ALISON WONG LEE FUNG YING AND ANOTHER v. YU SHING CHUEN

HCB 6015/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 6015 OF 2004

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Date of Handing Down Decision: 3 August 2009

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D E C I S I O N

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INTRODUCTION

1. This is an application on the part of the trustees of the estate of the Bankrupt (“the Trustees”) by way of summons filed herein dated 6 June 2008 for an order suspending the running of the relevant period for the Bankrupt’s discharge pursuant to section 30A(3) of the Bankruptcy Ordinance, Cap 6 (“the Application”).  The ground as stated in the summons is that the Bankrupt has failed to co-operate in the administration of his estate.

BACKGROUND

2. The Bankrupt filed a bankruptcy petition against himself on 11 June 2004.  Bankruptcy Order was granted on 26 July 2004.  In other words, but for this Application, the Bankrupt should have been automatically discharged from bankruptcy on 11 June 2008.

3. The Trustees filed 2 affirmations of Alison Wong, dated 5 June 2008 and 13 August 2008 respectively, to support their application.  The Bankrupt put in 3 affirmations dated 25 July 2008 (“the 2^nd Affirmation”), 11 February 2009 (“the 3^rd Affirmation”) and 14 February 2009 (“the 4^th Affirmation”) respectively to oppose to this Application. The 3^rd and 4^th affirmation (filed on 22 April 2009) were filed during the adjournment.

THE TRUSTEES’ COMPLAINTS

(a)   Hong Kong Tiyuan Bioengineering & Technology Co Ltd (“HK Tiyuan”)

4. According to the 1^st Affirmation of Alison Wong, HK Tiyuan was incorporated in Hong Kong on 26 July 2002.  The Bankrupt was one of the 2 shareholders and directors of this company until 1 June 2004 when he sold all his shares of the company (51% of the total shares issued) to his nephew, Mr. Yu Bing, at a consideration of HK$1.  It was less than 2 weeks before the Bankrupt presented his own bankruptcy petition.

5. On 26 November 2004, the Trustees wrote to the Bankrupt requesting him to produce the financial statements of the company, the relevant share transfer agreement and valuation report of the shares for their perusal.  The Trustees investigated into the matter as they suspected that this transaction may be an undervalued one and thus contravening ss 49 and 51 of the Bankruptcy Ordinance, Cap 4.

6. In reply, the Bankrupt claimed that no valuation had been carried out and that the company had a heavy deficit balance.

7. The audited accounts of the company for the year ending 31 December 2003 shown that the total net asset of the company was HK$164,017.94 and the major liability was the shareholder’s loan in the sum of HK$308,984.20.  This loan was due to Mr. Yu Bing who was also the other shareholder and director of the company.

8. In the 4^th affirmation, the Bankrupt further explained that since the company was technically insolvent, the shares were of no value.  As he did not want to have any further involvement in the company, he sold his shares to Mr. Yu Bing and also ceased to be a director of the company.

9. It should be noted that the sale of the shares in question took place in June 2004, i.e. 6 months after the accounting period of the audited accounts mentioned above.  While it may be correct for the Bankrupt to say that the shares were of no value as at 31 December 2003, it is not necessarily so in June 2004.

10. In my view, the Trustees are perfectly right to make the enquiries as they did.  The Bankrupt should provide all the necessary information to the Trustees so as to satisfy them that the sale of the shares was entirely proper.  Given the close relationship between the Bankrupt and his nephew, Mr. Yu Bing, I am of the view that it would not be difficult for the Bankrupt to obtain financial information of the company to support his version.  In this regard, the Bankrupt had done nothing.  He simply repeated his assertion and belief.  That is not sufficient.

11. It is my ruling that the Bankrupt had failed to co-operate in the administration of his estate under this head.

(b)   Beijing Yachen Machine & Electrical Company Ltd (“Beijing Yachen”)

12. Beijing Yachen is a wholly foreign owned company incorporated in Beijing on 28 April 1993.  The Bankrupt was the Legal Representative of this company until 12 August 2004 when Mr. Yu Cheng Jin, the brother of the Bankrupt, became the Legal Representative.

13. The registered shareholder of Beijing Yachen is a Hong Kong company known as Pairing Development Ltd (“Pairing”).  The Bankrupt and a Lau Koon Kee were the shareholders of Pairing each held 50% shareholding.  Pairing was placed into members’ voluntary liquidation back in 1998.

14. By a letter dated 7 February 2005, the Trustees requested the Bankrupt to confirm the status of Pairing and provide financial information and financial statements of Beijing Yachen.

