Introduction

In the recent case of Re Cheung Hing Chik also known as Charles H.C. Cheung, the debtor [2021] HKCA 981, the Court of Appeal clarified that in determining whether a bankruptcy order should be rescinded, the court is entitled to take into account facts both before or after the bankruptcy order. To succeed, an applicant for rescission has to show exceptional circumstances, involving a material difference to what was before the court earlier, to justify the overturning of the bankruptcy order. 

Background

The present case is an appeal against a bankruptcy order made on 3 August 2020 (the “Bankruptcy Order”). The Petitioner is a company from whose bank account the Bankrupt stole or misappropriated a sum of US$749,000. On 27 February 2020, the Petitioner served a statutory demand for the said sum on the Bankrupt, which was not settled. At the petition hearing on 3 August 2020, the Bankrupt orally asserted that he was able to repay the debt as:-

1.     he could sell his 50% interest in Charles HC Cheung & CPA Ltd for an estimated sum of $6 million; and

2.     he might receive some other funds.

The judge was not satisfied and found that there was no proof that the Bankrupt would be able to repay the debts and therefore made the Bankruptcy Order.

On 14 August 2020, the Bankrupt applied, by way of Summons, for an order that the Bankruptcy Order “be re-opened and annulled or set aside”. It was later clarified that the application was to seek for rescission pursuant to section 98 of the Bankruptcy Ordinance (Cap. 6)(the “BO”) on the basis that the bankruptcy petition should and would have been dismissed pursuant section 6D(3) of the BO.

Section 6D(3) of the BO provides that “The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied – (a) that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented; (b) that the acceptance of that offer would have required the dismissal of the petition; and (c) that the offer has been unreasonably refused, and, in determining for the purposes of this subsection whether the debtor is able to pay all his debts, the court shall take into account his contingent and prospective liabilities”.

The grounds advanced for rescission were that the Bankrupt (a) had entered into an agreement with a Mr Lam for him to receive $5.6 million; and (b) is due to receive other loans and funds.

The decision at first instance

The judge at first instance dismissed the Bankrupt’s application for rescission, for, amongst others, the following reasons:

1.     section 6D(3) of the BO had no application as it deals with the court’s power to dismiss the petition based on facts before a bankruptcy order is made, while in the present case, the Bankrupt is relying on facts occurring after the Bankruptcy Order to have it set aside;

2.     there was no evidence on the availability of funds that allegedly would be received by the Bankrupt; and

3.     the total amount of money allegedly would be received by the Bankrupt was barely sufficient to cover the outstanding debt(s).

On appeal

On appeal, the Court of Appeal took the view that there is no reason why section 6D(3) of the BO cannot be applied in an application where the relevant facts occurred “post-bankruptcy order”. It was held that the bankruptcy jurisdiction is unique in the sense that the court has power under section 98 of the BO to review, rescind or vary any order made by it, and such statutory power does not contain express limitations. The applicable test should be whether an applicant for rescission has shown exceptional circumstances, involving a material difference to what was before the court earlier, to justify the overturning of a bankruptcy order. The court’s jurisdiction is so wide that the Bankrupt can rely on facts occurring whether before or after the Bankruptcy Order. Having said that, the Court of Appeal considered that even if the fresh evidence had been adduced at the hearing of the petition, they still would not be considered sufficient to meet the requirements under section 6D(3) of the BO.

Further, the Court of Appeal took the view that the judge was clearly entitled on the evidence available to him to come to the view that there was no proof of availability of funds from Mr Lam, and there is no ground for the appellate court to exercise its discretion to interfere with the judge’s decision. In conclusion, the appeal was dismissed.