1. Bankruptcy proceedings can only be commenced by creditors but not by the debtors. Is this true?
No. Other than the Creditor's Bankruptcy Petition (legal action commenced by creditors), debtors can also institute bankruptcy petitions against themselves (i.e. Debtor's Bankruptcy Petition). You are recommended to consult a lawyer before you commence bankruptcy proceedings.
A brief summary of the procedures for filing a Bankruptcy Petition to obtain a Bankruptcy Order:
(A) Creditor's Bankruptcy Petition
A creditor can file a bankruptcy petition to the High Court against a person or persons who have failed to repay debts. Under section 6 of the Bankruptcy Ordinance, the amount of debt in a creditor's petition must be equal to or exceed $10,000, and must be unsecured.
- Before filing a bankruptcy petition, the creditor may be required to issue a statutory demand to the debtor. The creditor must use all reasonable ways to bring the statutory demand to the debtor’s attention, including the delivery of the demand by hand. The creditor may instruct a lawyer to prepare and send out the relevant documents.
- If the creditor has reasonable grounds to believe that the debtor has absconded or is trying to avoid receiving the statutory demand, then the creditor can advertise the demand in one or more local newspapers.
- If the creditor has obtained a court judgment in previous legal proceedings against the debtor for the repayment of debt and the debtor has failed to pay the judgment debt, then the creditor does not have to issue a statutory demand to the debtor before filing a bankruptcy petition.
- Three weeks after issuing the statutory demand and in case the debtor is unable to pay or there is no reasonable prospect of the debtor paying the debt, the creditor, as the petitioner, can file a bankruptcy petition with the High Court. The creditor must swear the truthfulness of the relevant petition in front of a lawyer or court officer before filing it with the Court. (Note: From the judgment of Kate Gaskell Richdale v Eugene Oh Jae-Hoon, it is quite clear that the effect of section 6 and section 6A of the Bankruptcy Ordinance is that where a statutory demand is served to the debtor and is not set aside (has not been declared invalid by the Court), failure to pay in response to it will result in the debtor being deemed to be unable to pay the debt alleged against him. Once that happens, it is perfectly in order for a creditor to present a bankruptcy petition. Even if a debtor thereafter makes payment, this does not show that he was in a position that he was able to pay the debt as at the date of the petition.)
- The creditor must pay a fee of $1,045 to the High Court and a deposit of $11,250 to the Official Receiver's Office to cover the fees and expenses that may be incurred by the Official Receiver (or the Trustee).
- The creditor is notified of the court hearing date for the petition.
- The creditor must send sealed copies (copies with the Court's chop) of the bankruptcy petition to the Official Receiver's Office and to the debtor, similar to the way in which a statutory demand is delivered.
- At the court hearing (where the creditor is usually represented by a lawyer), the Court may grant a bankruptcy order against the debtor if there is no reasonable objection raised by the debtor, or there is no further agreement between the creditor and the debtor for the settlement of debt.
(B) Debtor's Bankruptcy Petition
A debtor can also file a Debtor's Bankruptcy Petition (Form 3) with the High Court. Under section 10 of the Bankruptcy Ordinance, a debtor's petition can be filed whether or not the gross amount of indebtedness equals to or exceeds $10,000 (unlike the statutory requirement for filing a creditor's petition, whereby the amount of debt must not be lower than $10,000).
- The debtor must file a Debtor's Bankruptcy Petition and a Statement of Affairs with the High Court. The debtor may instruct a lawyer to assist in preparing and filing the relevant documents. The debtor must swear the truthfulness of the relevant petition and statement of affairs in front of a lawyer or a court officer before filing them with the Court.
- The debtor must pay a court fee of $1,045 to High Court and a deposit of $8,000 to the Official Receiver's Office. There is no provision for exemption of this deposit.
- The debtor will be notified of the court hearing date for the petition.
- The debtor must send a sealed copy of the petition and copy of the Statement of Affairs to the Official Receiver's Office.
- At the court hearing (the debtor can be represented by a lawyer), the court may grant a bankruptcy order against the debtor if the debtor has proved unable to repay the debts and there is no reasonable objection raised by the creditor for the granting of an order.