Re Fan Chi Wing
|
HCBI 37/2009 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE IN BANKRUPTCY PROCEEDINGS INTERIM ORDER APPLICATION NO. 37 OF 2009 ____________
____________ Before: Hon Kwan JA (sitting as an additional Judge of the Court of First Instance) in Court Date of Hearing: 6 October 2009 Date of Judgment: 6 October 2009 _______________ J U D G M E N T ________________ The application and evidence filed 1.This is an application by Fan Chi Wing, an undischarged bankrupt, for an interim order under sections 20 and 20A of the Bankruptcy Ordinance,Cap. 6, to facilitate the consideration and implementation of his proposal to his creditors for an individual voluntary arrangement (“IVA”). 2.The application was issued on 6 January 2009, three days before the substantive hearing of his bankruptcy petition presented by a judgment creditor, Sanford Yung-Tao Yung (“Mr Yung”). This was supported by the debtor’s 1st affirmation and he exhibited to it his proposal dated 6 January 2009 (“the Proposal”) and his statement of affairs of the same date. 3.On 9 January 2009, the debtor applied before Barma J to stay the petition pending the disposal of his application for an interim order. This was refused and a bankruptcy order was made on the same day. In his judgment, Barma J said the debtor had failed to act promptly to pursue the IVA, and the debtor’s behaviour indicated he had failed to take the IVA with seriousness or sincerely. Further, because details of the IVA were provided very late, it was impossible to assess whether it has any real prospect of success or is likely to enjoy any real support from other unrelated creditors. The evidenceprovided was lacking in particulars and raised questions whether the debtor’s financial position was such that he would be able to comply with the terms of the IVA. For those reasons, the application for a stay of the petition was dismissed. Lastly, the judge mentioned in the event that the debtor does not in fact lose his employment as a result of the bankruptcy order, or if he is able to obtain alternative employment, it is open to him to propose an IVA after the bankruptcy order has been made. 4.On 30 January 2009, the debtor took out an application to rescind the bankruptcy order. By consent, that application was adjourned until after the disposal of the present application. 5.Notice of the application for an interim order was given to the Official Receiver and Provisional Trustee on 20 February 2009. On 11 March 2009, the Official Receiver wrote to the debtor’s solicitors setting out his observations on the Proposal. 6.The application came before a Master on 27 March 2009, 23 April 2009, 18 May 2009, 19 May 2009 and 17 June 2009. I am satisfied the debtor had been given sufficient opportunity to adduce such evidence as he may be advised is necessary to make out his case. 7.The debtor filed his 2nd affirmation on 12 May 2009 and exhibited to it an amended proposal with a statement of affairs (“the Amended Proposal”) dated 30 April 2009. 8.On 13 May 2009, the proposed nominee Chung Cheuk Ming (“the Nominee”), who is a practising certified public accountant, filed the Nominee’s report and comments. 9.On 15 May 2009, the Official Receiver indicated he has no further comments on the application having read the Amended Proposal, and that is still his position. The Official Receiver has not appeared at the hearing today. 10.Mr Yung filed his opposing affidavit on 2 June 2009, his solicitor filed a short affidavit on 10 June 2009 and the debtor filed his 3rd affirmation in reply on 9 June 2009. 11.On 17 June 2009, a Master adjourned the application to a Judge, with leave to the Nominee to file and serve affirmation if necessary. The Nominee was ordered to attend the court at the adjourn hearing. 12.The Nominee did not file his further report and comments until 29 September 2009. The background matters and the statement of affairs 13.I will first relate the background matters. 14.The debtor is aged 44 and is single. Since 1 October 2008, he has been employed as the chief executive officer of China TV & Movie (Hong Kong) Company Limited, a newly established company. He deposed that he has been working in the “same industry” for over 10 years, by that I suppose he meant the entertainment industry. He is currently living in a rented property. 15.He claimed that his liabilities started to build up since 1995 due to his failure in business. 16.In the statement of affairs annexed to the Amended Proposal, he gave the estimated realisable value of his assets as $5,654.81 and the total amount of his unsecured liabilities was put at $33,427,902.58. 17.The assets are made up of four items of property, being bank balances, interest in shares, a horse, and a unit trust policy. All of them are to be excluded from the IVA, for the following reasons. 18.The bank balances are excluded because they are said to be insignificant in value and are required for his personal expenses. 