HCB 6991/2017
[2019] HKCFI 1886
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
BANKRUPTCY PROCEEDINGS NO. 6991 OF 2017
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Re: CHAN JOHN LOONG FAI (“the Bankrupt”)
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Before: Hon L Chan J in Chambers
Date of Hearing: 20 November 2018
Date of Decision: 2 August 2019
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D E C I S I O N
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1. This is an application by the Official Receiver (“the OR”) pursuant to s 17 of the Bankruptcy Ordinance; Cap 6 and rr 157 and 158 of the Bankruptcy Rules; Cap 6A for the following directions:
(1) to direct whether Mr Alan Chung Wah Tang (“Mr Tang”) of SHINEWING Specialist Advisory Services Ltd is a fit and proper person whom the creditors in general meeting may consider appointing as trustee of the property of the Bankrupt under s 17 of the Bankruptcy Ordinance; and
(2) if the answer to question one is in the negative, to direct that the resolution passed at the first meeting of creditors of the Bankrupt, so far as it concerns the appointment of Mr Tang as trustee under s 17 of the Bankruptcy Ordinance, was invalid and ineffective.
2. Section 17(1) of the Bankruptcy Ordinance provides:
“(1) The power to appoint some fit person as trustee (whether the first such trustee or a trustee appointed to fill any vacancy) is exercisable, except at a time when an order for the summary administration of the bankrupt’s estate is in force, by a general meeting of the bankrupt’s creditors.”
3. Rule 158 of the Bankruptcy Rules provides:
“158. In any case of doubt or difficulty or in any matter not provided for by the Ordinance or any rules thereunder relating to any proceeding in court, the Official Receiver may apply to the court for directions.
The contempt of court
4. Mr Tang has been found guilty of contempt of court in Ip Pui Lam and Anor v Alan Chung Wah Tang and Anor (HCMP 450/2016 and CACV214/2016). The contempt proceedings arose from a court order made in bankruptcy proceedings HCB3819/2011. The order required Mr Tang and one of his partners of JBPB & Co (“JBPB”) (an accounting firm formerly known as Grant Thornton) to produce certain documents including some invoices and receipts, if they were within their custody or power. Mr Tang and his partner failed to do so. To J found them in contempt of court. The Court of Appeal allowed their appeal in part but maintained that they were in contempt for failing to produce the invoices and receipts. To J fined Mr Tang HK$300,000 for his contempt.
5. To J made some observations in passing sentence on Mr Tang on 11 October 2017 in HCMP 450/2016:
“23. ... Tang is a professional accountant specialized in insolvency work. He said that following the finding of contempt, the Official Receiver’s Office indicated that they would not nominate him as a liquidator for any new “Panel A” cases; and Tang had indeed encountered difficulties in his proposed appointment in other cases.
24. I have no doubt about what Tang said. The Official Receiver expects a high degree of professional integrity and competency of those whom he appoints as liquidators or trustees in bankruptcy. Tang’s conduct of the disclosure application and his refusal to comply with the Disclosure Order not only fell far below the standard expected of a reasonable accountant but was also obstructive to the Trustees and counter‑productive to the function of the Official Receiver. More importantly, a liquidator is an officer of the court. How can Tang expect the Official Receiver will appoint as liquidator someone who has demonstrated such an obstructive attitude towards trustees-in-bankruptcy and liquidators in their investigation of a bankrupt’s or a company’s affairs and who has demonstrated willful defiance of the court’s order? The reaction of the Official Receiver is the natural consequence of his conduct. It could not carry much weight for mitigation purpose.
…
33. ... The majority partners (of JBPB), whom I presume to be reasonably competent accountants, saw no objection to produce the documents and consented to their production. But, Tang took an inexplicable position of first objecting to the authority of (Messrs Chiu, Szeto & Cheng Solicitors (“CSC”)) in representing them as partners of JBPB to enter into a consent order; and, second, contesting the discovery application rigorously as if he were the Bankrupt by raising every objection, however technical and unmeritorious. Not only that such conduct fell far below that of a reasonable accountant, he created suspicion on himself by such conduct.
34. Mr Siu submitted that Tang’s contempt was not intentional and that he was only being obstinate. He referred to the following observations of the Court of Appeal [at para 7.2 of CACV 214/2016 (unreported), 16 February 2017]:
‘In this case the breach of paragraph 3 is not casual or accidental. The defendants clearly knew that they had to comply with it but chose not to do so because they chose not to carry out the inspection of documents due to their own view (and I think, rather stubbornly) on the payment of charges and the efforts involved in such an exercise. They had ignored the bigger picture of their obligation to comply with paragraph 3.’
I am not in disagreement with that finding, but consider that was only one of the lesser reasons for his non-compliance. Given his background, Tang ought to know that the court’s order was to be complied. Given the background of this litigation, he ought to know committal proceedings would follow if he did not. On the date due for production, he only sent a letter to the Trustees’ solicitors attaching a few correspondences between him and CSC. His refusal to produce the documents was deliberate. Back in 2013 or even 2014 before the partnership had completely broken down, there was no question of such payment. Tang and Wong were minority partners of JBPB. The majority partners on behalf of the entire firm instructed CSC to consent to the disclosure order to be made against the firm. Had Tang not taken the peculiar and inexplicable position of denying CSC had authority to represent him and Wong, the order would have been made binding the entire firm including himself. At the time, he had access to the documents and JBPB’s resource to locate them. He could have instructed his staff in JBPB to do the search and produced not only the category of documents now concerned, but all four categories. But he was determined not to produce any of them. He raised every possible argument, and I emphasise, as if the Bankrupt was in his shoes. His position as I found in the disclosure proceedings was that he was to decide what was to produce, not the Trustee or the court. He maintained that position even after he received the Disclosure Order. I mentioned these factual background relating to the application for the Disclosure Order in HCB 3819/2011 and my adverse comments on Tang’s conduct in those proceedings only by way of background to support my finding of his mental state in not complying with the Disclosure Order. ... I find that his refusal to comply was not merely because of his obstinate view as to whether he should pay the charge, but was a determined and persistent refusal from the very beginning when there was no issue about those charges. He was determined that the court’s order was subject to his pleasure. He deliberately treated the court’s order with the utmost contempt.
