RE HO KANG POR ALEX

HCB 21031/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 21031 OF 2002

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D E C I S I O N

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Introduction

1. This is the Petitioner's application for a Bankruptcy Order against the judgment debtor ("the Debtor") pursuant to section 6 of the Bankruptcy Ordinance, Cap 6. The Petitioner obtained judgment in the District Court in the amount of US$49,187.67 together with interest against the Debtor on 24 July 2002. A Statutory Demand dated 25 July 2002 in respect of the judgment debt was served on the Debtor personally on 19 August 2002. The Debtor failed to comply with the Statutory Demand. He resisted the petition on the basis that the District Court Judge erred in entering judgment against him, that he had made offers to secure or compound for the debt and the offers had been unreasonably refused. The issues are whether the requirements under section 6 for presenting a bankruptcy petition are satisfied and whether I should exercise my discretion to dismiss the petition under section 6D(3).

The judgment debt

2. The Debtor sought to challenge the correctness of the judgment entered against him in the District Court in DCCJ 17027/2001. The Petitioner, a Mr Lai and a British Virgin Islands company controlled by the Debtor are shareholders of Sculpture Arts Creatives Limited ("Sculpture Arts"). The judgment debt arose out of his personal guarantee to repay his company's share of a loan advanced by the Petitioner to Sculpture Arts towards the purchase of one set of specially adapted sculpturing machine. The Debtor alleged that there was an element of deception in the purchase as the purchase price was excessive, being twice of what the Petitioner paid for a similar set of machine for its related company in Singapore. The Petitioner explained that it was within the common knowledge of the parties that the machine itself did not have much value and the price was almost entirely for the purchase of the copyright of Photo Sculptures' products and the right to learn the special techniques to manufacture the products. The price difference between Hong Kong and Singapore is due to the difference in the copyright element of the price charged by Photo Sculptures in view of the different market potential in the two different localities.

3. Before the bankruptcy proceedings were commenced, the Debtor had acknowledged the debt in his letters to the Petitioner dated 20 and 29 September 2001 respectively. He only asked for more time to pay. After his unsuccessful attempt to appeal against the judgment of the District Court, he negotiated with the Petitioner for settlement. Both liability and amount were not in dispute.

4. The Debtor also alleged that Mr Yu of the Petitioner was the chairman and director of Sculpture Arts and the person having control of the machine, and by failing to sell the machine had caused and connived at the default of Sculpture Arts to repay the Petitioner as principal debtor. Mr Yu explained in his affirmation that he had made several attempts to sell the machine, but was unsuccessful as the machine is a specialist machine and has no market in Hong Kong. The Debtor's allegations had been canvassed in the District Court but were rejected.

5. Next, the Debtor accused the Petitioner of theft. He alleged in his affirmation of 10 March 2003 that he had no knowledge of the whereabouts of the machine and that despite requests for information the Petitioner did not respond. This is in contradiction with his affirmation dated 8 March 2002 filed in the District Court Proceedings that back in 1998 or 1999 Mr Yu had told him that the machine was kept in the Petitioner's warehouse. Further, in its affirmation in reply, the Petitioner exhibited a letter dated 20 February 2003 disclosing the whereabouts of the machine and inviting the Debtor to attend a shareholders' meeting on 13 March 2003 to discuss, among other things, the disposal of the machine. This letter was sent by fax and by registered mail to the Debtor, but the Debtor refused to accept the registered mail which was returned to the Petitioner through the post. This shows mala fide in his allegation of lack of knowledge of the whereabouts of the machine and his allegation of deception and theft. Yet, despite that, the Debtor lodged a complaint of suspected theft to the police on 25 February 2003. After making inquiries, the Police confirmed by a letter dated 10 April 2003 that no criminal activity had been discovered.

6. The debt had been determined by the District Court. The Debtor applied for leave to appeal and his application was refused on 22 August 2002. There is therefore a final judgment against him in respect of the debt and he may not re-litigate in the bankruptcy proceedings. Hence, I am satisfied that the judgment debt of US$49,187.67 together with interest thereon is proved, that it is for a liquidated sum and payable forthwith.

