RE LIN QINGXIONG

HCB 6306/2019

[2021] HKCFI 653

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6306 OF 2019

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J U D G M E N T

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Introduction

1.  On 3 June 2020, this court handed down judgment in these Proceedings (“Judgment”) granting a bankruptcy order (“Order”) against Mr Lin Qing Xiong (“Debtor”).

2.  There is before this court the Debtor’s application by summons dated 2 July 2020 (“Summons”) to rescind the Order under s 98 of the Bankruptcy Ordinance (“BO”). 

3.  In support of the Summons, the Debtor has adduced “fresh evidence” by filing the 2^nd Affirmation of Ngan Wai Ip (his solicitor) dated 2 July 2020 exhibiting a draft 2^nd Affirmation of the Debtor (“Lin 2”) which in turn exhibited a one-page letter (“Li Letter”) dated 28 June 2020 said to have been signed by Mr Li Dongfan (“Mr Li”).  According to Mr Yung for the Debtor, the Li Letter is the only fresh evidence in support of the present application.

Background

4.  The background of these proceedings has been summarised in the Judgment.  For ease of reference, this court will set it out again below (with footnotes excluded):

“1.  There is before this court a bankruptcy petition dated 16 October 2019 (‘Petition’) presented by Guotai Junan Securities (Hong Kong) Limited (‘Petitioner’) against Mr Lin Qing Xiong (‘Debtor’). The Petition is based on the Debtor’s non‑compliance with a statutory demand dated 15 August 2018 (‘statutory demand’) for the sum of HK$223,488,571.93 (‘Debt’).

2.  The Debt arose out of 2 Deeds of Guarantee dated 7 April 2014 (‘1^st Guarantee’) and 12 May 2015 (‘2^nd Guarantee’) signed by the Debtor (collectively ‘Guarantees’) as guarantor in favour of the Petitioner in respect of the indebtedness of 2 securities account holders of the Petitioner viz Merit Lead Investments Limited (‘Merit Lead’), a BVI company wholly owned by the Debtor and Mr Qiu Zhiqiang (‘Qiu’), a business partner of the Debtor.

3.  The execution of the Guarantees by the Debtor and the failure of Merit Lead and Qiu to fully repay their indebtedness to the Petitioner is not in dispute.  At the hearing, Mr Tse confirmed to this court there was no dispute as to the amount of the Debt as such. 

4.  The sole issue for this court is whether the Debtor had raised a bona fide dispute to the Debt on substantial grounds.

5.  The Petitioner is a Chinese securities company listed on the main board of the Hong Kong Stock Exchange and provides diversified financial services including inter alia securities brokerage services.

6.  The Debtor was one of the founders of Wang Tai Holdings Limited (‘Wang Tai’), a company listed in Hong Kong in 2014. He was also Wang Tai’s chairman and majority shareholder at all material times. 

7.  On or about 7 April 2014, Merit Lead opened a securities margin account with the Petitioner (‘Merit Lead Margin Account’) and entered into various agreements with the Petitioner including inter alia a Client Agreement for Securities Trading (《證券交易客戶協議書》) and an Agreement for Securities Margin Trading (《保證金賬戶客戶協議書》) pursuant to which the Petitioner provided margin facilities to Merit Lead for investing in securities.

8.  At the same time, the Debtor executed the 1^st Guarantee in respect of Merit Lead’s indebtedness to the Petitioner.  The 1^st Guarantee provides, inter alia, that:

(1)   The Guarantor will pay GTJAS on demand and hereby guarantees the repayment to GTJAS on demand of all sums of money which now are or shall hereafter become due to GTJAS from the Principal in respect of any transaction in the account of the client at GTJAS with all interest, costs, commission and other charges and expenses which GTJAS may charge against the Principal and all costs, charges and expenses which GTJAS may incur in enforcing or obtaining payment of the sums of money due to GTJAS from the Principal.  It shall not be necessary for GTJAS to make any demand on or take any action against the Principal before making any demand on or recovering payment from me/us (Clause 2).

(2)   This guarantee shall continue in force and be a continuing guarantee and shall be applicable to the whole outstanding balance that may become due to GTJAS from the Principal (Clause 3).

(3)   So long as there are any monies outstanding under the Principal’s Account with GTJAS, this guarantee shall be irrevocable and binding as a continuing security on me/us, my/our assigns, executors and administrators (Clause 10).

(4)   It is understood and agreed that none of the terms or provisions of this guarantee may be waived, altered, modified or amended except in writing duly signed for and on GTJAS’s behalf (Clause 24).

