RE CHUI TAK KEUNG DUNCAN

HCB 1153/2022

[2022] HKCFI 1146

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1153 OF 2022

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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.  By petition presented on 1 April 2022 the petitioner, Zhongcai Finance Limited (“Petitioner”), seeks a bankruptcy order against Mr Chui Tak Keung Duncan (“Debtor”) on the ground that there was a default in connection with the voluntary arrangement proposed by the Debtor in HCBI 2/2021 (“Proposed IVA”) as approved by the creditors at the meeting held on 24 March 2021 (“IVA”). At the hearing, I dismissed the petition. These are the detailed reasons for my judgment.

2.  The facts relevant to the petition may be stated as follows.

3.  On 9 November 2020, VIP Credit Limited presented a bankruptcy petition against the Debtor in HCB 7518/2020.

4.  On 4 January 2021, the Debtor applied for an interim order pursuant to ss.20 and 20A of the Bankruptcy Ordinance (Cap. 6) (“BO”) and filed the Proposed IVA whereby a third party would provide HK$13 million in full and final settlement of all the debts owed by the Debtor.  The Proposed IVA is based on the financial information of the Debtor as stated in his statement of affairs filed on 4 January 2021 (“SOA”).  The SOA stated, inter alia, that the Debtor had “personal debts (principal and interest)” in the region of HK$613.5 million and “indebtedness due to [his] family members” in the amount of HK$206.8 million.

5.  On 2 February 2021, Master Tse granted an interim order (“1^st Interim Order”) and Mr Alan Tang and Mr Kan Lap Kee were appointed as nominees of the Proposed IVA (“Nominees”).  On 8 March 2021, Master Phoebe Man granted a further interim order conditional upon a creditors’ meeting being held on or before 24 March 2021 to consider the Proposed IVA (“2^nd Interim Order”).  

6.  On 24 March 2021, the creditors’ meeting summoned by the Nominees was held pursuant to s.20E of the BO.  At the meeting:

(1)  The Nominees reported that the claim admitted for voting purpose pursuant to rule 122Q(2) of the Bankruptcy Rules (Cap. 6A) was HK$904 million, instead of HK$614 million stated in the SOA.  In particular, the amount of debts owed to the family members of the Debtor was increased from HK$206.8 million to HK$427.8 million;

(2)  The Petitioner raised questions about the propriety of the debts allegedly owed to the Debtor’s family members, and whether the family members would waive their right to vote on the Proposed IVA.  In response, the Debtor stated that the family members would exercise their right to vote on the Proposed IVA but would forgo their right to receive any distribution under the Proposed IVA;

(3)  Taking into account the debts allegedly owed to the family members, 51 creditors to whom HK$818.6 million was owed attended and voted at the meeting;

(4)  32 creditors with total debts of HK$630.7 million (representing 79.38% in value) voted for, while 16 creditors with total debts of HK$163.9 million (representing 20.62% in value) voted against the Proposed IVA; and

(5)  One of the Nominees qua Chairman declared that the Proposed IVA was accepted by the requisite majority of creditors of the Debtor.

7.  On 31 March 2021, the Chairman’s Report was filed with the Court.  

8.  By summons dated 7 April 2021 filed in HCBI 2/2021, the Petitioner applied pursuant to s.20J of the BO for, inter alia, an order to revoke or suspend the IVA on the ground that there was a material irregularity at or in relation to the creditors’ meeting (“s.20J Application”).  

9.  On 9 April 2021, Master Phoebe Man made an order that the interim order be further extended until after determination of the s.20J Application (“3^rd Interim Order”).  

10.  Meanwhile, the parties filed their evidence in respect of the s.20J Application and the matter will be heard before Madam Justice Yvonne Cheng on 25 April 2022 with 2 days reserved.