…
38. Given its history, this is a very bad case of contempt. It is an aggravating factor that the contemnor, being an experienced accountant and liquidator who is knowledgeable about the bankruptcy regime and liquidation regime, the purpose of the disclosure and that time is of the essence in any investigation into the affairs of a bankrupt suspected of having defrauded his creditors, was determined to obstruct the Trustees’ investigation. It was against that background he made a determined refusal to comply with the Disclosure Order. There is a public interest element in this case. While Tang has purged the contempt, there was an unexplained delay of two and half months which indicated that he did so only for the purpose of reducing his sentence and less out of remorsefulness. …”
The present case
6. The following are from the OR’s report filed in this application. On the petition presented by the creditor Magnificent Melody Ltd (“the petitioner”) on 17 November 2017, a bankruptcy order was made against the Bankrupt on 17 January 2018. The OR was appointed the provisional trustee of the estate of the Bankrupt.
7. The OR has not been able to contact the Bankrupt and no statement of affairs has been filed. The only known asset of the Bankrupt was his 70% shareholding in a company Lanco International Holdings Ltd (“Lanco”). Lanco has been wound up in HCCW21/2014. Lanco owned 70% equity interest of a sino-foreign joint venture in the PRC. The joint-venture ran an aluminium plant in Desheng, Guanxi, PRC. The petitioner valued the joint venture at RMB300 million.
8. The OR has received 4 proofs of debt claiming a total of HK$1,218,668.71. The particulars of the proofs and their percentages bearing to the total amount of claim are:
| No. | Creditor | Amount of claim (HK$) | % |
| 1 | BOC Credit Card (International) Ltd (“BoC”) | 38,764.91 | 3.2 |
| 2 | Promise (Hong Kong) Company Ltd (“Promise”) | 207,201.00 | 17 |
| 3 | The petitioner | 852,121.50 | 69.9 |
| 4 | The Bank of East Asia, Ltd. (“BEA”) | 120,581.30 | 9.9 |
| Total | 1,218,668.71 | 100 |
9. The petitioner has put forward the nomination of Mr Tang and Mr Kan Lap Kee (“Mr Kan”), one of his partners in SHINEWING for appointment as the joint and several trustees of the Bankrupt’s estate. The first meeting of creditors was held on 20 April 2018 and only the petitioner attended.
10. The OR is of the view that the conduct of Mr Tang, whether as a professional accountant, a liquidator or an officer of the court, has been seriously questioned by the court and there is a serious doubt on his fitness for appointment as liquidator and trustee in bankruptcy. The OR has grave reservation on whether it is appropriate to appoint Mr Tang as a trustee in this bankruptcy case. She would not support such appointment. The OR then sent a letter dated 10 May 2018 to the petitioner’s solicitors, Pang, Kung & Co. advising them about the contempt proceedings and set out the OR’s concern on the appointment of Mr Tang as a trustee. The OR also suggested that the petitioner could appoint another candidate to replace Mr Tang to work with Mr Kan. However, the petitioner maintained its position to appoint Mr Tang. The OR then took out this application for directions as to whether Mr Tang is a fit and proper person to be appointed as one of the joint and several trustees in this case.
11. The OR also wrote to the other 3 creditors the same letter that she had sent Pang, Kung & Co. Promise replied that it had no objection to maintaining the nomination of Mr Tang in the interest of time and costs while BoC replied that it had no comment. Only BEA agreed to reject Mr Tang as a trustee.
12. Pang, Kung & Co by a letter dated 14 May 2018 advised the OR of the petitioner’s proposal to appoint Ms Anita Hou, another partner of SHINEWING as the third trustee in this bankruptcy. But the OR considered that 2 trustees would be enough and unnecessary costs would be incurred to the bankrupt’s estate by the appointment of 3 trustees. The OR replied to Pang, Kung & Co. also on 14 May suggesting the appointment of Messrs Kan and Hou only.
13. The adjourned creditors’ meeting was held on 18 May 2018 and only the petitioner attended. The meeting passed a resolution to appoint Messrs Tang, Kan and Hou as joint and several trustees of the bankrupt’s estate with immediate effect.
14. The Petitioner’s main reason for appointing Messrs Tang and Kan as trustees is because of their previous involvement as receivers of Lanco through which they have acquired specific knowledge in the internal affairs of Lanco which may expedite the administration of the bankruptcy estate and save costs. Messrs Tang and Kan are also considered to have expertise and experience in tracing of assets in the PRC.
The OR’s consideration of Mr Tang’s fitness as a liquidator or trustee
15. The OR in her Second Report filed on 5 October 2018 advised the court the following. From the OR’s perspective, a person has to act reasonably, fairly, impartially and professionally at all times in order to be fit to be appointed liquidator or trustee. The OR considered that one of the fundamental duties of liquidators and trustees, being officers of the court, is to give effect to and comply with court orders.
16. In addition to the serious criticisms made by To J against Mr Tang in the contempt sentencing decision, the OR also relied on Re JV Fitness Ltd [2018]1 HKLRD 553. Mr Tang together with Mr Kan Lap Kee and Ms Hou Chung Man were appointed joint and several provisional liquidators of JV Fitness Ltd, a company against which a petition for winding up had been presented. A compulsory winding up order was made against the company on 23 November 2016. That was after the judgment of To J dated 18 October 2016 finding Mr Tang in contempt of court. The 3 provisional liquidators then applied by letter dated 20 February 2017 for a regulating order under s 227A of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (“Winding Up Ordinance”) and their appointment as liquidators under s 227A of the Ordinance. Harris J did not deal with the application by letter and required a summons to be issued. The reason being that the letter made no mention of Mr Tang’s contempt of court.
