Bankruptcy Proceedings2002

RE CHENG CHAO MING

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65967-EN-2009-05-26

CHINA MERCHANTS BANK CO LTD v. CHENG CHAO MING

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HCB 18932/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY NO. 18932 OF 2002

_________________________

BETWEEN

	CHINA MERCHANTS BANK COMPANY LIMITED	Applicant
	and
	CHENG CHAO MING	Bankrupt

_________________________

Coram : Before Master Hui in Court

Date of Hearing : 13^th March and 7^th May 2009

Date of Decision : 7^th May 2009

Date of Handing Down Decision: 26^th May 2009

_______________

D E C I S I O N

_______________

Introduction

1. This is an application on the part of the China Merchants Bank Company Limited (“the Applicant”) by way of summons filed herein dated 11^th November 2008 for an order suspending the running of the relevant period for the Bankrupt’s discharge pursuant to section 30A(3) of the Bankruptcy Ordinance, Cap 6 (“ the Application”). The grounds as stated in the Summons are that (i) the discharge of the Bankrupt would prejudice the administration of his estate; (ii) the Bankrupt has failed to co-operate in the administration of his estate; and (iii) the conduct of the Bankrupt, either in respect of the period before or the period after the commencement of the bankruptcy, has been unsatisfactory.

2. The Bankrupt opposed the application while the Trustees adopted a neutral stance.

3. The Bankruptcy Order against the Bankrupt was made on 4^th December 2002. On 11^th November 2006, the Trustees of the estate of the Bankrupt (“the Trustees”) took out an application pursuant to section 30A of the said Ordinance to object to the automatic discharge of the Bankrupt. Master Yu granted the application on 25^th July 2007 and ordered that the relevant period do cease to run for a period of 2 years commencing 3^rd December 2006. In other words, but for the present application, the Bankrupt would have been discharged from bankruptcy on 4^th December 2008.

4. In support of this Application, the Applicant has filed 3 affirmations of Mr. GAN Kun dated 11^th November 2008, 19^th January 2009 and 18^th February 2009 respectively. The Bankrupt relied on his two affirmations dated 27^th November 2008 and 12^th March 2009. Mr. Alan Tang, one of the joint and several trustees, also filed an affirmation dated 10^th December 2008 to provide some background information of this matter.

5. At the conclusion of the hearing on 7^th May 2009, I made an order suspending the running of the relevant period for 18 months and said that reasons be given later. I now give my reasons.

Preliminary Issue - Jurisdiction

6. This Application was first heard before me on 13^th March 2009. The Bankrupt raised a preliminary issue that the Court does not have jurisdiction to entertain this Application. Mr. To, Counsel for the Bankrupt, submitted that s30A did not permit multiple applications. Since the Trustees had objected to the discharge once, the Applicant was not entitled to bring this Application. I rejected his submission. There is nothing in the legislation stating that the provision can only be relied on once throughout the bankruptcy period. If Mr. To’s submission is right, it would mean that once the Court had suspended the running of the relevant period, the Bankrupt can freely ignore his duties as a bankrupt for the rest of the bankruptcy period without any fear of any adverse consequences.

Applicant’s Complaints

7. Mr. Liu, Counsel for the Applicant, identified 6 categories of complaints. They are:

(i) The Bankrupt failed to inform the Trustees of the transfer of his interests or rights in 西安秦都酒店 (“Xian Hotel”).

(ii) The Bankrupt failed to disclosed what consideration he had received in such transfer and to remit such consideration to the Trustees.

(iii) The Bankrupt failed to disclose and remit an account to the Trustees of remunerations he received from Xian Hotel and 西安城市酒店 (“Xian City Hotel”) by reason of his office as legal representative of these two hotels.

(iv) The Bankrupt did not disclose his benefits received from Xian Hotel to the Trustees in that the hotel paid interest in the sum of RMB 290,000 to 通惠公司 on behalf of and for the benefit of the Bankrupt.

(v) The Bankrupt did not disclose his benefits received from Xian Hotel to the Trustees in that the hotel paid legal fee in the sum of RMB 120,000 to 康達律師事務所 on behalf of and for the benefit of the Bankrupt.

(vi) The Bankrupt failed to co-operate in the administration of the estate in respect of the land use rights of 北京城市賓館 (“Beijing City Hotel”) in that the Bankrupt failed to procure a settlement agreement with the Military Police and refused to accept service of certain legal documents in relation to certain legal proceedings in the Mainland.

