RE FUNG KWOK ON, WILLIAN

HCB 9590/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPCTY PROCEEDINGS NO. 9590 OF 2008

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J U D G M E N T

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INTRODUCTION

1.  This is the hearing of a Bankruptcy Petition (“the Petition”) presented by the Petitioner against the abovenamed Debtor. Despite the fact that the subject debt is one disputed by the abovenamed Debtor, for the sake of convenience, I shall refer to him as “the Debtor” hereinafter.

2.  When the proceedings first came before me, they were on the basis of the re-amended version of the Petition. At the beginning of the hearing, Mr Leung, Counsel for the Petitioner, applied for leave to further amend the Petition by amending the name of the Debtor from “Fung Kwok On, William” to “Fung Kwok On, William (also known as Fung, William and 馮國安, HKID (Debtor’s HKID number))”. The relevance of this will become apparent later. The application was resisted by the Debtor acting in person. I allowed the application. As I was writing this Judgment, it suddenly occurred to me that the setting out of the Debtor’s HKID number in the Judgment might possibly infringe the privacy law. I have therefore omitted the same in the publication of this Judgment.

THE BASIC FACTS

3.  KOF Media Corporation Limited (“the Company”) was incorporated on 27 September 2007. The shareholders and directors of the Company were the Debtor and one Andy Fung.

4.  With a view to entering into a joint-venture business (“the Joint Venture”), the Petitioner, the Company, the Debtor and Andy Fung entered into an Option and Shareholders’ Agreement dated 15 October 2007 (“the Option Agreement”) and a Convertible Loan Agreement of the same date (“the Convertible Loan Agreement”).

5.  In short, the effect of those two agreements was that :

(i)  the Petitioner invested the sum of US$750,000.00 into the Joint Venture by way of a convertible loan which could be converted into part of the share capital of the Company when the Joint Venture took shape;

(ii)  upon the occurrence of certain events of default, the Petitioner could demand for the return of the said sum of US$750,000.00 with interest at 10% p.a. and

(iii)  the Debtor, as a shareholder and director (Chief Executive Officer) of the Company, would guarantee the due performance of all obligations owed by the Company to the Petitioner.

6.  As it transpired, the Joint Venture did not work out. The Company did not return the sum of US$750,000.00 to the Petitioner on demand and the Debtor failed to pay the same to the Petitioner on his guarantee.

7.  As a result, the Petitioner presented a Winding-Up Petition against the Company in HCCW 544 of 2008. On 15 September 2009, Madam Justice Kwan (as she then was) made a Winding-Up Order against the Company.

8.  The Petitioner continued to pursue the Debtor on his guarantee and proceeded to put in motion bankruptcy proceedings culminating in the presentation of the present Petition.

9.  The Debtor resists the Petition on a number of grounds.

THE DEBT

10.  On the face of it, the Company was and is indebted to the Petitioner in the sum of US$750,000.00 together with interest (“the Debt”). The Debtor as guarantor has not repaid the Debt to the Petitioner and is therefore liable to the Petitioner for the Debt.

THE GROUNDS OF OPPOSITION OF THE DEBTOR

11.  By an affirmation of the Debtor made on 4 March 2010 and by his Skeleton Submissions, he sets out the grounds of his opposition to the Petition which can be summarised as follows : -

(i)  He was never personally served with the statutory demand on or before the date of the Petition.

(ii)  He had never been advised to seek independent legal advice before he was asked to give his guarantee.

(iii)  When he negotiated with the Petitioner, it was on the basis of the Petitioner investing the sum of US$1,500,000.00 into the Joint Venture instead of just US$750,000.00.

(iv)  The Petitioner appointed one Mr Giacomo Beretta as a second person in command in the Joint Venture and hired in its Shanghai Office a team of foreigners.  He personally could not agree with all these arrangements which had not been covered by the guarantee.

(v)  The loan of US$750,000.00 was made by the Petitioner as an unlicensed money lender and therefore should not be recoverable.

(vi)  The Petitioner has failed to comply with Order 11 Rule 5A of the Rules of the High Court.

(vii)  The Petition has been issued against the Debtor not according to his correct name.