17. When the summons was issued, only Mr Kan and Ms Hou sought appointment as liquidators. Mr Tang was not included and hence not a party in the application. Harris J saidin §11 of Bespart Technologies Engineering Ltd v JV Fitness Ltd [2018]1 HKLRD 553 that it seemed to his Lordship that if Mr Tang should have been included in the application, the contempt proceedings would have been directly relevant and his Lordship would not have appointed him. The OR also relied a comment by Harris J in §12 of the decision that Mr Tang “on various occasions in various matters that have come before this court and other Judges has demonstrated unnecessarily confrontational behaviour …”.
18. The OR was concerned that the contempt proceedings revealed Mr Tang’s unwillingness and uncooperative attitude to comply with the court order and his complete lack of respect to the court. Mr Tang was an experienced accountant specializing in insolvency work and had much experience as liquidator and trustee and hence should be aware of the functions of those roles. The OR considered that the seriousness of the matter was thus aggravated. The OR also considered that Mr Tang’s contempt of court reflected his general attributes despite his committing the contempt in his capacity of a partner of his former firm JBJB & Co and not as a liquidator.
19. The OR further said that Mr Tang, despite the court’s findings and sentence, did not accept that he was wrong in committing the contempt. He put the blame on the majority partners of his former firm, criticized the trustees in the contempt proceedings as being unreasonable, and criticized the court and the OR as being unfair and harsh. He did not appear to appreciate the inappropriateness of his conduct and the seriousness of the contempt he committed. The OR had grave concern that he still maintained that he committed the contempt only as a partner of his former firm and not as a liquidator and hence insisted that he had done nothing wrong. He did not demonstrate that he was truly remorseful and determine not to commit the mistake again. He also seemed to suggest that he had already purged his contempt by disclosing the documents and paid the fine and his contempt should have no further impact on his fitness or the regulators’ perception of his fitness.
20. The OR also referred to Mr Tang’s admission that he was “stubborn”. The OR referred to the definition of “stubbornness” in the Oxford Dictionary which explains it to mean “[d]ogged determination not to change one’s attitude or position on something”. The OR qualified the dictionary definition by adding to the end the phrase “in spite of there being a good reason to do so”. I doubt if this qualification can be part of the meaning of the word in all circumstances. Nevertheless, the OR was concerned that Mr Tang’s stubbornness had impacted and continued to seriously impact upon his judgment and performance as a professional insolvency practitioner and affected his fitness to act as liquidator or trustee. The OR regarded that there were reasonable grounds to be concerned as to his suitability to be appointed as liquidator or trustee.
21. The OR said that she tried to strike a balance between the interests of the creditors and the need to send a clear message to Mr Tang that his contempt of court was a serious matter. The OR had concerns as to Mr Tang’s fitness in acting in new cases if he did not demonstrate an acceptance of the inappropriateness of his conduct in the contempt case and his appreciation of the importance and necessity to comply with court orders in particular as an officer of the court.
22. In short, the OR would continue to consider Mr Tang as unfit if he did not admit his grave error, be reasonable in his conduct and declare that he would not disobey court orders again.
The OR’s submissions on the meaning of a fit person
23. There is no definition of “fit person” in s 17 of the Bankruptcy Ordinance. Mr Christopher Chain, who appeared with Mr Howard Wong for the OR, conducted a review of the legislative history and did not find any discussion in the legislature on its meaning. There is also no precedent on its meaning in the context of trustees in bankruptcy or liquidators.
24. Mr Chain referred to The Reports of Sir Edward Coke 1572-1617 (Vol. IV) at 223 where Sir Edward Coke set out the necessary criteria of a police constable. They are honesty, knowledge and ability.
25. Mr Chain then quoted the words of Lord Bingham in R v Crown Court at Warrington [2002] 1 WLR 1954: “… some consideration must be given to the expression “fit and proper” person. This is a portmanteau expression, widely used in many contexts. It does not lend itself to semantic exegesis or paraphrase and takes its colour from the context in which it is used. It is an expression directed to ensuring that an applicant for permission to do something has the personal qualities and professional qualifications reasonably required of a person doing whatever it is that the applicant seeks permission to do.”
26. Mr Chain also referred to Re Legend International Resorts Ltd (unreported HCCW 1139/2004, 7 March 2011) at §30 where Fok JA (as he then was) said:
“30. As an officer of the court, the liquidator is subject to duties which the law regards as fiduciary. He is entrusted with the reputation of the court for impartial and proper dispatch of duties and, in that regard, no lesser standard is to be expected of him than of a court or judge: Re Timberland Ltd (1979) 4 ACLR 259 at 286. A liquidator should not only be independent and impartial, he should also be seen to be so and any conflict of interest or even over-familiarization should be discouraged: Re Akai Holdings Ltd [2001] 2 HKLRD 411 per Yuen J (as she then was) at p. 421A and McPherson’s Law of Company Liquidation (2nd Ed.) at §8.023.”
27. Mr Chain submitted that in considering the fitness of a person to be a trustee in bankruptcy, the court may take into account the grounds for refusing to appoint a trustee under rule 163 of the Bankruptcy Rules. Rule 163 provides:
“It shall be a sufficient reason for refusing to approve the appointment of a person as trustee that in any other proceedings under the Ordinance such person has either been removed under section 96(2) of the Ordinance from the office of trustee or has failed or neglected, without good cause shown by him, to render his accounts for audit for 2 months after the date by which the same should have been rendered.”
28. The relevant ground that Mr Chain relied on in rule 163 is the refusal to approve the appointment of a person who has been removed as a trustee under s 96(2) of the Bankruptcy Ordinance. The relevant parts of s 96(2) of the ordinance provide:
“(2) If the court is of opinion—
(a) that a trustee, other than the Official Receiver, is guilty of misconduct or fails to perform his duties under this Ordinance; or
(b) …; or
(c) …; or
(d) …; or
(e) that the interests of the creditors require it, the court may remove him from his office and appoint another person in his place.”