19.The shares held by him are all in private companies, being 81.35% of the total equity in Dry Clean – USA Limited, 93.81% of the total equity in Kinston Entertainment (HK) Limited (“Kinston”), 55% of the total equity in Gold Harvest Asia Limited, and 0.0001% of the total equity in Kinston Records Limited. Kinston was ordered to be wound up on the petition of Mr Yung in 2007. The debtor claimed that the shares in these companies have no open market value and he estimated there would be no dividend available for distribution to the shareholders. 20.As for the horse, this was purchased in 2005. He stated that he is going to retire the horse due to his financial difficulties and it will have no realisable value when the Hong Kong Jockey Club is to take over the retired horse. 21.The unit trust policy is excluded because its current settlement value is low in comparison with its enhanced value upon maturity in 2022. 22.However in case these excluded assets are realised during the term of the IVA,the debtor stated he would contribute the net realised amount to the IVA as windfall contribution to increase the return to creditors. 23.Regarding the assets, the Nominee has reviewed the debtor’s bank statements and is satisfied the bank balances in the statement of affairs are properly stated. He performed a director search on the debtor and a company search on the private companies in which the debtor holds shares and confirms the debtor’s shareholdings. He has reviewed the debtor’s unit trust policy statement and is satisfied the values of the unit trust policy as shown in the statement of affairs are properly stated. 24.In respect of liabilities, there are ordinary creditors who are owed $30,217,902.58 and “associated creditors” who are owed $3,210,000. Of the ordinary creditors, 10 of the creditors are owed credit card liabilities, the rest are owed personal loans. The total number of creditors is 73. Their names and addresses are given. The Nominee has checked all the creditors’ supporting documents such as loan agreements and bank statements. The Amended Proposal 25.The current income of the debtor is $70,000 a month, made up of basic salary of $50,000 and a fixed allowance of $20,000 a month. 26.The debtor will contribute $40,000 a month for 60 months to the IVA, totalling $2.4 million. After deducting administrative and other necessary expenses of the IVA, his total contribution to unsecured creditors will be $2.34 million. Based on the amount of unsecured liabilities as stated, his unsecured creditors will receive a return of approximately 6.34% at the end of the IVA. He has brought a claim in HCA No. 1851 of 2008, claiming 50% share in certain properties in Ho Man Tin Hill Road estimated to worth about $11 million. If he should win his case, he would receive his share of approximately $6 million, and after deducting legal costs, he would contribute this sum to the IVA as windfall contribution to increase the return to creditors from 6.34% to 24.95%. 27.The debtor claimed he cannot continue in his present employment if he is to remain a bankrupt, so his creditors would receive nil return in a bankruptcy. 28.During the IVA, after deducting the monthly contribution of $40,000 and the MPF contribution of $1,000, he would have $29,000, out of which he is to pay his household expenses, rental, utilities, salaries tax, and the legal fees for HCA No. 1851 of 2008, leaving $6,000 for his own personal and miscellaneous expenses. 29.The Nominee has reviewed the employment contract and other supporting documents on the debtor’s monthly salary. He has reviewed the reasonableness of the debtor’s family monthly outgoings and is satisfied they are reasonable. 30.The debtor’s brother has confirmed in writing he will pay solicitors’ fees for the debtor in this application and his application to rescind the bankruptcy order. The Nominee’s reports 31.The Nominee filed a report stating he is satisfied that the Amended Proposal and statement of affairs comply in all respects with Cap. 6 and the Bankruptcy Rules, and he considers the Amended Proposal is sincere, serious and viable for these reasons:
32.In the Nominee’s further report dated 29 September 2009, he confirms there is no material change of circumstances and he maintains his positive view. Support of other creditors 33.The debtor has canvassed the support of many of his creditors. Up to the date of his 2nd affirmation on 2 May 2009, 44 out of 73 creditors representing about 77.22% of the total indebtedness indicated support. 42 were willing to accept the Proposal without modifications. Two were willing to accept the Proposal with modifications on the basis that the amount due to them should be re-calculated. The written replies of the 44 creditors were exhibited. The opposition 34.Mr Yung opposes the application for an interim order. Hehas contended that the Amended Proposal is unsatisfactory and a creditors’ meeting should not be summoned to consider it. 35.His counsel, Miss Winnie Tsui, addressed me on the law on full and frank disclosure by the debtor proposing an IVA and the heavy responsibilities on the proposed nominee to scrutinise the proposal and make necessary inquiries to form an independent opinion whether it should be put to the creditors to vote upon (Re a debtor (No. 140 IO of 1995) [1996] 2 BCLC 429; Healthy Wharf Limited. v. Leung Yat Tung, CACV No. 408 of 2002, 30 March 2001). 