2005 between Keentrade Investments Ltd (“Keentrade”), and a consultancy agreement with Sinowood International Ltd (“Sinowood”), in relation to the administration of the bankruptcy of and litigation against LSF.  Pursuant to these agreements, Sinowood provided consultancy services, and Keentrade provided funding, in connection with the LSF Trustees’ litigation against LSF and other parties.[2] There is an issue raised by the DH Trustees that David Ho controlled or was connected with Keentrade and Sinowood.  For present purposes I proceed on the basis this is an arguable issue.

(4) HSBC, a major creditor of LSF, assigned its debts to Keentrade in around August 2005.[3]

(5) Following the 2008 worldwide financial crisis, Keentrade became unable to provide any resources.[4]

(6) Meanwhile, CWT’s action against its former auditors was settled and resulted in a recovery of HK$45 million by CWT’s liquidators.  The precise date of the settlement was not clear, but it would appear that the money had been received by March 2009.  According to a Distribution Schedule dated 5 March 2009, part of that money was used in relation to the bankruptcy of LSF.[5]

Ms Anita Hou, one of the current LSF Trustees, has said she was the case manager handling the matter at the time.  She has given an explanation from her personal knowledge.  The explanation is that, as the funders of the CWT liquidation and the funders of the LSF bankruptcy were related companies or belonged to the same group of investors, the former requested the CWT liquidators to apply part of the proceeds of recovery (which belonged to the funders in the CWT liquidation) to pay the outstanding legal fees relating to the LSF bankruptcy.  It may be noted that at that stage, Messrs Deacons acted for both the CWT liquidators and the LSF Trustees.[6]

(7) On 2 August 2011, David Ho was adjudged bankrupt in Hong Kong on his own petition.

(8) The Keentrade funding agreement was terminated on 25 March 2013.[7]

(9) Prior to 10 June 2013, Keentrade assigned the debts (acquired from HSBC) to Heartbeast Commercial Co Ltd.[8]

(10) In 2015, Heartbeast Commercial Co Ltd in turn further assigned the debts to China New Investment Ltd (“CNIL”), which had agreed to fund the litigation against LSF.[9]

In HCB 3819/2011 (the bankruptcy proceedings of David Ho), the court has noted that Ms Anita Hou stated on oath that CNIL was not related to David Ho.  That evidence of Ms Hou was not placed before me but the court there noted that her explanation was not a bare denial.  Recorder Eugene Fung SC held that the DH Trustees had produced nothing to show that CNIL was related to David Ho.  For the purposes of the present application, Mr Alan Kwong, appearing for LSF, accepts that his client can do no better than the DH Trustees and accepts that there is nothing to show that CNIL is related to David Ho.

11.  On this basis, there is nothing, in my view, that shows even on a prima facie basis that the LSF Trustees had received funds from or belonging to David Ho after his bankruptcy in 2011. Mr Kwong relied on paragraph 18(3) of Recorder Eugene Fung SC’s decision of 18 January 2019 which stated:

“ … Mr Tang on behalf of the respondents sent two letters dated 9 May 2012 and 8 October 2012 to Keentrade. Each of the letters was recorded to have been copied to “Sinowood International Limited Attn: Mr David Ho (via email)”. Moreover, the Bankrupt was identified by Mr Tang in his letter to Keentrade dated 8 October 2012 as “Mr David Ho of your consultants, Sinowood International Limited ”.”

12.  These were simply letters copied to David Ho after his bankruptcy, not material indicative of any funding received from him.  Moreover, as I said at paragraph 25 of my Decision dated 30 April 2018 dismissing the Brother’s and Son’s discovery applications:

“ Since the documents sought from the [LSF] Trustees are all also in the possession of Messrs Ip [ie the DH Trustees], there is no reason to think that no action will be taken if they do indeed reveal that funds had flown from David Ho while an undischarged bankrupt.”

There is no such action taken by the DH Trustees.

13.  Mr Kwong says there is also an issue whether David Ho was involved in funding the CWT liquidation.  However, on the evidence, that seems all to have taken place, with recovery achieved, in 2009. David Ho was only adjudicated bankrupt in August 2011.  Mr Kwong is unable to point to anything wrong for the LSF Trustees to receive funding from David Ho or his companies prior to his bankruptcy.  There is no basis to suggest that the agreement by Topmark and Sun Ascent for part of the proceeds of recovery to be used to pay the expenses incurred in the LSF bankruptcy was somehow an act intended to defraud David Ho’s creditors before his bankruptcy.

14.  There is also some allegation made by LSF that Mr Alan Tang, as one of the CWT liquidators, had “diverted” funds belonging to CWT or to Grant Thornton (the firm to which Mr Alan Tang at that time belonged), to the LSF bankruptcy.  As Ms Hou has credibly explained, however, the money applied to the LSF bankruptcy belonged to, and was so applied at the request of, the funders of the CWT liquidation.  There is nothing to gainsay that explanation, which was apparently also supported by over 40 pages of documents supplied to the Brother and Son under cover of a without prejudice letter from the LSF Trustees’ solicitors’ letter dated 3 August 2017.  In any event, if there was any wrongful diversion as alleged, it would be a matter for the creditors of CWT or Grant Thornton to take up rather than for LSF, and one would have thought that they would long have taken action against the CWT liquidators or the LSF Trustees if there were anything in the allegation.

15.  Mr Kwong also says there is a question whether David Ho stands to benefit from any recovery in the LSF bankruptcy.  As Mr Siu points out, however, even if David Ho had an interest in Keentrade and Sinowood and, through this, has some entitlement to share in the proceeds of any recovery in the LSF bankruptcy, this is no evidence of misconduct on the part of the LSF Trustees at all.  On that assumption, what will happen is simply that, if recovery is finally made against LSF, and it is established that the DH Trustees are entitled to be paid any amount due to David Ho, Keentrade or Sinowood, then payment will be made to the DH Trustees instead.  But the fact is, as LSF well knows, his trustees have not been able to recover a single cent from him yet.

16.  For these reasons, I agree with the submission made on behalf of the LSF Trustees that this application is nothing but a fishing expedition.  This alone is sufficient to dispose of the summons.

17.  There is a separate question of LSF’s standing that has been raised.  The documents are sought for the purposes of the removal application.  The removal application is being made under s 96(2) of the Ordinance and the inherent jurisdiction of the court.  Section 96(2) provides as follows:

“ (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; or

(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 connexion 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.”

18.  Inasmuch as the provision does not preclude an application from being made by the bankrupt, there is no lack of jurisdiction as such to entertain an application by the bankrupt.  There have indeed been reported examples of application by the bankrupt for removal of the trustees: Smedley v Brittain [2008] BPIR 219; Re Lau William John (a bankrupt) [2016] 2 HKLRD 404; Re Tam Mei Kam (unrep, HCB 3777/2011, 21 February 2014), though Mr Kwong has not referred to any example of a successful application. 

19.  That there may be jurisdiction to entertain an application does not, however, mean that a bankrupt will necessarily have a sufficient, legitimate interest in applying for the removal of his trustee in bankruptcy on the grounds relied upon.  The question of the bankrupt’s standing depends, in my view, under nature and content of the particular grounds for removal.  For example, LSF has in his affirmation asserted that the interests of thecreditors require the removal of the LSF Trustees, which is clearly a reference to the ground in s 96(2)(e).  I am at a loss to see how a bankrupt can rely on the interests of the creditors to try to remove the trustee, and Mr Kwong was driven to accept that that paragraph in his client’s affirmation can be ignored.  Likewise I can understand if a bankrupt complains that the trustee is not competent in recovering assets so that the bankrupt’s prospects of recovering any surplus in the bankruptcy are impaired (see eg In re a Debtor, ex parte The Debtor v Dodwell (the Trustee) [1949] Ch 236, 240-241), but LSF does not suggest there is any prospect of surplus in this case.

20.  I have some doubt whether a bankrupt such as LSF in a bankruptcy such as this has sufficient legitimate interest to seek removal of a trustee based on alleged misconduct committed against some other party in connection with the acquisition of funds for the administration of the bankruptcy.  In light of my conclusion above, however, it is not necessary to deal with this question and I therefore express no opinion on it.

21.  For the above reasons, LSF’s summons is to be dismissed.  There will be an order nisi that LSF pay the LSF Trustees the costs of and relating to this application forthwith.

Mr Alan Kwong and Mr Martin Kok, instructed by David Y Y Fung & Co, for the Applicant

Mr Patrick Siu, instructed by ONC Lawyers, for the Respondents

HCB 345/2001

[2018] HKCFI 939

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 345 OF 2001

____________

____________

____________

_________________

D E C I S I O N

_________________

Background

1.  There are before the court 2 summonses for discovery both issued on behalf of Mr Li Xiao Yi and Mr Lelalertsuphakun Surasak (“Applicants”)[1], who are respectively the younger brother and son of Mr Lee Siu Fung Siegfried, a discharged bankrupt (“Siegfried Lee”). One summons is for specific discovery against the trustees in bankruptcy, Mr Alan Tang and Ms Anita Hou (“Trustees”).  The other summons is for non‑party discovery against Mr Ip Pui Lam Arthur and Mr Ip Pui Sum (“Messrs Ip”) in their capacity as trustees in bankruptcy of Ho Yuk Wah David in HCB 3819/2011.  Both applications have been made for the purpose of obtaining documents to be used for an application brought by the Applicants for removal of the Trustees (“removal application”).

2.  The background to the bankruptcy of Siegfried Lee has been set out in my decision dated 12 October 2016 ordering his examination under s 29 of the Bankruptcy Ordinance (Cap 6) (“Ordinance”) and will not be repeated here.

3.  The Trustees also sought an order for the examination of the Applicants under s 29.  That summons, so far as concerned the Applicants, was adjourned on 28 September 2016 for substantive argument, which was later fixed to be heard on 7 July 2017.  Meanwhile, on 1 February 2017, Siegfried Lee issued a summons seeking an order under s 96(2) of the Ordinance and the court’s inherent jurisdiction for the removal of the Trustees.  On 27 March 2017, the Applicants themselves took out a similar summons for an order to remove the Trustees.

4.  The grounds of the Applicants’ removal application, as stated in paragraphs 19-24 of Li Xiao Yi’s 3^rd affirmation dated 27 March 2017 filed in support of that summons, may be summarised as follows:

(1)  that Mr Tang had been convicted of contempt of court in HCMP 450/2016 on 18 October 2016 and that he had disobeyed court orders and made vexatious applications in HCCL 17/2012;

(2)  that in these proceedings (HCB 345/2001) there was a tendency for the Trustees to “initiate unmeritorious investigations and take unreasonable and unjustified positions in Court applications” (such as Mr Tang’s objection to the automatic discharge of Siegfried Lee from bankruptcy);

(3)  that Ms Anita Ho should also be removed because she does not and cannot act independently and in fact simply acts on the instructions of Mr Tang; and

(4)  miscellaneous grounds including:

(a)  HSBC’s claims against Siegfried Lee had been assigned a number of times and most recently to China New Investment Ltd whose identity was opaque;

(b)  that Mr Tang had been the subject of two bankruptcy petitions namely HCB 4397/2013 and HCB 1097/2014 which were withdrawn or dismissed in August 2013 and June 2014; and

(c)  the Trustees commenced an action against Siegfried Lee’s sister namely Lee Siu Fong Alice in HCA 779/2013 but subsequently applied for leave to withdraw the action.