29. Of the various grounds for removal, Mr Chain focused on misconduct. For the kinds of misconduct that justified removal, he referred to the decision of DHCJ To in Re Luen Tat Watch Band Manufacturer Ltd,HCCW 497/2009 at §§5 to 7:
“5. Thus, a liquidator may be removed if he has been shown to have been bias, or to give rise on reasonable grounds to a perception of bias, or to give rise to a real and reasonable loss of confidence in him by the petitioner, creditor or contributories.
6. Other general grounds for removal include misconduct; dereliction of duty; unfitness, inability or failure to carry out his duty; or loss of confidence in his professional judgment to such a degree as will forfeit the confidence of the court. These may be proved by evidence of some breach of duty or want of efficiency or appearance of partiality or conflict of duty on the part of the liquidator. The test is whether the liquidator’s conduct is such as will forfeit the confidence of the court. But it also seems to be enough to show that winding up can be conducted more cheaply or more effectively by some other person: McPherson’s Law of Company Liquidation[1].
7. The category of misconduct is never closed. One particular misconduct which the facts of this case calls for consideration is the liquidator’s disrespect or disregard to the court’s orders or findings. The insolvency regime operates through liquidators and trustees-in-bankruptcy who are officers of the court. The duty of an officer of the court is to give effect to the court’s orders, acknowledge its findings and act accordingly. Acts done by an officer of the court arising out of and in the course of performance of his duty have the protection of the court. If the officer refuses to acknowledge the court’s orders, disrespects its findings, does any act which has that effect or has the effect of nullifying the court’s orders or findings, the insolvency regime could not operate. There is no reason why the court should afford protection to that officer if he does not recognise the court’s command. Such conduct apart from being disrespectful to the court, if not also contemptuous, is inconsistent with the fiduciary duty owed by an officer of the court. It will forfeit the confidence of the court. In an appropriate case, such conduct may be a valid ground for removal of the liquidator.”
30. Mr Chain also submitted that if the person has committed misconduct in the past, it should be considered whether he has reformed himself or shown remorse. Mr Chain referred to the Court of Appeal’s decision in Re A [2018] 2 HKLRD 1245 which dealt with the question of whether a person is fit and proper to be admitted as a member of the Bar. Lam VP giving the judgment of the court said at §§20 to 22:
“20. At [41] of the judgment, the judge extracted several propositions from the judgment of the High Court of New Zealand in Re M [2005] 2 NZLR 544:
‘(1) …
(2) The personal and professional sides of a person’s conduct cannot be disassociated (p. 547, [20]);
(3) In cases involving a person with previous conviction(s), ‘the central issue is whether [that person], despite her past, has demonstrated that she is now a fit and proper person to be admitted. In other words, is there sufficient evidence of her change of character, or reformation, to enable the Court to view favourably her application’ (p. 547, [21]);
(4) In assessing whether the person has reformed:
(a) the focus is necessarily forward looking. The function of the Court is not to punish the applicant for past conduct (p. 547, [21]);
(b) the onus upon a person who has erred in a professional sense following admission to the legal profession is a heavier one than that of a candidate for admission (p. 548, [22]);
(c) …;
(d) it is important to look at the facts of the case in the round and not just pay regard to the fact of a previous conviction (p. 548, [23]).’
21. As the judge said, these propositions were not disputed. In the present context, it is also apposite to highlight that though high standard of integrity and probity should be expected we are dealing with human beings rather than paragons. Thus the judge correctly reminded himself of the judgment of Kitto J in Ziems v Prothonotary of the Supreme Court of NSW (1957) 97 CLR 279 at 298:
‘Yet it cannot be that every proof which he may give of human frailty so disqualifies him. The ends which he has to serve are lofty indeed, but it is with men and not with paragons that he is required to pursue them. It is not difficult to see in some forms of conduct, or in convictions of some kinds of offences, instant demonstration of unfitness for the Bar. Conduct may show a defect of character incompatible with membership of a self-respecting profession; or, short of that, it may show unfitness to be joined with the Bench and the Bar in the daily co-operation which the satisfactory working of the courts demands. A conviction may of its own force carry such a stigma that judges and members of the profession may be expected to find it too much for their self-respect to share with the person convicted the kind and degree of association which membership of the Bar entails.’
22. Whilst each case must depend on its own facts (as it is a multi-factorial fact sensitive assessment), as general guidance, apart from the above propositions and comments, it is appropriate to bear the following considerations in mind:
(a) The burden is on the applicant to satisfy the court that he is a fit and proper person for admission to the Bar;
(b) The inquiry is directed towards the present character and integrity of the applicant, not the character of him at the time when the offence was committed;
(c) Though it is relevant to consider if he has reformed himself, and the admission of a past misdeed is one indication of acceptance of responsibility, it is not immutable that the process of rehabilitation must be accompanied by a public admission of guilt. Depending on the circumstances, a long period of honest and responsible living since the conviction may also serve as evidence of rehabilitation;
(d) …;
(e) …;
(f) …;
(g) In the authorities cited to us, some judges took the view that there are convictions which are so serious and reflected so badly on the character of the offenders that such persons can never be considered as fit and proper for admission to the Bar. As we are plainly not concerned with such a case, we need not express any final conclusion in that regard;
(h) …;
(i) ...”
31. Though the OR’s submissions relied on r 163 of the Bankruptcy Rules for refusing to approve Mr Tang’s appointment as trustee in this case and the criteria for removal of trustee under s 96(2) of the Bankruptcy Ordinance, this application is not made under r 163 or s 96(2). It is made under rule 158 of the Bankruptcy Rules for directions.
Mr Tang’s evidence
32. Mr Tang filed an affirmation on 22 August 2018. He started off by saying that if this application should be decided against him, it will probably put an end to his professional career instantly as the court would find him not fit to act as an officer of this court. This is in line with my observation below that the OR’s grounds are against his appointment as trustee or liquidator generally and not in particular for this case.