FINDINGS

12.  The reasons put forward by the Debtor in sub-paragraphs (iii) and (iv) in paragraph 11 above simply go against the express provisions of the Option Agreement and the Convertible Loan Agreement. Such reasons cannot hold water and can be dismissed out of hand.

13.  I shall proceed to deal with the other reasons.

The Statutory Demand

14.  Before a creditor can present a bankruptcy petition against a debtor based on a debt, the creditor must have first served on the debtor a “statutory demand” in the prescribed form in accordance with section 6A of the Bankruptcy Ordinance (“the Ordinance”).

15.  The requirements as to service of a statutory demand are set out in Rule 46 of the Bankruptcy Rules under the Ordinance the relevant part of which reads as follows : -

“46.  Requirements as to service

(1)  Rule 49 has effect as regards service of the statutory demand, and proof of that service by affidavit to be filed with a bankruptcy petition.

(2)  The creditor shall do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, to cause personal service of the demand to be effected.”

It is to be noted that the primary requirement for the creditor is that he should do all that is reasonable to bring the statutory demand to the debtor’s attention and that personal service is only secondary.

16.  In the 1^st Affirmation of Mr Yixin Chen (“Mr Chen”), a Registered Foreign Lawyer employed by Messrs Clyde & Co., the solicitors then acting for the Petitioner, he said : -

“2.  On Wednesday, 27 August 2008 at or about 8:30 a.m., I attended the address at Apartment 9A, Building D, Di Gang Hai Wan, Guihua Road, Futian Bonded Zone, Shenzhen, PRC (“Address”) and Ipersonally served, Fung Kwok On William (“Debtor”), with the Statutory Demand dated 26^th August 2008. ………………………………….

3.  I attended the aforesaid Address and a male person answered the door.  I asked the person, first in Mandarin, whether he was Mr. Fung Kwok On, and then in English whether he was William Fung.  On both occasions the person replied by saying “yes”.  I then handed the Debtor with the Statutory Demand.”

17.  The Debtor has adduced evidence that he was actually in Hong Kong and not on the Mainland on 27 August 2008. That is now accepted by the Petitioner. Nevertheless, according to Mr Chen, the reason for the service of the statutory demand in the present case (“the Statutory Demand”) at the Address was that he had been induced to do so by a letter dated 25 August 2008 by the Debtor which states, inter alia, as follows : -

“1.  I do not owe your client any money.

2.  As my only turf for assignment opportunities is in China and am now in China for an indefinite period, I shall not be able to attend your meeting set on August 27, 2008.

3.  If there is a need to have my personal attention to specific documents, it can be delivered to my China address of :

William Fung

c/o福田保税区桂花路帝港海湾D座9A

Shenzhen, Guangdong, China.”

18.  In answer to questions by me in the course of his submission, the Debtor said that he did sometimes reside at the Address and that it was a friend of his who received the Statutory Demand. He was informed about the service of the Statutory Demand soon after it had taken place and that he was in fact sent a copy or the original of it within one week thereafter.

19.  In the case of Re : Li Wai Man (HCB 211/99 Unreported judgment of Madam Justice Yuen (as she then was) handed down on 1 November 1999), Madam Justice Yuen held as follows at page 8 : -

“It is clear from that sub-rule [Rule 46(2)] that where personal service is impracticable, the Creditor’s obligation is to do what is reasonable for the purpose of bringing the Statutory Demand to the Debtor’s attention.  What is reasonable must be judged objectively, but in the light of the information actually or constructively available to the Creditor at the time.”

20.  In all the circumstances, I find that the Petitioner had complied with the said Rule 46 in having done all that was reasonable for the purpose of bringing the Statutory Demand to the attention of the Debtor and that, prior to the presentation of the Petition on 13 November 2008, the Debtor was already in possession of the original or a copy of the Statutory Demand.

21.  I therefore reject ground (i) put forward by the Debtor.

Lack of Warning to seek Independent Legal Advice

22.  The point made by the Debtor is that he had been subject to undue influence in agreeing to guarantee for the performance of the Company and that, if he had been asked to seek independent legal advice, he would have done so and would not have given the guarantee.

23.  The problem with this defence is that the Debtor has not adduced evidence as to by whom and how he had been subjected to undue influence so as to entitle him to set aside the guarantee.