5.  The Applicants applied for a direction that the Trustees’ application for their private examination should not be heard or determined until after their removal application was dealt with, but I declined to accede to that suggestion and the application for private examination was duly heard on 7 July 2017. On 21 September 2017, I handed down my decision making an order for their examination under s 29 of the Ordinance; see §28 of that decision.[2]

Applications for discovery

6.  Meanwhile, on 12 April 2017, the Applicants had taken out a summons for an order requiring Messrs Ip to give non‑party discovery (“non‑party discovery summons”).  On 14 July 2017, the Applicants took out a further summons for specific discovery against the Trustees (“specific discovery summons”).  After an amendment of the former summons, the documents or classes of documents sought in the 2 summonses are now identical and are as follows:

“1. All documents disclosed in HCB 3819/2011 and/or HCMP 450/2016 showing that any sum of money:

1.1 recovered during the course of the liquidation of CWB Textile Supplies Company Limited (in creditors’ voluntary liquidation) by its liquidators; or

1.2 paid to Grant Thornton (subsequently known as JBPB & CO),

was at any time diverted for the use of the “Lee Siu Fung Matter”, as further elaborated in the Affirmation of Hung Hoi Chun dated 12 April 2017 (the “Diverted Funds”);

2. All documents disclosed in HCB 3819/2011 and/or HCMP 450/2016 showing the payer and payee of the Diverted Funds;

3. All documents disclosed in HCB 3819/2011 and/or HCMP 450/2016 showing the date of diversions in relation to the Diverted Funds;

4. All documents disclosed by the Applicants to the Joint and Several Trustees in Bankruptcy of the Property of Ho Yuk Wah David (whether pursuant to the Order of the Honourable Madam Justice Au‑Yeung on 7 April 2017 or otherwise) in HCB 3819/2011 which make reference to the proceedings herein, the Bankrupt herein or the “Lee Siu Fung Matter”.”

In fact, it is clear from the description that the documents sought, insofar as they exist, would be in the possession of both the Trustees and Messrs Ip.  

7.  In fact, it is clear from the description that the documents sought, insofar as they exist, would be in the possession of both the Trustees and Messrs Ip.  The request for these documents came about in this way.  David Ho was an undischarged bankrupt in HCB 3819/2011, having been adjudicated bankrupt on 2 August 2011.  Messrs Ip were his trustees in bankruptcy. In that capacity, they obtained under s 29 of the Ordinance an order against JBPB & Co (an accountants’ firm formerly known as Grant Thornton), of which Mr Tang and Mrs Alison Wong (“Mrs Wong”) were minority partners, requiring the production of 4 categories of documents, namely (i) agreements, (ii) correspondence, (iii) minutes of meetings, written resolutions and court orders, and (iv) invoices and receipts, relating to 12 payments and a cashier’s order.

8.  Mrs Wong retired in 2014 or 2015.  Mr Tang and Mrs Wong failed to produce the documents to Messrs Ip within the time prescribed which prompted an application for committal for contempt in HCMP 450/2016.  On 18 October 2016, To J found Mr Tang and Mrs Wong in contempt for having breached the order in relation to all 4 categories of documents.  On appeal (CACV 214/2016), on 16 February 2017, the Court of Appeal held that contempt was not proved in relation to the first 3 categories of documents because it was not shown to the requisite standard of proof that they existed, but that it was proved beyond reasonable doubt that the fourth category was within the power of Mr Tang and Mrs Wong, even if not in their custody.  The majority partners of JBPB & Co (with whom they were in dispute) had informed them that the invoices might be found in the 130 boxes which could be inspected at a charge.  They chose not to carry out the inspection and obtain the documents because they “stubbornly”[3] “considered that they did not need to pay for the costs of inspection and that the process of retrieving the documents was too onerous”.[4]  The Court of Appeal set aside the order for committal.  On 11 October 2017, on re‑sentencing them for breach in relation to the fourth category of documents, To J fined Mr Tang $300,000 and Mrs Wong $200,000.

9.  After becoming aware of the fact that Mr Tang had been found in contempt of court in HCMP 450/2016, the Applicants’ solicitors sent a trainee to the sentencing hearing and heard submissions being made by counsel for Messrs Ip to the effect that (1)  David Ho was involved in various funding agreements for the distribution of monies recovered in the liquidation of CWT, and (2) such funds were used by the Trustees towards the administration of the bankruptcy herein (with references being made to the “Lee Siu Fung matter”).

10.  This has given rise to a suspicion on the Applicants’ part that the administration of Siegfried Lee’s bankruptcy (HCB 345/2001) had been and is still being funded by David Ho, using corporate vehicles, as an investment in distressed assets.  On this basis it is said that the documents sought are “relevant to the question of whether Mr Tang had permitted (or facilitated) funds which originated from David Ho, an undischarged bankrupt who had declared negligible assets, to be used to fund the administration of the estate of Lee Siu Fung”.[5]

11.  In the 2^nd Applicant’s reply affirmation on the removal application filed on 3 August 2017, reference was made to these matters and it was said that the Applicants’ concerns about the opaque nature of the funding of the bankruptcy administration were fortified.

Interest of the Applicants

12.  The documents sought are said to be intended for use in the removal application[6], which is based on s 96(2) of the Ordinance and the inherent jurisdiction of the court.  S 96(2) provides as follows:

“(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; or

(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.”

13.  The ground for the removal application to which the documents sought relate is the allegation that funds of another (undischarged) bankrupt had been used in the administration of this bankruptcy.  On the view that I take, it is unnecessary to go into the question whether the documents sought are relevant or whether, as Mr Siu submitted for the Trustees, this is a fishing expedition.  Nor is it necessary to refer to the explanation of the funding arrangement in the respondents’ affirmations.  I consider that the discovery summonses should both be dismissed because of lack of legitimate interest on the part of the Applicants.  Their interest in the matter is, in my view, exiguous in the extreme.  They are not creditors of Siegfried Lee but his relatives.  Being the brother and son of the bankrupt does not afford them any standing in the bankruptcy.  They were the subjects of an application for private examination under s 29, but it has already been determined in the Trustees’ favour.  Even assuming there is an extant appeal, I do not see how the discovery summonses can relate to it, nor did Mr Man SC (who appeared for the Applicants) contend that the documents sought would be relevant to such an appeal.  Further, neither Applicant is a defendant in any on‑going action brought against him in relation to the bankruptcy of Siegfried Lee, but even if there is such an action, I am doubtful if it would afford standing to the Applicants in these discovery applications.

14.  In Deloitte & Touche AG v Johnson [1999] 1 WLR 1605, a case in which the defendants to an action instituted by a company in liquidation sought an order to remove the liquidators of the company pursuant to s 106(1) of the Companies Law (1995 rev) of the Cayman Islands, Lord Millett said (at p 1611C‑F), giving the opinion of the Privy Council:

“ Where the court is asked to exercise a statutory power or its inherent jurisdiction, it will act only on the application of a party with a sufficient interest to make it. This is not a matter of jurisdiction. It is a matter of judicial restraint. Orders made by the court are coercive. Every order of the court affects the freedom of action of the party against whom it is made and sometimes (as in the present case) of other parties as well. It is, therefore, incumbent on the court to consider not only whether it has jurisdiction to make the order but whether the applicant is a proper person to invoke the jurisdiction.

Where the court is asked to exercise a statutory power, therefore, the applicant must show that he is a person qualified to make the application. But this does not conclude the question. He must also show that he is a proper person to make the application. This does not mean, as the plaintiff submits, that he “has an interest in making the application or may be affected by its outcome.” It means that he has a legitimate interest in the relief sought. Thus even though the statute does not limit the category of person who may make the application, the court will not remove a liquidator of an insolvent company on the application of a contributory who is not also a creditor: see In re Corbenstoke Ltd. (No. 2) [1990] B.C.L.C. 60. This case was criticised by the plaintiff: their Lordships consider that it was correctly decided.”

15.  This decision was applied by Chu J (as she then was) in Wang Din Shin v Nina Kung alias Nina T H Wang (unrep, HCAP 8/1999, 20 August 2004).  There, the defendant applied for an order to remove the administrators pendente lite of the estate of the late Mr T H Wang, on the grounds, inter alia, that they had misused their position as shareholders and directors of companies in which the estate was interested, and had intervened in the management of the companies in an abusive and offensive manner.  On the administrators’ application for a direction limiting the capacity in which Mrs Wang could make the application for removal, Chu J held, applying Deloitte & Touche AG v Johnson:

“ 28. …even if the Administrators do, as the defendant contends, owe her a duty of care by reason of proximity of relationship (a contention that the Administrators do not accept and I need not decide in this application), it does not mean that she is entitled to bring the Removal Application in reliance on, or to protect, her separate personal interests. This is because in that separate capacity, the defendant is a stranger to the estate and she has no right or interest in the identity of the administrators of the estate. If indeed her separate interest as a shareholder or partner had been harmed, her remedy would be in damages or in an order of injunction. But she cannot in that capacity apply in the administration proceedings for a removal of the administrators.

…

37.   The fact that the defendant’s separate personal interest is opposed and adverse to that of the estate is an important reason that dis‑entitles her to bring the Removal Application in pursuit of that separate interest.  In the capacity as shareholder or partner, the defendant does not have any legitimate interest in seeking the removal of the Administrators from the administration.  Accordingly, the defendant cannot bring the Removal Application in any capacity other than as a potential beneficiary of the estate.”

16.  In seeking to remove the Trustees on the allegation that they had employed funds that originated from an undischarged bankrupt, the Applicants seem to me equally to be strangers to the estate concerned.  Insofar as the Applicants fear the Trustees might bring claims against them, they would in such claims be alleged to be debtors of, or nominees holding assets for, the estate.  Their interest is not aligned with that of the estate, but is opposed to it.  Their representations concerning the Trustees’ conduct are inherently coloured by their position by reason of which it enures to their advantage to cause maximum obstruction and disruption to any proceedings that might be brought against them.

17.  If and when a claim is actually brought by the Trustees against the Applicants, the Trustees would be in the same position as an ordinary litigant.  The Applicants would have the same protection and remedy that all litigants in these courts have against frivolous and vexatious claims.

18.  It is said that the discovery applications concern two matters raised in the removal application: first, the alleged diversion of funds from the CWT Textile liquidation to the administration of Siegfried Lee’s bankruptcy estate; secondly, the suspected funding of the administration of Siegfried Lee’s bankruptcy estate by David Ho, another bankrupt.

19.  It is difficult to see what legitimate interest the Applicants have in investigating the funding of the bankruptcy administration.  “It has never been a defence to an action nor a ground for a stay to show that the plaintiff is being supported by a third person in an arrangement which constitutes maintenance or champerty”: Unruh v Seeberger (2007) 10 HKCFAR 31 at §95, citing Martell v Consett Iron Co Ltd [1955] Ch 363 at 421‑422 and Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006) 80 ALJR 1441, §82.

20.  It was submitted for the Applicants that it would be improper for the Trustees to receive money from an undischarged bankrupt (David Ho) to fund the administration of the bankruptcy estate of Siegfried Lee.  Let it be assumed that this would indeed be improper.  Still I find it difficult to see why the Applicants, as strangers to the estate, should be allowed to impugn the Trustees on this ground, still less why they should be allowed to probe into the Trustees’ funding via compulsory orders of this court for discovery against the Trustees and third parties.

21.  Mr Man SC submitted that even if the Applicants had no standing to apply for removal, such lack of standing is no answer to the present discovery summonses because there is no application to strike out the removal application.  It is unnecessary for me to say here that the Applicants have no standing in the removal application altogether; what I do say is they have no legitimate interest in relation to removal on the ground concerning the source of funding.  But in any event I reject the submission which, with respect, is most unattractive.  Surely if the Applicants have no relevant legitimate interest, then the documents sought are not necessary for the fair disposal of the matter.

22.  Mr Man SC also sought to distinguish Deloitte & Touche AG v Johnson. He pointed to the fact that the ground relied upon by the plaintiff in that case was that the liquidators had a conflict of interest and duty, not that they were guilty of misconduct.  He pointed out that Lord Millett said there (at p 1612A):

“ The plaintiff’s case is not advanced by alleging that the liquidators have a conflict of interest. This is not the same as impropriety or want of probity. Their Lordships observe that the expression ‘conflict of interest’ is an abbreviation for ‘conflict of interest and duty’. The rule is that a fiduciary may not without the informed consent of his principal place himself in a position where his interest may conflict with his duty to the principal. The danger is that his interest may affect him in the discharge of his duty to the prejudice of his principal. The only persons with a legitimate interest in complaining of a breach of the rule are the persons to whom the duty is owed; and they may waive the breach. The plaintiff does not allege that the liquidators have an interest which conflicts with any duty owed to it. It does not plead any such duty. It alleges that the liquidators have an interest which conflicts with their duty to the company and its creditors. If such a conflict exists, it is for the creditors alone to decide what if anything to do about it.”

23.  This passage set out the precise basis for the decision on the facts of that case but it does not follow, nor in my view did Lord Millett intend to say, that if impropriety or want of probity is alleged, then a person such as the Applicants here necessarily has sufficient legitimate interest in seeking the removal of liquidators and trustees.  It should be noted that the court held in Wang Din Shin, supra, that Mrs Wang had no standing to complain that the administrators misused their power or behaved in an abusive and offensive manner.  The principle is not confined to a complaint about conflict of interest and duty. 

