Enforcement of Judgments

Identification of Assets

Judgment creditors may wish to identify judgment debtors’ assets and their location. A law firm can begin the identification process by searching public government registries to discover information about judgment debtors, including assets in their names, directorships in companies in which they may have an interest, and court proceedings in which they are parties. These searches may reveal contact details and provide a basis for retaining private investigators if necessary for further asset tracing.

Examination Orders

Where initial searches and investigations provide an incomplete picture, a judgment creditor may apply ex parte i.e. without notice to the judgment debtor) for an examination order to compel the judgment debtor to provide information to facilitate enforcement of the judgment debt.

There are 2 different types of examination orders, namely orders (“O. 48 Examination Orders”) under O. 48 of The Rules of the High Court and orders (“O. 49B Examination Orders”) under O. 49B of The Rules of the High Court.

O. 48 Examination Orders

An O. 48 Examination Order compels a judgment debtor (i) to attend before an officer of the court to answer questions under oath to obtain details of their assets, both inside and outside Hong Kong, competing claims to those assets and other means of satisfying the judgment, and (ii) to produce books and documents relevant to those questions including, for example financial statements, bank and share brokerage statements, tax returns, property deeds and share certificates.

The judgment creditor must personally serve an O. 48 Examination order issued by the court on the judgment debtor.

Where the judgment debtor is a body corporate, an O. 48 Examination Order may compel an officer (or former officer) of the judgment debtor to attend court and to produce books and documents but the order must be personally served on the officer (or former officer). It is possible to serve an O. 48 Examination Order out of jurisdiction on officers of a corporate judgment debtor residing outside Hong Kong with the leave of the court. When determining whether to grant leave, the court will consider whether it can be shown that such officer has knowledge of the finances of the corporate judgment debtor and whether there is a close connection between the officer’s conduct in relation to the action from which the judgment debt arose and the subject matter of that action. Courts have indicated that fault or negligence or blameworthiness are not relevant factors.

A judgment creditor may cross-examine the individual attending an O. 48 Examination Order so as to obtain all necessary particulars to enable the judgment creditor to determine what assets can be enforced against within Hong Kong, and if assets outside Hong Kong are disclosed, to inform recovery actions outside Hong Kong.

O. 49B Examination Orders

Like an O. 48 Examination Order, an O. 49B Examination Order compels a judgment debtor to attend before the court to answer questions and with such documents or records as the court may specify. However, unlike an O. 48 Examination Order, it is quasi-criminal in nature:

• Arrest Before Examination – An O. 49B Examination Order may order that the judgment debtor be arrested and brought before the court if the court is satisfied that there is reasonable cause from all the circumstances of the case to believe that an order may be ineffective to secure the attendance of the judgment debtor before the court for examination.

• Prohibition Order Before Examination – An O. 49B Examination Order may order that the judgment debtor be prohibited from leaving Hong Kong.

• Imprisonment Between Hearings – On an adjournment of an examination under an O. 49B Examination Order, if the court is satisfied that the judgment debtor may fail to appear on the resumption of the examination, the court may order the judgment debtor be imprisoned or prohibited from leaving Hong Kong until the examination resumes.

Given the quasi-criminal nature of an O. 49B Examination Order, the judgment creditor must personally serve the order on the judgment debtor and should ensure that the order is endorsed with a penal notice.

An O. 49B Examination Order differs from an O. 48 Examination not only in its quasi-criminal nature but also in scope. An O. 49B Examination Order is narrower in that it cannot compel an officer (or former officer) of a corporate judgment debtor to attend before the court. However, it is broader in that it requires a judgment debtor not only to answer all questions put to him on examination but also to make full disclosure of all his assets, liabilities, income and expenditure. In contrast, an O. 48 Examination Order does not mandate a voluntary full disclosure but the court may order the judgment debtor to produce relevant books and documents.

Non-Compliance with Examination Orders

Failure to attend or refusal to answer questions under either types of examination orders can result in arrest and penalties from the court.

The court may imprison the judgment debtor for up to 3 months if following an examination of either type the court is satisfied beyond reasonable doubt that the judgment debtor is able to satisfy the judgment debt, wholly or partly, or has disposed of assets to avoid satisfaction of the judgment debt or has wilfully failed to make full disclosure in the examination.

