RE TO YUK FUNG

HCB 6667/2019 [2024] HKCFI [3565] IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE BANKRUPTCY PROCEEDINGS NO 6667 OF 2019 _________________________ In the Matter of To Yuk Fung 〔杜玉鳳〕 _________________________ Coram : Before Master J Wong in Court Date of Hearing : 30 October 2024 Date of Decision : 16 December 2024 _______________ D E C I S I O N _______________ Application This is an application for suspension of automatic discharge of bankruptcy. Background On 30 October 2019, Elegant Mark Investment Limited commenced the present proceedings against Madam To Yuk Fung (杜玉鳳) for a bankruptcy order against her because she had failed to repay it a debt of over $25 million after service of a statutory demand. Madam To contested the proceedings but she lost it before the Hon Mr Justice G Lam (as he then was) when the learned Judge found her central allegations quite incredible and failed to raise a bona fide dispute. By the Judgment dated 25 August 2020 herein, Madam To (hereinafter called as the “Bankrupt”) was made a bankrupt. The Bankrupt took up the matter to Court of Appeal. Her appeal was dismissed on 7 July 2021. But for the present Suspension summons by the Trustees, the Bankrupt would have been automatically discharged from 25 August 2024. At the call-over hearing of the Suspension summons, the Bankrupt through her solicitor, informed that she was opposing the application. Usual directions for preparation of affidavit evidence were given including an interim stay of the automatic discharge. On 25 September 2024, the Bankrupt filed and served her affirmation in opposition when the Trustees made a reply on 23 October 2024. Parties appeared before me on 30 October 2024. By the skeleton of Ms Chan, counsel for the Bankrupt, she informed that the Bankrupt no longer opposed the summons but sought a suspension of 6 to 9 months because: “a. The Bankrupt made attempts to cooperate with the Trustees during her bankruptcy period; b. The documents and explanations that the Trustees requested for can be obtained within 6-9 months; c. This is the Bankrupt’s first bankruptcy; d. The Bankrupt’s conduct, though inadequate, is not of the most serious kind; e. The Trustees’ inaction in the past 2 years contributed to the way Bankrupt handled her affairs during the bankruptcy period.” Legal principles Notwithstanding of the concession made by the Bankrupt through Ms Chan, I remind myself of the relevant legal principles on the Suspension summons. 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.” Madam Justice Le Pichon (as she then was) said in Re Hui Hing Kwok [1999] 3 HKC 683 and Re Li Tak Kong [2000] 3 HKC 360 that: “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.” 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.” Discussion By the said concession made, strictly speaking, I could directly move to consider the length of suspension. Nonetheless, for completeness, even without the concession, upon the available evidence before the Court, I would have no difficulty in arriving at the same conclusion, ie the grounds under s 30A (b) – (d) Bankruptcy Ordinance (“BO”) have been made out by the Trustees. Indeed, by the present Decision, on balance, I make the following findings. There was failure on the part of the Bankrupt to cooperate with the Trustees including in particular the Zhongshan Properties and Impugned Allotments. The conduct of the Bankrupt during bankruptcy was unsatisfactory. The discharge of the Bankrupt would prejudice administration by the Trustees. As observed by Mr Au in his skeleton: “D1. Failure to cooperate: Purported Trust over the Zhongshan Properties 14. Despite the past 3 years where the Trustees have been requesting documents and information about the Purported Trust over the Zhongshan Properties, the only documentary evidence that the Bankrupt has adduced are the Declarations – two homemade documents allegedly executed by the Bankrupt and her Father. The Bankrupt’s Affirmation provided no further documentary evidence. 