Introduction

One of the major challenges that judgment creditors and/or the trustees of a bankrupt often face is to locate the whereabouts of the judgment debtor’s assets.  As such, Orders 48 and 49B of the Rules of High Court (Cap 4A of the Laws of Hong Kong) (the “RHC”) (or the District Court equivalent, as applicable) are often invoked to compel the judgment debtor to attend before the Registrar and be orally examined on questions about his/her assets. While Order 48 specifically allows the examination of a corporation's officers, the Court is granted wider powers to order disclosure of assets by the judgment debtor under Order 49B. Following an examination under both Orders 48 and 49B, the Court may in its discretion order the imprisonment of the judgment debtor for a period not exceeding 3 months provided that certain statutory conditions are satisfied. However, whether a Court can as a matter of law make such order is a jurisdictional question, and this issue has been recently examined in the case V Capital Limited v Margaret Chiu [2024] HKCFA 31.

Background

V Capital Limited (the “Creditor”) obtained judgment against Ms Margaret Chiu (the “Debtor”). Upon failure by the Debtor to pay, the Creditor obtained a disclosure order under Order 49B rule 1A of the RHC (the “Disclosure Order”), compelling the Debtor to supply to the Creditor copies of various classes of documents relating to her assets and liabilities and to produce them at the adjourned hearing of the examination. It later became apparent that the Debtor had not fully complied with the Disclosure Order. This caused the Creditor to indicate to the Master that it intended to apply for an imprisonment order of the Debtor under Order 49B, rule 1B of the RHC. The Debtor was subsequently adjudicated bankrupt, and on the application of the Creditor for an imprisonment order under Order 49B rule1B(1)(c) of the RHC citing the ground that the Debtor had wilfully failed to comply with the Disclosure Order, the Master made an order committing the Debtor to a term of imprisonment of one month (the “Imprisonment Order”). Leave of the Court to proceed with the application had not been sought under section 12 of the Bankruptcy Ordinance (the “BO s.12”).

The law

The High Court’s jurisdiction to arrest or imprison a person in respect of a civil claim for the payment of money is conferred by section 21A of the High Court Ordinance (Cap. 4 of the Laws of Hong Kong), which provides that a person shall only be arrested or imprisoned to enforce, secure or pursue a civil claim for the payment of money or damages under an order of Court. It is also provided under BO s.12 that where a bankrupt was indebted to a creditor in respect of a debt provable in bankruptcy, the creditor could not pursue any remedy against the property or person of the bankrupt, or commence an action or other legal proceedings against him without the leave of the court (emphasis added). The question is hence whether the Imprisonment Order falls within the meaning of “any remedy against the property or person of the bankrupt in respect of the debt” or “other legal proceedings”.

The CFA’s ruling

Before the Court of Final Appeal (the “CFA”) is the Creditor’s appeal against the Court of Appeal’s order to set aside the Imprisonment Order. Leave to appeal to the CFA was granted on the question whether a Master has jurisdiction under Order 49B, rule 1B to order imprisonment of a bankrupt judgment debtor for wilfully failing to make full disclosure in the absence of leave to proceed under BO s.12.  Upon considering the legislative background of Order 49B and BO s.12, the CFA is of the view that the whole Order 49B regime concerns the execution and enforcement of the judgment debt whereby the debtor is given an opportunity to avoid or end the imprisonment by partially or fully satisfying the debt. The flip side of the coin is that the creditor also has the chance in recovering some or all of the judgment debt. An imprisonment order therefore has the effect of allowing a creditor to pursue the bankrupt outside of, and simultaneous to, the bankruptcy administration of the debtor’s estate, prejudicing the fair distribution of the debtor’s assets to his creditors on a pari passu basis. This falls within the scope of BO s.12 and as a result, leave to proceed by the Court under BO s.12 was necessary when the Creditor wished to seek an order for imprisonment under Order 49B rule 1B(1)(c) of the RHC. Since the Creditor has not sought leave in the present case, the Imprisonment Order was liable to be set aside for want of jurisdiction.

Takeaway

It is no doubt frustrating to the creditors when judgment has already been obtained against the judgment debtor but they have no idea of the whereabouts of the judgment debtor’s assets. It is hence not unimaginable for creditors to pursue all kinds of enforcement actions against a judgment debtor so as to enhance the prospects of recovery. However, one must be reminded that the robust path of seeking an imprisonment order when the judgment debtor has been adjudged bankruptcy is not necessarily the best course to take considering that leave is required under BO s.12. Creditors should hence act with abundance of caution before initiating any Court action to conserve costs and to focus the resources only on the feasible and effective action to take. This decision also serves as an important reminder how different statutory provisions, although no express cross-reference was made, may have an overriding effect on one another. Legal advice should be sought before taking any action to recover assets post-bankruptcy order.