THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD v. NG FUI

HCB 6506/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 6506 OF 2011

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BETWEEN

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D E C I S I O N

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1.  In these proceedings the Hong Kong and Shanghai Banking Corporation Limited seeks a bankruptcy order against Mr Ng Fui.

2.  As appears from the petition, the debt on which the petition is based is in the amount of some $1,465,292.49, and arises under a guarantee given by Mr Ng to the petitioner as security for a loan of HK$1.5 million, extended by the petitioner to a company called Jumbo Vantage Limited (“Jumbo Vantage”).  Mr Ng does not deny having entered into the guarantee and, subject to one point, which forms one of the grounds for his opposition to the petition, accepts that the guarantee is valid.

3.  In his two affirmations filed in opposition to these proceedings, Mr Ng has raised three broad grounds of opposition to the petition.

4.  The first is a suggestion by Mr Ng that he is in a position to pay his debts and is not insolvent.

5.  The second ground is the only ground that goes to the validity of the guarantee, in that Mr Ng says that he was misled or tricked into entering into the guarantee as a result of misrepresentations made to him and a fraud committed against him by certain other shareholders in Jumbo Vantage who induced him to invest in Jumbo Vantage and to accept the liabilities of a guarantor in relation to the HSBC loan.  Mr Ng suggests that in those circumstances the guarantee should not be regarded as valid and enforceable against him.  Alternatively, Mr Ng suggests that in the circumstances, these proceedings should be stayed or dismissed and he should be permitted to continue with proceedings that he has brought (HCA 739/2011) against five defendants who are said to have misled him into taking up an investment in Jumbo Vantage and acting as guarantor for this loan.  The argument here is that if he is permitted to deal with those proceedings first, there is at least a possibility or a prospect of his recovering something in those proceedings, out of which he will be able to satisfy any amount properly owing to the petitioner.

6.  The third point that Mr Ng raises in opposition to the petition is that he suggests that because the loan was a loan granted under the Special Loan Guarantee Scheme, instituted by the Government of the Hong Kong SAR in order to assist small to medium size enterprises to obtain financing during the financial crisis of 2008/2009, under which the government guaranteed 80 per cent of the amount of the loan, Jumbo Vantage should be liable only for 20 per cent of the loan and that his liability should, likewise, be capped at 20 per cent of the amount of the indebtedness of Jumbo Vantage.

7.  As to the first of the points raised by Mr Ng, that he is in fact able to repay the debt, the position is that as a result of having failed to comply with a statutory demand that was issued on 17 March 2011 calling for repayment of the debt, Mr Ng is deemed, for the purposes of the bankruptcy proceedings, to be unable to pay his debts.  While it may be open to the court to consider all of the evidence in considering whether or not a debtor is, in fact, unable to pay his debts, the fact is that in the present case Mr Ng has not put forward any evidence to suggest that he has the resources to pay the debt. 

8.  Mr Ng in the course of his submissions today very frankly accepted that he was not presently in a position to pay the debt, but that he was hoping that if his action against the defendants in HCA 739/2011 was successful, this would provide a source of funds out of which the debt could be paid.  Mr Ng also said that he had tried to come up with other ways of resolving the situation or paying the debt under the guarantee, but had not so far been able to come up with anything concrete.  In those circumstances I am satisfied that the petitioner has established that Mr Ng is unable to pay his debts.

9.  I turn, therefore, to the second point that was raised by Mr Ng. This was, until the filing of his second affirmation, the principal point on which he resisted the making of a bankruptcy order.  Mr Ng’s case, as is evident from the statement of claim in the High Court action, is that he embarked upon his investment in Jumbo Vantage and agreed to become a guarantor of that company for the purposes of the loan made by the petitioner as a result of misrepresentations, fraud and undue influence on the part of the defendants to those proceedings. 

10.  However, when one looks at the claim in those proceedings, it is noticeable that no allegation is made that the guarantee itself was in any way invalid.  On the contrary, the fact of Mr Ng having entered into the guarantee is relied upon as a form of damage or a source of loss to Mr Ng in respect of which he seeks damages in those proceedings.  In those circumstances it seems to me that Mr Ng, in his action against the defendants in HCA739/2011, is in fact asserting the validity and enforceability of the guarantee against him.  But that is not the only reason why Mr Ng’s claims against the defendants in the High Court action do not give rise to a defence in respect of the guarantee. 

11.  The guarantee is an agreement entered into between the petitioner and Mr Ng.  There is nothing that is raised in the High Court action, or in the evidence in these proceedings, to suggest that the petitioner itself was somehow responsible for any misrepresentation that induced Mr Ng to enter into the guarantee with it.  It is not suggested in the statement of claim in the High Court action that the defendants should in any way be regarded as agents for the bank and there is no evidence to suggest that they should be.  Nor is there anything put forward in the High Court action or evidence in these proceedings to suggest that the petitioner was aware of any misrepresentation made to Mr Ng by the defendants in the High Court action in connection with the signing of the guarantee.  Similarly, there is nothing to suggest that the petitioner was or should have been aware of any undue influence exercised over Mr Ng by the defendants in the High Court action in connection with the signing of the guarantee.  Indeed, the relationship between Mr Ng and the defendants in the High Court action would not appear to be such as to put a bank on notice of the possibility of their being any undue influence.