The 1^st and 2^nd Complaint

8. There is no dispute that the Bankrupt, through a company known as King Yuen (香港京遠投資發展有限公司), had beneficial interest in the Xian Hotel. According to the minutes of the first creditors’ meeting, the Trustees noted that the Xian Hotel is a joint-venture project owned by King Yuen and 西安通惠實業公司. King Yuen has 2 shareholders: Wonderwide Consultants Limited (99%) and Madam Cheung Lai Na (1%). The Trustees believed that Madam Cheung was the girlfriend of the Bankrupt. Wonderwide Consultants Limited is a BVI company with Jenson International Inc (“Jenson”), once a listed company in the USA, as its sole shareholder. The Bankrupt owned 22.5% interest in Jenson. It should be noted that while there is no independent evidence to support the above, the Bankrupt did not deny this.

9. According to the minutes of the second creditors’ meeting, the Trustees noted that the Bankrupt did tell the Trustees that his interests in the Xian Hotel had been transferred from King Yuen to Jenson in 1998. There was however no mention of how the interest was transferred to Jenson and for what consideration. In the same minutes, the Trustees further noted that the Bankrupt informed the Trustees that his interest in King Yuen had been transferred to another party in 2002. There is, once again, no mention of how the interest is transferred. There is also no mention of the identity of the transferee. In the Bankrupt’s 2^nd affirmation, he said that all of his shareholdings in the Xian Hotel were injected into Jenson in 1998 and he had explained that to the Trustees. The Bankrupt did not raise any issue in relation to the contents of these two minutes. In other words, there is no dispute that all along the Bankrupt had and still has interest in the aforementioned companies as noted in the said minutes.

10. In a letter from the Xian Hotel (produced as exhibit CCM-1 to the first affirmation of the Bankrupt), it was stated that at early 2003, the Bankrupt “將秦都酒店徹底移交給中方 - 通惠實業公司后就再也不是酒店的股東”. Mr. Liu submitted that, in the light of the letter, the Bankrupt, to say the least, retained his interest in the Xian Hotel until early 2003. It contradicted his version given to the Trustees that he disposed of his interest in 1998.

11. Mr. Liu also referred the Court to a transaction in 2005 between King Yuen and 2 companies in the Mainland. Under this transaction, King Yuen sold its interests in the Xian Hotel for not less than RMB 8.5 millions.

With this, Mr. Liu submitted that it was until 2005 that the Bankrupt disposed of his interest in Xian Hotel.

12. The Bankrupt, in his 2^nd affirmation, explained that the letter referred to final transfer of the management rights conferred upon the Bankrupt by Jenson but not transfer of shares. Further, such transfer took place in early 2002 but not in early 2003. He went on to explain that after the transfer of shares in 1998, Jenson conferred upon himself and other persons the right to continue to manage the Xian Hotel. Nevertheless, he received nothing for managing the hotel except that he was allowed to use the hotel facilities when he went back there to work. Apart from these, the Bankrupt did not explain anything about the 2005 transaction. It should be noted that it is not the Bankrupt’s case that he does not have any interest in Jenson or other companies aforesaid and thus he has no interest in the Xian Hotel. Of course, even if the Bankrupt runs his case in this way, he still has to produce documents to substantiate his version.

13. I do not accept the explanation of the Bankrupt. If what the Bankrupt had said were true, it is not difficult at all for him to produce documentary evidence to support his version. He can also ask the Xian Hotel to write again to explain the situation. However, there is not even a single sheet of paper from the Bankrupt on this issue. The 2005 transaction clearly shows that the Bankrupt is telling a lie as to when he disposed of his interest in the Xian Hotel. It is my ruling that he disposed of the said interest in 2005 as evidenced by the transaction record produced as exhibit GK-17.

14. It is also clear that the Bankrupt failed to disclose this transaction to the Trustees and failed to account for the consideration he had received under the 2005 transaction. I found that the Applicant has established these complaints.

The 3^rd Complaint

15. I do not accept the explanation of the Bankrupt that he did not receive any remuneration to manage the hotels. There is no explanation as to the relationship between him and Jenson (though he did not dispute his interest in Jenson); no explanation why Jenson conferred management rights to him; and no explanation as to why he was willing to work for nothing. The Bankrupt’s version is a typical bare assertion without substance. I found that the Applicant has proved this complaint.

4^th and 5^th Complaint

16. These complaints came from the auditor’s report of the Xian Hotel for the financial year ending December 2005. It was stated in the report that the hotel “代老板付通惠公司借款利息29萬元, 代老板付康達律師事務所款12萬元”. Mr. Liu submitted that since the Bankrupt is the legal representative of the hotel, “老板” must mean the Bankrupt.