36.There is no suggestion the Amended Proposal does not meet the criteria set out in the legislation. The statutory requirements in section 20C(1) are satisfied. The question is whether the court should exercise its discretion to make an interim order. 37.Miss Tsui’s attack is two-fold. 38.Firstly, she submitted there are serious doubts if the debtor has fully, accurately and candidly supplied all relevant information. 39.Secondly, she submitted that as the debtor’s candour has properly come into question, the Nominee has not taken reasonable steps to satisfy himself that the three counts discussed in the cases mentioned above are met, namely:
If the debtor has fully, accurately and candidly supplied all relevant information 40.Miss Tsui pointed to three matters to call into question if the debtor has made full and frank disclosure. 41.Firstly, the amount of total indebtedness. It was submitted that the total indebtedness and authenticity of the alleged creditors and their claims in the statement of affairs are open to doubt as the debtor has disclosed an ever-changing level of his total indebtedness since September 2008. The aggregate indebtedness was $15 million in the beginning. It now stood at over $33 million in the Amended Proposal in April 2009. In contrast, the Official Receiver confirmed to Mr Yung’s solicitors in June 2009 that since the making of the bankruptcy order, only 7 creditors including Mr Yung have lodged proofs of debt claiming a total sum of $7,999,877.24. 42.The debtor has given an explanation in his affirmations in this application and in the bankruptcy proceedings of the increasing amount of total indebtedness. He claimed to be disorganised in handling financial matters of himself and of Kinston. He did not know exactly how much in total he owed until he started to prepare a proposal for IVA in October 2008. After checking his records, he clarified with his solicitors he had omitted to mention some of the creditors as there were too many and his total indebtedness should be about $20 million. He provided documents to his solicitors for preparing a proposal and was advised that some of the debts which he thought were borrowed by Kinston were in fact borrowed in his own name or guaranteed by him and should be counted towards his total indebtedness making it about $30 million. 43.I do not consider his explanation incredible. As for the difference between the total amount of proofs of debt lodged with the Official Receiver and the total indebtedness in the statement of affairs, I do not think that in itself should cast doubt on the veracity of the figures in the statement of affairs. As mentioned earlier, signed letters of 44 creditors with names, addresses and amounts were exhibited. The Nominee has stated in his report he has checked all the creditors’ supporting documents. In my view, the change of address of a large number of creditors in the Amended Proposals is not a feature that must give rise to suspicion. 44.Secondly, it was submitted that the debtor has not given a full picture of the income he has earned since October 2008. It was claimed that the salary allegedly received had not been reflected in the statement of affairs save for a reference to $80,000 as the debtor’s contribution to the bankruptcy estate up to April 2009, consisting of monthly contributions of $40,000 the debtor has made to his estate in March and April 2009. The debtor has exhibited the cheques and salary receipts issued by his employer. I see no sufficient reason to doubt the amount of the debtor’s income. 45.Thirdly, Miss Tsui submitted the debtor has not given a true and accurate account of the stance taken by his employer regarding his bankruptcy status. I do not think there is much in this point. Letters from the employer were produced. Their last letter was to the Nominee dated 28 September 2009. They stated that they have on 14 September 2009 employed a Ms Tong Hau Yin in a senior position, and she would be available to take over the debtor’s position at any time. If the debtor’s IVA is successful, the company would continue to employ him as chief executive officer; if it is unsuccessful, the company would immediately terminate his contract to protect its development and interest. 46.I am not persuaded that the debtor has not made full and frank disclosure of all relevant information. If the three counts are met 47.Miss Tsui submitted the Nominee has failed to discharge his duty to satisfy himself the three counts mentioned above are satisfied. 