RE YU PUN HOI

HCB 6118/2023

[2024] HKCFI 922

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6118 OF 2023

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DECISION

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1.  Before the Court is the Debtor’s two summonses respectively dated 18 March 2024 (“1^st Summons”) and 22 March 2024 (“2^nd Summons”) for leave to file and serve his 2^nd and 3^rd Affirmations, in support of his application for an adjournment of today’s hearing, which is the substantive hearing of the Petitioner’s Petition dated 18 October 2023 for a bankruptcy order (“Petition”). The adjournment is sought by the Debtor to enable him to have more time to file further evidence to oppose the Petition.

2.  Having considered the parties’ submissions, I am of the view that both summonses should be dismissed, and the Debtor’s application for adjournment is also refused.

3.  My reasons are as follows.

4.  First, the two summonses are very late for which no proper or credible explanation has been given by the Debtor. 

5.  There are well-established authorities which state that delay alone is a ground to refuse a late application (including for leave to file new evidence), and the onus is on the applicant to justify its delay and to show good reason why the Court should entertain the late application: see for example Re Silver Base (Holdings) Limited [2023] HKCFI 2916 at

6.  The 1^st Summons and Yu’s 2^nd Affirmation (“Yu 2^nd”) made in support thereof (containing over 500 pages of exhibits) was issued just 5 clear days before this hearing and after the Petitioner had already filed its skeleton submissions on 14 March 2024.  The 2^nd Summons and Yu’s 3^rd Affirmation (“Yu 3^rd”) made in support thereof was issued just 1 clear day before this hearing on 22 March 2024.

7.  The Debtor has failed to provide any good or credible reason for the gross delay in issuing the two summonses and for belatedly seeking an adjournment of this hearing at this late stage.

8.  As a matter of procedural chronology:

(1)  The Statutory Demand for the petitioning debt (“Petitioning Debt”) was served on the Debtor on 17 July 2023 (“Statutory Demand”), in which the Petitioner had stated the estimated value of its security interest over the 2 shares in Dadi Limited (“Dadi Shares”) to be HK$2.

(2)  The same estimated value was also stated in the Petition issued on 18 October 2023.

(3)  No application was made by the Debtor to set aside the Statutory Demand.

(4)  On 20 December 2023, the Debtor filed his Notice of Intention to Oppose the Petition on the basis that the Petitioning Debt is fully secured by the share charges granted to the Petitioner in respect of such debt.

(5)  The Debtor filed his first affirmation (“Yu 1^st”) on 28 December 2023 in opposition to the Petition, in particular, to support his ground of opposition that the Petitioner is fully secured.

(6)  The first hearing of the Petition took place on 8 January 2024 before Anthony Chan J, at which hearing both parties were represented by counsel.  The Judge gave directions for the Petitioner to file reply evidence on or before 19 February 2024, and adjourned the Petition for substantive argument to be fixed before a judge with 3 hours reserved.  I am informed by the Petitioner’s counsel that the Debtor’s request for the substantive hearing to be fixed in consultation with counsel’s diaries was refuse by the Court, so as to ensure that the Petition can be heard at the earliest available opportunity.  The Judge also ordered that no further affidavit evidence shall be filed without leave of the Court.

(7)  The Petitioner filed its reply evidence in the form of Mr. Qian’s 2^nd Affirmation (“Qian 2^nd”) on 19 February 2024.

9.  At the time Yu 1^st was filed i.e. 28 December 2023 (being over 2 months after the Petition was filed), the Debtor was well aware that the Petitioner places a nominal value on its security over the Petitioning Debt (which was clearly stated in the Statutory Demand and the Petition).  The Debtor must also, at that time, have been well aware (with the benefit of legal advice and representation throughout) that the burden is on him to demonstrate, with credible evidence, that the value of the Petitioner’s security equals or exceeds the value of the Petitioning Debt.

