Hong Kong Ordinances

BANKRUPTCY ORDINANCE - SECT 38

Priority of debts

(Past version on 01/04/1998).
(Past version on 01/07/1997).
(Past version on 30/06/1997).

Adaptation amendments retroactively made - see 18 of 2005 s. 12

(1) In the distribution of the property of a bankrupt there shall be paid in
priority to all other debts-

   (a)  (Repealed 47 of 1984 s. 5)

   (b)  any-

        (i)    payment from the Protection of Wages on Insolvency Fund under
               section 18 of the Protection of Wages on Insolvency Ordinance (
               Cap 380) to any clerk or servant in respect of wages or salary
               or both in respect of services rendered to the bankrupt if such
               payment was made during a period of 4 months before the date of
               the filing of the petition; and (Amended 48 of 1987 s. 8)

        (ii)   wages and salary (including commission provided that the amount
               thereof is fixed or ascertainable at the relevant date) of any
               clerk or servant in respect of services rendered to the
               bankrupt during a period- (A) beginning 4 months next before
               the date of the filing of the petition and ending on the making
               of the bankruptcy order; or (Amended 76 of 1996 s. 73) (B)
               beginning 4 months next before the last day of service within
               the meaning of section 16(4) of the Protection of Wages on
               Insolvency Ordinance ( Cap 380) of any clerk or servant who has
               made an application for an ex gratia payment under
               section 15(1) of that Ordinance, and ending on that last day of
               service, (Replaced 68 of 1996 s. 4) whichever is the earlier,
               not exceeding, together with any payment under sub-paragraph
               (i), $300; (Replaced 12 of 1985 s. 29(4). Amended 48 of 1987 s.
               8)

   (c)  any-

        (i)    payment from the Protection of Wages on Insolvency Fund under
               section 18 of the Protection of Wages on Insolvency Ordinance (
               Cap 380) to any labourer or workman in respect of wages,
               whether payable for time or for piece work, in respect of
               services rendered to the bankrupt if such payment was made
               during a period of 4 months before the date of the filing of
               the petition; and

        (ii)   wages of any labourer or workman, whether payable for time or
               for piece work, in respect of services rendered to the bankrupt
               during the period- (A) beginning 4 months next before the date
               of the filing of the petition and ending on the making of a
               bankruptcy order; or (Amended 76 of 1996 s. 73) (B) beginning 4
               months next before the last day of service within the meaning
               of section 16(4) of the Protection of Wages on Insolvency
               Ordinance ( Cap 380) of any labourer or workman who has made an
               application for an ex gratia payment under section 15(1) of
               that Ordinance, and ending on that last day of service,
               (Replaced 68 of 1996 s. 4) whichever is the earlier, not
               exceeding, together with any payment under sub-paragraph (i),
               $100; (Replaced 12 of 1985 s. 29(4). Amended 48 of 1987 s. 8)

   (ca) any severance payment payable to an employee under the
        Employment Ordinance ( Cap 57), not exceeding in respect of each
        employee $6000; (Added 54 of 1974 s. 2)

   (caa) any long service payment payable to an employee under the
        Employment Ordinance ( Cap 57), not exceeding in respect of each
        employee $8000; (Added 78 of 1985 s. 2)

   (cb) any amount due in respect of compensation or liability for
        compensation under the Employees' Compensation Ordinance ( Cap 282)
        accrued before the date of the bankruptcy order and, where the
        compensation is a periodical payment, the amount due in respect
        thereof shall be taken to be the amount of the lump sum for which the
        periodical payment could, if redeemable, be redeemed on an application
        being made for that purpose under the
        Employees' Compensation Ordinance ( Cap 282), but this paragraph shall
        not apply to any amount due in respect of compensation or liability
        for compensation where the bankrupt has entered into a contract with a
        person carrying on accident insurance business in Hong Kong in respect
        of his liability under the Employees' Compensation Ordinance (
        Cap 282) for personal injury by accident to the employee to whom the
        compensation or liability for compensation is due; (Added 5 of 1977 s.
        2. Amended 47 of 1984 s. 16; 76 of 1996 s. 73)

   (cc) any wages in lieu of notice payable to an employee under the
        Employment Ordinance ( Cap 57), not exceeding in respect of each
        employee one month's wages or $2000 whichever is the lesser; (Added 5
        of 1977 s. 2)

   (cd) all accrued holiday remuneration becoming payable to any clerk,
        servant, workman or labourer (or in the case of his death to any other
        person in his right) on the termination of his employment before or as
        a consequence of the bankruptcy order; (Added 47 of 1984 s. 5. Amended
        76 of 1996 s. 73)