48.It is recognised that a nominee is not to be expected to personally verify every figure and test every part of the proposal personally. What steps are reasonable for a nominee to satisfy himself of the three minima will depend on a host of variables. Examples of variables were given in Re a debtor (No. 140 IO of 1995), at 435g to h: the strength of the grounds for such doubts as shall have arisen, their materiality to the propriety or feasibility of the debtor’s proposals, the quality of the debtor’s answer to the nominee in intended resolution of those doubts, the ease or difficulty with which independent inquiry by the nominee may resolve any continuing doubts, the expense entailed in such further inquiry and the availability of funds to meet that expense. 49.Miss Tsui pointed out the Official Receiver had made observations on the Proposal by letter dated 11 March 2009 and had queried why a number of assets were excluded from the IVA in the Proposal. She submitted there is nothing in the Nominee’s report which showed that he has taken reasonable steps to address those comments. As mentioned earlier, in the Amended Proposal, the debtor had stated that in case these excluded assets are realised during the term of the IVA, he will contribute the net realised amount to the IVA as windfall contribution so as to increase the return to creditors. I do not think it unreasonable for the Nominee to take no further action at this stage to address the Official Receiver’s comments in view of this statement by the debtor. 50.Miss Tsui further submitted the Nominee had made no effort to address doubts about the authenticity of the alleged creditors and their claims, as mentioned earlier. The Nominee stated he had checked all the creditors’ supporting documents such as loan agreements and bank statements and he has established the debtor’s position as to liabilities is not materially different from that which is represented to the creditors by the Amended Proposal, by reviewing various loan documents and monthly statements. Miss Tsui criticised these steps as minimal, she contended the Nominee should have interviewed the creditors or some of them. She pointed to the discrepancies in the amount claimed by some of the creditors in the statement of affairs in January 2009 and the amended statement of affairs in April 2009. Criticism was also made of the Nominee’s reply to the letter of Mr Yung’s solicitors in June 2009. The Nominee did not say he has carried out a detailed or exhaustive examination of the claims. Given the large number of creditors, and the signed written confirmation the debtor was able to obtain from a sufficiently large number of them, I do not think the steps taken by the Nominee so far in this respect cannot be regarded as reasonable or adequate. 51.In my view, the Nominee has not failed to take adequate steps to satisfy himself of the matters on the first count, that the debtor’s true position as to assets and liabilities does not appear in any material respect to differ substantially from those to be represented to the creditors. 52.As for the second count, I do not agree with Miss Tsui the Nominee has failed to take reasonable steps to satisfy himself the Amended Proposal has a real prospect of being implemented. It was suggested that the Nominee should take further action to verify if the employment is genuine and the income is sustainable by visiting the office of the employer and interviewing the debtor’s superior to form a view if the business of the employer is viable. The Nominee has considered the employment contract and the other supporting documents on the debtor’s monthly salary. There is nothing to suggest the employment is a sham. The debtor has been employed in this job for just over a year. Whether the employment is a stable one that would last the duration of the IVA should be considered by the creditors. 53.For the third count, as mentioned earlier, the Nominee has not said the steps taken to verify the creditors’ claims at this stage are exhaustive. He expressly stated that for the creditors’ meeting, detailed examination of creditors’ proofs of debt with supporting documents from them will be carried out. I do not think it has been established at this stage that the Nominee has failed to take reasonable steps to satisfy himself of matters in the third count. 54.I am not persuaded the Amended Proposal is not serious and viable. I should not deprive the creditors the chance of considering the Amended Proposal. I decide to exercise my discretion to make an interim order. 55.The Nominee has proposed that a meeting of creditors is to be convened on 3 November 2009. I direct the period for which the interim order has effect be extended to 7 days after the holding of the creditors’ meeting. 56.I would make no order as to the costs of Mr Yung in this application.
Mr Jason L H Wong instructed by Messrs Jimmie K S Wong & Partner, for the Debtor Miss Winnie Tsui instructed by Messrs Baker & McKenzie, for the Creditor, Stanford Yung-Tao Yung The Nominee: Chung Cheuk Ming, present |
Further hearings and rulings under HCBI 37/2009