The Hong Kong court exercises its power to appoint administrators

In ZENG QILING (A MINOR, BY MOTHER AND NEXT FRIEND WANG LIMEI) v. HOU PO CHU ESTELLA AND ANOTHER, the Court exercised its discretion under section 36 of the Probate and Administration Ordinance (the "Ordinance) to appoint two professional administrators to administer the estate of the deceased.  The Court made this order on the ground that one of the defendants intermeddled with an asset of the estate after the death of the deceased.  The case serves as an example of the Court exercising the discretion to appoint joint administrators under section 36 of the Ordinance.

Background

The Plaintiff was a minor suing by her mother and a biological daughter of the deceased. The 1^st Defendant was the lawful wife of the deceased. The 1^st Defendant and the deceased were the parents of the 2^nd Defendant. The deceased had established his business in the PRC, with a factory operated by a wholly foreign owned entity (the "Dongguan Company") which was wholly owned by a Hong Kong company, Kid Line Limited ("KLL"). The deceased died intestate in 2009.

The defendants jointly filed an application for Letters of Administration on 11 July 2012. However, the defendants failed to progress their application. Therefore, the Plaintiff applied to the Court for the appointment of two professional administrators under section 36 of the Ordinance.

The relevant legal principles

Citing the case of Re Estate of Loo Che Chin, the Court acknowledged that section 36 of the Ordinance provides the Court with broad discretion. That discretion must be exercised based on the actual circumstances of the case. The circumstances are not limited to those in connection with the estate itself or its administrators, but any other relevant circumstances which lead the Court to think it is necessary or convenient to pass over the person otherwise entitled to a grant. The burden rests on the plaintiff, and the Court should approach the evidence objectively and with a good dose of common sense.

The Court's reasoning

Among the various grounds on which the Plaintiff sought to demonstrate the unsuitability of the Defendants as administrators, the Court held that one ground stood out as determinative in this case. That ground related to the management of the financial records of the Dongguan Company by the 2^nd Defendant after the deceased's death.

Specifically, according to the 2^nd Defendant, after the deceased's death, a debt of about RMB 10 million (the "Sum") owed by the Dongguan Company to the deceased was assigned to the 2^nd Defendant. The Plaintiff argued this purported transfer amounted to intermeddling with an asset of the estate, entitling the Court to exercise the discretion of appointment.

The 2^nd Defendant attempted to justify the purported transfer on various grounds. He claimed that the transfer of the Sum was done for accounting purposes, yet during the course of his evidence he stressed the Sum was not actually a loan but a capital injection by the deceased.

The Court found the purported explanation of the 2^nd Defendant "incomprehensible". According to the PRC business registration record of the Dongguan Company, if the Sum was a capital injection, it would be a capital injection of KLL, not the Deceased. Secondly, the Sum was not recorded as capital injection in any of the relevant financial statements. Also, the 2^nd Defendant's evidence in Court that the Sum represented a capital injection contradicted his evidence given by affirmation that it was a debt. The Court therefore held that the 2^nd Defendant was not a suitable administrator.

As the 1^st Defendant never suggested she would be willing to be appointed jointly with one professional person to be the co-administrators of the estate, and the costs of engaging professional administrators are not disproportionate to the size of the estate (which was about RMB 17 million), the Court found that the appointment of the two professional administrators was necessary and convenient in the circumstances of the case.

Implications

While the Court considered it both necessary AND convenient to appoint joint professional administrators in this case, it is to be reminded that they are disjunctive requirements. This case also illustrates that intermeddling with an estate asset can disqualify a person from being an administrator of an estate.  Finally, it seems that when such situation arises, the Court is unlikely to hesitate before exercising its discretion under section 36 of the Ordinance.

If you wish to discuss, please contact Richard Norridge or Joanna Caen of our Private Wealth and Trusts team or your usual Herbert Smith Freehills contact.