Q6. If the party liable for compensation goes bankrupt or is wound up, what other options do I have to pursue compensation? Does the timing of my claim (before or after the bankruptcy declaration or winding-up proceedings) affect my entitlement?

You may still have options, but the route changes once bankruptcy or winding-up begins. Before the insolvency order, you are usually still pursuing an ordinary claim for damages; after the order, you will often need to submit a proof of debt to the trustee or liquidator, and delay may affect your ability to vote at creditors’ meetings — where important decisions about the estate are made — and you may also miss out on receiving any payment (called a ‘dividend’) from whatever assets remain.

In simple terms, this means your claim does not disappear just because the wrongdoer becomes insolvent. What changes is that you are no longer simply chasing payment in the ordinary way; instead, you are claiming against a pool of assets that is being collected and distributed under insolvency rules.

Timing is important. For instance, if the defendant becomes bankrupt or is wound up before you have obtained judgment, your damages claim may still need to be established, but recovery usually shifts into the insolvency process. If bankruptcy or winding-up happens after you already have a judgment, the judgment still does not guarantee full payment, because you may still need to lodge proof in the insolvency and share in the available assets according to the insolvency rules.

In practice, the amount you actually recover often depends on how much money remains after secured creditors and costs are paid. For most fire victims, the uncomfortable reality is that they will often be unsecured creditors unless they have some separate security or insurance-backed route.

That is why it is so important to look beyond the insolvent wrongdoer and identify other possible sources of recovery, such as insurance (including Owners’ Corporation building insurance for structural loss and employer insurance for work-related injury), if an employer cannot pay work-injury compensation, a worker may seek help from the Employees Compensation Assistance Fund Board, and check whether any government compensation scheme may apply.

For instance, there are statutory provisions relating to the mandatory requirement for Owners’ Corporations to procure third-party risks insurance that took effect on 1 January 2011. According to section 28 of the Building Management Ordinance (Cap. 344), all Owners’ Corporations shall procure and keep in force in relation to the common parts of the building and the property of the Owners’ Corporation a policy of third-party risks insurance. The minimum insured amount of each policy shall be $10 million per event.

It is also noteworthy that, under section 2(1) of the Third Parties (Rights Against Insurers) Ordinance (Cap 273), where an insured who is insured against liabilities to third parties which he may incur is wound up, bankrupt or is subject to another event specified in that section, and, before or after that event, incurs any liability to a third party which is covered by the insurance policy, the insured’s rights against the insurers are transferred to and vest in the third party, rather than becoming part of the insured’s estate for distribution among his general creditors. For example, If an Owners’ Corporation is legally liable for the fire damage to a flat, and that liability is covered by the Owners’ Corporation’s third-party risks insurance, and a section 2(1) event occurs in relation to the Owners’ Corporation (e.g upon the making of a winding up order), its rights against the insurer in respect of that liability are transferred to the flat owner. The flat owner may therefore enforce those rights against the insurer, subject to the terms of the policy and any requirement first to establish the Owners’ Corporation’s liability, rather than merely proving in the Owners’ Corporation’s insolvency as an unsecured creditor.

You should therefore take early legal advice on your options, which may include checking whether the liable party held any insurance that can be claimed against directly, whether any other parties (such as a building management company, contractor, or landlord) may also share liability.