RE YAU CHIN CHI

HCB 7916/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7916 OF 2013

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REASONS FOR DECISION

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Introduction

1.  This is a debtor’s petition (“Petition”) presented on 1 November 2013 by Yau Chin Chi (“Debtor”) for his own bankruptcy.

2.  The Petition was opposed by Dah Sing Bank Limited (“Bank”), an unsecured creditor.

3.  At the end of the hearing, this court was satisfied that the Debtor was unable to pay his debts and made the usual bankruptcy order, with reasons to be handed down later.

4.  These are the court’s reasons.

Background

5.  The Debtor is in his mid-40s. He used to live on his own but is now living with his parents in a flat in Tuen Mun owned by his elder sister.

6.  Immediately prior to the Petition, the Debtor was employed as a logistical assistant in a company called Cornwall Contracting Co. Ltd.  (“Cornwall”) earning a monthly basic salary of HK$12,000. He said his employment with Cornwall was terminated on 29 October 2013. This is borne out by a receipt prepared by Cornwall (“Receipt”) which shows the payment to the Debtor of HK$8,022.20, being 29 days of salary, pro‑rata double pay, one-month salary in lieu of notice etc. up to 29 October 2013, less monies previously borrowed by him from Cornwall.

7.  The Debtor told this court that he had been unemployed for a few months and only managed to find another employment in March this year. His present salary as a warehouse attendant is about HK$9,000, as evidenced by a cheque dated 3 June 2014 issued by Cheung Kee Tyre Trading Limited to him.

8.  On 15 October 2013, the Debtor entered into a Credit Mastermind Instalment Loan Agreement (“Agreement”) with the Bank. According to the Agreement, the Debtor borrowed the principal sum of HK$238,000 (“Loan”) and contracted to repay the Loan and interest by 72 equal monthly instalments of HK$5,554 commencing on 15 November 2013 and thereafter on the 15^thday of each and every succeeding month until full repayment.  Under the Agreement, the Debtor confirmed that:

(1) the Loan was for the sole purpose of repaying his other outstanding unsecured debts;

(2) his personal loan from Prime Credit Limited (“PrimeCredit”) would be repaid and terminated.

9.  Pursuant to the Agreement, the Bank issued two cashier orders, one in the sum of HK$190,000 payable to PrimeCredit and the other in the sum of HK$48,000 payable to the Debtor. The Debtor told this court he used the money to settle his personal loans from his friends.

10.  On 1 November 2013, the Debtor presented the Petition and made a statement of affairs (“Statement of Affairs”) which was verified on oath. In the Statement of Affairs, the Debtor disclosed:

(1) He had no secured creditors.

(2) He had 4 unsecured creditors viz the Bank for the sum of HK$238,000, Promise (HK) Company Limited (“Promise”) for the sum of HK$70,000, HSBC for the sum of HK$15,514 and China Wealth Financial Planning Centre (“China Wealth”) for the sum of HK$35,700. His total outstanding indebtedness was said to be HK$359,214.

(3) His only asset was a HSBC savings account with zero balance, and HSBC/Hang Seng Bank MPF accounts with a balance of HK$32,717.

11.  As far as unsecured loans are concerned, only the sum due to China Wealth was immediately repayable in full prior to the Petition. As for the other three, the Debtor’s obligation to HSBC was to make a minimum payment of a few hundred dollars per month (depending on the extent to which he made use of the maximum facility of HK$16,000), while his obligations to Promise and the Bank were to pay a fixed monthly instalment of HK$2,270 and HK$5,554 respectively.

12.  The amount owed to Promise was under a revolving credit. While the credit limit was HK$70,000, the Debtor clarified in the witness box that he had only utilised about HK$30,000. On that basis, his total outstanding indebtedness should be HK$319,214 rather than HK$359,214.

The law

13.  Section 10 of the Bankruptcy Ordinance (“BO”) provides:

“(1) A debtor’s petition may be presented to the court only on the ground that the debtor is unable to pay his debts.”

14.  Section 33 BO provides:

“(1) The court may annul a bankruptcy order if it at any time appears to the court that –

(a) on any grounds existing at the time the order was made, the order ought not to have been made…”

15.  In Re Coney (A Bankrupt) [1998] BPIR 333, David Oliver QC, sitting as a deputy judge of the High Court, held the test of whether a person was unable to pay his debts within the meaning of section 272(1) of the Insolvency Act 1986[1] was whether he was unable to pay his debts at the time when they were due. In other words, the court applies a “cash‑flow” test of insolvency, as opposed to a “balance sheet” test: Fletcher The Law of Insolvency 4^th Ed. para. 6-088; Paulin v Paulin [2010] 1 WLR 1057 [41].

16.  If it is clearly shown that, at the time the debtor presents his petition, he can in fact pay those debts as they fall due so that he has no reasonable grounds for alleging he is unable to pay his debts, his act in presenting a petition can be challenged as an abuse of process and the petition may be dismissed: Re Chow Man Kwong ex p Chow Man Kwong [2001] HKLRD 482, 487; and a bankruptcy order, if made, can be annulled: Re A Debtor Ex P The Debtor v Allen (No. 17 of 1966) [1967] Ch 590.

