Shao Kung Chuen v. The Bank of East Asia, Ltd

HCSD 35/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

STATUTORY DEMAND NO 35 OF 2011

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In Bankruptcy

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J U D G M E N T

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1.I have before me an application issued by Mr Shao Kung Chuen to set aside a statutory demand dated 12 September 2011 issued by The Bank of East Asia Limited (“Bank”).

2.The debt relied on by the Bank arises as follows.  The Applicant has businesses which he conducts in Hong Kong and in the Mainland.  He and 3 companies owned by him, Van Yu Trading Company Limited, Witplan Limited and First Regent Limited had facilities with the Bank secured by a mortgage over a property owned by the Applicant.  On 9 March 2009 the Bank obtained judgment for $23,357,641.40 against the Applicant and his companies.  The Bank caused the secured property to be sold, but notwithstanding this $14,231,934.84 remained outstanding and the Bank issued the statutory demand in respect of this sum against the Applicant.

3.The Applicant applies to set aside the statutory demand on 2 grounds.  First, under Bankruptcy Rule 48(5)(a) on the ground that he has a set-off which is larger than the amount of the debt.  Secondly, under Bankruptcy Rule 48(5)(d), other grounds, namely that he is able to pay the debt if given time.

4.The alleged set-off arises in this way.  Another company owned by the Applicant, Dalian Van Yu Foods Co. Ltd (“Dalian Van Yu”), had a facility with the Bank’s subsidiary in the Mainland (“BEA China”) from which it drew down RMB in the Mainland.  These were not fully repaid and BEA China took proceedings to recover the debt admittedly owed to it of RMB 6,655,639.18. This included the sale of a property owned by Dalian Van Yu, which was worth more than the outstanding debt.  The property was sold for RMB 11,200,000. The Applicant complains that this was a gross-undervalue, that he has taken proceedings against BEA China and that he is entitled to set-off his claim against BEA China against the sums owed to the Bank.  I disagree.

5.The Applicant has failed to file any evidence concerning the terms of the facilities that he and his companies had with either the Bank or BEA China, which Ms Rebecca Lee, who appeared for the Applicant, accepts are clearly separate legal entities.  I can see no reason to reject the Bank’s explanation that the arrangements it had entered into were conventional, namely, it granted facilities to the Applicant and the 3 companies pursuant to which HK$ were drawn down in Hong Kong and have nothing to do with the facilities granted in the Mainland by BEA China.  In paragraph 7 of his first affirmation the Applicant says that the position was as follows:

“7. With the full knowledge of BEA-HK and BEA-China, my companies had utilized the banking facilities provided me by BEA-HK and BEA-China interchangeably. That is to say, the facilities granted my companies by BEA-HK could be utilized by the companies in furtherance of their business in China. The companies’ debt would then be debited as indebtedness to BEA-China.”

6.The only evidence to support this suggestion is an exchange of emails between a member of his staff and the Bank after it had obtained judgment.  These emails refer to debts including those of Dalian Van Yu in rather obscure terms, which if I understand the Applicant correctly, indicate that what he and his companies were really granted was one integrated facility by the Bank, albeit in China it was operated by BEA China.  The emails do not support this contention.  I can see no basis at all to conclude that the Applicant and his various companies had one integrated banking facility, which allows him to set-off a claim he says he has against BEA China against sums he owes the Bank.  This is enough to dispose of the first ground, but I would also mention something about the claim in China.

7.The Applicant in paragraph 17 of his first affirmation says this in relation to his claim against BEA China: “Van Yu and I are in the process of seeking legal advice on possible legal actions against BEA-HK and BEA-China”.  This was highly misleading.  The Applicant did not mention, as he clearly should have done, that by the time he made the affirmation on 24 October 2011, he had already instituted proceedings in Zhongshan, the Zhongshan People’s Court had dismissed the claim and he had appealed unsuccessfully to the Intermediate People’s Court in Dalian.  He has apparently appealed that decision, but I have no legal opinions about its chances of success.  It does not seem to me that in these circumstances that the Applicant has demonstrated that he has a set-off.

8.Finally, there is the suggestion that the statutory demand should be set aside because the Applicant owns property in China, which he can realise to pay the Bank.  He has, however, taken no steps to do so to date or apparently made any offer to secure the debt owed to the Bank.  In these circumstances it does not seem to me that it would be appropriate to set aside the statutory demand, although it would be sensible for the Applicant to approach the Bank with a proposal that would avoid a bankruptcy petition being presented.

Ms Rebecca Lee, instructed by Fan Wong & Tso, for the applicant

Mr Norman Nip, instructed by Vincent T K Cheung, Yap & Co, for the respondent