2. Members referred to the submission from the Consumer Council which stated that the amount of $20,000 was a more realistic minimum debt required for a bankruptcy petition. The Chairman said that there appeared to be some good reasons to set the minimum debt at $20,000, instead of $10,000 as proposed in the Bill, taking into account that the existing minimum debt level of $5,000 set in 1976 was equivalent to $15,900 in 1990 when adjusted in accordance with inflation (footnote in page 33 of the Law Reform Commission Report on Bankruptcy), and that a higher legal standard in terms of the minimum debt level required for a bankruptcy petition might serve to counter-balance the proposed simplified, and thus easier, bankruptcy procedures.

3. Mr Robin Hearder advised that the amount of $10,000 was proposed by the Law Reform Commissions Sub-committee on Insolvency to be the minimum debt level mainly on the consideration to protect employees. At present, about 40% of the petitions for bankruptcy orders were made by the Director of Legal Aid on behalf of employees who were owed wages. It was often the case that an individual employee was owed wages amounting to a few thousand only. If the minimum debt was set at $20,000, it would require five to six employees to make a joint petition. However, in many bankruptcy cases only two to three employees were concerned. Hence, setting the minimum debt level at $20,000 might deprive some employees of the right to petition for the bankruptcy of their employers who owed them wages, and this might have serious social ramifications. Mr Peter Tisman added that the Subcommittee on Insolvency had made a comparison between the proposed minimum debt of $10,000 and the minimum debt levels adopted in the bankruptcy law of other jurisdictions, which were found to be similar or lower. He also advised that the proposed new section 6(5) enabled the Financial Secretary, by regulation, to prescribe an amount greater than $10,000 as the minimum debt level for a bankruptcy petition.

4. Mr LEE Kai-ming pointed out that for employees to obtain relief from the Protection of Wages on Insolvency Fund (PWIF), a bankruptcy petition against the concerned employer had to be filed in the court. At present, the Commissioner for Labour (C for L) had the discretion to waive this requirement if the amount or aggregated amount claimed by employees was less than $5,000 and thus was below the present minimum debt level. However, he understood that the C for L had not often exercised this discretion. He was concerned that if the minimum debt was increased to a level too high, more employees might suffer from not being able to obtain relief from the PWIF for the reason that their claims, individual or aggregated, were less than the minimum debt level and thus could not make a bankruptcy petition. On this account, he would support the proposed $10,000 to be the new minimum debt level. Mrs Elizabeth WONG shared the concern and expressed support to the proposed minimum debt level of $10,000 in consideration of the need to protect employees and in the light of the flexibility provided in the proposed section 6(5) as advised by Mr Tisman.

5. At members request, the Administration agreed to provide the following information:

how often and under what circumstances the C for L had exercised his discretionary power to waive the requirement for granting relief from PWIF;
the implication of the proposed amendments to the minimum debt provisions on the above discretionary power and in this connection, whether any consequential amendments to the relevant legislation was necessary; and
statistics on the level of claims in employees petitions made by the Legal Aid Department over the past few years.

Admin

6. The Chairman expressed his doubt about the desirability of applying a single minimum debt level across-the-board for all classes of creditors. He enquired if the Administration had considered a two-tier system, i.e. setting one minimum debt level for creditors in general and another level for employees who were owed wages by their employers. In reply, Mr Hearder advised that no such two-tier system was being adopted in other common law jurisdictions, and in view of the probable complications entailed in such a system, the Administration did not find it worthwhile to pursue this option.

Statutory demand

7. It was stated in the Administrations reply to the Consumer Councils submission that: "Several UK court decisions support a strong line being taken on strict compliance with the Bankruptcy Rules on the content and service of statutory demands. These are binding precedents which the Hong Kong Court will be obliged to follow.". In response to the Chairmans enquiry, Mr Hearder said that although the Hong Kong Court was not legally obliged to follow UK court decisions, in practice it had followed in nearly all cases.

8. In response to members enquiry about the procedures for a debtor to object to a statutory demand served on him, Mr Michael E Brown advised that the drafting instructions for the Hong Kong Insolvency Rules would cover this aspect, and the Rules would be based on the UK Insolvency Act 1986, which specified that the procedures for objecting to a statutory demand and filing a notice of objection to the court should be set out in the statutory demand form to be presented to the debtor when a statutory demand was served. After filing an objection, if the creditor(s) did not admit any mistake on his/her/their part, the debtor would have to apply to set aside the statutory demand. Then the court handling the disputed debt would conduct a trial of the disputed debt. If the debtor was subsequently proved to be vindicated and thus the statutory demand should not have been served, the person making the statutory demand would be penalised in money terms.

9. In response to the Chairmans further enquiries, Mr Brown advised that under the new Hong Kong Insolvency Rules, the debtor would need to make a separate application to have the statutory demand set aside after filing a notice of objection to the court. Mr Brown also said that he would check whether a separate application form for setting aside the demand would be made available to the debtor when the statutory demand was served, and would provide a proforma of each of the statutory demand and the objection and application forms for members reference.

Admin

10. As regards the proposed new court procedures for a disputed debt, Mr Brown advised that hearings would be conducted in the High Court, which was the only court for bankruptcy proceedings. The initial hearing would be a simple one before a master with little directions for affidavit and other documents. He remarked that the UK experience revealed that these procedures had worked well and there had been no amendments to the UK Insolvency Rules 1986 in this area so far.

