RE SNG ALLAN, also known as SNG HOCK SENG

HCB 3651/2018

[2018] HKCFI 2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3651 OF 2018

____________

____________

______________________________________________

R E A S O N S   F O R   J U D G M E N T

______________________________________________

1.  The bankruptcy petition in this case was based on the outstanding indebtedness of the respondent to the petitioner under the securities account agreements. The only ground on which Mr Yim, who appeared on behalf of the respondent, opposed the petition was that, he contended, the petitioner had failed to mitigate its losses and set off the value of shares held as security for the debt. The complaint as I understood it is that the petitioner wrongfully failed to realise the shares at the time of the respondent’s default or at any time thereafter before the shares were eventually suspended from trading.

2.  The respondent asked for an opportunity to adduce expert evidence on the common practice in the industry of realising the security upon the client’s default in meeting margin calls, and on the value of the shares held as security, which have been suspended from trading.

3.  I do not see any substance in these requests.  The respondent had had the statutory demand since 30 May 2018 but had not been able to point to any provision in the agreements with the petitioner that imposed any obligation on the petitioner to sell the shares held as margin security at any particular time.  Nor is there any basis whatsoever to think that there can be any such implied obligation arising from any industry practice.  The suggestion that there is any such trade custom seems to me to be mere wishful thinking.

4.  As to the value of the shares held as security, the 400,000 Hanergy shares (stock code 00566.HK) have been suspended since 20 May 2015 whereas the 51,000,000 Tech Pro shares (stock code 03823.HK) have been suspended since 9 November 2017.  According to Mr Yim, their last trading prices before the suspension were HK$3.910 and HK$0.068 respectively.  Even assuming the shares still had value according to those prices, the total amount would only come to HK$5,032,000, which was a far cry from the approximately HK$49 million owed to the petitioner. 

5.  The petitioner had indeed put a nil value on the shares in the petition pursuant to s 6B(1)(b) of the Bankruptcy Ordinance (Cap 6).  The respondent did not argue that such estimates were a sham or that the statutory demand (which also estimated a nil value) failed to comply with rule 44(5) of the Bankruptcy Rules, despite the fact that Cheng Hung Kit v Tsoi Chik Sang Lawrence [2018] HKCA 396, a recent decision concerning that rule, had been mentioned by Mr Oh on behalf of the petitioner to be distinguished.  In any event it is well established that the petitioner is bound by the estimated value of the security put in a petition, and cannot take any benefit in the administration of the bankruptcy except on the basis of that estimate.

6.  Mr Yim asserted that if the shares had been realised earlier at the time of the default, the proceeds of sale would have been sufficient to meet the outstanding indebtedness. There was no evidence to support this, or even any numbers obtained from publicly available sources. But this was in any event quite immaterial, as there was no arguable case that the petitioner breached any duty in not selling the shares at that time.  So far as the statutory demand was concerned, rule 44(5) required the demand to state the value of the security as at the date of the demand.  As at that date (namely, 15 March 2018), the shares had of course long been suspended from trading. 

7.  For these reasons, I did not see any point in having expert evidence as submitted by the respondent.  The usual bankruptcy order was accordingly made.