15. In fact, the Bankrupt has to date failed to provide the originals of the Declarations. … 17. The Trustees requested information and records by inter alia four emails and one letter sent from 2 February 2021 to 23 May 2022. Despite the Trustees’ repeated requests, they were only met with unhelpful and delayed responses: … 17.1 On 2 February 2021, the Trustees by email requested the Bankrupt to provide records in relation to the Purported Trust, including documentary evidence … 17.2 On 26 February 2021, the Bankrupt replied to say she had to obtain the said documents from her Father and promised to provide the same as soon as possible: … 17.3 On 7 May 2021, the Bankrupt alleged that (i) the relevant documents were in Mainland China and thus could not be obtained; and (ii) the status of the Zhongshan Properties was unknown to her since she was only a trustee: … 17.4 On 22 November 2021, the Trustees demanded the Bankrupt to deliver ownership certificates of the Zhongshan Properties (“Certificates”) to the Trustees, … 17.5 However, on 10 December 2021, the Bankrupt reiterated that all relevant documents of the Zhongshan Properties were in the Mainland China and could not be obtained … 18. The Trustees have yet to receive a constructive response. On 16 July 2024, the Trustees filed Chan 2nd, which reiterated the failure of the Bankrupt to supply the following records to the Trustees: see Chan 2nd §26 …: 18.1 Documents and records in support of the Purported Trust other than the Declarations, including documentary proof that the Father contributed to the mortgage repayments of the Zhongshan Properties; 18.2 Ownership Certificate and Keys to the Zhongshan Properties; and … 21. The Bankrupt has not provided any bank statements of the Relevant Accounts to the Trustees. … 22. The Bankrupt’s excuses for not supplying records as straightforward as bank statements are unacceptable. Travel restrictions on the Covid-19 pandemic have long been lifted. Macau and Zhongshan are a short distance from Hong Kong, and in any event one expects electronic banking records to be available online. … D2. Failure to cooperate: Impugned Allotments 24. The Bankrupt failed to disclose the Impugned Allotments voluntarily in her SOA and at the initial interview with the Official Receiver. She left the Trustees to discover by themselves… 25. The Trustees, again, have legitimate questions about the Impugned Allotments. First of all, the Impugned Allotments took place after the presentation of the Petition (30 October 2019) and before the Bankruptcy Order (25 August 2020). 26. Moreover, it is plain that the Impugned Allotments were not made for valuable consideration: …, she simply asserted that… “當時，本人當時的生意合作夥伴呂俊傑先生及其妻子胡欣女士對我的公司業務表示有興趣，而我在生意上欠呂先生款項，約為港幣 25,000,000 至 40,000,000 之間。故此就將名下公司的股份配發給呂先生及胡女士。這是懷孕期間的決定，與被頒令破產無關。隨著時間推移，由於各種原因，我將所有公司的股份逐步配發給呂先生及胡女士。不過，由於公司都是由我一首建立，基於一份情意結，以及留作將來不時之需，故此我仍保留象徵式的 1% 股份。” 27. Although the Bankrupt relied on the purported loan (“Purported Loan”) from her friend, CK Lui, as the background of the Impugned Allotments, she does not claim (even in the Bankrupt’s Affirmation) that the Impugned Allotments were in consideration for reducing or extinguishing the Purported Loan: … 30. The Trustees clearly had legitimate questions about the Impugned Allotments. However, the Bankrupt’s replies to the Trustees’ queries were characterized by evasiveness and a ‘catch me if you can’ attitude: 30.1. The Bankrupt has not supplied any share subscription agreement or board resolutions on the Impugned Allotments, or any loan agreement or payment records on the Purported Loan: … 30.2. The Bankrupt’s excuse for failing to provide records on the Impugned Allotments was that these were internal records of the Companies: … 30.3. As to the records on the Purported Loan, the Bankrupt’s excuse was that she had no documents or information as they were with CK Lui: … 30.6. The last substantive reply was the Bankrupt’s email dated 7 May 2021 … which again was unhelpful and evasive: Issue Trustees’ request Bankrupt’s response The Purported Loan 9.2.1 你聲稱「相關借款及還款文件及資料由債權人保管及記錄，我沒有」。