RE NG KWOK TAI ANDREW

HCB 5188/2018 and HCB 5189/2018
(Heard Together)
[2022] HKCFI 3133

HCB 5188/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5188 OF 2018

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5189 OF 2018

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REASONS FOR JUDGMENT

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1.  There are 2 petitions before the court (“the petitions”) filed by Ng Oi Che (“the Petitioner”):

(1)  HCB 5188/2018 is a petition as amended and dated 8 November 2018 (“the 5188 petition”) for a bankruptcy order against Ng Kwok Tai Andrew (“Andrew”) based on a debt in the aggregate sum of HK$5,760,544.42 (“the 5188 debt”) as particularised in the 5188 petition; and

(2)  HCB 5189/2018 is a petition as amended and dated 8 November 2018 (“the 5189 petition”) for a bankruptcy order against To Pui Kui (“Madam To”) based on a debt in the aggregate sum of $5,527,267.66 (“the 5189 debt”) as particularised in the 5189 petition.

2.  The 5188 and 5189 debts (“the Judgment Debts”) for the petitions are the taxed costs against Andrew and Madam To (collectively “the Debtors”) pursuant to costs orders made in HCA 522/2008 and the appeals therefrom (collectively, “the HCA 522 action”), together with interest up to the date of the petitions dated 10 September 2018 as well as further interest accrued at the judgment rate from the date of the petitions until payment.

3.  The HCA 522 action was brought by Madam To against the Petitioner who was alleged to have misappropriated funds from the bank accounts and the contents of Safe Box[1] of Madam To’s late husband (the deceased). After a 11-day trial, the judge dismissed Madam To’s claim and held that the transfers out from the bank accounts were made upon the Madam To’s instructions and used for the purposes of defraying the deceased’s funeral expenses and for purchasing a car for the use of Andrew for the benefit of Madam To[2]. The HCA 522 proceedings finally concluded on 23 March 2016 when the Appeal Committee dismissed the Debtors’ application to appeal to the Court of Final Appeal.

4.  The Judgment Debts are the taxed costs of the HCA 522 action with interest accrued up to the date of the petitions.

5.  The Debtors filed notices to act in person on 6 October 2022, the day prior to the hearing. At the conclusion of the hearing, the Debtors were adjudged bankrupt. My reasons appear below.

BACKGROUND

6.  The parties are members of the same family. The Petitioner and Andrew are 2 of Madam To’s 8 children. The deceased, the family patriarch, died in 2002.

7.  During his lifetime, the deceased who had a very successful career caused various companies to be incorporated including, inter alia, the following:

(1)  Hultucktong Enterprises Ltd (“HEL”) which holds and continues to hold the majority of the family properties and derives income from them was incorporated on 10 February 1976; and

(2)  Confederated Assets Group Ltd (“CAGL”), a BVI company incorporated in February/March 1997. Its shares were held and/or beneficially owned by the deceased, Madam To and their children.

8.  In or about 2006, several years after the deceased’s death, a serious falling out within the family occurred, dividing them into 2 camps: (1) Madam To, Andrew and 3 other siblings comprise what I will refer to as “Madam To’s group”; and (2) Ng Kwok Piu Philip (“Philip”), the Petitioner and 2 other siblings comprise what I will refer to as “Philip’s group”.

9.  That fallout triggered multiple sets of proceedings[3] involving family members and family companies. For present purposes, only the following sets of proceedings are relevant:

(A)  HCA 51/2007

(1)  That action and the appeals therefrom (collectively, “the HCA 51 action”) concerned the control of HEL, specifically, whether a restructuring involving the family companies took place in April and May 1997.

(2)  On 6 January 2016, Mimmie Chan J upheld the restructuring, with CAGL being the registered holder of 99 shares in HEL and Well Arts Enterprises Ltd (“WA”)[4] of the remaining share. CAGL and WA are both offshore companies.

(3)  The HCA 51 action finally concluded on 15 October 2021 when the Appeal Committee dismissed the Debtors’ respective applications for leave to appeal. The upshot of those proceedings is that the Debtors are not shareholders of HEL which is wholly owned by CAGL.

(B)  HCA 523/2008

(1)  That action and subsequent appeals (collectively “the HCA 523 action”) concluded on 23 March 2016 when the Appeal Committee dismissed Madam To’s application for leave to appeal.

(2)  It settled the shareholding percentages of the various family members in CAGL with Andrew having a 10% entitlement and Madam To about 3%.

(C)  HCA 1709/2012

(1)  Madam To commenced those proceedings against HEL on 19 May 2015 for, inter alia, breach of a contract created in November 2005 between HEL and herself that HEL would pay her monthly maintenance of $45,000.

