LegCo Paper No. CB(1) 1857/95-96
(These minutes have been seen
by the Administration)

Ref : CB1/BC/28/95/2

Bills Committee on Bankruptcy (Amendment) Bill 1996

Minutes of the Meeting held on Monday, 10 June 1996 at 8:30 am in Conference Room B of the Legislative Council Building

Members Present :

    Hon Eric LI Ka-cheung, JP (Chairman of this meeting)
    Hon Andrew CHENG Kar-foo
    Hon LAU Hon-chuen, JP
    Hon LEE Kai-ming
    Hon Bruce LIU Sing-lee
    Hon NGAN Kam-chuen
    Hon SIN Chung-kai


Members Absent :
    Hon Ronald ARCULLI, OBE, JP (Chairman of the Bills Committee)
    Mrs Hon Elizabeth WONG, CHIEN, Chi-lien, CBE, ISO, JP


Public Officers Attending :
    Mr Peter Tisman
    Principal Assistant Secretary for Financial Services
    Miss Julina CHAN
    Assistant Secretary for Financial Services
    Mr Robin Hearder, JP
    Official Receiver
    Miss D Silkstone
    Assistant Official Receiver (Acting)
    Mr W Berkeley Maddaford
    Deputy Principal Crown Counsel
    Mr Jeremy A Glen
    Senior Crown Counsel
    The Law Reform Commission of Hong Kong

Attendance by Invitation :

    Hong Kong Society of Accountants

    Mr Tim T L LUI
    Council Member, Chairman of the Taxation Committee
    Mr John Lees
    Member of the Insolvency Practitioners Committee
    Ms Winnie CHEUNG
    Director of Professional Practices

Staff Attending :

    Ms Estella CHAN
    Chief Assistant Secretary (1)4
    Mr Arthur CHEUNG
    Assistant Legal Adviser 5
    Miss Anita SIT
    Senior Assistant Secretary (1)6


Election of Chairman

As Mr Ronald ARCULLI, Chairman of the Bills Committee, could not attend the meeting, members agreed that Mr Eric LI should chair the meeting.

Meeting with the Hong Kong Society of Accountants (HKSA)

(Annex A to LegCo Paper No. CB(1) 1459/95-96)

Representatives of the HKSA presented the Society’s views as contained in their submission. In response to members’ enquiries, they made the following points:

  1. The proposed adjudication period of four years from the date a proof of debt was lodged under the proposed section 34(4A) was unreasonably long. The HKSA had not researched on similar provisions in other jurisdictions other than Australia, in which case, the trustee was required to make a decision on a proof of debt within 14 days of declaring a dividend. If a decision to reject or admit a proof of debt could not be made within this period, the trustee had the right to apply to the court for extension.

  2. It should be clearly specified in the legislation that on application to the court, the Official Receiver (OR) should be given access to the tax information of a bankrupt only if the OR was acting as the trustee of the bankrupt’s estate and the information was necessary for the conduct of the trustee’s duties. The OR should not be allowed access to the information in his other capacities such as a regulator of the bankruptcy proceedings. The proposed new section 30D failed to preserve the spirit of the tax secrecy provisions in the Inland Revenue Ordinance by enabling the OR, not necessarily acting as the trustee of the bankrupt’s estate, to have access to the tax information of the bankrupt.

Meeting with the Administration

(Annex B to LegCo Paper no. CB(1) 1459/95-96)

Time limit for adjudication of proofs of debt

3. The HKSA was of the view that the four year adjudication period for a trustee to make a decision on a proof of debt did not seem to be in congruence with the provision under the proposed section 30A(2)(a) that a first-time bankrupt might be discharged automatically three years after a bankruptcy order was issued. In this respect, Mr Jeremy A Glen advised that the Law Reform Commission was of the view that estate administration and the discharge of the concerned bankrupt should be viewed as two distinct procedures. The fact that the estate administration procedures in respect of a bankrupt had not been completed should not necessarily affect the discharge of the bankrupt. Furthermore, the Bill did provide that the bankrupt upon discharge should still be obliged to co-operate with the trustee in the administration of his estate. Mr Peter Tisman added that the proposed section 30A(4)(a) provided that an objection could be made to the discharge of a bankrupt on the ground that the discharge of the bankrupt would prejudice the administration of his estate.

4. As regards HKSA’s proposal that a trustee should be required to make a decision on a proof of debt within 6 months of declaring a dividend, Mr Robin Hearder advised that the need to make an early decision on proofs of debt after declaring a dividend was already implied in the proposed section 67(1). Under this section, whenever the trustee had sufficient funds in hand for the distribution of dividends, subject to the retention of such sums as might be necessary for the expenses of the bankruptcy, he should declare and distribute dividends among the creditors in respect of the bankruptcy debts which the creditors had respectively proved. He also drew members’ attention to the fact that the time limit for adjudication of proofs of debt in the Australian legislation, as referred to by the HKSA, was 14 days from the date of declaring a dividend, not from the date on which a proof of debt was lodged.