11.  However, shortly before the substantive hearing of the s.20J Application, the Petitioner presented the petition pursuant to s.20L of the BO on the ground that there had been default in the connection with the IVA.  Specifically, it is alleged that the information provided by the Debtor in the Proposed IVA, the SOA and the disclosure made to the Nominees and the creditors was “false” in that the HK$427.8 million allegedly owed to the family members was “not genuine”.

12.  In his written submissions, Mr Lincoln Cheung (appearing with Mr Jason Kung) raises a further point that the 3^rd Interim Order shall cease to have effect from 28 February 2022 as the Nominees have “ceased to act” and there was no indication that any insolvency practitioner will be appointed to fill the vacancy left. 

13.  In response to the question raised by this Court, Mr Cheung acknowledges that in view of the 3^rd Interim Order, which remains effective, the Petitioner is not entitled to present any bankruptcy petition against the Debtor.  He submits that the defect is one which can be cured by the Court granting a retrospective order in terms of the summons filed in HCBI 2/2021 on 13 April 2022 (“Summons”).  The Summons was issued under ss.20A and 20C of the BO and seeks an order in the following terms:

“Notwithstanding paragraph 4 of the Order made by Master Phoebe Man dated 9^th April 2021, the Interim Order made by Master Tse dated 2^nd February 2021and extended by the Orders made by Master Phoebe Man dated 8^th March 2021 and 9^th April 2021 respectively shall cease to have effect from 28^th February 2022”.

14.  In my view, the petition is demurrable and should be dismissed in limine.  If and for so long as the 3^rd Interim Order remains effective, the Petitioner has no right to present any bankruptcy petition against the Debtor. The position is covered by s.20(2) of the BO which provides as follows:

“An interim order has the effect that, during the period for which it is in force-

(a) No bankruptcy petition relating to the debtor may be presented or proceeded with; and

(b) No other proceedings, no execution or other legal process and no distress may be commenced or continued against the debtor or his property except with the leave of the court.”

15.  Further, unlike s.20(2)(b) which provides that the Court may grant leave to a party to pursue “other proceedings”, execution, other legal process or distress, s.20(2)(a) does not empower the Court to grant leave to a creditor to present a bankruptcy petition whilst the interim order remains in force.  This does not mean that a creditor cannot present any bankruptcy petition against the debtor (including a petition presented under s.20L of the BO) once an interim order is made, as it is open to the petitioner to apply to the Court to vary the interim order if there is valid ground to do so.  This had not been done by the Petitioner before the petition was presented on 1 April 2022.

16.  Although the Petitioner belatedly issued the Summons to seek an order that the 3^rd Interim Order shall cease to have effect from 28 February 2022, no authority has been cited by Mr Cheung in support of his submission that the Court can grant the order sought, whether under s.20A or s.20C of the BO. More importantly, the fact remains that at the time the petition was presented, the 3^rd Interim Order was in force and by virtue of s.20(2)(a) of the BO, the Petitioner had no right to present any bankruptcy petition.

17.  In any event, it seems to me that it is a waste of time and costs for the Petitioner to have presented the petition at this stage.  This is because once the s.20J Application is determined, the 3^rd Interim Order will lapse.  If the Petitioner prevails in the s.20J Application, the IVA will cease to be binding upon the creditors and the Petitioner will be entitled to present a bankruptcy petition against the Debtor there and then.  Conversely, if the Petitioner fails to revoke the resolution passed at the creditors’ meeting, the IVA will remain binding upon the creditors and the Petitioner will not be entitled to seek a bankruptcy order against the Debtor.  While the Court cannot at this stage rule out the possibility of a petition presented on the ground stated in s.20L of the BO, it appears that the matters complained of in the petition are very similar, if not identical, to the matters raised in the s.20J Application.  Whether or not such matters are sufficient to revoke the resolution will be determined at the substantive hearing of the s.20J Application.  

18.  As for costs of the petition, they should be paid by the Petitioner to the Debtor, which are assessed at $2,400.  The Official Receiver’s costs in the amount of $5,300 be deducted out of the deposit.