RE TAI CHI WAH

HCB 11592/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

 BANKRUPTCY PROCEEDINGS NO. 11592 OF 2004

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J U D G M E N T

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1.  This is a creditor’s petition for a bankruptcy order presented by the China Overseas Building Construction Limited against Tai Chi Wah.

2.   The petitioner applied for summary judgment against 5 defendants in HCA No. 2011 of 2003.  Mr. Tai was the 4^th defendant.  The 2^nd defendant was Gold-Face Holdings Limited (“Holdings”).  The 1^st  defendant was True Gold Investments Limited (“True Gold”), a subsidiary of Holdings.  Trading in the shares of Holdings on The Stock Exchange of Hong Kong Limited has been suspended. 

3.  On 9 June 2004, Tang J (as he then was) gave judgment in favour of the petitioner against each of the defendants in the High Court Action.  True Gold was ordered to pay HK$20.2 million odd.  Each of the other 4 defendants was ordered to pay HK$50,644,791.00 with interest.  They are jointly and severally liable to the petitioner.

4.  The petitioner issued a statutory demand against Mr Tai on 10  July  2004 for the judgment debt, with interest calculated up to the date of demand.  The sum demanded was HK$54,786,359.85.

5.  On 16 August 2004, the statutory demand was advertised in a Chinese newspaper and an English newspaper in Hong Kong.  As it was not complied with, this petition was presented on 1 December 2004.

6.  Mr Tai does not dispute that the judgment debt of the petitioner is due and owing.  He seeks to adjourn the petition pending the outcome of a scheme of arrangement proposed by Holdings to its creditors.  The scheme would involve a restructuring  proposal by which an investor is to inject funds into Holdings for subscription of new shares and part of the funds injected would be used to settle the claims of the scheme creditors.  A condition precedent of the restructuring agreement reached with the investor is that approval must be granted by the Stock Exchange for the listing of and permission to deal in the new shares to which the investor is to subscribe.

7.  Holdings is the subject of a winding-up petition also presented by this petitioner.  This is HCCW No. 970 of 2004.  I have had regard to the evidence filed on behalf of Holdings in those proceedings.  I understand from Mr Tai today that he intends to adduce a further affirmation to inform the court of the progress made in respect of Holdings’ application for resumption of trading in its shares.  But as these matters have been adequately covered in the evidence filed by Holdings in HCCW No. 970 of 2004, I have indicated to Mr Tai that this would not be necessary as I am fully aware of the information already provided to the court in other proceedings.  The winding-up petition was adjourned several times since October 2004 to give an opportunity to Holdings to put forward a viable scheme of arrangement to its creditors. 

8.  On 19 April 2005, Holdings obtained an order in HCMP No. 3190 of 2004 to convene a meeting of creditors to consider a scheme of arrangement.

9.  The proposal submitted by Holdings for resumption of trading of its shares has been rejected by the Listing Division of the Stock Exchange.  Holdings has invoked the machinery for review, firstly to the Listing Committee, then to the Listing (Review) Committee, and lastly to the Listing Appeals Committee.  The decision from the Listing Appeals Committee is awaited.  On that basis, the winding-up petition has been adjourned to 14 November 2005.

10.  I understand no further steps have been taken to progress the scheme of arrangement, as this will not be implemented if the resumption of trading proposal is rejected.

11.  Mr Tai contends that if the scheme should be implemented, the scheme debts will be discharged against Holdings and its subsidiaries in full, in consideration of the scheme creditors’ right to participate in the distribution of the scheme funds.  And as the scheme creditors will assign to Holdings all claims against the Company and its subsidiaries and release all guarantees in respect of the scheme debts, the judgment debt in this petition will also be released once the scheme has received the sanction of this court under section 166 (2) of the Companies Ordinance, Cap. 32.

12.  I do not think this is right as a matter of law.

13.  As stated in Buckley on the Companies Acts, para [425.64]:

“A scheme does not operate as an agreement between the parties affected but it has binding force by virtue of statute once an application to the court has been made and the consent of the relevant parties and the sanction of the court has been obtained.  Consequently the discharge under a scheme of one of several debtors, who are jointly and severally liable, does not discharge the other debtors.”

14.  The authority cited in support of the last sentence is Re Garner’s Motors Ltd [1937] Ch 594.  Crossman J in that case explained the position at 598 to 599 in this way :

“But in my judgment a discharge of one of several joint debtors by operation of law does not discharge the other debtors.  In my judgment the effect of s. 153 of the Companies Act, 1929 [equivalent to our s. 166], is to give to a scheme when sanctioned by the Court under the section a statutory operation.  The scheme when sanctioned by the Court becomes something quite different from a mere agreement signed by the parties.  It becomes a statutory scheme…It is settled law that a discharge of one of several judgment debtors by operation of law does not release the other debtors.  But in my judgment the effect of s. 153 of the Companies Act, 1929, is to give a scheme when sanctioned by the Court a statutory operation.  I think that the law is correctly stated in Buckley, 12^th ed., p. 322, as in Halsbury, vol. 5, p.797, para. 1366.”

15.  Mr Law for the petitioner has also cited other authorities which I do not find necessary to refer to.

16.  The position at law is clear.  Where a co-debtor is released by operation of law, as in the case where a scheme of arrangement is sanctioned by the court, the other co-debtors are not released.

17.  There is no point in adjourning the bankruptcy petition to see if the scheme of arrangement can be implemented.  There is no valid ground of opposition.

18.  For the above reasons, I make a bankruptcy order against Mr Tai.  The petitioner’s costs are to be paid out of Mr Tai’s estate.