RE NG CHIN HO

HCB 9808/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCYPROCEEDINGS NO. 9808 OF 2007

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Re:  NG CHIN HO（伍展豪）

Ex Parte:  NG CHIN HO（伍展豪）, the Debtor

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D E C I S I O N

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1.  This is a petition for bankruptcy presented by Mr Ng Chin-ho in respect of himself.  Mr Ng says in his petition that he has assets of about HK$800,000, largely in the form of a piece of property in which he has a half-interest which was said in his petition and the accompanying lists of assets and liabilities to be worth some $1.6 million, thereby giving a value of $800,000 for his half-share, the property being held by him and another person as joint tenants in equal shares.

2.  The property is subject to a mortgage of which some HK$160,000-odd or HK$170,000-odd is outstanding in favour of the Hongkong and Shanghai Banking Corporation Limited.

3.  Mr Ng says that he has substantial debts, and in his statement of affairs attached to his petition he discloses the existence of debts of in the range of HK$1.2 million owed to six credit card companies and three individual creditors.  In his list B he only named two of the creditors.  However, the third creditor, Mr Chung Yuk-man, was identified in a separate part of his statement of affairs where he dealt with an outstanding judgment against him in Mr Chung’s favour.  The credit card debts come to about $750,000 or $800,000.  There are two other individual creditors, who are owed a total of around HK$200,000, and then there is Mr Chung, who is owed $50,000-odd in respect of a judgment of the District Court which he obtained against Mr Ng, together with a further sum in respect of the costs of the District Court action in which he obtained that judgment, in respect of which Mr Chung has presented a bill which has not yet been taxed of somewhat over HK$200,000.

4.  The petition is opposed by Mr Chung, and the basis for his opposition appears in his affirmation filed in opposition to these proceedings.  In essence, it appears that Mr Chung is understandably aggrieved that he has been unable to effect any real recovery in respect of the judgment which he obtained against Mr Ng arising out of a sale of Mr Ng’s property to Mr Chung which fell through when Mr Ng apparently decided to accept a better offer that he had received from someone else.  On failing to obtain any compensation from Mr Ng, Mr Chung felt compelled to take legal proceedings, which resulted in the District Court judgment and award of costs in his favour.

5.  When the judgment debt went unpaid, Mr Chung, as he was perfectly entitled to do, took out proceedings to obtain a charging order over Mr Ng’s property.  He obtained a charging order nisi, but before the charging order could be made absolute, Mr Ng filed his petition for his own bankruptcy.

6.  Mr Chung considers that this may have been done in order to spite him or in order to prevent him from getting the fruits of his victory in the litigation against Mr Ng.  He is particularly concerned at the timing of the application for Mr Ng’s own bankruptcy, coming, as it did, only after he obtained his charging order nisi, but before that charging order could be made absolute.

7.  Mr Tibbo, who appears for Mr Ng, helpfully drew my attention to the decision of the House of Lords in Roberts Petroleum Limited v Bernard Kenny Limited [1983] 2 AC 192.  That case concerned a company against whom a judgment was obtained in respect of which a charging order nisi was obtained in aid of execution.  However, on learning of the charging order nisi, the company decided that it should put itself into liquidation and resolved to have itself wound up.  It appears that this was done with a view to depriving the judgment creditor of the opportunity of becoming a secured creditor of the company.

8.  In that case, the creditor sought to have the charging order made absolute, and this was initially done by the master.  The master’s judgment was reversed on appeal by the judge, who held that the supervening liquidation was a reason why the charging order nisi should not be made absolute.  The judge was reversed by the Court of Appeal, and the matter then went to the House of Lords, where it was held that where a creditor held a charging order nisi over land owned by a company in favour of a judgment creditor, if, before the court considered whether to make the order absolute, a statutory scheme for dealing with the company’s assets was irrevocably imposed on the company by resolution or a winding-up order, the court should, when it came to make that consideration, exercise its discretion by refusing to make the order absolute.  By so exercising its discretion, the land would fall into the statutory scheme for dealing with the assets for the benefit of all creditors and a judgment creditor who had, at the time the statutory scheme came into being, no more than a defensible right to retain the asset, would be prevented from gaining an advantage over the general body of unsecured creditors.

9.  In coming to that conclusion, the House of Lords took the view that where a debtor took steps to have his assets placed into the statutory scheme which applies in liquidations of companies, and bankruptcies in relation to individuals, so as to have the company’s or the individual’s debt and assets dealt with in a global manner, with all the assets being realised for the benefit of his creditors who would, subject to any security that they might hold, receive a pari passu distribution out of those assets, that policy should take precedence over an individual creditor’s right to seek to obtain security which he had not yet completed.

