RE LI XIAOMING
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HCB 6083/2018
[2024] HKCFI 3534
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
BANKRUPTCY PROCEEDINGS NO 6083 OF 2018
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| Re: | LI XIAOMING (李曉明) | Bankrupt |
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| Coram : | Before Master J Wong in Court |
| Date of Hearing : | 29 October 2024 |
| Date of Decision : | 11 December 2024 |
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D E C I S I O N
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Application
1. This is an application for by the trustee against the bankrupt for suspension of automatic discharge of bankruptcy.
Background
2. In 2009, Diligent Myria Limited (the “Petitioner”) agreed with Mr Li Xiaoming (李曉明) to acquire shares in one of his companies for investment in an anticipated mining project in Cambodia. Things went wrong but parties managed to settle them.
3. However, Mr Li did not pay the settlement sum of US$5,000,000 to the Petitioner and hence, on 24 October 2018, it commenced the present proceedings against him. Mr Li opposed the petition and raised, inter alia, the defence of duress.
4. On 15 November 2019, after argument, Deputy High Court Judge William Wong SC rejected the defence and issued a bankruptcy order against Mr Li (hereinafter called the “Bankrupt”). He took up the matter to appeal. However, on 25 May 2021, the Court of Appeal dismissed all grounds raised by the Bankrupt, including a late application that the trial judge should have recused himself.
5. In the meantime, on 24 January 2020, Mr Fok Hei Yu of FTI, Consulting (Hong Kong) Limited were appointed trustee (the “Trustee”) of the property of the Bankrupt.
6. The Trustee started the administration.
7. On 14 May 2020, the Bankrupt submitted his Statement of Affairs (“SOA”) to the Trustee. Briefly, he said, among others, that he had:
(a) cash at bank for about $190,000,
(b) 9 debtors owing him about $373 million,
(c) interest in 22 companies (but worth nothing),
(d) 2 secured creditors, and
(e) 18 unsecured creditors for over about $11,300 million.
8. From the information, the Trustee raised a number of questions. Solicitors of the Bankrupt took up the matter and assisted to reply them. Parties thereafter corresponded with each other for rounds in the following years. The Trustee was not satisfied. Solicitors for the Bankrupt disagreed, arguing inter alia, that they had made timely replies and produced substantial information.
9. On 9 June 2023, the Trustee also complained that the Bankrupt had failed to submit three (3) Annual Statements informing his yearly earnings and expenditures. It took about 3 weeks, and on 27 June 2023, the Bankrupt, through his solicitors, to remedy the failure. He said that, over the 3 years, he had “0” income and “0’ expenditure.
10. Up the date hereof, the Trustee has recovered about $48,000 from banks. The investigation was on going. There was no distribution of any dividend.
11. In late 2023, the Trustee issued two applications against the Bankrupt.
(a) An application before Master to suspend the automatic discharge of bankruptcy. The Trustee complained that there was no co-operation from the Bankrupt and his conduct was unsatisfactory before and during bankruptcy. Discharge would prejudice administration of the estate of the Bankrupt.
(b) An application before Judge for public examination of the Bankrupt.
12. Regarding the Suspension application, on 10 November 2023, by consent, I made usual directions for an interim suspension, preparation of affidavit evidence and adjournment of it for argument before Master for 3 hours.
13. As to the Examination application, on 12 December 2023, the Hon Ng J gave directions on conduct of it and adjourned the same for 3 hours before a Judge for argument, but not before determination of the Suspension application.
14. In the meantime, having considered that the Bankrupt was unfit to act on his own behalf and to give instructions herein, on 12 June 2024, I appointed Mr Yang Si (楊斯) (son-in-law of the Bankrupt) to act as Guardian ad litem (the “Guardian”) for the Bankrupt, but without prejudice to any rights of the parties.
15. On 17 September 2024, I heard an application from the Guardian to vacate the substantive hearing before me for the Suspension application and to vary directions given earlier by consent of parties so that a Judge would be hearing it for 2 days with cross-examination of medical experts. After argument, I dismissed the application with costs to the Trustee.
16. Parties later appeared before me on 29 October 2024 with counsel. Upon hearing from them, I reserved my decision. Here it is.
Summons to waive irregularities
17. To start with, at the hearing, I brought forward a late summons issued (only returnable before me on 13 November 2024) by the Guardian to ask the Court to waive irregularities regarding “steps taken, including all summonses taken out and all affirmations filed and served…” by him.
18. Upon consideration, I have decided to dismiss it.
(a) The application is late. There is no explanation as to why the Guardian or his solicitors issued it only “at the eleventh hour”.
(b) There is also no supporting affidavit evidence prepared to explain the application.
(c) The scope of the application is unclear and vague.
(d) Both the Bankrupt and the Guardian have always had their legal teams, any irregularities should have been properly addressed long time ago.
