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Sub-Committee on Insolvency

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Sub-Committee on Insolvency THE LAW REFORM COMMISSION OF HONG KONG SUB-COMMITTEE ON INSOLVENCY CONSULTATIVE DOCUMENT ON BANKRUPTCY NOTICE THIS IS A CONSULTATIVE DOCUMENT, NOT A HONG KONG LAW REFORM COMMISSION REPORT. It explains aspects of the existing bankruptcy law in Hong Kong, its deficiencies, the identified options for reform, and the tentative views of the Law Reform Commission Insolvency Sub-committee. THE TENTATIVE VIEWS EXPRESSED IN THIS CONSULTATIVE DOCUMENT DO NOT REPRESENT THE FINAL VIEWS OF THE INSOLVENCY SUB-COMMITTEE NOR THOSE OF THE LAW REFORM COMMISSION. Comments on issues raised in the consultative document are welcome, but should be forwarded no later than 30 September 1993. Unless advised to the contrary, comments will not be treated as confidential nor subject to copyright preventing quotation in the final report of the Law Reform Commission. You are requested to direct all enquiries and comments to: The Secretary The Insolvency Sub-committee The Law Reform Commission of Hong Kong 1/F High Block Queensway Government Offices 66 Queensway Hong Kong THE LAW REFORM COMMISSION OF HONG KONG SUB-COMMITTEE ON INSOLVENCY CONSULTATIVE DOCUMENT ON BANKRUPTCY _______________________________________ CONTENTS Chapter Page 1. Introduction 1 Terms of Reference 1 Summary of Work 2 Method of Work 2 The Bankruptcy Ordinance (Cap 6) 2. Grounds for presenting a bankruptcy petition 5 Abolition of acts of bankruptcy 7 Failure to comply with a statutory demand 10 Unsatisfied execution of a judgment debt 11 Absconding debtors 11 Expediting the presentation of the petition 12 Individual voluntary arrangements 12 3. Jurisdiction of the court 15 Widening the jurisdiction 16 Having or likely to have assets in Hong Kong 19 Possibility of a benefit accruing 20 Bankruptcy jurisdiction 20 4. Minimum debt 22 Individual employees 22 i Chapter Page Other jurisdictions 23 Submissions 23 New minimum debt amount 24 Debtor's petition 25 5. Statutory deposit (petitioner's deposit) 27 Reduction in the amount of the statutory deposit 27 Summary procedure 30 Adjustment of the statutory deposit 30 6. Bankruptcy orders 31 Single bankruptcy order 31 Consumer debtors 33 Secured creditors 33 Interim receiver 33 Proceedings against a bankrupt 34 7. Individual voluntary arrangements 36 Effect of recommendation for single bankruptcy order 41 Insolvency practitioners 42 The voluntary arrangement procedure 44 (i) ordinary debtors 44 (ii) undischarged bankrupts 48 8. Annulment of the bankruptcy order 50 Power of the court to annul a bankruptcy order 52 Annulment after discharge 52 Advertising and gazetting of annulment 53 On the application of any person interested 53 The 15 per cent rule 54 Individual voluntary arrangements 54 9. Meetings of creditors 56 Discretion in the Official Receiver whether to hold a first 58 meeting Meeting at the request of creditors 59 Minority view 59 Quorum 59 ii Chapter Page Consolidation of provisions in the Bankruptcy Ordinance 60 10. Creditors' committee and the control and duties of the 62 trustee Creditors' committee 67 Meetings only when necessary and agreed 67 Representation by letter of authority 67 Control of the Official Receiver or trustee 68 Powers of the trustee with or without the sanction of the 69 committee Disagreements between the committee and the trustee 71 The trustee's duties 72 11. Statement of affairs 76 Time for submission of the statement of affairs 77 Dispensing with the statement of affairs 78 Extension of time for submission of the statement of affairs 79 Contempt of court 79 Form of statement of affairs 79 12. Public examination 82 Self incrimination 84 Legal representation 86 Public examination only when necessary 87 Rights of creditors 87 Confidentiality of the trustee's report 89 Creditors to supply the Official Receiver with a list of 90 questions Costs 90 Perjury on examination 90 The Northern Irish procedure 91 Minority view 92 13. Inquiry as to the debtor's conduct, dealings and property 94 (private examination) Self incrimination 96 Legal representation 97 Examination of the bankrupt or the bankrupt's spouse 97 Admission by the respondent of indebtedness to or 97 possession of property belonging to the debtor iii Chapter Page Inter partes and ex parte applications for private examination 98 Submission of affidavits and delivery of documents by the 99 respondent Interrogatories 100 Confidentiality of a trustee's report 101 Payment of costs of the examination by a respondent 101 Power of court to order an Inland Revenue Official to produce 102 tax documents of the bankrupt Perjury on examination 102 14. Bankrupt's property divisible among creditors 105 The HK$3,000 monetary limit 106 The tools of a bankrupt's trade or business 107 (i) Proposal for a voluntary arrangement 109 (ii) Business related bankruptcy 109 (iii) Non-business related bankruptcy 110 Domestic needs 110 The family home 112 Reputed ownership 114 Property acquired by a bankrupt after bankruptcy 115 15. Relation back of the trustee's title 118 16. Proof of debt 