11. On how far the proposed new court procedures were different from the current procedures for disputed debts, Mr Brown advised that at present, all applications for bankruptcy notices to be set aside were heard by a High Court judge. Because bankruptcy notices were based on judgements, there had not been many applications for the notices to be set aside.

12. Mr Hearder assured that the Administration would ensure that it would be stated in the Hong Kong Insolvency Rules that the first hearing of a disputed debt would be conducted by a master so that it would be simple and not expensive.

13. Members were concerned that the procedures for objecting to the statutory demand might be too onerous on debtors. Mr Brown said that he believed that the future procedures would not be more onerous on debtors than they were at present. The Chairman however remarked that while the Bankruptcy (Amendment) Bill 1996 sought to simplify the bankruptcy procedures on creditors part, it did not seem to correspondingly simplify those on debtors part.

14. Members were also concerned that the ease of initiating the bankruptcy procedures by simply serving a statutory demand might lead to abuse and a significant increase in disputed debts. They also observed that the future procedures for disputed debts did not appear to be simpler than those at the present. As a result, the original intention of simplifying the bankruptcy procedures might not be realized in substance. In response, Mr Brown remarked that there were bound to be difficulties with regard to disputed debts under whatever form of system, as there were inevitably a number of grey areas and it was not easy to establish the facts in a lot of the cases.

15. With regard to the experience of insolvency practitioners and officials in the UK since the enactment of the Insolvency Act 1986, Mr Brown said that he had been reading articles written by UK insolvency practitioners on the statutory demand procedure prescribed by the Insolvency Rules 1986 over the last 10 years and found that all those practitioners had accepted that the procedure was a good one and had worked well in practice. He had come across no article that had been able to show any serious defect in that procedure. Mr Hearder said that the UK Insolvency Service had no intention of attempting to change the statutory demand procedure in the absence of any significant abuse having been reported that would necessitate amendment. As for the Consumer Councils concern about possible abuses of the statutory demand procedure on the part of debt collecting agencies, Mr Hearder said that in the course of several conversations with the UK Insolvency Service he had no reason to believe that they were aware that such a problem existed.

Tax secrecy

16. On the concern about the access to the tax information of bankrupts by private practitioners raised at the last meeting, Mr Tisman advised that the Inland Revenue Department had been consulted on the draft Committee Stage Amendment to the relevant section and had cleared the proposal.

17. Mr Eric LI said that the Hong Kong Society of Accountants (HKSA) was of the view that the legislation should clearly specify that the OR should be given access to the tax information of a bankrupt only if the OR was acting as the trustee of the bankrupts estate and the information was necessary for tracing the bankrupts assets. In bankruptcy cases, the OR might otherwise act in the role of a regulator. In that capacity, he should not be given access to the bankrupts tax information. However, the present wording in the proposed section 30D would enable the OR to obtain tax information in that capacity. The HKSA also believed that the trustee should have limited access to the tax information of the bankrupt. The basic premise was that the trustee should not have access to any information which the debtor/bankrupt himself had no knowledge of and/or had no access to. This included any confidential documents kept by IRD for the purpose of its own inquiries.

18. Mr Tisman advised that the draft Committee Stage Amendment (CSA) regarding tax secrecy was under preparation. The Law Draftsman had been given the drafting instructions that reflected members views expressed at the last meeting.

Preservation of tax information in court proceedings

19. Regarding the preservation of secrecy of tax information in court proceedings, Mr Hearder pointed out that in a public examination, the proceedings would be open to the concerned creditors, and thus it would be difficult for the trustee to preserve secrecy of the tax information presented during the public examination. Mr Eric LI said that it was HKSAs view that tax information that might be presented in a public examination should be specific and should be necessary for tracing the bankrupts assets.

20. The Chairman pointed out that in the course of tracing assets, documents and correspondence relating to third parties might be required. He opined that while it might be necessary for the trustee to access those documents or correspondence during the proceedings, such information should not be divulged at large. In response, Mr Hearder advised that the court had the discretion to hold a private examination in chambers under section 19 if circumstances required.

21. Mr Eric LI suggested and members agreed that the CSAs in regard to tax secrecy to be proposed at the second reading debate on the Prevention of Bribery (Miscellaneous Provisions) (No. 2) Bill 1995 to be held at the LegCo Sitting on 10 July 1996 should be circulated for members reference.

CAS(1)4

Adjudication period

22. MR Eric LI said that he would further discuss with the HKSA on this issue in the light of the Administrations written response to the Bills Committees concerns about the length of the adjudication period for proofs of debt expressed at the last meeting, and report to the Bills Committee.

Mr Eric Li

Next meeting

23. Members agreed that the next meeting would be held on 30 September 1996 at 9:00 am. Members also agreed that at the next meeting, the Bills Committee would first examine the CSA to be proposed by the Administration in respect of tax secrecy before proceeding to examine the Bill clause by clause.

There being no other business, the meeting ended at 10:30 am.

LegCo Secretariat
27 September 1996

Last Updated on 10 December 1998

Bills Committee on Bankruptcy (Amendment) Bill 1996

Minutes of the Meeting held on Wednesday, 10 July 1996 at 9:00 am in Conference Room A of the Legislative Council Building

I. Confirmation of minutes of meeting

II. Discussion with the Administration

Minimum debt required for the presentation of a bankruptcy petition

Statutory demand

Tax secrecy

Preservation of tax information in court proceedings

Adjudication period

Next meeting

Minutes of the Meeting
held on Wednesday, 10 July 1996 at 9:00 am
in Conference Room A of the Legislative Council Building