RE ISOO IWASAWA

HCB 5511/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5511 OF 2014

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J U D G M E N T

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Introduction

1.  I have before me an amended bankruptcy petition re‑filed on 14 October 2014 whereby the petitioner, Mr Ma Hang Kon Louis, seeks a bankruptcy order against the debtor, Mr Isso Iwasawa.

The debt

2.  The amended petition is presented in respect of a debt in the sum of HK$800,000 which is said to represent a part payment made by the petitioner to the debtor for the purchase of 3,000,000 shares of Asahi Iwasawa & Associates Management Consultants Limited (“the Company”), a company incorporated in Hong Kong on 25 April 1989.  Receipt of this sum was acknowledged by the debtor in a letter dated 27 September 2013 signed by both the petitioner and the debtor.

3.  As can be seen from the annual return of the Company made up to 25 April 2014, the Company has a total of 4,500,000 issued shares, of which 2,287,142 shares were registered in the name of the debtor.  Some other issued shares of the Company were registered in the names of family members of the debtor.

4.  Although instruments of transfer and bought and sold notes in respect of a total of 3,000,000 shares were executed by the debtor (in respect of 2,000,000 shares) and Kinuko Iwasawa (in respect of 1,000,000 shares) in favour of the petitioner on 3 June 2014, the following was stated in a letter to the petitioner dated 9 June 2014 and signed by both the debtor and Kinuko Iwasawa:

“On review of the Articles of Association of the Company and, in particular, the special resolution of the Company passed on 5^th January 2011, clause 3 of the Articles of Association provides that any transfer of shares from an existing shareholder to a third party shall require a prior written consent of all the remaining shareholders of the Company.

As no prior written consent was sought or obtained from the remaining shareholders of the Company, the purported transfer was not in accordance with Articles of Association of the Company and is therefore invalid.  In the circumstances, we will make arrangements to repay you HK$800,000 on terms to be agreed between ourselves.”

5.  The debtor does not dispute that he is indebted and liable to repay the sum of HK$800,000 to the petitioner.

6.  I should mention that the debtor has raised some complaints against the conduct of the petitioner while he was handling the affairs of the Company, but the debtor accepts that any claim against the petitioner in respect of those complaints should be brought by the Company.

7.  On 30 June 2014, the petitioner, through his solicitors, served a statutory demand pursuant to section 6A(1)(a) of the Bankruptcy Ordinance, Cap 6 (“the Ordinance”), for the amount of HK$800,000 on the debtor personally.  The statutory demand was not complied with by the debtor.  Neither did he apply to set aside the statutory demand.

8.  The petitioner presented the bankruptcy petition herein against the debtor on 22 July 2014.  As earlier mentioned, the petition was amended on 14 October 2014.

Debtor’s inability to pay the debt

9.  In view of the debtor’s acceptance of his liability to pay the debt of HK$800,000 to the petitioner which is payable immediately and his failure to comply with the statutory demand which has not been set aside, it is deemed that the debtor appears to be unable to pay the debt by virtue of sections 6 and 6A(1) of the Ordinance.

10.  The debtor maintains, nevertheless, that he is not bankrupt.  He refers to the fact that he owns an accounting practice (being a reference to the Company) since October 1989 with a paid up capital of HK$4.5 million and a turnover of about HK$7‑8 million per year, and a real property in the USA which at one time was worth over US$1.5 million.  There is, however, no evidence adduced by the debtor regarding the current value of his shareholding interest in the Company or his property in the USA.  Also, the property is outside the jurisdiction and cannot be readily converted into money.  In any event, there is a deeming of the debtor’s apparent inability to pay the debt by his failure to comply with the statutory demand by virtue of section 6A(1) of the Ordinance.

11.  The petitioner and the debtor previously entered into a written “Agreement of Repayment Schedule” dated 27 October 2014, under which the debtor agreed to pay the debt in full (together with a sum by way of legal costs) on or before 29 January 2015.  That agreement also provided that the debtor was to grant a lien over his property in the USA in favour of the petitioner on or before 29 October 2014 to secure the payment of the debt and legal costs.  It is not in dispute that the debtor did not provide the lien on or before 29 October 2014, or at any time thereafter, apparently because he thought that he would be to pay the debt by raising a loan from another source (which he then expected to be in place around the end of November 2014 or early December 2014) and it would not be necessary to go through the process of granting a lien and then having it discharged.  As it was, the loan that the debtor hoped to raise did not materialise, and no payment of the debt was made.

12.  At the hearing of the petition on 30 December 2014, the debtor informed the court that he was in the process of seeking another loan for the amount of US$200,000 which would yield the net proceeds of about US$160,000 and he intended to use the proceeds of the loan to discharge the debt due to the petitioner.  The debtor said that the loan should be available in early January 2015, and produced a cheque for the amount of HK$875,000 dated 28 January 2015 which he urged the petitioner to accept as payment of the debt.  The debtor also said that the proposed loan was negotiated through a friend in the US, but he had never met the proposed lender, and the documents for the proposed loan had not yet been executed.  The petitioner refused to accept the debtor’s cheque.

13.  Having regard to what is known about the proposed loan, I do not consider it unreasonable for the petitioner to reject the debtor’s settlement proposal to pay the debt on 28 January 2015 for the purpose of section 6D(3) of the Ordinance.  There was nothing concrete about the loan. The petitioner would justifiably be concerned as to whether this latest proposal to pay the debt, like the earlier Agreement of Repayment Schedule, will fail to yield any positive outcome.  It is not, in my view, a proposal which no reasonable creditor could refuse: see Re So Kam Wing Bernard, a Debtor, HCB 25933/2002 (11 December 2003), paragraph 13, per Barma J (as he then was).

14.  At the conclusion of the hearing, I informed the debtor that if he should successfully obtain the proposed loan and was able to discharge the debt, he should inform the court of the same, but I also made it clear to the parties that I would not defer judgment until after 28 January 2015 but would hand down my judgment as soon as possible.  I have not so far heard from the parties that the debtor has discharged the debt owing to the petitioner.

15.  In all, I have no alternative but to make the usual bankruptcy order against the debtor, with costs to the petitioner.