Re Li Wing Sang
Read the full judgment text of HCB 4740/2018 on BabelCite. This HCB judgment was delivered on 2 April 2019.
1. At the end of the hearing on 2 April 2019 of a bankruptcy petition presented on 15 August 2018 (“ the Petition ”) by Credit Suisse AG, Hong Kong Branch (“ the Petitioner ”) against Li Wing Sang (“ the Debtor ”), I granted a bankruptcy order. I now give my reasons.
Cited by 4 cases · Cites 7 cases
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HCB 4740/2018 [2019] HKCFI 924 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE BANKRUPTCY PROCEEDINGS NO 4740 OF 2018 ________________________
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________________________ REASONS FOR DECISION ________________________ INTRODUCTION 1.At the end of the hearing on 2 April 2019 of a bankruptcy petition presented on 15 August 2018 (“the Petition”) by Credit Suisse AG, Hong Kong Branch (“the Petitioner”) against Li Wing Sang (“the Debtor”), I granted a bankruptcy order. I now give my reasons. BACKGROUND FACTS 2.The background is largely undisputed. The following is largely extracted from the Debtor’s skeleton argument. 3.The Debtor has had an account with the Petitioner since August 2012. The Debtor has been an executive director and chairman of Tech Pro Technology Development Limited (Stock Code 3823) since December 2009 and March 2011 respectively. 4.The Debtor made use of the Petitioner’s loan facilities. Pursuant to, inter alia, a memorandum of charge dated 14 August 2012 (“MOCA”), the Debtor deposited shares listed on the Stock Exchange of Hong Kong (“SEHK”) in the Account as security. 5.By an agreement dated 29 September 2016, the Petitioner and the Debtor agreed to a repayment plan in relation to the then outstanding liabilities in the amount of HK$79,852,110.90 (“the Repayment Agreement”). Pursuant to the Repayment Agreement, the Debtor procured further securities to be provided to the Petitioner. 6.The Debtor fell behind with payments under the Repayment Agreement in about November 2016. 7.From January 2017, the Petitioner pressed the Debtor for repayment. 8.In February 2017, the Petitioner beganto liquidate the Debtor’s security in order to reduce the secured indebtedness. 9.By October 2017, the Petitioner held the following SEHK listed shares in the Account as security:
10.On 9 October 2017, the Petitioner issued a statutory demand (“the SD”). It specified that the full amount of the outstanding debt was HK$73,712,541.23 and estimated the value of the security it held at HK$11,046,175. The Petitioner put a “HK$0” value upon the Hanergy Shares. 11.Shortly beforehand, the Debtor received a monthly investmentreport dated 30 September 2017 stating the value of the Hanergy Shares to beHK$3.91 per share (its last trading price), with a total value of US$12,263,502. 12.Between 10 April and 25 July 2018, the Hanergy Shares were sold to Mr Simon Tam (“Tam”) for a total amount of HK$12,250,000. The proceeds of the such sales were applied by the Petitioner in partial settlement of the outstanding debt. THESE PETITION PROCEEDINGS 13.On 15 August 2018, the Petitioner presented the Petition against the Debtor. 14.The Petition claims that:
15.The Debtor filed an affirmation dated 29 January 2019 (“Li”) to challenge the Petition. 16.The Petitioner in reply filed the affirmation of Wai Tuen AngelaLeung dated 19 March 2019 (“Leung”) and the affirmation of Ng Kong Sang dated 19 March 2019 (“Ng”). 17.Although further arguments were raised in evidence, by the time of the hearing, the Debtor disputed the Petition on the following grounds only:
THE DEFECTIVE SD ARGUMENT Relevant legal principles 18.Section 6(2) of the Bankruptcy Ordinance (Cap 6) (“BO”) provides:
19.Section 6A(1)(a) of the BO provides:
20.Rule 44(5) of the Bankruptcy Rules (Cap 6A) (“the Rules”) provides:
21.Section 6B(1) of the BO provides:
22.Rule 48 of the Rules addresses a hearing of an application to set aside a statutory demand. Rule 48(5) provides:
23.A debtor may also challenge a bankruptcy petition on the basis that there are substantial grounds for thinking that the petitioner might be fully secured: Platts v Western Trust & Savings Ltd [1996] BPIR 339, cited in Re Choi Chi Kwun, ex p Overseas Union Bank Limited HCB 517/2000 (unreported, 12 May 2000), DHCJ Kwan (as she then was). 24.It is clear that:
25.The parties by their counsel agreed:
26.However, the parties’ counsel were not agreed as to what happens if at the petition stage, it was found that the security valuation in the statutory demand was wrong and the security value in fact equaled or exceeded the debt as at the date of the statutory demand. I was surprised by the submissions of the Petitioner’s counsel to the effect that the statutory demand could still be valid in such circumstances. As Mr Yu for the Debtor submitted, had the security been properly valued, there could surely be no statutory demand claiming payment of an unsecured debt. As it happens on the facts of this case, I do not think this scenario arises. The Debtor’s arguments 27.The Debtor challenges the Petitioner’s valuation of the HanergyShares in the SD as having a nil value, and asserts they had a value in excess of the debt claimed in the SD. He relies on:
28.The Petitioner (by Ng) has explained the monthly investment reports as being reports automatically generated by the Petitioner’s computer using the last available trading price. It seems to me to be a non-starter to suggest that either the Petitioner or the Debtor believed, at any time after the halt of trading in Hanergy shares, that the shares could be sold at the last trading price. 29.I note that the monthly investment reports changed the value of the Hanergy Shares as of March 2018 to HK$0.50 per share. Ng states that was to reflect the price of Hanergy shares sold through a private placement in December 2017. This seems to me to be consistent with the investment reports showing the value to be whatever was the last known sale price achieved. 30.Ng states he does not know what the Debtor means by referringto a secondary off-exchange market in Hanergy shares at the time of the SD. For myself, I would require expert evidence as to the existence of any material off-exchange market in shares in Hanergy at the time of the SD. The Debtor has had an opportunity to file evidence and has done so, and he has neither pointed to any private sales between May 2015 and October 2017, nor has he filed any relevant expert evidence. 31.I am also not persuaded (without relevant expert evidence) by Mr Yu’s submission that value should have been attributed to the Hanergy Shares in the SD because, at the time of the SD, Hanergy was taking steps towards meeting SFC’s requirements for resumption of trading in its shares. If there had been an announcement of actual resumption of trading, that might be different. 32.The Debtor also relies on events subsequent to the SD as evidence of the Hanergy Shares having a substantial value:
33.Mr Yu submits that the Court can look to subsequent market value in order to infer market value at the relevant date. He refers to Stanley v TMK Finance Ltd [2011] Bus LR Digest D93 at §16. Mr Lok points out that David Richards J stated that a later sale may be used to establish by inference the market value at an earlier date if two factors were established:(1) no significant change in market conditions between the two dates (other than a quantifiable general rise in market values); and (2) the circumstances of the sale can truly be regarded as establishing market value at the date of the sale and hence be used as a reliable basis for inferring market value at the earlier date: Stanley v TMK at §§17 – 18. 34.I do not consider that the later sale relied on by the Debtor satisfies these two requirements in order to allow an inference that the later sale price reflects market value at the date of the SD. I would not feel it safeto attach any weight to the evidence that a director of Hanergy, under scrutinyby the SFC, would purchase a batch of shares much smaller than the Hanergy Shares at a significant price despite the suspension in trading. 35.I do not consider the proposed privatization to amount to evidence of the market value of the Hanergy Shares in any event. It seems on the evidence (at least as at 19 March 2019) highly unlikely that the proposed privatization, if completed, will lead to any cash realization for shareholders of Hanergy. 36.In oral submissions, Mr Yu raised an argument for the first time that the sales by the Petitioner of the Hanergy Shares in March to July 2018 at HK$0.50 could be used as evidence that the market value as at the date of the SD (in October 2017) was HK$0.50 at least. I am simply unable to accept that submission: (1) I have no evidence of the market for Hanergy shares between October 2017 and March 2018, and (2) the sales of Hanergy Shares were agreed between the Debtor and his friend Mr Tam, so I am unable to be satisfied that they represent true market value. 37.I am not satisfied on the evidence that there is a real issue as to whether the nil valuation for the Hanergy Shares in the SD was wrong. Accordingly, I do not find the SD defective in that respect. 38.On the facts, the Petitioner no longer holds the Hanergy Shares as security as they have been sold. Accordingly, there is no argument that the Petitioner now holds security of a value equal to or in excess of the Petition Debt. THE ALLEGED CROSS-CLAIM Relevant legal principles 39.For a court to reject a petition because of the existence of an unlitigated cross-claim, it has to be shown that the cross-claim is genuine andone of substance, and that it must be an amount exceeding the amount of thepetitioner’s debt. Re SY Engineering Co Ltd CACV 1896/2001 (unreported, 27 February 2002), cited in Bank of Communications v Au Wai Ming HCB 4016/2004 (unreported, 8 February 2005) at §14; cf Re Jade Union Investment Ltd HCCW 400/2003 (unreported, 5 March 2004) cited in Re Shang Lili HCB 5329/2014 (unreported, 25 January 2016) at §§24 – 25. 40.In assessing the substance of a cross-claim:
