RE LEE NIM WAI

HCB 5893/2023 and HCB 2582/2024

[2024] HKCFI 1843

HCB 5893/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5893 OF 2023

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HCB 2582/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 2582 OF 2024

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REASONS FOR JUDGMENT

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1.  At the hearing of the 2 petitions presented against the debtor, Mr Lee Nim Wai (“Debtor”), I made a usual bankruptcy order in HCB 5893/2023.  These are the reasons for my judgment.

2.  The petitions are based on the Debtor’s failure to comply with the statutory demands which, in turn, relied on the judgments obtained against the Debtor:

(1)  The first petition in HCB 5893/2023 was presented on 10 October 2023 by Orix Asia Limited (“Orix”)  based on the Debtor’s failure to comply with a statutory demand served on 19 July 2022 requiring the Debtor to pay HK$2,914,141.83 (“1^st SD”).  The 1^st SD, in turn, was based on a judgment obtained by Orix on 20 May 2022 in DCCJ 157/2022 whereby the Debtor was adjudged liable to pay HK$2,707,171.48 together with interest thereon and costs at HK$23,700 (“1^st Judgment Debt”).

(2)  The second petition in HCB 2582/2024 was presented on 17 April 2024 by Mitsubishi HC Capital (Hong Kong)  Limited (“Mitsubishi”)  based on the Debtor’s failure to comply with a statutory demand served on 7 November 2023[1] requiring the Debtor to pay HK$2,448,898.72 (“2^nd SD”).  The 2^nd SD was based on a judgment obtained with the consent of the parties on 11 April 2023 in DCCJ 5232/2020 whereby the Debtor was required to pay HK$2,400,000 to Mitsubishi by 4 instalments on 15 June 2023, 15 July 2023, 15 August 2023 and 15 September 2023 (“2^nd Judgment Debt”).

3.  There is no dispute that the Debtor is liable to pay the 1^st Judgment Debt and the 2^nd Judgment Debt (together “Judgment Debts”)  and, therefore, Orix and Mitsubishi are entitled ex debito justitiae to seek a bankruptcy order against the Debtor (Re Chan Chun Chuen[2021] HKCFI 2385, §14). 

4.  As the Debtor has failed to comply with the 1^st and 2^nd SDs, he is deemed unable to pay his debts by virtue of s.6A(1)(a)  of the Bankruptcy Ordinance (Cap. 6)  (“BO”). 

5.  The Debtor did not file any notice of his intention to oppose either of the petitions.  Nor did he file any evidence in opposition to the petitions until 5 July 2024 when the Debtor issued a summons in each proceedings seeking leave to file a notice of intention to oppose the petition out of time and an affidavit made by his solicitor[2].

6.  In the affidavit, the Debtor’s solicitor exhibited an unsigned draft affirmation of the Debtor.  No explanation has been provided as to why the Debtor did not file any notice within the time limit prescribed by rule 68.  The solicitor’s assertion that “the delay in making the application is due to the time needed to obtain the most updated information on the transaction as stated in the Debtor’s affirmation” is not a justification for seeking an extension of time to file the notice, which only requires the Debtor to state the grounds in opposition to the petition.  As stated in Re Liu Jiangyuan [2023] HKCFI 2326, §24(1), the requirement under rule 68 is mandatory and must be complied with.  It is incumbent upon the Debtor to satisfy the court that there is a good reason to justify the extension of time sought.  As no good reason has been shown by the Debtor, there is no basis for the court to exercise its discretion to allow the Debtor to file the notices out of time or to raise the grounds belatedly stated in the draft affirmations.

7.  In any event, I do not think that the matters stated in the draft affirmations constitute a valid ground in opposition to the petitions.  The Debtor seeks an adjournment of the petitions to a date not before 30 August 2024 on the ground that he is “contractually due to receive a total sum of US$750,000 by the end of August 2024” such that there is a reasonable prospect of the Judgment Debts being paid.  Mr Brian Lo, counsel for the Debtor, puts the arguments in this way:

(1)  The Debtor acts as a “payment intermediary in a large cane sugar transaction by virtue of a written agreement known as ‘Sale and Purchase Agreement of Sugar ICUMSA 45’ dated 10.4.2024 (“SPA”).  The parties to that agreement are (a)  Interbenz SA DE CV (seller); (b)  Jun Jia International Trading Limited (Buyer); and (c)  Ravenfinance GMBH (Co-Buyer)”. 

(2)  The Debtor is named on the SPA as “Handling Mandate”.  His role is to act as the buyer’s pay master through whom all payments will be effected. 

(3)  By an Irrevocable Master Fee Protection Agreement executed at the same time as the SPA, the Debtor’s consultancy fee is US$18,750,000.  In the 1^st month, the Debtor is entitled to receive US$750,000 (“1^st Payment”). 

(4)  On 10 June 2024, a “MT 199” was issued by Deutsche Bank confirming its readiness to issue letters of credit for the shipment.  The Debtor expects to receive the 1^st Payment by the end of August 2024. 

(5)  The 1^st Payment would enable the Debtor to repay the Judgment Debts in full.  There is thus a reasonable prospect that the Judgment Debts would be paid in full within a reasonable time. 

