Lesson learned: What shall creditors do if they wish to object to the bankrupt’s automatic discharge from bankruptcy

Section 30A of the Bankruptcy Ordinance (Cap. 6) (“BO”) provides a mechanism which allows a bankrupt to be automatically discharged from bankruptcy. However, such automatic discharge is subject to the objections raised by the trustees and/or creditors.  In Re Shum Tung Lam formerly known as Shum Wan Man [2020] HKCFI 1720, the Hong Kong Court of First Instance revisited the legal principles on automatic discharge from bankruptcy and clarified the creditors’ obligations if they wish to object to the automatic discharge.

Background

On 15 July 2015, Shum was adjudged bankrupt.  As he is a first time bankrupt, he would be discharged from bankruptcy automatically on 15 July 2019.

Six days before the automatic discharge, one of the creditors of Shum (the “Applicant”) issued a Summons to object to the automatic discharge (the “Objection Summons”).  In view of the Objection Summons, the court gave an Interim Order withholding the automatic discharge pending the determination of the Objection Summons. 

On 10 October 2019, the Applicant took out additional Summonses including a Summons to amend the Objection Summons (the “Amendment Summons”).  On 14 January 2020, the Applicant took out yet a further Summons seeking time extension for the Applicant to make the objection application by the Objection Summons (the “Time Summons”).

In view of all the Summonses, the learned Master considered in detail the route prescribed in the BO for objecting to an automatic discharge.

Decision

Time limit for creditor to take out the Objection Summons

Section 30A(6) of the BO provides that:

“Where the trustee or a creditor objects to the discharge of the bankrupt, he shall– 

(a) notify the court; and
(b) in the case of a creditor, also notify the trustee, 

not less than 14 days before the end of the relevant period [1], stating the grounds of his objection and applying for an order under subsection (3).”

The Applicant filed its Form 82 (the prescribed form for Notice of Intention to Object Bankrupt’s Discharge) (“Form 82”) on 17 June 2019.  However, the Applicant did not take out the Objection Summons until 9 July 2019. 

After careful consideration of the drafting of s30A(6) of the BO, the court found that the phrase “not less than 14 days before the end of the relevant period” applies to the following phrases of “stating the grounds of his objection” and “applying for an order under subsection (3)”.  Further, the BO contemplates that the notification and the application will be undertaken at the same time; therefore, they are subject to the same temporal limit.

Accordingly, the court found that the Applicant should have issued the Objection Summons on 1 July 2019 the latest under s 30A(6) of the BO.  The Applicant was late for eight days.

Does the court have jurisdiction to deal with the Objection Summons in view of the Applicant’s non-compliance of s30A(6) of the BO?

Under s100(4) of the BO, the court has discretionary power to extend the time for doing any act or thing which is limited by the BO.

Despite the fact that the Applicant was late in issuing the Objection Summons, the court see no reason why s100(4) of the BO cannot be invoked to extend the time prescribed by s30A(6) of the BO.  Therefore, the court held that it does have jurisdiction to deal with the Objection Summons.

What are the consequences if different grounds of objection were stated in the Applicant’s Form 82 and the Objection Summons?

In addition to the filing of the Objection Submission out of time, the court noted that the Objection Summons was irregular as different grounds of objection were stated in the Applicant’s Form 82 and the Objection Summons.

The court held that s30A(6) of the BO is to ensure that the bankrupt is being informed in sufficient advance of the case which he has to answer.  A bankrupt should not be caught by surprise in dealing with an objection against his discharge from bankruptcy.

Whilst s124(1) of the BO provides that formal defect and irregularity may not invalidate proceedings, the court held that relying on a different ground of objection in the Objection Summons not referred to in the Applicant’s Form 82 was not a formal defect but a defect in substance. 

Further, but for the Interim Order, Shum would have been discharged from bankruptcy on 15 July 2019.  An interim order is a measure to preserve the status quo pending determination of the issues between the parties.  It is not meant to allow more time for a party to make up his mind as to how he may wish to formulate his case. 

If the trustee also objects to the bankrupt’s automatic discharge, what should the creditor do?

The court held that a creditor does not have to wait to see whether the trustees will object to the bankrupt’s discharge to prepare for the creditor’s objection. The creditor’s right to object to the automatic discharge of the bankrupt is separate and independent from the trustees’ right to object. 

Further, in Re Li Tat Kong [2000] 3 HKC 360, Le Pichon J (as she then was) held that “where different grounds are relied on by different parties, separate applications would ensure that the bankrupt is not taken by surprise”.  As the grounds of objection relied on by the Trustees and the Applicant were different, separate applications shall be made.

Accordingly, although the Trustees subsequently changed their stance and decided not to object to Shum’s automatic discharge from bankruptcy, this is not an excuse for the Applicant’s failure to issue the Objection Summons in time. 

Bearing in mind that the Objection Summons is defective in substance and that the Time Summons was not issued until after Shum would have been discharged from bankruptcy but for the Interim Order, the court refused to exercise its discretion in favour of the Applicant. In this premise, the court dismissed the Objection Summons, Amendment Summons and Time Summons.

Comments

This case serves a useful reminder of the creditors’ obligation in objecting to the automatic discharge of a bankrupt from bankruptcy.  The creditor should ensure that its Notice of Intention to Object and the relevant application to court are both issued and filed within time relying on the same grounds of objection. 

Further, whilst the views and findings of the trustees in bankruptcy may assist the creditor in preparing its objection application, the creditor should not just wait for the trustees and jump on the bandwagon of the trustees’ objection. After all, the creditor’s and trustees’ right to object to the automatic discharge of the bankrupt are separate and independent.

The court has reiterated on multiple occasions that an application to object to discharge is a serious matter and it should not be embarked upon lightly.  As shown in this case, the court is generally unsympathetic towards the irregularities found in the creditor’s application to object to discharge.  Therefore, if the creditor wishes to lodge such application, it is advisable to seek legal advice promptly so that there is sufficient time to formulate its case and prepare for the objection application.

[1] In the present case, the end of the relevant period is the date on which Shum would be discharged from bankruptcy, i.e. 15 July 2019.