Constitutionality of Bankruptcy Discharge Provisions Challenged

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S.30A(10)(a) of the Bankruptcy Ordinance is Challenged – Unconstitutional

 By Stephen Briscoe  and Rosenna Mak

A few months ago, we published an article entitled “Discharge from Bankruptcy or Trustee Forever” where we discussed the position of the release of a trustee when the debtor was not in the jurisdiction at the time of the bankruptcy order and who does not return. We concluded that it was unlikely that a trustee would be released in those circumstances. Following the recent Court of Appeal decision in Re Chang Hyun Chi, that s.30A(10)(a) of the Bankruptcy Ordinance (“BO”) is unconstitutional, it appears that position has changed, although it is possible the decision may be subject to a further appeal to the Court of Final Appeal.

First a reminder of the core issue. Pursuant to s.30A(10)(a) of the BO, the bankruptcy period does not start running if a bankrupt has left Hong Kong before the commencement of the bankruptcy and has not returned to Hong Kong. The period only starts to run when the bankrupt returns to Hong Kong and notifies the trustee. In Re Chang Hyun Chi [2013], the Court of First Instance confirmed this point. The Honourable Mr Justice Chung was of the view that s.30A(10)(a) of the BO was not unconstitutional and so the bankrupt would not be discharged. The Court of Appeal has now ruled to the contrary and declared that s.30A(10)(a) of the BO is unconstitutional in light of the “right to travel” provisions of the Basic Law and the Bill of Rights.

The main reason behind the unanimous decision of the Court of Appeal relates to the “proportionality of the restriction” and it follows the same rationale as the Court of Final Appeal decision in Official Receiver & Trustee in Bankruptcy of Chan Wing Hing and Anor v Chan Wing Hing and Anor & Secretary for Justice (2006) where s.30A(10)(b)(i) of the BO was declared unconstitutional because the restriction on the bankrupt’s right to travel was considered more than necessary.

In this case, it was agreed that the same reasoning is equally applicable to s.30A(10)(a) of the BO because the trustees and creditors do have the right to object to the automatic discharge of a bankrupt should the bankrupt not cooperate. Accordingly, the bankrupt was confirmed as having been discharged on the expiration of the four-year period from the date of the bankruptcy order.

The decision, if it stands, does however raise an interesting moral question:  does it mean that a bankrupt can escape from his/her duties and liabilities by leaving Hong Kong prior to the making of a bankruptcy order and then returning to Hong Kong after four years from the date of the bankruptcy order (assuming a first-time bankruptcy)? Our initial view is yes and no. Yes because ultimately the bankrupt will be discharged – and No because objections by the trustee can mean that the period of discharge may be extended up to eight years.

Nevertheless, it seems that the decision may give some clarity to the release of trustees in bankruptcy where the bankrupt falls within the provisions of s.30A(10)(a) of the BO. Given that a bankrupt can be discharged after the four year period (assuming a first-time bankruptcy) even if he/she is not in Hong Kong during the whole of the four year period, there would now seem to be no reason not to allow a trustee to get his/her discharge.

In view of the significance of this ruling, a stay of the execution of the judgement of the Court of Appeal was granted pending the determination of the Official Receiver’s application for leave to appeal to the Court of Final Appeal.

We will update you when there are further developments regarding the anticipated appeal.