Re: LAU CHI KWONG, SUNNY, a Debtor and Ex parte: PHILIP KHOO BENG KANG, a Creditor

HCB 587/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 587 OF 2000

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REASONS FOR JUDGMENT

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1. This is a petition for bankruptcy brought by a judgment creditor, Mr Philip Khoo Beng Kang. At the end of the hearing, I made a bankruptcy order with costs to the Petitioner. The reasons for my judgment appear below.

2. The only point taken by Mr Alex Lai, who appeared for the debtor Mr Lau Chi Kwong, Sunny, is whether the debtor is able to bring himself within the provision of Section 6D(3) of the Bankruptcy Ordinance, Cap. 6 which is as follows:

"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...."

3. It is the debtor's case that he has made an offer to the petitioning creditor to compound the debt in respect of which the petition is presented and that his offer has been unreasonably refused by the petitioning creditor.

4. The background facts and matters may be set out as follows.

5. Mr Khoo was and is residing in Singapore at all times. He was and is the director of a construction company known as Kimly Construction Pte Ltd ("Kimly"). In or about 1995, Mr Khoo and Mr Lau decided to set up a finance and investment company in Singapore known as Inte-source International (Singapore) Pte Ltd ("Inte-source"). The paid-up capital was S$500,000.00. The shareholders were Kimly and Mr Lau. It was agreed that Kimly was to take up shares in the company in the value of S$350,000.00 and Mr Lau would take up shares in the value of S$150,000.00. Mr Khoo and Mr Lau were the two directors and Mr Lau was responsible for the day-to-day operations of the business.

6. Kimly duly paid S$350,000.00 towards the share capital of Inte-source. Mr Lau only paid S$50,000.00. He borrowed the rest of S$100,000.00 from Mr Khoo. The first loan of S$50,000.00 was advanced on or about 9 September 1995 and Mr Lau signed an acknowledgement agreeing to repay the amount within three months from 9 September 1995. The other loan of S$50,000.00 was advanced on or about 4 March 1996. Again, Mr Lau signed an acknowledgement. This time, he agreed to repay the second loan to Mr Khoo on demand.

7. The business of Inte-source was not successful. Mr Lau was paid wages by Inte-source at S$5,000.00 a month from October 1995 to January 1996. Thereafter, because of the tight cash flow situation of Inte-source, it was agreed between Mr Khoo and Mr Lau that Inte-source would defer paying wages to Mr Lau. The business of Inte-source came to a stand still at the end of 1996. Mr Lau came back to Hong Kong in November 1996, without seeing to the proper winding-up of the affairs of Inte-source. At the end of 1996 or the beginning of 1997, there was a meeting between Mr Khoo and Mr Lau at the Nikko Hotel in Hong Kong to discuss the sorting out of the affairs of the company which, according to Mr Khoo, were in a mess. No solution was worked out at that meeting. Thereafter, Mr Khoo had no further contact with Mr Lau.

8. Mr Khoo returned to Singapore to wind up Inte-source and after this was done, he instructed solicitors in Hong Kong to write to Mr Lau demanding repayment of the loan of S$100,000.00. The letter of demand dated 21 February 1997 was served at the two addresses of Mr Lau in Hong Kong that were known to Mr Khoo. One was in Clearwater Bay Road, Sai Kung and the other in Fairview Park, Yuen Long. Mr Lau had at one time resided in each of these properties and they were owned by him successively. The property in Sai Kung was sold in October 1995 and after that Mr Lau moved to Fairview Park. The latter property was sold in October 1996. Hence, by the time of the letter of Mr Khoo's solicitors in February 1997, Mr Lau was no longer living at either address. He claimed he was then living in Homantin. He resided in that address until November 1998 when he moved to his present address in Sheung Shui. Mr Lau admitted that he did not contact Mr Khoo after their meeting at the Nikko Hotel in late 1996 or early 1997. He firmly believed that Mr Khoo knew where he was residing in Hong Kong after that but was unable to give details of when and where he had told Mr Khoo of the ways of contacting him. I reject his evidence on this. I find that Mr Khoo had no knowledge of the whereabouts of Mr Lau after Mr Lau moved out of Fairview Park.