Prohibition Orders

A Prohibition Orders restricts a person against whom a judgment has been made from leaving Hong Kong, ensuring they remain within the jurisdiction to facilitate enforcement. A judgment creditor may apply for a prohibition order may be made in conjunction with an O. 49B Examination Order or independent of any examination order. In the latter case, the court must be satisfied that (i) there is a probable cause that the judgment debtor is about to depart Hong Kong, (ii) by reason of such departure the judgment is likely to be obstructed or delayed, and (iii) the prohibition order would facilitate enforcement of the judgment debt.

Seizure of Assets

Two commonly used modes to seize assets to enforce monetary judgments are charging orders and garnishee proceedings.

Charging Orders

A charging order is a court order which imposes a charge on the beneficial interest of a judgment debtor under any trust or in any eligible asset to secure payment of the judgment debt.

Assets that are eligible to be charged include land, securities (including securities issued by the Hong Kong government or any Hong Kong company as well as securities issued by any state or territory or body incorporated outside Hong Kong if such securities are registered in a register kept at any place within Hong Kong), units of any unit trust in respect of which a register of the unit holders is kept at any place within Hong Kong and any funds in court.

Where a charging order is imposed on any interest in eligible securities, unit trusts or funds, the court may provide for the charge to extend to any interest, dividend or other distribution payable and any bonus issued in respect of that asset.

Obtaining a charging order involves two-steps, first obtaining a charging order nisi and then a charging order absolute.

Charging Order Nisi

A judgment creditor first applies ex parte for a charging order nisi. An affidavit supporting the application identifies the judgment to be enforced, the amount unpaid on the judgment, the asset to be charged and any other creditor of the judgment debtor known to the judgment creditor. It also verifies the beneficial interest of the judgment debtor in the asset to be charged.

The principal amount to be secured must be ascertained. Charging orders cannot secure unliquidated liabilities, for example costs which have yet to be taxed or otherwise determined.

A charging order nisi will specify a time and place for a return hearing, at which the court will hear the judgment debtor and any other person interested in the charge. The charging order nisi imposes a temporary charge until the return hearing.

On the making of a charging order nisi, the judgment creditor must, unless the court otherwise directs, serve a copy of the order (together with the affidavit which supported the application) on:

• the judgment debtor,

• in the case of a charge over securities issued by a body corporate, the issuer of those securities or, if the securities are issued by a body incorporated outside Hong Kong, the keeper of the register of securities in Hong Kong,

• in the case of unit trust where the register is kept in Hong Kong, the keeper of the register of units in Hong Kong, and

• in the case of a trust, the trustee.

The judgment creditor must effect service of the charging order nisi at least 7 days before the return hearing. Personal service is not required.

The court may further order the charging order nisi and the supporting affidavit to be served on any other creditor of the judgment debtor or any other person who may be interested in the charge.

As against the judgment creditor, a charging order nisi invalidates any disposition by the judgment debtor of his interest in any securities to which a charging order nisi relates while the charging order nisi remains in force. The issuer of such securities (or, in the case of securities issued by a body corporate outside of Hong Kong, the keeper of the register in Hong Kong) is liable to pay the judgment creditor the value of the securities transferred if such securities are transferred while the charging order nisi is in force.

Where land is charged, it would be prudent to register the charging order nisi (as well as any subsequent charging order absolute) at the Land Registry within the time prescribed by the Land Registration Ordinance to protect priority of the charging orders.

The court may grant an injunction along with a charging order nisi to prevent the judgment debtor from dealing with the asset to be charged before the hearing of the application to make the charging order absolute (i.e. permanent). The creditor must adduce evidence showing a risk that the asset might be dissipated and should give an undertaking in the form required for interlocutory injunctions to compensate the judgment debtor in case the court determines the injunction should not have been given.

Charging Order Absolute

At the return hearing (or an adjournment of the return hearing), the court will determine whether to make the charging order absolute or to discharge the charging order nisi. The court takes into account all relevant circumstances, including the debtor's personal situation, whether any third party beneficial interest is asserted over the asset, and the order's potential impact on other creditors.

Caselaw shows that courts would likely decline making a charging order absolute if the debtor becomes bankrupt or goes into liquidation between the charging order nisi and the hearing of the application to make it absolute.

The court may discharge or vary the order at any time in appropriate circumstances (e.g. upon full satisfaction of the debt or with parties’ consent if settlement is reached).