17. The Bankrupt did not deal with this allegation at all. The Bankrupt did not tell the Court in a positive manner that he is not the “老板”. It is not difficult at all for he to explain if he is not. He can always ask the hotel to clarify for him. Yet, there is nothing to rebut the Applicant’s submission.

18. Without any plausible explanation from the Bankrupt, it is my ruling that the Applicant has also proved the 4^th and 5^th complaints.

The 6^th Complaint

19. This matter has a long history. The Bankrupt holds 97% of the shareholding of one Chaoming Limited (“Chaoming”) which in turn owns 30% of the Beijing City Hotel. The other 70% is owned by Beijing Foreign Enterprises Services Group Company Limited (“FESCO”). In other words, the Bankrupt indirectly owns around 30% of the Beijing City Hotel. Chaoming is in liquidation. As a creditor of Chaoming and the Bankrupt, the Applicant claimed to have a charge over the interest of Chaoming in the Beijing City Hotel. Such interest was valued at around RMB 200 millions in 2007.

20. Over the years, the Applicant was eager to realize the 30% interest. Nevertheless, it is submitted that it is difficult to do so without the co-operation of the Bankrupt. First, the disposal must comply with the Chinese law as the hotel is in the Mainland. Second, notwithstanding the liquidation of Chaoming, the Bankrupt remains as the legal representative of Chaoming. Third, there are certain disputes between the lessor of the land on which the hotel is situated and FESCO. It is submitted that as the Bankrupt had his connections in the Mainland and had relationships with the lessor, the Military Police, the Bankrupt should assist in settling the disputes so that the 30% interest can be disposed of.

21. Mr. Liu submitted that the Bankrupt has failed to use his best endeavour to procure a settlement of the dispute and thus the Court should suspend the running of the relevant period. I do not accept his submission. While a bankrupt has a positive duty to co-operate with the trustees to administer his estate, I do not think that the bankrupt has any duty to assist the trustees to realize any asset of his estate or to do anything to enhance their values. So far a bankrupt has done all he has to do in handing over his assets or making his assets available to the trustees for administration or disposal, he has fulfilled his duty in this regard. Just take an example. If the asset in question is a watch and it has broken down; and if it so happens that the bankrupt knows how to repair the watch, does it mean that he has the duty to repair the watch so that it can be sold at a higher price? The answer must be no. It will be a different story if the bankrupt hands over his watch to the trustees in a locked box without also handing over the key. In such situation, the bankrupt effectively has failed to hand over the watch.

22. In our present case, even accepting the submission of the Applicant in full, the Bankrupt may only be able to settle the disputes and there is no evidence that he is a must to resolve the disputes. Further, the Applicant is in fact asking the Bankrupt to do something to make the asset, i.e. the 30% interest, more valuable. For these reasons, I do not accept that there is any substance under this head of the complaint.

23. This is however not the end of the Applicant’s complaint here. It is the Applicant’s case that on 4^th April 2007, the Guangzhou Railway Transport Intermediate Court (“the Intermediate Court”) granted a Civil Adjudication Decision freezing the interest of Chaoming in the Beijing City Hotel. With the said freezing order, the Applicant is able to sell the interest by auction provided that certain legal formalities are complied with including the service of certain legal documents upon the Bankrupt. The Applicant now complains that the Bankrupt did refuse to accept service of the legal documents and makes reference to an incident on 23^rd October 2008. On that occasion, the Applicant managed to invite the Bankrupt and a Ms. So (representatives of the Trustees) to attend a meeting with the representatives of the Applicant. During that meeting, two judges of the Intermediate Court attended the office of the Applicant to mediate the matter. There was then a private talk between the Bankrupt, Ms. So and the said judges. After that, the judges revealed that the Bankrupt refused to sign any court documents.

24. For this issue, the Bankrupt said that all over the years, the representatives of the Applicant, who knew the contact phone number and address of the Bankrupt, had been in contact with him. The Bankrupt accepted that the said judges did talk to him and he refused to sign some documents as he believed that he did not have the capacity of so doing.

25. The Bankrupt however did not explain clearly why he held such belief that he was not in the position to accept service of the court documents. Should the Bankrupt be co-operative in this aspect, there should be no difficulty on the part of the Bankrupt to put in evidence to refute the allegations put forward by the Applicant. There is also nothing from the Bankrupt whatsoever suggesting that he was and still is willing to accept service of the documents. There is also no suggestion or proposal as to how the documents can be serviced upon him.