(2)  HEL applied for and, on 19 December 2018, obtained a stay pending the result of the HCA 51 action.

10.  The Debtors’ applications in HCSD 26 & 27/2017 to set aside the statutory demand served on them respectively by the Petitioner were dismissed by Ng J on 20 August 2018.

11.  One of the grounds advanced but rejected was that the Debtors were prepared to secure or compound the Judgment Debts by charging their shares in HEL, or CAGL in favour of the Petitioner.

EVENTS IMMEDIATELY PRECEDING THE HEARING

12.  An exchange of correspondence took place between the Debtors’ former solicitors (“K & Co”) and the Petitioner’s solicitors (“PSWC”) between 15 September 2022 and 6 October 2022:

(a)  on 15 September, K & Co proposed that the then upcoming hearing be adjourned as, inter alia, there are proceeds available from the sale of a family property in Canada as well as net proceeds from the auction of the Anton Street properties (described in §§ 24-26 below) available for distribution and the mediator at the failed mediation in June had suggested that another mediation session be arranged;

(b)  on 20 September, PSWC rejected the proposal: there had been no suggestion in the months following the failed mediation in June 2022 of the need for another mediation session; Madam To has taken no steps to distribute the Canadian estate; and the Anton Street proceeds remain in escrow in the hands of the trustee who refuses to release the same until the composition of the HEL board can be ascertained from the Companies Registry (“CR”) records. The letter also set out the taxed costs of the various costs orders in the appeals in the HCA 51 and 523 actions which do not form part of the petitioning debts;

(c)  in their reply of 30 September, K & Co attributed the delay in the distribution of the Canadian assets to obstruction on the part of inter alia Philip;

(d)  on 3 October, the Petitioner through PSWC made a last attempt at resolving the matter amicably and proposed the following:

(i)  the Canadian estate be distributed in accordance with the laws of Canada;

(ii)  the Debtors’ shares be paid to the Petitioner to set-off a part of the joint and several debts;

(iii)  the Debtors to withdraw, remove and/or annul company returns with respect to HEL and associated companies, confirm with CMB Wing Lung Bank[5] (“the Bank”) and the trustee that all disputes in relation to ownership and directorships of CAGL and HEL have been finally disposed of by the courts;

(iv)  the Debtors’ shares in CAGL be pledged to secure the debts and interest accrued; and

(v)  on the basis that the terms were in principle acceptable, the hearing be adjourned for 14 days for the drafting and execution of the settlement agreement and upon its execution the petitions be withdrawn with no order as to costs;

(e)  On 6 October 2022, the Debtors terminated the services of their representatives and filed notices to act in person; and

(f)  Andrew appeared in person at the hearing and also represented his mother Madam To, the latter being too elderly to attend.

GROUNDS OF OPPOSITION

13.  Andrew gave an explanation as to why the Debtors decided to act in person. Upon receiving the letter of 3 October, the Debtors needed time to analyse the proposals but were required to answer by 5 October. The Debtors took the view that the letter was threatening and unreasonable, being nothing more than an attempt to coerce/intimidate them into acceptance.

14.  He informed the court that his former legal representatives tried to convince him and Madam To to accept the offer. In his view, his former legal representatives were ignoring the fact that if the Debtors did so they would be deprived of everything. In those circumstances, the Debtors decided to dispense with the services of their former legal representatives.

15.  Their former counsel had lodged written submissions on 27 September 2022 opposing the petitions before receipt of the 3 October settlement offer. In response to the court’s inquiry, Andrew confirmed that the Debtors wish to adopt their former counsel’s written submissions but that he wished to address the court on some matters. I therefore propose to address the latter first.

16.  They fall under the following heads:

  (a)  the Canadian estate

17.  It is now common ground that the deceased died possessed of assets in Canada. Madam To is administratrix of the Canadian estate and a property in British Columbia belonging to the deceased’s estate had been sold in July 2013. The proceeds (of CAD 2.3 million) remain in escrow held by a Canadian lawyer.

18.  Andrew explained that the distribution of those assets could not take place because of objections on the part of Philip and the other siblings in Philip’s group to distribution being made in accordance with the law of Canada.

19.  Mr Adrian Lai, counsel for the Petitioner, advised the court that while previously there had been a dispute as to the law applicable for distribution, the issue was resolved on 24 February 2020 when Philip filed his 4^th affirmation[6] in the Canadian court accepting that the Canadian estate should be distributed in accordance with the law of Canada.