The Two Stages Approach
19. I move to the substance of the application. It is not disputed that the Court should adopt there are two stages involved when the Court is considering his power in Suspension application. The Hon Barma J (as he then was) in Re Wong Hing Wah Michael (HCB 26018/2002, Judgment dated 12 October 2007) summed up the position as:
“14. These authorities make it clear that there are two stages involved when the court is considering the exercise of its powers under section 30A (3). 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 [emphasis added]. 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.”
Evidence for the Bankrupt
20. In the present case, I will see and determine the scope of evidence prepared by parties within the Suspension application, as argued by parties.
21. Ms Au submitted the Bankrupt had not filed any affidavit in opposition. The 1st Affirmation of Li Bo (daughter of the Bankrupt) and the 1st Affirmation of Wang Yuanheng (a legal adviser) ought to be rejected or be given no weight.
“16. As to Li Bo 1st:
(1) This was originally filed signed but unsworn exhibited to a solicitor’s covering affirmation dated 7 February 2024.
(2) Li Bo 1st was not notarized until 28 May 2024, after the “unless order” deadline of 7 February 2024.
(3) The preamble at §3 includes the unconventional additional that unless otherwise stated, the facts and matters deposed to include those “obtained from my father, the Bankrupt in the course of my living with him” …
(4) The affirmation therefore is explicitly inclusive of second-hand knowledge that is presented in the same way as firsthand knowledge, without any express qualification.
(5) Li Bo 1st exhibited a detailed draft affirmation by the Bankrupt and extensive draft exhibits thereto, all undated and unsigned. At §9 she purports to confirm that the contents in LB-1 are “true and correct to the best of [her] knowledge, understanding and belief” based on “the course of [their] family chats” …
(6) Nevertheless there is no attempt to swear to the truth of any particular relevant fact within LB-1.
(7) Applying Lin Xin Nian, LB-1 itself is not evidence at all and must be disregarded entirely.
(8) Li Bo 1st itself is to be viewed with caution.
17. As to Wang 1st:
(1) The Affirmation is argumentative and speculative, laden with complaints of the Trustee’s “delays” and explanations based only on Wang’s own “surmise” and not direct personal knowledge….
(2) The affirmation and exhibits runs to about 2790 pages in total. While some of the documents may be new to the Trustee, and (pending investigation) potentially of assistance to the Trustee’s investigation, the bulk is not apt or relevant to the Application; for example, … is a total replication of the correspondence and all documents annexed including audited financial reports, memoranda of association of BVI companies and other company registration documents.
(3) As Fok 1st complains, the provided information has not resulted in satisfactory tracing and control, having regard to specific matters such as undisclosed share allotments which remain unanswered (as submitted below). Mere reproduction of the full correspondence is at best a failure to exercise professional discernment, and at worst simply oppressive within the context of these proceedings.
(4) This is wholly inappropriate and should be rejected: Hong Kong Civil Procedure 41/6/1.
18. For the reasons above, both affirmations ought to be rejected or be given no weight. The purported facts in LB-1 should not be accepted as fact at all. Where B’s affs contradict the Trustee’s evidence, the Trustee’s evidence ought to be preferred.”
22. Ms Lam SC called this submission as “Technical” Objections by the Trustee and replied that:
“(F) The Trustee’s “Technical” Objections
88. The trustee has devoted several pages to purely tactical and technical arguments on the admissibility of the evidence filed on part of the Bankrupt… The Trustee’s reluctance to engage in the substantive merits is telling. The explanations put forward on part of the Bankrupt seems to have fallen on deaf ears; the Trustee has neither dealt with a large part of the explanations put forward nor explained why the explanations are not to be accepted. Now, the trustee seeks to simply brush aside the evidence filed on part of the Bankrupt without properly considering the substantive issues and evidence raised.
89. The Trustee’s attempts at targeting the hearsay evidence contain in Bo 1st and Wang 1st cannot stand in light of the nature of these proceedings. Any prejudice to the Trustee can only be forensic as the Trustee did not apply for cross-examination of the deponents, which would have deprived the Trustee of the opportunity to test the reliability of the evidence. Likewise, the Trustee knew that the Bankrupt had adduced hearsay evidence form a very early stage. Yet, other than setting out cursory objections in Fok 3rd …, the trustee has (yet again) chosen to sit on his own hands and not take out any application to strike-out or expunge the allegedly offending affirmations, nut instead to commit to making such objections in the last minute in the skeleton submissions.
90. The trustee’s complaints about Wang 1st criticising the Trustee’s delays cannot stand. Wang 1st is entitled to comment objectively on the documents to assist this Court. Similarly, it was necessary for Wang 1st to disclose the full correspondence between the Bankrupt and the Trustee as the Trustee has not done so for unexplained reasons…. It is difficult to see how this can even be characterised as “simply oppressive” when the Trustee already has these documents and purportedly has considered the same already ….”
23. Upon consideration, I agree with the submissions from Ms Au.
(a) Ms Au premised her argument on O 41 r 5 (1) RHC. In short, an affidavit may contain only such facts as the deponents is able of his own knowledge to prove. I have heard no argument from Ms Lam SC otherwise. Rules should be complied with and not to be breached. I have also heard no reason to explain to the Court why they were done in the way they did.