26. For these reasons, it is my ruling that the Applicant has also proved the 6^th complaint as the Bankrupt failed to accept service of the court documents and thus the Applicant is not in the position to dispose of the interest in the Beijing City Hotel by auction.

Exercise of Discretion

27. In Fred Lee v Tong Yuk Kin (HCB 22870/2002, 20^th June 2007), Deputy Judge To stated that “the question of whether the conduct is unsatisfactory is whether the conduct is one which the society is prepared to condone without expressing disapproval. This question is to be answered by the reasonable man’s test”. The Bankrupt lied to the Trustees about the disposal of his interest in the Xian Hotel which worth millions of RMB; concealed the transaction in 2005; failed to disclose the remunerations and benefits he obtained from the Xian Hotel; and refused to accept service of court documents are clearly unsatisfactory conduct. These also demonstrated that the Bankrupt failed to co-operate in the administration of the estate. As the Applicant has proved the grounds of objection, I have to consider whether I should exercise my discretion to suspend the running of the relevant period.

28. The exercise of the discretion was described in this manner by Smithers J of the Federal Court of Australia, General Division Bankruptcy District of the State of Victoria in Re Zion; Ex parte: The bankrupt, unreported, 26 September 1986, at para. 6:

“In my view it is the policy of the law that bankruptcy should in most cases come to an end at three years and when there is an objection at the end of five years from the decree for sequestration of the estate, but that in a case where public interest so requires the discharge may be delayed or made conditional according to the requirements of the public interest in the circumstances of the case. Public interest will require that a discharge be delayed or made conditional if the conduct revealed or the character of the bankrupt indicates that the return of the bankrupt to the commercial world in full freedom might involve unacceptable risk to persons likely to be engaged in commercial relations with him in the future. In other words, it is for the applicant to show that balancing the policy of the law in favour of the return to commercial life of a bankrupt against the dangers that might accrue to the public from full commercial capacity of the applicant, it is appropriate that the discharge be granted.”

29. This was adopted in Hong Kong by Kwan J. in Fred Lee v Leung Chin Yeung [2007] 1 HKC 164.

30. In Tong Yuk Kin, Deputy Judge To at paragraph 21 of his judgment stated that:

“[I]n the exercise of its discretion under section 30A(3), the court should take a balanced view. It should balance the interest of the bankrupt, the interest of his creditors, the public interest in the bankrupt’s rehabilitation and the demands of commercial morality underpinning the bankruptcy laws. It should take into consideration all the circumstances leading to the bankruptcy and not just the conduct complained of. It should consider the seriousness of the conduct, the bankrupt’s conduct after the commencement of bankruptcy, the degree of co-operation he has shown with the trustee during the relevant period and the effort he has contributed to repaying his debt. In an appropriate case, the court should consider the risk to the commercial community should the bankrupt be allowed to resume full commercial activity. The discretion to suspend the running of the relevant period should not be lightly exercised. But in its balancing exercise, the court should not allow the bankruptcy regime to be abused.”

31. The Bankrupt engaged in a series of misconducts. The present case is one which calls for a suspension.

32. I have taken into account what the Court of Appeal said in Re Leung Yat Tung (No. 2) [2007] 4 HKC 192. I noted that the Bankrupt did promise and in fact had signed something to show his willingness to co-operate with the Trustees. I also noted that the Bankrupt did co-operate with the Trustees in other aspects. I have considered all the circumstances of this case and come to the view that a further suspension of 18 months is appropriate.

33. The Bankrupt has to personally pay costs of this application including all costs reserved to the Applicant and the Trustees to be assessed by summary assessment under O62 r 9A(1)(a) if not agreed. Certificate to Counsel. The costs is payable after the Bankrupt is discharged from bankruptcy. The parties have to make an appointment for summary assessment of costs within 14 days (from 7 May 2009) should they fail to agree on the quantum.

(K.H. Hui)
Master

Mr. M. K. Liu instructed by Paul Hastings Janofsky & Walker for the Creditor/the Applicant

Mr. K. To instructed by Soloman C. Chong & Co for the Bankrupt.

Mr. P. Liu of Wilkinson & Grist for the Trustee of the Bankrupt

57883-EN-2007-07-25

RE CHENG CHAO MING

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HCB 18932/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 18932 OF 2002

_________________________

RE: CHENG CHAO MING

_________________________

Coram : Before Master Roy Yu in Court

Date of Hearing : 26 June 2007

Date of Decision : 25 July 2007

______________________

D E C I S I O N

______________________

Background

1. A Bankruptcy Order was made against the Bankrupt, Cheng Chao Ming on 4 December 2002. He is a first time bankrupt and in accordance with section 30A(1) and (2) of the Bankruptcy Ordinance (“the Ordinance”), he would be discharged from bankruptcy 4 years after he was adjudicated bankrupt (“the relevant period”), that would be 4 December 2006.