20.  In those circumstances, no explanation, much less valid one, has been given for the delay in distribution.

  (b)  Anton Street proceeds

21.  Before dealing with the Anton Street proceeds, it is necessary to mention the CR records for HEL.

22.  When the family dispute first erupted, Madam To and/or Andrew filed returns at the CR for HEL in 2005/2006 affecting the composition of the board. Due to the internal disputes on directorship and membership of HEL, the CR withheld company documents from registration since that date although HEL regularly updated the CR on the HCA 51 action and had requested the removal of the returns filed by the Debtors.

23.  That remains the position to date notwithstanding the resolution of those disputes with the CFA’s dismissal of Madam To’s application for leave to appeal the effect of which is that the Debtors are not shareholders of HEL. It would appear that until the returns filed by the Debtors for HEL have been expunged the CR records cannot accurately reflect the current composition of the board and the membership.

24.  The compulsory auction sale of which the Anton Street properties formed part fetched $2.055 billion. On 15 January 2018, the day prior to completion of the auction, K & Co reminded HEL not to make any distributions pending the ongoing appeals affecting HEL.

25.  On 19 January 2018, HEL was advised that its share of the auction proceeds totalled $46,934,124.10. Since 15 February 2018 HEL has made requests to the trustee of the auction proceeds (“the trustee”) for their release.

26.  Andrew submitted that if the Anton Street proceeds were distributed, they would be more than sufficient to meet the Judgment Debts. But rounding the proceeds up to $47 million, the Debtors’ share of 13% is no more than $6.1 million.

27.  There is a “Schedule of Outstanding Liabilities” attached to the Petitioner’s reply submissions (“the Schedule”). Part I provides a breakdown of the Judgment Debts (including accrued interest up to the date of the petitions) outstanding at the date of the petitions: in the aggregate the Debtors are indebted to the Petitioner for $6,684,155.22 of which they are jointly and severally liable for $4,603,656.86, with Madam To and Andrew individually liable for $923,610.80 and $1,156,887.56 respectively.

28.  Part II of the Schedule shows additional liabilities established after the date of statutory demands being taxed costs (excluding interest) of the Debtors’ various appeals in the HCA 51 and 523 actions including the taxed costs of their application to set aside the statutory demands. The aggregate liability shown in Part II is approximately $14.89 million with Madam To and Andrew liable individually for approximately $1.9 million and $800,000 respectively. The balance of $12 million odd is the joint liability of Madam To, Andrew and some of the other siblings belonging to Madam To’s group.

29.  In exercising the court’s discretion under section 6D, regard is to be had to contingent and prospective liabilities. Hence the relevance of the liabilities set out in Part II of the Schedule.

30.  It is clear that the Debtors’ shares in the proceeds are not sufficient to meet the Judgment Debts, much less the remaining significant liabilities set out in Part II. Yet, at the hearing, Andrew insisted that “they” should be entitled to $20 million or so of the Anton Street proceeds.

31.  It then transpired that he was referring not only to the Debtors’ shares, but also those of his other siblings who are part of Madam To’s group and that those siblings would contribute.

32.  The problem with that submission is that there is no evidence to substantiate it. There is no evidence from those siblings (who remained unidentified), their share(s) of the Anton Street proceeds and their willingness to contribute to make up any shortfall.

33.  So far as the release of the proceeds is concerned, the trustee’s stance[7] is that until the current directorship can be ascertained from the Annual Returns of HEL (which have not been updated since 2006 because of the internal disputes and litigation and K & Co’s insistence that the trustee withholds all action relating to the apportioned net sale proceeds), they would not be released to HEL.

34.  Moreover, HEL’s account with the Bank has been frozen since the Bank was apprised of the dispute relating to the composition of the board. Pending rectification of the CR records, the Bank is not prepared to restore the operation of the account.

35.  In the circumstances, the suggestion that HEL and/or Philip’s group have/has obstructed the release of the Anton Street proceeds is entirely misconceived and without any basis.

36.  I now turn to consider the Debtors’ written submissions.

(A)  Whether the Debtors are precluded from taking the unreasonable refusal of offer point

37.  Section 6D of the Bankruptcy Ordinance, Cap 6 (“BO”) provides as follows:

“6D. Proceedings on creditor’s petition

…

(3) The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied—

(a) that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented;

(b) that the acceptance of that offer would have required the dismissal of the petition; and

(c) that the offer has been unreasonably refused,

and, in determining for the purposes of this subsection whether the debtor is able to pay all his debts, the court shall take into account his contingent and prospective liabilities.”

38.  In the setting aside applications, one of the grounds advanced by the Debtors was the Petitioner’s unreasonable refusal to accept their offer to secure or compound the debts which Ng J rejected.

39.  However, one of the reasons given for rejecting the Debtors’ offer to secure or compound the debts at the setting aside stage is that the reasonableness of the offer (or the reasonableness of the creditor’s rejection of it) should be left to the hearing of the bankruptcy petition when section 6D (3) of the BO comes into play, citing Re A Debtor [1993] STC 218, 220g-221a.

