Second Information Paper for the Bills Committee
to study the Bankruptcy (Amendment) Bill 1996
This paper seeks to address the questions raised by the Hon. Members at the second meeting of the Bills Committee to study the Bankruptcy (Amendment) Bill 1996 held on 10 June 1996.
Q1 : Where there is a reasonable prospect of a dividend being paid to a class of creditors to which the proofs of debt relate, and the adjudication period for such proofs of debt is shortened from the proposed period of 4 years under Section 34(4A) to, say, 3 years, can the Official Receiver (OR) provide a rough estimate of the number of applications likely to be made to the Court for an extension of such time period?
A1 : During the period from 1 April 1993 to 31 March 1996, 237 dividend distributions were made to creditors in bankruptcy cases, of which 71 distributions were made within 3 years, 34 between 3 and 4 years, and the balance of 132 in over 4 years.
If the relevant period remains at the proposed 4 years the OR as trustee would have had to apply to Court for an extension of time on 132 occasions over the above period. If the adjudication period were to be reduced to 3 years, the number of applications would be increased to 166.
The major reason for the high number of applications for extensions of time, as explained to Members at the meeting of 10 June, is that the OR has to collect monthly income contributions by bankrupts to their estates and these are frequently paid irregularly.
The above figures are, of course, subject to any proposals by bankrupts who wish to apply for discharge or annulment of bankruptcy orders against them by bringing in third party monies for a composition or scheme of arrangement. The number of these cases cannot be accurately estimated or anticipated by the trustee.
Q2 : What is the minimum period for automatic discharge of a bankrupt in other common law jurisdictions such as Australia, the United Kingdom and Singapore and in developed countries like France, Italy and Germany?
A2 : In the United Kingdom the usual period for automatic discharge by the Court is 3 years under Section 279 of the Insolvency Act 1986, subject to any objections by the trustee or any creditors, but there is provision for this to be reduced to 2 years in a case where a certificate of summary jurisdiction (for cases not exceeding £20,000 worth of assets) has been issued and not revoked before the bankrupt's discharge.
In Australia the usual period for automatic discharge by the Court is 3 years under Section 149 of the Bankruptcy Act 1992, subject to certain conditions and to any objections by the trustee or any creditor.
In Singapore the usual period for discharge is 5 years under Section 125 of the Bankruptcy Act 1995 subject to any objections by the Official Assignee or any creditors. The Official Assignee has a discretion to issue a certificate of discharge. It is claimed that this simpler procedure encourages bankrupts to make efforts to repay their debts, co-operate with the Official Assignee, and work towards an early discharge.
Efforts have been made to obtain similar information about discharge procedures in France, Italy and Germany. However, having searched material relating to European corporate or business enterprise failures which is available in Hong Kong, no details concerning personal bankruptcies in those countries have been found. The OR will endeavour to find out such details through other possible channels and advise in due course.
Q3 : Give details of the time required for the adjudication of proofs of debt in countries like Australia, the United Kingdom and Singapore. Why does Australia require only 14 days to adjudicate a proof of debt, whereas a period of 4 years is being proposed in HK? Are totally different adjudication procedures involved?
A3 : In Australia the trustee has to examine and adjudicate a proof of debt in whole or in part, reject it or call for further evidence "not later than 14 days after the expiration of the period specified in the notice of intention to declare a dividend" - see Section 102 of the Australian Bankruptcy Act 1966 (as amended). Under Section 140 the trustee must give a reasonable period of notice to creditors. There is, however, no time limit for the adjudication of proofs of debt submitted before a trustee gives notice of intention to declare a dividend. Hence the representative of the Hong Kong Society of Accountants was incorrect in claiming this 14 day period applied before the trustee gave notice of his intention to declare a dividend.
The UK Insolvency Rule 11.2 requires the trustee to give notice to creditors of his intention to declare a dividend and give them not less than 21 days from the date of the notice within which to lodge proofs. He must by IR 11.3 deal with all proofs of debt within 7 days from the last date for proving. Again, there is no time limit for the adjudication of proofs of debt submitted before a trustee gives notice of intention to declare a dividend.
Rule 229 of the Singapore Bankruptcy Rules 1995 requires the trustee to give notice to creditors of his intention to declare a dividend and proofs must be lodged within 14 days of that notice, but no time limit is laid down in Rule 197 for him to adjudicate them.
Accordingly it can be seen that there are similar adjudication procedures in all those jurisdictions. In Hong Kong Bankruptcy Rule 123 requires the trustee to give notice to creditors of his intention to declare a dividend and to require proofs to be lodged within 14 days of that notice. Under Bankruptcy Rule 114 the trustee must adjudicate proofs within 21 days thereafter.
The purpose of the proposed 4-year rule under Section 34(4A) is to impose a time limit on the trustee when funds exist for a dividend, particularly when he keeps requesting further evidence in support of some proofs without making any final decision, or arguing about part rejections but makes an interim dividend to creditors in respect of those proofs he has admitted. At the moment a creditor has no remedy against the trustee except as an "aggrieved creditor" under Section 83 to apply to the Court, which is not appropriate if the trustee has made no decision which can be appealed against. That proposed provision will give additional remedies to the creditors against any further delay by the trustee.
Q4 : Upon enactment of the Bill, bankrupts of more than 3 years' standing will automatically be discharged (after 12 months) subject to objections by creditors/the trustee. What procedures has the Administration put in place to ensure that all relevant creditors are well-informed of this new procedure so that they can raise objection within the statutory period?
A4 : The proposed Section 30A(5) of the Bill provides for a notice to be sent to the last known address of each creditor or by publishing a notice in an English and in a Chinese newspaper circulating in Hong Kong, not less than 3 months before automatic discharge is due to take place, advising creditors that the bankrupt will be discharged unless the trustee or a creditor files an objection.
The number of undischarged bankrupts in Hong Kong up to May 1996 is set out in Annex I. If Section 30C comes into operation in, say, January 1997, 2,552 of them would by then have been adjudged bankrupt for over 5 years and 544 for between 3 and 5 years. A total of 3,096 will have been adjudged bankrupt for more than 3 years.
The backlog of cases is therefore substantial. All of these must be reviewed and processed within a very limited period. Under the circumstances, it is proposed that, as a minimum, the following procedures be used to notify creditors of impending automatic discharges :-
- a press release, after the enactment of the Bankruptcy (Amendment) Bill, giving details of the new provisions relating to automatic discharge;
- giving the statutory notices in batches, according to the years of adjudication, with identification particulars of the bankrupts, if available, in one English and in one Chinese newspaper; and
- passing such notices to The Hong Kong Association of Banks for onward transmission to their members.
There are only one or two second bankruptcies in Hong Kong.
Financial Services Branch
27 June 1996
Last Updated on 22 Jul, 1996