PATRICK COWLEY AND ANOTHER (The Joint and Several Trustees in Bankruptcy of the Property of the Bankrupt) v. ALL POWERFUL HOLDING LTD AND ANOTHER

HCB 104/2017

[2022] HKCFI 3573

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS

NO 104 OF 2017

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DECISION

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Introduction

1.  In this decision, unless otherwise specified, page numbers in brackets are page numbers of Hearing Bundles B.

2.  In this case, Lau Yu also known as Jaffe Lau (“Lau”) was adjudged bankrupt on 5 September 2017 pursuant to a creditor’s petition.

3.  Lau is a first time bankrupt. According to sections 30A(1) and 30A(2)(a) of the Bankruptcy Ordinance Cap 6 (the “BO”), Lau should have been discharged from bankruptcy on 5 September 2021 (the “Automatic Discharge”). However, section 30A(3) of the BO provides that:

“(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 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.”

4.  This is an application of Lau’s Trustees-in-Bankruptcy (the “Trustees”) seeking an order to suspend the running of the relevant period for calculating the Automatic Discharge of Lau (the “Relevant Period”), ie to extend Lau’s bankruptcy (the “Application”). In the summons for the Application (the “Summons”), the Trustees referred to paras (b), (c), (d) and (g) of section 30A(4) of the BO which provide:

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

(2) that the bankrupt has failed to co-operate in the administration of his estate (Ground (c));

(3) that the conduct of the bankrupt, either in respect of the period before or the period after the commencement of the bankruptcy, has been unsatisfactory (Ground (d)); and

(4) that the bankrupt has committed an offence under section 129 or any of sections 131 to 136 of the BO (Ground (g)).

5.  The Application is supported by four affirmations of Patrick Cowley, one of the Trustees, filed herein on 25 June 2021 (“PC 11”), 17 November 2021 (“PC 15”), 17 May 2022 (“PC 16”) and 20 July 2022 (“PC 17”).

6.  Lau opposes the Application and filed two affirmations in opposition on 20 October 2021 (“LY 6”) and 17 June 2022 (“LY 7”).

7.  On 6 August 2021, I granted an interim order suspending the running of the Relevant Period pending determination of the Application or until further order. As such, Lau is still under bankruptcy as at the date of this decision.

Procedural history of the bankruptcy proceedings

8.  On 6 January 2017, The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) issued the bankruptcy petition against Lau (the “Petition”) for debts guaranteed by Lau and others arising out of banking facilities granted by HSBC to General Nice Resources (Hong Kong) Limited (“GNR”).

9.  On 5 September 2017, the bankruptcy order against Lau (the “Bankruptcy Order”) was granted. On 4 October 2017, the Trustees were appointed as the trustees of Lau’s estate in bankruptcy in a general meeting of creditors.

10.  On 26 September 2017, Lau appealed against the Bankruptcy Order to the Court of Appeal (the “CA”). The appeal was dismissed on 26 October 2018.

11.  On 29 June 2021, the Trustees filed a notice in Form 83 giving notice of intention to object to Lau’s Automatic Discharge (the “Form 83”) referring to the grounds stated in paras (b), (c), (d) and (g) of section 30A(4) of the BO. On the same day, the Trustees issued the Summons.

12.  As at the date of affirming PC 11 (ie 25 June 2021), the Trustees had received 10 proofs of debt claiming for a total sum of HK$1,579,266,332.99 against Lau’s estate. The Trustees had made no meaningful realization for Lau’s estate as at that date.

Applicable legal principles

13.  In Re Wong Hing Wah Michael (unrep, HCB 26018/2002, 12 October 2007) Barma J (as he then was) held at [14] of the judgment that:

“… … there are two stages involved when the court is considering the exercise of its powers under section 30A(3) [of the BO]. It is first necessary to determine whether one or more of the grounds mentioned in section 30A(4) has been established. If this is done, the court then moves on to consider whether or not, in the exercise of its discretion, a suspension of the automatic discharge that would otherwise have been available to the bankrupt should be ordered. It will not be in every case where a ground for suspension is made out that a suspension will be called for or imposed. In determining whether or not a suspension should be ordered, the court will have regard to all the circumstances of the case, including the nature of the acts complained of and the post-bankruptcy conduct of the bankrupt.”

14.  In Fred Lee v Lau Chi Kam [2008] 3 HKLRD 627, the CA held at [10] of the judgment that the discretion to suspend discharge of a bankrupt was to be exercised by considering two main objectives, namely:

(1) the rehabilitation of the bankrupt by allowing him to resume a normal life in society; and

(2) the public interest of ensuring that the return of the bankrupt to the commercial world will not carry with it the unacceptable risk to persons likely to be engaged in commercial relations with him and also that commercial morality is preserved.

15.  The above well-established principles guiding an application for suspension of discharge from bankruptcy had been confirmed by the CA in Re Lee Raymond Cho Min and Re Lee Priscilla Hwang (unrep, CACV 112/2014 and CACV 113/2014, 30 July 2014).

16.  It had been held in the Lau Chi Kam case (supra) that the test for determining whether the pre-bankruptcy order conduct of a bankrupt was “unsatisfactory” for the purpose of section 30A(4) of the BO was whether our society would be prepared to condone such conduct without any expression of disapproval. As stated in Re Qin Jun[2021] HKCFI 114 at [20], I am of the view that the same consideration shall apply to determine whether the post-bankruptcy order conduct of a bankrupt is unsatisfactory.

17.  The appropriate period of suspension shall commensurate with the gravity of the bankrupt’s conduct and 4 years is the maximum period under section 30A(3) of the BO for a first time bankrupt. (See Re Lok Wing Sang (unrep, HCB 1721/1997, 29 October 2002))

18.  In this case, I shall first look into the complaints of the Trustees made against Lau to determine whether the Trustees have established any of the section 30A(4) grounds stated in the Form 83. If so, whether I shall exercise my discretion to extend Lau’s bankruptcy period in the circumstances of this case. If so, for how long?

The Trustees’ complaints against Lau

19.  In PC 11, the Trustees set out their following complaints against Lau:

(1) non-cooperation of Lau;

(2) Lau’s scheme to defeat creditors’ claims;

(3) Lau’s attempts to impede the Trustees’ realization of his interest in various properties;

(4) Lau’s obstruction to the Trustees’ recognition in the United Kingdom (the “UK”);

(5) Lau’s breaches of section 129 of the BO.

20.  In respect of breaches of section 129 of the BO, the Trustees claimed in PC 11 that Lau had breached section 129(1)(a) and (c) of the BO. In PC 16, the Trustees further claimed that Lau had breached section 129(1)(f) of the BO.

21.  In PC 16, the Trustees also complained that Lau had failed to disclose alleged beneficial interest of his wife, Madam Tsang Wai Yee Terri (“Madam Tsang”), in various properties and/or assist the Trustees to deal with Madam Tsang’s claims.

22.  I shall first consider whether such complaints are established. If so, whether the established complaint(s) support an order extending Lau’s bankruptcy. If so, for how long.

(1) Lau’s non-cooperation

23.  In respect of their complaints against Lau for non-cooperation, the Trustees referred to the following matters:

(a) Lau failed to provide meaningful answers or information to questions put to him during his first interview with the Trustees on 30 October 2017 (the “Interview”);

(b) Lau denied ownership of any valuable property at the Interview;

(c) the Trustees had to take out summons on 12 February 2018 under section 29 of the BO (the “Examination Summons”) to compel Lau to provide information and documents requested by the Trustees; and

(d) Lau submitted his statement of affairs (the “SOA”) and annual statements of earnings and property acquired (the “A/S” or “A/Ss”) late.

(1a) Failing to provide meaningful answers or information to questions at the Interview

24.  Lau attended the Interview accompanied by Mr Juman Khan (“Mr Khan”), a solicitor of Huen & Partners (“H&P”). The Trustees complained that Lau failed to provide meaningful answers or information to almost all of the questions put to him at the Interview relating to his sources of finance and address.

25.  The Trustees complained that when Lau was asked who was supporting him financially since his bankruptcy, he vaguely replied that he borrowed money from his friends and family but refused to disclose further details.

26.  The Trustees further complained that when Lau was asked where he was staying and how to contact him, he replied vaguely that he was staying with friends and that he did not have a mobile number as the autopay for his mobile phone service had been cut but Madam Tsang told the Trustees at her interview with the Trustees that Lau had a PRC mobile number that he had access to.

27.  Lau requested the Trustees to send correspondence directed to him via H&P, his then solicitors, but refused to reveal the source of his funds for paying the fees of H&P. The Trustees’ investigation showed that Lau had an assistant, a Celia Chan, who helped him in dealing with various matters. Lau also retained services of an agent to prepare his income tax returns in the UK for the tax years 2018/2019 and 2019/2020 and an agent (ie Knight Frank LLP) to deal with some of his properties in London.

28.  Lau submitted that it was unfair for the Trustees to accuse him of providing vague replies and of having refused to disclose further details on the financial support he had been receiving since his bankruptcy. Lau stated in [52] of LY 6 that at the Interview, “I clearly stated that I had borrowed money from my friends and family. In the aforementioned unsteady state of mind, it was as complete an answer as I could provide because although I was grateful to have received some support from my friends and family, I was more worried about my long-term survival and whom I would need to turn to in future to assist me.”

29.  I am of the view that this is no explanation for Lau not providing details of the alleged financial support received by him to the Trustees at the Interview. In fact, Lau contradicted himself in [88] of LY 6 when he stated that: “The total loss of income consequently made me fully reliant on Madam Tsang in respect of my daily living and accommodation and this state of existence has now gone on for the past 4 years.” (Emphasis added) He was all along supported by Madam Tsang.

30.  Lau admitted that he did not provide his living address at the Interview to the Trustees but asked the Trustees to contact him through his then solicitors. Lau said that he had informed the Trustees that he had been staying with friends on a daily/weekly basis because Madam Tsang had asked him to leave his home and he did not want to abuse his friends’ magnanimity by disclosing too much personal information about them without their prior consent. Lau further stated that: “It was only subsequently, and after the First Interview, that I discovered that my wife, Madam Tsang Wai Yee (“Madam Tsang”) had arranged a PRC mobile number for me.” ([53] of LY 6)

31.  Lau’s explanation is simply defying common sense. What is the point for Madam Tsang arranging a PRC mobile number for Lau without telling Lau of the arrangements? If Madam Tsang would ask Lau to leave home leaving him without a shelter, would she arrange mobile number for Lau and fund Lau’s legal costs and fees of Lau’s UK tax agent (see [54-55] of LY 6)?

32.  Lau’s aforesaid explanations for not providing his contacting means to the Trustees are simply incredible. They were nothing but poor excuses. When Lau was asked to clarify his residential address in April 2021, Lau’s solicitors, Humphrey & Associates (“HA”), told the Trustees’ solicitors that counsel advice was being sought and time was needed for counsel in this aspect (p 1191). I agree with the Trustees that: “It is beyond comprehension why the Bankrupt would need Counsel advice on matters as simple as what his residential address is.” ([191] of PC 11)

33.  In their letter dated 7 April 2021 (p 1210), HA, confirmed to the Trustees that Lau’s latest residential address was at Leon Court. However, in their letter dated 9 April 2021 (p 1097), HA changed to state that the Leon Court address “was provided by our Client’s [ie Lau’s] friend for his correspondence address merely for receiving letters and mails.” In their letter dated 22 June 2021, HA changed again to state that Lau had in fact been living at that address with Madam Tsang and his family since 1 March 2020 (p 1214) Lau had been living at the same address for more than one year before informing the Trustees of the same, knowing that the Trustees had all along been chasing him for his contacting address. I agree with the Trustees that this issue only served to “demonstrate the evasiveness of the Bankrupt in answering even a simple question as to his current residential address.” ([27(b)] of PC 15)

34.  Lau did not dispute that he had not provided clear answer to the Trustees on sources of funds paying for his legal costs. His explanation was that: “I was not in the correct frame of mind to be thinking about issues such as the payment of the solicitors’ fees. It was only later that my solicitors’ fees were advanced by Madam Tsang. However, this was not something that was in my contemplation or knowledge at the time of the First Interview.” Lau said that his then solicitor [Mr Khan] “had graciously offered to attend the said interview [ie the Interview].” ([54] of LY 6)

35.  However, the Trustees obtained records kept by the Official Receiver’s Office which showed that Lau attended interview with officer of the Official Receiver’s Office on 12 September 2017 (ie about 1.5 months before the Interview) accompanied by the same solicitor when both Lau and Mr Khan confirmed to the officer of the Official Receiver’s Office that the legal costs incurred were funded by third party (p 1204).

36.  By refusing to tell the Trustees at the Interview sources of funds for his legal costs, Lau was simply non-cooperating. As pointed out by the Trustees, this was another example showing Lau’s “overall uncooperative attitude and unwillingness in providing any substantial response to the questions raised by the Trustees in relation to his property, dealings and affairs.” ([18] of CP 15)

37.  I find that Lau had failed to provide information requested by the Trustees at the Interview.

(1b) Lau denied ownership of any valuable property

38.  At the Interview, save for two race horses and the shares in two syndicates at the Hong Kong Jockey Club, Lau denied owning any real or personal properties mentioned to him by the Trustees, although they were registered under his name. Lau vaguely answered that the properties concerned either did not belong to him or had been sold or transferred to someone else but refused to provide further details.

(i) Companies

39.  Lau denied personally owning or controlling any companies. He told the Trustees that any companies registered under his name were held for “the company” to which he had no control but he refused to reveal which company he was referring to. The Trustees’ investigation revealed that there were at least 37 companies associated with Lau. The shareholders of these companies included Lau and companies associated with Lau. Madam Tsang was appointed as a director of these 37 companies in place of Lau when he resigned as a director on 4 September 2017 (ie the day before the Bankruptcy Order).

40.  In respect of companies said by the Trustees to be owned or controlled by Lau including another 40 companies referred to in [22] of PC 11, Lau conveniently stated that all the companies registered under his name were held on trust for the “group” and the said 77 companies were either owned and/or controlled by Madam Tsang or a Cai Sui Xin (“Cai”). He was unable to provide details about these companies because he did not in fact have any actual control of the same.

41.  I am of the view that this is simply too convenient an answer to the Trustees’ investigation. Yuen JA had pointed out in Re Leung Yat Tung (the Bankrupt) (No 2) [2007] 4 HKC 192 at [72] of the judgment that:

“72. … … even if a bankrupt has successfully transferred his assets, so that they are no longer ‘his’ to hide, he nevertheless has an obligation to provide a full picture so that the trustee in bankruptcy would know whether certain provisions in the Bankruptcy Ordinance could be employed against third parties for the benefit of the estate, and so that a fully informed decision could be made whether to ‘throw good money after bad’.”

42.  Even if Lau might not have the relevant documents relating to those companies at hands, he should be able to tell the Trustees who had possession of the documents so that the Trustees might consider exercising their powers provided by the BO to follow-up with their investigations. Lau should also be able to tell the Trustees who were the beneficial owners of these companies instead of saying that he held them on trust of the “group” or that they were owned and/or controlled by “Madam Tsang or Cai Sui Xin”. To enable the Trustees to verify the alleged trust arrangements, Lau should also tell the Trustees why they needed him to hold the companies on trust for them. In fact, when Madam Tsang was interviewed by the Trustees, Madam Tsang told the Trustees that she was a director of the “AP Group” but claimed to have no knowledge about the full company name of the “AP Group” or what companies the AP Group was comprised of. ([20] of CP 15) Again, Lau was simply non-cooperating.

43.  The Trustees also referred to Lau’s answers to their inquiries relation to a company call Rich All Limited (“Rich All”) to illustrate Lau’s failure to provide information at the Interview. At the Interview, when the Trustees asked what Lau knew about Rich All, Lau replied vaguely that he could not remember and had to check. The Trustees then referred to Lau a cheque issued by Rich All and signed by Lau on 9 October 2017 (ie about 1 month after Lau was adjudged bankrupt and 3 weeks before the Interview) to the Hong Kong Jockey Club to settle the training and livery fees for certain race horses owned by Lau, Lau became agitated, alleging that the Trustees had put too much pressure on him so he could not answer the questions but he still provided no explanation or details about Rich All to the Trustees. ([31] of PC 15)

44.  In [66] to [75] of LY 6, Lau provided information relating to Rich All and its intended project.

45.  Mr Chung, counsel for Lau, submits that when the Trustees questioned Lau about Rich All, the sudden turn of questioning and the accumulated fatigue and stress after the lengthy interview Lau had undergone prior to the Trustees’ questioning about Rich All had made it understandably difficult to answer the questions adequately. Mr Chung submits that:

“Facing the barrage of this seemingly interminable inquisition, the Bankrupt had to make a decision. He could either carry on in this mentally fatigued state, with the risk that any minor inconsistency could be used against him in the future to discredit him, or he could act prudently and adjourn the questioning to a later time to give him a chance to check the details and ensure that his answers were as accurate as they needed to be.” ([24] of Written Submissions for the Bankrupt)

46.  If what Mr Chung submits was the case, the aforesaid information on Rich All should have been provided to the Trustees shortly after the Interview but not four years after the Interview in LY 6. This is yet another illustration of Lau’s failing to cooperate with the Trustees in the administration of his estate during his bankruptcy. The efforts of Mr Chung are just futile salvage attempts.

(ii) Overseas properties

47.  In response to the Trustees’ questions on his properties, Lau confirmed at the early stage of the Interview that the list of Hong Kong properties previously provided by him to the Official Receiver’s Office was “a complete list” of his property assets. Later in the Interview, when the Trustees asked whether Lau owned any immovable properties overseas, Lau acknowledged that there was a property registered in his name in Singapore. Lau then asserted that any overseas properties registered under his name were held under trust but refused to reveal further details.

48.  Lau professed not to be able to remember in which countries these overseas properties were located and undertook to check and provide the information to the Trustees but failed to do so. The Trustees’ investigation revealed that Lau owned at least ten properties in London, the UK (the “London Properties”) and one property in Queensland, Australia (the “Queensland Property”).

49.  To explain for his alleged denial of ownership of any valuable properties at the Interview, Lau stated that he had “endeavoured to the best of my ability and knowledge to disclose to the Trustees all property beneficially owned by me. I understand that there were real or personal properties registered under my name; however, I held these properties on trust for other persons or corporate entities.” He also submitted that: “it is erroneous for the Trustees to claim that I refused to provide details about the same.” Lau complained that the Trustees’ highly detailed requests about such a vast number of properties in such a short period of time was inappropriate and that he was being asked to provide a vast amount of information without the benefit of any clerical and accounting support and access to the pertinent documents. ([57] of LY 6)

50.  Mr Chung submits that Lau never actually lied about the ownership of the overseas properties. He only failed to remember the details of the properties when he was initially asked about it. This is not supported by evidence adduced before me. In the SOA subsequently submitted by Lau, Lau disclosed 11 overseas properties in the UK (ie the London Properties) and Australia (ie the Queensland Property) not subjected to any trust arrangements (p 1923) but he told the Trustees at the Interview that any overseas properties registered under his name were held upon trust. Lau was lying either at the Interview or in the SOA.

51.  Assuming that Lau was holding these properties on trust for others. This was no explanation for not disclosing the properties to the Trustees at the Interview. Lau was obliged to disclose all such properties and the alleged trust arrangements to the Trustees for their investigations. (See Re Leung Yat Tung (supra)) He might not have all the supporting documents relating to those properties at hands at the Interview but this would not prevent him from providing initial information on the locations of the properties, the identities of their alleged beneficial owners as well as why the properties had to be held on trust by him for their true owners. It could not be possible that Lau did not recall information on any of these overseas properties at the Interview especially when he had had 10 properties in London registered under his name. In failing to disclose information on his overseas properties at the Interview to the Trustees, Lau failed to cooperate with the Trustees in the administration of his estate and such conduct is definitely unsatisfactory.

52.  Mr Chung submits that “the information that the Bankrupt ultimately provided in the SOA about the properties was substantially the same as the information obtained by the Trustees after their investigation.” Mr Chung contends that it could not “be concluded that the Bankrupt intended to conceal his assets which may have prejudiced his creditors.” ([28] of Written Submissions for the Bankrupt)

53.  To the contrary, I find this as an illustration of Lau playing the game of “catch me if you can” and he would surrender only when he was caught. But for Lau’s non-cooperation, the Trustees would not have to incur the time and costs to conduct investigations in other jurisdictions to track down Lau’s hidden assets. If this is not “prejudice” to Lau’s creditors, what is?

54.  Lau said that he was in a very unstable state of mind when he attended the Interview as he was still struggling with the psychological impacts of the bankruptcy on him and his family. He admitted that “despite my best efforts to concentrate and provide the requisite information, I genuinely could not answer some of their [the Trustees’] queries because I had no access to documents which were in my office (to which I no longer had access) and I also did not have access to the assistants and other staff who had previously helped me on such matters.” ([50] of LY 6) Lau further contended that: “a lot of the information being sought by the Trustees in the First Interview was contained in a multitude of documents and it would have been near impossible even for a person functioning at full mental capacity to recall such information without the aid of the said documents”. ([51] of LY 6)

55.  Lau said that at the Interview, he was forthright and disclosed his interests in two racing horses and shares in two syndicates at the Hong Kong Jockey Club. ([49] of LY 6)

56.  According to the Trustees, these assets were known to the Trustees through their investigations prior to the Interview enabling the Trustees to specifically ask Lau about his horses at the Interview. It was under such circumstances Lau provided relatively more information in this regard. ([14] of PC 15)

57.  Lau was again playing the game of “catch me if you can”. He would cooperate only when he was caught and could not get away. Such approach is not permitted. (See Re Leung Yat Tung (supra))

58.  Lau referred to the SOA to show his genuine intention to assist the Trustees in making full and frank disclosure about overseas properties registered in his name. ([77] of LY 6) Lau seemed to have forgotten that the SOA was submitted on 18 December 2018, more than 14 months after the time prescribed by section 18 of the BO (see section (1d) below) and it was submitted only pursuant to an undertaking given by his counsel at a court hearing when the Trustees applied for an order to examine Lau under section 29 of the BO (see section (1c) below).

59.  Furthermore, the SOA only disclosed properties already known to the Trustees through their efforts during the first year of Lau’s bankruptcy when Lau’s cooperation was not forthcoming. But for Lau’s failure to cooperate with the Trustees, much time and expenses of the Trustees could have been saved.

