RE CHEN MEI HUAN also known as LIU CHEN MEI HUAN also known as LIU MEI HUAN CHEN

HCB 1660/2019

[2019] HKCFI 3028

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1660 OF 2019

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REASONS FOR JUDGMENT

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1.  This is a petition presented by Venetian Macau Ltd for a bankruptcy order against Madam Chen Mei Huan (“Madam Chen”), based on an outstanding judgment debt in an amount exceeding $117m. The judgment was obtained by the petitioner against Madam Chen in High Court Action No 1440 of 2012 by way of summary judgment given by DHCJ Leung on 27 January 2014. At the conclusion of the hearing I dismissed the petition. These are my reasons for the decision.

2.  The judgment debt is not disputed by Madam Chen. The parties agree that there are two issues in contention:

(1)     Does this court have jurisdiction as provided under s 4 of the Bankruptcy Ordinance to make a bankruptcy order against Madam Chen? 

(2)     Has the petitioner unreasonably refused to accept Madam Chen’s offer to secure the debt?

3.  Section 4 of the Bankruptcy Ordinance (Cap 6) sets out the conditions, in terms of the debtor’s connection with Hong Kong, that must be satisfied for the court to have jurisdiction to entertain a bankruptcy petition against him or her.  The only ground now relied upon by the petitioner is s 4(1)(c)(ii), namely, that the debtor, “at any time in the period of 3 years ending with [the day on which the petition was presented] — … (ii) has carried on business in Hong Kong”.  Section 4(2) stipulates that this includes the carrying on of business by a firm or partnership of which the debtor is a member, and the carrying on of business by an agent or manager for the debtor or for such a firm or partnership.

4.  It is well established that this condition is not satisfied by showing merely that a person is running his company’s business even though he is the sole beneficial shareholder and in complete control.  On the other hand, this does not preclude a finding, on the totality of the evidence, that such a person is also conducting a separate business of his own.  See In re Brauch (A Debtor), ex parte Britannic Securities & Investments Ltd [1978] Ch 316, 328G; Re Kok Hiu Pan, ex parte Wing Lung Bank Ltd [2002] 3 HKLRD 20, §37; Re Aiyer Vambu Subramaniam, ex parte Dianoor International Ltd (in liquidation) [2014] 5 HKC 203, §§8 to 9.

5.  A person is not regarded as carrying on business in Hong Kong simply because he is organising or managing or takes charge of the business of a company in this jurisdiction, whether as a director or otherwise.  This follows from the fundamental doctrine of the separate legal personality of a company.  On the other side of the line, two English cases illustrate when a person might be found to have carried on his own business, separate and distinct from that of the companies with which he was involved.

6.  In In re Clark, ex parte Pope & Owles [1914] 3 KB 1095, the evidence showed that the debtor, a married woman, was personally involved in acquiring sites, having hotels built on them, promoting companies to which the hotels were later transferred, and then managing those companies.  The court held that the debtor had been carrying on the business of a company promoter dealing in hotels or a financier dealing in the purchase of land and building hotels, and had therefore “carrie[d] on a trade or business, whether separately from her husband or not”, within the meaning of s 12 of the (UK) Bankruptcy and Deeds of Arrangement Act 1913.

7.  In In re Brauch, supra, the debtor was found to have identified and selected numerous properties to be developed, had them valued by professional valuers, organised the financing of the development, with himself undertaking considerable personal liabilities in the form of guarantees, and selected the companies each of which eventually undertook the development project.  The court held that, for the purpose of s 4(1)(d) of the Bankruptcy Act 1914 (which was materially equivalent to s 4(1)(c)(ii) of the Bankruptcy Ordinance), the debtor was carrying on personally the business of promoting companies, or acquiring shell companies, to speculate in land, or alternatively that of finding suitable sites for development or investment, negotiating a price, including all necessary valuations, and financing the purchase.  Although the development, management and realisation of the properties, once they came to the companies, was the business of the companies, all the preliminary stages were the debtor’s business which was distinct from the companies’. 