10.  The granting of the charging order nisi only gives a provisional security to the creditor concerned and it does not become a complete security until the order is made absolute.  The House of Lords held that there was nothing improper in the company in that case seeking to prevent the provisional security from becoming completed by the institution of liquidation in respect of the company itself.

11.  The House of Lords made it clear that there was nothing improper in either a judgment creditor seeking to secure himself or itself or in a judgment debtor taking steps to prevent that security being obtained.  As Lord Brightman said,

“It is clear from the evidence and indeed it is common ground that Roberts applied to the District Registrar for a charging order in the hope of obtaining an advantage over other unsecured creditors, and that the shareholders of Kenny, on professional advice, put the company into voluntary liquidation at short notice in the hope of depriving Roberts of that advantage.  Neither step nor counterstep casts any discredit on those involved.  There was nothing in the nature of sharp practice on either side, and nor has this been suggested in your Lordships’ house.  A person who had the misfortune to have given credit to a company which runs into financial difficulties has every right to seek to secure himself.  Any such company or its other creditors have every right to hasten liquidation in order to thwart such a purpose.”

12.  With respect to Mr Chung, that seems to me to be precisely the position here.  Mr Chung, having been in the unfortunate position of obtaining a judgment against Mr Ng which has gone unpaid, had every right to take out the application for a charging order nisi and to seek to proceed with it and obtain a charging order absolute.  But by the same token, on learning of the charging order nisi being made, Mr Ng had every right to consider his position and to take out bankruptcy proceedings against himself if he was in a position to do so.

13.  Although Mr Chung has suggested or clearly suspects that Mr Ng has taken out these proceedings in order to spite him, I have to say that there is nothing in the evidence that would justify that conclusion being drawn by the court.

14.  It seems to me that it is necessary to consider the financial position of Mr Ng, and on the evidence which has been put before the court, largely by Mr Ng himself, it does appear that Mr Ng is clearly insolvent and that his assets are clearly far less than the liabilities which he currently has.

15.  In those circumstances, it seems to me that Mr Ng is perfectly entitled to petition for his own bankruptcy.  It has to be said that the step of petitioning for one’s own bankruptcy is not a matter that would ordinarily be taken lightly.  Being bankrupt carries with it considerable disadvantages in one’s commercial dealings.  It will be difficult for Mr Ng to obtain credit, or at least more difficult for him to do so than if he were not bankrupt.  His bankruptcy may well stand against him in the future when he seeks to borrow money or obtain credit from other sources.  Mr Ng will not be in a position to hold certain offices, such as that of a director of a company, for such time as he is and remains bankrupt.  During the period of his bankruptcy his affairs will not be in his own hands but will be largely supervised by his trustee in bankruptcy, whether the Official Receiver or someone else, and he will have to report to them; and, although he is presently unemployed, should he in future have employment which produces income during the period of his bankruptcy, there is every possibility that the Official Receiver will seek to obtain an income payments order so that any surplus of that income over and beyond Mr Ng’s minimum requirements for his own support may be obtained for the benefit of his creditors.

16.  It goes without saying that all of Mr Ng’s assets will also be vested in his trustee for distribution to his creditors and the trustee will have the power to investigate his financial position with a view to ascertaining whether there are indeed any other assets which he has not so far disclosed.

17.  In those circumstances, I do not think it can necessarily be assumed that in seeking his own bankruptcy, Mr Ng is taking what might be called an easy option.

18.  Mr Chung has also raised concerns about the fact that Mr Ng’s debts appear to be quite substantial.  He points in particular to the size of the credit card debts and has queried when these were incurred.  Mr Ng, for his part, has responded on affidavit to say that these debts have been outstanding for some time but the credit cards in question were all obtained some time ago when he did have employment, and that in the circumstances there is nothing untoward or improper in the fact that he is burdened with these debts.

19.  At the end of the day, this too is a matter that can, and no doubt will, if necessary, be looked into by the Official Receiver, who will be able to consider the circumstances in which Mr Ng became bankrupt, and he will no doubt look into all of the debts that are claimed by any of Mr Ng’s creditors with a view to seeing whether or not they are genuine debts which ought to be admitted to proof in Mr Ng’s bankruptcy.

20.  In those circumstances, it seems to me that as Mr Ng is, on the face of it, clearly insolvent, it would be appropriate for me to make the bankruptcy order which he seeks.  Although this will deprive Mr Chung of the opportunity to have secured himself in respect of the judgment debt which he has obtained, it will not affect his recovery of that judgment debt to the extent that Mr Ng has assets out of which a dividend can be paid.

21.  For those reasons, I will make the bankruptcy order that is sought in respect of Mr Ng.

(Submissions and ruling on costs)