Where a charging order absolute is made over securities, a stop notice is typically included in the charging order absolute. The stop notice functions to prohibit the person having custody of the security from registering any transfer of such security without notice to the creditor.

A charging order alone does not realize the judgment debt. Securing actual recovery of money requires a further application either for an order for sale of the assets charged or the appointment of a receiver over those assets.

Garnishee Proceedings

A garnishee order allows a judgment creditor to collect from a third party a debt owed by that third party to the judgment debtor provided the third party is within the jurisdiction of the Hong Kong court. Such third parties are called garnishees. A garnishee order effectively redirects the garnishee’s liability - instead of paying the judgment debtor, the garnishee directly pays the judgment creditor up to the amount of the judgment debt plus enforcement costs.

Garnishees include banks at which the judgment debtor holds deposits. Upon a garnishee order being made against a bank, by law, the bank cannot resist payment to the judgment creditor on the basis of the non-satisfaction of any condition on the account requiring the account holder to give notice or to produce a passbook or a receipt before a withdrawal can be made.

Other typical garnishees include customers of the judgment debtor who are liable to pay the judgment debtor for goods or services which the judgment debtor delivered or rendered, and tenants of the judgment debtor who are liable to pay rent to the judgment debtor as the landlord.

Similar to charging orders, garnishee proceedings involve two-steps.

Garnishee Order Nisi

The judgment creditor first makes an ex parte application for a garnishee order to show cause. Because the application is made ex parte, neither the judgment debtor nor the garnishee is notified of the application and the judgment creditor must make full and frank disclosure in its affidavit supporting the application of all facts known to him which may be material for the court to consider the application.

The supporting affidavit typically identifies the judgment being enforced, the judgment debtor, the amount unpaid on the judgment, the garnishee, the reasons why the creditor believes the garnishee is within the jurisdiction and why the garnishee is indebted to the judgment debtor. Where the garnishee is a bank, the affidavit should identify the name and address of the branch at which the debtor’s account is believed to be held.

If the court is satisfied there is a proper basis for a garnishee order, it will make a garnishee order to show cause, commonly known as garnishee order nisi. A garnishee order nisi is intended to temporarily attach the debt owed by the garnishee to the judgment debtor from the time the order is served until such time as the judgment debtor and the garnishee can be heard. The court will fix a date for hearing the judgment debtor and the garnishee in the garnishee application.

A creditor must serve the garnishee order nisi:

• personally on the garnishee at least 15 days before the hearing, and

• on the judgment debtor at least 7 days after the order has been served on the garnishee and at least 7 days before the court date.

Once a garnishee is served with a garnishee order nisi, all debts owed by the garnishee to the judgment debtor are attached and the garnishee must not appropriate any part of his debt for any other purpose, even if he owes more to the judgment debtor than the judgment debtor owes to the judgment creditor. This is not to say that the garnishee should pay the judgment creditor yet. Such a payment should be made only after the garnishee order is made absolute.

Garnishee Order Absolute

At the hearing of the garnishee application, the court will hear from the judgment debtor and the garnishee whether there is any reasonable cause to refuse the garnishee order and will then determine whether to make a garnishee order absolute.

Where the garnishee does not attend or does not dispute the debt due, the court may make the garnishee order absolute. Where however, the garnishee disputes his liability (e.g. the garnishees disputes his liability to pay the debt to the judgment debtor), the court may either determine the issue at the hearing or adjourn for a trial of the issue. Where the court learns that some other person has a claim to the debt sought to be attached, the court may order that person to attend before the court.

If it is shown that the debt is due to the debtor jointly with another person (e.g. money in jointly held bank accounts), there is no attachable debt. The court will normally not garnish a debt where, although the garnishee is within the jurisdiction, the debt is recoverable outside the jurisdiction, if it is shown by the garnishee that to do so may expose the garnishee to the risk of having to pay the debt twice over. A third party who claims to be entitled to the subject debt or claims to have a charge or lien upon it may also be heard, and the court may determine such a claim.

If a garnishee order absolute is made, a payment by the garnishee in compliance with the order absolute would discharge its liability to the debtor to the extent of the amount paid even if the garnishee proceedings are subsequently set aside or the underlying judgment being enforced is reversed.

Bankruptcy or Winding-up Proceedings

Creditors may consider whether pursuing Resisting and Defending Against a Winding-Up Petition against a debtor might be effective to facilitate recovery of money owed by the debtor as an alternative to the abovementioned enforcement procedures.