請說明相關借款的日期、金額、收款方式及銀行戶口資料，另提供還款的日期、金額、支付方式及銀行戶口資料。 如前述，我沒存有相關借款及還款文件、資料及記錄。 9.2.2 請提供Lui Chun Kit的聯絡方法包括電郵、電話號碼和其通訊地址。 Lui Chun Kit的通訊地址請見《資產負債狀況說明書》附件5。基於私隱，不便透露他的聯絡方法 The Impugned Allotments 9.6 各公司增發股份配發予Keen Precision Limited 或胡欣，是否全數或作部分還款予Lui Chun Kit? 金額是多少? 增發股本所得沒用來還款。 9.7 在各公司增發股份配發予Keen Precision Limited 或胡欣的時候，Lui Chun Kit、Keen Precision及胡欣是否清楚知悉你當時是無力償還欠款? 不清楚，不能代表他們作答。 9.8 各公司增發股份配發予Keen Precision Limited 或胡欣，有否通過董事決議？如有，請提供董事決議或會議紀錄副本。 董事決議是公司內部文件，我沒存有。 32. As of today, the Bankrupt has yet to: 32.1. Cooperate with the Trustees in their investigation and recovery attempts in relation to the Impugned Allotments; 32.2. Provide any documentary proof of the existence of the Purported Loan and her purported justifications for the Impugned Allotments; 32.3. Explain the gaps and inconsistencies in her explanations, including (i) the appointment of her father and brother as directors of the Companies after the Bankrupt’s shareholdings were significantly diluted and (ii) the discrepancy in the amounts of the alleged debt owed to CK Lui as stated in the SOA and the Purported Loan; 32.4. Alternatively, explain the relationship between the Impugned Allotment and the Purported Loan; and 32.5. Assist the Trustees to assess the value of the Companies so as to enable the Trustees to assess whether it is worth commencing proceedings to set aside the Impugned Allotments. D3. Failure to cooperate: Failure to answer other queries 33. Apart from the above, the Bankrupt also failed to respond to various other questions raised by the Trustees … The Bankrupt has the tendency of evading the Trustees’ enquiries as demonstrated below …: Issue Company Trustees’ request Bankrupt’s response Hong Kong 5.3.11 I-Sky Group 請提供該公司 應付帳款 - 最終實益擁有人“Amount due to ultimate beneficial owner” 的明細。包括是那一間公司或股東，應付金額的明細。 詳情請看2019-2020審計報告(Note 11)。我已辭任公司董事，以小股東的身份可向公司索取財務明細帳嗎？請告知相關法規依據，以便我向公司作出要求。 5.4.8 Kinder 請提供該公司項目管理“Development management project” 的明細及詳情。 詳情請看公司的審計報告，我沒資料。我以小股東的身份可向公司索取公司財務明細帳嗎？請告知相關法規依據，以便我向公司作出要求。 5.6.9 Kellett 請提供該公司項目管理“Development management project” 的明細及詳情。 詳情請看公司的審計報告，我沒資料。我以小股東的身份可向公司索取公司財務明細帳嗎？請告知相關法規依據，以便我向公司作出要求。 5.8.9 Global Point 根據2020 年3月31 號的審計報告 ，該公司有一項應付關聯公司 “Amounts due to related companies” HK$ 19,059。請提供這關聯公司的名稱。 我沒資料。我以小股東的身份可向公司索取公司財務明細帳嗎？請告知相關法規依據，以便我向公司作出要求。 5.11.8 Prestige 請提供發展中的物業“Properties under development” 的明細及詳情。 如前述，公司投資於物業的規劃及建築管理權益，未持有實質物業資產。公司帳目由另一股東負責，我不知詳情。 PN 6.2.2 I-Sky Group (PNG) Ltd 請提供Anthony Chan的聯絡方法包括電郵地址、電話號碼和其通訊地址。 基於私隱，不便透露他的聯絡方法。 6.2.1 Kaki-Iki & Associates Ltd (“Kaki-Iki”) 請提供你為[Poon Kai Choi]代持的相關文件及聯絡方法。 基於私隱，不便透露他的聯絡方法 China 8.1 廣東森樺貿易有限公司 你聲稱「廣東森樺貿易有限公司的文件由國內的顧問（協助成立此公司）保管，我手上沒有，已要求她盡快提供」。請於7天內提供相關文件及資料。另外，請提供國內顧問的名稱和聯絡方法，包括電郵位址、電話號碼和其通訊地址。 基於私隱，不便透露他的聯絡方法。 … 34. To conclude, the Bankrupt has adopted a passive, evasive and uncooperative attitude contrary to s.26 (3) of the BO …, which provides that a bankrupt shall aid to the utmost of his power in the realization of his property.” Mr Yu suggested that a suspension of 3 years was appropriate in the circumstances. I now move to consider the 5 grounds raised by Ms Chan and see if they could constitute any valid mitigating ground, and if so, for how much deduction? Cooperation? Ms Chan said that, throughout the bankruptcy period, the Bankrupt made attempts to cooperate with the Trustees, including providing with a list of ongoing actions to be pursued, raising no objection to terminate insurance (estimated to produce $1 million) and providing bank account numbers/statements. However, in my view, the Bankrupt was only doing nothing but performing her obligation towards the administration. In the present case, there are failure on her part on the matters relating to the Zhongshan Properties and the Impugned Allotments. The cooperation mentioned by Ms Chan has already been reflected in the suggestion by Mr Au for a 3-year suspension, rather than a 4-year one. Documents/Information can be