33. Mr Tang further said that if he should be found unfit to be a trustee in these proceedings, then there would be applications to remove him as such in other proceedings. There are in fact two pending applications in bankruptcy proceedings for his removal as a trustee.
34. Mr Tang then discussed at length his contempt case. But I do not think it appropriate for me to consider that case in this application. Nor do I consider it necessary to consider the OR’s response to Mr Tang’s discussion of it.
35. Mr Tang also referred to his experience as an insolvency practitioner and his contribution to the profession. He commenced his practice as an insolvency practitioner in London in 1983 and returned to Hong Kong to continue his practice as such in 1986. He was the chairman of the Insolvency Practitioners’ Committee of the Hong Kong Society of Accountants for two terms in the 2,000s. He had also held various responsible positions in the insolvency profession. For about 32 years before his contempt of court, his practice was unblemished. He had also contributed to the establishment of cross-border relationship between insolvency professionals in Hong Kong and the mainland, provided training to insolvency professionals in the mainland and given speeches in various professional conferences in Hong Kong and elsewhere. He had also published works in insolvency practice. The OR acknowledged his experience and contribution to the profession in her 2nd report.
The OR’s actions against Mr Tang
36. The OR reviewed all cases in which Mr Tang had been appointed liquidator or trustee to see if he should be asked to resign or be removed. The OR started the review on 21 February 2017. She asked Mr Tang to provide details of all cases including the stage of administration, the assets to be realized, any further investigation required and the status of adjudication of proofs. Mr Tang had provided information for most cases, but the OR said that he had refused to respond to further queries in some cases. The enquiries of these cases thus remained outstanding.
37. For old cases that Mr Tang had been appointed for a long time and where the administration was almost concluded or where there were little or no outstanding matters to be dealt with, the OR did not consider it the best interest of the creditors to remove or replace him.
38. Based on information available, the OR identified four recent cases with outstanding matters that she preliminarily considered that Mr Tang should either resign or be removed. However, she had not decided on what action to take because the information was incomplete. It seems that Mr Tang’s resignation or removal from the four cases was not an urgent matter. Otherwise, his failure to provide adequate information on these cases would not have been a bar to the initiation of removal proceedings against him. His failure to provide full and complete information cannot be of assistance to him in such proceedings. It is also clear that the reason to require his resignation or removal was because of his contempt of court, his refusal to acknowledge his grave error in the contempt, his failure to disclose his contempt to the court in Re JV Fitness Ltd and perhaps also of his stubbornness and unnecessarily confrontational behaviour. The OR did not consider that his unfitness was prompted by his conduct as liquidator or trustee in the four cases.
39. The OR operates an administrative scheme known as Panel A Scheme. Firms of qualified private insolvency practitioners are admitted to the scheme and placed on a roster list. In the winding up of a company with property estimated to exceed HK$200,000, if no nomination or resolution is made or passed in the meetings of creditors and contributories for the appointment of liquidators, the OR will put forward an appointment taker of a firm in the Panel A Scheme for consideration of appointment by the court under s 194(1)(d) of the Winding Up Ordinance.
40. As a result of the finding of contempt against Mr Tang on 18 October 2016, the OR advised him that from 4 November 2016 onwards he would not be put forward as an appointment taker and insolvency practitioner of the Panel A Scheme.
41. Regarding the non-Panel A and non-summary court winding up cases, the OR did not regard Mr Tang as fit and proper to be appointed as liquidator and did not support his appointment. If both the creditors and contributories insisted on appointing him as liquidator, the OR would seek determination by the court on his appointment and advise the court that he had committed contempt of court. There were two winding up cases (HCCW 162/2016 and HCCW 41/2017) where the creditors resolved to appoint Mr Kan, Ms Hou and Mr Tang as liquidators but the contributories did not meet. Determination hearings were fixed for the two cases and the OR ventilated her stance in her reports to the court. Mr Tang however withdrew from the nominations and only Mr Kan and Ms Hou were appointed.
42. There were other cases where the OR, upon learning of nominations of Mr Tang as a liquidator or trustee, would inform the creditors and contributories of Mr Tang’s contempt. A letter sent by the OR to the BEA, a creditor in this bankruptcy, was produced as a sample letter for the court’s reference in this application.
43. The OR said in the letter that Mr Tang had been found to be in contempt of court and the court had made a number of adverse comments on his conduct, whether as a professional accountant, a liquidator or an officer of the court, which cast doubt on his integrity and fitness for appointment as liquidator. The OR thus had grave reservation that Mr Tang was a fit person to be appointed the trustee in that bankruptcy.
44. The OR further said in the letter that if the creditors should maintain their nomination of Mr Tang as the liquidator, the OR would seek direction from the court under rule 158 as to whether Mr Tang was a fit person to be appointed under s 17 of the Bankruptcy Ordinance. The OR further advised the creditor that the creditors’ power under s 17 of the ordinance was to appoint a fit person as trustee. If the creditors should resolve under s 17 to appoint Mr Tang, the OR would consider seeking direction from the court under rule 158 on whether the resolution is valid and effective or seeking a removal order against him under s 96 of the ordinance.
45. Mr Tang complained in his affirmation that the OR did not serve a copy of the papers in the rule 158 applications in HCCW 162/2016 and HCCW 41/2017 on him (or the other proposed liquidators in the cases) or copy to him her letters to the creditors advising them not to appoint Mr Tang. The OR responded in her 2nd report that there was no statutory requirement for her to notify any proposed liquidator of the application for directions or any established practice for her to do so. The established practice of the OR was to the contrary irrespective of whether she supported the proposed appointment. The OR’s understanding was that the nomination was a matter for the creditors and the contributories and the appointment for the court. The proposed liquidator should remain passive in the process. The OR thus did not regard the proposed liquidators as having any interest in the process which would warrant their being heard on the OR’s criticism against them, if any. This is, however, not a matter relevant to this application as Mr Tang has filed his affirmation in opposition herein. I will therefore say no more about it.