The Application

2. Pursuant to section 30A(3) of the Ordinance, if the Court is satisfied that there is a valid objection under section 30A(4), the relevant period may be extended, for a first time bankrupt, to not more than 4 years. It is helpful to set out the sub-section–

(3) Where the court is satisfied on the application of the trustee or one of the bankrupt's creditors that a valid objection based on one or more of the grounds set out in subsection (4) has been made, the court may order that the relevant period under this section shall cease to run for such period, not exceeding, in the case of a person who-
(a) has not previously been adjudged bankrupt, 4 years; or
(b) has previously been adjudged bankrupt, 3 years,
as may be specified in the order.”

3. It is not disputed that this is a discretionary power of the Court. The applicant has to satisfy the Court, firstly, that a ground under section 30A(4) exists; and secondly, the Court should exercise its discretion under section 30A(3) to suspend the relevant period from running, in effect to extend the period of bankruptcy.

4. On 11 November 2006, Alison Wong Lee Fung Ying, a joint and several trustee of the property of the Bankrupt (“the Trustee”) applied by Summons under section 30A(3) of the Ordinance to object the automatic discharge of the Bankrupt. The grounds relied on by the Trustee are as follows:

(a) that the Bankrupt is likely to be able to make a significant contribution to his estate;
(b) that the discharge of the Bankrupt would prejudice the administration of the estate; and
(c) that the Bankrupt has failed to prepare an annual report of his earning and acquisitions for the Trustee.

5. In support of the application, Ms. Wong filed her affirmation on or about 11 November 2006. The application first came before Master Kwang on 1 December 2006 when the Bankrupt was legally represented. The application was adjourned for argument. An interim order was granted suspending the automatic discharge of the Bankrupt pending determination of the Summons.

6. Master Kwang also gave directions on the filing of affirmation. Ms. Wong filed a 2^nd Affirmation on or about 22 December 2006 but the Bankrupt has not filed any affirmation. Further, by order of Master Kwang, the Applicant filed the 1^st Affirmation of Alan Tang (the other trustee of the property of the Bankrupt) in support of the application.

7. I heard the substantive argument of the Summons. Shortly before the hearing, the Bankrupt acted in person. All notice of the hearing had been served on his solicitor before he acted in person. The Bankrupt did not appear before me and I proceeded with the application in his absence.

The Ground in Support

8. Mr. Cheuk instructed by Messrs. Wilkinson & Grist appeared for the Trustee. He first referred me to section 30A(4)(a) of the Bankruptcy Ordinance –

“ …that the bankrupt is likely within 5 years of the commencement of the bankruptcy to be able to make a significant contribution to his estate;”

9. It is stated in the said affirmation of Ms. Wong that the Bankrupt holds 97% of the shareholding of one Chaoming Limited (“Chaoming”), and his wife owns the remaining 3%. Chaoming owns 30% of one Beijing City Hotel (‘the Hotel”), and the other 70% is owned by a PRC partner, Beijing Foreign Enterprises Services Group Co. Ltd. (“FESCO”). Thus, the Bankrupt has indirectly a 30% interest in the Hotel.

10. Chaoming is now in liquidation. China Merchants Bank (“CMB”) is the largest single creditor of the Bankrupt and Chaoming, and claimed they had a charge over Chaoming’s 30% interest in the Hotel. They had difficulty in enforcing the charge as the Hotel itself is also subject to the post-judgment enforcement charges in respect of historical debt due to the PRC partner and various ongoing disputes between the PRC partner and the legal owner of the land regarding the land use rights.

11. Despite these legal entangles, CMB and the PRC partner agreed to co-operate with the Trustees of the Bankrupt to sell the Hotel which would be in the best interest to all parties.

12. According to the analysis by counsel, the worth of the Hotel would be at least RMB660 million. The Bankrupt’s interest in the Hotel would be around RMB198 million. And if the Hotel can be re-developed into a commercial shopping/office complex, its total worth would be around RMB1.1 billion and the net payment to the Bankrupt would still be a bit higher. For the purpose of this ruling, I adopt the former valuation of the worth of the Hotel.