40.  That is plainly supported by the wording of section 6D (3) which requires that the reasonableness or otherwise of the offer be assessed at the hearing of the petition. In my view, the rejection of that ground at the setting aside stage does not necessarily preclude the Debtors from raising this ground in opposition to the petitions.

41.  The relevant authorities show that a debtor is not barred from doing so at the hearing of the petition if he is able to show (as he must if he were to succeed) that there is a material change of circumstances since the setting aside application, (see, Re Choy Wai Bor, HCB 8565/2001, unrep., 28 May 2002 at §§ 27 and 30), and Harvey v Dunbar [2017] Bus LR 784 at §§36-37, 39) or that the debtor did not have the opportunity to have his arguments fully ventilated before the judge (see Re Choy Wai Bor at §25).

(B)  Whether the Petitioner’s refusal of the offer is unreasonable

42.  The offer to secure or compound the Judgment Debts is limited to the Debtors’ respective entitlements to the shares in CAGL and HEL. That they are not shareholders of HEL was conclusively settled by the outcome of HCA 51 action on 15 October 2021. It is thus only their shareholdings in CAGL that is the subject matter of the Debtors’ offer.

43.  Although the written submissions predated the 3 October settlement offer from the Petitioner, it was a week after K & Co’s letter of 15 September 2022[8] specifically raising the existence of the Canadian assets. It is therefore surprising that those assets and, more pertinently, the Debtors’ entitlement to share in the same is not mentioned.

44.  Clearly the Debtors’ share of the Canadian proceeds is an asset readily available for discharging part of the Judgment Debts. Not only is there no evidence as to the size of the Debtors’ respective shares under the law of Canada, no explanation has been given for Madam To’s apparent total inaction as regards the distribution of the same to the beneficiaries entitled when, since at least the end of February 2020 when Philip conceded that distribution is to be in accordance with the law of Canada, there was no longer any impediment to distribution.

45.  Apart from HEL’s entitlement in due course to receive the Anton Street proceeds, CAGL owns 7 other properties which together with the Anton Street properties were valued at $124 million in 2011[9]. In that valuation, the value ascribed to the Anton Street properties was $37 million. The Debtors take the view that the other properties would similarly have increased in value.

46.  The Debtors’ written submissions suggest that a valuation of CAGL must have been carried out given the time, energy, money and emotions expended in vindicating the restructuring and take issue with the absence of an explanation as to why a valuation of the CAGL could not have been completed since 15 October 2021. But any such valuation could only have been carried out by HEL rather than the Petitioner.

47.  While the Petitioner is a member of the Philip’s group, she would not be in a position to divulge information that belongs to HEL even assuming that such a valuation had been commissioned.

48.  On any view, the Petitioner’s rejection of the Debtors’ offer to secure or compound with their CAGL shares cannot be considered unreasonable when cash in the form of the Debtors’ respective entitlements to the Canadian proceeds which would have offset part of the Judgment Debts is not part of the Debtors’ offer.

(C)  Genuine claim ground

49.  This ground is not available to Andrew as HCA 1709 was brought by Madam To and he is not a party to those proceedings.

50.  This ground was advanced at the setting aside stage but was rejected by the Judge for the reasons stated in §§16-22 of the Decision. It is now said that the Petitioner has an ulterior motive in pursuing the petition against Madam To such that would bring section 5 (3) of the BO into play. That submission is premised on there being no reasonable explanation for the Petitioner to continue to pursue the petition. However, it is clear from §48 above that I have found it to be otherwise.

51.  Moreover, the right of set-off requires mutuality in the sense that the demands must be between the same parties and in the same interest. The stifling of a genuine claim thus requires that the party against whom the claim is being made is also a party to the same proceedings. As the claim in HCA 1709 is against HEL and not the Petitioner, mutuality is lacking: see Wong Wai Lin Lana v Heung Wah Wing [2001] 3 HKC 649 at 653C-654F.

52.  Further, Madam To has taken no steps to lift the stay after the final determination of the HCA 51 action in October 2021. One would have expected immediate resuscitation of her claim if it is one of substance.

53.  In any event, the making of a bankruptcy order would not necessarily stifle Madam To’s claim. The cause of action would vest in her trustees in bankruptcy who would be obliged to consider the merits of the case: see Re Chow Wing Kun, HCB 7058/2012, unrep., 18 July 2013.

CONCLUSION

54.  I would add that it is regrettable that the Debtors chose not to accept the Petitioner’s settlement offer which would have avoided the making of bankruptcy orders.

55.  For the reasons set out, bankruptcy orders were made against the Debtors.