123 Foreign currencies 125 (i) Date of valuation of foreign currency for the purpose of 125 dividend (ii) Discretion in trustee to delay conversion of foreign 126 assets (iii) Discretion in the trustee to pay foreign currency claims 127 in that currency Tort claims 127 Fines and penalties 130 Confiscation of assets 132 Swearing of proofs of debt and false proofs of debt 134 Admission of claims 135 17. Declaration and distribution of dividends 137 18. Discharge 140 iv Chapter Page Problems with the present provisions 145 Automatic discharge 147 Objection to and suspension of automatic discharge 148 Length of time of objections 154 Subsequent bankruptcy 155 Early discharge 156 Transitional 160 19. Statutory undertakings/utility companies 163 Voluntary arrangements 165 20. Interest on debts 166 Section 71(1) : The interest limitation rule 167 Creditors who are not entitled to claim interest 169 Section 71(2)(a) to (c) 170 Guarantors 170 Third party security 171 Extortionate credit transactions 171 21. Summary of recommendations 176 Schedule 1 Numbers of proofs adjudicated, amount of claims adjudicated and amount of dividends declared; 1987 to 1992. Schedule 2 Other bankruptcy statistics; 1982 to 1991. Schedule 3 Flow chart of bankruptcy procedures under the bankruptcy ordinance and rules. v Chapter 1 Introduction _______________ 1.01 The Law Reform Commission of Hong Kong was established by the Governor-in-Counsel in January 1980. The Commission reports on such matters as the Attorney General or the Chief Justice refers to it. Terms of Reference: 1.02 On 14th September 1990, the Attorney General and the Chief Justice referred the following topic to the Commission:- "(1) To review the law and practice relating to the insolvency of both individuals and bodies corporate in Hong Kong, and in particular - (a) the provisions of the Bankruptcy Ordinance, Chapter 6, in their application both to business and non-business debtors; and (b) the winding-up provisions of the Companies Ordinance, Chapter 32 taking into account existing and proposed legislation in other jurisdictions, and in particular the UK Insolvency Act 1986 and Chapter 11 of the U.S. Bankruptcy Code, and to consider what reforms are necessary or desirable. (2) To submit an early interim report on - (a) such changes in the Bankruptcy Ordinance as are considered to be required for simplifying bankruptcy procedures, and (b) any other aspects of insolvency law or practice which the Commission considers should be introduced in advance of the Commission's final report." 1.03 This document only deals with part (2) of the reference. 1 1.04 The sub-committee is chaired by Judge Edward L.G. Tyler, formerly Professor and Head of the Department of Professional Legal Education at the University of Hong Kong and now a Judge of the District Court and member of the Law Reform Commission. The other members of the sub-committee are:- Mr Mark Bradley, Solicitor, Deacons Mr Graham Cheng OBE JP, Chairman, Taching Petroleum Co Ltd Mr Cheung Wood-lun, Secretary, Hong Kong & Kowloon Cement & Concrete Construction Trade Workers Mr Nicholas Etches, Accountant, KPMG Peat Marwick Mr Stefan Gannon, Legal Adviser, Hong Kong Monetary Authority Mr Robin Hearder JP, Official Receiver Ms Barbara Martin, Solicitor, Carey & Lui Mr Michael Page, Senior Manager, Hong Kong & Shanghai Banking Corporation Ltd Mr Winston Poon, Barrister Mr lan Robinson, Accountant, Ernst & Young Summary of Work 1.05 The sub-committee held its preliminary meeting on 12th November 1990 and has met more than forty times concentrating on the interim report on bankruptcy to which this document relates. 1.06 Between March 1991 and June 1992 work on the interim report was delayed due to the sub-committee's involvement in discussions on the insolvency implications of the proposals for the introduction of a Central Clearing and Settlement System for The Stock Exchange of Hong Kong Limited. This culminated in a meeting with the LegCo ad hoc group on the Securities (Clearing Houses) Bill 1992, which was subsequently enacted as the Securities (Clearing Houses) Ordinance (Cap 333). Method of Work 1.07 The sub-committee has concentrated on consideration of aspects of the Bankruptcy Ordinance which the Official Receiver had 2 originally referred to as requiring amendment. In addition to the Official Receiver's proposals the sub-committee received submissions on other aspects of the Bankruptcy Ordinance and some of these have been incorporated in this document. 1.08 The Commission usually considers a report of a sub-committee before issuing a consultative document, if necessary. In this case, however, a backlog of work in the Commission and the constraints of legislative timetabling has dictated that this consultative document is issued without the Commission having first considered it. We would emphasise that this is not a report of the Law Reform Commission. 1.09 This approach has certain advantages for the sub-committee as by the time the interim report is brought before the Commission it shall have taken account of submissions that are made on this document.
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