PLC Paper No. LS 820

Ref: CB1/SS/9/97

Paper for the House Committee meeting
on 23 January 1998

Report of the Subcommittee on
five resolutions under sections 36, 113 and 114
of the Bankruptcy Ordinance (Cap. 6)

Purpose

This paper reports on the deliberations of the Subcommittee on five resolutions under sections 36, 113 and 114 of the Bankruptcy Ordinance (Cap. 6) (the Subcommittee).

Background

2. The Administration gave notice to move five motions under sections 36, 113 and 114 of the Bankruptcy Ordinance (the motions) at the Council meeting on 7 January 1998, to seek the Council’s approval of the following Rules and Order:

1. Bankruptcy (Amendment) Rules 1998;

2. Meetings of Creditors (Repeal) Rules 1998;

3. Bankruptcy (Forms)(Amendment) Rules 1998;

4. Bankruptcy (Fees and Charges) (Amendment) Order 1998; and

5. Proof of Debts (Amendment) Rules 1998.

The purpose of the proposed Rules and Order is to facilitate the enforcement of the Bankruptcy (Amendment) Ordinance 1996 (the Amendment Ordinance) passed by the former Legislative Council, which in turn implements the recommendations of the Law Reform Commission to place a greater emphasis on rehabilitation rather than punishment and to simplify bankruptcy procedures. The Amendment Ordinance has, among others, put in place individual voluntary arrangement procedures to encourage debtors to sort out their financial difficulties in a structured way without having to become bankrupt; introduced an automatic discharge system subject to there being no objection from the trustee of the bankrupt’s estate or any creditor; and abolished the obsolete provisions relating to "acts of bankruptcy" and "bankruptcy notices" and replaced them by simpler and more straight-forward grounds for petitioning for bankruptcy.

3. At the House Committee meeting on 19 December 1997, Members decided to to form a Subcommittee to study the motions and request the Administration to defer moving the motions to a later Council meeting.

The Subcommittee

4. The Subcommittee comprises 8 members, with Hon HO Sai-chu elected as Chairman. It met on 7 January 1998 and invited the Administration to brief members on the motions. The Subcommittee completed its deliberations in one meeting. A membership list of the Subcommittee is at Appendix I.

Deliberations of the Subcommittee

Members noted that the Administration had, during the course of drafting the proposed Rules and Order, consulted such users of the proposed legislation as the Hong Kong Society of Accountants, The Law Society of Hong Kong, the Hong Kong Bar Association and the Judiciary. Members however expressed concern about some provisions relating to fees and charges in the subsidiary legislation.

Bankruptcy (Amendment) Rules 1998

Pursuant to the enactment of the Amendment Ordinance, the Bankruptcy (Amendment) Rules 1998 propose consequential changes to the existing Bankruptcy Rules. In particular, the subsidiary legislation repeals the existing rules relating to "bankruptcy notices" and substitutes these rules with a procedure whereby a statutory demand would be issued to require a debtor to pay his debts, and steps to set aside such demand where appropriate. It also specifies the procedures for the application for a public examination of the bankrupt and sets out provisions governing inquiries by the court into the bankrupt’s conduct, dealings and property. The Amendment Rules will also repeal the existing Bankruptcy Rules relating to the discharge of a bankrupt and substitute such rules by new procedures to allow the trustee or one of the bankrupt’s creditors to apply to the court for suspension of the bankrupt’s discharge from bankruptcy and to enable the bankrupt to seek early discharge. New arrangements with respect to meetings of creditors are laid down. Furthermore, the proposed rules will prescribe that a trustee in bankruptcy shall make a decision on a proof of debt within four years of the proof being filed with him. The procedures for individual voluntary arrangements in place of the current provisions for compositions and schemes of arrangement and the procedures for application by the trustee for an income payments order will also be laid down.

The drastic increase in the hourly remuneration of shorthand writers appointed by the court from $150 to $2,000 in Rule 23(4) was the subject on which members have expressed concern. The Administration clarifies that the rate of $2,000 is only specified as the maximum remuneration payable to a shorthand writer. The hourly rate of $150 had not been amended since 1985 and the legislation also provides that the court may specify another rate as deemed appropriate.

Meetings of Creditors (Repeal) Rules 1998

The existing Meetings of Creditors Rules are repealed consequent to the rules for meetings of creditors being now set out in the Bankruptcy (Amendment) Rules 1998. No query was raised by the Subcommittee on the proposed changes.

Bankruptcy (Forms)(Amendment) Rules 1998

These Amendment Rules propose technical and consequential amendments to certain existing forms, repealing a number of other forms and introducing new forms pursuant to the Amendment Ordinance and the Bankruptcy (Amendment) Rules 1998. Members note that under Form 18, the amendment to increase the amount of debt from $500 to $10,000 is made in accordance with the Amendment Ordinance to raise the minimum aggregate debt required for a bankruptcy petition.

Bankruptcy (Fees and Charges) (Amendment) Order 1998

This Amendment Order mainly repeals certain fee items in the Schedule to the Order and introduces three new fee items arising from new bankruptcy rules and procedures.

Regarding the three new fee items in the Order, members are concerned about the basis for determining the fee levels and whether the fee levels are consistent with those charged by the Government for comparable services. The Administration confirms that the respective fees for two items, i.e. examination by a creditor of the record signed by the bankrupt and examination by a creditor of the proofs of debt of other creditors, both at $85, are in line with the level of fees of other items of a similar nature chargeable by the Official Receiver. The fee item on photocopying charge per page or part thereof for furnishing a creditor with a list of creditors is the standard rate set by the Director of Accounting Services for photocopying services provided to the public.

Proof of Debts (Amendment) Rules 1998

These Amendment Rules are consequential and textual amendments made necessary by the enactment of the Amendment Ordinance. The rate of interest on outstanding debt under Rule 20, originally stipulated as a rate not exceeding 8% per annum, is replaced by a rate to be determined under the Supreme Court Ordinance (Cap. 4). Members accept the Administration’s explanation that it is more reasonable for the court to determine the rate in accordance with the prevailing rate of interest on the date of the bankruptcy order.

Recommendation

9. The Subcommittee supports the resolutions and agrees that the Administration move the resolutions at the Council meeting on 11 February 1998.

Advice Sought

10. Members are invited to note the deliberations of the Subcommittee and support the recommendation at paragraph 13 above.

Provisional Legislative Council Secretariat
20 January 1998

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Appendix I

Provisional Legislative Council
Subcommittee on five resolutions under sections 36, 113 and 114 of the Bankruptcy Ordinance (Cap. 6)

Date: 7 January 1998