10.  There is in my view nothing in Yu 2^nd or Yu 3^rd that could not have been adduced by the Debtor in Yu 1^st.  In particular, the financial statements and other corporate documents in relation to Dadi Limited (“Dadi”), Dadi’s 5 BVI subsidiaries (“BVI Subsidiaries”) and Nan Hai Corporation Limited (“Nan Hai”) now exhibited to Yu 2^nd and Yu 3^rd must have been readily available to the Debtor or could otherwise have been readily procured by him, given his positions in these companies.  It is undisputed that the Debtor is the sole director of Dadi and a director of each of the BVI Subsidiaries.  He has also been a director of Nan Hai since September 2000, and is currently an executive director and chairman of its Board of Directors.

11.  The Debtor has been legally represented throughout these proceedings, and must be taken to have been well aware that by the Order dated 8 January 2024, no further affidavit evidence is to be filed without the Court’s leave.  Nonetheless, there is no explanation at all from the Debtor as to why he waited until 18 March 2024, just 5 clear days before this hearing, to seek leave to introduce the new evidence in Yu 2^nd (with voluminous exhibits) for the purpose of supporting his application to adjourn the hearing today.

12.  Even if the Debtor had indeed genuinely considered that there are matters in Qian 2^nd (filed on 19 February 2024) to which he wishes to further respond, he could have made the leave application much earlier.  There is no explanation as to why he did not do so until 18 March 2024.

13.  The unexplained delay in this case is in itself a sufficient reason to dismiss the two summonses.

14.  Second, it cannot be said that the Petitioner suffers no prejudice by these late applications.  Given the shortness of time between the issuance of the 2 summonses and this hearing, the Petitioner has had very limited time to consider the new evidence, let alone to file evidence in response.  In any event, the mere fact that the Petitioner has been put in a position to have to decide whether to adjourn the substantive hearing, or proceed with it without the chance to properly respond, is in itself substantial prejudice: see Wise Union Industries Limited  v Hong Kong Science and Technology Parks Corporation  (HCAL 12 & 13 /2009, 21.9.2009) at §9.

15.  Third, even if one examines the contents of Yu 2^nd and Yu 3^rd and the documents exhibited thereto on a de bene esse basis, the new evidence is of little probative value and raises obvious issues as to its reliability and credibility, and do not assist the Debtor to demonstrate with credible evidence that there is a real issue as to whether the value of the Petitioner’s security in the Dadi Shares equals or exceeds the value of the Petitioning Debt. 

16.  As pointed out by Mr. Paul Shieh SC (counsel for the Petitioner)[1]:

(1)  The financial information of Nan Hai, Dadi and the BVI Subsidiaries exhibited to Yu 2^nd and Yu 3^rd are all unaudited, are susceptible to manipulation and thus inherently unreliable.  The unaudited interim financial statements of Nan Hai for the 6 months ended 30 June 2023 appear to be only in draft form, with numerous gaps yet to be filled in after communication with the auditor. 

(2)  As regards the property valuation reports prepared by Nan Hai’s valuer for 4 property development projects of Nan Hai (with an alleged aggregate value of around RMB17.3 billion):

(i)    No proper comparables have been referred to and it is unclear from the reports how the valuations of the properties were arrived at.

(ii)   It is also unclear whether such property projects are subject to encumbrances and if so, the extent thereof.

(iii)  Out of the 4 property projects, 3 of them (i.e. “Free Man Garden” in Guangzhou and “Peninsula” in Shenzhen) are the same as those mentioned in Nan Hai’s circular dated 6 June 2022 which were noticed by auditors as being encumbered as a result of legal process to foreclose or freeze, whereas the remaining property project in Beijing is stated to be subject to a bank mortgage with no indication of the amount of the encumbrance. 

(iv)  In any case, it is unclear whether and if so how such valuation of the property projects is reflected in the interim unaudited financial statement of Nan Hai for the 6 months ended 30 June 2023 exhibited to Yu 2^nd, which shows that Nan Hai had a net liability position of HK$3.9 billion.