(1c) The Examination Summons

60.  After the Interview, the Trustees requested Lau to attend a second interview, provide further information and documents in relation to his property and financial affairs, file a complete statement of affairs, and provide financial information and documents pertaining to the affairs of various corporate entities related to him. The Trustees complained that Lau did not provide any positive responses to the Trustees’ requests.

61.  The Trustees complained that Lau also failed to provide to the Trustees the information or documents that he promised to locate during the Interview or respond to any of the questions related thereto.

62.  On 13 November 2017, the Trustees sent a letter to H&P attaching a list of outstanding information which Lau agreed to locate and/or provide to the Trustee at the Interview (the “List”) and chasing for a reply (pp 10-13). No response was received.

63.  On 20 November 2017, Tsang, Chan & Wong (“TCW”) wrote to the Trustees stating that they were appointed to act for Lau since 20 November 2017 and sought further time extension for Lau to file his SOA but made no response to the outstanding information in the List (p 14).

64.  On 23 November 2017, the Trustees wrote to TCW to request Lau to provide the outstanding information requested by the Trustees in the List and to attend a second interview with the Trustees by 30 November 2017 (p 15). The Trustees also urged TWC to disclose the contact details of Lau and who paid their fees for the services provided to Lau. No response was received.

65.  On 1 December 2017, the Trustees sent a chasing letter to TCW reiterating the gravity of the situation and made clear that since little cooperation had been received from Lau, the Trustees had no alternative but to make application to the court (p 16).

66.  On 6 December 2017, TCW wrote to the Trustees alleging that Lau was suffering from depression and the preparation of the SOA and preliminary examination report had been hindered (p 17). No response was made to the outstanding information requested in the List.

67.  On 8 December 2017, ONC Lawyers (“ONC”), solicitors for the Trustees, sent a further chasing letter to TCW requesting Lau to submit his SOA and preliminary examination form, provide the information and documents requested in the List, arrange to attend a second interview with the Trustees, and handover the keys of a property in Aberdeen, Hong Kong (the “Aberdeen Property”) (pp 18-26). ONC also requested Lau to provide information relating to All Power Investment Limit (“APIL”), a company to which Lau was previously a director and a shareholder. ONC pointed out that if Lau continued to fail to cooperate with the Trustees, the Trustees would have to take out necessary applications to the court (including application under section 29 of the BO) and refer the matter to the Official Receiver. Still, no response was received.

68.  On 9 February 2018, the Trustees wrote to TCW seeking Lau’s confirmation on his purported beneficial ownership of two properties in Hong Kong and an explanation for his apparent non-disclosure of assets (p 27). On 12 February 218, TCW sent a letter to the Trustees stating that they were awaiting instructions from Lau. No further response was received from TCW or Lau.

69.  On 12 February 2018, the Trustees took out the Examination Summons. Lau did not oppose the examination but opposed to the scope of production of documents requested by the Trustees. On 20 November 2018, the court granted the order for examination of Lau.

70.  The Trustees amended the Examination Summons in respect of the documents requested. On 12 June 2019, the court made an order against Lau to produce various documents requested by the Trustees (the “Discovery Order”). Pursuant to the Discovery Order, Lau filed his affirmation dated 9 August 2019 with exhibits of lists of the requested documents.

71.  Lau said that he did not oppose to provide documents requested by the Trustees in the Examination Summons but only opposed to the scope of production to cover documents in his “power, directly or indirectly through his spouse, his other family members and corporate entities related to him” and he consented to the Trustees’ application after the Trustees amended the Examination Summons to reduce the scope of discovery sought.

72.  The explanation put forward by Lau for not providing to the Trustees the requested information and documents was far from satisfactory. Mr Chung submits that the mere existence of the Examination Summons itself did not prove or imply any fault on Lau’s side. ([44] of Written Submissions for the Bankrupt) With respect, I totally disagree.

73.  But for the non-cooperation of Lau, the Trustees would not have to take out the Examination Summons. Lau should have produced those documents covered by the Discovery Order to the Trustees without the need for the Trustees to take out the Examination Summons. It was Lau’s failure to cooperate with the Trustees and his unsatisfactory conduct which necessitated the issuance of the Examination Summons.

74.  For the court to grant an order under section 29 of the BO, the court has to be satisfied that: (1) the provision of the requested information or documents is reasonably required for the applicant to carry out his functions; (2) the respondent is able to provide such information or documents; and (3) there is a proper case for such order to be made after balancing all the relevant factors including the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to the person concerned. (Re Hau Po Man Stanley, unrep., HCB 924/2002, 26 June 2007, Poon J (as he then was) at [39]) The fact that orders for Lau’s examination and production of documents were granted by the court under section 29 of the BO speaks for itself.

75.  I find that Lau had failed to cooperate with the Trustees in the administration of his estate in failing to attend further interviews requested by the Trustees and failing to provide timeously to the Trustees the information and documents required by the Trustees for their investigation upon requests of the Trustees.

(1d) Late submission of SOA and A/Ss

76.  Lau did not submit the SOA until 18 December 2018, ie more than 15 months after the granting of the Bankruptcy Order.

77.  The Trustees submitted that Lau’s submission of the SOA was not volunteered but pursuant to an undertaking extracted from his counsel at the hearing of the Examination Summons on 20 November 2018. Lau does not contend the otherwise.

78.  Section 18(1) of the BO provides that:

“(1) Where a bankruptcy order has been made otherwise than on a debtor’s petition, the bankrupt shall submit a statement of his affairs, which shall be verified by affidavit, to the trustee not more than 21 days after the day the order was made.”

79.  The Bankruptcy Order was made on 5 September 2017. According to section 18(1) of the BO, Lau should have submitted the SOA to the Trustees latest on 26 September 2017. There is no dispute that Lau did not submit the SOA until 18 December 2018, ie late for more than one year.

80.  Lau’s explanation was that he was affected by the Bankruptcy Order psychologically and was diagnosed as suffering from hypertension, insomnia, and depression. He was unable to answer all the questions in the SOA from memory without the aid of specific records and documents. He had no access to documents which were in his office to which he no longer had access and he did not have access to the assistants and other staff who had previously managed the records and documents for him.

81.  Lau was fully aware of the Bankruptcy Order. He was all along legally represented. He appealed against the BO to the CA on 26 September 2017. Lau was legally represented in the appeal. He was also accompanied by a solicitor from H&P when he attended interview at the Official Receiver’s Office on 12 September 2017 and when he attended the Interview on 30 October 2017. TCW stated in their letter dated 20 November 2017 that they were appointed Lau’s solicitors since November 2017 and sought time extension for Lau to submit the SOA. Lau should be fully aware of his statutory obligation to submit the SOA to the Trustees. Yet Lau did not submit the SOA until more than 15 months after the granting of the Bankruptcy Order.

82.  The explanations given by Lau for failing to submit the SOA to the Trustees in compliance with the requirement of section 18(1) of the Bankruptcy Order were simply excuses contradicted by the facts that his counsel was able to undertake to submit the SOA at the hearing for the Examination Summons on 20 November 2018 and his subsequent submission of the SOA within one month thereafter.

83.  Lau submitted that “the Trustees suffered no prejudice in terms of the late filing and that the contents of the statements that were subsequently filed have not been challenged.” ([89] of LY 6) This cannot be right. If Lau had filed the SOA within the statutory prescribed time, the Trustees would certainly have saved substantial time and efforts in tracing Lau’s assets all over the world during the first year of his bankruptcy.

84.  The Trustees further complained that Lau submitted his A/Ss late. Section 43A(6) of the BO provides that:

“For the purposes of this section, an undischarged bankrupt shall submit to the trustee on each anniversary of the making of the bankruptcy order against him, a statement of his earnings during the preceding year and details of any property he acquired during that period.”

85.  Lau submitted the A/S for his first year of bankruptcy (ie from 5 September 2017 to 4 September 2018) together with the SOA to the Trustees on 18 December 2018. Lau submitted the A/Ss for his second year of bankruptcy (ie from 5 September 2018 to 4 September 2019) and his third year of bankruptcy (ie from 5 September 2019 to 4 September 2020) on or about 24 February 2021. In all the A/Ss, Lau reported zero income and zero expenditure.

86.  Lau submitted the A/S for his first year of bankruptcy on 18 December 2018 to the Trustees more than three months after the first anniversary of the Bankruptcy Order. Some reasonable times shall be allowed for Lau to prepare the A/S after the relevant anniversary date. However, in view of the fact that, Lau reported nil income and nil expenditure for the first year of his bankruptcy, he should not need more than three months to prepare such document. I am of the view that Lau was late in submitting his first A/S but it was not very late.

87.  Lau did not submit his second and third A/Ss until 24 February 2021 which was more than 17 months and more than 5 months respectively after the relevant anniversary dates. Lau also reported nil income and nil expenditure in these A/Ss. Lau was very late in submitting the A/Ss for the second and third years of his bankruptcy.

88.  Lau’s explanation was that: “Since I had not generated any income or expenditure after becoming a bankrupt, in addition to my total lack of legal knowledge in this area, I had initially mistakenly assumed that I was not required to file any annual statement. It was not until I was later informed by counsel advice that I realized the need to file an annual statement.” ([89] of LY 6)

89.  Lau said that: “I am deeply remorseful about any oversight in regard to the late filing of the Annual Statement but I want to reiterate that the belatedness was prompted by my misguided notion that zero income negated the need for the filing.” ([89] of LY 6)

90.  Lau’s statements are falsified by his own act of submitting his first A/S on 18 December 2018 when he was legally represented. Lau forgot that in his first A/S he also reported nil income and nil expenses. Lau well knew that zero income did not negate the need to submit A/S to the Trustees. Yet he did not submit his second and third A/Ss on time. This illustrates the destined futileness of making up stories before the court.

91.  I find that Lau submitted the SOA and A/Ss late in breach of sections 18(1) and 43A(6) of the BO. Such conduct amounts to failure to cooperate with the Trustees and unsatisfactory conduct during his bankruptcy.

(2) Lau’s scheme to defeat creditors’ claims

92.  In respect of Lau’s scheme to defeat creditors’ claims, the Trustees referred to the following matters:

(a) Lau transferred his shareholding in APIL to All Power Holding Limited (“APHL”) on 20 January 2015 (the “Share Transfer”) which was within two years of the date of presentation of the Petition;

(b) Lau acted as sole mortgagor and personal guarantor for substantial amount of loan facilities granted by the Bank of East Asia (“BEA”) to APIL and its subsidiaries;

(c) Lau executed various legal charges in favour of APIL against 22 of his immovable properties situated in Hong Kong and overseas (the “APIL Charges”);

(d) Lau transferred 99% of his shareholding in Evershine Group Holdings Limited (“Evershine”) to Noble Ace Investments Limited (“Noble Ace”) on 16 December 2016 and transferred his shares in Noble Ace (representing 100% ownership) to Madam Tsang on or around 31 January 2017;

(e) APIL filed a proof of debt on 4 October 2017 against Lau’s estate for HK$1,009,735,982.45 (the “2017 POD”) and Circle Crown Limited (“Circle Crown”) also filed a proof of debt for HK$13,983,561.64 against Lau’s estate;

(f) Madam Tsang receiving monthly payment of HK$240,000 from the AP Group as director’s remuneration; and

(g) Lau transferred his ownership in four motor vehicles (the “Vehicles”) on 21 and 22 September 2017 to a So Wang Chun Lawrence (“Lawrence”) and Wisdom Success Development Limited (“Wisdom Success”).

(2a) Transfer of share in APIL

93.  APIL is a company incorporated in Hong Kong on 18 August 2009 with one issued ordinary share and a total share capital of HK$1.00. Lau was the sole shareholder of APIL since its incorporation until 20 January 2015 when he transferred his shareholding in APIL (the “Share”) at nil or no valuable consideration to APHL (ie the Share Transfer).

94.  APHL is held by a family trust called “JL Trust” which was set up by Lau on 19 December 2014 with Madam Tsang and her 3 children as beneficiaries. The sole director of APHL is Madam Tsang.

95.  The Trustees’ case is that the Share is valuable and the Share Transfer was a “rainy day arrangement” devised by Lau at a time when his personal finance position was deteriorating to prepare for his eventual bankruptcy. Thus, it was a scheme devised to defeat his creditors’ claims.

96.  The Trustees issued a summons in this action on 12 February 2018 to set aside the Share Transfer (the “Setting Aside Summons”). On 1 August 2018, the Trustees obtained an interlocutory junction against APHL and APIL restraining the dissipation of or otherwise dealing with the assets of APIL and its subsidiaries (the “Injunction”). APHL and APIL applied for leave to appeal against the Injunction which were refused by the Court of First Instance. APHL and APIL then applied to the CA for leave to appeal. On 1 February 2019, the CA granted leave for APHL and APIL to appeal against the Injunction to the CA. Notices of appeal were filed by APHL and APIL on 15 February 2019 but no further steps had been taken to set down the appeal for hearing.

97.  On 4 September 2018, the court ordered the Setting Aside Summons to be converted into a writ action. On 2 October 2018, the Trustees issued the writ in HCA 2289/2018 seeking an order to set aside the Share Transfer (the “Share Action”). The Share Action is still on-going.

98.  The petitioning debt for Lau’s bankruptcy arose out of guarantees for banking facilities granted by HSBC to GNR. In December 2016, the court granted a winding-up order against GNR. The Trustees submitted that in addition to his personal exposure in respect of amounts owed to HSBC, Lau had also executed personal guarantees in favour of State Bank of India, Hang Seng Bank, Fubon Bank and BEA, in relation to GNR’s and its related companies’ borrowings. As such, Lau’s personal finance position was inextricably linked to the fortunes of GNR.

99.  The principal activities of GNR were investment holding, trading of iron ore and coking coal. The Trustees submitted that Lau had been a director of GNR until it was wound up and had full access to the business and financial information of GNR.

100.  The Trustees contended that the trading environment for iron and coal industries in China deteriorated during 2013 and 2014 and Lau should have been aware of the precariousness of his own financial position.

101.  On 2 April 2015, a winding-up petition was presented against GNR in HCCW 115/2015. Between February to November 2016, another four winding-up petitions were filed against GNR. On 5 December 2016, a winding-up order was made against GNR.

102.  The Trustees claimed that in light of GNR’s significant debts and deteriorating trading environment, as well as the threat this created to Lau’s own financial position, Lau devised a scheme to transfer away all his valuable assets and companies to Madam Tsang and/or companies related to him in Hong Kong and offshore, shortly before his bankruptcy, in order to defeat or frustrate his creditors’ claims. One of these companies concerned was APIL.

103.  Lau had been the sole director of APIL since incorporation until his resignation on 4 September 2017, the day before he was adjudged bankrupt.

104.  At the Interview, Lau alleged that APIL was merely a shell company with negative asset at the time of the Share Transfer. However, the Trustees took the view that APIL was in fact a valuable company at the time of the Share Transfer. The Trustees referred to the audited accounts of APIL for the years from March 2011 to March 2016 showing that APIL had generated revenues totaling more than HK$6.2 billion with net asset values of HK$68.2 million and HK$57.8 million as at the years ended 31 March 2015 and 31 March 2016 respectively.

105.  According to the 2016 audited accounts of APIL, a total of more than HK$318 million was due from APIL’s subsidiaries to APIL as at 31 March 2016. The Trustees believed that APIL’s subsidiaries possessed valuable assets and Lau had not prepared consolidated accounts of APIL for the years of 2015 and 2016 was for concealing the valuable assets held in APIL’s subsidiaries so as to facilitate his scheme of dissipating APIL’s subsidiaries and their assets.

106.  The Trustees also referred to APIL having submitted a proof of debt on 17 June 2020 (the “2020 POD”) in Lau’s bankruptcy claiming cash advances totaling more than HK$90 million to Lau. The Trustees stated that if this claim of APIL was to be accepted at face value, it was indicative of APIL being a valuable company contrary to Lau’s assertion that APIL had no value at the time of the Share Transfer.

107.  The 2020 POD was rejected by the Trustees on 22 July 2020 on the basis that insufficient proof had been provided to substantiate its claim. Despite having rejected the 2020 POD, the Trustees submitted that the 2020 POD was clearly indicative of APIL being a valuable company which had the huge financial resources to make such advances to Lau.

108.  I am of the view that it is not doing fairness to Lau for the Trustees rejecting the 2020 POD on the one hand and on the other hand relying on the truthfulness of the 2020 POD to argue that APIL was a valuable company. The Trustees simply cannot have the best of both worlds.

109.  The Trustees further referred to the stamp duty charged on the Share Transfer in the sum of $87,736 to submit that APIL’s value should be at least HK$43,868,000 which matched APIL’s net asset value of HK$43,561,448 as at 31 March 2014 as stated in APIL’s audited accounts for the year ended 31 March 2014.

110.  The value of APIL as at the date of the Share Transfer (ie 20 January 2015) is a matter in dispute in the Share Action when expert evidence adduced by APHL and APIL suggested that it was nil whereas the expert evidence adduced by the Trustees opined that its worth was between HK$864 million to HK$874 million. ([55] of PC 15)

111.  The Trustees were of the view that the settlement of the JL Trust was made on 19 December 2014, shortly before the Share Transfer on 20 January 2015, to enable Lau to transfer his ownership in APIL into the trust as a “rainy day arrangement” to prepare for Lau’s eventual bankruptcy.

112.  The Trustees alleged that Lau was in control of the JL Trust, APHL and ultimately APIL. To support such contention, the Trustees referred to the observations made by DHCJ Saunders in the decision dated 1 August 2018 (the “Injunction Decision”) granting the Injunction when His Lordship remarked that there was a good arguable case that the Share Transfer was at an undervalue and that there were matters that APIL wished to conceal from the court. Such observations were agreed by Coleman J in the judgment dated 12 June 2019 (the “Examination Judgment”) when His Lordship granted the Discovery Order. ([43] of the Examination Judgment)

113.  According to the Trustees, at the Interview, Lau alleged that APIL was merely a shell company with negative asset which he set up for a family trust, hence the family trust was the true owner of APIL. Lau also alleged that the family trust had injected assets into APIL and engaged him as an investment adviser, hence the transfer of APIL back to its true owner was legitimate. Lau further denied that the trust was related to his own family and instead claimed that the trust was confidential and owned by “someone with background”, whose identity he could not disclose.

114.  However, in LY 6 Lau admitted that the JL Trust was established by him on 19 December 2014 and the beneficiaries of the JL Trust were Madam Tsang and her three children. ([93] of LY 6)

115.  The Trustees referred to various views and remarks expressed by DHCJ Saunders in the Injunction Decision to support their contentions that Lau was “ring fencing” APIL’s assets from his creditors and that Lau was in reality controlling APIL and concealing APIL’s assets. The Injunction granted by the learned Deputy Judge was an interlocutory injunction. As the learned Deputy Judge noted at [55] of the Injunction Decision: “All that is necessary for the Trustees to establish at this stage of the proceedings is a good arguable case that the share transfer was at an undervalue.” Whereas, for the Trustees to succeed in the Application, the Trustees have to prove their case on balance of probabilities.

116.  In granting the Injunction, DHCJ Saunders was of the view that there was a good arguable case that the Share Transfer was at undervalue. The learned Deputy Judge was also of the view that the creation of APHL and the establishment of the JL Trust were arguably steps that were taken by Lau in the face of a very real prospect of personal bankruptcy and that the Share Transfer were steps to remove the assets represented by APIL from Lau’s creditors. ([87] of the Injunction Decision)

117.  The leaned Deputy Judge formed the aforesaid views in the context of the strong argument that Lau retained in reality control of APIL. An argument, no matter how strong, remains an argument and not finding of fact. A good arguable case is also not equivalent to a finding of fact on balance of probabilities. The Trustees may not treat as equivalent these remarks made by the court in the Injunction application as facts already found by the court on balance of probabilities.

118.  As DHCJ Saunders pointed out in the Injunction Decision, the various allegations made by the Trustees in support of the Setting Aside Summons had not been tested at trial. Whether the Share Transfer will be set aside and if set aside, on what ground(s) are matters yet to be determined in the Share Action. The Trustees have not yet proved on balance of probabilities that the Share Transfer was an act of dissipation of assets on the part of Lau to defeat his creditors’ claims.

(2b) Lau acting as guarantor for APIL

119.  The Trustees claimed that Lau had also disposed of his assets by acting as sole mortgagor and personal guarantor for substantial amount of loan facilities granted by BEA to APIL and its subsidiaries for no apparent personal gain. When BEA enforced its rights against Lau under the legal mortgages and/or personal guarantees, APIL and its subsidiaries would have reaped all the benefits of the substantial loans from BEA, leaving substantial liabilities in Lau’s bankruptcy estate.

120.  The Trustees provided no details of these guarantee and mortgages. It is the Trustees’ case that APIL was used to be Lau’s company. If the guarantee and mortgages in favour of BEA were provided when Lau was the sole director and sole shareholder of APIL, Lau was providing guarantee to his own company. If so, Lau was not acting as guarantor of APIL for no apparent personal gain. I find that the Trustees have failed to prove that Lau had dissipated his assets to defeat his creditors’ claims by acting as APIL’s guarantor.

(2c) The APIL Charges

121.  Lau had executed various legal charges in favour of APIL from June 2016 to March 2017 against a total of 22 of Lau’s immovable properties situated in Hong Kong and overseas, including residential properties and two car parking spaces (ie the APIL Charges).

122.  Lau submitted that the APIL Charges were created to secure the amount due from him and to ensure that further drawings from APIL were bona fide arm’s length transactions. He further submitted that it was fair and reasonable for APIL to ask him to execute the APIL Charges to secure the current account between APIL and him since his interest in APIL had been transferred to APHL entirely. ([84] of LY 6)

123.  On 27 July 2020, the Trustees commenced proceedings under HCMP 1076/2020 seeking, amongst other relief, declarations and orders that the APIL Charges in respect of 14 immovable properties were void pursuant to section 42 or 49 of the BO (the “Charge Action”).

124.  Under section 42 of the BO, unless validated by the court, disposition of property (wherever located) made by a bankrupt in the period between the bankruptcy petition and the bankruptcy order are void.

125.  Under section 49 of the BO, the court may avoid transactions at an undervalue entered into by a bankrupt within 5 years of the bankruptcy petition.