Likely to be able to make a significant contribution to the estate

13. Mr. Cheuk submitted that RMB198 million is a significant contribution to the estate. He had made submission on the meaning of “likely” and “significant contribution”. I am grateful to counsel for his research as there is no direct authority on the interpretation of section 30A(4)(a). But for the following reason, I do not intend to make any ruling on the section.

14. I believe there could be strong argument that a sum of RMB198 million is significant, either on its own value, or in comparison to the estate. But I believe the major difficulty for Mr. Cheuk is whether the realization of the Hotel could be considered as a contribution from the Bankrupt.

15. Section 12 of the Bankruptcy Ordinance provides that on the making of a bankruptcy order, the Official Receiver shall thereby be constituted receiver of the property of the Bankrupt. By section 58, upon the appointment of a trustee, the property shall pass to and vest in the trustee appointed. The property forms the estate of a bankrupt for distribution to his creditors in accordance with the law. Notwithstanding the discharge under section 30A, the property would not re-vest in a bankrupt. In fact, section 30A(8) provides that a bankrupt, notwithstanding the discharge, has to assist his trustee for completing the administration of his estate.

16. I raised with Mr. Cheuk that as the Trustee is holding all the assets of the Bankrupt, that would include his shares of Chaoming. Any dividend payable from the estate of Chaoming (since it is in liquidation) upon sale of the Hotel would go directly to the Trustee. Such dividend, or any money received on realization of the Hotel, could not be considered as contribution to be made by the Bankrupt.

17. I repeat the wordings of section 30A(4)(a) - that the bankrupt is likely within 5 years of the commencement of the bankruptcy to be able to make a significant contribution to his estate. The ground should be anticipating the situation that a bankrupt is likely to be able to make a significant contribution within 5 years, over and above his estate.

18. Mr. Cheuk did not argue with me on this point. Rather, he pointed to the fact that the co-operation of the Bankrupt is a key factor for the success of the sale of the Hotel. He referred to his second ground of objection. In view of the above reasoning, I found the objection under section 30A(4)(a) not established.

Discharge of the Bankrupt would Prejudice the Administration of his Estate

19. Section 30A(4)(b) of the Bankruptcy Ordinance reads –

“ (b) that the discharge of the bankrupt would prejudice the administration of his estate;

20. It is stated in the 1^st Affirmation of Alan Tang and neatly summarized in the written submission of Mr. Cheuk the events and efforts to sell the Hotel, as follows –

“ Further, it is submitted that there is, to say the least, a reasonable prospect that there will be deal for the purpose of disposing the interests of the Hotel. The recent date of the negotiation shows clearly that such a deal is imminent:
(1) In the past 4 years, the Trustees have found various potential buyers. These included the He Qiao Group representing the Koo’s family in Taiwan, clients of Siyuan Investment & Management Consultants Co Ltd, Mandala Assets Solutions and Fullview Asia Ltd who all expressed interest in acquiring 100% of the Hotel.
(2) The Applicant again recently received a conditional offer from a Singapore-based listed company for 100% ownership of the Hotel. The investor is prepared to pay funds into an ascrow account pending completion subject only to the finalization of negotiations.
(3) It should be noted that what has hindered the realization of the Hotel in the past was only the land use rights disputes between the lessor of the land (“Military Police”) and FESCO.
(4) Prior to 28^th December 2006, FESCO refused to let the Bankrupt represent the Hotel in the settlement with the Military Police. However, as the former managing director of FESCO and the officers of the Military Police who set up the initial arrangement with the Hotel either deceased or retired, FESCO was not able to resolve the land use rights disputes.
(5) During the recent meeting on 28^th December 2006, it was however agreed by the Bankrupt and the FESCO that in view of the Bankrupt’s connections and relationship with the Military Police (the Bankrupt knows the former managing director of FESCO and the officers of the Military Police at the relevant time), the Bankrupt was authorized to represent the Hotel to settle the case with the Military Police.
(6) This decision therefore signifies a major progress in settling the disputes with Military Police.
(7) This is shown by the fact that the Bankrupt recently informed the Trustees that he had commenced discussions with the Military Police before the Chinese Lunar New Year 2007 and the Military Police had agreed in principle to settle the disputes out of court.
(8) When the land use rights disputes are resolved, the Trustees who had the past experience in receiving offers from various parties are confident that the Hotel will obtain a good price and contribute significantly to the estate.”

21. Mr. Cheuk submitted that this is a critical time when the Bankrupt’s effort to close the deal is indispensable by completing the negotiation with the Military Police. His discharge would prejudice the administration of the estate.

