RE DIANOOR INTERNATIONAL LTD (IN LIQUIDATION)

HCB 7743/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7743 OF 2012

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R E A S O N S  F O R  J U D G M E N T

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1. This was a bankruptcy petition presented by the liquidators of Dianoor International Ltd (In Liquidation) (“the petitioner”) on 21 November 2012 (as amended on 5 February 2013) seeking a bankruptcy order against Aiyer Vembu Subramaniam (“the debtor”) based on an unsatisfied judgment debt. At the conclusion of the hearing the petition was dismissed. My reasons appear below.

2. Paragraph 1 of the petition reads:

“1. The Debtor has within 3 years immediately preceding the presentation of the Petition on 21 November 2012 and prior to its winding up on 23 December 2009, carried on business as Director of [the petitioner] …” (emphasis added)

3. The sole issue for determination is whether the statutory conditions for jurisdiction under section 4 of the Bankruptcy Ordinance, Cap 4, have been met.

4. Section 4 in pertinent part reads:

“(1) a bankruptcy petition shall not be presented to the court under section 3 (1)(a) or (b) unless the debtor─

…

(c) at any time in the period of 3 years ending with that day─

(i) has been ordinarily resident, or has had a place of residence, in Hong Kong; or

(ii) has carried on business in Hong Kong.”

5. It is clear from the petition (as amended) that the sole jurisdictional ground relied on is section 4(1)(c)(ii) of the Ordinance.  It is incumbent on the petitioner to establish that the debtor was “carrying on business” during the three year period commencing 21 November 2009 (“the prescribed period”).

“Has carried on business”

6. The evidence shows that while the debtor was a director of the petitioner, he was not a member.  He has never had any beneficial interest in the petitioner.  Rather, it is apparent from a Decision of DHCJ L Chan (as he then was) dated 29 September 2010 in HCA 806/2008 (an action brought by the petitioner against the debtor) that the petitioner formed part of the business empire of a Mr Mubarik and his wife and was owned by a family trust.  As a result of divorce proceedings between the Mubariks, the petitioner was placed in receivership and is now in liquidation.  Any business carried on by the debtor as such director would have been the business of the petitioner.

7. In the present case, it also has to be borne in mind that receivers and managers of the petitioner were appointed on 2 May 2008 since which date the debtor could not have been carrying on business qua director of the petitioner at all.

8. Mr Fung who appeared for the debtor submitted that the meaning of the phrase “carried on business” in section 4(1)(d) of the Bankruptcy Act 1914 (being the English equivalent of our section 4(1)(c)(ii)) is to be found in the judgment of the English Court of Appeal in In re Brauch (A Debtor) [1978] 1 Ch 316.  There the court held that the relevant business must be the debtor's own business and being employed in the business carried on by someone else or some other entity such as a limited company is not by itself sufficient.

9. The principles decided in Brauch have been applied in Hong Kong: see Re Kok Hiu Pan, ex p Wing Lung Bank Ltd [2002] 3 HKLRD 20 where, at § 37, Kwan J (as she then was) held that it must be established that the debtor was carrying on a business of his own, separate and distinct from his company's business.  Mr Sheppard who appeared for the petitioner accepted the correctness of those principles.

10. When pressed by the court to identify the “separate business” carried on by the debtor during the prescribed period as director of the petitioner, Mr Sheppard relied on the fact of the debtor’s interference at the first meeting of contributories and creditors held on 22 March 2010 described in the report of Mr Middleton who chaired that meeting.  The relevant passage reads:

“The concern at the conduct of the management was also borne out, by the fact that after the meeting Mr Haroon told me that he had been intending to vote in favour of the resolution to appoint the Provisional Liquidators as liquidators but [the debtor], who was at the meeting only as an observer, nevertheless encouraged and influenced him to vote against the resolution (as did Mr Deen, the proxy for a number of creditors believed to be connected with Mr Mubarik), [the debtor] and Mr Deen adding to Mr Haroon that the matter should be settled within their own community. I remind the Court [the debtor] is a director (not a creditor of the Company, against whom a claim by the Company is pending in this Court.”

11. Mr Sheppard submitted that the debtor’s interference at the meeting showed that he was conducting business, whether it was the business of Mr Mubarik or his own.  But under the Brauch and Kok principles, what has to be shown is a business that is separate and distinct from that of the petitioner that was carried on by the debtor during the prescribed period whilst a director of the petitioner.