126.  In the Charge Action, DHCJ William Wong SC was of the view that for the purpose of section 49 of the BO, the money or money’s worth of the consideration that the bankrupt received for entering into the transaction (ie the incoming consideration) must be “significantly less” than the value in money or money’s worth of the consideration provided by the bankrupt (ie the outgoing consideration). ([24] of the Judgment dated 30 December 2020 (the “Charge Judgment”))

127.  On 30 December 2020, the court granted the Trustees’ application in the Charge Action (the “Charge Order”). The court was of the view that at the time of the respective mortgages, the incoming consideration was significantly less than the outgoing consideration and there was no evidence that Lau had received any consideration. The ruling of the court in the Charge Action speaks for itself.

128.  Mr Chung submits that at the hearing of the Charge Action, the court at that time was not furnished with the fullest evidence and this court should consider the additional evidence available for this application and pay scant regard to the Charge Judgment which did not have the benefit of seeing a full picture.

129.  The learned Deputy Judge noted at [30], [44] and [45] of the Charge Judgment that:

“30. … … One disturbing feature in the present case is that none of the directors [of APIL], or the Bankrupt [ie Lau] came forward to explain to the Court whether which sums were drawdown pursuant to the general credit facilities. The Bankrupt was silent and all the subsequent directors chose not to give any explanation on the fund flow between the Bankrupt and the Defendant [ie APIL].”

“44. … … The Defendant has ample opportunity to put in evidence to show that the mortgages were transactions supported by valuable consideration. It chose not to. … …”

“45. … … The Defendant could have produced documents to show what credit facilities were utilized pursuant to which mortgage including exhibiting the relevant ledgers and underlying documents. Again, it chooses not to. … …”

130.  In [41] of the Charge Judgment the learned Deputy Judge stated that:

“For all the reasons stated above, I am of the view that, at the time of the mortgages, viewed from the Bankrupt’s perspective, the incoming consideration was significantly less than the outgoing consideration. There is simply no evidence that the Bankrupt has received any consideration.”

131.  Lau and directors of APIL chose not to give evidence at the hearing of the Charge Action. APIL was represented by counsel at the hearing of the Charge Action. There was no reason why at the hearing of the Charge Action full evidence had not been furnished to the court. I do not accept contradictory evidence which Lau sought to advance at this hearing before me in respect of the Application. Such evidence, if true would have been adduced before the learned Deputy Judge at the hearing of the Charge Action.

132.  Although the court declared the APIL Charges void under sections 42 and 49 of the BO, the court made no finding that the APIL Charges were executed to defraud creditors. However, creating charges against his properties after the Petition had been issued (section 42) or charging his properties at undervalue within 5 years before the issuance of the Petition (section 49) by a bankrupt may amount to unsatisfactory conduct prior to commencement of bankruptcy. Taking into account the trading environment and financial situation of GNR starting from 2014 and the consequential impact on Lau’s personal financial position, I am of the view that such acts of Lau in the circumstances of this case did amount to unsatisfactory conduct prior to commencement of his bankruptcy.

(2d) Transfer of shares in Evershine and Noble Ace

133.  Lau transferred 99% of his shares in Evershine to Noble Ace on 16 December 2016 and further transferred his shares in Noble Ace (ie 100% ownership) to Madam Tsang.

134.  The Trustees adduced no evidence to show that Lau transferred his shares in Evershine and Noble Ace for the purpose of dissipating assets to defeat his creditors’ claims. In [196] of PC 11, the Trustees stated that: “The value of the Evershine shares collapsed in October 2019. In the event that the Evershine shares recover from the HK$0.01 level they currently trade at, the Trusteeswould conduct investigation and initiate proceedings to claw back the Noble Ace share.” (Emphasis added) As the Trustees have not yet investigated into these transactions, whether the transactions were for defeating Lau’s creditors’ claims is still unknown.

(2e) Proofs of debt submitted by APIL and Circle Crown

135.  The Trustees claimed that the 2017 POD and the proof of debt submitted by Circle Crown were further steps taken by Lau to dissipate his assets.

136.  The Trustees were of the view that Circle Crown appeared to be a company related to or owned by Lau and the arrangement between Circle Crown and Lau made no commercial sense. The Trustees took the view that the alleged contract entered between Circle Crown and Lau was not genuine and the purpose of the contract was to make Circle Crown a creditor of Lau so as to dilute the claims of Lau’s other creditors. In other words, the Trustees are accusing Lau of fabricating or assisting Circle Crown in fabricating the Circle Crown claim.

137.  The basis for the Trustees to form the aforesaid views was stated in [77.7] of PC 11 as follows:

“According to the Trustees’ investigations, one of the directors of Circle Crown is an individual called Wong Tai Kuan, who appears to be connected to the Bankrupt. Mr. Wong is also the shareholder and director of a company called New Rising Holdings Limited, which trades as Chalkers Crossing Wine Bar, and has a registered office address at the Zoroastrian Building, where APIL is also registered. The “Chalkers Crossing” reference is also linked to the Bankrupt, as it refers to a vineyard in New South Wales, Australia, which the Trustees believe may be / have recently been owned by the Bankrupt.” (Emphasis added)

138.  The Trustees further stated: “As Circle Crown appears to be a company related to or owned by the Bankrupt, and the arrangement makes no commercial sense, I am therefore of the view that the said contract is not genuine.” (Emphasis added) ([77.8] of PC 11)

139.  The Trustees’ case as stated in PC 11 was filled with uncertainties. The circumstances for Circle Crown’s claim might be suspicious. The Trustees might have grounds to reject the proof of debt filed by Circle Crown. However, the suspicion of the Trustees is far from sufficient evidence to support an allegation of fabrication of claim, not to say a case of fabrication by Lau.

140.  Although APIL and Circle Crown were somehow related to Lau, the Trustees adduced no evidence to show that it was Lau who directed APIL or Circle Crown to submit the proofs of debt against his estate. Proof of debt submitted against Lau’s estate will have to be scrutinized and vetted by the Trustees. Without the Trustees admitting the proof of debt, none of Lau’s assets will be paid to APIL or Circle Crown. I do not agree that the fact that APIL and Circle Crown had submitted proofs of debt against Lau’s estate amounts to dissipation of assets by Lau to defeat his creditors’ claims.

(2f) Monthly payment to Madam Tsang by AP Group

141.  The Trustees complained that Madam Tsang “continuing to receive HK$240,000 monthly payments from the AP Group as directors’ remuneration, despite the fact she professed to having no knowledge of or involvement in the AP Group at all.” (Original emphasis) ([77.9] of PC 11) The Trustees took the view that this was further step taken by Lau to dissipate his assets to defeat his creditors’ claims.

142.  We are not concerning with the management of “AP Group” or dealing with liquidation of “AP Group”. There is no dispute that Madam Tsang has been a director of APIL and a beneficiary of the JL Trust (which ultimately holds APIL). Whether the Share Transfer is liable to be set aside is a matter yet to be determined by the court in the Share Action. To say at this stage that such payments were steps taken by Lau to transfer or dissipate his assets through APIL is only speculation.

(2h) Transfer of the Vehicles

143.  The Trustees’ investigation showed that Lau transferred ownership in two of the Vehicles to Lawrence and another two to Wisdom Success on 21 and 22 September 2017 after the granting of the Bankruptcy Order. ([180] of PC 11)

144.  Lau’s case was that the Vehicles were sold on 12 and 19 August 2017, prior to the granting of the Bankruptcy Order and he had no knowledge as to when the purchasers registered the transfers with the Transport Department.

145.  It is not the Trustees’ case that the Vehicles were disposed of undervalue. As such, disposal of the Vehicles did not amount to dissipation of assets to defeat creditors’ claims. It is for the Trustees to trace the whereabouts of the sale proceeds.

146.  Lau’s case was that the cash sale proceeds had been paid to Sands Casino in Macau for settling his gambling debts. He submitted that the sale of the Vehicles was made under pressure from the casino and there was no intent to defraud. The Trustees adduced no evidence to rebut Lau’s case.

147.  I find that the Trustees have failed to prove on balance of probabilities that Lau transferred the Vehicles with a view to defeat his creditors’ claims.

(3) Attempts to impede the Trustees’ realization of Lau’s assets

148.  In respect of the Trustees’ complaint against Lau for his attempts to impede the Trustees’ realization of Lau’s interest in various properties, the Trustees referred to the following matters:

(a) APIL’s failure to execute release of the APIL Charges in respect of the 14 properties covered by the Charge Order;

(b) Lau’s brother, Lau Sze (“LS”), claimed that he had interest in Lau’s property at the Pavilia Hill in Hong Kong (the “Pavilia Hill Property”);

(c) Lau’s father (the “Father”) and brother, Lau Min (“LM”), claimed that they had interest in the Aberdeen Property; and

(d) APHL/APIL had applied to vary the Injunction.

(3a) Failing to execute release of APIL Charges

149.  The Trustees complained that APIL failed to execute release in favour of the Trustees in respect of the 14 properties covered by the APIL Charges in compliance with the Charge Order on the ground that APIL would appeal against the Charge Order and apply for stay of execution of the Charge Order.

150.  APIL lodged a notice of appeal against the Charge Order on 19 January 2021 but did not take out application for stay of execution of the Charge Order until 7 May 2021. The stay application was dismissed on 30 June 2021 and APIL has not taken further steps in the appeal proceedings.

151.  The Trustees’ complaint was premised on the remarks of DHCJ Saunders made in the Injunction Decision that there was strong argument that Lau retained control in APIL. As discussed in section (2a) above, an argument, no matter how strong, remains an argument and not finding of fact. The Trustees produced no evidence to show that the non-compliance of the Charge Order by APIL was caused or directed by Lau. I see no reason why Lau should be answerable for the acts of APIL.

(3b) The Pavilia Hill Property

152.  In the SOA, Lau disclosed that he owned the Pavilia Hill Property estimated to have a value of HK$22.6 million.

153.  By an assignment dated 6 June 2016, Lau acquired the Pavilia Hill Property and has remained its registered owner. The Pavilia Hill Property is subject to a first charge in favour of Hexagon Credit Limited. The Pavilia Hill Property was one of the properties covered by the APIL Charges.

154.  After obtaining the Charge Order, the Trustees took steps to realize the Pavilia Hill Property. On 22 February 2021, the Trustees’ staff attended the Pavilia Hill Property and found that it was occupied.

155.  On 23 February 2021, the Trustees received a letter from HA, accusing the Trustees’ staff of causing nuisance to the occupiers of the Pavilia Hill Property (p 542). When ONC asked HA to provide the identity and details of the occupier, HA relied on 7 April 2021 that Lau did not have any knowledge as to whom had been and was occupying the Pavilia Hill Property (p 555). This is in obvious contradiction to HA’s earlier letter dated 23 February 2021.

156.  It turned out that the Pavilia Hill Property was occupied by LS who claimed that he had contributed HK$4 million to the purchase price of the Pavilia Hill Property. The Trustees commenced HCMP 363/2021 on 18 March 2021 seeking possession of the Pavilia Hill Property against LS and other unauthorized occupiers. (the “Pavilia Hill Property Action”)

157.  On 27 April 2021, the court directed the Pavilia Hill Property Action to continue as if it had been begun by writ. The Trustees filed the statement of claim in the Pavilia Hill Property Action on 25 May 2021. The Pavilia Hill Property Action is still on-going.

158.  The Trustees considered that LS’s claim had no merits and formed the view that LS was assisting Lau in impeding the Trustees’ realization of Lau’s interest in the Pavilia Hill Property.

159.  Although HA’s aforesaid letters were self-contradicting, it is not sufficient evidence to support a finding that LS’s acts were directed by Lau. In LY 6, Lau asserted that: “Any equitable claim that Lau Sze may assert in the Pavilia Hill Property is a matter that is unrelated to me personally.” ([122] of LY 6)

160.  The Trustees submitted that “it is clear that the Bankrupt is content to let (if not positively procure) his brother to obstruct the Trustees’ asset recovery work.” ([47] of the Trustees’ Skeleton Submissions) The Trustees adduced no evidence to show that LS’s acts were procured or directed by Lau. As such, I have difficulties to follow the aforesaid argument of the Trustees. If LS’s acts were not directed or procured by Lau, how may Lau be held answerable to LS’s acts, no matter how unmeritorious such acts were.

161.  I find that the Trustees fail to prove on balance of probabilities that Lau had obstructed the Trustees’ recovery of the Pavilia Hill Property.

(3c) The Aberdeen Property

162.  According to the SOA, Lau was also the legal owner of the Aberdeen Property but the SOA included Lau’s statement that the Aberdeen Property was held by Lau on trust for the Father and LM (p 1922).

163.  By an assignment dated 1 September 2016 (ie about one year before the Bankruptcy Order), Lau as beneficial owner assigned 50% of his ownership in the Aberdeen Property to Madam Tsang at nil consideration (the “Assignment”).

164.  On 12 February 2018, the Trustees issued a summons in this action seeking to set aside the Assignment. Madam Tsang did not contest the Trustees’ application and an order granting the Trustees’ aforesaid application was granted by the court on 28 March 2018 by consent.

165.  On 3 April 2018, the Father and LM issued a writ in HCA 746/2018 against the Trustees alleging that they, rather than Lau, were the beneficial owners of the Aberdeen Property (the “Aberdeen Property Action”). The Trustees filed the Defence on 4 June 2018. Since then, the Father and LM took no further steps in the Aberdeen Property Action.

166.  The Trustees believed that this was another attempt of Lau, through assistance from his family members, to impede the Trustees’ attempt to realize Lau’s interest in the Aberdeen Property. However, the Trustees produced no evidence to support their aforesaid contention.

167.  The Trustees relied on the Father and LM taking no further steps in the Aberdeen Property Action after close of pleadings on 2 July 2018 to support their belief that “this is another attempt of the Bankrupt, through assistance from his family members, to impede the Trustees’ attempt to realize his interest in the Aberdeen Property.” ([73] of PC 15) This is nothing more than speculation without supporting evidence.

168.  The acts of the Father and LM are in consistence with the trust disclosed by Lau in the SOA. It is not the Trustees’ case that Lau had provided false information in the SOA. With the disclosed trust arrangements, the Trustees should not be surprised by such acts of the Father and LM. Such acts should be within the Trustees’ contemplation. The Trustees adduced no evidence to show that the acts of the Father and LM were directed or procured by Lau.

169.  I find that the Trustees fail to prove on balance of probabilities that Lau had obstructed the Trustees’ recovery of the Aberdeen Property. In fact, unless the Trustees may show that Lau had provided false information in the SOA in respect of the Aberdeen Property, Lau has no beneficial interest in the Aberdeen Property to be realized by the Trustees for Lau’s estate.

(3d) Variation of the Injunction

170.  The Trustees also relied on the application to vary the Injunction made by APHL and APIL on 15 December 2020 (the “Variation Summons”) to support the Application.

171.  The Trustees’ investigation showed that APIL maintained various bank accounts with HSBC with a total credit balance of about US$2.5 million (approximately HK$19,500,000). In the Variation Summons, APHL/APIL sought payments of more than HK$85 million which would exhaust the funds in APIL’s accounts held with HSBC.

172.  The Trustees noted that APHL/APIL relied on transactions with companies related to Lau or Madam Tsang including debts due to or business opportunities offered by these companies and also debts due to Madam Tsang to support the Variation Summons. The Trustees criticized these transactions or business opportunities as not genuine and concluded that the Variation Summons was another attempt by Lau and his associates to defeat the claims of Lau’s creditors.

173.  The Trustees submits that the variation application “was not made in good faith and was yet another blatant attempt of APHL/APIL (which are believed to be under the control of the Bankrupt) to sweep clear the Funds [ie funds kept in APIL’s bank accounts] in one go, and thereby defeat the Injunction Order, and the creditors’ claims.” (Emphasis added) ([55] of the Trustees Skeleton Submissions)

174.  The Trustees’ aforesaid belief was again speculation. No doubt, APHL/APIL had the motive to unfreeze their assets. Although most of the expenses claimed in the Variation Summons (except spending of $25,000 per month for administrative costs of APIL and $750,000 as expenses for APIL’s legal costs) failed, it does not mean that Lau had directed or procured the application.

175.  The Trustees submitted that the Variation Summons “is made in bad faith by APIL and APHL under the control of the Bankrupt, using false and exaggerated evidence and with the help of his wife and associates.” ([60] of the Trustees’ Skeleton Submissions) Yet, the Trustees adduced no evidence to show that the variation application was directed or procured by Lau and the court in dealing with the Variation Summons made no such findings. Without such evidence, Lau should not be blamed for APHL/APIL taking out the Variation Summons.

176.  DHCJ Saunders in granting the Injunction came to the view that there was a strong case on evidence that Lau was in reality in control of the JL Trust, APHL and APIL. Coleman J in the Examination Judgment shared the same view. However, Coleman J had fairly noted that DHCJ Saunders himself had pointed out in the Injunction Decision that the allegations to which he made reference had not yet been tested. As the learned Deputy Judge made the aforesaid remarks in the context of an interlocutory injunction application noting that the allegations concerned had not yet been tested, such remarks shall not be treated as factual findings made by the court on balance of probabilities.

177.  I find that the Trustees fail to prove on balance of probabilities that Lau had obstructed the Trustees’ realization efforts in reliance on the issuance of the Variation Summons.

(4) Obstructions to the Trustees’ recognition in the UK

178.  In respect of the Trustees’ complaint against Lau for obstructing the Trustees’ recognition in the UK, the Trustees referred to (a) Lau’s challenge to the order granted on 7 January 2020 by the UK Insolvency and Companies Court recognizing the Trustees’ appointment (the “Recognition Order”); and (b) Lau’s continuous dealing with some of the London Properties even after granting of the Recognition Order.

(4a) Challenge to the Recognition Order

179.  On 26 November 2019, the Trustees applied to the English court for an order recognizing their appointment as Lau’s trustees-in-bankruptcy (the “UK Application”) to enable the realization of Lau’s assets in the UK including the London Properties and sale proceeds of some of those properties. The Recognition Order was granted by the English Insolvency and Companies Court on 7 January 2020.

180.  On 28 January 2020, Lau applied for leave to appeal against the Recognition Order on grounds including challenging the validity of overseas service of the UK Application on him. Leave to appeal was granted to Lau on 28 April 2020 on the ground of whether the English court had the power to retrospectively validate overseas service. Lau’s appeal was dismissed on 10 September 2020 and there was no further appeal.

181.  The Trustees complained that Lau did not assist the Trustees, nor even stay neutral, but instead sought to challenge the UK Application rendering the Trustees’ work more onerous and leading to more costs being incurred in the administration of Lau’s estate.

182.  Lau contended that in challenging the service of the UK Application he was exercising his legitimate right to access justice. ([79] of Written Submissions for the Bankrupt)

183.  In [34] of the judgment of Mr Justice Fancourt for the UK Application [2020] EWHC 2429 (Ch), the learned Judge stated that:

“I have considered carefully the terms of the Debtor’s [ie Lau’s] affirmation and the full transcript of the hearing before the Deputy Judge. In my judgment, the argument advanced on behalf of the Debtor was that the court should exercise its discretion to adjourn the hearing, so as to give the Debtor a proper opportunity to adduce evidence in support of its case on the merits. … …”

184.  It can be seen that in challenging the UK Application, Lau was not only aiming at clarifying the procedural correctness, he aimed at challenging the merits of the UK Application. But for his failure in challenging the service, Lau would have attempted to further impede the Trustees’ efforts in realizing his assets in the UK.

185.  The Trustees are duty-bounded to take possession and control of Lau’s assets in the UK and Lau has a statutory duty to assist them. Lau should have cooperated with the Trustees on service of documents for the UK Application to him. Taking a neutral stance already amounts to failure to cooperate. Challenging the UK Application rendered Lau’s conduct even more unsatisfactory. (See the Lee Raymond Cho-Min and Lee Priscilla Hwang cases (supra)) To say that this is Lau’s right to access justice is totally misconceived. I agree with the Trustees that the aforesaid resistance by Lau to the UK Application, to say the least, was uncooperative and unsatisfactory.

(4b) Lau’s continuous dealing with the London Properties

186.  The Trustees further complained that despite the granting of the Recognition Order, Lau continued to deal with some of the London Properties by signing contract with Knight Frank, a property management agent in the UK, on 2 December 2020 in respect of one of the London Properties (ie Flat B2.06 The Nova Building) (pp 993-947) and signing three tenancy agreements dated 3 January 2020 (renewed on 23 February 2021), 13 January 2021 and 11 February 2021 in respect of three of the London Properties (pp 948-1021).

187.  Lau said that he contacted a consultancy in the UK to manage his properties in London because the Trustees had failed to properly manage the same. He accused the Trustees of leaving some of his properties in London vacant and failing to settle capital gain tax levied by the UK tax authorities on sale of some of these properties.

188.  The Trustees pointed out that the vacant properties referred to by Lau were properties at Eddington Court under the control of the receiver appointed by BEA and the Trustees were not in the position to manage them and the properties, subject of the Trustees’ complaint, were properties at Buckingham Palace Road. The capital gains tax issue referred to by Lau was also related to properties at Eddington Court sold by the receiver appointed by BEA. ([76] of PC 15)

189.  The Trustees pointed out that Lau’s complaints relating to properties at Eddington Court had been addressed by a letter dated 12 July 2021 from the Trustees’ solicitors to Lau’s solicitors (pp 1224-1320). Lau repeated those allegations in LY 6 “represents yet another regrettable example of the Bankrupt’s uncooperative and obstructive attitude towards the Trustees’ proper discharge of their duties as his trustees in bankruptcy.” ([78] of PC 15)

190.  I agree with the Trustees that Lau’s complaints against the handling of the Eddington Court properties by receiver appointed by BEA was no excuse for him to deal with his other properties in London behind the back of the Trustees. Such acts of Lau are no doubt unsatisfactory conduct which this court will not condone.