24.  This is not to say the court is not interested in or may not inquire into the conduct of its officers, but that a stranger to the estate has no standing to impugn the way in which its administration is funded and, a fortiori, to obtain orders requiring trustees or third parties to produce documents to enable him to probe into the funding arrangements.  To hold otherwise would in my opinion be a dangerous precedent.

25.  Since the documents sought from the Trustees are all also in the possession of Messrs Ip, there is no reason to think that no action will be taken if they do indeed reveal that funds had flown from David Ho while an undischarged bankrupt.

Jurisdiction under s 42 of the High Court Ordinance

26.  I should mention there was a question, which I confess was first raised by me, as to whether s 42 of the High Court Ordinance (Cap 4), which empowers the court to make orders for discovery by third parties, applies in relation to the removal application at all because under the section the power is conferred on the court “[o]n the application … of a party to any proceedings in which a claim is made”.  It was not clear to me what kind of “claim” was envisaged and whether the removal application qualifies as proceedings “in which a claim is made”.

27.  Prior to the Civil Justice Reform in 2009, s 42 was confined to “proceedings in which a claim in respect of personal injuries to a person or in respect of a person’s death is made” (italics added).  As a result of the recommendation in the reform to make non‑party discovery applicable to “all types of cases (and not merely to personal injury and death claims)”[7], the words italicised in the quotation above were removed.  The section was therefore not enacted with a view to distinguishing between proceedings in which a claim is made and proceedings in which no claim is made.  Rather, it was amended with the object of extending its scope from proceedings in which claims for damages for personal injury and death are made to all types of proceedings.  With this object in mind I think there is no reason not to attach a wide meaning to the word “claim” which ought to encompass any case in which relief is sought from the court.

Conclusion and orders

28.  For these reasons both summonses for discovery are dismissed, with costs on a nisi basis.

HCB 345/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 345 OF 2001

____________

____________

__________________________________

REASONS FOR DECISION

__________________________________

Background

1.  The summons of the trustees in bankruptcy (“trustees”) of the 1^st respondent, issued on 19 July 2016, for an order for private examination of the 3 respondents pursuant to s 29 of the Bankruptcy Ordinance (Cap 6) (“Ordinance”) came before me on 28 September 2016.  At the end of the hearing I adjourned the application as against the 2^nd and 3^rd respondents and gave directions for further conduct, but granted the application as against the 1^st respondent.  These are my reasons for doing so.

2.  The 1^st respondent was the founder, Chairman, CEO and the largest single shareholder of Siu Fung Ceramics Holdings Limited (“SFCH”), a company whose shares were listed in Hong Kong in the 1990s.  I shall refer to SFCH and its subsidiaries and associated companies together as “the Group”.  The 2^nd respondent is the younger brother and the 3^rd respondent is the son of the 1^st respondent.

3.  Petitions to wind up SFCH and several other companies in the Group were presented by HSBC in March 1999.  On 9 May 2000, winding up orders were made.  Claims of creditors admitted for the Group total approximately HK$8,436 million.  To date no dividend has been paid to the creditors of SFCH.  Aggregate dividends paid to the creditors of some of the companies in the Group are less than 1% of their admitted claims.

4.  On 18 January 2001, a bankruptcy petition was presented by HSBC against the 1^st respondent for a debt of HK$322 million based on a guarantee.  He was adjudged bankrupt on 8 May 2001.  Proofs of debt filed in the bankruptcy to date (pending adjudication) amount to some HK$458 million.

5.  Soon after the adjudication the 1^st respondent submitted a statement of affairs stating assets of HK$265 only.  Between 2001 and 2004 he submitted 3 annual statements reporting zero income and zero expenditure.  Nothing has been contributed by the 1^st respondent to the bankruptcy estate.  Not a single cent of dividend has been paid to the creditors.  The 1^st respondent had stayed mostly in the Mainland in the years immediately following the adjudication of bankruptcy.

6.  In 2004, the Insider Dealing Tribunal, chaired by Lugar‑Mawson J, found that the 1^st respondent had used the securities accounts of 3 persons to sell 16.94 million shares in SFCH in June 1996 and also counselled or procured his wife to sell 80 million shares in SFCH in July 1996 when he had price-sensitive information adverse to the Group, thereby avoiding losses of HK$69.87 million.  The proceeds of sale were deposited by his wife into his bank account.  The Tribunal imposed an order for disqualification of the 1^st respondent from management of any company for the maximum period of 5 years (from 25 October 2004), ordered him to pay HK$69.87 million being the amount of loss avoided, HK$139.74 million in penalty, and HK$9.19 million in costs.[1]  In making these orders, the Tribunal stated:

“In this regard, we are aware that Siegfried Lee is now bankrupt in Hong Kong. He has not responded to the publication of the first part of this report. He is believed to reside in Beijing, but neither the Tribunal nor the SFC knows his present address. There are however reasons to believe that Siegfried Lee is not totally without assets. In Chapter 11, at page 146, we referred to Daniel Chan admitting squirreling away $25 million offshore for Siegfried Lee’s benefit. We propose to proceed on the basis that Siegfried Lee remains a wealthy man and that eventually his assets will be tracked down. To do otherwise would be to reward mendacity.

…

Siegfried Lee has made no representations to us in mitigation of penalty. We can find none. He was motivated by greed throughout all his dealings. He displayed a cavalier attitude towards his duties as the chairman of a listed company. He was prepared to use his family members, as well as his subordinates and their family members, to execute his dishonest schemes. There is evidence that he has feathered a nest offshore to avoid his creditors in Hong Kong and he has expressed no remorse for his wrongdoing.” (emphasis added)

7.  An order for payment was also made against Daniel Chan, an employee of SFCH whom the Tribunal found to be the “trusted lieutenant” of the 1^st respondent.  When Daniel Chan failed to pay, an order was made for his oral examination as a judgment debtor.  The explanation he gave there was accepted by the Master in a subsequent (unsuccessful) application by the Government as judgment creditor for an order of imprisonment under Order 49B rule 1B (unreported, HCMP 2851/2004, 23 October 2006), at §39:

“I accept the explanation of [Daniel Chan] that he was instructed by Lee Siu Fung to transfer the money of HK$25 million through his own HKBC account to the Singapore BNP account on the same day when he received cheques from Lee Siu Fung. The Singapore account did not belong to him and … apparently belonged to Lee Siu Fung. After the money was transferred to such account, [Daniel Chan] did not know what had happened to the money.”

8.  Shortly before the expiry of 4 years from the adjudication of bankruptcy, on 5 May 2005, the trustees made an application, first, under s 30A(10) of the Ordinance, for a declaration that time had not run during the period in which the 1^st respondent was absent from Hong Kong (the trustees alleging that the 1^st respondent had gone to Beijing the day after he was adjudged bankrupt), and secondly, to object to automatic discharge on various grounds under s 30A(3) & (4) such as the 1^st respondent’s alleged failure to cooperate with the trustees.  In the light of the Court of Final Appeal’s decision in Re Chan Wing Hing (2006) 9 HKCFAR 545 (handed down on 20 July 2006) which declared s 30A(10)(b)(i) unconstitutional, the first part of the trustees’ application was withdrawn with leave in August 2006. 

9.  The trustees, however, failed to proceed with the second part of their application.  On 2 February 2008, the 1^st respondent, represented by the solicitors’ firm of Messrs Anthony Siu & Co, took out an application to strike out the trustees’ summons of 5 May 2005.  In the end, on 27 August 2008, Barma J (as he then was) struck out the trustees’ summons on the ground that it was an abuse of process for the trustees to have taken out the application (and thereby obtained an interim suspension of discharge) and failed to proceed with it.  The 1^st respondent was as a consequence regarded as having been discharged from bankruptcy in May 2005.  It should be noted that Barma J did not deal with the merits of the trustees’ objection based on s 30A(3) & (4).  In fact, the 1^st respondent had not yet by then filed evidence to respond to the allegations made against him because it had been agreed that the point on s 30A(10) would be dealt with first.  Barma J took into account that an objection to automatic discharge should be made at a reasonably early stage and proceeded with expeditiously since delay would mean the bankrupt may be unfairly denied his discharge until some time after he should have obtained it.  An interim order should not be left in place for longer than necessary to enable the objection to automatic discharge to be determined.  The learned judge also noted that in this case while the maximum postponement of automatic discharge was for 4 years, by the time an application could be heard after the filing of evidence relating to the grounds in s 30A(3) & (4), there would have had been a de facto suspension of discharge for over 3.5 years.

10.  As I shall explain further below, the 1^st respondent’s discharge from bankruptcy did not in law end his duties to assist the trustees in their functions which continue notwithstanding the discharge.  On 6 January 2012, the trustees wrote to the 1^st respondent’s then solicitors, Messrs Anthony Siu & Co, asking the 1^st respondent to attend on the trustees to answer various questions and provide information as set out in a letter issued by the trustees to the 1^st respondent on 1 February 2005 (attaching previous letters) which had not been answered by him.  On 10 and 23 February 2012, the trustees wrote to the same solicitors asking the 1^st respondent to attend on the trustees to provide information.  The 1^st respondent refused to do so.

11.  On 28 August 2012, the trustees wrote to Anthony Siu & Co again, pointing out that despite previous letters (including earlier letters of 4  October  2005, 12  January  2006 and 3  March  2008) to the 1^st respondent, no information had been received from the 1^st respondent, and asking the solicitors to remind the 1^st respondent of his legal obligations and statutory duties.  On 3 October 2012, the solicitors replied that their client, the 1^st respondent, was “not obliged to entertain” the trustees’ requests because they had not provided particulars or documentary evidence to support their allegations.

12.  From December 2015 onwards, the trustees have sent written questionnaires to the 1^st respondent and various persons connected with him including the 2^nd  and  3^rd respondents seeking answers and explanation.  The one sent to the 1^st respondent was delivered by post and by hand to an address at Village Garden, 45 Fa Po Street, Yau Yat Chuen, Kowloon (“the Village Garden address”).

13.  There is evidence that, after the trustees took these steps, on 8 April 2016, the 1^st respondent and another man attended the trustees’ offices in Causeway Bay without prior notice.  He complained that the trustees had disturbed him and his family members, and threatened that he could send 6 men to the trustees’ offices every day for a month.  The trustees’ solicitors’ letter of the same date recording the incident was sent to the 1^st respondent by post and by hand at the Village Garden address and also at another address at Inno Centre, 72 Tat Chee Avenue, Kowloon (“the Inno Centre address”).  A further solicitors’ letter dated 14 April 2016 was sent by post and by hand to the 1^st respondent at the Inno Centre address, complaining about the incident and also reminding him to respond to the questionnaire.  The 1^st respondent did not respond.

Service of the Summons

14.  On 19 July 2016 the trustees caused the summons for private examination to be issued.

15.  On the morning of 28 September, just before the commencement of the hearing, a skeleton argument of Mr Kok who appeared for the 1^st respondent and an affirmation of the 1^st respondent were handed in.  It was, for the first time, indicated that the 1^st respondent would seek an adjournment of the hearing of the summons.  It was alleged that the summons had not been properly served on him.

16.  According to the affirmation of service filed on behalf of the trustees, the summons and the 7^th affirmation of Alan Tang together with the exhibits were:

(a) left at the Inno Centre address on 20 July 2016.  At that time, a woman confirmed to the process server that the 1^st respondent worked there but was not there at that moment.  The woman acknowledged receipt of the documents by signing on a copy of the cover letter;

(b) sent by ordinary post and registered post respectively on 3 August 2016 to the 1^st respondent at the Inno Centre address; and

(c) sent by ordinary and registered post respectively on 3 August 2016 to the 1^st respondent at the Village Garden address.

17.  In his affirmation, the 1^st respondent said the Inno Centre address “was never, and still is not, my correspondence or any address at all”.  He also claimed that the Village Garden address “was never, and still is not, my residential or correspondence address”. 