24.  In the case of Bank of China (Hong Kong) Ltd. v Wong King Sing [2002] 1 HKLRD 358, Mr Recorder Ma SC (as be then was) said at paragraph 60 : -

“It is pointless to go into the question of the extent to which a third party is affected by undue influence unless the alleged undue influence has been shown to exist in the first  place.”

25.  Furthermore, it was clear from an email sent by the Debtor to the Petitioner that his side was acting by lawyers. It said : -

“Our lawyer is going through the agreements with us and my perception is that there are quite many gaps to fill, we shall come back to you with our comments within this afternoon.”

26.  At the relevant time, the Debtor was the owner of 9 out of 20 shares in the Company and also one of its directors and its Chief Executive Officer. There is absolutely nothing unusual about him giving a guarantee for the Company.

27.  I therefore dismiss this defence put forward by the Debtor.

Unlicensed Money Lender

28.  The Debtor argues that the loan of US$750,000.00 to the Company was made by the Petitioner as an unlicensed money lender. It should not be recoverable from the Company as the borrower and, in turn, it should not be recoverable from the Debtor as guarantor.

29.  It is to be noted that no such point was taken by the Company in HCCW 544/2008 before Madam Justice Kwan. It is to be further noted that in those proceedings the Company appeared by the Debtor as its director.

30.  Under s. 23 of the Money Lenders Ordinance (Cap.163) : -

“No money lender shall be entitled to recover in any court any money lent by him or any interest in respect thereof or to enforce any agreement made or security taken in respect of any loan made by him unless he satisfies the court by the production of his licence or otherwise that at the date of the loan or the making of the agreement or the taking of the security (as the case may be) he was licensed.”

31.  “Money lender” is defined in s. 2 as follows :

“…every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business, but does not  include –

…

(b)  as respects a loan specified in Part 2 of Schedule 1, any person who makes such loan;”

32.  Clause 5, Part 2 of Schedule 1 provides that s.23 does not apply to :

“A loan made by a company or a firm or individual whose ordinary business does not primarily or mainly involve the lending of money, in the ordinary course of that business.”

33.  I agree with Mr Leung that there is nothing to suggest that the Petitioner’s business was “that of making loans” or that the Petitioner had advertised itself as carrying on that business. The evidence indicates that the loan was in reality only an investment which was being made by the Petitioner into the Company’s business. I further agree that the Petitioner is not a “money lender” for the purposes of the Money Lenders Ordinance and that the loan fell within the exception provided by Clause 5, Part 2 of Schedule 1.

34.  I therefore do not think that there is any substance in this defence put forward by the Debtor.

Order 11 Rule 5A of the Rules of the High Court

35.  The point made by the Debtor is that the Statutory Demand should have been served through the courts in Hong Kong and on the Mainland.

36.  As has been pointed out by Mr Leung, the relevant part of paragraph 2.2 of Practice Direction 3.1 relating to “Bankruptcy And Winding-Up Proceedings” reads as follows : -

“2.2  Practitioners are reminded that a statutory demand is not a document issued by the Court.  Leave to serve out of the jurisdiction and leave to effect service by way of substituted service are not, therefore required.”

37.  It is always the fact that when a statutory demand is served no bankruptcy proceedings based on the same would have come into existence. The statutory demand is not a judicial document and hence Order 11 Rule 5A simply has no application.

38.  I therefore reject this defence put forward by the Debtor.

The Correct Name of the Debtor

39.  The Debtor points out that his name in English simply appears as “William Fung” in his Hong Kong Identity Card and his Canadian Passport.

40.  There is no denial by him that he was the person who signed the Option Agreement and the Convertible Loan Agreement. There is no denial that he did give the guarantee for the Company.

41.  In any event, the name of the Debtor in the title of the Petition has been amended together with identification of him by his Hong Kong Identity Card number.

42.  There is no doubt that he is the correct person being sued.

43.  There is again no substance in the defence put forward.

CONCLUSION

44.  In all the circumstances, I find that the Debtor has no answer to the Petition.

45.  I therefore make the usual bankruptcy order against the Debtor, with costs of the Petition, to be taxed if not agreed, and to be paid out of the Debtor's estate.