12. Mr Sheppard then referred the court to the 4^th affidavit of Mr Middleton which at §§ 26‑29 dealt with “The Indian Properties”.  In a nutshell, the unsatisfied judgment debt was said to be traceable to a loan obtained by the debtor from a Hong Kong company called Checkers Limited in 2007 and concerned deposits made for the allotment of certain Indian properties.  It was said that the judgment debt was the legacy of that business opportunity pursued by the debtor personally and in interfering at the creditors’ meeting, the debtor was “carrying on” that business.

13. I confess I have some difficulty in seeing how the conduct of the debtor at the meeting (assuming it to be true) constitutes evidence, much less sufficient evidence, of “the carrying on of a business” that is separate and distinct from the business interests of the Mubariks.  I agree with the proposition that one needs to look at all the factors “in the totality” (see Kok case (at 31E)), but on the facts of this case, they could not remotely enable the petitioner to surmount the jurisdictional hurdle that it faces.

Other businesses

14. In Mr Middleton’s 4^th affidavit, there is a section headed “Debtor’s other Businesses”.  The evidence is to the effect that at a meeting in early 2009 at the offices of KPMG, the debtor stated that “he had his own businesses to run” and repeatedly insisted that he be allowed to attend the petitioner’s office to pick up his personal belongings so he could do so.  Amongst those belongings were documents in relation to Rhydhun Ltd and Cyber Solutions Inc (“the Businesses”).

15. The debtor is said to be one of three directors of Rhydhun on 10 May 2010 holding one third of its issued shares.  Other than the fact that the debtor is shown to be a defendant in a copyright case involving Cyber Solutions in the US in December 2009, there is no other information as to Cyber Solutions.

16. In so far is any reliance is put on the debtor carrying on the Businesses whilst a director of the petitioner, the jurisdictional hurdle remains.  The petition does not state what the Businesses are and whether they were carried on in Hong Kong during the prescribed period. Moreover, the Businesses are separate corporate entities such that the principles in Brauch apply and there is no evidence to show why or how the debtor could have been carrying on his own businesses separate and distinct from the Businesses.

Ordinarily resident

17. The petitioner has adduced evidence in an attempt to show that the debtor was ordinarily resident in Hong Kong during the prescribed period although that is not a ground relied on in the petition and, strictly speaking, is wholly irrelevant.  I will address this briefly.

18. The evidence is to the effect that the debtor holds a Hong Kong identity card and maintains Hong Kong bank accounts.  Those factors are hardly determinative.

19. Then there are Hong Kong residential addresses given for the debtor but they relate to the period up until 2008 and thus well outside the prescribed period.  In any event, at the time the petition was presented, the debtor’s last known address was in the United Arab Emirates and not Hong Kong.  Then there was mention of his membership of the Kowloon Cricket Club but that terminated when the membership was disposed of on 10 June 2008, again well outside the prescribed period.

20. Against this, there is in evidence the travel records of the debtor from the Immigration Department.  Those records show that the debtor visited Hong Kong on six occasions during the prescribed period, his length of stay ranging from three to nine days.  In total, he was in Hong Kong for only 25 days during that period.

21. Mr Sheppard made much of the fact that the debtor did not file any evidence but caused his solicitor, Mr Tam, to exhibit the travel records.  It was said that Mr Tam was not in a position to state that he “verily” believed that the debtor has only one travel document namely his Indian passport as he was also in possession of a Hong Kong identity card.

22. It was submitted that it was wholly inappropriate for Mr Tam to have given evidence, citing the decision of Anthony Chan J in UES International (HK) Ltd (formerly known as Grand View Development (HK) Ltd) v Maritima Maruba SA (formerly known as Maruba SCA, unreported, HCA 632/2011, 19 November 2013.  In that case, the solicitors for both sides had made a large number of affidavits on controversial and contentious matters.  In the present case, what Mr Tam has done was to exhibit two judgments of L Chan J, documents from the Companies Registry and a Statement of Travel Records obtained from the Immigration Department.  In my view, the UES case is distinguishable on the facts.

23. It is relevant to note that although the debtor has a Hong Kong identity card, the immigration records do not state any particular travel document.  Rather it is the personal particulars, ie the name and date of birth which matter.  The suggestion that the debtor might have a passport under a different name is entirely speculative, absent evidence that the debtor is also known under a different name.

24. Looking at the totality of the factors disclosed by the evidence, even if ordinary residence were a ground relied upon for jurisdiction (which it is not), it falls far short of what is required to establish ordinary residence, applying the authoritative guidance of the natural and ordinary meaning of that expression given by the House of Lords in Levine v IRC [1928] AC 217 and IRC v Lysaght [1928] AC 234, adopted and applied in the Kok case.

Conclusion

25. For all those reasons, the petition was dismissed with costs to the debtor, the certificate for counsel.