5. As regards the reasons for proposing the time limit of four years for adjudication of a proof of debt after a claim was lodged, Mr Hearder advised that at present, it took about 2.75 to 3.5 years for the OR to complete adjudication of the proofs of debt in respect of a bankruptcy case. Apart from the implications on manpower resources, many other factors also put constraints on shortening the adjudication period. In many cases, the main asset of a bankrupt’s estate was the monthly income contribution made by the bankrupt. It often took up to four years to build up an amount that would justify the cost of declaring a dividend. He acknowledged that the adjudication period of four years was proposed on the basis of practical considerations rather than policy concerns. Admin

6. Members commented that it was generally understood that the sooner the trustee made a decision on a proof of debt, the better the interest of the concerned creditor was served. A four year adjudication period appeared to be unreasonably long, especially with the provision that the trustee had the right to apply to the court for extension of the adjudication period. In this respect, the Administration should provide further justification on the proposed adjudication period or consider shortening it. At members’ request, the Administration agreed to provide an estimate, based on past experience, the number and proportion of cases that would require extension of the adjudication period for the hypothetical scenarios that the trustee was required to make decisions on proofs of debt:

  1. within four years of its being lodged; and

  2. within three years of its being lodged.

7. Members also requested and the Administration agreed to provide information on the respective procedures in UK, Singapore and Australia for adjudication of proofs of debt and the statutory limits to the adjudication period, if any.Admin

Tax Secrecy

8. The Chairman pointed out that there did not appear to be a disparity between the Administration’s legislative intention and the HKSA’s view regarding the principle that only the trustee should have access to the tax information of a bankrupt. The concern was whether this principle had been framed in the proposed legislative amendments with adequate clarity. Admin

9. Mr Hearder pointed out that the provision in the proposed section 30D were so worded that it would also cover the situation where the OR acted as the interim receiver. He explained that the decision on who should act as the trustee could only be confirmed after meetings of creditors in the case of summary procedures, or upon a decision of the court in the case of non-summary procedures. He was also concerned that the Inland Revenue Department might have the right to refuse to provide tax information to a private practitioner acting as the trustee. The Chairman requested that the OR discuss with the Inland Revenue Department and inform the Bills Committee regarding this matter.

10. The Chairman pointed out that tax secrecy had been a focal concern of LegCo Members in a number of legislative proposals put to the Legislative Council recently. As regards the present Bill, although the Administration in its response to the HKSA’s submission had assured that if the OR was not the trustee, he would not ask for access to tax information of a bankrupt, the Bills Committee would only be satisfied if the relevant legislative amendments were worded with adequate clarity to preclude any possibility of a breach of the secrecy provisions in the Inland Revenue Ordinance.Admin

11. Members also expressed concern about whether there was any specific provision for the OR or the trustee to preserve the secrecy of the tax information received. Mr Hearder advised that the tax records of a bankrupt obtained by the trustee would be used for the court proceedings either in a private or public examination. In a private examination of a bankrupt, there was no difficulty for the trustee to preserve secrecy of the tax records. However, in a public examination, the proceedings would be open to the concerned creditors and thus it was not possible for the trustee to preserve secrecy of the tax records under such a situation. In this regard, members requested the Administration, in the second reading debate of this Bill, to give an undertaking to preserve secrecy of the tax information obtained as far as the records were not required for a public examination.

Bankruptcy period before automatic discharge

12. At members’ request, the Administration agreed to provide information on the provisions regarding the bankruptcy period before automatic discharge in other common law jurisdictions including the UK, Singapore and Australia, and in some other advanced economies such as France, Germany and Italy.Admin

13. Members noted that there were about 4,000 undischarged bankrupts at present, and the proposed section 30C provided for automatic discharge of bankrupts of 3 years’ standing (for first time bankrupts) and 5 years’ standing (for those adjudged bankrupt previously) after 12 months of the enactment of the Bill, subject to no objections by creditors or the trustee. Members were concerned about how the creditors of these bankrupts would be well-informed of this new procedure so that they could file objections, to the discharge of the bankrupts, if any, within the statutory period. The Administration agreed to provide information on the procedures for notification of creditors in this respect.Admin

Other issues

14. Members noted that from 1992/93 to 1994/95, the total number of bankruptcy cases in Singapore had been about four times that in Hong Kong. Where a breakdown between trading and non-trading cases in Singapore was available for the year 1992-93, it was found that the number of trading cases was similar between Singapore and Hong Kong, but the number of non-trading cases in Singapore was about 10 times that in Hong Kong. After some discussion, members acknowledged that it was difficult to make reliable inferences based on these figures. Members however considered it highly probable that at present, many bankruptcy cases in Hong Kong had not been properly reported to the authority due to the complicated and lengthy bankruptcy proceedings and the high legal costs entailed. The proposed simplified bankruptcy procedures were thus favoured on the account that the community would be encouraged to make use of the proper bankruptcy proceedings in handling overdue debts.

Internal discussion

15. To expedite the Bills Committee’s deliberation, the Chairman suggested and members agreed that the Legal Service Division should liaise with the Administration on matters relating to the legal technicalities and then report to the Bills Committee.ALA5

Tax secrecy

16. Mr Eric LI said that if the Administration refused to pay heed to members’ view, he would move a committee stage amendment regarding the proposed section 30D to the effect that only the trustee of a bankrupt in conducting his bankruptcy administration duties should be allowed access to the tax information of the bankrupt.

Time limit for adjudication of proofs of debt

17. Members re-affirmed the view that with the provision that the trustee was entitled to apply to the court for an extension of the adjudication period, the Administration had to justify its proposed adjudication period of four years from the date a claim was filed. On the basis of the arguments presented to the Bills Committee so far, the time period appeared to be unreasonably long.

Date of next meeting

18. Members agreed that subject to the agreement of Mr Ronald ARCULLI, Chairman of the Bills Committee, the next meeting would be held on 27 June 1996 at 9:00 am.

(Post meeting note: The next meeting was rescheduled for 10 July 1996 at 9:00 am with the concurrence of Mr. Ronald ARCULLI.)

LegCo Secretariat
17 July 1996

Last Updated on 10 December 1998