Banking Law and Practice

CHAPTER 8

Bankruptcy

Learning objectives

After studying this chapter, you should be able to:

1 Explain the concept of bankruptcy and who can be made bankrupt in Hong Kong

2 Describe the process of bankruptcy and the implications of the various stages of the proceedings on the bank as creditor

3 Understand the implications of a bankruptcy proceeding against a bank depositor or customer on the bank

Introduction

Bankruptcy occurs when a person (an individual, not a legal person such as a corporation) becomes insolvent—that is, the person is unable to pay or has no reasonable prospect of being able to pay his or her debts as they become due. As a result, the individual’s estate is compulsorily administered by the Court of First Instance of the High Court of the Hong Kong Special Administrative Region for the benefit of his or her creditors.

This chapter focuses on the concept of bankruptcy and the legal issues around it that have implications for banks and bankers. If a bank borrower becomes bankrupt, the bank as creditor will obviously be affected by the bankruptcy. The bankruptcy of a depositor (who is not a debtor to the bank) has implications on the bank as well, since the assets of that client deposited with the bank could become subject to legal action.

Bankruptcy

After the implementation of the Bankruptcy (Amendment) Ordinance of 1996 and the related Bankruptcy (Amendment) Rules of 1998, the primary objectives of the bankruptcy laws in Hong Kong are now threefold.

• The Bankruptcy ...