22. The administration of the estate would in the normal circumstances include collecting all the assets of the bankrupt and arranging the sale thereof and to distribute the proceeds among the creditors. In most of the reported cases, the bankrupts have not been cooperative with the trustee and thus hindering the collection of his estate. It would be obvious in such cases that the discharge would prejudice the administration.

23. But the operation of the section should not be limited to situation when the bankrupt is uncooperative. The administration of the estate, including any sale, is a process to realize the assets of the bankrupt to repay his creditors. There is an obligation on the part of a bankrupt to assist the Trustee and to provide his skill or, as in this case his connection with the relevant parties to the proposed sale of the Hotel to assist in the negotiation in the hope of a successful deal.

24. Surely, I appreciate that under section 30A(8), the Bankrupt has been required to assist the Trustee with the administration of the estate after his discharge. Hence, there must be evidence to suggest that on discharge, the Bankrupt may not cooperate. Mr. Cheuk submitted that upon discharge, the Trustee cannot ensure the cooperation from the Bankrupt.

25. In this particular case, the Bankrupt had been staying in PRC during most, if not all his period of bankruptcy. He had never provided the Trustee with a permanent correspondence address. Communication between the Trustee with the Bankrupt had to be done through telephone, fax, and meeting in PRC. This increased the difficulty of administration of his estate.

26. While the Bankrupt was cooperative in the sale of the Hotel, he had been defaulting in filing his annual statement. While this is a separate ground for suspending the relevant period, it is also a factor for considering if the administration would be prejudiced. Without the proper annual statement, the Trustee could not really conclude that the collection of property had been completed. And this is also a factor indicating that the Bankrupt had not been cooperative in certain aspect of his affair in the bankruptcy proceedings.

27. In conclusion, I accept the submission by counsel and found that the discharge of the Bankrupt would prejudice the administration of his estate and I therefore conclude that the Trustee had proved the ground on section 30A(4)(b).

Failure to Prepare an Annual Report of His Earnings and Acquisitions

28. Section 30A(4)(h) of the Bankruptcy Ordinance reads –

“ (h) that the bankrupt has failed to prepare an annual report of his earnings and acquisitions for the trustee.”

29. There can be no dispute that the Bankrupt had been in default of filing of his annual report for the first 3 years of his bankruptcy, until these proceedings. He then filed annual report saying that he had no income. On the other hand, he did admit in the report that he had been working for a trust fund in PRC with unstable income. If there had been unstable income, there would be some income. These annual returns filed are far from satisfactory.

30. Again I found that the objection on this ground established.

Discretion

31. Once one or more of the grounds under section 30A(4) are established, the discretionary power under section 30A(3) may be exercised. On how to exercise the discretion, it has been set out in a judgment of Smithers J of the Federal Court of Australia, General Division Bankruptcy District of the State of Victoria in Re Zion, Ex parte: the bankrupt, unreported, 26 September 1986, at paragraph 6:-

“ …but that in a case where public interest so requires the discharge maybe delayed or made conditional according to the requirements of the public interest in the circumstances of the case. Public interest will require that a discharge be delayed or made conditional if the conduct revealed or the character of the bankrupt indicates that the return of the bankrupt to the commercial world in full freedom might involve unacceptable risk to person likely to be engaged in commercial relations with him in future. In other words, it is for the applicant to show that balancing the policy of the law in favour of the return to commercial world of a bankrupt against the dangers that might accrue to the public from full commercial capacity of the application, it is appropriate that the discharge be granted.”

32. This passage has been adopted by Madam Justice Kwan in Fred Lee, trustee of the property of Leung Chin Yeung v. Leung Chin Yeung HCB8779/2002. Deputy Judge To in a judgment given on 20 June 2007 in HCB22870/2002, while agreeing with the approach of Madam Justice Kwan, added that “risk to commercial community is but one element of public interest to be considered and not the sole or determinant element. There are other elements of public interest which the court must take into account in the exercise of its discretion. One important element of public interest is that the bankruptcy regime should not be abused by being treated as a convenient debt clearing house…. Another element is the need to preserve commercial morality.”

33. Deputy Judge To further stated that “in the exercise of its discretion under section 30A(3), the court should take a balanced view. It should balance the interest of the bankrupt, interest of his creditors, the public interest in the bankrupt’s rehabilitation and the demands of commercial morality underpinning the bankruptcy laws. It should take into consideration all the circumstances leading to the bankruptcy and not just the conduct complained of.”

34. I agree entirely with the careful analysis of Deputy Judge To on how to exercise the discretion. And with this principle, I proceed to determine the period of suspension that I should give in the present case.