Bankruptcy or winding-up proceedings against a judgment debtor may be disadvantageous if the judgment creditor is sufficiently well resourced to pursue other enforcement options. This is because the bankruptcy regime (which applies to individuals) and the winding-up regime (which applies to companies) serve to collect and realise the debtor’s assets and distribute them first to secured creditors and then, from what remains, collectively to unsecured creditors. This means that if the judgment debtor is declared bankrupt or ordered to be wound up, unsecured creditors, such as a judgment creditor, would rank low in priority in the distribution process and would have to share remaining assets with other unsecured creditors pari passu, resulting in at best a partial recovery if the judgment debtor is insolvent.

However, creditors should consider other factors including:

• Whether the judgment debtor would be sensitive to bankruptcy or winding-up proceedings and if so, issuing a statutory demand might be a cost-effective way of pushing the judgment debtor to pay the judgment debt;

• If the debt sought to be recovered is the subject of an order in an arbitral award which the Hong Kong court has not yet given leave to enforce, Hong Kong courts have held that it is possible to issue a bankruptcy or winding-up petition based on the failure to pay such debt as bankruptcy or winding-up proceedings are not considered to be an enforcement of the arbitral award;

• If it is known that the judgment debtor has numerous other creditors and the judgment creditor might lose the “race” to obtain enforcement orders in respect of the judgment debtor’s assets, it might be more desirable to commence bankruptcy or winding-up proceedings against the judgment debtor and give notice of such petition to existing creditors who have not yet completed execution against the property of the judgment debtor or attachment of debt due to the judgment debtor.

Bankruptcy Jurisdiction

In terms of jurisdiction, Hong Kong courts have jurisdiction to hear a bankruptcy petition if the judgment debtor:

• is domiciled in Hong Kong; or

• is personally present in Hong Kong on the day the petition is presented; or

• has been ordinarily resident or has had a place of residence or has carried on business in Hong Kong at any time in the three years before the petition is presented.

Jurisdiction to Wind-Up

Hong Kong courts have jurisdiction to wind up companies incorporated in Hong Kong. Additionally, Hong Kong courts may assert jurisdiction to wind-up companies formed outside Hong Kong if the following three core requirements are met:

• there must be a sufficient connection with Hong Kong, but this does not necessarily have to consist of the presence of assets within the jurisdiction;

• there must be a reasonable possibility that the winding-up order will benefit those applying for it; and

• the court must be able to exercise jurisdiction over one or more persons in the distribution of the company’s assets.

The Court of Final Appeal has recently held that regarding the requirement for a possible “benefit” to the petitioner for winding up, the commercial pressure arising from the prospect of presenting a winding up petition against the foreign company was a relevant benefit. Hence, it is likely that where a judgment creditor can show that a foreign corporate judgment debtor may be pressured to pay a debt to avoid being wound up in Hong Kong, the requirement for a “benefit” to be shown would be satisfied.

Limitation Period

Pursuant to the Limitation Ordinance, an action shall not be brought upon any judgment after the expiration of 12 years from the date on which the judgment became enforceable, and no arrears of interest in respect of any judgment debt shall be recovered after the expiration of 6 years from the date on which the interest became due.

In a landmark case, the Court of Appeal held that bankruptcy or winding up petitions cannot be founded upon judgment debts the enforcement of which have become time barred upon the expiry of the limitation period. The Court of Appeal came to this conclusion with reference to the wide meaning of “action” defined in the Limitation Ordinance, which was held to include bankruptcy or winding up petitions. The court of appeal further analyzed the interrelationship between the principal judgment debt, interest and the effect of the statutory provisions on limitation. It held that:

• where it is sought to enforce (or bring bankruptcy proceedings founded upon) a judgment debt within six years of the judgment in question, the whole of the principal and accrued interest may be recovered or relied upon;

• where enforcement (or bankruptcy or winding-up) proceedings are brought more than six (but less than 12) years after the judgment, the principal judgment debt may be recovered (or relied upon), along with the most recent six years’ of interest, but not interest accruing earlier than six years previously; and

• where enforcement (or bankruptcy or winding-up) proceedings are brought after the lapse of 12 years, they will be barred absolutely. It would not be possible to rely on an attempt to recover accrued interest as such interest arises out of the judgment, and enforcement of the judgment would be time barred.