RE SO KAM WING BERNARD

HCB 25933/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPCTY PROCEEDINGS NO. 25933 OF 2002

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J U D G M E N T

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1. By these proceedings, the Petitioner, Winterthur Life, seeks a bankruptcy order against the debtor, Mr Bernard So Kam Wing. The petition is presented in respect of debts totalling some $385,883.23 which are said to be owed by Mr So to the Petitioner. The debts arose during a period between July 1999 and June 2002 when Mr So was an insurance agent with Winterthur Life.

2. The debts consist of the following amounts:

(1) First, an amount of $85,684.48 in respect of a special allowance paid to Mr So pursuant to two agreements: the first being a Compensation Agreement: Regional Manager (G5) dated 4 May 2001 and the second being a Memorandum for Regional Manager Compensation (G5) dated 25 April 2002. Under these agreements, an allowance was to be paid to Mr So each month. However, to the extent that that allowance exceeded a standard allowance of $8,000, the excess was repayable in the event that Mr So left the employment of Winterthur Life within 24 months of the date of the relevant agreement. Under the first of the agreements which I have mentioned, a total of $63,000 was so repayable, with $22,684.48 being repayable under the terms of the second of the agreements mentioned.

(2) The second item claimed is $23,521.34 in respect of a portion ranging between 5% and 30% of the outstanding finance provided by Winterthur Life to his subordinates, for which Mr So was responsible under the Compensation Agreement: Regional Manager to which I have referred and a later document called Memorandum for Charge to Manager dated 17 October 2001.

(3) The third item is a sum of $191,150.26 pursuant to a guarantee dated 15 October 2001 given by Mr So to Winterthur Life in respect of an advance made by Winterthur Life to a Mr Eric Ting, a fellow agent and a subordinate of Mr So.

(4) The fourth item consisted of the costs of a training course in the amount of $10,101 under the terms of a Training Resource Application Form dated 6 November 2001 by which Mr So agreed to repay the costs of the training course if he were to leave Winterthur Life within 12 months thereafter.

(5) The fifth item is the sum of $84,600 representing the balance of a special monthly loan which had been advanced under the terms of a confirmation letter dated 30 October 2001. Pursuant to that arrangement, loans totalling $90,000 were advanced to Mr So and two repayments of $2,700 each were repaid, leaving a balance of $84,600 outstanding at the time he left Winterthur Life.

(6) The final item represents interest on that loan in the amount of $12,859.20 pursuant to the same confirmation letter.

Against these sums, Winterthur Life has given credit for $22,033.05 representing commissions due to Mr So which were offset against these amounts.

3. Mr So left Winterthur Life on 14 June 2002 submitting a letter of resignation on that day. Thereafter, the Petitioning Creditor sought repayment of the sums due to it but no repayments were made. Winterthur Life then issued a statutory demand on 12 November 2002 which they served on solicitors then representing Mr So on 18 November 2002. No repayment was made nor was any attempt made to apply to have the statutory demand set aside. Winterthur Life therefore issued a bankruptcy petition against Mr So on 13 December 2002.

4. In February this year, it appeared (from an affirmation filed by Mr So) that Mr So disputed the debt alleged. The matter was then set down for hearing. However, shortly before the hearing date, Mr So acknowledged his liability for the sums claimed by a letter dated 9 May 2003 and he entered into a settlement agreement with Winterthur Life on 22 May 2003, the day before the petition was due to be heard. As a result, the hearing was adjourned.

5. The basic terms of the settlement involved Mr So rejoining Winterthur Life, and it was agreed that if he worked for a further 36 months, the special allowance element of the claim of some $85,000 odd would be waived, perhaps on the basis that Winterthur Life would treat Mr So's employment with it as continuous so that he would be entitled to keep those sums under the agreements that had originally been entered into. The balance of the debt of some $300,000 odd together with costs involved in the bankruptcy proceedings to that stage (of some $48,000 odd) were to be repaid by Mr So to Winterthur Life by 36 monthly instalments of $10,000 each, starting from the 7th month after he rejoined Winterthur Life.

6. However, Mr So did not rejoin Winterthur Life as he had agreed. The Petitioning Creditor's solicitors then wrote again on 11 August 2003 demanding repayment of the total sum them due, a sum of in excess of $400,000. Winterthur Life, through its solicitors, offered terms for the settlement of this amount involving an initial payment of $200,000 with the balance being repayable by 6 monthly instalments of some $38,000 each. Through his solicitors, Mr So counter-offered an immediate payment of $100,000 and a second payment of $100,000 in November this year, with the balance being settled by 24 equal monthly instalments thereafter. This counter-offer however was rejected by Winterthur Life.

7. Thereafter the hearing of the bankruptcy petition was restored and at the hearing today, Mr So did not dispute that the debt was owed. For present purposes, however, I am concerned only with the debts covered by the statutory demand, and not with any amounts due by virtue of the settlement agreement.

