Re Siu Ngai

HCB733/94

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

Reasons Handed Down : 4 November 1999

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REASONS

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1. This is an application by the Official Receiver to defer the discharge of the Bankrupt that would otherwise have automatically occurred under section 30A(1) and (2)(a) of the Bankruptcy Ordinance, Cap.6.

2. A bankruptcy petition was presented against the Debtor on 21 November 1994. A receiving order was made on 4 January 1995 and an order of adjudication on 13 April 1995. Under section 30A(1) and (2) of the Ordinance, the Bankrupt would have been automatically discharged at the expiration of four years from the date of the adjudication order, i.e. on 12 April 1999. On 19 March 1999, the Official Receiver applied for suspension of the automatic discharge. At the hearing on 1 November 1999, that application was dismissed. The reasons appear below.

3. In the report filed in support of the application, it was stated that the Bankrupt was a director and shareholder of King Kong Industries Ltd. ("King Kong") which was compulsorily wound up on 5 October 1994. In the Statement of Affairs, the Bankrupt admitted that a sum of approximately $79.5 million belonging to King Kong was partly lost by him in a money-lending business in the casinos in Macau, partly lost in stocks and shares speculation, and partly lost in investments in China. The Bankrupt was unable to provide the Official Receiver and trustee in bankruptcy with detailed information and documentary evidence in support of his losses in that it was asserted that most of them were lost after moving home several times and the loss in his money-lending business could not be proved by any document. He had no details of his transactions in stocks and shares, nor even the broker firm which handled the transaction.

4. On 31 October 1998, the petitioning creditor submitted to the Official Receiver a copy of the report on King Kong prepared by Coopers & Lybrand in which it was stated that the Bankrupt personally received advances totalling $66.5 million from the proceeds of sale of paint purchased from the petitioning creditors and the Bankrupt's only explanation was that the monies were gambled away in a Macau casino. The Bankrupt was unable to produce any documentary evidence to support how the money was expended and lost. The Official Receiver considered that further investigation was required, and also that a public examination of the Bankrupt under section 19 would be the only means of obtaining more information from him.

5. The application came before me on 12 April 1999, the day on which the automatic discharge would have operated. The application was adjourned for 14 days and pending determination of the application, it was ordered that section 30A should cease to run from the date of the order. Prior to the first hearing, the Bankrupt had filed an affirmation stating that there was no evidence of any prejudice to the estate, that he had all along kept regular contact with the Official Receiver and was co-operative. He had supplied such documents as he had to a Mr Lam Kwok Yin ("Mr Lam") of the Official Receiver's office who was the officer handling his case and it was with Mr Lam's knowledge and acquiescence that the Bankrupt administered his estate in China since Mr Lam had said that the Official Receiver's office could not send their representative to do anything outside the jurisdiction.

6. On 20 April 1999, the Bankrupt filed a supplemental affirmation giving details of how the money-lending business was set up in Macau and in which he had invested $10 million. This was lost when two borrowers failed to repay. He sought to recover these losses by gambling, and ended up by losing $20 million by the end of 1992. The Bankrupt's evidence concerning the money-lending business in Macau is corroborated by an affirmation of So Wai Bor who was his partner.

7. By a consent summons dated 23 April 1999, the hearing fixed for 26 April was adjourned for a further 28 days. Meanwhile, the Bankrupt filed a second supplemental affirmation regarding his securities trading. Various trading records were produced. In 1992, he had realized about $10 million from selling his securities which was used in part to repay King Kong, but the bulk of it was expended in settling his debts in Macau.

8. The hearings fixed for 14 June, 5 July, 23 August and 20 September were all adjourned by consent on terms that the relevant period for the purposes of section 30A should cease to run pending the determination of the application. The adjournments were to enable the Bankrupt to obtain further information relating to his investment in securities.

9. On 23 September 1999, the Official Receiver filed his second report from which it appears that since the date of the Official Receiver's application, the Bankrupt had made various attempts to retrieve information from different sources with a view to accounting in full the loss he suffered from his investment in the stock market. He had various accounts for buying and selling securities, one of which was with the Standard Chartered Bank in the sole name of his wife Fan Veng Hong from whom he is separated. He does not know her present whereabouts and the bank has refused to disclose account information without the consent of the account holder. As regards his securities investment, the Official Receiver is now satisfied that the Bankrupt has done all that he could.

10. As regards the Bankrupt's businesses in China, on 8 July 1999, the Official Receiver received a letter from one Zhong Hua Guangdong Imports and Exports Company ("Zhong Hua"), enclosing a copy of an agreement dated 10 December 1996 ("the Takeover Agreement") to the effect that Ocean Inn Company Limited ("Ocean Inn") confirmed that the management, fixed assets and other assets of Ocean Palace Restaurant be taken over by Yu Hua Loong Trading Sdn Bhd ("Yu Hua Loong"), the petitioning creditor. The Bankrupt and his wife had an interest in part indirectly through Ocean Inn in a joint venture with a Chinese partner which was a restaurant business under the trade name of Guangzhou Ocean Palace Restaurant. This business had been disclosed to the Official Receiver, but as it was conducted in China, the Official Receiver took no steps to take over the business. Mr Lam of the Official Receiver's office had been informed on 16 April 1996 that the Chinese partner was considering a purchase of Ocean Inn or the Bankrupt's interest in the joint venture. The Bankrupt was advised to refer the offer to the Official Receiver. In September 1996, a meeting was held with one Mr Cheung of Yu Hua Loong and the Official Receiver made clear that it was necessary to have a valuation of the joint venture business. Nothing further was heard. Then in September 1997, the Bankrupt showed a draft agreement to Mr Lam. Again, although the Bankrupt was advised to approach the Official Receiver nothing was heard further from him. At the time, the Bankrupt did provide a copy of the draft agreement to the Official Receiver although the Official Receiver is no longer able to locate a copy of 'Annex 2' referred to in the draft agreement. The Official Receiver's position is that he was not aware that the parties had already executed the Takeover Agreement.