12.  In those circumstances it does not seem to me that the claim or the allegations that Mr Ng has made against the defendants in the other proceedings provide any basis for impugning the validity of the guarantee which is relied upon for the purpose of these bankruptcy proceedings.    I am therefore satisfied that there is no bona fide dispute shown in relation to the validity of the guarantee.

13.  Turning to the suggestion that no bankruptcy order should be made so that Mr Ng can pursue his claims in the High Court action, it is unfortunately the case (so far as Mr Ng is concerned) that there is no obligation on a creditor to await other steps being taken by a debtor before seeking to enforce a claim that they are entitled to enforce against him.  It must be borne in mind that the High Court action would appear still to be at a relatively early stage in the proceedings.  There is no indication as to how long it is likely to take for it to be concluded, nor is there sufficient evidence for the court to be able to come to any view as to the likelihood of it succeeding at the end of the day.  It cannot be said, I think, that the bank is being unreasonable in wishing to proceed with these proceedings without awaiting the outcome of the other proceedings. 

14.  I would also add that although Mr Ng will become bankrupt as a result of the order which I think I must make, his bankruptcy does not mean that the High Court action cannot continue.  It would remain open to Mr Ng’s trustee in bankruptcy to pursue it with a view to recovering the value of the claim (which would be an asset of Mr Ng’s estate in bankruptcy) so as to provide a full return to the creditors and perhaps, if there is a surplus, a return to Mr Ng as well.

15.  Mr Ng suggested in the course of his submissions that if his claim in the High Court action were well-founded, his being made bankrupt would be the result of what he described as “an invalid action”.  He suggested that the High Court action should be dealt with first so that there would be a proper foundation for the guarantee.  But as I have explained, the guarantee is, in my view, valid and stands on its own, independent of any claim that Mr Ng may have for the losses that he suffered as a result of having entered into it. 

16.  Although Mr Ng may have been misled by others into agreeing to act as a guarantor, in the absence of any reason for suggesting that the petitioner was aware of any defect in the circumstances in which Mr Ng entered into the guarantee, the guarantee is as between Mr Ng and the petitioner a valid one. 

17.  Mr Ng also mentioned that there are investigations going on into the affairs of the school, which was operated by a subsidiary of Jumbo Vantage.  But although there may be an element of public interest in investigating into the reasons for the failure of the school, these are not matters that affect the validity of the guarantee that Mr Ng has given to the petitioner.

18.  For all of those reasons I do not think that Mr Ng’s second ground provides a basis for avoiding the making of a bankruptcy order against him. 

19.  That leaves Mr Ng’s final point in relation to the effect of the guarantee being given as part of the Special Loan Guarantee Scheme.  Although this point was only raised at a late stage in an affirmation dated 18 May 2012 that Mr Ng sought to file just a few days before this hearing, I gave Mr Ng leave to file to file the affirmation on the basis that the petitioner was in a position to respond to it, having put forward material that they have undertaken to exhibit to an affirmation in answer to this point.

20.  The material that the petitioner will be putting forward by affirmation, which has been supplied to me for the purposes of today’s hearing, consists of an information memorandum as to the Special Loan Guarantee scheme and certain statements made by the Secretary for Commerce and Economic Development in the Legislative Council in respect of that scheme.  It is apparent from both of those documents that the nature of the Special Loan Guarantee Scheme was to serve as an additional security to lenders who take part in the scheme, so that banks and other financial institutions would be more willing to make loans to small and medium sized enterprises in the difficult financial circumstances prevailing in about 2008 to 2009.

21.  It is clear that what the government does under that scheme is to provide a guarantee to the banks of 80 per cent of the amount lent.  The government’s liability is as a guarantor and the guarantee given by the government is therefore a security for the lender, like any other security that the lender may take in respect of the loan.  It is also apparent from the notes on the loan guarantee scheme, and in the information provided by the Secretary for Trade and Commerce, that the intention was that, where appropriate, guarantees would also be obtained from shareholders in businesses applying for loans under the scheme – the purpose of this being to ensure that the businesses and the persons behind them would remain invested in the business and would have an incentive to ensure that the loan was repaid so as to minimise the liability of the government under its guarantee.

22.  By the scheme, the government does not make a grant of 80 per cent of the loan value to the business – rather it provides a guarantee by way of further security to the financial institution concerned to induce it to make the loan.  It therefore remains the obligation of the borrower to repay the loan in full and it remains the obligation of any other guarantor to honour the terms of his guarantee.  In this regard the government’s guarantee is, as I have said, no different from any other guarantee or security that the bank may hold.

23.  The effect of this, as is well established (see e.g. Chang Wai Kai v Commerce Bank [2002] 2 HKC 340 and China and South Sea Bank Limited v Tan Soon Gin [1990] 1 AC 536), is that a creditor is entitled to pursue any of the securities available to him and is not bound to exhaust all of his other securities before pursuing a particular guarantor.

24.  In these circumstances it was, I think, entirely open to the bank to pursue Mr Ng under the guarantee that he gave before seeking to invoke the guarantee given by the government under the Special Loan Guarantee Scheme.  Indeed, having regard to the purpose of the scheme and to the indications that guarantees from those interested in the business would be expected to be obtained, it might well be said that it was entirely appropriate for the bank to exhaust its other securities before looking to the government guarantee in respect of any shortfall.  I therefore do not consider that the third point that Mr Ng has recently raised has any substance either.

25.  In those circumstances it would appear to me that there is no substantial dispute in relation to the debt and therefore no reason not to make the usual bankruptcy order, with costs, against Mr Ng and I therefore make that order.