9.  Subsequently, on or around 7 May 2015, the Petitioner as lender issued a facility letter (保證金貸款確認書) (‘Merit Lead Facility Letter’) for the advancement of HK$145,000,000 to Merit Lead which was countersigned by Merit Lead as borrower and by the Debtor, Qiu and another as guarantors on 12 May 2015.  Under the terms of the Merit Lead Facility Letter, Merit Lead should pledge not less than 272,000,000 Wang Tai shares into the Merit Lead Margin Account as security.  In about mid-2015, the Wang Tai shares were pledged with the Petitioner.

10.  On or about 16 April 2014, Qiu opened a securities margin account with the Petitioner (‘Qiu Margin Account’) and entered into various agreements with the Petitioner including inter alia a Client Agreement for Securities Trading (《證券交易客戶協議書》) and an Agreement for Securities Margin Trading (《保證金賬戶客戶協議書》) pursuant to which the Petitioner provided margin facilities to Qiu for investing in securities.

11.  Subsequently, on or around 7 May 2015, the Petitioner as lender issued a facility letter (保證金貸款確認書) (‘Qiu Facility Letter’) for the advancement of HK$63,000,000 to Qiu which was countersigned by Qiu as borrower and by the Debtor, Merit Lead and another as guarantors on 12 May 2015.  Under the terms of the Qiu Facility Letter, Qiu should also pledge his Wang Tai shares into the Qiu Margin Account as security.

12.  At the same time, the Debtor executed the 2^nd Guarantee as guarantor of Qiu’s indebtedness to the Petitioner.  The 2^nd Guarantee contained the same terms as stated in paragraph 8 above.

13.  By a letter dated 9 March 2018, the Petitioner demanded the Debtor, as guarantor, for payment of HK$149,968,546.64, being Merit Lead’s indebtedness under the Merit Lead Margin Account as at that day. 

14.  On 15 August 2018, the Petitioner issued the statutory demand to the Debtor demanding payment of HK$223,488,571.93, being the total indebtedness of Merit Lead and Qiu.”

5.   In the Judgment at [19] and [22], this court explained that, on the basis of the Debtor’s evidence, the real dispute was whether there was actual release by the Petitioner of the Debtor’s liabilities under the Guarantees upon Mr Li agreeing to take up all of his liabilities to the Petitioner and becoming in effect the guarantor of Merit Lead and Qiu in around April 2018 (“Purported Dispute”).  As confirmed by Counsel for the Debtor at the hearing of the Petition, his “definitive” case was that there was actual release of the Debtor by the Petitioner, instead of a mere promise to do so.

6.   At [23] of the Judgment, this court found the evidence adduced by the Debtor was neither sufficiently precise nor believable. The reasons were set out in [23] - [30] of the Judgment.  Those reasons are helpfully summarized by Ms Au in her skeleton submissions as follows:

(1)  First, the Debtor’s case is based on nothing but his own self-serving bare assertion.

(2)  Second, there is no direct documentary evidence to support the Debtor’s assertion that the Petitioner has released the Debtor’s liabilities under the Guarantees or Mr Li had become the guarantor of Merit Lead and Qiu.

(3)  Third, it is improbable that Mr Li would be willing to take up all of the Debtor’s liabilities (standing at a total of HK$209,682,979.51 as at 18 March 2018) in return for shares which were worth only around HK$24 million.

(4)  Fourth, the narrative at [20] - [21] of the Debtor’s affirmation about the first and second meetings with Ms Choong Sze Hua, associate director of the Petitioner, and Mr Zhu Jingshi, senior manager of the Petitioner, was too imprecise to give any meaningful support to the Debtor’s case.

(5)  Fifth, the available documentary evidence before this court tended to undermine, rather than support, the Debtor’s case.  In particular, nothing in the Letter of Intent signed by Mr Li suggested that he had already become the guarantor of Merit Lead and Qiu.  Mr Li only described himself as an “independent third party”.

(6)  Sixth, the Debtor had failed to reply to the statutory demand and demand letter dated 27 August 2018.  His failure to immediately point out, upon receipt of the statutory demand and the said demand letter, that he had already been released from his liabilities under the Guarantees was an indication that his so-called defence was a late fabrication.

Deliberation

7.   Section 98(1) BO provides:

“The court or the Registrar may review, rescind or vary any order made by it or him, as the case may be, under its or his bankruptcy jurisdiction.”

8.   The governing legal principles are not in dispute.  They have recently been summarised by DHCJ Dawes SC in Re Chan Sik Chung Lhamshirman unrep, HCB 8969 of 2016, 26 June 2020 at [11]:

(1)  The Court’s power under section 98 is in a proper case almost without limit: Wing Lung Bank Ltd v Ho Shiu-sun [1986] HKLR 1134, 1140I.