(5) Breaches of section 129 of the BO

191.  I had in Re Qin Jun[2021] HKCFI 114 held that objection based on breach of section 129 of the BO is made out if the trustees prove on balance of probabilities that the bankrupt has committed the relevant offence. It is not a prerequisite that the bankrupt has to be charged or convicted of the relevant offence. Of course, when assessing the probabilities, the court will have to bear in mind as a factor that the more serious the allegation, the less likely the event occurred. Hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probabilities. (See Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at 560)

(5a) Breach of section 129(1)(a) of the BO

192.  Section 129(1)(a) of the BO provides that:

“(1) Any person who has been adjudged bankrupt shall in each of the cases following be guilty of an offence —

(a) if he does not to the best of his knowledge and belief fully and truly discover to the trustee all his property, real and personal, and how and to whom and for what consideration and when he disposed of any part thereof, except such part as has been disposed of in the ordinary way of his trade (if any) or laid out in the ordinary expenses of his family, unless he proves that he had no intent to defraud;” (emphasis added)

193.  The Trustees relied on Lau’s disposal of the Vehicles as discussed in section (2g) above to submit that Lau had breached section 129(1)(a) of the BO. At the Interview (on 30 October 2017), Lau told the Trustees that the Vehicles had been sold to third parties before his bankruptcy and the cash received had been paid to a casino in Macau to settle his gambling debts.

194.  Investigation of the Trustees showed that the Vehicles were transferred to their new owners only on 21 or 22 September 2017, ie after granting of the Bankruptcy Order. The Trustees submitted that in light of the fact that the transfers took place just about a month before the Interview, the Trustees believed that Lau had failed to fully and truly discover to the Trustees all of his property, and how and to whom and for what consideration and when he disposed of the Vehicles. The Trustees contended that the transfers were not made in the ordinary way of Lau’s trade or laid out in the ordinary expenses of his family, the burden was on Lau to prove that he had no intent to defraud. The Trustees submitted that Lau was in breach of section 129(1)(a) of the BO.

195.  Lau would be in breach of section 129(1)(a) of the BO if Lau did not fully and truly discover to the Trustees all his property and how and to whom and for what consideration and when he disposed of any thereof.

196.  In the Trustees’ own case, Lau had disclosed the disposal of the Vehicles to the Trustees at the Interview. Lau had exhibited the relevant sale and purchase agreements to LY 6 as exhibit “LY6-21” which showed the date of the sale, the identities of the purchasers and the amount of sale consideration (pp 1970-1977). It is not the Trustees’ complaint that Lau had failed or refused to produce the aforesaid sale and purchase agreements to the Trustees. The Trustees adduced no evidence to such effect. I have found in section (2g) above that the Trustees have failed to prove that the Vehicles were transferred with a view to defeat Lau’s creditors’ claims. In view of the aforesaid disclosure by Lau in respect of disposal of the Vehicles, I do not agree that Lau had breached section 129(1)(a) of the BO.

(5b) Breach of section 129(1)(c) of the BO

197.  Section 129(1) of the BO also provides that:

“(1) Any person who has been adjudged bankrupt shall in each of the cases following be guilty of an offence ―

(c) if he does not deliver up to the trustee, or as he directs, all books, documents, papers and writings in his custody or under his control relating to his property or affairs, unless he proves that he had no intent to defraud;” (emphasis added)

198.  The Trustees complained that Lau failed to deliver up to the Trustees documents and papers in his custody or under his control relating to his property or affairs. The Trustees referred to Lau filing an affirmation dated 9 August 2019 exhibiting various documents previously requested by the Trustees only after the court had ordered him to do so pursuant to the Discovery Order.

199.  The Trustees further referred to Lau not providing to the Trustees documents relating to his UK income tax returns despite requests from the Trustees since 6 February 2020 until 9 April 2021 (pp 1080-1181) and after Lau received a penalty notice from the UK tax authorities.

200.  Mr Chung submits that Lau had delivered all books, documents, papers and writings in his custody or under his control relating to his property and affairs albeit late for a considerable amount of time.

201.  Section 129(1)(c) of the BO refers to Lau did not deliver up to the Trustees all books, documents, papers and writings relating to his property or affairs. In the Trustees’ own case Lau had delivered up to the Trustees documents requested by the Trustees, albeit late and after repeated requests or court order. I do not see that in such case Lau was in breach of section 129(1)(c) of the BO.

(5c) Breach of section 129(f) of the BO

202.  Section 129(1)(f) of the BO further provides that:

“(1) Any person who has been adjudged bankrupt shall in each of the cases following be guilty of an offence ―

(f) if he makes any material omission or misstatement in any statement relating to his affairs, unless he proves that he had no intent to defraud.”

203.  The Trustees complained that Lau concealed certain wines worth about £250,000 (the “Wines”) kept in his account held with Corney & Barrow (“C&B”).

204.  In the SOA, Lau disclosed that he had held a bank account at Coutts Bank (the “Coutts Account”) on trust for APIL. When the Trustees reviewed the bank statement of the Coutts Account in April or May 2022, the Trustees noted that there were payments made to C&B from November 2017 to January 2019 totaling about £40,000. Further investigation showed that Lau had an account held with C&B keeping the Wines. The Wines were not disclosed in the SOA. The Trustees submits that this is a “deliberate and calculated omission of a valuable asset (located outside of Hong Kong) from the Bankrupt’s SOA.” ([20] of PC 17)

205.  Lau’s case is that the account with C&B was held by him as trustee for APIL. Lau explained in LY 7 that opening a personal account at a wine merchant such as C&B involved minimal administrative burden but it was more onerous and time consuming to open a corporate account at C&B due to the requirement to provide various documents about the company. His case was that from the time of its inception in 2013, the C&B account never functioned as his personal account but served the purpose of purchasing and storing wines belonging to APIL. Lau said that all purchases and related transactions and movement of stock were made and administered by APIL and all purchases of wines from C&B were paid fully and directly by APIL.

206.  Lau said that as the management and control of the C&B account laid solely with APIL, he did not have the requisite knowledge about the C&B account and its contents to state them in the SOA. Lau further explained in [7] of LY 7 that:

“7. For those reasons, I had always regarded the Account [ie the C&B account] and its contents as assets that belonged to APIL. Naturally, it never occurred to me when I was filling in the SOA that I would also need to include the Account and its contents in the SOA.”

207.  In [9] of LY 7 Lau had the following explanation for the payment of £40,000 from the Coutts Accounts to C&B:

“9. … … I clearly declared the Coutts Account in the SOA and the Trustees have known since the submission of the SOA that I was holding the money in the Coutts Account on trust for APIL.”

208.  After receiving LY 7, the Trustees enquired with C&B and was advised that C&B only had a single account application form. A corporate account customer would need to provide evidence of their business registration. C&B considered that it was not more burdensome to open a corporate account over a private account in 2013 (pp 1621-1624).

209.  The Trustees also reviewed the audited financial statements of APIL for the years ended on 31 March 2014 and 31 March 2018 as well as its general ledger trial balance for the period from 1 April 2018 to 31 March 2019. The Trustees found no reference to any wine investments being made by APIL nor any accounting entries suggesting that APIL had acquired the Wines for its own benefit. ([10]-[11] of PC 17)

210.  Lau agreed that neither he nor APIL had provided any contemporaneous supporting documentary evidence to support the alleged beneficial interest of APIL in the C&B account but contended that the absence of such documents in commercial arrangements of this kind was commonplace and routine. ([11] of LY 7)

211.  Lau complained that the Trustees had obtained the statements of the Coutts Account in or around October 2020 but did not raise this matter arising out of the Coutts Account until filing of PC 16 in May 2022 shortly before the hearing in August 2022.

212.  The aforesaid complaint of Lau is not without merits. This matter relating to the Wines was not raised until 25 April 2022 (pp 1508-1510), ie about 10 months after issuing of the Summons. Furthermore, Lau has not had sufficient time before the hearing for the Application to deal with the accusations of the Trustees against him made in PC 17 which was filed on 20 July 2022. It is not fair to Lau for this court to make findings on whether the Wines belonged to Lau or APIL for the purpose of the Application based on current evidence placed before me.

213.  The Trustees only referred to payments made out of the Coutts Account for purchase of wines held by C&B. Lau had declared in the SOA that the Coutts Account was held by him on trust of APIL. It is not the Trustees’ case that Lau had made false statements in the SOA. Whether the Wines belonged to Lau is still uncertain. If the Wines belonged to APIL as claimed by Lau, he had no intent to defraud in not including the Wines in the SOA.

214.  I find that the Trustees have failed to prove on balance of probabilities that Lau has breached section 129(f) of the BO.

Non-disclosure of Madam Tsang’s alleged beneficial interest

215.  The Trustees received various letters from end of January to March 2022 from various solicitors firms, purportedly acting for Madam Tsang, claiming that Madam Tsang had filed for divorce from Lau in Hong Kong and was claiming a purported beneficial interest in all of Lau’s properties including the London Properties and the Queensland Property.

216.  The Trustees complained that throughout his entire period of bankruptcy, Lau never for once mentioned that Madam Tsang had a beneficial interest in the properties under his name.

217.  In the SOA, Lau stated that he owned the London Properties and the Queensland Property. The SOA did not state that any other person had interest in either the London Properties or the Queensland Property.

218.  Madam Tsang filed a caveat with the Queensland Titles Registry on 24 August 2021 against the Queensland Property alleging equitable interest in the Queensland Property (the ‘Caveat”) (p 1465).

219.  The Trustees complained that Lau ought to have drawn their attention to Madam Tsang’s potential claims on the Queensland Property.

220.  It is not uncommon for a wife in divorce proceedings to claim beneficial interest in the husband’s properties. It is also not uncommon for a wife to have made contributions in one way or the other to the accumulation of family assets registered under the husband’s name. It is beyond Lau’s control as to whether Madam Tsang will assert any equitable claims against his properties in a divorce. It is unfair to blame Lau for not drawing the Trustees’ attention to such potential claim of Madam Tsang. The Trustees’ criticism against Lau is misconceived.

221.  There is also no evidence showing that Madam Tsang was directed or procured by Lau to claim against the Queensland Property or Lau’s other properties. As such, Lau shall not be held answerable for Madam Tsang’s acts which acts are not uncommon amongst parties to divorce.

The Trustees’ future investigation

222.  The Trustees submitted that they had experienced significant difficulties in their investigation of Lau’s affairs during the administration which was mainly caused by Lau’s non-cooperation and limited resources in the bankruptcy estate.

223.  The Trustees referred to possible investigation into the underlying assets of APIL in the event of the Share Transfer being successfully set aside. The Trustees submitted that according to a group chart disclosed by Madam Tsang in the Share Action, APIL held a significant number of subsidiaries and various assets.

224.  The Trustees also referred to possible investigation into Lau transferring his shares in Evershine to Noble Ace in the event that the share price for Evershine shares should recover from the HK$0.01 level they were traded at June 2021.

225.  The Trustees also have to investigate into various claims from Lau’s various family members, including the Father, LS, LM and Madam Tsang asserting beneficial interest against various assets of Lau.

226.  The Trustees also referred to the need to investigate the role that Rich All had played in Lau’s affairs. Rich All, an indirect subsidiary of APIL, was transferred to People Alliance Group Limited on 24 October 2017 (shortly after Lau was adjudged bankrupt). Lau had been the sole director of Rich All since its incorporation on 9 December 2014 until he resigned on 4 September 2017, ie one day before Lau was adjudged bankrupt. Madam Tsang was appointed as director of Rich All on the same date when Jason Ling, Lau’s associate was also appointed as its director on 3 November 2017. The Trustees believed that the gift away of Rich All was also an important step in Lau’s scheme to transfer away or dissipate his various assets with intent to defraud creditors which required thorough investigation.

227.  The Trustees estimated that subject to Lau’s cooperation and the resources available, it might take another three to four years to complete their various investigation in the administration of Lau’s estate. The Trustees contended that the Automatic Discharge would prejudice the administration of Lau’s estate and their further investigation as the Trustees would unlikely gain any cooperation once Lau was discharged and once Lau was discharged, he would have much greater liberty to deal with his hidden assets and enter into other arrangements to hide his assets causing further difficulties to the Trustees’ investigation and realization works.

228.  I agree that the non-cooperation of Lau has no doubt caused difficulties to the Trustees’ investigation and prolonged the process of their investigation. However, the insufficiency of resources in Lau’s estate has nothing to do with Lau and is not a factor which the court will take into account in considering whether the running of the Relevant Period shall be suspended or if so for how long. The court may not assume that further investigation of the Trustees will definitely lead to recovery of assets and thus the present lack of resources in Lau’s estate was caused by Lau’s non-cooperation which has delayed the Trustees’ investigation.

Other matters

229.  The Trustees also complained that Lau had failed to assist the Trustees to gain access to the Coutts Account.

230.  Lau’s case was that he was holding the Coutts Account for APIL and the login device for the Coutts Account was kept by APIL. However, the Trustees’ investigation showed that no login device was necessary for access to the Coutts Account (p 1516). Lau maintained that he had already returned the login device and the login credentials to APIL immediately after the bankruptcy. As such, he no longer had any control over the Coutts Account and any transfers that occurred in the Coutts Account after he handed the login device and the login credentials to APIL after his bankruptcy occurred without his knowledge or participation.

231.  Whether the Coutts Account was held by Lau on trust for APIL is certainly a matter which the Trustees are duty-bounded to look into. Lau is duty-bounded to assist the Trustees in their investigation. As he was the holder of the Coutts Account, he could and should have assisted the Trustees to access to the Coutts Account to conduct their investigation. To refuse providing assistance or cooperation to the Trustees under the pretext of not having possession of the login device or login credentials is wholly unacceptable.

232.  I find that Lau has failed to cooperate with the Trustees in their investigation on the Coutts Account and such conduct is unsatisfactory.

233.  The Trustees complained that Madam Tsang also adopted an uncooperative attitude and did not attend interview with the Trustees until 24 January 2018. The Trustees were also dissatisfied with the answers given by Madam Tsang at her interview. I am not aware of authorities holding a bankrupt answerable to the conduct of a third parties (even that third party is the spouse or close relative of the bankrupt) unless there are evidence to show that such third party’s non-cooperation was directed or procured by the bankrupt. The Trustees produced no such evidence. I do not see that this complaint of the Trustees will assist the Trustees’ case in the Application.

234.  The Trustees contended that Madam Tsang had been assisting Lau in concealing and/or ring-fencing his assets from the reach by the Trustees and Lau’s creditors, and to obstruct the Trustees from accessing and realizing Lau’s assets. ([34] of PC 15) The Trustees are alleging fraud against Lau. I agree with Mr Chung that the standard of proof for the party alleging fraud in civil proceedings is higher than other allegations due to the seriousness and gravity of the allegation. Mr Chung refers to Lee Yuk Shing v Dianoor International Ltd (in liquidation) [2016] 4 HKC 535 when Kwan JA stated that:

“Bearing in mind the seriousness and gravity of the misconduct alleged, recognition must be given to an inherent degree of improbability of its occurrence. Whilst an inference of fraud may be drawn on the basis of circumstantial evidence where direct proof is not available, such an inference must be properly grounded in the primary facts found and the court must guard against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question. There is the need for such a disciplined approach to the drawing of inferences, in particular for inferences of fraud or serious misconduct to be drawn only where such inferences are compelling.”

235.  Whether Lau had been concealing and/or ring-fencing his assets are still matters to be determined in the Share Action. I have no doubt of Madam Tsang’s involvement in the Share Action as she and her children are beneficiaries of the JL Trust. She has her own interest to assert in the Share Action. Her involvement in the Share Action is no basis for the Application unless there is evidence to show that such involvement has been directed by Lau but the Trustees adduced no such evidence.

236.  The Trustees also complained that Lau’s family members including Madam Tsang, Lau’s father and brothers had claimed beneficial interest in properties registered under Lau’s name and thus causing obstructions to the Trustees’ efforts to realize Lau’s assets. Mr Ng for the Trustees put in his speaking notes for the hearing that:

“9. B [ie Lau] has many undesirable conducts set out in TIB’s [ie the Trustees’] affis [ie affirmation]. The central complaint would be the obstruction to TIB’s recovery and realisation of assets”.

237.  As in the case of Madam Tsang, the Trustees produced no evidence to show that Lau’s father and brothers acted under Lau’s directions in asserting their beneficial claims which are still subjects of various on-going litigations.

238.  I agree that Lau is duty bounded to render full cooperation to assist the Trustees to deal with those beneficial claims alleged by these third parties on assets registered under Lau’s name so that the Trustees will be in a position to properly assess their claims and to decide how to deal with those claims properly without incurring unnecessary costs for Lau’s estate. However, as there is no evidence to show that those claims were directed or procured by Lau, I do not see that Lau should be answerable for the claims asserted by his family members.

239.  In LY 6, Lau referred extensively to the background leading up to his bankruptcy and his purported relationship with HSBC. He made numerous statements in relation to his alleged misconceived trust in Cai and the alleged arbitrary acts of HSBC. As the Trustees pointed out: “the Bankrupt’s dealing with HSBC and the events and circumstances leading to the Bankruptcy Order made against the Bankrupt have been argued and adjudicated before DHCJ Le Pichon in HCB 104/2017 and Hon Yuen JA, Kwan JA and Barma JA in CACV 213/2017.” ([9] in PC 15) I agree with the Trustees that such matters are of little relevancy to the Application other than forming the background for the Application. No matter what were the reasons leading to Lau’s bankruptcy, they would not relieve him from his statutory duties to cooperate with the Trustees in the administration of his estate or justify his unsatisfactory conduct during bankruptcy found by this court.

Findings on grounds of objection

240.  After considering all the complaints raised by the Trustees and the answers of Lau to those complaints, I shall now turn to whether the Trustees have established any, if so which, ground(s) of objection as stipulated in the Summons.

Ground (b) objection

241.  Under Ground (b), the Trustees contended that the discharge of Lau would prejudice the administration of his estate.

242.  The Trustees contended that the Automatic Discharge would prejudice the administration of Lau’s estate since further investigation would be necessary but the Trustees would unlikely gain any cooperation once Lau was discharged.

243.  Lau contended that there was no correlation between his discharge and the administration of his estate being jeopardized. Lau submitted that: “I totally understand that, notwithstanding my discharge, I shall continue to give such information in respect of my affairs and attend on the Trustees as the Trustees require for the purpose of completing the administration of my estate.” ([159] of LY 6)

244.  Where the bankrupt has failed to reveal the extent and whereabouts of his assets or answer the trustees’ queries promptly, the court had held that automatic discharge would prejudice the administration of the bankrupt’s estate since further investigation would be necessary but the trustees would unlikely gain any cooperation once the bankrupt was discharged. (See Re Li Tat Kong [2000] 3 HKC 360 and Re Leung Yat Tung (supra))

245.  Whether administration of Lau’s estate would be jeopardized after the discharge of the Lau would depend on whether Lau would cooperate, provide information to the Trustees and assist the Trustees in recovering the pre-discharge assets of Lau.

246.  Lau claimed in the SOA that his assets worth HK$94,768,244.05, US$9,353,567.04, £6,020,890.87, SGD52,645.21, AUD1,673,105.38 and CNY122,450.91 (pp 1921-1925). However , as at the date of PC 11, “so far there has been no meaningful realisation of the Bankrupt’s property and distribution of proceeds amongst the creditors.” ([15] of PC 11). Lau alleged that his various assets were held on trust for others but failed to provide a single piece of document to substantiate the alleged trusts. Lau also failed to provide full information to the Trustees to enable the Trustees to investigate these alleged trusts. The real extent of Lau’s estate remains unknown to-date. His estate cannot be properly and fairly ascertained, gathered in and distributed for the benefit of his creditors without further in-depth investigation into his financial affairs.

247.  As the Official Receiver in the Leung Yat Tung case (supra), the Trustees in this case are “still in the midst of investigations which may lead to the disgorgement of very substantial assets. Going by his attitude so far as a bankrupt, realistically it is unlikely that the [Trustees] would be able to gain any cooperation once [Lau] is discharged.” (See para 74 of the judgment)

248.  The overall position on administration of Lau’s estate together with the various outstanding legal proceedings relating to realizing Lau’s assets do suggest that discharging Lau from bankruptcy now would likely prejudice the administration of his estate. I find that the Trustees have established the Ground (b) objection.

Ground (c) objection

249.  Under Ground (c), the Trustees contended that Lau had failed to cooperate with the Trustees in the administration of his estate.

250.  In the Li Tat Kong case (supra), Le Pichon J stated at 377C-D that:

“What does co-operation mean? In Totterdell v Nelson (1990) 97 ALR 341, the Full Court of Australia observed (at 346):

Nor is it really right to say, because no evidence was led of specified requests ignored by the bankrupt, that there was lacking any evidence of non-cooperation. Co-operation is a positive concept.

I would respectfully agree.  In my judgment, it is incumbent on the bankrupt to make a full and frank disclosure and to proffer all pertinent information regarding his assets and financial dealings to the trustee.”

251.  Cooperation being a positive concept has been expressly set out in the BO when the bankrupt is statutory required by section 26(3) of the BO to aid the trustees to the utmost of his power in the realization of his property.

252.  Section 26(3) of the BO provides that a bankrupt “shall aid to the utmost of his power in realization of his property and the distribution of the proceeds among his creditors.” A bankrupt shall pro-actively reveal the complete picture of his financial affairs to the trustee, and where pieces do not appear to fit, in that his conduct appear to be inconsistent, it is for him to explain the inconsistencies and convince the trustee of the true state of affairs. ([62] of Re Leung Yat Tung (supra))

253.  As Yuen JA pointed out in the Lee Raymond Cho-Min and Lee Priscilla Hwang cases (supra), “not only should a bankrupt not resist the trustees in their efforts to get in his assets, he still fails in his statutory duty if he just remains inactive when called upon to act. He has a positive duty to actively assist the trustees.” (See para 16.4 of the judgment)

254.  After the Bankruptcy Order was granted, Lau should have cooperated with the Trustees to take custody of his properties. But for Lau’s failure to submit his SOA within the time stipulated by section 18(1) of the BO and his failure to cooperate with the Trustees to take custody of his various properties, the Trustees would not need to incur costs and expenses in commencing the various legal proceedings. As in the Lee Raymond Cho-Min and Lee Priscilla Hwang cases (supra), Lau “did not assist the Trustees but took an active part challenging [the UK Application], thus rendering the Trustees’ work more onerous and leading to more costs being incurred in the administration of [Lau’s estate].” (See para 23 of the judgment)

255.  Mr Chung for Lau submits that Lau was struck by the monumental and prodigious fall from grace and was experiencing a period of mental reckoning and denial and any assessment of his level of cooperation and participation in the process must be examined in conjunction with his state of mind as a first time bankrupt.