obtained within 6 – 9 months? Ms Chan said that the Bankrupt had answered some questions from the Trustees and provided some documents. The remaining ones could be obtained within 6 – 9 months. Mr Au doubted it. It was only raised by Ms Chan in her skeleton and submission. There was no evidence coming from the Bankrupt. One of course still recall that the Bankrupt has been objecting the Suspension summons until the very last minute. I share the worry of Mr Au. I would add that the outstanding matters have been pursued by the Trustees for a few years, but still without satisfactory explanation and documents of proof. I have no idea as to what steps are to be taken by the Bankrupt and how these overdue matters are to be pursued by the Bankrupt so that they could be resolved to the satisfaction of the Trustees. If at the end of the day, the Bankrupt will maintain and insist on her case that the Zhongshan Properties were only held by her on trust and the Allotments were in arms-length, how could a period of 6 – 9 months serve any useful purpose? I am also noting that the Bankrupt is not offering an undertaking to the Court or asking for an adjournment of the present Suspension summons so that she could try to remedy her “breaches” in the meantime and see if the Trustees would be satisfied with further explanation/documents made available, before coming back before the Court for a decision on the Suspension summons. To conclude, I regret to inform that the “offer” made by Ms Chan for the Bankrupt is not acceptable and cannot be counted as a good mitigating factor to be taken into account. First Bankruptcy? Ms Chan said that the Bankrupt was a first time bankrupt. I doubt where such argument will take us to, having considered that most of the suspension application in fact relates to first-time bankrupt. It is also trite that ignorance of law is no defence and it has never been the case of the Bankrupt that she did not know what to do. At the hearing, the background of the Bankrupt was also discussed under this ground and the following from the skeleton of the Ms Chan was noted: “2. The Bankrupt is 52 years old. She is married and has a 4-year-old daughter with her husband. The Bankrupt has been a full-time housewife since her daughter’s birth 4 years ago on 29.07.2020, which is around one month before she was adjudged bankrupt. The Bankrupt’s focus has predominantly been on the upbringing of her daughter and family since her bankruptcy.” However, immediately, Mr Au drew my attention to the CV of the Bankrupt. In short, she was well educated and a business lady in different areas. It sufficed to take a brief look at the introduction at the said CV. “ 杜玉鳳 個人簡歷 杜玉鳳大學畢業後在真光中學執教鞭十一載，其間創辦天行集團，業務包括環球資源、房地產發展、建築裝修、設計傢俬、醫療服務、鑽飾和娛樂等，且對本地及海外公益事務熱心慷慨，最近更獲柬埔寨國家頒授勳章，表揚貢獻。” Anyway, within an application for suspension of automatic discharge of bankruptcy, the simple fact that being a first time bankrupt is in my view neither here nor there. Not the most serious conduct? Ms Chan conceded that the conduct of the Bankrupt was inadequate and imperfect, but not of the most serious kind. She relied on the case of Re: Lau Yu (Decision of Master Lai (as he then was) in HCB 104/2017, dated 7 December 2022). She said that the learned Master rejected some of the complaints against the bankrupt but accepted some. In paragraph 51 of her skeleton: “(i) uncooperative and his conduct unsatisfactory by (a) failing to provide meaningful answers or information during initial interview; (b) denying ownership of any valuable property at interview; (c) causing the trustees to take out examination application to compel Lau to provide information and documents requested by the trustee; (d) failing to cooperate with the trustees in their investigation on a bank account; (e) submitting his SOA and annual statements late; (f) not attending interview with trustees until late; (g) obstructing the trustees’ recognition in the U.K. by challenging the order granted by the UK Insolvency and Companies Court recognizing the