46. The OR considered that Mr Tang had not demonstrated that he was truly remorseful and had determined not to commit the mistake again. The OR stressed that it was for him to demonstrate to and convince the court and the OR his acceptance of the inappropriateness of his contempt of court and his appreciation of the importance and necessity of complying with court orders.
The OR’s position in this application
47. The OR acknowledged in her 2nd report that Mr Tang was an experienced insolvency practitioner and he had made valuable contributions to the industry. However, in the light of the contempt finding and the judicial comments on his conduct, the OR did not consider him fit to be appointed as the trustee in this case. The OR was concerned about his contempt of court, his refusal to acknowledge his grave error in the contempt, his failure to disclose his contempt to the court in Re JV Fitness Ltd and perhaps also his stubbornness and unnecessarily confrontational behaviour in court. Apart from these, the OR did not refer to any other misconduct or shortcoming of Mr Tang that would have affected his fitness to be appointed as trustee in this case or as trustee or liquidator generally since he became an insolvency professional in 1986.
48. The stance of the OR as ventilated in §15 of Mr Chain’s submissions is that Mr Tang’s contempt of court is not so serious that he can never be considered a “fit person” to act as a trustee in bankruptcy, but his contempt was committed as recently as in 2016/2017 and exacerbated by his failure to ensure its disclosure in Re JV Fitness Ltd, where he was put forward to act as liquidator, was sufficient to render him unfit to act as trustee in bankruptcy at this point in time.
49. Mr Chain further submitted in §26 of his submissions that there is no sufficient evidence of Mr Tang’s remorse and reformation. He persisted in impermissibly attacking and/or explaining away the finding of his contempt in his affirmation. He suggested that the Court of Appeal’s conclusion was wrong. He insisted that his former majority partners had set unreasonable terms of access to documents when both To J and the Court of Appeal had found them to be cooperative and reasonable in the circumstances. He also read the Court of Appeal judgment selectively to downplay his contempt to a mere technical contempt caused by his stubbornness only, but To J’s sentencing judgment clearly found it to be the contrary. Mr Chain submitted that these reflected his lack of substantive reformation and remorse.
50. Mr Chain also discussed Re JV Fitness Ltd in §§27 to 30 of his submissions. Mr Tang’s explanation was set forth in a letter he wrote to Harris J in relation to the decision. He said the lead partner in the case was his partner Mr Kan. Another partner Ms Hou was also in the case. He only had a limited and peripheral role in the winding up. For the period from 12 June 2016 to 31 December 2017, Mr Kan had charged 451.1 hour for work done and Ms Hou had charged 111.6 hours, but he only charged 23 hours. He had only signed the consent to act and the related papers in the application by letter for a regulating order and appointment of the three of them as three joint and several liquidators. He simply left the matter to Mr Kan and the legal team. He played almost no other role. He had not whether by himself or together with Mr Kan or Ms Hou instructed the legal team to withhold the finding of his contempt in the application by letter. He also mentioned that when Mr Kan wrote to the OR stating the intention to seek a regulating order and the appointment of the three of them as joint and several liquidators, the OR did not give any response.
51. Mr Chain submitted that the very high standards expected of a provisional liquidator and prospective liquidator required Mr Tang to make proper disclosure of his contempt when he was being put forward for the position of liquidator in this case. But he failed to discharge this obligation. His omission demonstrated his lack of awareness and appreciation of the seriousness of the finding of contempt against him. He also tried in his affirmation to disown any responsibility for the non-disclosure. Mr Chain thus submitted that his “inattentive indifference” on the need to disclose his contempt was inconsistent with the very high standards expected of him. He thus committed a further act in addition to his contempt which cast severe doubt on whether he had sufficient honesty and integrity to be considered a fit person to act as a trustee in bankruptcy. Mr Chain also submitted that Mr Tang’s attempt to explain away his non-disclosure exhibited his lack of remorse or reformation. But Mr Chain accepted in oral submissions that he had not lied or deceived anyone, but he took inapplicable and obstructive steps in the discovery exercise which led to his contempt.
52. Mr Chain however submitted orally that Mr Tang would be fit again if he should demonstrate sufficient remorse and provide evidence of reformation. There is no requirement of any specific period of remorse or exhaustive evidence of reformation.
Analysis and decision of this application
53. The OR said in her 2nd report that she had considered the options of disqualification or removal proceedings under ss 168G(1)(b) and 196(1) of the Winding Up Ordinance and s 96 of the Bankruptcy Ordinance against Mr Tang generally in respect of the bankruptcy and winding up cases that he was involved. The purpose of this application is for removal of Mr Tang as trustee from this bankruptcy. This application is, however, not brought under s 96(2) of the Bankruptcy Ordinance though Mr Chain’s submissions relied on the ground of misconduct prescribed in s 96(2). It is also not brought under r 163 of the Bankruptcy Rules which provides for the non-approval of an appointment of trustee on various grounds.
54. This application is brought under s 17 of the ordinance and rr 157 and 158 of the rules. It is framed as an application for directions of the court on the suitability of appointing Mr Tang as a trustee in this case. It is in effect for an order to remove Mr Tang from his appointment of trustee made on 18 May 2018. The OR said that she opposed Mr Tang’s appointment “in this case”, but her grounds are against his fitness to be appointed as trustee or liquidator in general and not just in this case. The OR has not cited any special cause or reason that has made Mr Tang unfit particularly for this case.
55. Section 17(1) of the Bankruptcy Ordinance provides:
“(1) The power to appoint some fit person as trustee (whether the first such trustee or a trustee appointed to fill any vacancy) is exercisable, except at a time when an order for the summary administration of the bankrupt’s estate is in force, by a general meeting of the bankrupt’s creditors.”
56. Rule 158 of the Bankruptcy Rules provides:
“158. In any case of doubt or difficulty or in any matter not provided for by the Ordinance or any rules thereunder relating to any proceeding in court, the Official Receiver may apply to the court for directions.”