17.  Further, if the court concludes that, on the date of bankruptcy order, the bankrupt was in fact able to pay his debts, the court may annul the bankruptcy order under section 33 BO: Paulin v Paulin [2010] 1 WLR 1057 [39] – [40].

18.  Uncertainty as to the value of the debtor’s assets or the enforceability or amount of his debt(s) does not deprive the debtor of his locus to present his own petition: Re Dunn ex p Official Receiver v Dunn [1949] Ch 640; Re Chow Man Kwong ex p Chow Man Kwong [2001] HKLRD 482, 488.

Grounds of opposition

19.  Mr Ng for the Bank submitted that the court should not make a bankruptcy order because:

(1) “The Court’s jurisdiction has not been triggered or that the Debtor has not [sic] locus standi in these matters for there has been no (a) debts or (b) inability to pay any debts” (“1^st Ground”); and

(2) “The Petition is an abuse of process” (“2^nd Ground”).

20.  Although couched in highly legalistic language, what Mr Ng really meant by the 1^st Ground was that the Debtor had failed to show he was unable to pay his debts when he presented the Petition.

21.  This court did not accept the 1^st Ground. 

22.  Having considered the documentary evidence and having heard the Debtor’s testimony in the witness box, it was perfectly obvious to this court that the Debtor had been living on borrowings for some time.

23.  First, the Debtor said he had obtained the revolving credit from Promise in 2009 and had been using it since.

24.  Second, the Receipt shows the Debtor has borrowed from his ex‑employer Cornwall a couple of times in 2011 and 2012 and owed it HK$26,000 odd in total. He only managed to repay HK$4,000 by eight instalments of HK$500 each in the entire year 2012. The balance was set off only when his employment was terminated on 29 October 2013 by his salary for that month, pro-rata double pay, one-month salary in lieu of notice etc. leaving a meagre net sum of HK$8,022.20 payable to him. 

25.  Third, the Loan he obtained from the Bank in October 2013 was, to the knowledge of the Bank, largely used to repay PrimeCredit. The Debtor also told this court that he used the balance of HK$48,000 to settle his personal loans from friends.

26.  As far as monthly recurrent expenses are concerned, according to the Statement of Affairs, the Debtor’s food, transport and utilities expenses added up to over HK$5,000, which is not extravagant by any standard. There is no provision for the costs of accommodation as the Debtor could not afford it and he had to live in the flat owned by his elder sister. In addition, he had to make monthly repayments to HSBC, Promise and the Bank which added up to over HK$8,000 a month. Thus, the Debtor would find it difficult to make ends meet even when he was earning HK$12,000 a month from Cornwall. It is wholly unrealistic for the Bank to suggest that he could still pay his debts as they fell due after he had lost his job.

27.  The Debtor’s financial position is even more hopeless when one considers his total outstanding indebtedness.

28.  The Debtor paid one instalment of HK$2,270 to Promise on 1 November 2013. He said he also tried unsuccessfully to make one early repayment HK$5,554 to the Bank but a branch manager of the Bank refused to accept it. Be that as it may, after the presentation of the Petition, he had stopped making further minimum/ instalment payments to HSBC, Promise or the Bank. Although the Bank has so far refrained from making a demand on the Debtor, which it is entitled to under clause 4.3 of the Agreement, that would not stop the operation of clause 4.1 of the Agreement which provides that the entire Loan shall become immediately due and payable upon the Debtor’s default in making an instalment payment on its due date.

29.  So, on the evidence before this court, the position is this. The entire sum of HK$35,700 was due and payable to China Wealth even before the presentation of the Petition. The sum of HK$238,000 owed to the Bank was immediately due and payable upon the Debtor’s default in paying the instalment on 15 November 2013. There was no evidence before this court on the terms of the revolving loan/credit granted by HSBC and Promise to the Debtor. Even disregarding those two, the Debtor’s total outstanding indebtedness shortly after the Petition was over HK$270,000.

30.  Regarding the 2^nd Ground, in addition to the allegation that the Debtor was able to pay his debts, it appeared also to be the Bank’s suggestion that when the Debtor applied for the Loan on or about 8 October 2013, he already had in mind petitioning for his own bankruptcy once he obtained it. This the Debtor has denied.

31.  The Debtor’s testimony was to the effect that he lost his job with Cornwall because he was unable to pay the debt due to China Wealth and China Wealth sent someone to his place of work to harass him. The  wife of his boss saw this incident and he was sacked shortly afterwards. After he had lost his job, he felt he had no hope of repaying his debts and that prompted the presentation of the Petition.

32.  This court accepted the Debtor’s testimony. On the evidence, the Debtor’s employment was terminated by Cornwall without notice ‑ hence the item of payment in lieu of notice in the Receipt. This corroborated the Debtor’s testimony that the loss of his job was sudden and it was this sudden loss which caused him to present the Petition. There is nothing inherently improbable about this. In fact, as I said earlier, the Debtor has been living on borrowings for quite a while and it is only a matter of time that he would realise he was hopelessly insolvent. 

33.  For these reasons, it was not necessary to consider whether the Bank’s suggestion, if borne out by the evidence, constituted an abuse of process. Suffice it to say that this court did not accept the factual basis of the 2^nd Ground had been established.