15. During a meeting in Hong Kong on 10 March 2005, the Bankrupt explained that he only let the actual investor of Beijing Yachen use his name/identity to set up the company.  The Bankrupt himself had never involved in the dealings or business of the company.  Thereafter, the Trustees repeatedly requested the Bankrupt to clarify the shareholding in Beijing Yachen.  Nevertheless, there was nothing positive from the Bankrupt.

16. Since after this Application, the Bankrupt did in the 3^rd and 4^th   Affirmations provide more information about his role and involvement in Beijing Yachen.  However, the key information is still missing.  Up till now, the Bankrupt still fails to tell the Trustees who is or are the actual investor(s) of Beijing Yachen.

17. Pairing is a Hong Kong company and it’s liquidation process is subject to Hong Kong law.  Whoever handled the liquidation of Pairing must have to deal with the shareholding in Beijing Yachen one way or the other.  It simply cannot be the case, as put forward by the Bankrupt, that Pairing was wound up and he knew nothing about the shareholding in Beijing Yachen.

18. It is my ruling that the Bankrupt willfully refused to disclose the information of Pairing and Beijing Yachen as requested by the Trustees.  The Bankrupt failed to co-operate with the Trustees in the administration of his estate.

(c)   The Villa House known as 崇德府46號 (“the Villa House”)

19. The Trustees relied on the judgment of the Family Court in FCMC 3474/1999 (HH Judge Christie, 19 February 2001) (“the Judgment”) and requested the Bankrupt to identify the owner of the Villa House.

20. It should be noted that the Judgment dealt with the ancillary relief in the matrimonial matter between the Bankrupt and his former wife, Madam Lee Wai Hung.  The learned Judge came to a conclusion that the Bankrupt procured false documents to show that the Villa House belonged to his father.  The Judge found that the Villa House then valued at RMB3 million was owned by the Bankrupt.  While the Bankrupt was absent in the hearing, the Court found that the Bankrupt voluntarily absent from the hearing.

21. In this regard, the Bankrupt produced a Sale and Purchase Agreement of the Villa House dated 8 November 1994 (“1^st Agreement”) executed by the Bankrupt’s father as proof that his father was the real owner.

22. The Trustees however obtained another copy of sale and purchase agreement of the Villa House also dated 8 November 1994 (“2^nd Agreement”) showing that the Bankrupt was the purchaser.  This copy was obtained from the property developer.

23. In the 2^nd Affirmation, the Bankrupt submitted that it was highly unjustified for the Family Court and the Trustees to conclude that the sale and purchase agreement provided by him was a forged one.  Nevertheless, the Bankrupt did not give any explanation to why there were 2 contracts.

24. In the 3^rd Affirmation, the Bankrupt produced a letter from a Kun Lun Law Office at Beijing to contend that the Villa House was not his property.  Nevertheless, the letter merely stated the conclusion or finding that the Villa House did not belong to the Bankrupt without stating the basis, what search had been conducted and what documents had been reviewed.  It also failed to state the law which determines the ownership of the property.  In my ruling, this letter is of no assistance and I attach no weight to it.

25. In the 4^th Affirmation, the Bankrupt for the first time, stated that he signed the 2^nd Agreement on behalf of his father “who was away at the time and to protect [his] father’s rights”.

26. This explanation is totally not credible.  First, it was first raised almost 4 years after the Trustees first queried this issue.  It should be noted that in the Bankrupt’s letter dated 26 July 2007, he told the Trustees that he cannot offer any explanation as to why there were the 1^st and 2^nd Agreements.  In his earlier letter to the Trustees dated 20 October 2005, the Bankrupt said he had no idea why there was the 2^nd Agreement.  Second, the Bankrupt did not explain why there was such an urgency that required him to sign for his father.  Third, the Bankrupt failed to state what rights of his father he was trying to protect by signing the 2^nd Agreement.  The Bankrupt also failed to explain why the 1^st and 2^nd Agreement were all dated 8 November 1994.

27. Obviously, the Bankrupt is not telling the truth.  It is a clear cut case that the Bankrupt fails to co-operate with the Trustees in the administration of his estate under this head.

(d)   慧苑華僑公寓 (“the Overseas Chinese Apartment”)

28. The property under this head is Room 1391, Unit 1, Building No. 9 Huiyuan Overseas Apartment, Asian Game Village, Beijing.  In the Judgment, the Family Court found that this property was owned by the Bankrupt with an estimated value of RMB2.2 million in 2001. The Trustees requested the Bankrupt to provide information concerning the ownership of this property.

29. Notwithstanding the finding of the Family Court, the Bankrupt told the Trustees that he signed the sale and purchase agreement of this property for his brother, Mr. Yu Cheng Jin.

