Court of Final Appeal confirmed the requirement of leave under BO s.12 for an order for imprisonment of a bankrupt under O.49B r.1B(1)(c) in V Capital Limited v Margaret Chiu

In a recent decision in V Capital Limited v Margaret Chiu [2024] HKCFA 31, the Court of Final Appeal considered the question of whether a Master has jurisdiction under O.49B r.1B(1)(c) of the Rules of the High Court (Cap. 4A) (“RHC”) to order imprisonment of a bankrupt judgment debtor for having been found to have wilfully failed to make full disclosure during a debtor examination as required under RHC O.49B r.1A(2), where prior leave had not been sought under s.12 of the Bankruptcy Ordinance (Cap. 6) (“BO”) to make such an application for the imprisonment order.

The appellant judgment creditor obtained a consent judgment in the Court of First Instance against the respondent judgment debtor for a vast amount of money. After numerous unsuccessful interlocutory attempts by the appellant judgment creditor to obtain discovery and disclosure of assets and liabilities of the respondent, the judgment creditor obtained an order for oral examination of the debtor under RHC O.49B r.1A.  At the end of the examination before the Master, the appellant creditor applied to the Master for imprisonment of the debtor under O.49B r.1B(1)(c).  However, before the imprisonment application was heard by the Master, the debtor was adjudicated bankrupt by the same appellant creditor’s petition in a separate bankruptcy proceeding.  Nonetheless, the appellant creditor persisted with the imprisonment application before the Master, but without first seeking leave under BO s.12.  The Master made an order for one month’s imprisonment, having obtained a concession from the respondent debtor that he had jurisdiction to do so.

On appeal by the respondent against the imprisonment order contending that the Master did not have jurisdiction to make the order without leave having been obtained first under BO s.12, and withdrawing the concession that the Master had jurisdiction, the Court of Appeal set aside the imprisonment order, holding that leave under BO s.12 was required as the imprisonment order constituted “any remedy against the person of the bankrupt in respect of the debt” and also “other legal proceedings” in respect of the debt under BO s.12.  The judgment creditor appealed against the Court of Appeal’s decision on the ground that this issue was never considered and determined upon by the Court of Final Appeal before, and contending that no leave is required for an imprisonment order under O49B r1B(1)(c) given its nature.

The Court of Final Appeal unanimously dismissed the creditor’s appeal with costs.  Mr Justice Fok PJ, giving the only judgment of the Court, examined the purpose of BO s.12 and the nature of the O.49B procedure.  He concluded that an order for imprisonment under O.49B r.1B(1)(c) is subject to the leave requirement under BO s.12.  In summary:

1. The nature and objectives of the bankruptcy regime, which is relevant to the construction of BO s.12, include protecting bankrupts from harassment by individual creditors and ensuring pari passu distribution among creditors. (§§32-36)
2. The whole process under O.49B is in the nature of execution and enforcement of a judgment debt.  In the particular context of a bankrupt, imprisonment under O.49B r.1B(1)(c) could interfere with the bankruptcy process and offend the aforesaid objectives of the bankruptcy regime. Emphasis was placed on the existence of O.49B r.4 by which the applicant creditor could determine when the imprisoned debtor could be released, thus in the case of a bankrupt judgment debtor this would give great unfair advantage to the applicant creditor, much to the prejudice of the other unsecured creditors. (§§38-47)
3. Although an order for imprisonment on the basis of wilful failure to disclose under O.49B r.1B(1)(c) involves a punitive element for breach of a requirement under a court rule, it is independent of and distinguishable from the committal procedure for contempt of court under RHC O.52 (for which leave under BO s.12 is not required). (§39)
4. The fact that O.49B already imposes an exercise of discretion by a Master before ordering the examination or imprisonment of a judgment debtor does not render redundant the requirement of leave under BO s.12 since the exercise of discretion to grant leave to proceed under the latter section depends on different factors. (§45)
5. The Court distinguished decisions holding that examination orders under Part 71 of the UK Civil Procedure Rules did not require leave, as that regime differed from RHC O.49B.  The Court also considered but distinguished Dadra Inc v Chan Choi Har Ivy [2024] 4 HKLRD 508 where leave had already been obtained to proceed with the examination after the bankruptcy order.  The issue there was whether a further leave to proceed with the application for imprisonment was required.   Here no leave had been obtained at all after the debtor’s bankruptcy. (§§50-53)
6. Accordingly, in this case, the Master’s order was properly set aside for want of jurisdiction (§§54-55).

Whilst it is common for a creditor to seek to pursue various enforcement actions against a debtor simultaneously in order to maximise recovery prospects, this Decision serves as an important reminder for legal practitioners to take due care when dealing with bankrupt debtors and to consider whether leave under BO s.12 is required before commencing or proceeding with any court action against such debtors.

Mr Joseph Tse SC, leading Ms Rosa Lee, acted for the Respondent / Judgment Debtor

This case highlight is authored by Mr Joseph Tse SC and Ms Rosa Lee

The full Decision can be accessed at https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=165127