(b) The issue rests primarily on admissibility, but not weight of the evidence. Hence, the complaint that the Trustee did not apply for cross-examination has no bearing at all. Similarly, I also see nothing wrong on the part of the Trustee not taking out an application for striking out. In my view, it will only lead to a piece of satellite litigation lengthening the Suspension application and the proceedings herein unnecessarily.
(c) It also lies ill in the month of the Bankrupt and/or the Guardian when Master Lai (as he then was) had already raised the matter with parties on 20 March 2024. Parties had known the potential hiccups and if one still failed to take step to address them, he could only blame himself.
24. Further or in the alternative, even if I would have waived all the irregularities in the 1st Affirmation of Li Bo/the 1st Affirmation of Wang Yuanheng and agreed to take into account of them in the Suspension application, as to be seen later, they do not affect my decision at the end of the day.
25. For the sack of completeness, I should mention that there is also a dispute between parties as to the inclusion of some affirmations from the Bankrupt/the Guardian in the hearing bundles before me, namely:
(a) 1st Affirmation of Yang Si dated 12 April 2024,
(b) 2nd Affirmation of Fok Hei Yu dated 16 May 2024,
(c) Draft 2nd Affirmation for the Bankrupt (undated),
(d) 2nd Affirmation of Yang Si dated 2 July 2024, and
(e) 2 Affirmation of Li Bo dated 6 July 2024
To avoid unnecessary argument, the Trustee informed me that he agreed to include them with a rider of his objection of them deployed at the Suspension application. In my view, the Trustee is correct.
(a) This Court gave clear directions on filing and serving of affidavit evidence in opposition on 11 November 2023 (for the Bankrupt) and 12 June 2024 (for the Guardian). Other evidence, including those prepared by parties on appointment of Guardian are not admissible and relevant to the Suspension application.
(b) A draft affirmation of the Bankrupt (not affirmed) has no evidential value and the Court will not consider it within the Suspension application.
26. I will also add that, even if I would have considered all these affirmations as contained in the hearing bundles, again, they did not affect my ruling in the end.
Section 30A (4) (c) of BO: Failure to co-operate?
27. Ms Au said that the Bankrupt’s affairs and transactions were complex. He should therefore be comprehensive in his disclosure. Although the legal representative of the Bankrupt appeared to make prompt reply to Trustees, a closer inspection revealed that they were holding replies, narrow responses and denial of having the information sought. They were in fact “dribs and drabs”. The Bankrupt in fact adopted a “catch me if you can” attitude in the administration by the Trustees.
28. Ms Au specifically drew my attention in her skeleton of the example of Mongolian copper mine to demonstrate he complaint of the Trustees.
“…
(1) The Bankrupt had 10.8% indirect shareholding interest in, and was director of, one Boldtumur Eruu Gold LLC, the operating company of a Mongolian copper mine (“Eruu Mine”).
(2) Fok 1st §33 provided the Trustee’s best attempt to piece together the shareholding structure of the Eruu Mine based on public information and piecemeal information disclosed by the Bankrupt during his bankruptcy …
(3) There was a change in ownership structure of the Eruu Mine via its HK-incorporated intermediate holding BVI company, Mon IMIL. That change involved a share allotment by Mon IMIL in 2022 after the date of bankruptcy, and the Bankrupt did not provide updated registers which are not otherwise available to the Trustee: Fok 3rd §13(1)(a) ….
(4) Wang 1st §§40-42 complained that the Trustee’s analysis and chart were simplified and misleading …, providing new and updated charts ….
(5) Yet the chart shields the changes in ownership structure which occur in a box merely labelled “Others”. Fok 3rd§§12-13 …] sets out the reasons why the share allotment is not adequately explained, and cannot by properly understood without full and frank disclosure by the Bankrupt.
(6) The above is but one asset amongst many that the Trustee has been trying to investigate and collect, and should serve to illustrate the complexity of the Bankrupt’s dealings.
(7) …
24. To justify a lack of reply to key requests for information and documentation that could lead to the collection of assets:
(1) The Bankrupt claimed that he does not know of the status of various transactions and businesses activities in which he was heavily involved (e.g New Simin Resources) simply because he “was not a majority shareholder”, “had not participated in management”, or “had not asked”, requiring the Trustee to send chaser after chaser [Fok 1st §§19, 36, 51]…
(2) In some instances, the Bankrupt said he was unable to access information due to resignation from directorships since after being declared bankrupt (such resignations not having been discussed with or approved by the Trustee) [Fok 1st §§8(5), 17, 43, 48, 50, 52]…
(3) The Bankrupt would say he did not have certain documents on hand, and/or state that his business partners would not give him the relevant information. In one example, he would simply tell the Trustee to ask the relevant management …, only eventually in September 2021 after chasers providing two contact numbers which did not answer incoming calls [Fok 1st §§19-20, …].