(2)  The Court must be cautious in exercising its own discretion, and in practice the exercise of the discretion will normally involve exceptional circumstances, such as the presence of fresh and cogent evidence as would, if unanswered, furnish grounds for reversing or varying the original order of the Court: Zhang Sabine Soi Fan v The Official Receiver unrep, HCB 472 of 1989, 21 May 1999, Le Pichon J at pp 2 - 3.

(3)  The Court should not review its order simply on the basis that the applicant wants to present essentially the same facts and the same arguments but more forcefully or attractively:  Ross v HMRC [2012] EWHC 1054 (Ch) at [11] - [12] (Norris J); Papanicola v Humphreys [2005] 2 All ER 418 at [25] - [26], [34] (Laddie J).

9.   Similarly, in Re A Debtor [1993] 2 All ER 991, 995b and 996h, Millet J (as he then was) observed that “the jurisdiction ought to be rarely exercised” and that “any fresh evidence must be cogent evidence that the debt is bona fide disputed.  Where credible, it obviously need not be incontrovertible ...”.

10.   For the purpose of this application, this court can concentrate on the first reason for rejecting the Purported Dispute set out in [24] of the Judgment:

“ First, the Debtor’s case is based on nothing but his own self-serving bare assertion. There is no corroborative evidence from Mr Li. If Mr Li had happily agreed to take up all the Debtor’s financial responsibilities and debts with the Petitioner, he should be willing to make an affirmation in support of the Debtor’s case.”

11.   Mr Yung submits that the Li Letter deals with 1 important concern of this court as expressed in the Judgment ie the lack of corroborative evidence.  He submits the letter is such corroborative evidence.  Mr Yung further submits that the Li Letter sufficiently tips the scales in favour of necessitating viva voce evidence as it involves disputed questions of facts which should not be decided in a bankruptcy petition. 

12.   On the other hand, Ms Au submits, and this court agrees, that the Li Letter does not assist the Debtor at all. 

13.   First, there is no proper explanation as to why the Debtor did not adduce any evidence from Mr Li in support of his case at the hearing of the Petition.  The only excuse put forward by the Debtor in Lin 2 is that “Mr. Li was, for whatever reason, then reluctant about the consequences of submitting any evidence”.  Either Mr Li had not explained the reasons for his reluctance to the Debtor or, if he had, the Debtor himself was reluctant to state those reasons in Lin 2.

14.   Second, there is no explanation in Lin 2 as to why Mr Li was not prepared to swear an affidavit supporting the Debtor’s case. As Ms Au submits, the irresistible inference is that, notwithstanding the Debtor’s plea for help, Mr Li was reluctant to say anything on oath.  This casts considerable doubt on the reliability of the Li Letter.

15.   Third, there is conspicuous silence in the Li Letter as to whether Mr Li had already taken up the Debtor’s liabilities under the Guarantees.  As this court stated earlier, the real dispute is whether there was actual release by the Petitioner of the Debtor’s liabilities under the Guarantees upon Mr Li agreeing to take up all of his liabilities to the Petitioner and becoming in effect the guarantor of Merit Lead and Qiu in around April 2018.  If the Debtor’s case were true, one would expect Mr Li to say so in no uncertain terms. 

16.   Instead, Mr Li was particularly vague in his letter.  In the 1st paragraph, he said:

“… In about early 2018, I negotiated with Mr. Lin Qingxiong (‘Mr. Lin’) on the purchase of shares of Wang Tai Holdings controlled by him. At that time, Mr. Lin told me that the relevant shares were pledged to Guotai Junan Securities (Hong Kong) Limited (‘Guotai’) as security for some of his debts and, unless those debts were discharged beforehand, the sale and purchase of these shares could not be processed. At that time, I raised that if the conditions were appropriate, it could be proposed to Guotai that the matters in relation to the debts owed, the discharge of pledge and transfer of shares would be handled by myself.” (emphasis added)

17.   Mr Li did not say what the appropriate conditions were and he certainly did not say he agreed to take up the Debtor’s indebtedness to the Petitioner. 

18.   In the final paragraph, Mr Li said:

“Thereafter[1], I myself was busy in other businesses and had not taken the initiative to follow up. …”

19.   To conclude, this court is of the firm view that the Li Letter is hardly cogent evidence as would furnish grounds for rescinding the Order. 

Disposition and costs

20.   For the above reasons, the Summons is hereby dismissed.

21.   Since both parties have already made submissions on costs at the hearing, there shall be an Order that costs be to the Petitioner, to be taxed if not agreed, and paid by the Debtor forthwith, certificate for counsel.