   (ce) any payment from the Employees Compensation Assistance Fund under Part
        IV of the Employees Compensation Assistance Ordinance 1991 (54 of
        1991) representing an amount due by the bankrupt in respect of
        compensation or liability for compensation under the Employees' 
        Compensation Ordinance ( Cap 282) accrued before the date of the
        bankruptcy order; (Added 54 of 1991 s. 47. Amended 76 of 1996 s. 73)

   (cf) any amount of unpaid contribution or any amount deemed to be unpaid
        contribution calculated in accordance with rules made under section 
        73 (1)(n) of the Occupational Retirement Schemes Ordinance ( Cap 426)
        which should have been paid by the bankrupt in accordance with the
        terms of an occupational retirement scheme within the meaning of that
        Ordinance before the commencement of the bankruptcy: Provided that
        where such amount exceeds $50000 in respect of an employee, 50% of
        such part of the amount that exceeds $50000 shall not be paid in
        priority to all other debts under this subsection; (Added 88 of 1992
        s. 83)

   (cg) (without prejudice to any right or liability under a trust) any amount
        of salaries deducted by the bankrupt from his employees' salaries for
        the purpose of making contributions in respect of such employees to
        the funds of an occupational retirement scheme within the meaning of
        the Occupational Retirement Schemes Ordinance ( Cap 426) which have
        not been paid into such funds; (Added 88 of 1992 s. 83)

   (ch) any amount of unpaid contribution under, or any amount of unpaid
        contribution calculated in accordance with, the Mandatory Provident 
        Fund Schemes Ordinance ( Cap 485) which should have been paid by the
        bankrupt in accordance with the provisions of that Ordinance before
        the commencement of the bankruptcy: Provided that where such amount
        exceeds $50000 in respect of an employee, 50% of such part of the
        amount that exceeds $50000 shall not be paid in priority to all other
        debts under this subsection; (Added 80 of 1995 s. 49)

        (ci)   any amount deducted by the bankrupt from the relevant income of
               his relevant employees for the purpose of making contributions
               in respect of such relevant employees to the approved trustee
               of a registered scheme within the meaning of the
               Mandatory Provident Fund Schemes  Ordinance ( Cap 485) which
               have not been paid to that approved trustee; (Added 80 of 1995
               s. 49)

   (cj) any sum and interest thereon payable to the Mandatory Provident Fund
        Schemes Authority under section 17(7) of the Mandatory 
        Provident Fund Schemes Ordinance ( Cap 485); (Added 80 of 1995 s. 49)

   (d)  all statutory debts due from the bankrupt to the Crown at the date of
        the bankruptcy order and which became due and payable within 12 months
        next before that date. (Replaced 47 of 1984 s. 5. Amended 76 of 1996
        s. 73)

(2)-(2A) (Repealed 76 of 1996 s. 28)

(2B) Where-

   (a)  the date of the receiving order is on or after 1 April 1977; or

   (b)  a bankruptcy order is made on or after the day the Bankruptcy
        (Amendment) Ordinance 1996 (76 of 1996) comes into operation, the sum
        of $8000 shall be deemed to be substituted in each case for the sums
        of $300 and $100 referred to in paragraphs (b) and (c) respectively,
        and for the sum of $6000 referred to in paragraph (ca), of subsection

(1). (Added 5 of 1977 s. 2. Amended 76 of 1996 s. 28)

(3) The debts specified in subsection (1)(b), (c), (ca), (caa),

   (cb) , (cc), (cd), (ce), (cf), (cg), (ch), (ci) and (cj)- (Amended 47 of
        1984 s. 5; 78 of 1985 s. 2; 54 of 1991 s. 47; 88 of 1992 s. 83; 80 of
        1995 s. 49)

   (a)  shall have priority over the debts specified in subsection

(1)(d);

   (b)  shall rank equally among themselves; and

   (c)  shall be paid in full unless the property of the bankrupt is
        insufficient to meet them, in which case they shall abate in equal
        proportions among themselves. (Replaced 42 of 1970 s. 2. Amended 54 of
        1974 s. 2; 5 of 1977 s. 2)

(3A) (Repealed 47 of 1984 s. 5)

(4) Subject to the provisions contained in section 37 and to the retention of
such sums as may be necessary for the costs of administration or otherwise,
the foregoing debts shall be discharged forthwith so far as the property of
the debtor is sufficient to meet them.