(4) Even in respect of documents which the Bankrupt should be competent to provide in support of his disclosed assets, there has been a lack of disclosure. The Bankrupt disclosed a 15% interest in a Mongolian copper mine through a wholly owned BVI company Prosper Huge Limited, but all along simply stated he did not have his share certificate of Prosper Huge Limited on hand with no further action taken such as procuring the re-issue of the said certificates; [Fok 1st §§37-38, …].
(5) The effect was to obfuscate the state of his assets by preventing direct inspection, multiply paperwork, and stretch out the time and resources required to investigate.”
29. Ms Lam SC denied all of them, except that the Bankrupt’s affairs and transactions were complex. When the Bankrupt was still in a fit state, he provided full co-operation with the Trustees. He answered the Trustee’s Questions within a reasonable timeframe. He endeavored to answer fully the questions to the best of his abilities. The Trustee simply did not follow-up or complain of incomplete answers. When the Trustee started to complain, it was too late.
30. Ms Lam SC also spent quite some time in her skeleton to demonstrate the case for the Bankrupt.
“(A) Boldtumur Eruu
92. The gist of the Trustee’s complaint is that he was unable to obtain sufficient information about i) Boldtumur Eruu, ii) the Bankrupt’s connection with Yu Rui; and iii) whether there was any trust arrangement between the Bankrupt and Li Muou. None of the Trustee’s complaints can hold water.
93. Firstly, it is public information that Eruu Mine is fully functional with major capacities … Much information can be found about Boldtumur Eruu online as a matter of public records …
94. Secondly, back in 25 May 2021 … the Bankrupt had already resigned as a director of Boldtumur Eruu as the Mongolian team shunned the Bankrupt … He would have no further access to the management or information of Boldtumur Eruu.
95. The Bankrupt had already provided the relevant contact details of the managers of Boldtumur Eruu … However, the Bankrupt cannot be faulted for fact that the Trustee was unable to obtain any information from those key contacts.
96. Thirdly, there is nothing surprising about the lack of any evidence for the trust arrangement between the Bankrupt and Li Muom’s interest in Yu Rui…
96.1 There was a lapse of time as the Bankrupt transferred the legal ownership of the shares in Yu Rui to his daughter Li Muou on 16 June 2015 … This is supported by the Bankrupt’s resignation from Yu Rui on 16 June 2015 …
96.2 The fact that UBS TC (Jersey) Ltd holds shares in Yu Rui for the Bankrupt and his family members as beneficiaries is also stated in the draft prospectus intended for use for the intended IPO of Iron Mining Cayman …
96.3 The share transfer forms being undated is neither here nor there. It is common practice for professional trustees to sign last on the transactional documents (which the Trustee does not rebut in Fok 3rd) …
97. Fourthly, the Bankrupt’s interests in Boldtumur Eruu have become the subject matter of a security:
97.1 Back in 18 August 2020 …, the Bankrupt had already informed the Trustee that he had mortgaged his shares held under Successful Key to China Life by way of an equitable mortgage.
97.2 On 8 July 2021 … and again on 19 July 2021 … the Bankrupt disclosed to the Trustee that the said equitable mortgage dated 23 February 2018 ….
97.3 As such, the pledged interest would not have been recoverable for the benefit of the creditors anyway.
(B) Major Shareholding changes of Mon IMIL
98. The Trustee complains about the Bankrupt’s failure to notify the Trustee of the major shareholding changes in Mon IMIL on 25 February 2022 …
99. Firstly, the Trustee’s complaints are not understood. Any changes in shareholding are a matter of public record on the Companies Registry: …
100. Secondly, the Bankrupt’s shareholding in Mon IMIL has remain unchanged …
(C) Sale of shares in Yu Jin BVI
101. The Trustee complains about the Share Sale, i.e. Greentech agreed to purchase 10% of the issued share capital of Yu Jin BVI … However, the basis for the Trustee’s complaint in unclear:
101.1 Even on the Trustee’s own knowledge, the Bankrupt’s daughters own the Yu Jin BVI, which in turns hold Yu Jin Investment, and in turn Yu Jin Singapore … The Bankrupt was not a shareholder of Yu Jin BVI.
101.2 There is nothing pointing as to how the Bankrupt would benefit at all from the Share Sale. More importantly, the Share Sale fell though … So, there is no realisation of the shares into monies or otherwise.
102. Further, the Trustee complains that the Bankrupt was late in disclosing his additional 15% ownership interest in the Target Copper Mine held though LMC Int’l and Nonferrous Metals on 4 August 2023 … The Bankrupt is the sole director of LMC Int’l, which in turn is the sole director of Nonferrous Metals …
103. The Bankrupt had explained that he did not pay the purchase price for the 15% ownership interest … The Bankrupt had sought help from his Mongolian friend to identify the true owner of these shares but apparently to no avail …
(D) Operation of Badaling Zoo
104. The Trustee complains that i) the Bankrupt did not give information about the operating status of Badaling Zoo; and ii) the Bankrupt holds 57% shareholding in Badaling Zoo held his 100% direct equity interest in Qinhuangdao Qinlong.