9. As no response was received from Mr Lau to the letter of demand dated 21 February 1997, Mr Khoo's solicitors issued a writ against Mr Lau on 28 February 1997 in HCA No. A2141 of 1997. Judgment in default was entered against Mr Lau for the sum of S$100,000.00 or its Hong Kong dollars equivalent at the time of payment together with interest thereon at 11.5% per annum from 25 February 1997 to judgment and thereafter at judgment rate with fixed costs of HK$1,550.00. This is the judgment debt that formed the basis of this petition. No payment has been made by Mr Lau of the judgment debt. By the time of the Petition filed herein on 25 February 2000, the debt with interest stood at S$134,834.10 and applying the exchange rate at the time, the total amount of the debt with the fixed costs came up to HK$617,797.10.

10. Mr Khoo had no means of contacting Mr Lau and could not enforce the judgment against him in Hong Kong. As he knew Mr Lau had given an address in documents registered in the Companies Registry in Singapore, Mr Khoo instructed his lawyers in Singapore to take enforcement proceedings against Mr Lau in Singapore. On 8 October 1999, a bankruptcy order was made against Mr Lau by the court in Singapore. Mr Lau did not take part in the proceedings there.

11. Mr Lau claimed that he only learned about the bankruptcy order in Singapore and the judgment claimed against him in Hong Kong on or about 25 November 1999 when he received a letter dated 16 November 1999 from Mr Khoo's lawyers in Singapore advising him of these matters. Notwithstanding that, he did not approach Mr Khoo or make any proposal to Mr Khoo to settle or pay the judgment debt.

12. A statutory demand was issued by Mr Khoo's solicitors and served on Mr Lau personally on or about 20 January 2000. Within a week and on 27 January 2000, Mr Lau's solicitors wrote a "without prejudice" letter to Mr Khoo's solicitors. This letter and a subsequent "without prejudice" letter were produced in evidence by Mr Lau waiving his right not to disclose without prejudice communication. I shall refer to this as the "first offer". Mr Lau's solicitors stated that Mr Lau was "shocked to learn of [the statutory demand]". I fail to see why Mr Lau should be "shocked" as he had already known about this from the Singapore lawyers of Mr Khoo two months ago. The solicitors of Mr Lau went on to say that if Mr Lau had known of the High Court action in 1997, he would "definitely defend his position strenuously". The letter went on to say that of the debt of S$100,000.00, Mr Lau had already made part payment of S$60,000.00 by bank transfer in 1996 and as to the balance of S$40,000.00, he would set-off this outstanding sum against the arrears of wages owed by Mr Khoo to him in the sum of S$45,000.00. Thus, there was no debt due to Mr Khoo. Mr Lau offered to settle with Mr Khoo by paying S$10,000.00 towards Mr Khoo's costs and expenses. In return, Mr Khoo was to withhold further enforcement action in Hong Kong and wholly withdraw the bankruptcy proceedings in Singapore.

13. Mr Lau claimed that he disputed his liability to pay S$100,000.00 to Mr Khoo at that stage due to some misunderstanding in communication and that he subsequently realised that was not correct after he had been so advised by his solicitors who had by then sent the first offer. I do not accept his evidence on this. Mr Lau has been engaged in the business of providing financial planning and investment services to customers for sometime. He would not have failed to draw the distinction between Inte-source and Mr Khoo in his personal capacity. The partial payment of S$60,000.00 was paid into the bank account of Inte-source, not to Mr Khoo's personal account. His claim for wages is a claim against Inte-source, not against Mr Khoo. It must have been known to Mr Lau that the reasons put forward by his solicitors in the first offer for disputing liability were of no substance.

