Wholly uncooperative conduct and failure to engage with the trustees

The bankruptcy order concerned was granted on 20 November 2016 upon the petition of Akai, a judgment creditor of the bankrupt for over US$1.2 billion as a result of the decision in HCCL 42/ 2005, in which the trial judge found the bankrupt to have acted dishonestly, having engaged in concealed misappropriations, undisclosed self-dealings and transactions for fraudulent and improper purposes during the time when he had control over Akai and the Akai group.¹

As at 31 January 1999, the value attributed to the total assets of Akai was approximately US$2.325 billion. Akai was wound up on 23 August 2000 in Hong Kong and in Bermuda on 29 September 2000. At the time liquidators were appointed, Akai was estimated to have a net asset deficiency in excess of US$1 billion.

Ever since the making of the bankruptcy order, the bankrupt had an extensive history of refusing to cooperate in the administration of his estates. He had failed to attend an initial interview with the Official Receiver, who was appointed as provisional trustee of his estate. Nor had he made any disclosure of his assets or made any contribution to his estate.

The court also acknowledged that the trustees, upon being appointed on 1 March 2017, had taken extensive steps to identify or locate his assets, a task made more challenging by the refusal of the bankrupt to disclose his whereabouts or provide any means to contact him, attend interviews or even respond to emails, despite a recent appointment of Hong Kong solicitors acting on his behalf.

Clock stopped

In Hong Kong, a bankruptcy is automatically discharged after four years from the date of the making of the bankruptcy order, provided there has been full co-operation with the trustee. The trustees in this case applied for a non-commencement order (NCO) under section 30AB of the Bankruptcy Ordinance (Cap. 6) (BO), which has the effect of treating the relevant period of bankruptcy as not having commenced to run, until compliance with the terms specified by the court.

Time extension

The bankrupt opposed the NCO application on the ground that it was made out of time on 6 May 2020 and not within six months of the making of the bankruptcy order (29 November 2016) as required by section 30AB(2)(A) of the BO.

The bankrupt further contended that any time extension application had to be made within the initial six month period and, as such the court had no jurisdiction to allow the trustees to make the time extension application out of time. The court rejected this view.

Instead, the court agreed with Mr. Christopher Dobby of Hogan Lovells, appearing for the trustees, that section 30AB(3) of the BO confers on the court an unfettered discretion to extend time for making the NCO application by specifying a "longer period." Once a "longer period" is specified under section 30AB(3), then by operation of section 30AB(4), the extension application can (and must) be made within that "longer period." In any event, the court held that the trustees were also able to rely on the "cover all" provision in section 100(4) of the BO to extend the time for the NCO application beyond the initial six-month period.

In making the decision to grant the time extension, the court had taken into account: (i) the bankrupt's "totally uncooperative conduct" since the granting of the petition; (ii) that he had "gone to great length over the years to conceal his whereabouts and his assets and to obfuscate the Trustees' investigations"; (iii) the "almost inevitable inference that the Bankrupt's intent was to sit out the 4-year bankruptcy period after which he would be automatically discharged from bankruptcy"; (iv) the "massive amount of his indebtedness to Akai"; and (iv) the "obvious importance that the Trustees be allowed to continue with their efforts in locating his assets for distribution to his creditor(s)."

The decision provides welcome clarification as to the courts approach to NCO applications and its jurisdiction to extend time for making them.

Annulment rejected

The court also dismissed the bankrupt's belated application for annulment of the bankruptcy order pursuant to section 33(1)(a) of the BO on the grounds that the petition had not been properly served and/or that he was not domiciled in Hong Kong at the time the petition was presented.

The bankrupt had provided no evidence to prove either of the grounds alleged. The bankrupt's solicitors at the time of the first hearing of the petition in February 2013, had conceded that the petition had been properly served. Ng J acknowledged that but for the concession, the trustees would have continued with their substituted service application, which would likely have been granted. It was therefore "far too late" even if the bankrupt were to seek to withdraw the concession  made by his then solicitors and it appeared from submission made to the court that he was not even seeking to do so.

The trustees relied on Re Li Shu Chung [2019] HKCFI 2500, a case in which the debtor opposed the bankruptcy petition partly on the ground that the petition had not been properly served on him.

As here, the petitioner in Re Li Shu Chung had filed an application for substituted service of the petition. Before an order for substituted service was granted by the court, solicitors for the debtor had filed a notice to act stating it was "without prejudice to the contention of [the debtor] as to jurisdiction and irregularity of [sic] service." The petitioner's solicitors then served the petition on the debtor's solicitors the next day.

The court in Re Li Shu Chung rejected the irregular service defence, describing the debtor's service defence as "utterly hopeless and a complete waste of the court and the petitioner's time." A sentiment with which Ng J entirely agreed, noting in this case the petitioner's position was even stronger than that in Re Li Shu Chung: not only had the bankrupt's solicitors at the time failed to expressly reserve the challenge to service of the petition, they had actually conceded service before the court. The court agreed that it plainly had jurisdiction to and should exercise its discretion under Rule 203 of the Bankruptcy Rules (Cap. 6A) to cure any alleged procedural irregularities.

In considering the arguments advanced by the bankrupt, the court highlighted the need to draw a distinction between authorities relating to the service of statutory demands (on which the bankrupt relied) and those relating to service of bankruptcy petitions.

The Akai saga may have some while to run yet, but the court's interpretation in Re James Henry Ting particularly of when the courts have discretion to grant non-commencement orders in similar situations, should be welcomed by insolvency practitioners and creditors alike.

Authored by Hazel Law and Nigel Sharman.