(3)  Therefore, I agree with Mr. Shieh that there is no credible evidence in Yu 2^nd or Yu 3^rd that could assist the Debtor to show that the Nan Hai shares, and consequently the Petitioner’s security interest in the Dadi Shares are worth what he claims. 

(4)  Mr. Shieh also points out various discrepancies and omissions in the unaudited financial statements of Dadi and the BVI Subsidiaries exhibited to Yu 2^nd and Yu 3^rd which further cast doubt on their reliability and credibility. For example:

(i)    The unaudited balance sheets as at 31 December 2023 for the BVI Subsidiaries provide inconsistent and different values for the Nan Hai shares which they respectively hold.

(ii)   The unaudited balance sheets of Dadi and Pippen as at 31 December 2023 (exhibited to Yu 2^nd) show that the underlying value of their investments are almost the same as that as at 31 December 2020 (2 years ago), despite the material developments in the intervening period, including for example, Nan Hai’s delisting in November 2023.

(iii)  The unaudited balance sheet of Dadi as at 31 December 2023 doesnot show the liabilities owing by Dadi to the Petitioner under the Deed of Guarantee.

(iv)  Further, contrary to what is stated in Yu 2^nd, the unaudited balance sheets of Pippen show that its liabilities owing to third parties is not just an amount of HK$4.23 million, as there is also an item of “accrued charges” in the sum of around HK$110.7 million which the Debtor failed to mention.

17.  For these reasons, even considering the evidence in Yu 2^nd and Yu 3^rd on a de bene esse basis, the Debtor has not demonstrated how such evidence would assist his case, but in fact raise more questions than answers.

18.  Fourth, the Debtor has not shown any reasonable justification for an adjournment of this hearing.

19.  The Debtor has already had ample time to prepare his evidence in opposition.

(1)  Yu 1^st was filed over 2 months after the Petition was issued and served on him. 

(2)  Given that the burden is on the Debtor to demonstrate by credible evidence and establish substantial grounds to show that the Petitioner is fully secured, it is up to the Debtor (who has all along been legally represented) to put forward such evidence as he considers necessary in Yu 1^st to discharge such burden.

(3)  It is not reasonable for the Debtor to contend that he should be given a second chance to file full evidence in opposition because it was only in Qian 2^nd (filed on 19 February 2024) that the Petitioner contended for the first time that the shares in Dadi, the BVI Subsidiaries and Nan Hai had negligible value, and sought to dispute the valuation report of Shinewing exhibited to Yu 1^st.

(i)    It is plain from the Statutory Demand and the Petition that the Petitioner has all along maintained that its security interest in the 2 Dadi Shares were worth HK$2 or of negligible value.

(ii)   There is also no basis for the Debtor to have taken the view or have assumed that the Petitioner would accept Shinewing’s valuation.  In fact, having seen the Shinewing’s valuation report exhibited to Yu 1^st, the Petitioner continued to pursue the Petition and sought leave to adduce reply evidence.

(4)  In any case, the fact that the Debtor could not have anticipated what evidence the Petitioner may adduce in reply is not in itself a justification to allow him a second opportunity to file further evidence in response, let alone at this very late stage and when acceding to such request would necessitate an adjournment of the hearing and consequent prejudice to the Petitioner.

(5)  It is equally no answer for the Debtor to contend that he did not undertake his own independent valuation of Nan Hai to save costs, especially when he acknowledges the seriousness of a bankruptcy order which he asks this Court to pay heed to in considering his request for an adjournment.

20.  Notably, for reasons not explained, the Debtor never even indicated any intention to seek leave to file further evidence or to seek an adjournment of today’s hearing at any time after 19 February 2024 (when Qian 2^nd was filed) up to 18 March 2024 (when the 1^st Summons was filed).  It appears these applications are no more than a last minute attempt on the part of the Debtor to derail the substantive hearing of the Petition and to delay matters.