18.  As pointed out by Mr Siu who appeared for the trustees, however, the Village Garden address was stated as the 1^st respondent’s address in a Form ND2A (Notice of Change of Director) relating to his appointment on 8 May 2015 as a director of a company called World Cheer Enterprise Limited (“World Cheer”).  The Inno Centre address was stated as the correspondence address of the 1^st respondent as the company secretary of World Cheer in a Form NAR1, being its Annual Return made up to 19 March 2016.  Both forms were signed by the 1^st respondent.  Incidentally the same Annual Return stated that the 3^rd respondent was a director of World Cheer and the Inno Centre address was also World Cheer’s registered office.  These documents are public documents registered at the Companies Registry and any person making a false statement in them is liable for an offence punishable by imprisonment: s 895 of the Companies Ordinance (Cap 622).

19.  When these public records were pointed out to Mr Kok, he told the court, on instructions, that World Cheer is a “paper company” (what that means is not apparent) and that the addresses were put in “as a matter of formality” and the Village Garden address was in fact the address of the 1^st respondent’s wife.

20.  In the 1^st respondent’s affirmation, it was stated that so far as he knew, the Inno Centre is used by a company called Lion Legend Holdings Limited (“Lion Legend”), which is a subsidiary of a German company for which he works, as one of its premises in Hong Kong.  He claimed he has “no relationship with Lion Legend” and is prohibited under German law from visiting its office and premises in Hong Kong.  As shown by public documents in the evidence, however, the 1^st respondent appears to be the CEO and Chairman of the “German company” he referred to, namely, ROY Ceramics (see §43(6) below).  Moreover, in the Form NN6 exhibited to the 1^st respondent’s affirmation, Ms Yang Lei, the present wife of the 1^st respondent, was stated to have succeeded the 3^rd respondent as a director of Lion Legend in July 2015.

21.  It is remarkable that in his affirmation, the 1^st respondent tried to give the impression that the two addresses had nothing to do with him at all, when in fact he has only recently used them as his addresses in public documents.  Even if these are not his work or residential addresses, they must have some connection with him enabling him to use them as his addresses.  The evidence is that the woman working at the Inno Centre address said the 1^st respondent worked there.  She signed on the cover letter to acknowledge receipt of legal documents addressed to him.  The 1^st respondent’s affirmation was notably silent on this.

22.  Nothing in the Ordinance or the Bankruptcy Rules (Cap 6A) requires an application under s 29 to be personally served on the bankrupt.  Order 65 of the Rules of the High Court (Cap 4A), which has application to bankruptcy proceedings through s 99 of the Ordinance, allows such a summons to be served by leaving the document at or by post to the usual or last known address of an individual.  For the reasons above, the 1^st respondent’s affirmation has failed to show that neither the Inno Centre address nor the Village Garden address is his usual or last known address.

23.  Furthermore, even taking the 1^st respondent’s affirmation at face value, conspicuously absent in it is any allegation that the trustees’ application did not come to his attention in July or August 2016.  He said that on about 24 September 2016 his brother urgently contacted him and told him there might be some court documents in these proceedings concerning him.  (I note that the trustees’ skeleton argument was lodged with the court and presumably served on 23 September 2016.)  He said he then instructed solicitors (Messrs David Y Y Fung & Co) who informed him that the trustees said they had served the papers on him at the Inno Centre address and Village Garden address.  He asserted he was “never personally served” with those documents in the last few months.  He said the two addresses were not his addresses.  These statements are all, in my view, consistent with the 1^st respondent having actually received notice of the application and the papers in July 2016.  There was no denial of that in the affirmation.  Nor was there anything about what transpired between the 1^st respondent and his son who is the 3^rd respondent herein (and who is represented in this application by Messrs. Anthony Siu & Co, the firm that had been acting for the 1^st respondent himself in relation to the bankruptcy at least between 2008 and 2012), or between the 1^st respondent and his wife whose address, according to Mr Kok, is the Village Garden address and who is apparently a director of Lion Legend which occupies the Inno Centre address.

24.  In these circumstances I declined to adjourn the matter insofar as the 1^st respondent was concerned.

Position of a discharged bankrupt

25.  Discharge from bankruptcy releases the bankrupt from all the bankruptcy debts (s 32(2) of the Ordinance) and brings the bankruptcy to an end for many purposes (s 30(b)), but it does not discharge the bankrupt from all obligations or reverse all consequences flowing from the bankruptcy.  It has been said by Sir Wilfred Greene MR in In re a Debtor [1939] Ch 489, 501, that “the discharge of the bankrupt does not put an end to the bankruptcy regarded as a series of judicial and administrative acts and rights and powers”.  In particular, s 32(2)(a) makes it clear that an order for discharge “has no effect … on the functions (so far as they remain to be carried out) of the trustee and the operation of the provisions of this Ordinance for the purposes of carrying out those functions”.  Likewise, in the case of automatic discharge, s 30A(8) provides as follows:

“Where a bankrupt has been discharged, he shall, notwithstanding his discharge-

(a) continue to give such information respecting his affairs; and

(b) attend on the trustee at such times, and do such other things,

as the trustee requires for the purpose of completing the administration of the estate, and if a discharged bankrupt does not comply with the requirements of this subsection, he shall be guilty of a contempt of court and may be punished accordingly on the application of the trustee.”

26.  It is of course the function of a trustee to collect, realise and distribute the assets of the bankrupt that fall within the estate.  It is the duty of a bankrupt to assist the trustee in the carrying out of that function; the statute speaks of a bankrupt’s duty “to aid to the utmost of his power” in the realisation of his property and distribution of the proceeds (s 26(3)).  This duty does not expire upon discharge, but continues afterwards so long as the administration of the estate remains incomplete: Ex parte Waters (1874) LR 18 Eq 701.

27.  Upon a bankruptcy, the property of the bankrupt vests in the Official Receiver and subsequently in the trustee when he is appointed (s 58(1) & (2)).  This generally includes all property belonging to or vested in the bankrupt at the commencement of the bankruptcy (s 43(1)).  Property includes any power exercisable by the bankrupt over or in respect of property (s 43(4)).  Any property of the bankrupt so vested in the trustee does not re-vest in the bankrupt upon discharge: see Cheung Wing Kwan Tommy v Hong Kong Export Credit Insurance Corp [2012] 2 HKLRD 1255 at §§20-23.  Thus any assets concealed by a bankrupt prior to his bankruptcy are vested in the trustee and continue to be so vested after and despite discharge.

28.  Since the functions of a trustee continue after discharge, it is not surprising that the power to order a bankrupt (among others) to attend for private examination under s 29 – a power provided to enable a trustee to carry out his functions – also continues to apply notwithstanding the discharge of bankruptcy: Re Poulson [1934] Ch 45; Re a Debtor, ex p the Trustee of the Property of the Bankrupt v Clegg [1968] 1 WLR 788, 791F-792D, 801F; Oakes v Simms [1997] BPIR 499, 501D-H; Re Chang Hyun Chi (unrep, HCB 5227/2006, 2 May 2013), per Chung J, at §§24‑29.[2]

Principles on s 29 of the Ordinance

29.  The principles applicable to guide the exercise of the discretion under s 29 of the Ordinance are well established, and have been canvassed in cases on that section as well as on the equivalent provision in company liquidations, including Hau Po Man Stanley (in bankruptcy) v Joint and Several Trustees [2008] 1 HKC 256 (CA); Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 766; Re Lai Kwok Ying (A Bankrupt) (unrep, HCA 8750/2007, 7 August 2009), per Kwan J.

30.  In particular, in Hau Po Man Stanley, the Court of Appeal stated at §21:

“(a) the applicant must satisfy the court the essential condition that the provision of information or documents is reasonably required for him to carry out his functions;

(b) the applicant must also establish a prima facie case that the respondent is able to provide such information or documents;

(c) if the above criteria are met, the court must carefully strike a balance between the applicant’s reasonable requirements and the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to the person concerned.  The burden is on the applicant to satisfy the court, after balancing all the relevant factors, there is a proper case for such an order to be made.”

31.  It was said in Hau Po Man Stanley at §32 that a mere “fishing” expedition by the applicant is not permissible under s 29.  At first sight there might appear to be a conflict with what was said by Lord Millett NPJ in Kong Wah Holdings Ltd at §33, namely, that the liquidator is “necessarily engaged in just such an expedition and the purpose of s 221 is to enable him to carry it out effectively”.  But on closer analysis it seems to me there is no real conflict.

32.  The feature highlighted by Lord Millett’s remark is that in the context of private examination, which is inquisitorial in nature, the officer in question, whether a liquidator or trustee, does not advance a case or specific pleaded allegations.  He may not in fact have the material to do so; yet the procedure “may be used to discover facts and documents relating to potential claims by the liquidator against third parties”: Kong Wah Holdings Ltd at §26.  The object is to gather for the office-holder information about the affairs of the company or the bankrupt to enable him to carry out his functions effectively. 

33.  In Re Ho Yuk Wah David (bankrupt) [2015] 2 HKLRD 603 at §16, To J said:

“As in the case of company insolvency, the jurisdiction conferred on the court by the section 29 of the Bankruptcy Ordinance is inquisitorial in nature. It must of necessity be general, wide and unlimited. The trustee has a wider agenda than a party seeking discovery under Order 24. His general mandate is to investigate the affairs and property of the bankrupt. His functions are to put the bankrupt’s affairs in order and administer his affairs to which he is a total stranger. He needs far wider discovery to enable him to discharge his functions than what is permissible in an ordinary inter-party or third party discovery under Order 24. He may not know what he had to unravel from the bankrupt’s affairs. He cannot be confined to pleaded issues. He is not required to prove any pleaded issues on a balance of probability. It is therefore inappropriate to compare the discovery sought under section 29 of the Bankruptcy Ordinance with that under Order 24. Public policy requires that the trustee in bankruptcy be given a ‘fishing licence’ for the benefit of the creditors. As in the case of company insolvency, the essential requirement is whether the information or documents sought are reasonably required to enable the trustee to carry out his functions in gathering information about the assets, affairs and dealings of the bankrupt as effectively as possible, and with as little expense as possible.”

34.  On the other hand, it would appear that in Hau Po Man Stanley at §32 the Court of Appeal was concerned about expeditions that ignore costs and proportionality: see Re Lee Priscilla Hwang (bankrupt) [2012] 4 HKLRD 581 at §23 per Recorder A Chow SC (as Chow J then was).  What could also be regarded as impermissible fishing is to seek to extract information from persons in respect of a matter when there is no well-founded ground upon which to consider him prima facie capable of giving information: cfIn re Maundy Gregory, ex parte Norton [1935] Ch 65, 74.  It would also be impermissible fishing to begin an examination without any clear suspicions and to conduct it to determine if matters or facts might emerge which may be of interest or assistance, though this does not mean a liquidator is not permitted to probe the circumstances relating to those on which the examination is centred, in the hope of determining whether there is another line of enquiry which should be pursued to ascertain the truth: Re Weihong Petroleum Co Ltd (No 2) [2003] 2 HKLRD 747 at §§40-41, 43.

35.  Finally, so far as the general approach is concerned, it seems to me that the case for making an order for examination of the bankrupt, including a discharged bankrupt, will in general be stronger than in respect of a stranger who is not under an express continuing statutory duty to assist the trustee that I have described above: cfKong Wah Holdings Ltd, supra, at §30(2); Re China Metal Recycling (Holdings) Ltd [2015] 2 HKLRD 747 at §70.

Discussion of the evidence

36.  Apart from certain Hong Kong bank accounts the trustees have found the 1^st respondent to have held, which had not been reported by him, the trustees suspect that not only had the 1^st respondent concealed or not disclosed his assets held in nominee accounts or through offshore companies, but he had since around 1996 taken steps to put his assets beyond the reach of creditors.  The evidence was that in 1996 the Group experienced financial difficulties.  As found by the Insider Dealing Tribunal, the 1^st respondent, with private information, caused shares in SFCH to be sold before the share price dropped.  An overall loss of HK$252 million was announced by the Group on 27 September 1996.  Cash flow problems were announced in November 1996.  Restructuring attempts began in 1997 for the Group but were unsuccessful.  Meanwhile the evidence shows certain dispositions of assets which have aroused the trustees’ suspicion.  In the 7^th affirmation of Alan Tang the trustees have identified five specific areas and one general area that they particularly wish to probe into.

