Escaping the abscondee regime – Bankruptcy (Amendment) Ordinance 2016

Aug042016

A bankrupt’s successful 2006 Court of Appeal1  challenge to the “abscondee” provisions in the Bankruptcy Ordinance effectively forced LegCo to tighten up one of the loopholes plaguing the current legislation.  As a result, the Bankruptcy (Amendment) Ordinance became law earlier this year and will come into effect from 1 November 2016.  Only bankruptcy orders made after 1 November are affected.

Present legislation

First time and repeat bankrupts are automatically discharged after 4 or 5 years respectively from the date of the bankruptcy order (the “Relevant Period”).  During this time, the ever-present risk to bankrupts is that a creditor or the trustee in bankruptcy applies for the automatic discharge to be deferred.  Such an application may be made under the “objection” or the “abscondee” provisions.

Deferral under the “objection” provisions occurs when bankrupts fail to cooperate with the administration of the estate.  The bankruptcy can be deferred up to 4 years (for first timers) and up to 3 years (for repeat bankrupts).2

Deferral under the “abscondee” provisions occurs if a bankrupt: (i) leaves Hong Kong before bankruptcy starts;3  (ii) leaves Hong Kong after bankruptcy has started, but without telling the trustee their itinerary or contact details;4  or (iii) not returning to Hong Kong after bankruptcy has started.5   The Relevant Period will start or resume on the bankrupt’s return to Hong Kong and at the time of notifying the trustee.

New legislation: introducing “non-commencement” orders

Gone are the “abscondee” provisions.  In their place is the “non-commencement” order regime.

The key concept here is the introduction of the “initial interview”.6   To a degree it is modelled on United Kingdom and Australian bankruptcy laws.  Those jurisdictions require bankrupts to co-operate with and provide information about their estate to the trustee.  Administration of estates is more efficient because trustees can, in theory, obtain most if not all of what they need from the initial interview with the bankrupt.  Bankrupts failing to attend the initial interview can have their discharge from bankruptcy disrupted.

For bankruptcy orders made from 1 November 2016, trustees may now require bankrupts to attend an initial interview in-person7  to provide information about their financial affairs, dealings and property.  Bankrupts failing to attend the initial interview in-person or providing the information requested by the trustee, and if the administration of the estate is prejudiced as a result, the trustee may apply to Court for a non-commencement order within 6 months of the date of the bankruptcy order (or such longer period specified by the Court).8   If granted, the non-commencement order stops time from accruing under the Relevant Period until the order is discharged.

Obtaining (and discharging) non-commencement orders

Trustees must satisfy the Court of the: (i) reasons why the order should be made; (ii) details of the steps taken to inform the bankrupt of the time and place of the initial interview; and (iii) proposed terms the bankrupt is to comply with before the order can be discharged.9   The bankrupt can, of course, object.

Trustees have 14 days to notify the Court that the bankrupt has complied with the term(s) of the non-commencement order.  Time under the Relevant Period starts to run from the actual date of compliance and not when the Court is notified.

To avoid duplicity of proceedings, trustees cannot apply under the “objection” provisions where a non-commencement order has already been decided by the Court, and where the order was based on the same matters (e.g. the bankrupt failed to attend the initial interview or failed to provide requested information).10

Observations

By introducing initial interviews, LegCo has taken an important step forward in modernising local bankruptcy laws.  It is a significant development that: (i) harmonises a key part of Hong Kong bankruptcy laws with comparable jurisdictions; (ii) de-incentivises bankrupts from absconding or failing to cooperate with the trustee; and (iii) should ensure the administration process is more efficient by arming trustees with the means to obtain relevant information from the outset of their appointment.

Ian De Witt / Troy Greig

Ian De Witt

Partner | Email

1. Official Receiver & Trustee in Bankruptcy of Chan Wing Hing v Chan Wing Hing (2006) 9 HKCFAR 545; see also Chang Hyun Chi v Official Receiver & Anor [2014] HKCU 2904 – currently on appeal to the Court of Final Appeal [2015] HKCU 799
2. Section 30A(3)-(4) of the Bankruptcy Ordinance
3. Section 30A(10)(a) of the Bankruptcy Ordinance
4. Section 30A(10)(b)(i) of the Bankruptcy Ordinance
5. Section 30A(10)(b)(ii) of the Bankruptcy Ordinance
6. Section 30AB(1) of the Bankruptcy Ordinance (as amended)
7. Section 30AB(6) of the Bankruptcy Ordinance (as amended) provides that a bankrupt fails to attend an initial interview if he/she is not physically present before the TIB
8. Section 30AB(2) of the Bankruptcy Ordinance (as amended)
9. Rule 89A(2) of the Bankruptcy Rules (as amended)
10. Section 4A of the Bankruptcy Ordinance (as amended)

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.