My Finding and Ruling

35. It is a well-established principle of law that “it is incumbent on the bankrupt to make full and frank disclosure and proffer all pertinent information regarding his assess and financial dealings to the trustee. …It is not good enough for a bankrupt to adopt a purely passive or reactive role, responding when asked in the expectation that with any luck, pertinent matters might be overlooked.” (Re Li Tat Kong [2000] 3 HKC 360).

36. It is clear in this case the Bankrupt was only concerned with his earlier discharge. He had at early stage suggested to the Trustee for sale of the Hotel (as can be seen in his letters to the Trustee “AW-1” and “AW-2” exhibited to the Affirmation of Alison Wong Lee Fung Ying). He can be considered to have co-operated with the Trustee in arranging the sale of the Hotel. But in other aspects, he was not co-operative. There had been letters of request for filing of the annual reports and he just ignored them.

37. The annual reports are important information for the Trustee to determine if there are other assets available for collection. The information contained in the reports filed is inadequate and incorrect. While the Hotel is a valuable asset, it is not for the Bankrupt to dictate how the trustee was to administer his estate. This ground alone call for a period of suspension.

38. Further, it is clear from the above that a period of suspension is required to ensure the cooperation of the Bankrupt in the sale of the Hotel. The overall period of suspension must be reasonable on balancing the interest of the creditors and the interest of the Bankrupt to return to the commercial world.

39. In conclusion, I would allow the application and order that the relevant period be suspended for a period of 2 years from the last day when he were to be discharged under section 30A.

40. On the question of costs, I would give an order nisi that the Bankrupt shall pay the costs of the Trustee after discharge, such costs to be taxed if not agreed. The order nisi shall become absolute within 14 days from today.

(Roy Yu)
Master of the High Court

Mr. C. Cheuk instructed by Messrs. Wilkinson & Grist for the Trustee.

Cheng Chao Ming, the Debtor, Absent.

The Official Receiver, Absent.

(3)	Where the court is satisfied on the application of the trustee or one of the bankrupt's creditors that a valid objection based on one or more of the grounds set out in subsection (4) has been made, the court may order that the relevant period under this section shall cease to run for such period, not exceeding, in the case of a person who-
	(a)	has not previously been adjudged bankrupt, 4 years; or
	(b)	has previously been adjudged bankrupt, 3 years,
	as may be specified in the order.”

(a)	that the Bankrupt is likely to be able to make a significant contribution to his estate;
(b)	that the discharge of the Bankrupt would prejudice the administration of the estate; and
(c)	that the Bankrupt has failed to prepare an annual report of his earning and acquisitions for the Trustee.

“	Further, it is submitted that there is, to say the least, a reasonable prospect that there will be deal for the purpose of disposing the interests of the Hotel. The recent date of the negotiation shows clearly that such a deal is imminent:
	(1)	In the past 4 years, the Trustees have found various potential buyers. These included the He Qiao Group representing the Koo’s family in Taiwan, clients of Siyuan Investment & Management Consultants Co Ltd, Mandala Assets Solutions and Fullview Asia Ltd who all expressed interest in acquiring 100% of the Hotel.
	(2)	The Applicant again recently received a conditional offer from a Singapore-based listed company for 100% ownership of the Hotel. The investor is prepared to pay funds into an ascrow account pending completion subject only to the finalization of negotiations.
	(3)	It should be noted that what has hindered the realization of the Hotel in the past was only the land use rights disputes between the lessor of the land (“Military Police”) and FESCO.
	(4)	Prior to 28^th December 2006, FESCO refused to let the Bankrupt represent the Hotel in the settlement with the Military Police. However, as the former managing director of FESCO and the officers of the Military Police who set up the initial arrangement with the Hotel either deceased or retired, FESCO was not able to resolve the land use rights disputes.
	(5)	During the recent meeting on 28^th December 2006, it was however agreed by the Bankrupt and the FESCO that in view of the Bankrupt’s connections and relationship with the Military Police (the Bankrupt knows the former managing director of FESCO and the officers of the Military Police at the relevant time), the Bankrupt was authorized to represent the Hotel to settle the case with the Military Police.
	(6)	This decision therefore signifies a major progress in settling the disputes with Military Police.
	(7)	This is shown by the fact that the Bankrupt recently informed the Trustees that he had commenced discussions with the Military Police before the Chinese Lunar New Year 2007 and the Military Police had agreed in principle to settle the disputes out of court.
	(8)	When the land use rights disputes are resolved, the Trustees who had the past experience in receiving offers from various parties are confident that the Hotel will obtain a good price and contribute significantly to the estate.”