(1) The 1^st respondent’s 75% shareholding in SFPH

37.  Siu Fung Pharmaceutical Holdings Limited (“SFPH”) was a private company through which the 1^st respondent had carried on pharmaceutical business since about 1994.  In 1996 he held 75% (2.4 million shares) in SFPH and his brother Mr Li Xiaoyi Benjamin, the 2^nd respondent herein, held the other 25% (0.8 million shares).  In May 1997, SFPH allotted 3.2 million shares at par value (HK$1 per share) to a company (Lee’s Machinery Ltd) owned by the 1^st respondent’s two younger sisters, with the result that the 1^st respondent’s holding was diluted to 37.5%.  In December 1997, a month after HSBC made a demand of HK$177.6 million on the 1^st respondent’s guarantee, the 1^st respondent transferred 800,000 shares out of his 2.4 million shares to the 2^nd respondent for a total sum of HK$1.  In March 1998, the 1^st respondent transferred his remaining 1.6 million shares to a company (Triumph Leader Ltd) held by his then wife, Ms Dusanee, again for a total sum of HK$1. 

38.  As a result of some further share transfers and another allotment, by the end of 2001, the entire issued share capital of SFPH became 18.4 million shares, which were held as follows:

(1)  15.2 million shares (82.6%) were held by Huby Technology Ltd (a company held by the 1^st respondent’s two sisters);

(2)  0.8 million shares (4.4%) were held by Dynamic Achieve Investments Ltd (also a company held by the 1^st respondent’s two sisters);

(3)  1.6 million shares (8.7%) were by High Knowledge Investments Ltd (a company held by the 1^st respondent’s then wife); and

(4)  0.8 million shares (4.3%) were held by Techfarm Investment Ltd.

39.  In February 2002, these four companies entered into a share exchange with Lee’s Pharmaceutical Holdings Ltd (“LPHL”) (1 SFPH share for 10 LPHL shares), so that SFPH became a wholly-owned subsidiary of LPHL and the four companies became shareholders of LPHL.  In July 2002, LPHL’s shares were listed on the GEM Board of the Stock Exchange of Hong Kong; the listing was transferred to the Main Board in 2010. 

40.  In short, on the face of this series of transactions, a pharmaceutical business which was held as to 75% by the 1^st respondent as at 1996 became the business of LPHL in which the 1^st respondent had ostensibly no interest, and all that the 1^st respondent had obtained in return was HK$2.

41.  The trustees consider that they require further information to investigate this matter; some of the questions for the 1^st respondent on this matter are set out in the questionnaire at Section E (p 3) of Schedule 1 to the summons.  The trustees have raised questions such as why 3.2 million shares were allotted to Lee’s Machinery Ltd in May 1997, why the allotment was at par, why 0.8 million shares were transferred by the 1^st respondent to the 2^nd respondent for just HK$1, why another 1.6 million shares were transferred to Triumph Leader Ltd in March 1998 again for only HK$1.

(2) Interest in Siu Fung Ceramics (Beijing) Sanitary Ware Co Ltd

42.  Siu Fung Ceramics (Beijing) Sanitary Ware Co Ltd is a Mainland joint-venture company.  It has been referred to in the evidence as “BSW” and I shall continue to use this abbreviation.  It was one of the largest joint ventures within the Group in the 1990s, and has since 1993 owned a factory on a piece of land with an area of 150,000 m² in Beijing.  As at 1995, SFCH held a 36% interest in BSW; Kingbridge Investment Ltd (“KBI”) held 20%; Hillmond International Holdings Ltd (“Hillmond”) held 22%; and a Mainland entity (Beijing Glass No 2 Factory) held 22%. 

43.  In July 2001, the 2^nd respondent using 3 investment companies, namely, World Cheer (see §18 above), Lion Legend (see §20 above) and Capital Ocean Enterprises Ltd (“Capital Ocean”), apparently acquired the 36% shareholding in BSW from the liquidators of SFCH.  The resultant holding was that World Cheer and Capital Ocean held 32% and 68% of Lion Legend, which held 100% of KBI, which in turn held 56% of BSW.  Mr Alan Tang, one of the 1^st respondent’s trustees, was at the time a joint liquidator of SFCH handling the sale.  It was then believed, and publicly announced, that the 2^nd respondent was the person beneficially acquiring the interest.  But the trustees now suspect that the 1^st respondent was not only behind the acquisition of the 36% interest, but also continued to hold and control the other stakes held by KBI and Hillmond in BSW.  The matters leading to the suspicion include the following:

(1)  The 1^st respondent had continuously been a director (from 1998) and the Managing Director and Legal Person’s Representative (from 2000) of BSW to date. 

(2)  Other directors of BSW included the 3^rd respondent, appointed in 2005 (who has been replaced by Yang Lei, the 1^st respondent’s present wife, since 2010) and Wong Ying, a shareholder of World Cheer and believed to be a former employee of the Group.

(3)  As papers filed with Beijing authorities in 2004 show, the 1^st respondent was also stated as the representative of KBI.

(4)  The consideration, in the sum of HK$19 million, was paid by cashier’s order as to HK$7.5 million, by a cheque of Wong Ying as to HK$3 million, and by cheques of a BVI company called Goldsmith International Ltd as to HK$8.5 million.  According to the information referred to in the following sub-paragraph, Goldsmith International Ltd was apparently wholly owned by the 3^rd respondent herein, who is the 1^st respondent’s son, and a high school student in 2001.

(5)  In May 2012, an announcement was made by China Eco‑Farming Ltd, a company listed on the GEM Board, that it had agreed to acquire from Lion Legend a 10% interest in KBI which held a 67.11% interest in BSW.  According to that announcement, major shareholders of Lion Legend included Goldsmith International Ltd, Capital Ocean and another company called Shine Eagle Holdings Ltd; all these three companies were wholly owned by the 3^rd respondent, who was also their sole director.  The 3^rd respondent was also said to be the sole director of Lion Legend (though he appears to have been replaced in that position by the 1^st respondent’s present wife in July 2015 – see §20 above).

(6)  In November 2014, Lion Legend was injected into a German-domiciled company called ROY Ceramics SE (“ROY Ceramics”), with Lion Legend’s shareholders obtaining shares in ROY Ceramics instead.  ROY Ceramics became listed in Germany in 2015.  In the listing prospectus issued in March 2015, it was stated that back in March 2001, Lion Legend was indirectly wholly owned by the 3^rd respondent, through two companies namely, Capital Ocean and Siu Fung Concept Limited, both BVI companies.

(7)  Following the listing of ROY Ceramics, the 1^st respondent became its CEO and Chairman.

44.  The trustees consider that they need further information to investigate this matter; some of the questions for the 1^st respondent on this matter are set out in Sections F and G (pp 5–16) of Schedule 1 to the summons.  The trustees have raised questions such as whether the 1^st respondent held shares in Capital Ocean, Goldsmith International Ltd, KBI, Hillmond, Lion Legend, and Siu Fung Concept Ltd (BVI); and how KBI and Hillmond came to acquire a 20% and 22% interest in BSW respectively.

(3) Nominee accounts

45.  As referred to above, Daniel Chan had revealed that at least HK$25 million belonging to the 1^st respondent paid to him and his mother had been squirreled away in 1996 to a nominee account held with BNP Singapore (account no JN 519).  The trustees’ investigations have revealed that that account was held by BNP Jersey.  Daniel Chan was authorised by the 1^st respondent under a power of attorney to give instructions to BNP Jersey in relation to Account JN 519.  The HK$25 million was then used to purchase shares in SFCH.  In August 1996, 7.5 million SFCH shares (worth about HK$9 million) were transferred from Account JN 519 to another nominee account no JN 302 at BNP.  On 6  September  1996, following a sale of 10.6 million SFCH shares in Account JN 519, a sum of HK$11 million out of the proceeds of sale was transferred from Account JN 519 to a Hong Kong bank account of Lee Siu Fong, one of the 1^st respondent’s sisters.

46.  Documents obtained by the trustees under a Jersey court order in 2010 have further revealed that Account JN 302 was opened under the name of one Brian Law, an investment director of HSBC Private Equity Management Ltd at the time.  A Mr David Wong was one of the authorised signatories for that account.  David Wong was the person at CEF Brokerage responsible for operating the securities trading account of the 1^st respondent’s wife, found to have been used for insider dealing in 1996 (see §6 above).  Further trading of SFCH shares was conducted after 7.5 million shares were deposited into this account in August 1996.

47.  The evidence shows that on about 22 August 1997, a sum of US$2.5 million was transferred from Account JN 302 to a Swiss account with the Union Bank of Switzerland, Zurich, no CQUE775.069.

48.  When asked in 2012 for an explanation of the nominee accounts, the 1^st respondent (through his solicitors Messrs Anthony Siu & Co) asked the trustees to provide documentary evidence of any nominee accounts.  To help refresh his memory, the trustees provided him with a copy of an undated letter to BNP Jersey requesting nominee facilities signed by the 1^st respondent and countersigned by BNP Jersey.  Despite this, the 1^st respondent has failed and refused to provide any information.

49.  As for the HK$11 million paid from Account JN 519 to Lee Siu Fong’s bank account, an action has been brought by the trustees (HCA 779/2013).  By way of defence, she has since said that the money was in turn transferred by her to NHD Systems (Asia) Ltd, a company over which the 1^st respondent had interest and control prior to its winding up.

50.  The trustees consider they require further information and have raised further questions for the 1^st respondent on this matter, as set out in Section F (p 17) of Schedule 1 to the summons, such as whether the 1^st respondent was the owner of Account JN 519 and Account JN 302 at BNP and the account no CQUE775.069 at Union Bank of Switzerland, Zurich.

(4) Unreported patents

51.  The trustees’ investigations have revealed that, of the sanitary ware products traded by BSW, patents for the design of 46 types of sanitary ware were registered in the name of the 1^st respondent with the State Intellectual Property Office of Mainland China and valid for a period of 10 years from 2003.  While these patents have now expired, there is reason to suspect that they had generated income and benefits that should form part of the bankruptcy estate.  There was a further US patent registered on 26 May 2005. 

52.  None of these intellectual property rights had been declared by the 1^st respondent to the trustees.

53.  The trustees consider they require further information and have raised questions for the 1^st respondent on this matter, as set out in Section E (p 16) of Schedule 1 to the summons, such as disclosure of all royalties, other payments or benefits in kind received by the 1^st respondent for use by BSW of the 46 patents registered in the Mainland and the patent registered in the US.

(5) Undisclosed receipts

54.  The trustees’ investigations have revealed that shortly prior to or after the liquidation of the companies in the Group, many of the Group’s joint ventures in the Mainland were disposed of and that the consideration was in many cases, wholly or in part, paid in cash to the 1^st respondent. At least 18 written acknowledgments, signed by the 1^st respondent, of receipt of cash of approximately RMB 54 million between May 1998 and February 1999 have been found.

55.  The 1^st respondent had refused to account to the liquidators of the Group, suggesting that these receipts related to his personal affairs.  But he has also failed to account for them to the trustees.

56.  The trustees consider they require further information and have raised further questions for the 1^st respondent on this matter, as set out in Section H of Schedule 1 to the summons, asking for, inter alia, a full account of the monies received by the 1^st respondent.

(6) Undisclosed assets

57.  Finally, given the circumstances, the trustees suspect that prior to and throughout his bankruptcy, the 1^st respondent had undisclosed funds beyond the HK$265 declared in his statement of affairs and the zero earnings declared in his annual statements.  The questions that the trustees propose to raise are set out in Sections A–D of Schedule 1 to the summons.

The exercise of power under s 29

58.  In considering the question whether the trustees have made out a case that the information they seek is reasonably required for the performance of their functions, I bear in mind the principle established by the authorities that “great weight should be given to the views of the liquidator, for he is an officer of the court and alone has the necessary knowledge of the problems facing him in understanding the affairs of the company and his reasons for seeking production of documents in the terms proposed” (per Lord Millett in Kong Wah at §31).

59.  In my view, many of the matters set out in the evidence arouse suspicion and raise questions, and it is entirely understandable that the trustees consider that further information should be sought from the 1^st respondent in order for them to consider what actions may be taken for the benefit of the creditors. 

