Discharge From Bankruptcy – The Latest

By Rosenna Mak

Although we are still waiting for the Court of Final Appeal to hear arguments regarding the constitutionality or otherwise of the discharge provisions contained in s.30A(10)(a) of the Bankruptcy Ordinance, the Administration has already responded to the decision, see here, by placing before LegCo a draft bill which is aimed squarely at bankrupts who do not cooperate with their Trustee or who abscond from Hong Kong. A copy of the Legislative Council Brief and the draft bill can be seen here.

Under the new proposed provisions, anyone against whom a bankruptcy order has been made will be required to attend personally, and this is the important word, at an initial interview with the Trustee in order to provide sufficient information to enable the Trustee to properly investigate the bankrupt’s affairs.

If the bankrupt fails to attend the initial meeting, the Trustee will be able to apply to the Court for a non-commencement order. The Trustee must make this application within six months of the date of the bankruptcy order, although this period can be extended by the Court on the application of the Trustee. If a non-commencement order is made, the effect will be to stop the running of the bankruptcy period until such time as the bankrupt has provided the Trustee with the information he requires. The significance of this proposal is that the period for which the bankrupt will remain undischarged will not start to operate until such time as the non-commencement order has been set aside, presumably as a result of the bankrupt changing his mind and deciding to cooperate with his Trustee.

For example, in the case of a bankrupt who refuses to cooperate with his Trustee and who absents himself from Hong Kong, he could remain an undischarged bankrupt effectively for the rest of his life, or at least until such time as he returns to Hong Kong and decides to cooperate with his Trustee. (If the bankrupt continues to reside in Hong Kong, there are serious penalties for continued non-cooperation with a Trustee, including in the worst case imprisonment for contempt of Court.

However, there are some concerns regarding the wording of the legislation particularly in so far as it refers to the initial meeting with the Trustee. It appears, on a literal reading of the bill, that provided the bankrupt attends the initial meeting he will have complied with his obligations pursuant to the new provisions.

However it is possible to envisage circumstances where, at the initial meeting, the bankrupt is unable or perhaps unwilling to provide to the Trustee all the information that he requires. The Trustee may agree that such information can be provided subsequently, but there is no requirement in the bill that the bankrupt attend a further face-to-face meeting, or indeed any kind of meeting, whether physically or by electronic means. It appears that in the circumstances, if the bankrupt does not provide the information required, or fails to attend a subsequent meeting, the Trustee will not be able to apply for a non-commencement order. All he will be able to do will be to report the bankrupt’s conduct to the Court, presumably as part of an application objecting to the automatic discharge of the bankrupt and asking for the period to be extended.

Assuming the bill goes through LegCo as presently drafted then it will be for Trustees to make applications for non-commencement orders in circumstances where they think fit, and for the Court to rule on the basis of the current wording of the legislation. We will send out further updates as and when we are aware of future developments on this issue.