30. Apart from the declaration of Mr. Yu Cheng Jin confirming the above, the Bankrupt did not produce other documentary evidence to support his version.  If the property really belongs to his brother, the Bankrupt should have no difficulty to obtain evidence to show that his brother paid for the property and, more importantly, to produce title documents of the property.

31. It is my ruling that the Bankrupt failed to co-operate with the Trustees in the administration of his estate under this head.

(e)   北京亞辰培訓中心 (“the Super Villa”)

32. The Family Court accepted that this property was also owned by the Bankrupt and attached a value of RMB3 million. The Trustees made enquiries as to the ownership of the Super Villa.

33. In 2005, the Bankrupt told the Trustees that the property belonged to his father.  The Trustees subsequently found out that this property was transferred from Beijing Yachen to a PRC company known as 北京雅嘉丹尼科技公司 in March 2000 (at that time, the Bankrupt was still the Legal Representative of Beijing Yachen).

34. The Bankrupt, in the 4^th Affirmation, said that he was not a shareholder/director of 北京雅嘉丹尼科技公司.  He is also not related to any director/shareholder of this company.

35. The transaction in 2000 clearly shown that the Bankrupt was not telling the truth or the whole truth.  The Bankrupt must know that the Trustees made the enquiries because of the Judgment.  He should fully and frankly disclose all the information requested to the Trustees.

36. The only conclusion the Court can draw from the conduct of the Bankrupt is that he is trying to conceal his interest, whether direct or indirect, in this property.

(f)    The Matrimonial Home

37. This property is known as Room 301, Chong Chi Building, No. 4 Che Dao Gou Dong Li, Haidian District, Beijing.  The Family Court did not find that this property should be included in the pool of matrimonial assets.

38. The Bankrupt maintained that the property belonged to his father.  However he had not produced any documentary proof.

39. The property is registered in the name of the Bankrupt’s father.  Unless there is something to suggest that the Bankrupt has any interest in it, there is no reason for the Trustees to make any further enquiry or to demand any documentary proof.

40. For this head, I find that the Trustees have failed to prove their case.

(g)   Fund Transfers

41. The Trustees found a number of fund transfers from the Hong Kong Bank accounts of the Bankrupt within 2 years preceding the date of the bankruptcy petition.

42. Details of the transfers are as follows: -

(a)  a total of HK$1,579,000 from savings account to the account of Mr. Ng Yue Boon (no. 474-023181-001);

(b)  a total of HK$1,732,772 from saving account to the account of Fairwin Broking Ltd (no. 600-618128-001); and

(c)  Japanese Yen 10 million (and HK$750,000) outflow and inflow transactions in the Bankrupt’s foreign currency savings account.

43. The Bankrupt explained to the Trustees that his nephew, Mr. Yu Bing, make use of the Bankrupt’s accounts to conduct Mr. Yu’s business in Japan.  The money in the accounts belonged to Mr. Yu.  The Bankrupt stated that Mr. Yu had transactions with Mr. Ng and Fairwin Broking Ltd.  The Bankrupt in his last affirmation maintained that he had already asked Mr. Yu to provide all the necessary information to the Trustees.  He further added that Mr. Yu is not a Hong Kong resident and did not have bank accounts in Hong Kong.  Thus, the Bankrupt let Mr. Yu use the Bankrupt’s bank account to do business in Hong Kong.

44. There is no documentary or independent evidence to support the Bankrupt’s explanation notwithstanding Mr. Yu confirmed the Bankrupt’s version.  It is totally understandable that the Trustees do not accept the explanation of the Bankrupt.  The Bankrupt must provide cogent evidence to show that the money belongs to Mr. Yu.

45. If Mr. Yu really operated the accounts for his business, it would not be difficult for the Bankrupt to procure supporting documents from Mr. Yu.  If the funds in the accounts belongs to Mr. Yu, there must be supporting evidence of deposits/deposits transfers.  Putting forward bare assertions is not sufficient.  I do not accept that the Bankrupt is telling the whole truth to the Trustees.

EXERCISE OF DISCRETION

46. As a whole, I am satisfied that the Trustees have proved their case.

47. This is a serious case as the complaints involved a number of real properties and substantial sums of money.  It is a clear case that the Bankrupt is trying to conceal his assets or financial interests.  This is against the interest of commercial morality and the public interest.

48. I have considered the relevant authorities including Re LI Tat Kong [2000] 3 HKC 360.  It is my ruling that the automatic discharge should be postponed.  I have also considered the authorities cited by Mr. Wan who appeared for the Bankrupt as to the length of suspension.  Having taken into account all the circumstances of this case, a suspension of 3 years is appropriate.

49. I make an order that the relevant period do cease to run for a period of 3 years commencing 25 July 2008.

50. I also make an order nisi that the Bankrupt do pay costs of this application including all costs reserved to be taxed if not agreed.