105. Since 25 May 2021, the Bankrupt had resigned as chairman and legal representative of Badaling Zoo … In any event, as with commercial reality, ownership cannot be equated management.
106. Furthermore, whereas the Bankrupt contends that his shares have been pledged to the Bank of China … the Trustee complains that the Bankrupt failed to provide the existence of the pledge … Wang 1st exhibits 2 documents which prove the existence of the pledge agreement, namely, i) a Chinese guarantee agreement between the Bankrupt and the Bank of China dated 30 May 2024; and ii) a Chinese guarantee agreement between Badaling Zoo and the Bank of China dated 13 July 2016 … The Bankrupt’s 57% shareholding interest in Badaling Zoo is not an asset which can be recovered for the benefit of the creditors.
(E) Shareholding interest in GCR
107. The Trustee complains that upon further investigations, it turns out that the Bankrupt actually holds a 97% interest in HQ Mining, as opposed to the 7% equity interest in HQ Mining and 100% interest in Prime Luck, as disclosed in the Statement of Affairs …
108. This complaint is not understood. The Bankrupt had already honestly and properly disclosed his corporate shareholdings in HQ Mining and Prime Luck … Even on the Trustee’s own evidence, the Bankrupt held 90% of HQ Mining through Prime Luck …
109. The Bankrupt is also not in a position to provide meaningful information on GCR and HQ Mining:
109.1 The Bankrupt had already tendered his resignation as director of GCR and HQ Mining on 11 March 2020 … Whether GCR or HQ Mining would provide information to the Trustee is beyond the control of the Bankrupt and the Bankrupt cannot be faulted for such refusal to provide information …
109.2 GCR is also under no obligation to assist the Trustee in the discharge of his duties, especially when the Trustee head-on asked for potentially sensitive information from GCR …”
31. With the above, one can immediately appreciate that there are quite some factual disputes between or among parties. Without the 1st Affirmation of Li Bo/the 1st Affirmation of Wang Yuanheng and purported evidence for the Bankrupt and other purported evidence contained in the hearing bundles, there is no doubt that the complaints on the part of the Trustee can be established on balance. Nonetheless, even if I would consider them for the present purpose, they are only “affidavit evidence” before the Court. There is also a pending Examination application before Judge to see if, among others, the answers having provided by the Bankrupt are or are not sufficient, and whether the Court should not should not order for an examination against the Bankrupt.
32. Nonetheless, with “all” evidence before me, on balance, I am still able to make the following findings:
(a) The estate of the Bankrupt is complex. He was a businessman in the mining industry. He had interests in 22 companies. Even in the words of his own legal team,
“9. By a Statement of Affairs affirmed by the Bankrupt on 14 May 2020 … he deposed, inter alia, that:
9.1 His address was at House 8, 1 Oxford Road, Kowloon Tong …
9.2 His net assets were in the sum of about HK$373.7 million, comprising of primarily monies owed to the Bankrupt …
9.3 His liabilities were in the region of HK$11.03 billion comprising of unsecured creditors ….”
“77. The Bankrupt’s Cooperation with the Trustee must be considered in context holistically. The Bankrupt received advice from professionals and his subordinates to hold his investments in, inter alia, offshore vehicles…
77.1 Even on the Bankrupt’s 1st Statement of Affairs dated 18 May 2020 (“1st SOA”), the Bankrupt already divulged 22 entities where he has made direct equity investments …
77.2 Back in 16 June 2020, the Trustee listed 56 entities purportedly affiliated with the Bankrupt …”
“79. Moreover, the Bankrupt’s role was one primarily of an investor … Naturally, his considerations are different from the minutiae of the daily operations, where reliance would be placed on the local management personnel and his subordinates …:
79.1 The Bankrupt’s focus in his business were on the technical and financial aspects of developing and operating his exploration and mining projects. The corporate matters were left to his advisors and subordinates ….
79.2 The Bankrupt’s explanation accords with commercial realities. There was little reason for him to trouble himself with the subtleties of corporate documents especially when he himself was the sole owner of these investment holding companies and there has been no dispute over such issues over the years ….”
(b) One then immediately remember what Yuen JA (as she then was) said in Re Leung Yat Tung (No 2) [2007] 4 HKC 192, namely, “… the more complex the bankrupt’s transactions, the more difficult the task of the trustee in bankruptcy, and so the more comprehensive the bankrupt’s disclosure should be…”
(c) However, in the present case, the SOA submitted by the Bankrupt are not comprehensive and accurate as it should have been to assist and inform the Trustees in the administration. I say so not because I have found that the answers provided by the Bankrupt are insufficient and/or true or not. If his own affairs were complex and he had always professional to help him, one immediately ask why only bare information was provided to the Trustee, necessitating him to raise rounds of Questions and Answers from April 2020 to September 2023. When Ms Lam SC attempted to use the 23 entries of communication to demonstrate that the Bankrupt/his solicitors had been answering the Trustee’s questions within a reasonable timeframe, I look at the matter from a different perspective, namely, those answers “should have been provided” much earlier without questions from the Trustee. One of course does not forget that a discharge takes place after 4 years from the making of the bankruptcy order. If the Q and A section has already taken 2.5 years (more than 60% of the total time), the administration had to be delayed and affected.