256.  I have read LY 6 and accept that to Lau “the bankruptcy proceedings and the subsequent change in circumstances represented a monumental and prodigious fall from grace” and “[t]here was bound to be a period of mental reckoning and denial.” ([48] of LY 6) However, this is no explanation for his failing to cooperate with the Trustees throughout his four years of bankruptcy period.

257.  All first time bankrupts will likely experience a period of mental reckoning but this is not an explanation nor an excuse for not cooperating with the Trustees throughout the four years of bankruptcy period. The Interview did not take place until about two months after the Bankruptcy Order. Lau had been allowed reasonable time to adopt himself to the reality of bankruptcy. I note that Lau had the mental strength to lodge his appeal against the Bankruptcy Order on 26 September 2017; to challenge the UK Application in January 2020; and to deal with the London Properties in 2020 and 2021. I also note that Lau had legal representation in dealing with various matters during his bankruptcy including attending the Interview. I do not accept the aforesaid explanation or excuse of Lau for his non-cooperation during bankruptcy.

258.  Mr Chung further submits that even if some of the information being sought was not provided by Lau at the first available opportunity, he nevertheless was able to provide it once he had an opportunity to gather his wits and collect the documents that contained the said information. Therefore, neither the Trustees nor the creditors suffered any prejudice due to the somewhat late provision of some of this information. ([12] of Written Submissions for the Bankrupt)

259.  Mr Chung’s aforesaid submission is contradicted by evidence adduced before this court. The evidence shows that Lau did not provide the information requested by the Trustees “once he had an opportunity to gather his wits and collect the documents that contained the said information” but only after the Trustees took out the Examination Summons and after the court granted the Discovery Order against him. If Lau had been cooperating with the Trustees, the Trustees would not need to incurred the costs and expenses for the Examination Summons application. But for the non-cooperation of the Lau, substantial time and costs of the Trustees could have been saved for investigating into Lau’s affairs before the Trustees took out the Examination Summons application.

260.  After disclosure pursuant to the Discovery Order, Lau’s attitude did not improve much. In ONC’s letter dated 17 June 2021 to HA (p 1213), the Trustees were still chasing Lau for answers to the Trustees’ letter dated 7 May 2021 (pp 1186-1188). In the Trustees’ letter dated 7 May 2021, the Trustees were chasing for answers to their letters dated 6 February 2020 (p 1078). In other words, as at 17 June 2021, Lau still had not answered questions raised by the Trustees in February 2020.

261.  It is also not true for Mr Chung to submit that: “The Trustees never made requests for further and better particulars from the Bankrupt relating to these questions [outstanding at the Interview] afterwards, and it is reasonable for one to assume that the Trustees were satisfied with the Bankrupt’s answers and hence decided there was no need to seek further clarification.” ([13] of Written Submissions for the Bankrupt) A letter dated 13 November 2017 from the Trustees to H&P (Lau’s then solicitors) clearly showed that the Trustees had repeatedly requested Lau to attend a further interview immediately after the Interview. (p 10) A list of information outstanding at the Interview (ie the List) was enclosed as Appendix 1 to the aforesaid letter. Similar requests were reiterated by ONC, the Trustees’ solicitors, on 8 December 2017 by letter to TCW, Lau’s then solicitors. (PP 18-20) Lau’s failure to provide the outstanding information eventually led to the Trustees taking out the Examination Summons on 12 February 2018.

262.  It is clear that Lau did not assist the Trustees, nor even stay neutral, but instead sought to challenge the Trustees’ actions which were taken in the performance of their statutory duties. In resisting the UK Application, Lau was in breach of his statutory obligations under section 26(3) of the BO. It is far from “minor non-compliance” as suggested by Mr Chung in [14] of Written Submissions for the Bankrupt. It is clearly beyond argument that the Trustees had a statutory duty to obtain Lau’s property and Lau had a statutory duty to aid them. (See the Lee Raymond Cho-Min and Lee Priscilla Hwang cases (supra)) The aforesaid conduct of Lau, to say the least, was uncooperative and unsatisfactory.

263.  I agree with Mr Chung that the court shall only make a finding that the bankrupt did not cooperate under Ground (c) if there is evidence to show that he did not proffer all pertinent information and answer the trustees’ queries in a prompt and timeous manner. This is exactly what has happened in the case before me. In fact, Lau’s non-cooperating conduct went beyond that. He opposed the UK Application with a view to obstruct the Trustees carrying out their statutory duties in the UK.

264.  I find Lau’s conduct of failing to submit his SOA and A/Ss within the time stipulated in the BO; failing to provide information and documents requested by the Trustees timeously; and resisting the UK Application amount to failure to cooperate with the Trustees to administer his estate and was unsatisfactory conduct. I find that objection based on Grounds (c) is established.

Ground (d) objection

265.  Referring to their aforesaid complaints against Lau discussed above, the Trustees concluded in PC 11 that:

“167. In light of the facts deposed to above, it appears obvious to the Trustees that the Bankrupt whilst not providing any cooperation to discover his assets, was hiding substantial assets and using hidden fund to finance the numerous litigations with the sole purpose of impeding the Trustees’ efforts to discover and realise his assets. As such, the Trustees respectfully submit that the conduct of the Bankrupt, in respect of the period before and the period after the commencement of the bankruptcy, has been wholly unsatisfactory.”

266.  As pointed out by DHCJ Saunders in the Injunction Decision, the Trustees’ allegations had not been tested at trial. To say that Lau “using hidden fund to finance the numerous litigations” was only speculation of the Trustees.

267.  However, the uncooperative conduct of Lau as discussed in relation to Ground (c) objection above and Lau’s dealing with the London Properties as well as his pre-bankruptcy order acts of creating the APIL Charges at undervalue also amount to unsatisfactory conduct. I find that objection under Ground (d) is also established.

Ground (g) objection

268.  As discussed above, the Trustees’ complaints against Lau for breaches of sections 129 of the BO are not established.

Findings on grounds of objection

269.  I find that the Trustees have established objection under Grounds (b), (c) and (d). However, the Trustees fail to establish their objection under Ground (g).

270.  I shall now consider whether I shall order the Relevant Period to cease to run? If so, for how long?

Whether to extend the bankruptcy period of Lau

271.  It has been pointed out by Le Pichon J (as she then was) in Re Hui Hing Kwok [1999] 3 HKC 683 that the purpose of sections 30A(1) and (2) of the BO aims at rehabilitation of the bankrupt. Her Ladyship observed at 687 that:

“Rehabilitation in the sense of enabling the bankrupt to resume a normal life in society is a key, if not the key, consideration. It should only be delayed by a bankrupt’s own failings.” (original emphasis)

272.  As pointed out by Barma J (as he then was) in Re Wong Hing Wah Michael(supra) that:

“14. … … In determining whether or not a suspension should be ordered, the court will have regard to all the circumstances of the case, including the nature of the acts complained of and the post-bankruptcy conduct of the bankrupt.”

“17. If it is concluded that the conduct complained of is unsatisfactory, the court moves on to the second stage of considering whether or not it should exercise its discretion to order a suspension of the automatic discharge of the bankrupt, and if so, what length of suspension is called for. At this stage, it will be appropriate to consider not only the conduct complained of, but also other factors such as the post-bankruptcy behaviour of the bankrupt.”

“19. … … Whether a suspension is merited will, I think, depend in part on the nature of the conduct in question and in part on such factors as whether or not the bankrupt has been cooperative with his trustee, whether or not he has complied with his obligation under the [Bankruptcy] Ordinance, and his general conduct of his affairs during his bankruptcy. … …”

“20. That said, bearing in mind the policy of rehabilitation, I would accept that save in very serious cases, a suspension of automatic discharge in respect of unsatisfactory pre-bankruptcy conduct is likely to be for a shorter period than might be ordered in a case in which a bankrupt had been guilty of other, post-bankruptcy ground for suspension, where a longer period of suspension may well be called for so as to ensure that the bankrupt properly complies with his obligations.”

273.  If a bankrupt wishes to obtain the opportunity of rehabilitation provided by our bankruptcy system, he/she has to properly perform his/her duties as a bankrupt during his/her bankruptcy period. Otherwise, our bankruptcy system cannot work properly.

274.  In the Lau Chi Kam case (supra) the CA pointed out that in exercising the discretion to suspend the automatic discharge of a bankrupt the court shall bear in mind the two main objectives of our bankruptcy system referred to in [14] above.

275.  Thus in the Lee Raymond Cho-Min and Lee Priscilla Hwang cases (supra), Yuen JA affirmed that when considering whether or not, in the exercise of the court’s discretion, a suspension of discharge should be ordered the court should have regard to all the circumstances of the case, including the nature of the acts complained of and the post-bankruptcy order conduct of the bankrupt and bearing in mind the two main objectives of this part of the BO as set out in the case of Lau Chi Kam (supra).

276.  The debts owed by Lau was substantial. In the SOA, Lau disclosed net liabilities in the region of HK$314,049,081.71 (pp 1926-1932). The Trustees had received proofs of debts claiming for more than HK$1,579 million against Lau’s estate. Yet Lau has failed to cooperate with the Trustees in recovering assets for his estate.

277.  Lau’s failure to cooperate with the Trustees renders the Trustees unable to ascertain the full extent of his properties. His creditors have for certain suffered.

278.  Lau’s overall post-bankruptcy order conduct shows his total lack of commercial morality. I am of the view that our society will not be prepared to condone such conduct without expression of disapproval. As such, in exercise of my discretion, I shall suspend the running of the Relevant Period and extend Lau’s bankruptcy period.

279.  When determining the appropriate period of suspension, I bear in mind that the period should commensurate with the gravity of the bankrupt’s conduct with 4 years being the maximum for a first time bankrupt. (See Re Lok Wing Sang(supra)) In the Leung Yat Tung case (supra), Yuen JA stated in para 76 of the judgment that the maximum period of suspension should be reserved for the most egregious cases.

280.  In Totterdell v Nelson(supra) the Federal Court of Australia cited at 344 the following observation of Burchett J made in Re Weiss: Ex parte Official Trustee in Bankruptcy (unrep, Federal Court of Australia, 27 June 1986):

“There may be cases where it would be unfair to a bankrupt to delay his discharge by reason of an incomplete investigation, lethargically pursued, to the torpor of which he has not contributed.”

281.  However, in that very paragraph of Re Weiss cited, the learned judge went on to say that: “But no such unfairness may appear where there has been concealment or lack of cooperation on [the bankrupt’s] own part.” Burchett J further observed in the same paragraph that:

“An essential part of the reciprocal provisions made by the bankruptcy law for the benefit of each of creditors, debtors, and the community itself, is that there should be an adequate investigation of the conduct and affairs of the bankrupt. In a case presenting features which call for an exercise of discretion upon the question when and on what terms the bankrupt should be discharged, the investigation should generally be carried to a conclusion before a discharge is granted or permitted to occur.”

282.  The approach of the Australian court was approved by Le Pichon J (as she then was) in the Li Tat Kong case (supra) when Her Ladyship held that when the court exercises its discretion to suspend the automatic discharge of a bankrupt, the court would have regard to the scope and purposes of the statutory provisions conferring the discretion, the interests of commercial morality and the public interest. Before a discharge was granted or permitted to occur, there should be an adequate investigation of a bankrupt’s conduct and affairs, and such investigation should generally be concluded. It was incumbent on the bankrupt to make a full and frank disclosure and to proffer all pertinent information regarding his assets and financial dealings to his trustees. In seeking a discharge, the bankrupt had to show that he had taken all reasonable steps to ensure that his estate was available for distribution among his creditors and that the trustees were appraised of all relevant information; it was not good enough for him to adopt a purely passive or reactive role. Where there had been concealment or lack of cooperation on the part of the bankrupt, it would not be unfair to delay his discharge. (See [2000] 3 HKC 377D-378C)

283.  In this case, the Trustees were unable to complete the administration of Lau’s estate deal to his failure to cooperate with the Trustees to provide them with the necessary information and documents timeously. As pointed out by Yuen JA in the Leung Yat Tung case that: “Where the bankrupt has only disclosed information in dribs and drabs, it lies ill in his mouth to complain of delay on the part of the OR … …”. (See para 69 of the judgment)

284.  The difficulties encountered by the Trustees in their investigation into the affairs and assets of Lau were largely (if not solely) caused by Lau’s failure to cooperate with the Trustees in failing and/or refusing to provide information and supporting documents in relation to his assets. I see no injustice or unfairness in extending Lau’s bankruptcy period. In the words of Le Pichon J (as she then was), Lau’s rehabilitation was delayed by his own failings. (See [271] above)

285.  Mr Chung refers me to various cases, when the court suspended the running of the Relevant Period for the bankrupts concerned from 3 months to 4 years, to submit that for Lau’s case the appropriate period of suspension should last up to the date of the court’s ruling on the Application.

286.  The length of suspension in each case has to be determined in accordance with its own factual matrix. Decided cases may serve only as guides and not as authorities.

287.  In the circumstances of this case, I am of the view that extending the bankruptcy period of Lau for two years is appropriate. Accordingly, I order that the Relevant Period shall cease to run for two years commencing from 4 September 2021.

Costs

288.  The Application is caused by Lau’s misconduct. Lau, instead of his creditors, shall be held liable for his misconduct. I make an order nisi that Lau shall personally bear the costs for the Application to be assessed by summary assessment and to be paid by Lau after his discharge from bankruptcy. Such costs shall initially be paid out from Lau’s estate to the Trustees if there is sufficient fund in Lau’s bankruptcy estate and Lau shall forthwith reimburse his bankruptcy estate for such costs after his discharge from bankruptcy. If Lau’s estate does not have sufficient fund to pay such costs, the balance is payable by Lau to the Trustees forthwith after his discharge from bankruptcy.

289.  The aforesaid costs order nisi shall become absolute 14 days after the date of this decision unless application is received within the aforesaid 14 days’ period from either party to vary the same.

290.  I further direct the Trustees to submit their statement of costs for the Application to the court with copy to Lau within 14 days after the aforesaid costs order nisi has becomes absolute. Lau shall submit to the court with copy to the Trustees his comments (if any) on the Trustees’ statement of costs within 14 days thereafter. The court will then assess the costs payable by Lau for the Application by summary assessment by way of paper disposal.

Mr L Ng of ONC Lawyers for the Applicant Trustees

Mr Hylas Chung and Mr Ubaid-Ur Rehman instructed by Humphrey & Associates for the Bankrupt

Attendance of the Official Receiver being excused

HCB 104/2017

[2022] HKCFI 604

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 104 OF 2017

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D E C I S I O N

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1.  I dismiss the 2^nd Respondent’s summons of 10 September 2021 which seeks leave to file and serve a fresh affirmation in place of the 4^th Affirmation of Chan Chung Yi for the following reasons.

2.  It is not clear what the jurisdictional basis of such an application is.

3.  As regards the part of the summons which amounts to replacing Ms Chan’s 4^th affirmation, the 2^nd Respondent is not saying that it seeks to expunge the affirmation from the court file.  It is content to leave it on the file.  Insofar as the 2^nd Respondent is saying that it does not wish to rely on Ms Chan’s 4^th affirmation, it does not need a court order for this purpose.

4.  As regards the part of the summons which amounts to filing a “fresh affirmation” from Mr Li, this amounts to an application for leave to file an (as yet unseen) affirmation which is very much out of time.  Directions for the filing of evidence for the Rule 117 application were given by G Lam J on 11 May 2021 which provided that the 2^nd Respondent’s affidavit in reply was to be filed and served within 21 days of the affidavit in opposition, and that no further evidence was to be received without leave of the court.  Insofar as it is being said that Ms Chan’s wish not to be cross examined is the reason for putting forward a new affirmation from another deponent out of time, this is not a good ground for the court to exercise its discretion in the 2^nd Respondent’s favour; the possibility that the Trustees might apply to cross examine Ms Chan is a matter which the 2^nd Respondent could have considered when deciding who should be giving evidence on its behalf in the first place, in the same way that the 2^nd Respondent checked with Mr Li that he is agreeable to being cross examined before he made any affirmation.

5.  The reasons advanced in the 2^nd Respondent’s skeleton in support of the application do not address these points, and do not otherwise take the matter further.

(1)   The 2^nd Respondent says in paragraph 31 of its skeleton that no prejudice would be caused to the Applicant by the substitution. But as the Trustees submit, one of the grounds in support of the application to cross examine Ms Chan is that there are contradictions between her evidence in the current proceedings and that given in HCMP 1076/2020. If the 2^nd Respondent were allowed to put forward a new deponent, the Trustees would not be able to test these contradictions, which would be prejudicial to their stance as to the genuineness of the agreements which are said to have been made between the Bankrupt and the 2^nd Respondent.

(2)   The 2^nd Respondent says in paragraph 32 of its skeleton that the new deponent Mr Li would be able to travel to Hong Kong if given sufficient advance notice.  This does not address the issue of why substitution of the deponent should be allowed in the first place.

6.  In any event, the application does not address the concern given by the 2^nd Respondent for making the application, since the Trustees’ O.38 application is that if the 2^nd Respondent wants to rely on either Ms Chan’s 3^rd or 4^th affirmation, they will ask for cross examination of Ms Chan, so that even if her 4^th affirmation is “swapped”, presumably the Trustees would still apply to cross examine Ms Chan on her 3^rd affirmation.

7.  To the extent necessary, I also accept Mr Ng’s argument that to justify such an extraordinary application, it would be necessary to demonstrate good grounds.  Mr Cheung submitted that Mr Li was a more suitable deponent than Ms Chan, but as Mr Ng points out, and Mr Cheung does not dispute, Mr Li was not a director of the 2^nd Respondent at the time of the impugned transactions set out in Ms Chan’s 3^rd affirmation at paragraph 5.  The 2^nd Respondent says that Mr Li is the Bankrupt’s business partner, willing to attend court and willing to be cross examined.  That to my mind does not constitute good ground to justify this unusual course.

8.  I therefore dismiss the application.  I will hear the parties on costs.

HCB 104/2017

[2021] HKCFI 2132

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 104 OF 2017

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J U D G M E N T

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Introduction

1.  On 1 August 2018, DHCJ Saunders granted an injunction order (“Order”) against the 1st and 2nd Respondents.  The relevant parts of the Order provide that:

“1. The 1^st and 2^nd Respondents, whether by themselves or their officers, directors, employees, servants or agents or otherwise be restrained from withdrawing, transferring, disposing of or otherwise dealing with the funds or assets held in all of the 2^nd Respondent’s bank accounts maintained with HSBC (the ‘HSBC Accounts’), including but not limited to the bank accounts listed in Schedule 2 at the end of this Order until further order is made, or unless the Respondents obtain the prior written consent of the Applicant.

2. The 1^st and 2^nd Respondents, whether by themselves or their officers, directors, employees, servants or agents or otherwise be restrained from withdrawing, transferring, disposing of, diminishing the value of or otherwise dealing with the 2^nd Respondent’s other assets (i.e. other than funds and assets in the HSBC Accounts), including but not limited to the 2^nd Respondent’s shares in its subsidiaries, cash, funds, deposits, shares, listed securities, immovable properties, motor vehicles and all other movable properties situated in Hong Kong and overseas (‘Other Assets’), whether these are in the name of the 2^nd Respondent or not and whether solely or jointly owned or controlled, directly or indirectly, by the 2^nd Respondent, until further order is made, or unless the Respondents obtain the prior written consent of the Applicant.

3. Provided that nothing in the aforementioned Paragraphs 1 and 2 shall prevent the 1^st and 2^nd Respondents from carrying on trading activity (if any) in the ordinary course of business.”

2.  There is before this court the 1st and 2nd Respondents’ application by summons dated 15 December 2020 (“Summons”) to vary the Order by incorporating the following “EXCEPTIONS TO THIS ORDER” in the Order:

“This Order does not prohibit the Respondents from utilising the HSBC Accounts for:

a. spending up to HK$273,000.00 per month towards the trading activity in the ordinary course of business of the 2nd Respondent;

b. paying HK$79,262,648.70 of debts of the 2nd Respondent due to its creditors; and

c. paying HK$5,800,077.10 on legal advice and representation incurred and to be incurred by the 2nd Respondent for the actions HCB 104/2017, HCA 2289/2018 and HCMP 107/2020.”   

Background

3.  The factual background to this application can be gleaned from the Decision of DHCJ Saunders on 1 August 2018 (“Decision”). Suffice it for the present purpose to quote the opening paragraphs from the Decision:

“2. The bankrupt, Mr Jaffe Lau Yu (‘Mr Lau’), was the sole shareholder and director of All Powerful Investment Ltd (‘APIL’) since its incorporation in 2009. APIL is a Hong Kong company. APIL has one issued ordinary share and a total share capital of HK$1.00.

3. On 19 December 2014, Mr Lau executed a Deed of Settlement establishing the JL Family Trust (‘the JL Trust’), a trust governed by the laws of the British Virgin Islands (BVI). The trustee is All Powerful Group (PTC) Ltd (‘APG’), a BVI company. That company was incorporated on that same day as the JL Trust. All Powerful Holdings Limited (‘APHL’), also a BVI company, was also incorporated, on 19 December 2014. The sole shareholder in APHL is the JL Trust.

4. On 20 January 2015, a little over four weeks after the establishment of the entities set out in the previous paragraph, Mr Lau transferred the sole issued share in APIL, held by him, to APHL for the sum of HK$1.00 (‘the share transfer’). Mr Lau remained the sole director of APIL until his resignation on 4 September 2017.

5. On 6 January 2017, a petition in bankruptcy against Mr Lau was presented to the High Court by The Hongkong and Shanghai Banking Corporation (‘HSBC’). Mr Lau was adjudged bankrupt on 5 September 2017. On 4 October 2017, the applicants (‘the Trustees’) were appointed as the joint and several trustees of the property of Mr Lau.

6. The presentation of the bankruptcy petition was within two years of the share transfer.

…

The applications

8. As a result of investigations they have carried out, it is the contention of the Trustees that the share transfer undertaken by Mr Lau on 20 January 2015, to dispose of his shareholding in APIL to APHL for the sum of HK$1.00 is void as it constitutes a transaction at an undervalue and is a disposition of property made with intent to defraud creditors.