57. Rule 157 allows the OR to file evidence in this application in the form of a report rather than by affidavit.
58. Rule 158 is for application for directions for matters relating to any proceedings in court. Mr Chain referred to Re Ng Shiu Fan [2008] 4 HKLRD 813 and Re Tung Wan Hoi Kee Products Factory (a firm) [1972] HKLR 66 for support in invoking r 158 in this application.
59. Re Ng Shiu Fan is a case on whether the provident fund benefits of a bankrupt teacher were vested in the trustee under s 58(1) and (2) and remained so even after the discharge of bankruptcy or whether the vesting was prevented by s 85(3) of the Education Ordinance. The relevant statutory bankruptcy provisions are the definition of “property” in s 2 and ss 43(1) and 58(1) and (2) of the Bankruptcy Ordinance. They provide:
“2. Property (財產) includes money, goods, things in action, land and every description of property, whether real or personal and …, vested or contingent, arising out of or incident to property as above defined;
43(1) Subject to this section and sections 43A to 43E, a bankrupt’s estate comprises—
(a) all property belonging to or vested in the bankrupt at the commencement of the bankruptcy;
58. (1) On the making of a bankruptcy order, the property of the bankrupt shall vest in the Official Receiver.
(2) On the appointment of a trustee the property shall forthwith pass to and vest in the trustee appointed.” (emphasis added)
60. The application in that case was made under ss 82(3) and 97(1) of the Bankruptcy Ordinance and r 158 of the Bankruptcy Rules. Sections 82(3) and 97 (1) provide:
“82. (3) The trustee may apply to the court in manner prescribed for directions in relation to any particular matter arising under the bankruptcy.
97. (1) Subject to the provisions of this Ordinance, the court shall have full power to decide all questions of priorities and all other questions whatsoever, whether of law or fact, which may arise in any case of bankruptcy coming within the cognizance of the court or which the court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.”
61. It is clear that the matter in question was a particular matter arose under that bankruptcy and the application was properly made under ss 82(3) and 97(1) and r 158.
62. Re Tung Wan Hoi Kee concerned the validity of a resolution passed under the then s 17 of the Bankruptcy Ordinance. Under the then s 17, if a debtor proposed a composition or scheme of arrangement, the creditors could resolve in a creditors’ meeting to accept the scheme or instead not to accept it but to apply for an adjudication order (p 70). In that case, the debtor did not propose any composition or scheme. There was a creditor who was in a position to exercise approximately 90% of the voting power in the creditors’ meeting. That creditor had also levied execution on the debtor. He opposed a proposed resolution to have the debtor adjudged bankrupt. He instead proposed a resolution that the debtor be not adjudged bankrupt. His proposal was carried. This would have enabled him to gain considerably as he had levied execution. This issue was a matter arising under those proceedings. The OR then applied under r 158 for direction from the court on the validity of the resolution. Blair-Kerr J held that the only resolution open to the creditors was that the debtor be adjudged bankrupt and hence no resolution was passed by the creditors’ meeting.
63. The grounds of this application did not arise from anything Mr Tang did or did not do in this bankruptcy. It is not because of his conduct or misconduct committed as trustee in this bankruptcy. It is because of his contempt of court in HCMP 450/2016, his refusal to acknowledge his wrong in the contempt and his failure to disclose his contempt to the court in Re JV Fitness Ltd. The OR also referred to miscellaneous grounds of his stubbornness and unnecessarily confrontational behaviour in court which also did not arise from and were not peculiar to this bankruptcy. The OR said that these matters rendered Mr Tang unfit as a trustee or liquidator generally. This application is therefore different from those in Re Ng Shiu Fan and Re Tung Wan Hoi Kee as those applications were occasioned by matters happening in those proceedings. The two cases cannot support the use of r 158 in making this application.
64. Furthermore, r 158 is for application for directions in case of doubt or difficulty or in any matter not provided for by the Ordinance or any rules thereunder. It is not intended for removal of trustee for misconduct. That is provided in s 96(2). But that section is not applicable because Mr Tang had not misconducted himself as trustee in this bankruptcy. Rule 163 is also not applicable because the grounds therein do not apply in this case. But the inapplicability of s 96(2) and r 163 does not necessarily make r 158 applicable.
65. Assuming that I am wrong in the conclusion in the above paragraph and r 158 is applicable. I first deal with Mr Tang’s failure to disclose his contempt of court in the paper application for appointment as liquidator in Re JV Fitness Ltd. Mr Chain accepted that Mr Tang had not lied or deceived anyone. Mr Chain, however, submitted that Mr Tang had an “inattentive indifference” on the need to disclose his contempt and that his failure to do so had impacted on his honesty and integrity. But Mr Chain, in coming to such conclusion, had not sought to cross-examine Mr Tang on whether he indeed had an “inattentive indifference” on the need to disclose or he had just overlooked this obligation. Mr Chain also accepted in oral submissions that Mr Tang’s non-disclosure was not deliberate. I cannot tell whether this non-deliberate non-disclosure was the result of his “inattentive indifference” as I find it difficult to grasp the exact meaning of “inattentive indifference”.
66. I also do not think Mr Tang’s “inattentive indifference” or even “attentive indifference” to his disclosure duty and/or his non-deliberate failure to make disclosure can lead to or sit together with doubtfulhonesty and integrity. Objectively speaking, if Mr Tang had just overlooked his duty to ensure disclosure of his contempt, his failure to do so was a matter of negligence rather than dishonesty. However serious the obligation may be, if he overlooked it, then he overlooked it. The more serious the obligation may mean the more profound his negligence. It would still not make him dishonest.
67. I would add that if Mr Tang should have asked Mr Kan and the legal team responsible for the paper application not to disclose his contempt of court in the application, they would certainly not have agreed to do so but would have made the disclosure clearly. I cannot imagine that Mr Kan and the legal team would have collaborated with him to cover up the matter. However, the explanation given by the legal team to Harris J for not disclosing the contempt in the paper application was because they did not think it necessary. If I cannot hold Mr Kan and the legal team as being dishonest, I do not think I can so hold against Mr Tang. I disagree with Mr Chain that Mr Tang’s failure to ensure disclosure of his contempt by Mr Kan and the legal team had impacted on his honesty and integrity.