(d) It falls exactly what Yuen JA (as she then was) explained in Re Leung Yat Tung (No 2) as unacceptable “catch me if you can” approach:
“… a bankrupt is not permitted to adopt a “catch me if you can” approach. He cannot wait and see if the trustee in bankruptcy manages to piece together the jigsaw of his financial affairs, and then when he is required to answer the trustee’s questions, try to get away with revealing as little as he can according to the strict letter of the questions. Instead he should 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 or transactions appear to be inconsistent, it is for him to explain the inconsistencies and convince the trustee of the true state of affairs…”
(e) I would also reject the argument from the Bankrupt that he needed not inform the Trustee because the information was a matter of public record. The authorities of Re Hui Hing Kwok [1999] 3 HKC 683 and Re Li Tak Kong [2000] 3 HKC 360 clearly spells out that a bankrupt is under a duty to make a full and frank disclosure and to proffer all pertinent information regarding his assets and financial dealings to the Trustee. It was not good enough for him to adopt a purely passive or reactive role. In my view, a bankrupt also can never hide himself behind the pretext that the trustee can obtain the information himself elsewhere, including public record.
Section 30A (4) (d) of BO: Unsatisfactory Conduct?
33. Ms Au further complained that the Bankrupt indeed went beyond merely adopting a passive or reactive attitude. He failed to make full and frank disclosure to enable the Trustee to make proper investigation. He was at times obstructive and wasteful of the Trustee’s time and resources.
34. Ms Lam SC disagreed. It was not axiomatic that there could be no discharge until full compliance. Even if the level of co-operation in some respects might not be entirely beyond reproach, that in itself was insufficient to reach the threshold for suspension. The Trustee only listed out areas of dissatisfaction in piecemeal manner.
35. As above, if the 1st Affirmation of Li Bo/the 1st Affirmation of Wang Yuanheng and all other purported evidence for the Bankrupt are to be excluded, the Trustee can easily establish the complaints under this ground on balance. Having said that, even if they were admissible evidence, I would have made the same decision because there are the following findings in any event.
Share Certificates
36. The Trustee said that the Bankrupt failed on multiple occasions to provide shares certificates of companies owned by him.
37. To this, I heard no or no convincing reply from the Bankrupt.
38. In my view, such failure on the part of the Bankrupt is obvious. Once the Deputy Judge made him a bankrupt, by operation of law, all his interest in assets vested immediately onto the Official Receiver/Trustees. He had no choice but to surrender all his assets, including all share certificates owed by him. Any delay or non-compliance is a misconduct.
Annual Statements
39. The Trustees complained that the Bankrupt did not submit the Annual Statements on time. When being chased up, he prepared the same but only completed them with “zero” income and “zero” expenditure without particulars. It also took him and/or his solicitors about 3 weeks to come up with such answers.
40. The Bankrupt said that one should consider his late submission under context that the Trustee did not chase him. There was also nothing surprising about nil income and expenditure.
41. I decline to accept the arguments of the Bankrupt. The duty to submit Annual Statement squarely falls on the Bankrupt, with or without reminder from the Trustee. He knew and/or should have known such obligation at the outset of his bankruptcy, especially when he had at all times legal representation. There is no excuse of late filing, albeit that the late filing might amount to a mitigating factor of the wrong conduct of the Bankrupt.
42. However, in the present instance, one must also consider the truthfulness and usefulness of the late documents. With respect, I decline to accept “zero” or “nil” income and expenditure as a proper and correct way to complete the Annual Statements. In saying so, I do not dispute that friends and family cannot “help” a bankrupt during his bankruptcy in money or in kind. However, the bankrupt has to make it clear with full particulars, including identity of the payer, items of expenditure paid/supplied, and so on. A blanket “zero” or ‘nil” income and expenditure approach is simply unacceptable and could only lead to unnecessary enquires, wasting the time of the Trustee.
43. Of course, it took a period of three weeks for something like this to be coming from the Bankrupt and/or his solicitors can never be timely replies but lengthening and/or delaying the administration unnecessarily.
44. In the present case, I should also consider the “zero” income and expenditure answers with the enquiries made by the Trustee when he found out from travel records in August 2023 that the Bankrupt had made ten trips during his bankruptcy. While agreeing that a bankrupt can travel during bankruptcy, I would say that he should have informed the Trustee of the purpose, duration, funding and other arrangement of these trips beforehand. Further, with due respect, the answers provided by the Bankrupt is clearly far from satisfactory, including in particular that he could not recall who paid for it, and only that they were not paid by the Bankrupt himself anyway.
