**************************************
Following is a question by the Hon Leung Kwok-hung and a reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (May 2):
Question:
The Bankruptcy (Amendment) Ordinance 1996 (Amendment Ordinance), which set up the automatic discharge system, has commenced operation since April 1, 1998. In this connection, will the Government inform this Council:
(a) given that the Amendment Ordinance provides for a transitional arrangement for bankruptcy orders made not less than 42 months before the commencement of the Ordinance, of the number of persons who were not automatically discharged from bankruptcy because of this arrangement, and whether it has assessed if this arrangement contravenes the recommendation of the Law Reform Commission of Hong Kong in paragraph 17.66 of the Report on Bankruptcy that "Any person bankrupt under the present provisions should be able to apply for discharge at any time after the introduction of the new provisions if they fall within the criteria recommended for discharge in their particular circumstances";
(b) of the respective numbers of persons who had been adjudged bankrupt for more than four years and eight years but not discharged from bankruptcy in each of the past three years, as well as the reasons for that; and whether the Government has assessed if the requirement that bankrupts who have been adjudged bankrupt for many years shall continue to repay their debts is a violation of the intent of setting up the automatic discharge system; and
(c) given that the trustee is required to publish a notice in the newspaper not less than three months before the expiration of the four-year bankruptcy period to give creditors a chance to raise objection to the discharge of bankruptcy, of the total expenditure incurred in publishing the relevant notices under the name of the Official Receiver as the trustee in respect of bankrupts who had been adjudged bankrupt for more than eight years, as well as the amount of payments the Official Receiver's Office received from such bankrupts for debt repayment purposes?
Reply:
Madam President,
(a) Although I have explained the relevant law in response to a question raised by Honourable Leung Kwok-hung about two years ago on the same subject, I am happy to do so briefly again.
Prior to the commencement of the Bankruptcy (Amendment) Ordinance 1996 on April 1, 1998, there was no automatic discharge of bankrupts. A bankruptcy order would normally last for a lifetime, unless a bankrupt applied to the court for discharge and the application was approved.
The Bankruptcy (Amendment) Ordinance 1996 sought to implement the Law Reform Commission (LRC)'s recommendations on bankruptcy law. One of these recommendations was to permit automatic discharge of bankrupts. In essence, a first-time bankrupt can now be automatically discharged from bankruptcy four years after his bankruptcy order takes effect, unless the court orders that the bankruptcy period be extended to a maximum of another four years on the application of his trustee or creditor who makes a valid objection. Hence, the maximum length of the bankruptcy period is normally eight years under the present regime.
In introducing a new regime permitting automatic discharge, the Bankruptcy (Amendment) Ordinance 1996 adopted the LRC's recommendation by providing a transitional arrangement for those persons adjudged bankrupt before the operation of the Amendment Ordinance on April 1, 1998. In this regard, section 30C of the Ordinance is relevant. To illustrate, if the bankruptcy order of a first-time bankrupt was made not less than 42 months before April 1, 1998, the bankrupt would be automatically discharged on April 1, 1999, unless during the twelve-month period between April 1, 1998 and April 1, 1999 an objection was filed by the trustee or a creditor and dealt with by the court. According to paragraph 17.66 of the LRC's Report, "the twelve-month period should give the Official Receiver sufficient time to review all cases of bankruptcy and decide which of them warrant objection being made to the court".
As Honourable Leung pointed out, in the same paragraph of the LRC's Report, it was recommended that "any person bankrupt under the present provisions (i.e. the old provisions that preceded the Bankruptcy (Amendment) Ordinance 1996) should be able to apply for discharge at any time after the introduction of the new provisions if they fall within the criteria recommended for discharge in their particular circumstances". This recommendation was adopted when the former Legislative Council enacted the Bankruptcy (Amendment) Ordinance 1996, which added section 30B to the Ordinance. Section 30B of the Ordinance empowers a bankrupt to apply to the court for early discharge, in which case the court shall consider whether the bankrupt should be disallowed from early discharge based on a set of criteria about the bankrupt's financial situation and conduct.
As at April 1, 1998, there were 3,378 bankrupts with bankruptcy orders made for over 42 months, in which case the transitional arrangement in section 30C of the Ordinance applied as mentioned. Among these bankrupts, 3,280 were automatically discharged on April 1, 1999. 9 were no longer bankrupts on April 1, 1999 as they had made payments to their creditors, and thus had their receiving orders and adjudication orders rescinded and annulled respectively by the court, in the twelve-month period between April 1, 1998 to April 1, 1999. The remaining 89 bankrupts had not been automatically discharged on April 1, 1999 due to, among other reasons, objections by trustees or creditors, but 72 of them were subsequently discharged or had their bankruptcy orders annulled.
(b) With respect to the past three years, the following table sets out the number of bankrupts not discharged four or eight years after the date the bankruptcy orders were made, where the Official Receiver was the trustee:
Bankrupts not Bankrupts not
discharged discharged
four years after eight years after
the date the the date the
bankruptcy orders bankruptcy orders
Year were made were made
---- ----------------- -----------------
2004 251 54
2005 414 62
2006 438 89
They were not discharged for a number of different reasons set out in section 30A of the Ordinance. Among them, there were cases where the trustees or the creditors made valid objections in accordance with section 30A(4) and, as a result, the court ordered that their bankruptcy period be extended. In some other cases, in accordance with section 30A(10)(a), the bankruptcy period did not commence to run as the bankrupts had left Hong Kong before the commencement of the bankruptcy and had not returned.
We do not think the relevant statutory provisions are inconsistent with the objective of "rehabilitation" underpinning the "automatic discharge" regime. Under the present regime, a first-time bankrupt can be automatically discharged from bankruptcy four years after his bankruptcy order takes effect, unless the bankrupt has failed to cooperate with the trustee or has conducted himself unsatisfactorily, resulting in the court ordering the extension of the bankruptcy period on the application of the trustee or creditor who makes a valid objection. In addition, only the court is empowered, under section 30A(9), to order, as a condition of granting the discharge, that the bankrupt shall continue to make contributions to his estate after the discharge, provided that the contributions shall not continue for longer than 8 years from the date the bankruptcy order was made. The above statutory provisions were enacted under the Bankruptcy (Amendment) Ordinance 1996 by the former Legislative Council which incorporated the relevant LRC's recommendations.
(c) The Official Receiver's Office (ORO) does not have a breakdown of the expenses in relation to notices on the relevant persons adjudged bankrupt for over eight years. Nor does the ORO keep statistics on the amount paid by those bankrupts to repay their debts.
Thank you, Madam President.
Ends/Wednesday, May 2, 2007
Issued at HKT 12:35
NNNN