60.  While the 2^nd and 3^rd respondents have filed an affirmation which inter alia dealt with the topics of the shareholding in SFPH and the acquisition of BSW, the 1^st respondent has not adopted that evidence.  For example, the 2^nd respondent said that SFPH desperately needed capital in May 1997 and said there was no evidence the shares in SFPH were “highly valued”.  He also said that he did become an ultimate beneficial holder of 36% in BSW but the whole consideration was not contributed by him, nor did the announcement suggest it was.  I need not deal with the positions of the 2^nd and 3^rd respondents here.  In any event, I do not think that evidence is such as to preclude the trustees from obtaining the 1^st respondent’s version and explanation of the transactions in question. 

61.  Mr Kok also submitted that the delay in this application threw doubt on the need of the trustees for the information.  I can understand the argument but the force of this inferential reasoning is in my view of limited weight for present purposes.  The trustees have raised many of the questions to the 1^st respondent quite some time ago; see the 1^st report of the trustees in 2007, the 2^nd report of the trustees in 2013 and the correspondence.  Other questions have arisen from the announcement by China Eco-Farming Ltd in 2012 (see §43(5) above) and more recently from the prospectus for the listing of ROY Ceramics in 2015 (see §43(6) above).

62.  There is, in my view, a prima facie case that the 1^st respondent should be able to provide the requested information and documents, as all the matters raised relate to him.

63.  There will inevitably be some burden placed on and inconvenience caused to a person subjected to private examination.  It must however also be borne in mind that as a bankrupt, albeit discharged, the 1^st respondent owes a continuing statutory duty to assist his trustees.  The trustees have written repeatedly to ask him for information and for meetings, and thereby given him ample opportunity of assisting them in a less formal and perhaps less burdensome manner.  In light of the lack of response, I do not think it was unreasonable or oppressive for the trustees to seek an order for private examination. 

64.  Mr Kok submitted that the trustees’ application should be rejected on the ground of delay alone.  It is a feature of this case that there has been a very substantial lapse of time since the bankruptcy.  The evidence however is that the 1^st respondent went to the Mainland soon after the adjudication of bankruptcy.  The trustees started without any books and records, or any assets that could be realised to fund the administration. They received a small funding from HSBC.  In March 2006, HSBC assigned its debt to a company called Keentrade, which was expected to provide funding but after some initial funding, Keentrade became unable to provide any resources following the 2008 worldwide financial crisis.  Keentrade assigned the debt, which was further assigned in 2015 to China New Investment Ltd.  The trustees have said that no application had been made for private examination principally due to lack of funds.  See the 2^nd report of the trustees, §§13‑15; 7^th affirmation of Alan Tang, §§26-27.

65.  Further, additional impetus was provided by the revelations made by the public announcement by ROY Ceramics only in 2015, which were highly relevant to the investigations relating to BSW: see §43(6) above.

66.  The respondents have referred to two decisions[3] in which the court has expressed disquiet over the length of time taken by trustees in bankruptcy to apply for an order for sale of property co-owned by the bankrupt with another. The considerations in those cases are quite different and I do not find the comparison helpful.

67.  The respondents have also relied on Barma J’s decision in 2008 striking out the trustees’ objection to the 1^st respondent’s automatic discharge from bankruptcy.  I see no reason why the principle that the bankruptcy court can regulate its process by striking out objections to discharge in appropriate cases cannot extend to applications for private examination under s 29.  Like Barma J, however, it seems to me such cases would be exceptional.  As can be seen from §9 above, his Lordship’s decision to strike out the objection to discharge was made in a wholly different context and does not in my view provide any support for dismissing the present application under s 29.

68.  For the foregoing reasons, I was satisfied, after balancing all the relevant factors, that this is a proper case for an order for private examination to be made against the 1^st respondent. 

HCB 345/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 345 OF 2001

____________

Re:  Lee Siu Fung, Siegfried (a Bankrupt)

____________

______________

J U D G M E N T

______________

1.  On 8 May 2001, a bankruptcy order was made against Mr Lee Siu Fung Siegfried (“the Bankrupt”).  As this was the first occasion on which he had been made bankrupt, he could ordinarily have expected to be automatically discharged from bankruptcy after four years (the “relevant period”), on 8 May 2005, pursuant to sections 30A(1) and (2) of the Bankruptcy Ordinance (Cap. 6).  Mr Alan Chung Wah Tang (“the Trustee”) was appointed as one of his trustees in bankruptcy on 19 September 2002.

2.  As a result of his administration of the Bankrupt’s estate, the Trustee came to the view that the conduct of the Bankrupt had been unsatisfactory in a number of respects.  On 5 May 2005, three days before the Bankrupt would have been automatically discharged, the Trustee made an application pursuant to sections 30A(3), (4) and (10) of the Bankruptcy Ordinance.  The application was in two parts.

3.  The first part sought a declaration as to the length of time for which the relevant period had not run.  This was based on section 30A(10)(b)(i) of the Ordinance, which provides that where a bankrupt leaves Hong Kong after his bankruptcy commences without notifying his trustee of his itinerary and contact details, the relevant period shall cease to run while he is absent from Hong Kong and until he notifies his trustee of his return.  The Trustee alleged that the Bankrupt, who appears to have taken up residence and employment in Beijing after his bankruptcy, had failed to comply with the requirements of this provision, and sought the court’s determination as to the length of time for which the relevant period had not run.  On the Trustee’s case, a very substantial part of the four years that had elapsed since the making of the bankruptcy order did not count towards the relevant period.

4.  The second part of the application was based on sections 30A(3) and (4) of the Ordinance, which enable a trustee or a creditor to object to the automatic discharge of a bankrupt on one or more of the grounds specified in section 30A(4).  Where the court is satisfied that the objection is valid, it has a discretion to order that the relevant period shall cease to run for a period of up to a further four years (in the case of a first-time bankrupt), thus extending the period of the bankruptcy to up to eight years.  The Trustee contended that the automatic discharge of the Bankrupt should be suspended for the maximum period allowable – four years, or alternatively for such lesser period as the court might think fit.  The Trustee relied on no fewer than eight grounds in support of this part of his application.  Details of the Trustee’s complaints were set out in his affirmation of 22 April 2005 made in support of his application.

5.  On 23 June 2005, the Trustee applied for and obtained from Master Kwang an order that in effect directed the first part of his application to be dealt with first, while the second part of his application was adjourned sine die with liberty to restore.  This approach was entirely understandable, since depending on the outcome of the first part of the application, it might be premature (possibly very premature) to deal with the second part of the application.  If the relevant period had not run for a period of time, so that the time for automatic discharge had not arrived, events that might occur in the remaining part of the relevant period might have a bearing on the second part of the application.  The Bankrupt’s behaviour might give rise to further grounds for complaint, or conceivably, might have improved to such an extent as to bear on the outcome of the second part of the application.

6.  Thereafter, the Trustee filed two further affirmations in support of his application, with the Bankrupt filing an affirmation in opposition to it.  As might be expected having regard to the directions which had been given, these affirmations focussed on the question of the Bankrupt’s absence from Hong Kong, and on whether or not he had informed the Trustee of his travel plans and contact details, although the Bankrupt (who was not legally represented at that stage) did touch, albeit briefly and in general terms, on some of the other complaints which had been made by the Trustee, which would arise in respect of the second part of the Trustee’s application.

7.  The first part of the Trustee’s application was heard before me on 1 June 2006, it having been adjourned once to await the outcome of a challenge to the constitutionality of section 30A(10)(b)(i) in a pending appeal before the Court of Appeal in other proceedings (Re Chan Wing Hing, CACV 153/2005).  At the hearing, I was told that the Court of Appeal’s decision in Re Chan Wing Hing had been further appealed to the Court of Final Appeal, where a hearing of the appeal was imminent.  In the event, by its judgment in FACV Nos. 7 and 8 of 2006 handed down on 20 July 2006, the Court of Final Appeal declared section 30A(10)(b)(i) of the Ordinance unconstitutional, as being a disproportionate infringement of the right to travel provided for by Article 31 of the Basic Law and Article 8(2) of the Bill of Rights.

8.  Following submissions by the parties as to the appropriate orders to be made in the light of the Court of Final Appeal’s judgment, I gave leave to the Trustee to withdraw the first part of his application, and reserved the costs in relation thereto for further consideration after the final disposal of these proceedings, for the reasons I gave in my judgment dated 25 August 2006.

9.  At that time, the Bankrupt had submitted that the whole application should be dismissed.  I declined to do so, as the merits of the second part of the Trustee’s application had not yet been dealt with.  Instead, I stated (in paragraph 17 of my judgment) that “[s]hould the Trustee wish to pursue the relief sought by paragraph 2 of the summons, he may take steps to have it restored for hearing, so that directions for its further progress may be given”.

10.  However, the Trustee took no steps to restore the second part of his application for hearing.  On 9 January 2007, the Bankrupt wrote to the trustee’s solicitors pointing out that the Trustee had done nothing to prosecute the application, complaining that it was an abuse of the court’s process to leave the application hanging over him without progressing it, and asking to be told what the Trustee’s position was.  On 31 January 2007, the Trustee’s solicitors provided a holding response, in which they said that they were taking the Trustee’s instructions and would revert to the Bankrupt in due course.  However, no further response was ever provided to the Bankrupt.

11.  On 2 February 2008, just over one year later, the Bankrupt took out the present application, seeking to strike out the Trustee’s summons of 5 May 2005 on the basis that either (i) it was an abuse of process, as the Trustee had demonstrated that he had no intention of pursuing it, or (ii) the Trustee had been guilty of inordinate and inexcusable delay in prosecuting it, and that the Bankrupt had thereby been prejudiced.

12.  On 17 April 2008, the Trustee filed his fourth affirmation in these proceedings, in opposition to this application.  Nowhere in that affirmation does there appear any explanation of the reasons for the Trustee’s failure to restore his summons for hearing.  All that is said as to this is that it is the Trustee’s understanding that as the second part of the summons had been adjourned sine die with liberty to restore, either party could have restored it when they thought it appropriate to do so, and that the Bankrupt was also guilty of inaction in failing to take such steps himself.  Much of the affirmation was devoted to a narration of further material that goes to the merits of the Trustee’s application, setting out a litany of complaints about the Bankrupt’s conduct, alleged lack of cooperation and apparent failure to disclose assets which the Trustee believes to be owned or controlled by the Bankrupt.  While some of these matters expanded upon complaints already made in the Trustee’s first affirmation dated 22 April 2005, there were a number of new matters that were raised for the first time.  The Trustee also stated that he had spent the period since the resolution of the first part of his summons carrying out further investigations into the Bankrupt’s conduct and affairs, and that, in the light of his investigations, expected to be in a position to take further, more concrete, action against the Bankrupt and third parties, within the next six months to one year.

13.  Finally, on 23 May 2008, some 11 days before the hearing, the Trustee’s solicitors wrote to those acting for the Bankrupt, stating that the Trustee wished to restore the second part of his summons for hearing, and asking that the Bankrupt’s solicitors attend to fix a date for such a hearing.  The Bankrupt’s solicitors objected to this being done, and in the event, I directed that no date for such a hearing should be fixed until after the resolution of the Bankrupt’s striking out application.

14.  Mr Lam, appearing for the Bankrupt, submitted that the evidence disclosed plainly that the Trustee had no real intention of restoring the second part of his application for hearing, and that to leave the application “on hold” indefinitely was a clear abuse of process, in the sense identified in Grovit v Doctor [1997] 1 WLR 640.  In that case, Lord Woolf said (at pages 647G-648A):-

“… the appellant’s inactivity in the libel action for a period of over two years … constituted an abuse of process.  The courts exist to enable parties to have their disputes resolved.  To commence and to continue litigation which you have no intention to bring to conclusion can amount to an abuse of process.  Where this is the situation the party against whom the proceedings is brought is entitled apply to have the action struck out and if justice so requires (which will frequently be the case) the courts will dismiss the action.  The evidence which was relied upon to establish the abuse of process may be the plaintiff’s inactivity.  The same evidence will then no doubt be capable of supporting an application to dismiss for want of prosecution.  However, if there is an abuse of process, it is not strictly necessary to establish want of prosecution under either of the limbs identified by Lord Diplock in Birkett v James [1978] AC 297.  In this case once the conclusion was reasoned that the reason for the delay was one which involved abusing the process of the court in maintaining proceedings when there was no intention of carrying the case to trial the court was entitled to dismiss the proceedings.”