“回复2023年8月15日收到之FTI Consulting 2023年8月11日信函的问题如下：
我李晓明出境旅行记录 (2019.11.15 – 2023.08.28)
到达及离开日期
境外地点
旅行目的
资金来源
2019.12.07-2019.12.11
柬埔寨金边
见朋友
记不得谁负责费用；但有关费用并不是由我负责
2019.12.15-2019.12.17
蒙古乌兰巴托
见朋友
记不得谁负责费用；但有关费用并不是由我负责
2019.12.23-2019.12.28
新加坡、印尼
家人聚会
记不得谁负责费用；但有关费用并不是由我负责
2020.01.15-2020.01.16
柬埔寨金边
见朋友
记不得谁负责费用；但有关费用并不是由我负责
2020.01.24-2020.01.29
泰国曼谷、清迈
家人聚会
记不得谁负责费用；但有关费用并不是由我负责
2020.02.15-2020.02.18
柬埔寨金边
见朋友
记不得谁负责费用；但有关费用并不是由我负责
2020.03.12-2020.03.16
柬埔寨金边
见朋友
记不得谁负责费用；但有关费用并不是由我负责
2022.10.24-2022.10.29
日本东京、大阪
见朋友
女儿支付费用
2022.12.16-2022.12.20
柬埔寨金边
见朋友
朋友支付费用
2022.12.20-2022.12.25
马来西亚吉隆坡
见朋友
朋友支付费用
注：2019年至2020年我去过两次澳门，一次停留三个多小时后回港，是去见柬埔寨朋友；另一次停留一个多小时后回港，是去见大陆朋友。这两次去澳门的具体日期记不清了，记不得谁负责费用；但有关费用并不是由我负责。
日期：2023年8月28日 ”
45. With these findings, I do not consider the argument from Ms Lam could help the Bankrupt in any respect because there cannot be any application at all. If the Bankrupt has been taking such attitude towards the Trustee, one would never expect better co-operation, if not even worse, from him after discharge. The level of co-operation by the Bankrupt has been beyond reproach, wholly justifying for a suspension. When I did not find the enquiries raised by the Trustee being piecemeal, even if I found some of them as such, one cannot blame the Trustee because it only followed from how the Bankrupt had answered the questions.
Section 30A (4) (b) BO: Discharge would prejudice administration
46. The Trustees made quite some complaints against the Bankrupt. The Bankrupt denied all of them. He engaged in meaningful and constant correspondence with the Trustees. There was no hiding of assets and he did cooperate with the Trustees. Given the poor mental health of the Bankrupt, there is no purpose or practical reason to extend the bankruptcy period.
47. With the evidence before me, on balance, I have made the findings that the conduct of the Bankrupt was unsatisfactory and uncooperative. Clearly, there can be no argument that discharge would hinder and prejudice the administration.
Suspension of the Discharge? If so, for how long?
48. I further move to consider whether this Court should in the circumstances of the case exercise his discretion to suspend the automatic discharge, and if so, for how long. In this respect, both counsel referred me to a number of different authorities. For the present purpose, I set out the followings.
49. As a starting point, I ask myself to bear in mind paragraphs 17.16 and 17.24 of the Law Reform Commission’s Report on Bankruptcy (1995)
“17.16 The introduction of automatic discharge should, with the objection system, have two-folded effect. Firstly, bankrupts should have a greater incentive than at present to co-operate with the trustee, as failure to co-operate could result in the trustee objecting to a bankrupt’s discharge. Secondly, the rehabilitation of a bankrupt from bankruptcy would be assured, subject to rehabilitation being delayed as a consequence of a bankrupt’s own failings.”
“17.24 The introduction of automatic discharge would shift the emphasis from discharge being a privilege to its being a right. This right, however, must be set alongside a bankrupt’s duty to co-operate with the trustee in the administration of the estate. If he fails to co-operate with the trustee after bankruptcy, or if a bankrupt’s conduct before bankruptcy was unsatisfactory, he should not be automatically discharged.”
50. Useful guidance can be located in comments of Mrs Justice Le Pichon (as she then was) in two authorities, viz: Re Hui Hing Kwok [1999] 3 HKC 683 and Re Li Tak Kong [2000] 3 HKC 360
“Rehabilitation is 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 bankrupt’s own failings …”
“In exercising its discretion, 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 the Official Receiver. 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 trustee was 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 co-operation on the part of the bankrupt, it would not be unfair to delay his discharge.”
51. Last but not least, in Re Liu Man Hoo [2007] 5 HKC 346, Lam J (as he then was) agreed that:
“(2) The discretion should be exercised in line with the underlying spirit of bankruptcy law, that of the rehabilitation of the bankrupt to normal life upon expiry of the relevant period, subject to the public interest that a discharge be delayed if the conduct of the bankrupt indicated that the return of the bankrupt to the commercial world in full freedom might involve an unacceptable risk to persons likely to be engaged in commercial relations with him in the future.”
Health of the Bankrupt
52. With the above in mind, I will now consider the submission from Ms Lam SC that the present case was distinct because of the mental state of the Bankrupt, including scoring a 15/30 on the Mini-mental State Examination, believing to be suffering from dementia, having substantial problems in giving.