(5) In the event of a landlord or other person distraining or having
distrained on any goods or effects of a bankrupt within 3 months next before
the date of the bankruptcy order the debts to which priority is given by this
section shall be a first charge on the goods or effects so distrained on or
the proceeds of the sale thereof. (Amended 42 of 1970 s. 2; 76 of 1996 s. 73)

(5A) Any money paid under a charge under subsection (5) shall be a debt due
from the estate of the bankrupt to the landlord or other person distraining or
having distrained, and such debt shall be discharged so far as the property of
the bankrupt is sufficient to meet it after payment of the debts specified in
subsection (1) but before payment of the other debts proved in the bankruptcy.
(Added 42 of 1970 s. 2)

(5B) Where any assets have been recovered under an indemnity for costs of
litigation given by certain creditors, or have been protected or preserved by
the payment of moneys or the giving of indemnity by creditors, or where
expenses in relation to which a creditor has indemnified a trustee have been
recovered, the court may, on the application of the Official Receiver or the
trustee or any such creditor, make such order as it deems just with respect to
the distribution of those assets and the amount of those expenses so recovered
with a view to giving those creditors an advantage over others in
consideration of the risk run by them in so doing. (Added 47 of 1984 s. 5)

(5C) Any remuneration in respect of a period of holiday or of absence from
work through sickness or other good cause shall be deemed to be wages in
respect of services rendered to the bankrupt during that period. (Added 47 of
1984 s. 5)

(6) This section shall apply in the case of a deceased person who dies
insolvent as if he were a bankrupt and as if the date of his death were
substituted for the date of the bankruptcy order. (Amended 76 of 1996 s. 73)

(7) In the case of partners the joint estate shall be applicable in the first
instance in payment of their joint debts and the separate estate of each
partner shall be applicable in the first instance in payment of his separate
debts. If there is a surplus of the separate estates, it shall be dealt with
as part of the joint estate. If there is a surplus of the joint estate, it
shall be dealt with as part of the respective separate estates in proportion
to the right and interest of each partner in the joint estate. (See Rule 195)

(8) Subject to the provisions of this Ordinance, all debts proved in the
bankruptcy shall be paid pari passu.

(9) If there is any surplus after payment of the foregoing debts, it shall be
applied in payment of interest from the date of the bankruptcy order at the
rate specified in section 71(3) on all debts proved in the bankruptcy.
(Amended 76 of 1996 ss. 28 & 73)

(10) In this section-

"accrued holiday remuneration" (累算的假日薪酬) includes, in relation
to any person, all sums which, by virtue either of his contract of employment
or of any enactment (including any order made or direction given under any
Ordinance), are payable on account of the remuneration which would, in the
ordinary course, have become payable to him in respect of a period of holiday
had his employment with the bankrupt continued until he became entitled to be
allowed the holiday;

"Employees Compensation Assistance Fund" (僱員補償援助基金) means the
fund established by section 7 of the Employees Compensation Assistance 
Ordinance 1991 (54 of 1991); (Added 54 of 1991 s. 47)

"Protection of Wages on Insolvency Fund" (破產欠薪保障基金) means the
fund deemed to be established and continued in existence under section 6 of
the Protection of Wages on Insolvency Ordinance ( Cap 380); (Added 12 of 1985
s. 29(4))

"statutory debt" (法定債項) means a debt the liability for which and the
amount of which are determined by or under any provision in any Ordinance;
(Amended 18 of 2005 s. 12)

"wages" (工資) includes, in relation to any person, any sum which, by virtue
of his contract of employment, is payable to him as a Lunar New Year bonus,
but does not include any accrued holiday remuneration. (Replaced 47 of 1984 s.
5)

(11) The Bankruptcy (Amendment) Ordinance 1984 (47 of 1984) shall not apply in
the case of a bankruptcy where the date of the receiving order occurred before
the commencement* of that Ordinance, and, in such a case, the provisions
relating to priority of debts which would have applied if that Ordinance had
not been enacted shall be deemed to remain in full force. (Added 47 of 1984 s.
5)

(12) The Fifth Schedule to the Protection of Wages on Insolvency Ordinance
1985 (12 of 1985) shall not apply in the case of a bankruptcy where the date
of the filing of a petition occurred before the commencement of that
Ordinance, and, in such case, the provisions relating to priority of debts
which would have applied if that Ordinance has not been enacted shall deemed
to remain in full force. (Added 12 of 1985 s. 29(4))

(13) Section 4(a) and (b) of the Protection of Wages on Insolvency
(Amendment) Ordinance 1996 (68 of 1996) ("the amending Ordinance") shall not
apply in the case of a bankruptcy to which an application under section 15(1)
of the Protection of Wages on Insolvency Ordinance ( Cap 380) relates where
such application is made before the commencement of the  amending Ordinance,
and, in such case, the provisions relating to priority of debts which would
have applied if the amending Ordinance had not been enacted shall be deemed to
remain in full force. (Added 68 of 1996 s. 4) [cf. 1914 c. 59 s. 33 U.K.]
___________________________________________________________________________
___ Note:

* Commencement date: 31 August 1984.

"accrued holiday remuneration" (累算的假日薪酬)

"Employees Compensation Assistance Fund" (僱員補償援助基金)

"Protection of Wages on Insolvency Fund" (破產欠薪保障基金)

"statutory debt" (法定債項)

"wages" (工資)