14. On 10 February 2000, Mr Lau's solicitors wrote a second "without prejudice" letter to the petitioner's solicitors. I shall refer to this as the "second offer". Mr Lau's solicitors stated that Mr Lau "now fully appreciates the strong position of [Mr Khoo]". They made an offer to pay the judgment debt in part in the sum of HK$480,000.00 (about 77% of the judgment debt) payable by 48 equal monthly instalments in full and final settlement. Thus, the monthly instalment would be HK$10,000.00. It was stated that the second offer was "the best and final offer [Mr Lau] can now make under all the circumstances". It was further stated that "it is highly likely that [Mr Khoo] would not even recover a single cent from [Mr Lau] as the bankruptcy will definitely cause the suspension of his licence as a [sic] investment adviser/representative, which is the only means of his earning." What the solicitors had stated about the suspension of Mr Lau's licence as an investment adviser or representative is not correct as Mr Lau was not (and still is not) the holder of such a licence at that time. In actual fact, Mr Lau's employers had applied to the Securities and Futures Commission ("the SFC") in October 1999 to renew his certificate of registration as an investment adviser or a representative of a registered investment adviser. Mr Tommy Lo, who appeared for the Petitioner, has drawn my attention to various provisions in the Securities and Futures Commission Ordinance Cap. 24 and the Securities Ordinance Cap. 333, as well as some of the prescribed forms in Cap. 333. The effect of these provisions is that for a certificate to be issued, the SFC must be satisfied that the individual is a fit and proper person to be so registered having regard to, inter alia, his financial status, financial integrity and reliability, and the applicant is specifically asked to give particulars of any unsatisfied judgment debts outstanding in connection with his business and if he has ever been adjudicated bankrupt in Hong Kong or elsewhere. As Mr Lau has been adjudicated bankrupt in Singapore in October 1999 and he had learnt about this in November 1999, he ought to have known that his application to the SFC was unlikely to be successful. He said in his evidence that he was advised by the SFC to withdraw his application and he did so accordingly. It is not clear whether he had withdrawn his application before or after the second offer. In any event, that statement in the second offer regarding the "suspension of his licence" is clearly incorrect.

15. The next event was the filing of the bankruptcy petition on behalf of Mr Khoo on 25 February 2000 and this was served on Mr Lau personally on 28 February. The first hearing before the Bankruptcy Master was on 3 May 2000.

16. On 20 April 2000, Mr Lau's solicitors made another offer to Mr Khoo's solicitors in an open letter. I shall refer to this as "the third offer". It was proposed that Mr Lau was to discharge the judgment debt in full by equal monthly instalments of HK$18,000.00 each, until full payment. The petitioner's solicitors were asked to note that "the aforesaid sum is at present the highest that [Mr Lau] can offer in the light of his earning and necessary expenditure". Mr Lau's solicitors emphasised that Mr Lau's job was very important to secure or guarantee his ability to pay and if there was no compromise, he would definitely lose his job and could not possibly be expected to find a comparable job should he be adjudicated bankrupt. Mr Lau's solicitors also enclosed with the third offer copies of these documents: the letter of appointment of Mr Lau to his present job dated 20 April 1999; a "warning" letter from his employers dated 17 April 2000 stating that if he should be adjudicated bankrupt, the company would reserve its right to terminate his employment; and a "balance sheet" setting out the expenses, income, liability and assets of Mr Lau as at 20 April 2000 prepared by Mr Lau. Mr Khoo refused to accept the third offer.

17. On 12 June 2000, the parties appeared before me and I ordered that the hearing be adjourned to a date to be fixed and that the deponents of affirmations should attend for cross-examination. The day after that hearing, Mr Lau's solicitors made another offer to the solicitors for Mr Khoo. I shall refer to this as "the fourth offer". It was proposed that Mr Lau was to pay the judgment debt in full in the following manner. An initial payment of HK$50,000.00 would be made and this would be payable on 15 July 2000. The balance was to be paid by monthly instalments in the sum of HK$20,000.00 on 15th day of each and every subsequent month. Mr Khoo also refused to accept the fourth offer.

18. It is not in dispute that Mr Lau has "made an offer to ... compound for a debt in respect of which the petition is presented" and that "the acceptance of that offer would have required the dismissal of the petition", i.e. the provisions in Section 6D(3)(a) and (b). The only matter in contention is whether "the offer has been unreasonably refused", i.e. the provision in Section 6D(3)(c).