trustees’ appointment and (h) Lau’s continuous dealing with some of properties located in London after granting the recognition order in the U.K. Master Lai extended Lau’s bankruptcy for 2 years…” I disagree with Ms Chan. As a matter of principle, one do not forget that Master Lai said in paragraph 286 of the case that “…length of suspension in each case has to be determined in accordance with its own factual matrix. Decided cases may serve only as guides and not as authorities.” The findings of wrongful conduct herein, including the Zhongshan Properties and the Impugned Allotments, as shown by Mr. Au in his skeleton, are of serious in nature, if successfully challenged by the Trustee, they would result in recovery of substantial amount of money to be distributed. In the present case, The Bankrupt was far from full and frank disclosure. In the administration of the estate, the Bankrupt did not co-operate with the Trustees. She was passive and reactive. She adopted the “catch me if you can” approach. Investigation and administration are on-going and have not been completed. With the said conduct of the Bankrupt, her rehabilitation should be delayed because of his own failings. It should also be delayed in the eyes of public interest. She is an educated woman in different business areas. Her return to the commercial world with full freedom might expose the persons likely to be engaged in commercial relations with her in future an unacceptable risk. Inaction of Trustees? Ms Au said that there was inaction for the past 2 years on the part of the Trustees. It contributed to the way how the Bankrupt handled her affairs. I have no hesitation to reject such complaint against the Trustees. I see no evidence showing delay on the part of the Trustees. They were chasing the Bankrupt at all times for answers and documentation. In any event, it was the delay or incompleteness on the part of the Bankrupt in providing explanation and documents which have lengthened the administration unnecessarily. Even if the Trustees sometimes took time to chase up the matter, they have to be considered with the incompleteness of information and lack of cooperation on the part of the Bankrupt. Last but not least, as said by Yuen JA (as she then was) in Re Leung Yat Tung (No 2): “… However I do not think it would be right to treat that as an overriding factor. The court should not look at the time taken by the OR in isolation, oblivious to the facts of the particular case. Where the bankrupt has only disclosed information in dribs and drabs, it lies ill in his mouth to complain of delay on the part of the OR who, with limited financial and staff resources, has had to try grapple with this complex case.” To sum up all the grounds submitted by Ms Chan, I do not consider that she has made out any of them, not to mention considering any deduction from them. Nonetheless, I do not forget that, probably, but for the advice of Ms Chan towards the Bankrupt in conceding only to do mitigation at the hearing before me, much more time would have been spent by parties in arguing whether the Trustees could or could not make out the complaints against the Bankrupt factually on balance, and in such, I will be giving a deduction of 3 months from the period proposed by Mr Au. Costs Costs usually follows event. There is no reason to depart from the general principle in the present case. Summary To sum up, I will make the following orders. The discharge of the Bankrupt under section 30A of the Bankruptcy Ordinance (Cap 6) shall cease to run for a period of 2 years and 9 months from 24 August 2024. There is an order nisi that the Bankrupt do pay the Trustees costs of the application, including certificate for counsel for hearing on 30 October 2024 and costs reserved, to be taxed if not agreed. (Jack Wong) Master of the High Court Mr Jason Yu, leading Ms Regina Yip, instructed by Messrs Zhong Lun Law Firm LLP, solicitors for the Trustees. Ms Jacqueline Chan, instructed by Messrs Collin Ng & Co, solicitors for the Bankrupt.