Discussion Problem #1

Background

William is married to Alice and they have a natural son named Roger. William is the sole breadwinner of the family. They live in a rented flat in Causeway Bay. For many years he has worked as the head manager of a luxury restaurant earning an attractive salary.

The following things happen:

1. Last year Roger was accepted to one of the most prestigious boarding schools in the United Kingdom. Fortunately William had a very good friend (Sam) who lived near the school in the UK and was willing to help keep an eye on young Roger. When Roger started school last year, William transferred 30,000 to Sam and told him that the money was to be used for giving Roger 25 each week as pocket money.

1. William has a sister-in-law, Cindy, who is a passionate and very talented horse rider. She has won a number of horse riding competitions. William transfers Cindy HK$25,000 and tells her that the money is to be used to pay for her horse riding training. Cindy has not spent the money yet.

1. A few months ago William met Heather and they started to have an extramarital affair. William has fallen hopelessly in love with Heather.

It has always been William's dream to open up his own restaurant. Recently he secured investors to fund his business plan for a new restaurant.William immediately quit his job to focus on this new project. William wants to use his own name to operate the business but he is worried about his personal liability should the restaurant fail. William did the following:

1. William bought a HK$1.2M diamond engagement ring. He proposed to Heather (who accepted). He told her that their love will be endless and therefore she needs to be patient because he will divorce Alice 'when the time is right'.

1. William used up all of his remaining cash (HK$6M) to buy a flat in North Point. He gave the purchase money to his wife and told her to purchase the flat and have it registered in her sole name. The family now lives in the new flat.

William then went ahead with opening his new restaurant.Unfortunately, the restaurant was a complete disaster. The newspaper reviews were terrible, customers contracted food poisoning and the food and hygiene department shut the restaurant down for a few weeks when cockroaches infested the kitchen. Very soon the restaurant was operating at a substantial loss.

William desperately wanted to find a way to improve the business. William devised a plan to hire famous celebrity chef to come from France to help publicize the restaurant and attract customers. William's rich friend Sally agreed to loan William HK$500,000 for the purposes of this plan. The loan agreement between William and Sally included a clause that expressly provided that the "loan monies will be utilized solely for the paying of the celebrity chef and for no other purpose." The HK$500,000 was paid into a separate account at William's bank.

Unfortunately, before William could contact the celebrity chef, the restaurant had to shut down due to its huge financial losses.Creditors (landlord, renovators, food suppliers, investors, employees, etc.) are now pursuing William for repayment in the total estimated sum of HK$15M.

On top of all of that, Alice has found out about William's affair with Heather and has now filed to divorce him.

A Trustee in bankruptcy has been appointed.Discuss which assets the Trustee can gather to repay the creditors.

Self-Study Problem

Jonathan operates a small shoe shop in Mong Kok in his own name. Due to a downturn in the economy and a sudden fear of bird flu in the area, his business has almost dried up entirely during the last few weeks. Last night, Jonathan was doing his accounts and was shocked to find out that he would not be able to pay all of his bills at the end of this month!

Jonathan was terrified that his creditors would drive him into bankruptcy and take all of his assets, so this morning he withdrew all of the money from his bank account and did the following:

1. He gave HK$100,000 in cash to his 15 year old son Brutus. Jonathan told Brutus "Here son, take this money and keep it for me. I will tell you what to do with it later."

1. He went to a gold shop called "Chow Sing Sing" and purchased a gold "year of the dog" necklace worth HK$250,000.He gave the necklace to his mother and told her "Here mom, please take this necklace and safeguard it!"

1. He gave HK$1,500,000 to his wife, Clytemnestra. He told her "Here Clytemnestra, take this and keep it in your bank account. Don't ask me why."

1. He gave his remaining HK$600,000 in cash to his best friend Richard. Jonathan said "Richard, my business is failing and I am worried that the creditors will take everything from me. I need to keep my money away from my creditors. Please hold this money for me until I get discharged from bankruptcy."

At the end of the month, Jonathan's business indeed failed and he was driven into bankruptcy by his creditors.

Several years later, Jonathan has been discharged as a bankrupt. He goes approaches Brutus, his mother, Clytemnestra and Richard and demands that they return his property to him. They each refuse and want to keep the property for themselves.

Discuss.