RE TSANG KAM HUNG JOSEPH

HCB 5993/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 5993 OF 2012

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J U D G M E N T

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1.  The debtor is petitioning for his own bankruptcy. He admitted in his statement of affairs that he owed debts to various banks and the applicant at a total sum of HK$8,431,336.65. Of this sum, HK$5,582,035 is due to the applicant, being the biggest single debtor. In addition to the sum of $8,431,336.65, there is a judgment sum of HK$1,919,959 entered against the debtor and in favour of one EMA (HK) Limited on 14 August 2012, which he disputes.

2.  The applicant seeks to have the proceedings adjourned sine die pending the clarification by the debtor of whether: (1) the debtor is still in possession of the diamonds of the applicant as listed in the schedule to the summons and, if not, the debtor shall produce evidence to show to whom he has delivered or sold the diamonds; and (2) the debtor is holding half of the interest in a flat in North Point beneficially for himself or as trustee for his father, Tsang Kwok Yip. 

3.  There are 18 diamonds that have been sold or consigned by the applicant to the debtor or his company Chun Ngai Jewellery Design Company Limited.  The applicant has not been paid and the diamonds had not been returned.  These proceedings were adjourned on 25 October 2012 for the debtor to explain the whereabouts of the diamonds. 

4.  The debtor is also one of two registered owners of a flat in North Point.  The adjournment of proceedings was also for him to explain his beneficial interest, if any, in this flat. 

5.  The debtor made a third affirmation to explain these matters.  He said he had sold 16 of the diamonds and the remaining two were kept by the police.  The 16 diamonds were sold to other jewellery dealers as well as walk-in customers.  He gave the names of four traders to whom he had sold some of the diamonds.  He could not provide further information on the price, date of sale, identity and contact of purchaser for each diamond for the reason that all the goods, records and documents of his company had been seized by the police for investigation. 

6.  The police are indeed investigating into the matter as evidenced by a letter from the police to the applicant dated 7 December 2012. 

7.  Regarding the flat of which the debtor is one of two registered joint owners, the debtor said that he was holding the interest in the flat on trust for his father Tsang Kwok-yip, who is the other joint owner.  The debtor also confirmed that he has no document to support this case of trust.

8.  Mr Collins, the solicitor for the applicant, made an affidavit in response.  He said the applicant’s investigation revealed that the debtor or his company had sold three of the diamonds to one of the four traders named by the debtor.  The total price of the three diamonds paid by the trader was at HK$745,700, which was a 32 per cent discount of the total price charged by the applicant on the debtor’s company.

9.  The applicant had also been informed by the police that the debtor had pledged two diamonds to a pawn broker for a total sum that amounted to a 50 per cent discount of the price charged by the applicant. 

10.  Mr Collins reiterated in his affidavit the debtor’s failure to mention in his third affirmation about the pawn broker and his failure to account for any of the proceeds of the 16 diamonds. 

11.  Mr Collins also highlighted the lack of documents to support the alleged trust arrangement over the flat.  He also disputed the value of the flat asserted by the debtor.  The debtor said that the flat had a value of HK$7 million, but Mr Collins referred to a valuation of HK$10.07 million given by the free of charge internet valuation system of HSBC.  He therefore concluded that the debtor had not complied with the order of 25 October. 

12.  I note that the order of 25 October did not require the debtor to explain anything.  The court just gave leave to the debtor to file and serve an affirmation in response to the first affidavit of Mr Collins filed on 19 October 2012 in support of the applicant’s summons to adjourn the proceedings.  Even if the debtor’s affirmation in response should have failed to address all the matters adequately, I still would not find any failure on his part to comply with the court order made on 25 October.  However, I am not saying that the debtor’s explanation is adequate in any sense. 

13.  Mr Fung, the solicitor who appeared today for the applicant, argued in his skeleton submission that there was prima facie evidence that the debtor had unlawfully and illegally pledged two diamonds belonging to the applicant to a pawn broker and sold three diamonds belonging to the applicant to a trader and received $745,700 in cash.  Mr Fung concluded that there is a presumption that the debtor had unlawfully and illegally dealt with the remaining diamonds and he might have wrongfully realised the diamonds but not disclosed the same.

14.  I accept that the disclosure by the debtor on the diamonds or their proceeds is quite minimal.  Mr Fung therefore submitted that it was doubtful if the debtor had fully disclosed his financial position to satisfy the court that the debtor was unable to pay his debts.  He said the debtor had therefore failed to comply with the Bankruptcy Rules, or that this was a good reason for not making a bankruptcy order under section 5(3) of the Bankruptcy Ordinance, Cap 6.

15.  Regarding the debtor’s beneficial interest in the flat, if any, I think it should be left to the Trustee in Bankruptcy to consider and it is not a matter that can be resolved conveniently in these proceedings.  In any case, even assuming the debtor owns the interest of half of a flat, its market value is still uncertain.  The reliability of free of charge valuation provided on the internet is not given the same status as valuation reports by surveyors.  In any event, it would take time for the debtor’s interest in half of the flat to be realised.

16.  Regarding the 16 diamonds, the evidence suggests that they had been disposed of by the debtor or his company at a discount. That means a discount of the total price of $5,582,035 charged by the applicant.  The discounted proceeds is, in any event, not enough to pay off the total undisputed indebtedness of HK$8.4 million, not to mention the disputed judgment debt of HK$1.9 million.

17.  Mr Nahoom of the applicant has also made an affidavit on 28 November 2012, deposing to a conversation he had with the debtor on 29 June 2012, the day before the debtor had disappeared from his reach.  He also produced a CD record of the conversation.  He said the debtor had promised to meet him on the next day and repay him US$300,000 and the balance in one to two weeks.  This, of course, never happened.  I think this sounded more like an attempt to prevaricate than a genuine promise to repay. 

18.  Whether the debtor had the US$300,000 with him on June 29 may be a matter of interest to the Trustee in Bankruptcy.  The debtor had also intimated in the conversation of his intent to sell the flat in North Point.  That again is of use to the Trustee in Bankruptcy.

19.  Mr Fung has charged the debtor with having unlawfully and illegally pledged and sold five of the diamonds.  That is, however, not a matter that I have to deal with on the petition.  The police is investigating the matter.

20.  There is also the unresolved question of whether the 18 diamonds were consigned to the debtor or his company, or whether they had been sold to the debtor’s company. 

21.  Looking at all the evidence, I see no justification for staying the petition.  I do not think it necessary to have all the details of the debtor’s finances to be verified before making a bankruptcy order.  To do so would necessitate further adjournments of the proceedings which would not be advantageous to the body of creditors as a whole.  Bankruptcy petitions should also be disposed of as quickly as they reasonably can.

22.  I therefore dismiss the applicant’s application to adjourn.  I am satisfied by the evidence before me that the debtor is unable to pay his debts.  I therefore make the usual bankruptcy order.

(Submissions on costs)

23.  I make no order as to costs on the application to adjourn for the reason that the debtor has failed to explain the whereabouts of the diamonds and proceeds; he failed by a large margin.  I make the usual order of costs on the petition itself.