9. On 12 February 2018, four months after their appointment, the Trustees made application to the Court for a declaration that the share transfer constitutes a transaction at an undervalue pursuant to section 49, of the Bankruptcy Ordinance (Cap 6) (‘BO’), and, pursuant to sections 51A and 58 BO, an order that the share transfer be set aside, and associated orders.

10. At the same time, the trustees sought Chabra injunctions against APHL and APIL, who are not parties to the substantive BO proceedings, but who hold the assets ultimately reflected by the ownership of the single share in APIL.  The Trustees also seek certain disclosure orders against both APHL and APIL.”

4.  One of the reasons why DHCJ Saunders granted the Order was explained in [53] - [54] of the Decision:

“53. The overwhelming inference to be drawn from the absence of an affirmation from Mr Xie is that there are matters that APIL wishes to conceal from the court. In the whole of the circumstances it seems clear that Mr Lau is taking every step possible, not only to ‘ring fence’ APIL’s assets from his creditors, but also to ensure that the reality of Mr Lau’s control of APIL, and up-to-date information in respect of APIL’s assets, are concealed from the court.

54. Accepting, as I do, that the allegations to which I have referred have not been tested, I am satisfied that the evidence goes well beyond raising a serious matter to be tried. There is a very strong case on the evidence before me that Mr Lau is in reality in control of the JL Trust, APHL, and consequently, ultimately APIL.” (emphasis added)

5.  Regarding the Trustees’ application on 12 February 2018 in the present proceedings, it was subsequently converted into a writ action on 2 October 2018 in HCA 2289 of 2018 in which the Trustees seek inter alia:

(1)  an order to set aside the Share Transfer on the basis of an undervalue transaction; and/or a disposition of property with intent to defraud creditors: and/or

(2)  a declaration that the Bankrupt retains beneficial ownership and control of the 2nd Respondent despite the Share Transfer.

6.  As far as the JL Family Trust is concerned, it is a family trust established by the Bankrupt with the beneficiaries being his wife, Madam Tsang Wai Yee Terri (“Madam Tsang”) and their 3 children.  The 1^st Respondent is held by the JL Family Trust.

Deliberation

Legal principles

7.  The relevant legal principles, set out in Hong Kong Civil Procedure 2021 Vol 1 para 29/1/79, can be summarised as follows.

(1)  Assets are only to be released or excepted from a Mareva injunction for a proper purpose.  Where the defendant seeks the release of funds subject to a Mareva injunction to meet certain expenses, the court should consider whether the defendant has shown by sufficient evidence that (a) he does not have other assets available to meet those expenses; and (b) the purpose of the application is not an attempt to dissipate the assets to frustrate the plaintiff’s enforcement of a judgment: Wharf Ltd v Lau Yuen How [2010] 1 HKLRD 783.

(2)  The defendant must make full and frank disclosure to the court: Cathay Pacific Airways Ltd v Luk Shu Keung unrep, HCA 2895 of 2001, 20 April 2010, DHCJ Carlson. 

(3)  The court is, in an appropriate case, entitled to have a “very healthy skepticism” in respect of assertions made by the defendant.  Where the defendant has previously put forward evidence of questionable credibility, the court should take a “very cautious view” of the defendant’s evidence in support of varying the order: Anokh Singh Pannu v Alantic Ltd unrep, HCA 1696 of 2010, [2012] HKEC 669. 

(4)  Where the defendant wishes to pay a debt falling due, he bears the burden of proving its validity: Kanematsu-Gosho (HK) Ltd v Lee Boon Chean [1986] HKLR 59. 

The 2nd Respondent’s ordinary trading business expenses - HK$273,000 per month

8.  At the hearing, Mr Cheung frankly concedes that the 2nd Respondent has no business operations or trading activities.  Further, the 2nd Respondent’s financial statements^[1] show that it was insolvent with total liabilities of over HK$431 million as at 31 March 2019. 

9.  The evidence in support of the 2nd Respondent’s so-called ordinary trading business expenses is in the 1st affirmation of Chan Chung Yi (“Chan 1”) at para 10 as follows:

“… Since all the 2^nd Respondent’s bank accounts are frozen due to the Order, the 2^nd Respondent can only rely on an affiliate, Sure Vantage Limited (‘Sure Vantage’), to handle the office tenancy and to pay the monthly rental of HK$60,000.00 on the 2^nd Respondent behalf. In addition, under the substantial pressure from various legal proceedings including this action, the 2^nd Respondent has engaged a consultancy firm, Buzzer Beat Company Limited (‘Buzzer Beat’), to provide consultancy services including accounting services, company secretarial services, provision of manpower for daily operation in particular to handle documents in relation to the above-said various legal proceedings such as retrieval and compiling of documents etc. The consultancy fee is HK$200,000.00 per month. …” (emphasis added)

10.  It would therefore appear that what the 2nd Respondent is really seeking is payment for its administrative costs ie monthly rental and consultancy fees.  As far as supporting documents are concerned, Mr Chan has produced an invoice from Buzzer Beat Company Limited (“Buzzer Beat”) for consultancy fee for the month of November 2020 in the sum of HK$200,000, an instruction letter to Sure Vantage Limited (“Sure Vantage”), a BVI company, dated 25 May 2020 to sign a lease at Buzzer Beat’s office address effective from 1 June 2020 and a service agreement signed by Buzzer Beat and Sure Vantage (“Service Agreement”) which appears to be for the rental of a serviced office suite at Buzzer Beat’s office address for the monthly fee of HK$60,000. The Service Agreement however was for a term of 1 year from 1 June 2020 to 31 May 2021. 

11.  Sure Vantage is said to be an affiliate of the 2nd Respondent.  There is however no clarification in Chan 1 as to the relationship between the 2nd Respondent and Buzzer Beat.  It is only in the 2nd affirmation of Chan Chung Yi (“Chan 2”) that he explains that Buzzer Beat’s sole shareholder viz Jason Ling Ko Yin (“Jason Ling”) is a close business associate of the Bankrupt and the 2nd Respondent. 

12.  Nor is there any credible explanation as to why the 2nd Respondent which is clearly insolvent and has no business operations or trading activities would need to incur consultancy fees and rental liability of HK$260,000 a month payable to Buzzer Beat.  The reason put forward in Chan 1 that the 2nd Respondent is “under the substantial pressure from various legal proceedings including this action” can hardly be regarded as a credible explanation.  The various legal proceedings may explain why the 2nd Respondent needs to incur legal costs which will be dealt with below.  But this court is not satisfied that the 2nd Respondent genuinely required and continues to require consultancy services, properly so-called, from Buzzer Beat. 

13.  When one looks at the engagement letter between APIL and Buzzer Beat dated 1 April 2020, the services said to be provided by Buzzer Beat are mainly company secretarial services.  In Mr Cowley’s 10th affidavit (“Cowley 10”), the Trustees express serious doubt as to the genuineness of the engagement, especially in light of the fact that the 2nd Respondent already has its own company secretary and does not have any business operations.  According to APIL’s Annual Return for the year of 2020, APIL’s company secretary is CCA Secretarial Services Company Limited. 

14.  Mr Ho very properly accepts in principle that the 2nd Respondent needs to incur some administrative costs eg accounting and company secretarial services but submits that HK$200,000 per month is wholly excessive.  According to Cowley 10, a monthly fee of HK$200,000 (or HK$2.4 million per year) for such services is completely out of the ordinary.  This court shares the Trustees’ skepticism and agrees that HK$200,000 per month is excessive. 

15.  After taking instructions, Mr Ho informs this court that the Trustees accept a figure of HK$25,000 per month as reasonable future administrative costs and this court will so order.

16.  As far as rent is concerned, the Service Agreement states that the rental arrangement has come to an end on 31 May 2021. In any event, the Service Agreement was signed by Buzzer Beat with Sure Vantage, rather than with the 2nd Respondent.  If the 2nd Respondent wishes to contend that, after 31 May 2021, HK$60,000 will continue to be incurred by it as a result of that Service Agreement or something similar, it bears the burden of proving it has legally incurred such a liability. This the 2nd Respondent has failed to do on the evidence.

17.  Another reason why this court is not prepared to allow the HK$60,000 monthly rental claimed by the 2nd Respondent is that its 2019 management accounts show its rental expenses were only HK$18,000 or HK$22,000.  In view of the conflicting evidence as to the amount of rental liability which the 2nd Respondent claims it has incurred and will purportedly continue to incur, this court is not prepared to allow the HK$60,000 sought by the 2nd Respondent.

Repayment of the 2nd Respondent’s creditors of over HK$79.2 million

18.  For this category of exception, the 2nd Respondent is claiming over HK$79.2 million as the amount due to its creditors.  In support of this, the 2nd Respondent has exhibited in Chan 1 various demand letters and invoices from its alleged creditors viz Madam Tsang for HK$55 million, Greatest Global Holdings Limited for HK$3.477 million, Crystal Delight Investments Limited for HK$5.385 million, Buzzer Beat for HK$1.6 million and Nice Talent Capital Limited for HK$13.8 million.

19.  In Mr Cheung’s written submissions, the explanation for these debts is that since the Order was granted, Madam Tsang through herself and her companies viz Greatest Global Holdings Limited and Crystal Delight Investments Limited have provided financial support for the operations of the 2nd Respondent and repaid its bank loans.  The only bank loan referred to was the Fubon Bank Loan in the sum of over HK$38.2 million which Madam Tsang appeared to have repaid on behalf of the 2nd Respondent with a loan of HK$39 million from Emperor Finance Limited.  The Emperor Finance Loan is now due and Madam Tsang has demanded the 2nd Respondent to repay the same. 

20.  At the direction of this court, Mr Cheung has further given a breakdown (“Breakdown”) of the 2nd Respondent’s alleged debts, the identity of the creditors and the nature of the debts as follows. 

Item No.	Names of creditors	Identity of the creditors	Amount of debts	Nature of Debts
1	Madam Tsang	Spouse of the Bankrupt	55,000,000.00	HK$38,233,750.77 for repayment of Fubon Bank Loan on behalf of the 2nd Respondent.  The remaining balance for the operation of the 2nd Respondent.
2	Greatest Global Holdings Limited	A company owned by Madam Tsang	3,477,048.70	For the operation of the 2nd Respondent.
3	Crystal Delight Investments Limited	A company owned by Madam Tsang	5,385,600.00	For the operation of the 2nd Respondent.
4	Buzzer Beat	A company wholly owned by Mr Jason Ling	1,600,000.00	Outstanding consultancy fee
5	Nice Talent Capital Limited	Under the directorship of Mr Jason Ling between 17 July 2015 and 2 January 2018	13,800,000.00
Total			79,262,648.70

21.  As far as the Fubon Bank Loan is concerned, Mr Cheung submits that it was incurred in the ordinary course of business of the 2nd Respondent without giving any details.  As for the other alleged debts, there is no explanation in the evidence or Mr Cheung’s submissions as to the circumstances under which they were incurred or why they were said to be incurred in the ordinary course of business of the 2nd Respondent.  Take Nice Talent Capital Limited’s claim for HK$13.8 million as an example.  Its invoice dated 30 November 2020 claims the 2nd Respondent owes it (i) consultancy fees in the sum of HK$5 million for the period 1 April 2017 to 30 April 2019 without specifying what consultancy services were provided and (ii) a loan of HK$8.8 million, again without explaining what the loan was about. 

22.  To the credit of Mr Cheung, the Breakdown acknowledges that all the alleged creditors are associated in one way or another with the Bankrupt: Madam Tsang is the Bankrupt’s wife while the corporate creditors are owned by or associated with Madam Tsang or Jason Ling, a close business associate of the Bankrupt and the 2nd Respondent. 

23.  As stated earlier, where a defendant wishes to pay a debt falling due, he bears the burden of proving its validity.  Further, a defendant must show by sufficient evidence that inter alia the purpose of the application is not an attempt to dissipate the assets in order to frustrate the plaintiff’s enforcement of a judgment.  In view of the scanty evidence adduced by the 2nd Respondent, this court is not satisfied with the validity of the alleged debts or that they were incurred in the ordinary course of business of the 2nd Respondent at the material time. 

24.  Importantly, on the undisputed evidence, the balance in the HSBC accounts is in the region of US$2.5 million (approximately HK$19.5 million).  By this part of the application alone, the 2nd Respondent is seeking to settle its indebtedness allegedly due to persons or entities who are closely associated with the Bankrupt, which if granted, will completely wipe out the balance in the HSBC accounts.  In these circumstances and exercising a very healthy skepticism in respect of the assertions made by the 2nd Respondent, as this court is entitled to, this court is not satisfied that the purpose of this part of the application is not an attempt to dissipate the frozen assets in order to frustrate the Trustees’ enforcement of a judgment that they may eventually obtain against the Respondents.

25.  For these reasons, this court is not prepared to grant an exception for the repayment of the debts claimed.

The 2nd Respondent’s past and future legal expenses of HK$5.8 million

26.  The basis of this exception is explained in Mr Cheung’s submissions as thus.

27.  First, there is no provision for legal expenses exception in the Order. 

28.  Second, the 2nd Respondent has faced or is still facing legal actions initiated by the Applicant ie (i) HCB 104 of 2017 in respect of the Trustees’ application for the Order; (ii) HCA 2289 of 2018 in respect of the Trustees’ application to set aside the Share Transfer on 20 January 2015; and (iii) HCMP 1076 of 2020 in respect of the Trustees’ application to declare void a legal mortgage and 5 legal charges created by the Bankrupt in favour of the 2nd Respondent[2].

29.  As of 17 September 2020, the legal costs already incurred by the 2nd Respondent stood at around HK$3.5 million.  They were said to have been paid by Madam Tsang directly to the solicitors as a loan advanced to the 2nd Respondent. Madam Tsang is now demanding the 2nd Respondent to repay. She has also refused to pay any further legal fees on its behalf.  In respect of this Summons to vary the Order, the estimated costs are said to be HK$501,720.  In addition, the estimated further legal expenses to be incurred by the 2nd Respondent in HCA 2289 of 2018 and HCMP 1076 of 2020 are said to be HK$1.8 million.

30.  In principle, a defendant is entitled to defend itself and, if necessary, to spend the frozen funds on legal advice and representation in order to do so.  This is recognised by the standard wording of the usual freezing order or mareva injunction, subject to the defendant demonstrating that he has no other assets with which to fund the litigation.  This ordinary rule is capable of being outweighed in an appropriate case by other considerations.  Ultimately, it is the interests of justice which must be decisive: Tidewater Marine International Inc v Phoenixtide Offshore Nigeria Ltd [2015] EWHC 2748 (Comm) at [36] - [37]; [46].

31.  Regarding past legal costs of around HK$3.5 million, the evidence is that, notwithstanding the absence of legal expenses exception in the Order, the 2nd Respondent had been able to resort to Madam Tsang’s assets to fund the litigation for well over 2 years without bothering to vary the Order.  Given that the 2nd Respondent did have other assets with which to fund those legal expenses, this court does not consider it appropriate to grant an exception, retrospectively so to speak, for those past legal expenses.

32.  As for the 2 sums of HK$501,720 and HK$1.8 million, while there is some sort of breakdown for the former sum in Messrs SK Wong & Co’s statement of 1 December 2020, there is no breakdown as to how the HK$1.8 million were arrived at in the 2 letters dated 9 December 2020 from Messrs KY Woo & Co and exhibited to Chan 1 - instead, there was a bare assertion and a demand for costs on account.

33.  This court is persuaded on the evidence that, owing to Madam Tsang’s refusal to continue funding its litigation, the 2nd Respondent has demonstrated that it has no other assets with which to fund the future costs of its litigation with the Trustees.  This court is also satisfied that it is in the interest of justice that a legal expenses exception be added to the Order.  However, on the rather unsatisfactory state of the evidence as to quantum, this court is not prepared to accept at face value the claim to the tune of HK$2.3 million. 

34.  Given the Trustees’ very proper acceptance that some future legal costs should be allowed, and doing the best this court can with the evidence available, this court is prepared to allow a lump sum of HK$750,000 as future legal expenses and shall so order.  Any further increase in future legal expenses will have to be made by consent or the subject of a further application by the 2nd Respondent.

Disposition and costs order nisi

35.  In the premises, this court hereby orders that the terms of the Order be varied so that as from the date hereof:

The Order does not prohibit the Respondents from utilising the HSBC Accounts for spending up to

i. HK$25,000 per month towards the administrative costs of the 2nd Respondent; and

ii. HK$750,000 as expenses on legal advice and representation to be incurred by the 2nd Respondent in the actions HCB104/2017, HCA 2289/2018 and HCMP 107/2020.

36.  Since the Trustees are substantially successful in resisting the Summons, there shall be a costs order nisi that costs of and occasioned by the Summons be to the Trustees, to be taxed if not agreed, and paid by the Respondents forthwith, certificate for counsel. 

HCB 104/2017

[2019] HKCFI 1731

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 104 OF 2017

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J U D G M E N T

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Introduction

1.  On 12 February 2018, the trustees in bankruptcy of the bankrupt issued a summons which was amended on 19 April 2018 seeking various orders. Paragraph 1 sought the requirement for the bankrupt to attend court to be examined on oath concerning his property dealings and affairs and other relevant matters including but not limited to the company’s matters and/or transactions set out in schedule 1 to the summons, together with certain questions.

2.  Paragraph 4 consequently sought an order that the trustees and/or their legal representatives should be at liberty to attend court for the purpose of conducting that examination.

3.  When the matter came before Mr Justice Ng on 20 November 2018, he made an order in the terms of those two paragraphs, but he adjourned for argument the remaining parts of the summons which I have now dealt with yesterday and today. 

4.  Paragraph 2 of the amended summons seeks an order that the bankrupt should produce the documents, books, correspondence, papers, files and information in hard copy or electronic media format set out in schedule 2 to the summons defined as “the documents”, and to do so within 28 days of the order to be made.

5.  Paragraph 3 seeks an order that if the bankrupt is unable to provide any of the documents in schedule 2, the bankrupt do file within 28 days of the order to be made an affirmation or affidavit and, I paraphrase, in essence, identifying what documents he had, when they ceased to be in his custody or power and why that is.

6.  Schedule 2 to the summons also includes materially for the purposes of resolving the argument today a paragraph which says:

“The documents set out in Appendix 1 to the letter dated 13 November 2017 issued by the trustees to Messrs Huen & Partners, the bankrupt’s former solicitors up to 19 November 2017.”

7.  I can usefully identify at this stage that that letter was sent by the trustees to those former solicitors of the bankrupt identifying a list of outstanding information which the bankrupt had agreed to locate and/or to provide to the trustees at a meeting on 30 October 2017.  It is fair to say that some of the outstanding information is simply information, though it might be evidenced in documents, though there are also references to documents in that appendix to the letter.

8.  I should say at once that insofar as paragraph 2 might be read as requiring the production of original documents, it has been made clear on behalf of the trustees that they are perfectly satisfied, at least at this stage, with copy documents, and insofar as that paragraph appears to have no time limit, they are for present purposes, whilst reserving the right possibly later to extend the period back for which they would seek documents, currently content to limit the request to two years before the date of the bankruptcy order which was made on 5 September 2017.

9.  In his directions on 20 November 2018, Mr Justice Ng made provision for further exchange of affidavit material and directed the trustees and the bankrupt to deal by way of supplemental submissions with the explanation as to why the trustees say each category of documents sought in schedule 2 of the amended summons might satisfy the first and second requirements laid down in paragraph 5 of Re Lai Kwok Ying (A bankrupt), (2009) HKCFI 671, a decision given on 7 August 2009 and for the bankrupt to identify what disputes he would have in that respect.

10.  Paragraph 5 of the Re Lai Kwok Ying case states as follows:

“The legal principles are not in dispute. The power of the court under section 29 to order an examination and production of documents is to be exercised in the same way as an application for private examination and production of documents under section 221 of the Companies Ordinance, Cap. 32.”

11.  A reference is made to the Re Hau Po Man Stanley case at first instance and on appeal.   As stated in paragraph 21 of the judgment of the Court of Appeal, the approach in an application of this kind is as follows:

“(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.”

12.  It is probably fair to say at this stage that the bulk of the argument has been directed to whether or not the applicant in this case has established a prima facie case that the bankrupt is able to provide the information or documents being sought rather than establishing the first condition that the provision of information or documents is reasonably required for the trustees to carry out their functions.

The Law

13.  Section 29 of the Bankruptcy Ordinance Cap. 6 provides in subsection (1) that:

“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.”

14.  Subsection (1A) identifies that:

“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.”

15.  I think I can deal shortly now with one point which is made by Mr Isaac Chan on behalf of the bankrupt that no affidavit can be required of his client in answer to paragraph 8 of schedule 2 to the amended summons because of the terms of subsection (1A) of section 29 because the bankrupt is expressly excluded from the court’s power as a target for the submission of an affidavit.

16.  In my view, the reason for that is obvious.  That is because the affidavit is from a person containing an account of his dealings with the bankrupt and so, plainly, the bankrupt would be excluded from such an affirmation.  However, it cannot be pretended otherwise than that the bankrupt must be under a general duty to assist the trustees with their trusteeship during the bankruptcy.

17.  A number of cases have considered the correct approach to section 29 and Re Lai Kwok Ying is one of them.  Another is Re Ho Yuk Wah David (Bankrupt) [2015] 2 HKLRD 603, a decision of Mr Justice Anthony To. The headnote of the report identifies the following holdings relating to the principles applicable to application under section 29 of the Bankruptcy Ordinance.  First, a trustee in relation to the bankrupt is in the same position as a liquidator in an insolvent company. 

18.  The principles governing the court’s exercise of the discretion under section 29 of the Bankruptcy Ordinance and the equivalent section 221 of the Companies (Winding up and Miscellaneous Provisions) Ordinance were essentially the same.  A trustee needed far wider discovery to enable him to discharge his functions than what was permissible in the ordinary inter-party or third party discovery under Order 24.

19.  That part of the headnote refers to a number of paragraphs of the judgment including paragraph 16 in which the judge held:

“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 license’ 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.”