8. Mr So suggested that the reason for his leaving Winterthur Life was dissatisfaction on his part with the policies of the company. He felt that it was particularly objectionable that he should be held responsible for the debts of his subordinates, which he felt was unfair. However, during the course of his address to me, it became clear that Mr So's complaint was more in relation to the guarantee that he had signed and not so much about the $23,000 odd representing the Charge to Manager.

9. However, it is quite clear that Mr So signed the guarantee and thereby undertook responsibility for the debts of Mr Ting. At the end of the day, he did not dispute his liability for that amount, unfair though he might think it was.

10. Mr So went on to say that when he entered into the settlement agreement of 22 May 2003, he had no choice in the matter as he was out of work, having been released from his then employment as a result of this bankruptcy petition. He therefore felt that there was no alternative but to accept the terms that had been offered. However, he subsequently received an offer of employment from another company, which he felt was more attractive, and decided to take it up. In essence, he acknowledged his liability to the Petitioning Creditor but expressed the hope that the Petitioning Creditor would offer more favourable terms than it had so far offered him. That, however, has not happened as the Petitioning Creditor has declined to offer any different terms of settlement.

11. In these circumstances, given the existence of an undisputed debt which exceeds the amount of $10,000, it would ordinarily follow that a bankruptcy order should be made on the basis of sections 6 and 6(a) of the Bankruptcy Ordinance given that insolvency or inability to pay debts is to be deemed from the failure to comply with the statutory demand. Nor did Mr So seek to suggest that that conclusion could be displaced on the basis of any of the evidence before me.

12. It also did not appear that Mr So was saying that the rejection of his latest offer was unreasonable. But Ms Cheung, who appears for Winterthur Life, has very properly drawn my attention to the provisions of section 6(d) of the Ordinance by which the court is required to dismiss a petition in circumstances where the debtor has made an offer of settlement or to compound for the debt which has been unreasonably refused by the Petitioning Creditor.

13. Ms Cheung submitted however that, quite apart from Mr So's not having addressed me on this point, it was not, in fact, unreasonable for Winterthur Life to reject the latest offer which Mr So had forwarded. In my view, Ms Cheung was right to suggest that the court will afford a reasonably generous degree of latitude to a creditor to decide whether or not to refuse an offer of settlement. In essence, a refusal to accept terms of settlement should be regarded as unreasonable where no reasonable creditor could refuse it. However, there may well be offers which some creditors will consider acceptable whereas other creditors might equally reasonably reject them.

14. In my view, the offer made by Mr So in this case falls within the class which could reasonably be rejected. I say that because although at first sight the offer might seem not dissimilar to the terms of settlement which had been reached and might, in relation to the initial payment, seem more favourable, there are significant differences, as Ms Cheung pointed out. The principal and most significant difference is that under the terms of the settlement agreement, the instalment payments would be paid in circumstances in which Mr So would be an employee or agent of the Petitioning Creditor which would have a significant element of control over the repayments to be made as they would be able to deduct them from the remuneration which he was to receive from them. It would therefore provide a substantial degree of security to the creditor.

15. Moreover, the payments would have been of the order of $10,000 per month when Mr So would have been earning at least $15,000 per month or perhaps more. When it became clear that Mr So would not be working for the Petitioning Creditor, Winterthur Life indicated that they would be prepared to accept $200,000 as an initial payment and 6 separate monthly payments thereafter. This would have given them a substantial initial recovery and a relatively short period of exposure thereafter. By contrast, Mr So's counter-offer was for two instalments of $100,000 each and 24 monthly instalments thereafter, thereby significantly increasing the period of time during which the Petitioning Creditor would have to wait for its money and be at risk.

16. It is, I think, also important to note that, when making this offer, apart from mentioning the fact that he was to take up employment with another insurance company, no information was provided as to Mr So's financial position or the terms of that employment. In those circumstances, it does not seem to me that I can say that the rejection of that proposal was unreasonable, quite apart from the question of the length of repayment. It seems to me that the absence of information as to his employment terms was significant because the $200,000 to be paid by 2 instalments was to be advanced by his new employers and would no doubt have to be repaid to them.

17. In those circumstances, it seems to me that the Petitioning Creditor would justifiably be concerned as to the likelihood of receiving the subsequent instalments when they had no information as to Mr So's terms of employment. Taken together with the lack of control over Mr So's remuneration, it seems to me that, whether viewed against the initial settlement or the subsequent proposal by the creditor, Mr So's counter-offer was one the rejection of which cannot be said to have been unreasonable in the sense which I have described. It does not seem to me to have been unreasonable for the Petitioning Creditor to refuse a long repayment period when Mr So would not be working for it. In these circumstances, it seems to me that I have no alternative but to make the bankruptcy order sought, and I therefore make such a bankruptcy order and will hear the parties as to costs.