53. She said that, given Bankrupt’s current state of health and his likely continued deterioration, any suspension of his discharge would not help the Trustee in administration. The applications by the Trustee exacerbated the health of the Bankrupt. After the discharge, the Bankrupt was still obliged to provide information as the Trustee would require. The Bankrupt had further indicated his willingness to appoint the Trustee to be his agent to inquire any matters involving his estate. The Guardian did not revoke such offer and the present application therefore served no purpose other than penalizing the Bankrupt without furthering the general purpose of enforcing compliance.
54. In my view, these arguments are misconceived.
55. This is in fact the second time that I heard these arguments from the Bankrupt and I dismissed the same on 27 September 2024.
(a) Ms Lam SC produced no authority to support the arguments.
(b) These arguments do not sit well with the underlying objectives of our present bankruptcy regime, encouragement of co-operation and rehabilitation should be delayed due to the bankrupt’s own failings.
(c) As a matter of fact and procedure, the state of mental health of the Bankrupt is still a live issue, but clearly not to be argued and/or resolved within the present Suspension application.
(d) Even if the Bankrupt is a MIP, it does not necessarily mean that a suspension of his automatic discharge would serve no purpose. With or without the co-operation from the Bankrupt, the Trustee might continue with the administration, including taking out appropriate application against the Bankrupt (or other related parties) like the pending Examination Summons.
(e) The argument that the Bankrupt was still under the obligation to assist is self-serving. If it was to be accepted, there is simply no room for the suspension application in all cases.
(f) Appointment of the Trustee as his agent was something yet to happen. It is doubtful if it can be further given the mental state of the Bankrupt on his own case. I appointed the Guardian to help conducting the present case for the Bankrupt only. It is not a general authority to represent the Bankrupt in all respects. I also doubt if he can appoint the Trustee as the agent of the Bankrupt for further investigation and administration. Even if all the above could be cleared, the effectiveness of the appointment is also yet to be tested or seen. In any event, it came too late in the present case.
Timing of the Suspension application
56. The Bankrupt complained that the Trustee only issued the Suspension application on 18 October 2024, less than a month from his automatic discharge on 15 November 2024. There was a feel of tactical manoeuvre.
57. This argument can be disposed of quickly.
(a) The Suspension application was made within the statutory timeframe under s 30A (6) BO.
(b) There is no evidence at all on the alleged tactical manoeuvre. Given the history of the questions and answers between the parties, the issuance of the Suspension application by the Trustee is not surprising at all.
(c) Given my rulings on the above, there is no delay on the part of the Trustee in the administration of the estate of the Bankrupt, not to mention undue delay.
58. Ms Au asked the period of suspension for the statutory maximum of 4 years. Ms Lam SC suggested a dismissal of the application, and in any event, the suspension should not be more than 1 year and 3 months (to be further discounted fiving credit to the issue of poor health).
59. With the above principles and findings, I hate to say that the conduct of the Bankrupt is one of the most serious kind and as such, have no hesitation that the automatic discharge should be suspended and a period of 4 years is well justified in the circumstances.
(a) The SOA does not reflect the true position of the Bankrupt. He was far from full and frank disclosure, triggering and necessitating chains of enquiries by the Trustee.
(b) In the administration of the estate, the Bankrupt and/or his solicitors took more time than necessary to answer the queries raised by the Trustee, lengthening the administration unnecessarily.
(c) The Bankrupt adopted the “catch me if you can” approach.
(d) The Bankrupt did not surrender his assets to the Trustee at the administration.
(e) The Annual Statements submitted by the Bankrupt and /or his solicitors are late and information thereof, far from satisfactory.
(f) Investigation and administration are ongoing. They are yet to be completed. A discharge will hinder and prejudice the administration.
(g) With the said conduct of the Bankrupt, his rehabilitation should be delayed because of his own failings. It should also be delayed in the eyes of public interest. He is a sophisticated businessman at international level. As his mental state is yet to be determined, his “potential” return to the commercial world with full freedom might expose the persons likely to be engaged in commercial relations with him in future an unacceptable risk.
Costs
60. Costs usually follows event. There is no reason to depart from the general principle in the present case. I will be ordering on the usual order nisi basis of directing the Bankrupt to pay the Trustees.
Summary
61. To sum up, I will make the following orders.
(a) The summons by the Guardian filed on 23 October 2024 herein be dismissed.
(b) The discharge of the Bankrupt under section 30A of the Bankruptcy Ordinance (Cap 6) shall cease to run for a period of 4 years from 14 November 2023.
(c) There is an order nisi that the Bankrupt do pay the Trustees costs of the said summons and the Suspension application, including certificate for counsel for hearing on 29 October 2024 and all costs reserved, to be taxed if not agreed.
| (Jack Wong) Master of the High Court |
Ms Julia Au, instructed by Messrs Huen & Partners, solicitors for the Trustees.
Ms Rachel Lam, SC, leading Mr Keith Tam of Counsel, instructed by Messrs Jones Day, solicitors for the Bankrupt by his Guardian ad litem.