15.  Grovit v Doctor was considered by the Court of Appeal in New China Hong Kong Group Limited v AIG Asian Infrastructure Fund LP [2005] 1 HKLRD 383.  In that case, the Court of Appeal accepted that maintaining an action without any intention of carrying it to trial would amount to an abuse of the process that would justify its being struck out, but cautioned against invoking the principle over-readily, saying that it should be used in effect as an alternative to striking out for want of prosecution, and that something more than simply inordinate and inexcusable delay would usually be required, and that the case would have to be an exceptional one for this power to be invoked.

16.  As an alternative basis for the striking out application, Mr Lam submitted that this was an appropriate case for striking out on the basis of inordinate and inexcusable delay, under the principles laid down in Birkett v James (supra).  He submitted that in this case, the delay (of nearly two years since the first part of the Trustee’s summons was disposed of) was both inordinate and inexcusable, and that the Bankrupt had suffered prejudice as a result of it, not least by the continuation of his state of bankruptcy for a period of over three years from the date on which he would otherwise have obtained his automatic discharge, by reason of the interim suspension of the relevant period that was ordered, as is commonly done in such cases, pending the resolution of the objection to automatic discharge pursuant to sections 30A(3) and (4) of the Ordinance.

17.  Mr Maurellet, appearing on behalf of the Trustee, opposed the application to strike out on the following grounds:-

(1)     The principles regarding striking out of proceedings on the grounds of abuse of process or want of prosecution do not apply to bankruptcy proceedings of the nature brought by the Trustee, because the Trustee’s application is a proceeding that involves the public interest, and cannot be regarded as being private litigation between opposing parties as would be the case for ordinary civil claims.

(2)     There was no evidence of any real prejudice to the Bankrupt that had been caused by the delay on the Trustee’s part in pursuing his objection to automatic discharge.

(3)     The Bankrupt’s conduct, as described in the Trustee’s evidence, was so seriously unsatisfactory that this was an overwhelming case for the imposition of a long, and probably the maximum, period of suspension of the discharge of the bankruptcy order made against the Bankrupt.

(4)     The public interest required that the Trustee’s application be heard and determined, even at this late stage.

18.  Although Mr Maurellet initially appeared to put his first point in absolute terms, so that abuse of process or want of prosecution should never be grounds for striking out an application of the nature brought by the Trustee, towards the end of his submission he modified his position slightly, suggesting that the fact that the proceedings involved the public interest and were not simply private litigation was a factor that the court should take into account in the exercise of its discretion.

19.  I would, of course, accept that an application of the sort brought by the Trustee against the Bankrupt is not ordinary private litigation, and that there is a strong public interest element in such applications.  This has been made clear in a number of previous cases.  Thus, for example, in Fred Lee v Leung Chin Yeung [2001] 1 HKC 164, Kwan J said (at p.182I) that:-

“It is important to bear in mind that bankruptcy proceedings are not private litigation between individual parties.  There is a wider public interest involved in the proper administration of the bankrupt’s estate in accordance with bankruptcy law …”

20.  In Re Wong Hing Wai Michael (unreported, HCB 26018/2002, Barma J, 12 October 2007), I described the purposes of sections 30A(3) and (4) in the following terms:-

“… one of its main purposes is to provide the bankrupt with an incentive to cooperate with his Trustees, and to comply with his obligations under the Ordinance.  … Other purposes that are served by the power to suspend automatic discharge would appear to me to include the protection of the public, where there is reason to think that the reintroduction of the bankrupt into ordinary commercial life might pose risks or dangers against which lenders and others who might have dealings with him should be protected, and, in appropriate cases, as a mark of disapproval of the way in which the bankrupt has conducted his affairs whether before or after his bankruptcy.”

21.  These observations, and other observations to similar effect in other cases, demonstrate that bankruptcy proceedings, and applications to object to automatic discharge in particular, have a strong public interest element to them.

22.  That said, however, it is also clear from a number of recent authorities that such applications should be made only after careful consideration, and that it is necessary to bear in mind also the interests of the bankrupt, in the light of the emphasis that the Ordinance now places on the rehabilitation of the bankrupt.  In this regard, it is desirable for any intended objection to automatic discharge to be made at a reasonably early stage.  I think that it also follows that such an objection should be proceeded with with reasonable despatch.

23.  So far as the desirability of making the application at an early stage is concerned, Lam J in Re Liu Man Hoo (supra) made a number of observations on the timing of the trustee’s application in that case, and on the practice of granting interim orders suspending the running of the relevant period pending the resolution of such applications (see paragraphs 72 to 86 of his judgment).  He pointed out that in general, a trustee should be in a position to decide whether or not to make an application to object to automatic discharge well before the expiry of the usual four-year period of bankruptcy, even in a case in which the objection is based on post-bankruptcy conduct of the bankrupt, and that the practice of granting interim suspension orders, which has become commonplace when objections to automatic discharge are made, can result in injustice to the Bankrupt, most particularly in cases in which no suspension of automatic discharge is ordered at the end of the day.

24.  Even in cases in which automatic discharge is suspended, it is possible that an interim order may result in the bankrupt remaining in a state of bankruptcy for longer than is actually justified (as was the case in Re Wong Hing Wai Michael – see paragraphs 72 to 74 of my judgment).

25.  I think that it is clear from these observations that it is incumbent on a trustee who makes an application objecting to the automatic discharge of the bankrupt to proceed with that application with due expedition.  In many cases, undue delay in the making of the application or its prosecution will result in unfairness to the bankrupt, as he may be denied his discharge until some time after he should have obtained it.

26.  I think that it is also necessary to consider the reason why it has proven to be necessary to grant interim suspension orders in such cases.  The need for such orders arises because, in the absence of an order suspending the running of the relevant period, automatic discharge takes place four years after the making of the bankruptcy order.  Once automatic discharge has taken place, there is no mechanism for resurrecting the bankruptcy so as to extend it by making an order under sections 30A(3) and (4).  Thus, where an application objecting to automatic discharge is made, but cannot be determined prior to the end of the normal four year bankruptcy period, it has proven necessary for the courts to make interim orders that suspend the automatic discharge of the bankrupt pending the resolution of the trustee’s application.  Although, as Lam J pointed out in Re Liu Man Hoo, there might be some scope for argument as to the validity of such orders, this was not a point that was addressed in this application, and I propose, like Lam J, to proceed for present purposes on the assumption that the court has jurisdiction to make such orders.

27.  However, it is important to note the purpose of such an interim order.  It is granted so that automatic discharge does not occur until after the objection has been determined so as to render the application otiose or pointless.  It is not granted with a view to extending the bankruptcy generally – that must depend on the outcome of the application to suspend automatic discharge after it has been considered on its merits.  It follows, I think, that the interim order should not be left in place for longer than is reasonably necessary to enable the substantive objection to automatic discharge to be determined.

28.  With these considerations in mind, I see no reason why the courts should not regulate their process in relation to such applications by making orders striking them out in appropriate cases.  Of course, such cases will be exceptional, and it will be rare for the court to strike out an objection to automatic discharge on the grounds that it is (or has become) an abuse of the process, or because it has been the subject of inordinate and inexcusable delay.  It will be necessary to consider the circumstances of each case with care, to avoid being over-ready to dispose of objections to automatic discharge on this basis.  In principle, however, I think that it is open to the court to strike out such an application where this is called for by the circumstances of the case.

29.  Mr Maurellet’s other points are, I think, all matters that should be taken into account, and given such weight as is appropriate, when considering whether there has been such delay as to amount to an abuse of the process of the court, or as would justify the striking out of the objection to automatic discharge because of the delay and prejudice to the Bankrupt that has occurred.

30.  I consider first whether the delay and other circumstances are such as to show that the Trustee has been guilty of an abuse of the court’s process.

31.  So far as the period of delay is concerned, this extends from late August 2006, when the first part of the Trustee’s application was disposed of, until at least 23 May 2008, when the Trustee for the first time thereafter indicated that he wished to proceed with his objection to the Bankrupt’s automatic discharge.  This is a delay of some 21 months.  Nothing in the evidence filed by the Trustee suggests that there was any matter connected with the application itself that caused or contributed to this delay.

32.  Nor is there anything in the Trustee’s evidence that seeks to excuse or explain the delay.  As I have noted, the Trustee’s evidence in opposition to the striking out application deals with other matters which the Trustee says should be taken into account in opposition to the striking out application.

33.  It does not seem that the failure to proceed with the application was due to a lack of funds on the Trustee’s part.  The Trustee’s affirmation does not anywhere suggest this.  The only reference to any funding difficulty that appears in the Trustee’s evidence is the statement that there was a temporary funding problem that hindered the Trustee in his continuing investigations into the affairs of the Bankrupt for a short period.  However, the extensive investigations that the Trustee appears to have undertaken since August 2006 show clearly that any such difficulty could only have been a temporary in nature, and were not a factor for very long.

34.  I am bound to say that the content of much of the Trustee’s affirmation demonstrates what appears to be a fundamental misconception on the Trustee’s part as to the position in the period during which the interim suspension order is in force.  The Trustee appears to have treated the interim suspension order as if it were an order for suspension of the automatic discharge of the Bankrupt made after a determination of the objection on its merits, simply continuing with his investigations without any apparent appreciation of the need to bring his objection to a hearing.

35.  More seriously, there is no indication in the Trustee’s affirmation of any actual intention to progress the objection application.  The only steps that the Trustee says he envisages taking in the foreseeable future are further steps in the administration of the bankruptcy, such as an examination of the Bankrupt and third parties, and even these are said to be matters which the Trustee will only be ready to pursue in some six months to a year’s time – but in a year’s time, the Bankrupt would be on the verge of obtaining his discharge even if his automatic discharge had been suspended for the maximum period possible, as by then a further four years would already have elapsed.

36.  Against this background, I do not think any weight should be placed on the Trustee’s intimation that he is now ready to proceed with the objection to automatic discharge.  That statement comes very late in the day, and appears to have been something of an afterthought.  His application clearly is not yet ready for hearing.  Although the Trustee has filed considerable evidence (both in 2005 and recently) dealing with the grounds on which he relies, the Bankrupt has yet to deal with such grounds in any meaningful way.  The Trustee’s suggestion, made both in his affirmation and in submissions made on his behalf, that the Bankrupt has done no more than to make a series of general denials, which should be given little weight, is, to my mind, without merit.  The only evidence that the Bankrupt has filed in opposition to the Trustee’s substantive application was filed at a time when he was unrepresented, and more importantly, at a time after the direction had been given (on the Trustee’s application) for the first part of the Trustee’s application to be dealt with first.  There was thus no need for the Bankrupt to have dealt in any detail with the Trustee’s allegations made in support of the second part of his application.

37.  If the Trustee’s application were to be permitted to proceed, it would be necessary for the Bankrupt to file his evidence in response, after which the Trustee might well wish to file evidence in reply.  This would require at least a further six weeks, after which the matter would have to be listed for hearing.  It is unlikely that it could be resolved much before the end of this year, or more likely in the first part of 2009, by which time the Bankrupt will have had his bankruptcy extended in a de facto sense for over three and a half years.

38.  The Trustee has (as I have noted earlier) also suggested that the Bankrupt has been guilty of inaction as well, as he could have sought the restoration of the Trustee’s application.  This too, is an unmeritorious suggestion.  Although theoretically either party could have applied for restoration of the proceedings, it should have been clear from the last paragraph of my earlier judgment that it was the Trustee who had been told to take steps to restore it if he wished to do so.  In any case, The Bankrupt was not wholly inactive – he did write to the Trustee’s solicitors in January 2007, asking what the Trustee’s position was, and protesting at the delay in progressing the Trustee’s application.  I do not see that he should realistically have been expected to have himself sought its restoration for hearing.

39.  To my mind, the Trustee’s evidence clearly demonstrates that the Trustee had, by some time after August 2006, no real intention of proceeding with his application, and certainly not with anything like reasonable despatch.  Rather, he appears to have assumed that he was entitled to carry on with his investigations and any other matters which he regarded as more important, without taking any steps to progress his application.  His affirmation indicates that he has failed to have any regard to the fact that his position as trustee continued only by reason of the interim order which had been granted for the purpose of enabling his objection to be heard.  While it may be that a trustee may think it right to carry on with investigations in the period leading up to the hearing of an application to suspend automatic discharge and may be entitled to do so, I do not think that it can be right for him to do so without taking any steps to bring that application to a hearing and conclusion, so that the Bankrupt’s position can be made certain reasonably promptly.