11. The Bankrupt filed a third affirmation to address the second report. The Bankrupt maintained that he had disclosed all documents and all agreements to the Official Receiver and had all along co-operated with Mr Lam in the administration of the estate. He has only one creditor, namely, Yu Hua Loong, and Ocean Palace was a joint venture business with an affairs management centre of a district government of the PRC. After he was adjudicated bankrupt, the Bankrupt and Yu Hua Loong signed a memorandum of intention dated 29 August 1996 outlining the Bankrupt's intention of transferring his interest in Ocean Palace to Yu Hua Loong to offset his indebtedness. It was subsequent to that that a meeting was held with the Official Receiver and Yu Hua Loong. Other meetings then took place at which the Official Receiver was not present. The Bankrupt apparently entered into the Takeover Agreement because he wanted to repay Yu Hua Loong, the only creditor, as much as he could and he genuinely hoped that that transaction could offset his indebtedness to Yu Hua Loong. By removing himself from the management of Ocean Palace, he also removed the embarrassment or practical difficulties of having a bankrupt person as a joint venture partner. The Bankrupt also sought to explain why subsequent correspondence seemed to suggest that there was no agreement between Yu Hua Loong and the Bankrupt. The difficulty arose because Yu Hua Loong did not want to put up funds with the Official Receiver as security for the transfer nor was it prepared to spend money to obtain a valuation as required by the Official Receiver. Formal legal documents were therefore not executed by the parties. But on a de facto basis, the transfer had taken place : Yu Hua Loong had on 18 October taken control of Ocean Palace and has been running the business. Since signing the Takeover Agreement, the Debtor has not had anything to do with Ocean Palace and has not received any benefit from it. As far as the Bankrupt is concerned, he had already relinquished all his interests in Ocean Palace to Yu Hua Loong.

12. When the application was initially made, the Official Receiver had three areas of concern : the Bankrupt's stock market dealings, his money-lending business in Macau and his investments in China. By 24 May 1999, the Official Receiver's continuing concern related to security trading activities only and a breakdown of those activities was sought. As noted above, a number of adjournments were granted in order to enable the Bankrupt to obtain more information relating to the securities trading account. By September, all information that the Bankrupt could obtain in relation to the securities trading account had been obtained. The application was scheduled for hearing on 4 October 1999. Shortly before the hearing, by way of consent, the hearing was further adjourned to 1 November. The reasons for the adjournment was that the Bankrupt had upon receiving the second report filed an affirmation and the Official Receiver required more time to deal with that affirmation. In addition, the Bankrupt had been informed by the Official Receiver that the petitioning creditor intended to oppose the Bankrupt's application for discharge. The Bankrupt's solicitors were endeavouring to obtain an explanation for the delay in making the opposition as well as the grounds therefor. It was the understanding of the Bankrupt's solicitors that Yu Hua Loong was obtaining the necessary information to prepare its case. Shortly before the hearing on 1 November, the parties submitted another consent summons for an adjournment which, inter alia, provided for a public examination of the Bankrupt to be held at a date to be fixed in consultation with counsel's diaries. The original consent summons had been signed not only by the solicitors for the Bankrupt and the Official Receiver, but also by the solicitors for Yu Hua Loong although no application had been made by it to become a party to the proceedings.

13. Notwithstanding the fact that Yu Hua Loong had since the beginning of October made known its intention to oppose the discharge of the Bankrupt, nothing has been done to apply for leave to intervene at this late stage. I saw no reason to make an order in terms of the consent summons and as a result, the matter came on for hearing on 1 November.

14. The three areas of concern that had originally prompted the Official Receiver to oppose the automatic discharge had all been adequately addressed through further evidence filed in the months that have elapsed since the date of the application. It has to be borne in mind that there has been a de facto extension of 6 1/2 months. The Official Receiver's stance is that it had always wished to proceed with a public examination but the lack of funds had been an obstacle. It would appear that the Official Receiver was intending to ride on the coat-tails of Yu Hua Loong who presumably, if allowed to intervene at this stage, would be funding that exercise.

15. In my judgment, it is grossly unfair on the Bankrupt for the application to be further adjourned when the Official Receiver acknowledged that the Bankrupt has all along been fully co-operative. Each adjournment is effectively a de facto postponement of the date of his automatic discharge. The money-lending business in Macau as well as securities trading are issues that have now been fully exhausted. As regards the China assets, the Bankrupt has also given a full explanation. What a public examination of the Bankrupt would now achieve escapes me. It is certainly not apparent from the papers before me.

16. As far as Yu Hua Loong is concerned, not having made an application for leave, it has no locus in the present proceedings. There is no justification now for any further suspension of the operation of the automatic discharge provisions. Accordingly, the Official Receiver's application was dismissed and the Bankrupt discharged from bankruptcy with effect from 1 November 1999.