- To Disclose or Not to Disclose: Bankruptcy & Substituted Service, Petitioning Creditors Beware
- June 11, 2014 | Authors: Justine T. K. Lau; Edmund M. S. Ma; Richard M. Tollan
- Law Firm: Mayer Brown JSM - Hong Kong Office
Following our previous legal update on substituted service of a statutory demand against an individual ("Bankruptcy & Substituted Service: Petitioning Creditors Beware...", 2 March 2012), the Court of Appeal’s recent decision in FWD Life Insurance Co (Bermuda) Ltd v. Chan Kim Fai (4 March 2014) sheds light on the requirement of Rule 59 of the Bankruptcy Rules for substituted service of a bankruptcy petition.
This is an appeal by a bankrupt against a master's decision not to annul his bankruptcy order. The annulment was sought on the following grounds:
1. The petitioning creditor did not serve the petition on the bankrupt (then the debtor) and did not notify him of the petition hearing. The bankruptcy order was made in his absence.
2. The bankrupt was (on his assertion) financially capable to repay the debt.
The petition was not personally served on the debtor because the petitioning creditor had obtained an order for substituted service of the petition by post and advertisement. On appeal, the court's focus was on the question of whether the petitioning creditor had made adequate disclosure to the master when applying for the order for substituted service.
The court decided the petitioning creditor's disclosure was inadequate. Drawing on Order 65 Rule 4(3) of the Rules of the High Court, the court held that when the petitioning creditor applied for the order for substituted service, it was obliged (but failed) to disclose to the master that it could contact the debtor by telephone and email. If the master had known of this fact, he would likely have directed the petitioning creditor to contact the debtor using those methods in addition to advertising in a newspaper.
The court was satisfied that the substituted service of the petition amounted to a ground for annulment "existing at the time the [bankruptcy] order was made" that "the order ought not to have been made" within the meaning of section 33(1)(a) of the Bankruptcy Ordinance. This gives a discretion to the court to annul the bankruptcy order. However, the court decided not to do so because the debtor had never disputed the judgment debt founding the bankruptcy petition before his appeal, and had not substantiated his claim that he could repay the debt. The court considered the debtor would inevitably be adjudicated bankrupt again even if the existing order were annulled.
The takeaway message is that the possibility of communicating with the respondent by telephone, email, fax or comparable direct methods should be disclosed by petitioning creditors in any application made for substituted service. If a claim arises from an existing contractual relationship, chances are the applicant would have a record of the respondent’s mobile phone number, email address etc.
The Court of Appeal handed down this judgment in the context of a bankruptcy case, but substituted service is an issue relevant to all types of proceedings. With the increasing popularity of instant messaging and social networking tools, this judgment has wide potential implications.