8.  Mr Roger Phang, counsel for Mitsubishi, submits that where, as here, the Debtor seeks an adjournment of the petitions on the ground that there is a reasonable prospect of being able to pay or comprise the debts, the court should apply the same approach as that expounded in Re Jiayuan International Group Limited[2023] HKCFI 1254, §12(3):

“If the company opposes the petition on the ground that there is a reasonable prospect of being able to restructure and compromise the debts and restore its solvency, it has to demonstrate to the court that a concrete restructuring proposal or a scheme of arrangement has been prepared and put forward to the creditors for their consideration,and such proposal or scheme has the support of the requisite majorities of creditors. It is not enough for the company to point to certain commercial discussions with some creditors or make a general assertion that it has been actively pursuing a restructuring proposal. Nor is it enough for the company to say that it is only seeking a short adjournment of the petition. Unless the company is able to demonstrate that there is some useful purpose in adjourning the petition, there is no proper basis for the court to delay the creditor’s right in seeking an immediate winding up order against the company.” (underlined added)

9.  Mr Phang submits that no concrete proposal has been put forward by the Debtor to show that he will be able to pay the 2^nd Judgment Debt in due course.  The belated allegation that he engaged in some profitable trading of cane sugar for which he will receive intermediary payments of US$18,750,000 must be viewed against the following context:

(1)  The 2^nd Judgment Debt, which is of a relatively small amount compared to the size of the purported transaction in which the Debtor is allegedly involved, has been due and outstanding since 15 June 2023.  No offer of even a partial repayment has been received since then.

(2)  The Debtor unreasonably delayed the service of the 2^nd SD and the petition in HCB 2582/2024 when he could have instructed his solicitors to accept service on his behalf.  Instead, he was silent for more than 10 months after Mitsubishi’s solicitors had written to his solicitors regarding the service of the 2^nd SD.  No reason has been given as to why he only instructed his solicitors to enter appearance on the day before the hearing of the petition before Master Lai on 25 June 2024.

(3)  The timing of the letter from the Debtor’s solicitors dated 20 June 2024 suggests that it was written to buy time or cause further delay.  No genuine, concrete or realistic repayment proposal was put forward.  Instead, the documents provided by the Debtor’s solicitors show that the cane sugar transaction was entered into by the seller and the buyer directly.  No involvement of any intermediary is apparent on the face of the documents produced.  “Johnny K.K. Leung & Co. for Dr. David Nim Wai Lee” is stated as the “Buyer’s Paymaster” rather than as an intermediary, whereas the “Buyer’s Intermediary” appears to be one “Ketty Pon” with a Merrill Lynch account.

10.  Further, for the purpose of satisfying the court that there is a reasonable prospect of being able to pay the Judgment Debts under s.9(3)  of the BO, the test is whether the Debtor can pay it out of cash or readily realisable assets in his hands.  No regard may be given to “future contingencies” or “future income” as such contingencies and income may or may not be available (Re Margaret Chiu [2020] HKCFI 617, §37).  On the Debtor’s case, the US$750,000 is not cash or readily realisable asset in his hands, but future contingency which he may or may not receive. 

11.  Ms Belinda Pang, solicitor for Orix, submits that:

(1)  In determining whether a debtor is able to pay its debts, the test is whether he can pay it out of cash or readily realisable assets in his hands.  No regard may be given to further contingencies because those events may or may not happen.  Similarly, no regard may be given to future income because such income may or may not be available.  Such future income is not cash or readily realisable assets in the debtor’s hands (Re Lau Kwok Fai Bernard, HCB 11144/2004, 15 September 2005, §12). 

(2)  In the present case, the 1^st Judgment Debt has been due and payable for more than 2 years but the Debtor failed to make any payment.  Plainly, he has been and remains unable to pay his debts. 

12.  I agree with the submissions of Mr Phang.  It is clear from the documents exhibited to the Debtor’s draft affirmation that they do not support the Debtor’s assertion that he will receive a sum of US$750,000 by the end of August 2024.  The Debtor is not even a party to the SPA.  Nor is there any provision in the SPA which entitles the Debtor to receive any amount, let alone the sum of US$750,000 or US$18,750,000.

13.  Indeed, the SPA was dated 10 April 2024, almost 3 months before the Debtor’s draft affirmation.  If the Debtor genuinely believed that he would be able receive US$750,000 under the SPA, there was no reason why he did not provide the SPA and the relevant documents to Orix and Mitsubishi much earlier so that they could properly consider the matter.  This was not done and no explanation has been provided by the Debtor as to why he did not do so.

14.  For the above reasons, I do not think that there is a proper basis for the court to adjourn the petitions, and the petitioners are entitled to seek an immediate bankruptcy order against the Debtor.

15.  The costs of Orix are being dealt with as part of the usual bankruptcy order.  As for the costs of Mitsubishi, it is in effect a successful party even though the bankruptcy order is made in HCB 5893/2023, being the earlier petition presented against the Debtor.  It is appropriate to order the costs of Mitsubishi to be treated as an expense in the bankruptcy of the Debtor.