FRED LEE, trustee of the property of LIU MAN HOO, a bankrupt v. LIU MAN HOO HCB 11719/2002 (3)

S’s words:-
The Judge also in this case talked about his view when an application for the objection should be made.
In no doubt, his view was also supported by his view that the discharge of bankruptcy is in his view a rehabilitation rather than any further punishment to a bankrupt.
The application definitely would affect the bankrupt from discharge immediately. Before this judgment being made, as soon as an application was filed, it would be expected that the application would be adjourned for arguments and also for the parties to file their respective affirmations. And at the time for the call-over hearing, an interim order would be granted. That caused a de facto suspension of the automatic discharge.

That could be used as an abuse by the trustee.

That would be unfair to a bankrupt for applications without merit but could only be dismissed after the final determination of the summons.

Without the necessity to consider the post-bankruptcy conduct, it is right for the Judge to comment that it would not be necessary for the trustee to make the application only at the time near the end of the 4 years’ period.

Therefore, it is right for the Judge to suggest that the trustee should conduct interview to investigate the conduct of the bankrupt’s pre-bankruptcy conduct. With such interview and investigation, the trustee would have the preliminary view as to whether to apply for any suspension of the automatic discharge. The trustee would not be required to wait and even with applications before the Court, it is possible for the Court to decide whether any suspension orders are required to be made before or shortly after the 4 years’ period.

However, at the time of the call-over hearing, Master may then be required to form a preliminary view immediately through the evidence before him/her but yet before a full hearing.

Would the judgment be a guideline for the future application of objection on the part of the trustee?

--- quote from judgment ---

Before : Hon Lam J in Court
Date of Handing Down Reasons for Decision : 14 September 2007

The interim orders and the timing of the application

Before I leave this case, I wish to comment on the practice regarding the grant of interim orders and the timing of the application by the Trustee.

It is important that a trustee and the court should appreciate that it is particularly devastating for a bankrupt to learn for the first time during the last few months of the usual 4 years period that there would be an application to suspend the automatic discharge based on pre-bankruptcy conducts notwithstanding that his post-bankruptcy conducts were more than satisfactory.

Because of the timing of the application and adjournment of the matter pending the outcome of the test case heard by Kwan J, this application was not heard until the end of August 2007. Though I dismissed the application immediately after the hearing, there has already been a de facto suspension of the automatic discharge for more than 10 months.

In Li Tat Kong HCB 741 of 1995, 2 June 2000, Le Pichon J (as she then was) held that the court’s jurisdiction to suspend the automatic discharge was engaged upon the issuance of the summons by the trustee and interim order suspending the automatic discharge pending the final determination of the summons can be made.

It is inherently unfair to a bankrupt if the automatic discharge is suspended due to a late unmeritorious application by a trustee. It is also an abuse of process if a trustee does not conduct any proper investigation during the four years period and leaves it to the last minute to seek to inquire into the affairs of a bankrupt and ask for suspension based on ground (b) under Section 30A(4). Thus in Frost v Sheahan (2005) 3 ABC (NS) 288 at p.301-2, Lander J said,

“ …in some cases, the failure to identify those assets and income may be the fault of the trustee. In those circumstances, it may not be appropriate to continue the administration of the estate if the trustee has not discharged his or her obligations in a diligent manner …”

As explained above, a trustee should have conducted a proper investigation before he can properly decide whether to make an objection. This should include interviewing the bankrupt and ascertaining from him whatever explanations he might have as regards the possible allegations that might be raised against him. It follows that the court is entitled to expect that an application to object would be supported by reasonably comprehensive evidence filed by the trustee. At the call-over hearing, I think the court should form a provisional view on the merit of the application. If the court were of the view that there is a lack of real prospect of achieving any suspension, it should seriously considering dismissing the application if an interim order would have the effect of granting a de facto suspension, particularly if there is no good explanation for the late application.

The Trustee contended that it was reasonable for him to wait until the last moment before he filed an application because he had to take into account of post-bankruptcy conducts. I accept that there could be cases where the reliance on post-bankruptcy conducts entails a late decision to be made regarding the raising of objections. But I do not think this applies to the majority of the cases. Take the facts of the present case as an example, the Trustee should have investigated upon the pre-bankruptcy conducts soon after the filing of the proof of debts. As regards the evidence regarding the misconceived ground (a), it was based on the stable employment of Liu. Bearing in mind the extent of co-operation of Liu since his bankruptcy, there was no indication that the Trustee would need to rely on post-bankruptcy unsatisfactory conducts. I do not see any reason why the Trustee could not take out an application at the end of the third year. If necessary, the Trustee can file supplemental evidence setting out additional grounds if there were developments subsequent to the filing of the original application that are material.

For most cases, by the end of the third year, with reasonable diligence and proper skill and competence, the trustee should have a good idea whether the bankrupt had been co-operative in the post-bankruptcy stage and whether there are pre-bankruptcy unsatisfactory conducts. The trustee should also be able to assess by then whether a discharge of the bankrupt at the end of the usual four years period would prejudice the administration of the estate. I do not think it is too onerous to expect a trustee to make a decision on whether to raise an objection shortly thereafter in a usual case. After all, in the timescale of a four years relevant period, it must be reasonable to expect the trustee to complete most of his investigation into the affairs of a co-operative bankrupt by that stage.