Whether the debt is unsecured

7. On 4 February 2003 the Debtor raised some queries before Deputy High Court Judge Poon about the existence of the machine which triggered the Court's concern as to whether the machine would amount to security of the debt. As I have mentioned above, the Debtor's allegation of lack of knowledge of the machine was made in bad faith. According to the Petitioner, since the closure of the business of Sculpture Arts in about the end of 1996 or beginning of 1997, the machine has been stored in the Petitioner's warehouse. The Petitioner was forced to take over the responsibility of filing annual returns for Sculpture Arts. The machine was the property of Sculpture Arts in which the Petitioner, the Debtor and Mr Lai are shareholders. It is not a property belonging to the Debtor and is not being kept in the Petitioner's warehouse by the Petitioner as a security for the judgment debt. Hence, the debt is unsecured.

Debtor's inability to pay

8. The Statutory Demand in respect of the debt was served personally on the Debtor on 19 August 2002. The Debtor has not made any application for the Statutory Demand to be set aside. The judgment debt is payable immediately and with which the Debtor has no valid reason to dispute. He has failed to comply with the Statutory Demand. By virtue of section 6A, he appears to be unable to pay the debt for the purpose of section 6(2)(c).

9. In addition, as disclosed by the Debtor in his document dated 3 December 2002, his total indebtedness exceeded $4 million. The great majority of his indebtedness is in respect of credit card debts. This raises a strong inference that he is unable to pay the judgment debt.

10. Accordingly, I am satisfied that the requirements under section 6(2) for presenting the petition are satisfied. The next issue is whether the Petitioner has unreasonably refused the Debtor's offers to secure or compound for the debt.

The Debtor's offers and the Petitioner's refusal

11. The Debtor had made a number of offers to secure or compound for the debt. On 29 November 2002, he offered to pay $100,000.00 on 6 December 2002 and monthly payment of $10,000.00 with effect from 6 January 2003 and offered his collection of red wine, drawings and synthetic resin bills worth $300,000.00 as security. But when that was accepted by the Petitioner on 2 December 2002 subject to valuation of the collection of red wine, drawings and resin bills, the Debtor unilaterally withdrew his offer of security by his letter dated 3 December 2002. Instead he asked for the collection to be applied towards payment of the debt, i.e. effectively for the collection to be sold to the Petitioner. The Petitioner was not obliged to accept a forced sale.

12. The second offer was made by the Debtor in his letter dated 9 December 2002 in which he offered three monthly instalments of $100,000.00 in December 2002, January 2003 and February 2003 and the balance of $104,310.00 plus interest to be paid on 20 March 2003. Acting in good faith, the Petitioner sought an adjournment of the hearing of the petition on 12 December 2002 so as to allow the parties more time to negotiate. But the Debtor took no steps to negotiate.

13. A month later, on 9 January 2003, the Debtor made the third offer in his letter to the Petitioner's solicitors. He offered two monthly instalments of $50,000.00 on 15 January and 15 February 2003 and thereafter monthly instalments of $10,000.00. Having regard to the Debtor's repeated changes in offers and his huge indebtedness of $4 million, the Petitioner considered there was no reasonable prospect of the Debtor honouring the payment schedules proposed and therefore rejected the offer.

14. Lastly on 20 January 2003, the Debtor made the fourth offer of five instalments of $50,000.00 each from January until April 2003 and thereafter monthly instalments of $10,000.00. For the same reason, the Petitioner rejected the offer.

15. The Debtor does not impress me as a person genuinely seeking to contest the petition. He made false allegations, some of which were blatantly false and even out of bad faith. His allegation of lack of knowledge as to the whereabouts of the machine and his complaint of theft to the police are blatant examples of mala fide. In view of the frequent changes in his offer, all except the fourth one were for the worse, I do not think the offers were genuine. What he did bore the hallmarks of deliberate delay for the purpose of keeping the Petitioner out of its money. In view of his indebtedness, I do not think there is a reasonable prospect of his honouring the payment schedules proposed. I do not consider the Petitioner's rejection of the offers unreasonable.

Conclusion

16. I am satisfied that all the requirements under section 6 of the Bankruptcy Ordinance for presenting a bankruptcy petition have been satisfied and that the judgment debt has not been paid. I am not satisfied that the Debtor has made any offer to secure or compound for the debt which has been unreasonably refused by the Petitioner. Accordingly, I make a bankruptcy order against the Debtor with costs including all costs reserved, to be taxed if not agreed and be paid out of the estate of the Debtor.