20.  That part of the principle is also to be found in the summary at paragraph 2 of the headnote which reads:

“The following principles were applicable to a section 29(1) application:

(a) the power conferred by the section was general, wide, unlimited, and discretionary in nature;

(b) to invoke the court’s exercise of this discretion, the trustee bore the burden of proving (i) that the provision of information or documents was reasonably required for him to carry out his functions in respect of which great weight should be given to his views and (ii) a prima facie case that the respondent was able to provide the same; and

(c)   as the exercise of the power might be oppressive to a third party or the bankrupt, the court must carefully strike a balance between the trustee’s reasonable requirements and the need to avoid making an order which was wholly unreasonable, unnecessary or oppressive to the person concerned; and the burden was on the trustee to satisfy the court that it was a proper case for such an order to be made.”

21.  Headnote paragraph 6 refers to the fact that the applicant need not assume the higher burden, that is higher than a prima face case, of proving that the respondent actually had the documents or information in his possession.  Even if a person did not have physical possession or custody of a document, he might be deemed capable of producing it if it was within his control or power in the discovery context.  

22.  That part of the headnote comes from paragraph 68 of the judgment where the judge said that:

“Under section 29(1), an order for discovery may be made against a person ‘whom the court may deem capable of giving information respecting the bankrupt, his dealings or property’. In Re Hau Po Man Stanley, the Court of Appeal held that an order may be made against a respondent if the applicant can ‘establish a prima facie case that the respondent is able to provide such information or documents’. The applicant need not assume the higher burden of proving that the respondent actually has the documents or information in his possession. In my view, even if a person does not have physical possession or custody of a document, he may be deemed capable of producing the document if the document is within his control or power in the discovery context. I would construe the words ‘deem capable’ in section 29(1) or the word ‘able’ as used by the Court of Appeal in Re Hau Po Man Stanley as having the same meaning as the word ‘power’ in the discovery context and adopt the following meaning of the word ‘power’ as construed in Gotland Enterprises v Kwok Chi Yau: ‘a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else.’”

23.  That definition essentially comes from the decision in the Lonrho case, Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 and, in particular, the passage to which Mr Chan drew my attention at page 635G to 636A and 636F to H.  Those passages identify that the court is concerned to see not whether somebody might get a document if they ask a close relative or anyone else who is a stranger to the suit to provide him with it however likely that person might comply voluntarily, but whether there is a presently enforceable legal right to obtain from that person the document without requiring the consent of anyone else.

24.  Ms Cheung on behalf of the trustees says that insofar as Mr Justice To appeared to be taking a narrow approach to the word “power” in the judgment I have just quoted, I should not take the same approach because ability to produce documents or information may be wider than power in the discovery context. 

25.  But it seems to me that the point that Mr Justice To was dealing with related not to a request being made of the bankrupt direct, but of a request being made of a person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property.  It seems to me that the use of the words “deem capable” is because what is being requested is information rather than just documents but that the production of documents would be production of documents in any of the relevant person’s custody or power.  I am therefore not persuaded that the word “power” should be regarded as broader than the meaning in the discovery context. 

26.  But in that context, Ms Cheung has rightly reminded me of some notes to Order 24 Rule 2 in the Hong Kong Civil Procedure 2019 at page 626, amongst other parts of which are the sentences, “However, separate or different legal personalities is no bar to the disclosure of documents.  The question is whether the party could procure the companies or partially owned companies or subsidiaries”, and here I would interpose, “or other individuals”, “to provide the documents based on the conduct between the parties and the companies or subsidiaries”, and here I would add, “or individuals”, “in the past.” 

27.  The cases reiterate the major principle that separate or different legal personalities is no bar to the disclosure of documents.  So it seems to me that it would be open to an applicant under section 29 to establish by reference to past conduct or the nature of dealings between certain persons that documents in the possession of a third party might nevertheless be within the power of another.

28.  As regards the balancing part of the test, one can make useful reference to the decision of Cloverbay Ltd (Joint Administrators) v the Bank of Credit and Commerce International SA [1991] Ch. 90 and, in particular, the passage at 102(a) to (c) where by reference to the wording of the Insolvency Act [1986], it was held by the Vice Chancellor that:

“Those words do not fetter the court’s discretion in any way, circumstances may vary infinitely. It is clear that in exercising the discretion, the court has to balance the requirements of the liquidator against any possible oppression to the person to be examined, such balancing depends on the relationship between the importance to the liquidator of obtaining the information on the one hand and the degree of oppression to the person sought to be examined on the other. If the information required is fundamental to any assessment of whether or not there is a cause of action and the degree of oppression is small, for example, in the case of ordering premature discovery of documents, the balance will manifestly come down in favour of making the order. Conversely, if the liquidator is seeking merely to dot the I’s and cross the T’s of a fairly clear claim by examining the proposed defendant to discover his defence, the balance would come down against making the order. Of course, few cases will be so clear. It will be for the judge in each case to reach his own conclusion.”

29.  I would emphasise the reference to merely dotting I’s and crossing T’s, which seems to me to be a million miles from the facts of this case.

30.  Mr Chan in the same context drew my attention to the case of Morris v the Director of the Serious Fraud Office, [1993] Ch. 372, and in particular to the passages between 382F and 383D.  The reference to this passage was specifically to take account of the effect that an order might have on third parties.  In this case, two companies called All Powerful Holding Limited and All Powerful Investment Limited who are the defendants to a claim already brought by the trustees in relation to an attempt to set aside the transfer of a share previously held by the bankrupt in All Powerful Investment Limited to All Powerful Holding Limited at nominal value said to be a significant undervalue.

31.  The relevant passage centrally reads as follows:

“When exercising the discretion the court has to weigh the advantages and disadvantages of making the order sought. The court will take into account any prejudice the officeholder may suffer in carrying out his duties if an order for the production of the documents is refused. Conversely, the court will regard to any prejudice the respondent may suffer if an order is made. When the documents whose production is sought belong to or relate to the affairs of a third party, in principle it must be right that the court should also take into account any prejudice the third party may suffer if production is ordered. By a third party, I mean a person other than the person who has possession or control of the documents, otherwise the position would be that the liquidator would be in a better position by bringing an application under section 236 against an agent of a third party than if he had made the application directly against the third party. That cannot be right and I can see nothing in the legislative scheme of which section 236 is part which would lead to that conclusion. Under the section, the court has an unfettered discretion. There is no reason why the court should have to wear blinkers when exercising this discretion and be unable to have regard to the interests of a third party who would be adversely affected by an order to produce documents.”

32.  As regards the potential disadvantage or prejudice that might be suffered by another party in the context of looming or actual litigation, Mr Chan drew my attention to a decision of Mr Justice Megarry in Re Spiraflite Ltd [1979] 1 WLR 1096 and to the passage beginning at 1098H to 1099A and 1099H to 1100F.  I do not propose to quote those passages in whole, but at 1099H the judge said:

“I subscribe wholeheartedly to the view that the court should not allow the section to be used so as to enable a litigant in an action, that is being, to obtain an advantage over his opponent as in the North Australian case, 45 Ch. 87. At the same time where there is no litigation in being, I would be slow to refuse an order under this section which is fairly required by the liquidator in order to discharge his difficulty task merely because what emerges on the examination is likely to show that an action ought or ought not to be brought against the examinee or that the examination will probably yield information which may be helpful in an action. In this sort of case, I do not think that the right approach is to embark upon an analysis of phrases such as ‘about to start’, ‘imminent’, or ‘contemplated’. Purely as a matter of evidence, I am far from satisfied that it is established that any of these expressions is applicable to the present case. However, in any case, I think the real question is one of purpose rather than degree of imminence. What primarily must be considered is why the liquidator is seeking the order.”

33.  There is a further reference between D and E on 1100 which in fairness I should read:

“Once proceedings have been commenced, the liquidator must normally have decided that there are sufficient grounds for risking the funds under his control on the hazards of litigation. At that stage, the effect of making an order under the section would normally be to improve the liquidator’s position qua litigant unless indeed the order is suspended until the litigation is finished. True it is only as liquidator that he is able to sue in the company’s name but at least qua the defendant I think that his function as plaintiff will often transcend his function as liquidator.”

34.  I will approach the case by reference to these principles when or if I get to the balancing stage of the exercise.  Two other legal points can briefly be mentioned.  One is that Mr Chan reminded me that it is settled that once a person has been removed as a director of a company, his statutory right, or indeed at common law, to seek inspection of the company’s documents ceases, which proposition I accept as settled.

35.  The other additional legal point arises from the operation of the Bankruptcy Ordinance and, in particular, that under section 58 which is headed, “Vesting and Transfer of Property”, subsection (1) provides that:

“On the making of a bankruptcy order, the property of the bankrupt shall vest in the Official Receiver.”

and subsection (2) says:

“On the appointment of a trustee the property shall forthwith pass to and vest in the trustee appointed.”

36.  Section 60, headed, “Powers of provisional trustee and trustee to deal with property of the bankrupt,” which in summary provides to the trustee the various powers to deal with the property taken under his control including any property to which the bankrupt appears to be entitled and to act as the true owner of that property.  For the avoidance of doubt, I have also borne in mind the definition of “bankrupt’s estate” as provided for in section 43 of the Bankruptcy Ordinance.

Prior Proceedings

37.  In July 2018, Deputy High Court Judge Saunders, as he had by then become, heard an application for various forms of injunctive relief brought by the trustees against the two companies, All Powerful Holding Limited and All Powerful Investment Limited.  As it is a point relevant to the chronology later, I shall identify now that the injunction application was in essence begun on 12 February 2018.

38.  In his judgment, the Deputy Judge gave a useful summary of some of the evidence which is also before me and identified his conclusions by reference to that evidence.  In paragraphs 24 and 25 of his judgment he referred to the first interview which the bankrupt had with the trustees on 30 October 2017, and the bankrupt’s admission on that occasion that the transfer of the relevant share was for no valuable consideration in that only a nominal consideration was given, and the bankrupt’s allegation that the family trust, which was said to be the true owner of APIL and had injected assets into APIL, had only engaged him as an investment advisor.

39.  Consequently, he said to the trustees, the transfer of APIL back to its true owner was legitimate and the bankrupt denied that the trust was related to his own family and claimed that the trust was “confidential” and owned by “someone with background”, whose identity he must not disclose.

40.  In paragraph 28, the Deputy Judge referred to the bankrupt’s spouse, Madam Tsang, and the fact that she had told one of the trustees that she had no knowledge about the bankrupt’s activities prior to this bankruptcy that involved her, and she referred to a fund or trust which was established in 2015.  The trustee, that is Mr Cowley, said that Madam Tsang said that the beneficial owners were “basically the boss and her and her three children” but would not make clear who was the “boss” to whom she referred.

41.  Starting a series of paragraphs beginning with paragraph 41, the Deputy Judge explained why he accepted the trustees’ submission that there is ample evidence pointing to the bankrupt retaining control of both APIL and APHL.  Amongst the factors he took into account as relevant were that the bankrupt remained a director of APIL until 15 September 2017 when a Mr Xie was appointed, albeit that that man never offered any evidence in the case and still has not.

42.  Also, the bankrupt transferred cash or cash equivalents in significant sums from his personal bank accounts to APIL’s bank accounts and no explanation had been offered as to why he might do that; that in December 2014, APIL had transferred $30 million to Evershine Group Holdings Limited, a GEM listed company of which the bankrupt became a shareholder in February 2015 after having purchased some 49.8 million worth of its shares when APIL had never been a substantial shareholder of Evershine; that between 2010 and 2015, the bankrupt had executed unlimited personal guarantees and an “all moneys” charges on six Hong Kong properties owned by him securing facilities granted by the Bank of East Asia to himself, APIL, APHL subsidiaries and another company owned by himself.

43.  The judge ultimately came to the conclusion, accepting as he did that the allegations to which he made reference had not yet been tested, that that evidence went well beyond raising a serious matter to be tried and that there was, in fact, a very strong case on the evidence that the bankrupt was in reality in control of the JL Trust, APHL and consequently, ultimately, APIL.  My review of the same matters in evidence leads me to the same conclusion.

44.  As regards whether or not the share transfer was at an undervalue, the Deputy Judge held that there was a good arguable case that the share transfer was, indeed, at an undervalue and, amongst other things, he referred to the audited annual accounts for APIL which had been signed by the bankrupt for the years ended March 2011 to 2016 which had been produced in evidence and which audited accounts demonstrated the growth in revenue of APIL from 2011 to 2014 and the profit amount for 2015; and that in the year ended 31 March 2016, the bankrupt in his capacity as the sole director of the company provided financial support to APIL to the extent of approaching HK$150 million which amount remained apparently outstanding and due to him at that date.  I should say that those accounts also identify the bankrupt as holding a significant controlling interest in numerous other companies.

45.  In paragraph 86 of his judgment, the Deputy Judge referred to the history of the financial difficulties that faced a group of companies called GNR which might well have precipitated the actions that the bankrupt took in relation to, as it was put by the Deputy Judge, “ringfencing” assets.

46.  In paragraph 87, the judge accepted that in the face of the bankrupt facing a very real prospect of personal bankruptcy on the basis of guarantees of the GNR debts, the creation of APHL and the establishment of the JL Trust in December 2014 were arguably steps that were taken by the bankrupt in the face of a very real prospect of personal bankruptcy and that the transfer of the shares were steps to remove the assets represented by APIL, a company solely owned by the bankrupt from the bankrupt’s creditors.

47.  In doing so, he of course accepted, as do I, that though he was the only shareholder in APIL, the bankrupt did not own the company’s assets because they were owned by the company, nor were those assets held on trust for Mr Lau.  But the judge went on to deal with matters in the following discussion which identified that the assets owned by APIL, ostensibly a substantial company, are assets which may be accessed by the bankrupt’s creditors in order to satisfy his debts.

48.  In this context, I might make the point that I would see no injury to those companies if that course were to be adopted, certainly not injury of the sort which would generally be weighty in the balancing exercise on an application under section 29.

49.  The conclusion of the Deputy Judge was that he was satisfied that there is a good arguable case that with the knowledge of impending bankruptcy the steps taken by the bankrupt and ringfencing corporate/trust ownership was a disposition with which he intended to defraud creditors.  All in the context of the strong argument that the bankrupt retains in reality control of APIL.

50.  Being satisfied also as to the risk of dissipation, understandably against his previous findings and the proper approach for a Chabra injunction, the judge was persuaded to grant the form of injunctive relief sought, and he specifically identified that to deny the creditors the opportunity to access those assets would be to enable the bankrupt by manipulation to evade his proper obligations.  To deny the creditors the opportunity to access those assets would enable the bankrupt by manipulation wrongfully to regain assets that he believed were placed in a shelter or ringfenced, at the expense of his lawful creditors.  That is paragraph 112 of the judgment.

51.  Subsequent to the obtaining of the injunctive relief, a writ action was commenced, or perhaps the claim originally formulated was reformulated as a writ action with a specifically endorsed statement of claim, the contents of which I do not need to rehearse at length for present purposes save to record that one of the items of relief claimed by the trustees in the action against APHL and APIL is an order that APIL do hand over all books and accounts, records, documents and papers related to it and its subsidiaries to the trustees forthwith.

The Evidence 

52.  The affidavit which led the application under section 29 was the fourth affidavit of Patrick Cowley, one of the trustees.  As with all of the evidential materials to which reference has been made and which are included in the bundles provided for the purpose of this hearing, I do not propose to rehearse vast tracts of them, though I have their contents well in mind.  But I do draw attention to one or two specifics parts of various pieces of evidence.

53.  In Mr Cowley’s fourth affidavit, he deals with the bankrupt’s attitude of what he calls complete non-cooperation, saying that since the commencement of his bankruptcy the bankrupt has demonstrated an attitude of complete non-cooperation with the trustees’ investigations on his property dealings and affairs, and even at the date of that affidavit the bankrupt had wilfully failed to submit a statement of affairs and a preliminary examination form.  As I understand it, the statement of affairs only came as a result of the order made by Mr Justice Ng in November 2018, though it does not reveal much information and it is correct that the bankrupt has not produced a single piece of documentary evidence to assist with or to cooperate with the trustees.

54.  It is no exaggeration to form the view, as I have, that the bankrupt has simply cocked a snook at the trustees and his obligations that arise by virtue of the bankruptcy order having been made.

55.  Mr Cowley’s fourth affidavit also identifies that in the original, and I think to date only, meeting that the trustees have had with the bankrupt which took place on 30 October 2017, the bankrupt told the trustees that his books, records and papers, documents, relating to his property and affairs were kept at his former residence, a house in Wong Ma Kok Road, House D39, but said that his wife, Madam Tsang, who continued to reside at the house, with their three children was not allowing him to return to the house, with the result that he was not able to retrieve the documents and provide them to the trustees, albeit that he undertook that he would try to retrieve those documents from House D39.

56.  Mr Cowley goes on to say that the trustees had, however, conducted an interview with Madam Tsang on 24 January 2018 where she said she was allowing the bankrupt to return to the house, but the bankrupt simply had not provided any of his documents to the trustees. 

57.  It is not clear which books and records and papers and documents were being referred to by the bankrupt in that meeting, but it is clear that he was asserting that he had books and records and papers and documents which related to his property and his affairs and that, but for temporary inability physically to obtain them, he would try to do so and undertook to provide them.  He has not.

58.  It seems to me that his reference to books and records and papers and documents relating to his properties and affairs that were kept at his residence almost certainly would have included those documents relating to the trust companies under the All Powerful Group chart which was provided by Madam Tsang in evidence and is updated to 23 November 2017.  It is perhaps less likely that he was making reference to books and documents of other corporate entities such as those under the GNR Group.

59.  Also in Mr Cowley’s fourth affidavit, he refers to the trustees’ interview with Madam Tsang on 24 January and what she said about the AP Group and her lack of any role or involvement in that group until around September 2017.  In this context it is relevant to recall that the bankrupt resigned his directorship in a large number of companies on 4 September 2017, the day before the bankruptcy order was made against him on 5 September 2017.  There can be little doubt that he did so in anticipation of the bankruptcy being made and for 37 of the companies, his wife Madam Tsang was put in as replacement or substitute director.

60.  In his third affirmation filed in response to Mr Cowley’s fourth affidavit, the bankrupt complained about what he called a number of grossly erroneous assertions or assumptions in Mr Cowley’s fourth affidavit, although he did not descend into any real particulars of those points.  It is fair to say, as Ms Cheung invites me to find, that the content of Mr Lau’s third affirmation says rather little, is couched in vague perhaps deliberately crafted terms, takes a number of technical points and uses language such as “seems”, “understandings”, without identifying the sources of knowledge or understanding.

61.  He said that his wife held the assets and directorships in her own right, although I must say that is difficult to reconcile with what the bankrupt said in his fourth affirmation when in respect of a number of the companies he seemed to be asserting that Madam Tsang is being put in as a trustworthy option for the other directors or shareholders.

62.  There is also an affirmation from the other trustee, Wong Wing-sze Tiffany, and for present purposes I only need to make reference to paragraph 18 which identifies the material on which the Bank of East Asia and also the trustees consider that it may be that the bankrupt has a beneficial interest in an account maintained by a company called Rich All Limited with that bank.

63.  In response to the order made by Mr Justice Ng, Mr Cowley filed his ninth affidavit which sought to categorise the various companies of which information was sought into categories A, B, C, D and E.  Category A relates to companies under or related to the JL Family Trust and/or the Forever Power Trust.  Essentially, those companies are set out in the AP Group chart.

64.  Category B relates to companies in the General Nice or GNR Group of which Madam Tsang replaced the bankrupt as a director.  Category C relates to companies which are either one connected with a Mr Chai Sui-chin, a business partner of the bankrupt, or subsidiaries of Best Brand Trading Company Limited.

65.  Category D relates to companies which were connected to a Mr Ng Sze-for, another business partner of the bankrupt, and Category E related to other companies in which the bankrupt had a direct or indirect interest.

66.  In response to Mr Cowley’s ninth affidavit, Mr Lau filed his fourth affirmation to which I have already briefly made reference.  In paragraph 5, by reference to the resignations from directorships of companies in 2017, he suggested that he needed to resign from the directorship in those companies as he was prohibited by law to continue to hold such offices.  That is against the history shown by the evidence. 

67.  It is difficult to accept as the motivation for the resignation and it seems to me much more likely that actually the purpose of resignation was to put in place a substitute director in the form of his wife, Madam Tsang, who was going to do his bidding, act as his agent, be his nominee, whatever language you want to use.  This was essentially as a means to prevent the operation of the Bankruptcy Ordinance from causing by operation of law or through the Articles of the companies the immediate cessation of his directorship and, therefore, influence in the companies without some prior substitution of that influence in the form of his wife.

68.  I accept Ms Cheung’s submissions that throughout the fourth affirmation of the bankrupt is a notable absence of denial that he has custody or power over certain documents other than by reference to what he says “would be” the position under certain circumstances, and where he does appear at least implicitly to accept that he used to have custody or power over documents because he expresses on occasions a lack of understanding as to why it is asserted that he “still” has such custody or power over documents.

69.  I can also briefly refer to the evidence of Madam Tsang and in particular to paragraph 12 to which Mr Chan drew my attention as identifying where it can be shown that it was Madam Tsang who gave instructions to a firm of accountants to conduct a preliminary analysis of the value of the share in APIL which was said to have been transferred at the undervalue.

70.  In paragraph 12 of her affirmation made on 14 February 2018, she said, “After the bankruptcy order was made against the bankrupt in September 2017, I sought professional assistance to conduct a preliminary analysis of the value of the subject share,” and she produces an exhibit, a copy of the report prepared by the certified public accountants, Messrs Chang Leung Hui & Li, dated 2 January 2018.

71.  I do not accept that evidence that it was Madam Tsang who sought the professional assistance of the accountants, and it seems to me that the chronology of events strongly suggests otherwise.  The first interview with the bankrupt and the trustees took place, as I have said, on 30 October 2017. Following that interview, follow-up was attempted by the trustees against the growing intransigence on the part of the bankrupt. 

72.  The bankrupt replaced his former solicitors with the firm, TCW, that continued to act for him and later for his wife and he instructed them, it seems, on 20 November 2017.

73.  The accountant’s report identifies that they were instructed to produce a report just a week or so later on 28 November 2017 and that they were provided with a wide range of documents relating to the various companies in the AP Group by the solicitors for the purposes of providing the report.  The report is dated 2 January 2018. 

74.  At the wife’s interview on 24 January 2018, she professed to have little knowledge of the AP Group, at least prior to the making of the bankruptcy order.