40.  Thus, the delay that has occurred, combined with the absence of any attempt on the part of the Trustee to explain or excuse it and his carrying on of his investigations into the Bankrupt’s affairs without regard to the need to proceed with his own application, do amount, in my view, to an abuse of the court’s process by the Trustee.  It involves the use of the interim order granted by the court for purposes for which it was not intended.  This is not a case of substantial delay without more, but one in which the delay has been utilised in a way which involves a misuse of the court’s process and the orders granted by it.  It is clearly an exceptional case, and as such, one in which the power to strike out on the basis identified in Grovit v Doctor is available to the court.

41.  Mr Maurellet also relied upon my observation (in Re Law Pak Wai (unreported, HCB 10680/2002, Barma J, 7 March 2008) that the court will rarely decline to proceed with an application for suspension of automatic discharge on the basis of an alleged abuse of process by the trustee.  However, the circumstances in that case were very different – the abuse alleged was in relation to the manner in which the trustee had brought many such applications without considering, as he should have done, whether or not each of the applications in fact merited any suspension of automatic discharge.  That is, I think, a very different situation from that which is presented here, where the abuse relates to the manner in which the application has been made and pursued (or, more accurately, not pursued).

42.  It also seems to me that there has been an inordinate and inexcusable delay on the part of the Trustee in pursuing his application.  The delay of 21 months is clearly inordinate.  In the absence of any explanation or excuse proffered by the Trustee (and there is none) it is just as clearly inexcusable.

43.  As to whether or not the Bankrupt has suffered prejudice, I am not persuaded by Mr Maurellet’s submission that he has suffered no identifiable prejudice.  While it may be that there is no prejudice to the Bankrupt in the sense that evidence which may have been available to him is no longer available, it does seem to me that the prolongation of his bankruptcy, without any determination that his automatic discharge should be suspended is itself prejudicial, since he remains under the disabilities of a bankrupt throughout the time that the interim order is in force.

44.  Thus, on this basis also, I am satisfied that the Trustee’s application is susceptible to being struck out.

45.  Are there other countervailing factors that should be taken into account which suggest that the court should exercise its discretion against striking out the Trustee’s application?

46.  This, I think, is where Mr Maurellet’s other points come in.  I have already dealt with the argument that there has been no prejudice to the Bankrupt in paragraph 43 above.  It is, in any event, not a necessary factor given that I have concluded that there has been an abuse of the court’s process by the Trustee.

47.  As for Mr Maurellet’s suggestion that the Bankrupt’s conduct in the course of his bankruptcy has been such as to merit a very long, and perhaps the maximum permissible, suspension, it seems to me that it is important to bear in mind that the court has, through no fault of the Bankrupt’s, not yet considered the application for suspension of automatic discharge on its merits.  That being so, it cannot be assumed that the Trustee’s allegations will all be established at the end of the day.

48.  However, even assuming that every one of the litany of complaints that is made against the Bankrupt is established, the maximum suspension that could be ordered would be four years.  The actual suspension that might be ordered would depend on the grounds for suspension that are made out, and on any explanation that the Bankrupt might have for them.  Realistically, any suspension that might be ordered in this event would be likely to be for between three and four years.  But as I have explained, by the time that the application is heard and determined, the Bankrupt will already have gone through a de facto suspension of his discharge for over three and a half years.  In these circumstances, I do not think that this is a particularly significant factor.

49.  Finally, as for the suggestion that the matter should proceed, notwithstanding the delay, because the public interest calls for it, the argument appears to proceed on the basis of the seriousness of the Bankrupt’s alleged failings.  This is simply another way of putting the point which I have just dealt with.

50.  Further, given the delay which has already taken place, and the fact that the de facto suspension which the Bankrupt has already been subjected to is already in excess of three years, I do not think that there would be any particular public interest to be served in permitting this matter to proceed simply because the Trustee has now, for reasons which he has not thought it necessary to explain, apparently decided that he wishes and is ready to proceed with his application.

51.  Thus, I do not think that the other factors adumbrated by Mr Maurellet assist the Trustee.  I am therefore satisfied that it would be appropriate, in the circumstances of this case, to bring the Trustee’s application to a conclusion by striking it out on the bases explained above (although it was not, I think, an abuse of the process when it was first launched).  In taking this course, I stress the exceptional nature of this case, in which there has been very substantial delay, coupled with a lack of explanation or justification, and I do not suggest that such applications should be made, or will be granted, as a matter of course.

52.  So far as costs are concerned, I think that the costs of this application by the Bankrupt should follow the event.  However, given that I am not of the view that the Trustee’s application was an abuse from the outset, I do not think it would be appropriate to require the Trustee to bear the costs of the rest of his application, in respect of which the Bankrupt will, in any event, have incurred little costs, as he was not, until recently, legally represented.  I shall  therefore make the following costs orders nisi.  The costs of and occasioned by this application are to be paid by the Trustee to the Bankrupt, to be taxed on the party and party basis if not agreed.  So far as the costs of the Trustee’s application, which has now been dismissed, are concerned, there will be no order as to costs.

HCB 345/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCYPROCEEDINGS NO. 345 OF 2001

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J U D G M E N T

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1.  This was an application by Mr Alan Chung Wah Tang, one of the joint and several trustees in bankruptcy (“the Trustee”) of Mr Lee Siu Fung Siegfried (“the Bankrupt”) seeking a declaration that the relevant period for the Bankrupt’s discharge from bankruptcy has ceased to run pursuant to section 30A(10) of the Bankruptcy Ordinance (“the Ordinance”), as it was said that the Bankrupt had departed Hong Kong shortly after the making of the bankruptcy order against him on 8 May 2001, without providing the Official Receiver (who was then his trustee in bankruptcy) with his itinerary and a contact address, as required by section 30A(10)(b)(i) of the Ordinance.

2.  The Bankrupt having been made bankrupt on 8 May 2001, and this being the first occasion on which he had been made bankrupt, his bankruptcy would ordinarily have come to an end by his being automatically discharged on 8 May 2005, four years after the making of the order (see sections 30A(1) and (2) of the Ordinance).  However, on 5 May 2005, the Trustee took out an application by summons seeking two forms of relief.  First, under paragraph 1 of the summons (as amended pursuant to my order of 26 May 2006), the Trustee sought a declaration as to the period for which the relevant period had ceased to run, pursuant to section 30A(10).  Second, under paragraph 2 of the summons, the Trustee sought an order that the relevant period should cease to run for a period of four years or such other period as the court might think fit, on the eight grounds stated in that paragraph of the summons.

3.  When the matter first came before Master S Kwang on 23 June 2005, he adjourned paragraph 1 of the summons to a date to be fixed for directions as to its further progress to be given by the Bankruptcy Judge, and adjourned paragraph 2 of the summons sine die with liberty to restore.

4.  No doubt he took this course because he was of the view that it was desirable to determine the question raised by paragraph 1 of the summons first, since depending on its determination, it might prove to be premature to deal with the question raised by paragraph 2.  The procedure for discharge from bankruptcy is governed by sections 30, 30A and 30B of the Ordinance.  Under section 30, a bankruptcy commences on the day that the bankruptcy order is made against the bankrupt, and continues until the bankrupt is discharged under section 30A or 30B.

5.  Section 30A deals with automatic discharge from bankruptcy, which was introduced by amendments made to the Ordinance in 1996.  The effect of sections 30A(1) and (2) is that (subject to the other provisions of section 30A) a first-time bankrupt will be discharged four years after the date on which the bankruptcy order against him is made (this period is defined as “the relevant period”).  However, such discharge is not a certainty, for other provisions of section 30A provide means by which the relevant period may be extended.

6.  Under section 30A(3) it is possible for the bankrupt’s trustee or creditors to object to his discharge, on one or more of the grounds specified in section 30A(4).  If the court is satisfied that the objection is valid, it may, at its discretion, extend the period of the bankruptcy by ordering that the relevant period shall cease to run for a period, to be specified in its order, of up to a further four years in the case of a first-time bankrupt.  In effect, the period of the bankruptcy may be extended for up to a total of eight years in an appropriate case.

7.  Further, section 30A(10)(b)(i) provides that in the case of a bankrupt who after the commencement of his bankruptcy leaves Hong Kong without notifying his trustee of his itinerary and where he can be contacted, the relevant period shall (notwithstanding sections 30A(1), (2) and (3)) not continue to run during the period he is absent from Hong Kong and until he notifies the trustee of his return.  In such a case, the relevant period of four years might not in fact expire until well after four years have elapsed from the date of the bankruptcy order.

8.  Whereas under sections 30A(3) and (4), there is an extension of the relevant period at the end of the four years, the effect of section 30A(10) is that, where it applies, the four years will not be regarded as having expired, taking account of periods of the bankrupt’s absence from Hong Kong without complying with the requirements of this subsection.

9.  In this case, it was the Trustee’s contention that the Bankrupt had left Hong Kong on the day after the bankruptcy order was made against him, without notifying the Official Receiver of his itinerary or where he could be contacted, and that, on one view of the matter, the relevant period had ceased to run at that point, and had never resumed running.  In the event, as the evidence developed, it was the Trustee’s contention that a very substantial portion of the four years that had elapsed since the making of the bankruptcy order in this case did not count towards the relevant period by virtue of the operation of section 30A(10)(b)(i).

10.  Against that background, it is not surprising that Master Kwang should have thought it appropriate that the question of how much more of the relevant period remained to run should be dealt with before going on to consider whether or not that period should be extended pursuant to sections 30A(3) and (4) by reason of the grounds relied on by the Trustee in paragraph 2 of the summons.

11.  The matter then came before the court on 7 November 2005.  However, at that point, the effect and constitutional validity of section 30A(10)(b)(i) was the subject of consideration in a pending appeal before the Court of Appeal in other bankruptcy proceedings (Re Chan Wing Hing, CACV 153/2005), and it was agreed that the application should be adjourned pending the delivery of the Court of Appeal’s judgment.  In the event, that judgment was handed down on 16 January 2005, and the application restored.

12.  At the end of the hearing before me, Ms Ismail, appearing for the Trustee, informed me that the decision in Re Chan Wing Hing was the subject of a further appeal to the Court of Final Appeal, in FACV Nos. 7 and 8 of 2006, which was due to be heard within a few weeks, on 26 June 2006.  In the event, the hearing in fact took place on 6 July 2006, and judgment was handed down on 20 July 2006.  By its judgment, the Court of Final Appeal declared section 30A(10)(b)(i) of the Ordinance unconstitutional, as it amounted to a disproportionate infringement of the right to travel provided for by Article 31 of the Basic Law and Article 8(2) of the Bill of Rights.

13.  In the light of that decision, section 30A(10)(b)(i) is of no effect, and cannot therefore affect the running of the relevant period.  That being so, there is no basis on which any declaration can or should be made under paragraph 1 of the Trustee’s summons.

14.  Following the handing down of the Court of Final Appeal’s judgment, on 24 July 2006, the solicitors acting for the Trustee indicated that they wished to make submissions as to the appropriate orders to be made in the light of that judgment.  Such submissions were received on 11 August 2006.  They requested that the Trustee be given leave to withdraw his application under paragraph 1 of the summons, and that costs be reserved, on the basis that some part of the costs incurred to date would have been incurred in any event, as paragraph 2 of the summons remains to be dealt with, and some of the evidence filed by the parties went to both parts of the summons.  By letters dated 27 July and 11 August 2006, the Bankrupt objected to this course, and urged the immediate dismissal of the entirety of the summons.

15.  Given the order of Master Kwang, which was, for the reasons which I have given, entirely understandable in the circumstances, it is quite clear that the merits of the Trustee’s application under paragraph 2 of the summons have not yet been considered.  It therefore would not be appropriate to dismiss the summons altogether.

16.  In the circumstances, the appropriate course would probably be to make no order in relation to paragraph 1 of the summons.  As the Trustee now wishes to withdraw that part of the summons, I shall give him leave to do so.  The costs referable to that part of the summons will be reserved.

17.  Should the Trustee wish to pursue the relief sought by paragraph 2 of the summons, he may take steps to have it restored for hearing, so that directions for its further progress may be given.