Re Leung Yat Tung (No. 2)
Court of First Instance
Bankruptcy Proceedings No. 2019 of 2000
Mimmie Chan J in Chambers
29 August 2017

Proof of debt – taxed costs incurred by creditor in presenting petition – whether debt provable in bankruptcy under s. 34 or costs and charges under s. 37 – Bankruptcy Ordinance (Cap. 6)

The Official Receiver (the “OR”) rejected as a “debt provable in bankruptcy” under s. 34 of the Bankruptcy Ordinance (Cap. 6) (the “BO”), the taxed costs of C, the petitioning creditor, for presenting a bankruptcy petition against B (the “Petition Costs”). The basis of the rejection was that such costs were to be paid under s. 37 as part of the costs and charges of the bankruptcy, as distinct from other debts proved in the bankruptcy which were to be paid pari passu out of B’s assets, after the payment of costs and other priority debts under s.38. C now applied under s. 83 of the BO to reverse or vary the OR’s decision.

Held, dismissing the application, that:

  • Section 37 of the BO, in particular s. 39(1)(b), clearly provided that the taxed costs of the bankruptcy petition were to be paid first, from the bankrupt’s assets, as one item of the costs and charges, by way of priority. Section 38(1) set out, after the costs and expenses referred to in s.37, the debts to be paid “in priority to all other debts” which under s. 38(4) were expressly made subject to the provisions of s. 37, and to the retention of such sums as might be necessary for the costs of the administration.
  • C was not unfairly prejudiced due to its inability to prove for the Petition Costs. Under the BO, such costs would be paid out of B’s estate in priority to preferential and other proved debts. That was the advantage conferred on and enjoyed by C, for having to incur costs in presenting a petition for bankruptcy. It would recover its taxed costs in full under s.37 from B’s assets, before distribution to other creditors, who (unlike C) had to compete for payment pari passu to the extent that their debts were unsecured.
  • It was therefore not unjust that C was not entitled to a vote on the administration of the bankruptcy, in respect of the Petition Costs. C was still entitled to vote in accordance with that part of the debt it proved for the underlying judgment sum and other costs of the bankruptcy ordered by the Court and accepted by the OR, which were to be paid by the debtor/B.
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