21.  Further, I am also of the view that the Debtor has not shown any real prospect that even if he was given more time to file full evidence, he will be able to demonstrate by credible evidence that the value of the Petitioner’s security equals or exceeds the value of the Petitioning Debt.

(1)  As I have already mentioned, the purported financial information and materials in Yu 2^nd and Yu 3^rd raises more questions than answers and are inherently unreliable, and do not assist the Debtor to demonstrate that the Petitioner’s security interest is worth what he contends.

(2)  Insofar as the Debtor still relies on Shinewing’s valuation report (exhibited to Yu 1^st) as prima facie evidence that Nan Hai has substantial value, the Debtor has not produced any evidence to suggest that the criticisms of Shinewing’s valuation as set out in the report of KPMG (exhibited to Qian 2^nd) are unjustified.  Rather, having seen the report from KMPG, the Debtor decided to commission his own independent valuation, rather than to continue to rely on the Shinewing valuation.  In the circumstances, it is simply not open for the Debtor to still contend that the Court should still take into account the Shinewing valuation as prima facie evidence that Nan Hai is worth the value stated therein.

(3)  Ultimately, whether the Petitioner is fully secured turns on the priority of the competing charging order (“CMB Charging Order”) in favour of China Merchants Bank Co Ltd (“CMB”), and there is no dispute by the Debtor that CMB’s Charging Order has priority over the Petitioner’s charging order over the Dadi Shares (“Petitioner’s Charging Order”) as a matter of law.

(4)  The submission of Mr. Joshua Chan (counsel for the Debtor) that the BVI Subsidiaries’ aggregate 54.6% shareholding in Nan Hai may attract a significant control premium so that the value of the Dadi Shares could be sufficient to cover bothdebts is pure speculation. The Debtor could but has not adduced any evidence toshowthatonthefactsofthis particular case, a significant controlpremiumislikely to apply.

(5)  Similarly, Mr. Chan’s contention it is reasonably arguable that both the Petitioner’s Charging Order and the CMB Charging Order should not have been made and the Petitioner could apply for them to be discharged, so as to ensure that both creditors would stand on equal footing is similarly mere speculation.  In any case, even if both charging orders are discharged, this would only result in the position where neither the Petitioner nor CMB has any security interest over the Dadi Shares, and would not assist the Debtor’s position that the Petitioner is fully secured.

(6)  Mr. Chan further argues that although the Petitioner and CMB hold competing security over the Dadi Shares in the form of the Petitioner’s Charging Order and the CMB Charging Order, the Petitioner in fact holds a more direct security interest in the form of the share charges executed in favour of the Petitioner by the BVI Subsidiaries over their shareholding in Nan Hai (“Subsidiary Share Charges”) which cover 45.8% of Nan Hai’s shareholding.  Accordingly, as Mr. Chan submits, as a matter of commercial reality, the Petitioner can arguably “outflank” any attempt by CMB to secure control over the BVI Subsidiaries’ entire 54.6% shareholding in Nan Hai by enforcing its rights under the Subsidiary Share Charges.  The relevance of the Subsidiary Share Charges is a matter of submission that can be raised without the need for further evidence and any adjournment of this hearing.

22.  I have also taken into account of the prejudice which will be caused to the Petitioner from any adjournment, especially as it has been deprived of the fruits of its successful judgment since November 2022 (some 16 months ago).  Any delay in adjudication of the Petition would also adversely affect third party creditors, and it is thus also in the public interest for the Petition to be dealt with quickly: see Ho Ying Pat Bobby v Overseas Way (China) Ltd [2011] 2 HKLRD 837 at §13.

23.  For these reasons, I dismiss the Debtor’s Summonses dated 18 March 2024 and 22 March 2024 with costs to the Petitioner, to be taxed on an indemnity basis with certificate for 2 counsel.

24.  I consider that this is an appropriate case for indemnity costs given that the applications were made very late with no prior notice to the Petitioner and no proper explanation being given for the delay.  The applications are no more than last-minute attempts by the Debtor to derail the hearing of the Petition to cause delay, which the Court should not condone.