19. Mr Lo has referred me helpfully to an English decision where this question was considered and I set out the relevant dicta providing guidance on the approach to be adopted as follows:

"In large part I can accept the district judge's formulation of the appropriate test, which I would express more fully, but not differently in substance, as being whether a reasonable creditor, in the position of this petitioning creditor, and in the light of the actual history as disclosed to the court, would have accepted or refused the offer. However, I think it has to be borne in mind that there could be a range of reasonable positions on the part of hypothetical reasonable creditors. In order to conclude that the refusal was unreasonable, it seems to me that the court has to be satisfied that no reasonable hypothetical creditor would have refused the offer, and that the refusal of the offer was therefore beyond the range of possible reasonable actions in the context. ...

It seems to me that the past history would be of substantial relevance to the hypothetical reasonable creditor when deciding whether or not to accept an offer or rather to press for a bankruptcy order....

However, it seems to me that it is incumbent on a debtor, if he wishes his proposals to be looked at with sympathy, to be full, frank and open with his creditors in respect of his statements of his position....

In that context, it also seems to me that the hypothetical reasonable creditor might well regard it as relevant that, whatever the eventual outcome of the bankruptcy, in financial terms for the creditors, a bankruptcy order would at least result in a full investigation, fuller than could be achieved by enquiries on behalf of the creditor on an ad hoc basis." (Re a Debtor (No. 32 of 1993) [1995] 1 All ER 628 at 639d-640c, Timothy Lloyd, QC sitting as a Deputy Chancery Judge)

20. This decision was followed by Walker J in IRC v. A Debtor [1995] B.C.C. 971, in which was held that the creditor is entitled to have regard to his own interests, and that "acting reasonably" is not the same as acting justly, fairly or kindly.

21. What are Mr Khoo's reasons for turning down four successive offers made on behalf of Mr Lau?

22. Mr Khoo said he had no confidence in Mr Lau in the light of the past history. He doubted Mr Lau's sincerity in his successive proposals. As I have set out above, Mr Lau had made no contact with him after 1997 for repayment of the loan. In the first offer, Mr Lau disputed that the debt was owing for reasons which have no substance. In the second offer, he proposed to repay HK$480,000.00 only at HK$10,000.00 a month. In the third and fourth offers, he offered to repay the full sum but at HK$18,000.00 a month and later at HK$20,000.00 a month. In each instance, Mr Lau stated that that was the best offer he could make. Even with his latest offer of HK$20,000.00 as monthly instalment, it would have taken more than 2 years to repay the sum in full. Mr Khoo considered that period to be far too long. There is no guarantee that the instalments would be paid as and when they fall due. Mr Khoo stated that he did not wish to come back to Hong Kong in the event there should be default in the instalments to take enforcement proceedings. He simply did not wish to waste further time and money. Mr Khoo also pointed out that Mr Lau had disclosed in his "balance sheet" debts owe to banks and credit card companies in the sum of over HK$300,000.00. Mr Khoo expressed concern that if Mr Lau should be in financial difficulty, it is likely that the banks in Hong Kong would take action and obtain payment from Mr Lau first before Mr Khoo could obtain any payment as news would not reach him so quickly in Singapore.

23. It was also submitted by Mr Lo that Mr Lau has not been "full, frank and open" with Mr Khoo regarding his assets and liabilities. I was taken to the "balance sheet" prepared by Mr Lau. Mr Lau failed to include information on his savings account with the HSBC. When this was pointed out to him, he could not give a satisfactory explanation why he had failed to do so. Further, it was stated in the balance sheet that his average monthly income from his job was HK$58,000.00. That was correct at the time the "balance sheet" was compiled. However, it is apparent from the savings pass book that the average monthly income for Mr Khoo for the first 5 months in this year was HK$91,613.00. The up-dated information was not provided by Mr Lau to Mr Khoo's solicitors. Mr Lau claimed that he had lost all he had in the Asian economic crisis but was not able to give the amount of what he had lost or even an approximate figure. Further, the claim made by his solicitors in the second offer that the bankruptcy order would cause the "suspension of his licence" as an investment adviser or representative when he did not even have the licence at that time or might even have withdrawn his application for a licence simply does not inspire confidence.

24. For the above reasons, the debtor has not established to the satisfaction of this court that the offer he made to the petitioning creditor has been unreasonably refused. I have therefore made a bankruptcy order with costs to the petitioner.