41.It is well established that a mortgagee has the duty to take reasonable precautions to obtain the best price reasonably obtainable for the mortgaged property at the time: Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 at 1355B–C. 42.Where, by agreement with the mortgagor, a mortgagee sold the property via a transaction initiated and devised by the mortgagor, and on terms all of which had been agreed by the mortgagor, the mortgagor could not complain that the mortgagee had breached its duty to obtain the best price reasonably obtainable: Fisher and Lightwood’s Law of Mortgage(14thed) at §30.24, p 692, citing Newport Farm Ltd v Damesh Holdings Ltd [2003] UKPC 54. To similar effect is Mercantile Credit Company Ltd v Clarke & Clarke (unreported, EWCA, 7 November 1995) 1995 WL 1082212. The Debtor’s arguments 43.The Debtor argues that the sale of the Hanergy Shares between10 April and 25 July 2018 to Mr Tam at HK$0.50 per share for a total amount of HK$12.25 million was at an undervalue, on the basis that the true value per share was around HK$3.5 per share. 44.It is not clear on the evidence whether the sales of the Hanergy Shares were mortgagee sales with the Debtor’s consent, or mortgagor’s sales with the Petitioner’s consent. On the facts, it is not necessary for me to decide that. 45.Although it is accepted by the Debtor in his evidence that he introduced Mr Tam’s offer to the Petitioner, he claimed in his evidence that he told the Petitioner that it was too low[1], but that the Petitioner coerced him into agreeing to the sales of the Hanergy Shares. Mr Yu confirms he does not pursue the allegation of coercion, stating he does not need to go that far. Rather Mr Yu focuses on asserting that the Petitioner failed in its duty as mortgagee by failing to properly expose the Hanergy Shares to the market orobtain expert advice, in particular in light of the June 2018 Hanergy director’spurchase of Hanergy shares at HK$3.5 per share. 46.Mr Yu submits that the Petitioner did not take reasonable precautions to obtain the best price reasonably obtainable and failed to obtain the best price reasonably obtainable by seeking advice as to the proper value and mode of sale. 47.However, in my view of the contemporaneous evidence, what happened was that the Debtor himself brought the sale offer to the mortgagee and requested a realization of security at that price. 48.The Petitioner’s evidence includes:
49.I was provided at the hearing with an agreed translation of the transcript of various audio recordings included in the Petitioner’s evidence. The audio-recordings were of certain telephone calls between the Debtor andthe Petitioner between November 2017 and July 2018 related to instructions by the Debtor to sell shares, or the Petitioner seeking confirmation of instructions to sell shares. I do not place any great reliance on these calls, asI am informed by the Debtor that they do not present a complete picture andmight require explanation. However, I note they contain nothing to indicate that the sales of the Hanergy Shares were not requested by the Debtor. 50.All the contemporaneous documentation I have seen indicates that the Debtor initiated the sales to Mr Tam at HK$0.50 and fully participated in such sales between April and July 2018. I do not accept there is any believable evidence of these sales of Hanergy Shares being anything other than pursuant to the Debtor’s request. In the circumstances, it is entirely unconscionable in my view for the Debtor to now turn around and say that the sales by the Petitioner as mortgagee were not conducted reasonably. 51.As stated above, Mr Yu abandoned the argument raised in Li that the Debtor’s participation in the sales of the Hanergy Shares was under duress. Rather, he sought to distinguish the Newport Farm and Mercantile Credit Companyline of cases. He sought to argue that those cases, whilst not expressly stated to be decided on the basis of estoppel, were indeed so decided. Mr Yu argued that, in those cases in contrast to this case, one could see assurances being made by the mortgagor to the mortgagee not to dispute the terms of the sales,and a benefit to the mortgagor in giving such assurances. 52.It seems to me that the authorities relied on by Mr Lok were expressly stated to be decided on the basis that, on their facts, it was unconscionable for the mortgagor to complain about the terms of the sales. I am satisfied that where the Debtor has initiated the sales of the Hanergy Shares at HK$0.50 per share and has approved the key terms of sales (ie price,amount, date), the proposition that the Petitioner failed to satisfy its duty as a mortgagee is, to use Lord Scott’s words “a staggering one which offends both equity and common sense”. 53.In any event, I note the complete absence of any expert valuation evidence to support the Debtor’s claim of an undervalue. 54.I am not satisfied that the Debtor has advanced believable evidence to substantiate his alleged cross-claim. CONCLUSION 55.Accordingly, I am satisfied that the SD, for a liquidated unsecured sum in excess of HK$10,000 which was immediately payable, has not been satisfied within three weeks; and the statutory presumption is that the Debtor is unable to pay his debts as they fall due. Accordingly, I made a bankruptcy order. 56.Having regard to Clauses 9 and 13.3 of MOCA, and Clauses 17.1 and 12.1 of the Account opening terms and conditions, agreeing that the Petitioner’s relevant expenses be paid on an indemnity basis, it was not disputed by Mr Yu that costs to the Petitioner in respect of the Petition be on an indemnity basis.
Mr Jason Yu, of Michael Li & Co, for the debtor Mr Michael Lok, instructed by Allen & Overy, for the petitioner Attendance of the Official Receiver was excused |
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