68. In any case, Mr Tang had declared in open court that he should have been more proactive in fulfilling his disclosure duty by instructing the legal team to ensure the disclosure of his contempt and he was remorseful for his failure to do so.
69. Regarding stubbornness, there is a Chinese saying called “擇善固執”. It has been translated in the Hong Kong Hansard to mean “be faithful to one’s judgment”, “to insist on what is righteous”, “to hold fast on to what is good” and “good-willed tenacity”. Of course, one may just be wrong in one’s assessment of what is right or righteous and still hold fast on to it. In that event, the insistence or stubbornness will lead to frustration of those affected. Mr Tang might well have committed such errors and perhaps repeatedly too. But nobody has suggested that he acted out of dishonesty or malice. In any case, stubbornness is not “[d]ogged determination not to change one’s attitude or position on something in spite of there being a good reason to do so”. I therefore cannot see how stubbornness can impact upon Mr Tang’s judgment and performance as an insolvency practitioner or affect his fitness to act as liquidator or trustee. What is required of an insolvency practitioner and a liquidator or trustee is the knowledge and ability to perform the professional role in a professional way. Whether he is stubborn is neither here nor there. I therefore disagree with the OR. I do not think that Mr Tang’s stubbornness can affect his fitness in being a trustee or liquidator.
70. Regarding unnecessarily confrontational behaviour, I am of the view that such behaviour in the conduct of litigation can be annoying and even frustrating. It should be met with judicial rebuke. But such behaviour cannot be equated with lack of honesty or integrity. I have not heard of counsel being disciplined by the Bar for being stubborn or for his unnecessarily confrontational behaviour in court. Indeed, counsel often holds fast to arguments that the court may regard as spurious. But the court would reserve its view in the judgment.
71. The OR’s stance is that Mr Tang is unfit to act as trustee in bankruptcy at this point in time. Mr Chain submitted orally that Mr Tang would be fit again if he should demonstrate sufficient remorse and provide evidence of reformation. He said that there is no requirement of any specific period of remorse or exhaustive evidence of reformation. He confirmed that since the contempt on 8 April 2015, Mr Tang had not flouted any court order. There is also no suggestion that he had flouted any court order prior to his contempt of court. This shows that save and except his contempt of court, which is of course a very serious degree, Mr Tang has been performing his duties as trustee and liquidator without any problem since 1986. For his contempt of court, he has been duly punished. The case of Re A [2018] 2 HKLRD 1245 is different from this case. Mr Tang is not seeking a fresh admission to his professional body. He has a professional track record whilst the appellant in Re A did not.
72. The OR had considered disqualification or removal proceedings under ss 168G(1)(b) and 196(1) of the Winding Up Ordinance and s 96 of the Bankruptcy Ordinance against Mr Tang in respect of the bankruptcy and winding up cases that he handled. But no such step was taken. Instead, the OR has been enforcing sanctions against him. Since 4 November 2016, the OR has not put him forward as an appointment taker and insolvency practitioner of the Panel A Scheme. This resulted in his loss of at least 21 cases. The OR has also dissuaded creditors and contributories not to appoint him as trustee or liquidator in new cases. The OR advised them of his contempt of court and that the OR would apply for direction from the court on the validity of their resolution under r 158 if they should go ahead to resolve for his appointment. This would no doubt have a damping effect on the desire of the creditors and contributories to appoint Mr Tang. The OR made two such applications in HCCW 162/2016 and HCCW 41/2017. They were resolved by Mr Tang withdrawing from the appointments. He thus lost these two appointments.
73. The OR applied the above sanctions against Mr Tang on the ground that he was unfit. The cause for considering him to be unfit was his refusal or failure to demonstrate sufficient remorse of and provide evidence of reformation from his contempt of court as he still thought that the contempt decision was wrong.
74. I doubt if it is open to the OR to administer further punishment on Mr Tang for his contempt as he had already been punished by the court for it. If the OR did not intend to punish him again for his contempt but was concerned about his fitness in general because he failed to acknowledge his error in the contempt, then his fitness in general is a disciplinary matter. It is a matter for the disciplinary committee of the professional body that he belonged. The OR cannot apply administrative actions to suspend his practice either generally or selectively and either permanently or temporarily without invoking the disciplinary proceedings. Rule 158 is also not for deciding the fitness in general of an insolvency practitioner.
75. Mr Chain referred in his §35 of his submissions to Mr Tang’s Affirmation (A/23-25, 32) where he said in effect that if the OR should succeed in this application, that would mean that he would be found to be unfit to continue acting as an officer of the court generally (even though lasting till he shows his remorse). Mr Chain submitted that this possible consequence has no relevance as to whether Mr Tang currently satisfies the “fit person” standard. The application may be for an answer of whether Mr Tang is a fit officer of the court. But it is based on grounds that are of general application and not specific to this bankruptcy. The finding, if in favour of the OR, would also be based on general grounds and be applicable to Mr Tang generally. I just cannot see how r 158 can be employed to deal with such a general disciplinary issue. Even if the OR should contend that Mr Tang is unfit only temporarily and until he acknowledges faithfully his error, it is still a disciplinary issue as it is his fitness generally that is being questioned, not his fitness or lack of the same on specific ground(s) as set out in the ordinances. Such issue is for the disciplinary committee of his professional body.
Order
76. For the above reasons, I dismiss the application.
77. Since most the grounds of this decision are not advanced by Mr Tang, I also make a costs order nisi that there be no order as to costs.
| | (Louis Chan) |
| | Judge of the Court of First Instance
High Court |
Mr Christopher Chain and Mr Howard Wong, instructed by Official Receiver
Mr Alan Chung Wah Tang, Trustee of the Property of the Bankrupt, appeared in person