75.  The action which was commenced against APHL and APIL were, as I have identified, the first steps taken only on 12 February 2018, though it is fair to say that there was some discussion about the transfer of the share in the meeting with the bankrupt on 30 October 2017.  Against that material, it seems to me more likely, dare I say much more likely, that the solicitors acting for the bankrupt were acting for the bankrupt when they asked the accountants to produce their report and that they provided documents to the accountants because they had been given them by the bankrupt.

76.  Another point that can be made by reference to the evidence, and in particular that on the chart, is that it is clear that a number of companies which were formerly held in the JL Family Trust line of companies, APHL, APIL and so on below them, were transferred either to being held under the other trust or to being held personally by Madam Tsang.

77.  The transfers included the transfers of companies in which APIL had been only partial shareholders, the other shares, for example, being held by a Mr Frank Yu or it is said beneficially for a Mr Wilson Tang.  This, I will use the term “fluidity”, in the way in which these companies were dealt with and the fact that they were transferred from one trust entity to another trust entity or from one trust entity to Madam Tsang personally, tends to show firstly the connection between all these various companies; secondly, material which supports the inference that this activity was designed to ringfence assets from the bankrupt’s creditors; and, thirdly, that this was, in essence, all being done at the instigation of and under the control of the bankrupt himself.

78.  During argument, I asked for and I have now been provided with a revised summary of the various companies which has grouped the companies together under their categories A, B, C, D and E, and I have been taken through some individual comments in relation to companies within those categories.

79.  In Mr Cowley’s ninth affidavit, he asserted that all of the documents which were being sought were regarded by him and his co-trustee as reasonably required for the purposes of conducting their investigations.  As the authorities require me to do, but in any event it seems to me entirely appropriate, I give great weight to the trustees’ view as to documents which they say are reasonably required.

80.  Ms Cheung candidly accepts that the requests are broad and wide in nature.  But she says, and I agree, that the reason for that is because of the complete lack of cooperation on the part of the bankrupt in the provision of any useful material in answer to the obvious inquiries the trustees were bound to have made of him and did make of him.

81.  It seems to me it lies ill in the mouth of the bankrupt to complain about the width of the material that is sought against him when he has done nothing to provide appropriate assistance to the trustees who are charged with the statutory duty which flows from the making of the bankruptcy order. As a result, the real battleground, as I say, has been in relation to whether or not the bankrupt has the relevant custody or power over the documents which are sought.

82.  In that regard, for the reasons identified by the Deputy Judge in the judgment which I have in part canvassed and with which conclusions I wholeheartedly agree, I am perfectly satisfied that a prima facie case has been made out that the bankrupt has power over the documents for the companies in category A. 

83.  He is strongly arguably still in control of those companies and exercising that control he has power over their documents.  That he was able to produce vast numbers of documents, albeit on a selective basis, to his accountants or to his solicitors who provided them to the accountants, is also evidence that I have taken into account in forming the view that he retains control and power over documents of category A.

84.  I, therefore, make order in the terms sought in paragraph 2 relating to the category A companies, save for items with a new reference number, 56 and 57, for the reason that neither of those were pursued by Ms Cheung this morning under category A, albeit item 57, I think, is pursued under category E.

85.  Turning to category B, these are really companies relating to the GNR Group, which group is itself in liquidation as a result of the winding-up order made for the head company, if I might call it that, in, I think, December 2016.

86.  Ms Cheung makes fair comment when she says that nowhere in the bankrupt’s evidence does he say when he could have that he does not have custody of the documents of the companies in category B.  And I accept the force in her submission that where the bankrupt resigned from his directorship in those companies with the substitution of his wife with the permission or acceptance of the other shareholders and directors that that might speak volumes about his continuing role in the companies.

87.  However, it seems to me that where the GNR Group is being wound up, and it seems on the evidence that the winding up is proceeding down the lines of subsidiaries, that the documentation which is sought by category B is actually likely not to be still in the power of the bankrupt but insofar as those documents have been collated by the liquidators, FDI, in their hands, custody and power.

88.  I take the point that in the face of the evidence as to the complete lack of cooperation by the bankrupt with the trustees in his bankruptcy, it is difficult to imagine that he has been any more cooperative with the liquidators of the GNR Group.  Nevertheless, it seems to me that the correct decision is to disallow the category B documents.  Indeed, if one got to the balancing exercise under category B, the fact that the trustees have another route to seek to obtain this material from fellow professionals in the form of FDI liquidators of the GNR Group might weigh against the requirement that they should be produced by the bankrupt.  As I say, less likely to have held those documents amongst those he said he held at home.

89.  The same points seem to me to arise in relation to categories C and D where the bankrupt has ceased to be a director and where insofar as Madam Tsang was made a director in his stead, the evidence suggests that she no longer remains a director, at least as at today, of those companies.  So I decline to make the order in relation to categories B, C and D.

90.  As to category E, the first named company is the listed company and Evershine Group Holdings Limited and Ms Cheung fairly accepted that there may be difficulties in bringing home her argument in relation to that company. That seems to me to be correct and I do not make an order in relation to that company’s documents, but I do make an order in relation to the other documents in category E except the items with the new reference number 105 and 106 where it seems Madam Tsang has resigned from her directorship of those two companies and there is no indication as to who if anyone has been put in her stead.

91.  Insofar as the involvement of a Mr Jason Ling is concerned, it seems to me that there is enough material which identifies for me that the bankrupt nevertheless maintains the appropriate degree of control and power over those documents of those companies.  I should make it clear that the new reference item No 112, relating to Sure Vantage Investment Limited, Ms Cheung told me the trustees no longer raise questions about that company.

92.  So by reference to those companies I have indicated within category A and category E, I make an order in terms of paragraphs 2 and 3 of the amended summons. 

93.  I have considered whether in the light of the statement by the bankrupt that he at least implicitly had documentation relating to those other companies whether I should make an order in respect of paragraph 3 alone for any of the companies in category B, C and D, but it seems to me that paragraph 3 is really incidental and goes together with paragraph 2 of the amended summons, it is not standalone relief and I am not convinced it would actually provide the trustees any great assistance even if I were to order it.  So if I were to be exercising my discretion in that regard, I would not order paragraph 3 alone.

94.  There is the wrinkle in relation to paragraph 8 of schedule 2, insofar as that paragraph and the appendix to the letter to which it makes reference, is seeking documents.  The objection taken by Mr Chan that you cannot get information by an order under section 29, obviously does not bite and those documents which are pursued by that paragraph are included in my order.

95.  Insofar as the content of the annex or appendix to the letter simply pursues information, I acknowledge Mr Chan’s point that information can be sought by way of questions put at the examination of the bankrupt which has already been ordered by Mr Justice Ng in his November 2018 order. 

96.  Nevertheless, this is pretty basic information properly required by the trustees for dealing with the duties imposed upon them and it seems, and I accept, that this is information which the bankrupt himself said he would provide; he just simply has not done it.  That is no great surprise against all of the other facts in this case, but if he will not do it willingly, I will order him to do it.

97.  It seems to me that it is entirely open to me in the exercise of the inherent jurisdiction which flows with the statutory requirements imposed by the Bankruptcy Ordinance following the making of a bankruptcy order, not least the requirement that the bankrupt cooperate with the trustees, that if he will not do this kind of thing voluntarily, it need not await an order for his examination; he can be ordered to produce this material on affidavit and I, therefore, make a separate order that he do that within 14 days.

98.  I am going to check with counsel that there is no part of the summons that I have not dealt with and then I am going to hear submissions on costs.

(Submissions re costs)

99.  In relation to costs I have heard argument from Ms Cheung and Mr Chan.  Dealing first with the question of entitlement, Mr Chan has suggested that the costs relating to the March and the November 2018 hearings should either be paid by the trustees or there should be no order as to those costs in light of the fact that by the March hearing the bankrupt was already to agree to some orders against him but that the matter went to the November hearing which turned out to be insufficient for time as a result of the amendment made to the summons in the intervening period.

100.  I accept Ms Cheung’s submission that those costs are not sufficiently separate from the remainder of the costs of the application to be dealt with on a separate basis and also that the November hearing ultimately proved of some use in that the judge made an order on that occasion and gave directions for the more efficient argument which has been able to take place yesterday and today.

101.  So I do not make a distinction between those costs and the rest of the costs.  Insofar as Mr Chan says that there should be a division of costs to reflect the fact that there were mixed findings, that the trustees succeeded on some areas but failed on other areas and that their failure was on the first hurdle of failing to establish the relevant jurisdiction.

102.  Again, it seems to me in the exercise of my discretion that the nature of the argument that has been conducted across all of the various categories broken down in accordance with the previous court order was essentially of some similarity and that though it is right that the trustees have not wholly succeeded they have substantially succeeded in circumstances where the bankrupt has been wholly intransigent in providing any prior cooperation without court order extending even to the circumstances of the failure to provide even the basic statement of affairs and answer to basic inquiries which seems to me fully to have justified the pursuit of this application even though not all of it was successful.

103.  I am, however, persuaded that this is not a case in which an indemnity costs order is appropriate and I do take some note, therefore, of the fact that the trustees were not wholly successful in that context and so costs will be taxed on the usual standard party and party basis.

104.  Mr Chan has informed me that the costs of the bankrupt are being paid by his wife as a third party and I do not think that he is objecting to an order along the lines of the order made by the Court of Appeal in the Allied Weli Development Limited case or Re Penta Investments where under section 52A(2)of the High Court Ordinance the court is empowered to order a non-party to pay costs when the court is satisfied that it is in the interests of justice to do so.  Plainly, here it is in the interests of justice that the third party who has financed the bankrupt’s costs should pay the costs, otherwise ordering costs against the bankrupt is an entirely circular exercise coming back to the trustees.

105.  The funder having been identified, what I propose to do is to deal with the question of costs on paper by the exchange of a statement of costs on behalf of the trustees within seven days and a response from Madam Tsang, the funder, within the seven days thereafter stating any objections to the statement of costs provided by the trustees if she has any such objections, which I am sure she will.  And then I will deal with the matter in the light of the statement and those objections by paper to save the parties the time, trouble and expense of returning physically to a court hearing. 

HCB 104/2017

[2018] HKCFI 2542

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 104 OF 2017

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D E C I S I O N

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Background

1.  This is an application made by the Respondents for leave to appeal against the Decision of Deputy High Court Judge Saunders of 1 August 2018, by which he granted Chabra injunctions (“Injunctions”) against All Powerful Holding Limited (“APHL”) and All Powerful Investment Limited (“APIL”), which are not parties to the substantive bankruptcy proceedings against Mr Jaffe Lau (“Bankrupt”).  In the bankruptcy, the trustees in bankruptcy (“Trustees”) seek to set aside a transfer from the Bankrupt to APHL of one share formally held by the Bankrupt in APIL (“Transfer”), on the ground that the Transfer was a transaction at an undervalue pursuant to section 49 of the Bankruptcy Ordinance, and/or is a disposition made with intent to defraud creditors, such that the Transfer should be void.

2.  Under the Injunctions, APHL and APIL were restrained from disposing of or otherwise dealing with their funds and assets, without prejudice to their trading activity in the ordinary course of business. They were further ordered to make disclosure of certain financial information. In granting the Injunctions, the judge accepted a limited cross-undertaking as to damages given by the Trustees, for a sum of HK$40 million.

3.  The Respondents seek leave to appeal, on the ground that the judge had erred in law, (1) in holding that there was jurisdiction under the Chabra principles for the Court to grant the Injunctions against the Respondents as third parties against which the Trustees have not asserted any claim, that APHL and APIL were holding assets on trust for the Bankrupt, and (2) in finding that only a limited cross-undertaking as to damages would be sufficient as against the Trustees.  Alternatively, the Respondents argued that the judge had erred in allowing the entire costs of the application for the Injunctions to be in the cause.  If the Injunctions should not have been granted, there would be no basis to make the disclosure order which was in aid of the Injunctions.

4.  The grant of the Injunctions and the terms on which the Injunctions were granted are matters within the exercise of the Court’s discretion.  To succeed on the intended appeal, the Respondents have to establish that the judge had exercised his discretion under a mistake of law, or in disregard of principles or on misapplication of the facts, had taken into consideration irrelevant factors, or had failed to take into consideration relevant factors, such that the conclusion made was outside the generous ambit within which reasonable disagreement is possible.  This is a high threshold to surmount.

5.  Needless to say, the hearing of the application for leave to appeal is not an opportunity to repeat the arguments made before the judge.

6.  Having carefully read the Decision of Deputy Judge Saunders, I regret that I am unable to conclude that there are reasonable prospects of success in the intended appeal.

The Chabra Injunctions

7.  On behalf of the Respondents, Mr Ho SC submitted that the judge had only focused on the Bankrupt’s alleged control of APIL and APHL, and had disregarded the 2^nd limb of the requirement established in the judgments in XY, LLC v Jesse Zhu & Anor [2017] 5 HKC 479 and Parbulk II AS v PT Humpuss Intermoda Transportasi TBK & Ors [2011] 2 CLC 988, that substantial control is not of itself enough for the grant of an exceptional order in exercise of the Chabra jurisdiction.  In its judgment in Parbulk, the English Commercial Court emphasized the following:

“It is not enough that the CAD could, if it chose, cause the assets held by the NCAD to be used to satisfy the judgment. It is necessary that the court be satisfied that there is good reason to suppose either (i) that the CAD can be compelled (through some process of enforcement) to cause the assets held by the NCAD to be used for that purpose; or (ii) that there is some other process of enforcement by which the claimant can obtain recourse to the assets held by the NCAD.”

8.  In Jesse Zhu, the Court of Appeal followed the same analysis, concluding that the “ultimate test” is always whether “there is good reason to suppose that the assets would be amenable to execution of a judgment obtained against the CAD”. 

9.  The courts in these cases were attempting to explain and give guidelines as to the circumstances in which, in the exercise of the court’s discretion, the appropriate order may be made, at the interlocutory stage, against assets of third parties not made defendants and against which no cause of action has been asserted.  The guidelines should not be read as if they were statutory provisions.  At paragraph 25 of the judgment of Hon Kwan JA in Jesse Zhu, Her Ladyship referred to the judgment of the High Court of Australia in Paul Cardile v LED Building Proprietary Ltd (1999) 198 CLR 380:

“What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained? In our opinion such an order may, and we emphasise the word “may”, be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which:

(i)   the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including “claims and expectancies”, of the judgment debtor or potential judgment debtor; or

(ii)   some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor.

It is that principle which we would apply to this case.  Its application is a matter of law, although discretionary elements are involved.”

10.  As Kwan JA pointed out at paragraph 26 of her judgment in Jesse Zhu, the 2^nd limb of the principle is “potentially of extremely wide application”.

11.  I do not agree that Deputy High Court Judge Saunders had disregarded the principle that substantial control is not the only factor required for invoking the Chabra jurisdiction, and that (as Mr Ho argued) the judge had failed to give regard to the fact that the assets of the NCAD should be amenable to execution or enforcement under judicial process, so that the assets would be available to the judgment creditor of the Bankrupt as a consequence of a judgment against the Bankrupt (“2^nd limb requirement”). 

12.  At paragraph 88 of the Decision, the judge stated expressly:

“I accept of course that Mr Lau, as only a shareholder in APIL, did not own the company’s assets nor did the company hold those assets on trust for Mr Lau. But, as will be seen from the discussion below, the assets owned by APIL, ostensibly a substantial company, are assets which may be accessed by Mr Lau’s creditors in order to satisfy his debts.” (Emphasis added)

13.  The judge then proceeded to deal with and made findings on (inter alia) the existence of a good arguable case of an attempt made by the Bankrupt to defraud creditors as evidence of a real risk of dissipation of assets, the steps taken by the Bankrupt to ring-fence the assets of APIL, raising a strong argument of the abuse of the corporate veil and the concept of trusts, and the fact of the Trustees becoming the sole shareholder in APIL if the Transfer to APHL is reversed.  At paragraph 108 of the Decision, the judge stated:

“If the share transfer is reversed, the liquidator becomes the sole shareholder in APIL. Clearly, the liquidator cannot then simply sell APIL’s assets to satisfy Mr Lau’s debts. But the liquidator can take steps, lawfully, to wind up APIL, and distribute the assets to those lawfully entitled to those assets or the funds arising from realization.”

14.  The judge then referred to Gee on Commercial Injunctions, and to other creditors of APIL having to be paid off in the event of a winding up of APIL, before ascertaining any surplus which may be distributed to the Trustees as the shareholder, for applying those funds in the satisfaction of the Bankrupt’s creditors.  He concluded thus in paragraph 111:

“There being a lawful process, which does not involve the piercing of the corporate veil, by which the liquidator may ultimately access the assets of APIL and APHL for the benefit of Mr Lau’s creditors, I have no doubt at all that those assets should be secured to be available for the benefit of Mr Lau’s creditors.”

15.  It can be seen that the winding up of APIL, by the Trustee as its sole shareholder, is the “lawful process” to which the judge referred, as being the “process, ultimately enforceable by the courts”, which is available to the judgment creditor, or pursuant to which, the NCAD/third party may be obliged “to disgorge property or otherwise contribute to the funds or property of the judgment debtor (ie the Bankrupt in this case) to help satisfy the judgment against the judgment debtor”.  It is apparent that this, in the deputy judge’s view, constituted and satisfied the 2^nd limb requirement of Paul Cardile v LED Building Proprietary Ltd.

16.  Mr Ho relied on the case of Lakatamia Shipping Co Ltd v Su and ors [2015] 1 WLR 291, which was cited to the learned deputy judge, as authority for the proposition that the possibility of winding up proceedings being instituted against APIL (by the Trustee as shareholder) is not sufficient to justify the making of the Injunctions.  Mr Ho referred in particular to paragraph 52 of the judgment in Lakatamia, where Rimer LJ referred to a receiver being in a position to deploy his rights over the defendant’s shareholding to achieve a winding up of the companies and, in consequence, a distribution to himself of the surplus assets of the companies, and remarked:

“Such a possibility still does not mean that the assets of the companies are assets of the 1^st defendants so as to fall within the terms of the freezing order.”

17.  The court in Lakatamia was dealing with the terms of a freezing order, and making the distinction that the assets of a company the shares in which were entirely owned by a defendant were not assets of the defendant for the purposes of the language used in the freezing order.  Read in its context, I do not consider that Lakatamia is applicable to the present case, as authority that the Chabra jurisdiction of the court cannot be extended to the assets of APIL.  The assets of APIL indeed remain APIL’s assets, but upon winding-up of APIL, these assets of APIL may be available to the creditors of the Bankrupt to help satisfy any judgment against the Bankrupt.

18.  On my reading of the Decision, I cannot agree that the learned deputy judge had erred by overlooking the 2^nd limb requirement and disregarding the proper test for the grant of the Injunctions, under the Chabra jurisdiction, against APIL and APHL to extend to their assets.  Nor can it be said that he had failed to take into consideration relevant factors or had taken into account irrelevant factors.  He made it quite clear at paragraph 107 of the Decision that the corporate veil was not being pierced.

The limited cross-undertaking

19.  As for the limited cross-undertaking as to damages, the grant of the same is a matter within the discretion of the judge. The Respondents emphasized that the default position is that an applicant for interim injunction should be required to give an unlimited cross-undertaking in damages, as the price for the interim injunction sought, and that there are only limited exceptions to this general rule.  The case of JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2016] 1 WLR 160 relied upon by Mr Ho makes it clear: the acceptance of a limited cross-undertaking is within the scope of the court’s discretion.  The extent of the cross-undertaking required, whether a limited cross-undertaking is accepted, or refused, are all discretionary, and it follows that the judge’s decision one way or the other will not be upset by the Court of Appeal except on the usual grounds for interfering with the exercise of judicial discretion. 

20.  The matters which the deputy judge took into consideration in accepting the limited cross-undertaking from the Trustees in this case are reflected in the Decision.  These include the matters he referred to, not only under the heading of “The Undertaking”, but in other parts of the Decision including the part under “The balance of convenience”.  It can be seen from reading the Decision that the deputy judge had considered the fact that the litigation is brought by the Trustees for the benefit of the estate of the Bankrupt and the Bankrupt’s creditors as a whole (that on the Trustees’ evidence it was “in the interests of justice to stop APIL from further depleting its assets”, and the need to preserve the status quo).  The judge also took into consideration the fact that the Trustees were unable to obtain insurance against unlimited liability and that there were no large creditors to fully indemnify the Trustees, but that eventually, HSBC, the creditor behind the Trustees, was able to offer indemnity to the extent of Hong Kong HK$40 million.  The judge pointed out (paragraphs 132 and 133 of the Decision) that the burden did not lay on the Respondents to demonstrate that the wrongful grant of the Injunctions would cause some loss to them, and considered (paragraph 138 of the Decision) that he had to follow the approach set out in RBG (Resources) PLC v Rastogi & Ors [2002] BPIR 1028, to make “an intelligent estimate of the likely amount of any loss which may result from the grant of the injunction”.  These are all appropriate and relevant considerations. 

21.  In considering the amount of the undertaking as to damages, Counsel for the Trustees highlighted, and the judge pointed out in paragraph 120 of the Decision, that the evidence before the Court as to the extent and nature of the business operated by APIL was “sparse” and “vague”.  The only evidence before the judge was the fact that APIL had facilities from Fubon Bank for HK$34.5 million, which might arguably be jeopardized, but that the bank had informed the Trustees that there was no intention to withdraw the facilities, and that such facilities were secured.  He concluded that a limited undertaking up to HK$40 million was appropriate in the case.

22.  On reading the Decision, I cannot agree that the Deputy Judge had misapplied the law, or had failed to take into consideration relevant factors, or had considered irrelevant matters, in exercising his discretion to accept the limited cross-undertaking as to damages, and fixing this in the sum of HK$40 million.  There are no reasonable prospects of success that the Court of Appeal would disturb the judge’s decision and his assessment of the appropriate amount for the cross-undertaking.

Disclosure and costs orders

23.  Since I consider that there is no reasonable prospect of success for the appeal against the grant of the Injunctions, the same applies to the proposed appeal against the disclosure order.  Nor am I satisfied that there are reasonable prospects of success for the intended appeal against the costs order, when costs are discretionary and there are reasonable grounds for ordering that the costs should be in the cause in this case.

Disposition

24.  For all the above reasons, the application for leave to appeal has no reasonable prospects of success in my view, and ought to be dismissed, with costs.