BANK OF CHINA (HONG KONG) LTD v. FU MING KONG MICHAEL

HCB9860/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY

NO. 9860 OF 2005

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D E C I S I O N

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1. This is a creditor’s bankruptcy petition presented by the Bank of China (Hong Kong) Limited (“the bank”) against Mr Fu Ming-kong, Michael (“Mr Fu”).  The basis of the petition is a judgment debt which the bank obtained against Mr Fu on 8 July 2005 following a 13-day trial at the end of which it was found that Mr Fu was liable to the bank as a guarantor of the debts of a company with which he was associated, First China Trading Limited, which was also a party to the proceedings and which was also, I think, found liable in the like amount. 

2. Following the entry of the judgment against him, Mr Fu has appealed against the decision.  That appeal is to be heard by the Court of Appeal in July of this year.  An application for stay of execution on the judgment was taken out in August 2005 but the application was unsuccessful.  The position, therefore, is that Mr Fu is a judgment debtor and in respect of the judgment, there has been a refusal of any stay of execution.  That being the case, it is open to the bank to seek to enforce the judgment by such means as are open to it including the presentation of a bankruptcy petition. 

3. Before the stay of execution had been dealt with, the bank had, in fact, issued a statutory demand based on the judgment debt.  An application was taken out by Mr Fu to set aside the statutory demand, apparently on the basis that there was a bona fide dispute of substance in relation to the amount claimed under it. 

4. That application was listed for hearing before Chung J on 12 December 2005.  On that date, Mr Fu was not present and the judge dealt with the matter by dismissing his application and giving leave to the bank to present a bankruptcy petition against Mr Fu on the strength of the statutory demand.  That bankruptcy petition first came on for hearing on 15 March before Master A Ho.  At that time, Mr Fu indicated that he was applying to have the order of Chung J rescinded and was seeking a review of the decision by which his application to set aside the statutory demand was dismissed.  He explained that he was absent from the hearing on 12 December 2005 because he had not received notice of the hearing owing to an error in the address to which the notice of hearing was sent. 

5. That application was heard before Chung J on 26 April 2006, last Wednesday.  At that hearing, Chung J accepted Mr Fu’s explanation for his absence at the original hearing and decided that his decision should be reconsidered in the light of such arguments as Mr Fu was able to put forward.  He then proceeded to hear the application in substance but dismissed it for the reasons stated in his judgment handed down on 29 April 2006.  In brief, he considered that Mr Fu had not disclosed any bona fide dispute of substance in relation to the underlying judgment debt.  In doing so, he took into account the fact that, in the context of an application by the bank against Mr Fu for security for the costs of the appeal which is currently pending, Rogers V-P expressed some doubts as to the strength of the merits of the appeal. 

6. Before me today, Mr Fu has asked for further time in which to deal with this matter.  I would accept, as did Chung J, his explanation for his absence on the first occasion when the application for statutory demand was before the court.  Mr Fu says that this shows (as did his willingness to have the matter dealt with in substance at the hearing last Wednesday), that he is not employing delaying tactics in relation to this matter. 

7. That may be so, but the fact remains that there is a substantial debt outstanding to the bank which Mr Fu has not paid and has not taken any steps to pay since the judgment was entered against him.  At the hearing today, Mr Fu indicated that he wished to consider the possibility of putting forward a proposal to enable him to satisfy the judgment debt.  I should say at this juncture that the judgment debt has been substantially reduced as a result of the fact that a property which was held by the bank as security for the debt which had been provided by the other judgment debtor, the company with which Mr Fu is associated, has been sold.  But there is nonetheless a net balance of just below HK$3.4 million outstanding.  That amount may now be slightly in excess of HK$3.4 million as a result of interest which will have accrued since the sale of the property. 

8. The difficulty for Mr Fu is that there is no concrete proposal and there is no evidence of any proposal or his ability to put one forward.  Nor is there any evidence of any sources of funds, although Mr Fu has mentioned that he has relatives who may be prepared to consider advancing him some funds to enable him to pay the debt.  But the position today is that there is no such evidence. 

9. Miss Kwan, appearing for the bank, has urged me to make a bankruptcy order today on the basis that Mr Fu has had ample time in which to present a proposal, or indeed to effect payment of the balance of the judgment debt, if he were minded to do so.  In my view, that is correct. The judgment debt has been outstanding since last July.  An application has been made for a stay of execution, which has been unsuccessful.  That being the case, the bank is perfectly entitled to enforce the judgment by the presentation of this petition. 

10. Mr Fu’s challenge to the underlying basis of the petition, that is, the statutory demand, has been similarly unsuccessful and I can see no reason for disagreeing with the views expressed by Chung J in dismissing Mr Fu’s application.  It is quite clear that there being a judgment against him and there being no good evidence to suggest that that judgment was clearly wrong, in the absence of a stay of execution, the judgment debt remains valid and regular and is one which the creditor is entitled to enforce. 

11. It is true that the debt has now been reduced, but, even after the reduction of the amount of the debt following the sale of the property, an amount of $3.4-odd million still remains outstanding.  Mr Fu has queried the balance and has suggested that there might be scope for argument as to what the correct balance is.  I am unafraid that I am unable to agree with that submission. The position is that the bank filed an affirmation of continuing debt shortly before the first hearing before the master in which a detailed breakdown of the effect of the sale on the underlying judgment debt was provided.  Details are provided as to the gross sale proceeds, the expenses of sales and of the other costs that had to be settled out of the sale proceeds resulting in the net sale proceeds stated being received by the judgment creditor.  Applying those net sale proceeds to the judgment debt, first, in satisfaction of interest and, thereafter, in partial satisfaction of the outstanding principal, the bank has shown that the sum of some HK$3.4 million remains outstanding.

12. I can see very little scope at this stage for any challenge to that evidence.  In any event, the fact is that although this petition has now been outstanding for some time, the judgment debt has been outstanding since last July, and the statutory demand was served about the same time, Mr Fu has taken no steps to put forward any proposal to settle the judgment debt.  Even after the reduction of the judgment debt to its present level in about early March this year, a matter of which he was aware by mid-March when he was served with the affirmation of continuing indebtedness which sets out clearly the balance still outstanding, no steps have been taken and no proposal has been put forward in the six weeks or so that have been available for him to do so.  That being the case, I am afraid that I can see no basis for his opposition to the current bankruptcy petition and, in the circumstances, I think that the only right course to take is to make the usual bankruptcy order with costs against Mr Fu. 

13. This is not to say that Mr Fu will necessarily be unable to pursue an appeal.  If he is in a position to procure funds with which to settle the judgment creditor’s debt and any other debts that he may owe as to which there is, of course, at this stage, little information, it may be possible for him to make arrangements to satisfy the judgment debt with the assistance of relatives and to obtain an annulment of the bankruptcy order made against him in due course.  That is, perhaps, a matter for the future but, at this stage, it seems to me that I have little alternative but to make the usual bankruptcy order with costs against Mr Fu.