8.  One can see that there was in that case clear evidence of numerous and substantial activities undertaken by the debtor in his personal capacity.  The factors that were taken into account by the Court of Appeal have been listed in the subsequent case of Anglo Irish Bank Corporation Ltd v Flannery [2013] BPIR 1 at §13, including specific activities carried out by the debtor such as selecting the properties, arranging their valuation, organising the financing, enabling or procuring the companies to acquire and develop the properties, and giving personal guarantees for the financing.  This is of course not to say that these are necessary conditions for holding that the debtor has carried on business in the jurisdiction.  Whether or not he has done so is a factual question that must depend on the circumstances of each case.  But there must be some evidence of activities on the part of the debtor over and above those attributable to the company to show that the debtor has carried on business of his own.  Merely taking part in the business of a company is not a sufficient basis for finding that the debtor has himself carried on business in Hong Kong.

9.  The evidence in the present case, on petitioner’s case, shows that Madam Chen has been, in a general sense, a businesswoman.  She started living with one Mr Ng Man Sun effectively as husband and wife in 1992.  From about October 1997 until March 2013, Madam Chen and Mr Ng each held one of two shares in Silver Faith Holdings Ltd (“Silver Faith”), a Hong Kong company, which held a few subsidiaries that in turn held a number of properties in Hong Kong, in particular, in Shun Tak Centre. The couple also acquired an 80% interest in the New Century Hotel in Macau in 1996 via Peckson Ltd (“Peckson”), a company incorporated in the British Virgin Islands (“BVI”), and moved into the hotel shortly after the purchase. 

10.  Madam Chen’s relationship with Mr Ng broke up in around May 2012 and litigation in both Hong Kong and the BVI ensued.  In 2012, Mr Ng sued Madam Chen in the BVI claiming to be the beneficial owner of the 80% interest in Peckson.  In May 2014, Madam Chen presented a petition in Hong Kong for the winding up of Silver Faith on the just and equitable ground after she discovered that 9,998 shares had been issued to Mr Ng in March 2013 diluting her shareholding to 0.01%.

11.  Appearing for the petitioner, Ms Sit submitted that Madam Chen clearly had businesses in Hong Kong in the past as Madam Chen had said that she had been “retreating from her businesses in Hong Kong since 2012”.[1] It was submitted that the business was that of joint investment (with Mr Ng) in real properties in Hong Kong via Silver Faith, which held various landed properties (as many as 95 at one time) through subsidiaries.  Madam Chen has been described to have claimed that “the underlying assets of such subsidiaries were their joint investments”.[2]  Madam Chen had also provided funding, including HK$100m in around 1996 which was advanced apparently for the purpose acquiring the New Century Hotel but in the event not used for that purpose,[3] and also sums advanced in 2011 for restructuring external loans to the subsidiaries.[4]  Many of the properties acquired by Silver Faith’s subsidiaries were not let, but treated as trading stock.[5]  It was submitted that the ongoing winding‑up petition in relation to Silver Faith did not mean that Madam Chen had ceased to carry on the business.  The petitioner’s submission was that the business continued to be carried on by Madam Chen for as long as Silver Faith was in existence and held (indirectly) the properties.

12.  In my view, the evidence, viewed in its totality, falls short of what would be needed to establish that Madam Chen had carried on business in Hong Kong during the relevant period, namely, the three years ending with 21 March 2019.  There is little evidence of any activities that Madam Chen carried out that led to the various properties being acquired and held by the companies in question.  The injection of funding for use by the company, whether as share capital or shareholder’s loans, does not without more show that the individual is carrying on her own business.  Vague and general statements such as that the properties were the “joint investments” of Madam Chen and Mr Ng do not indicate the carrying on of business by Madam Chen.  They are equally consistent with the contention that those properties are assets purchased by companies which were owned directly or indirectly by Madam Chen and Mr Ng from which they hoped to make a gain upon their eventual disposal.  Even if there is evidence of activities actually engaged in by Madam Chen in selecting the properties and funding and arranging for their acquisition by Silver Faith’s subsidiaries, such as the kind of evidence in In re Brauch, those activities would pre‑date 2014 on the facts of this case, and would not in themselves support a finding that Madam Chen had carried on business in Hong Kong after March 2016.  Those “preliminary stages” have long passed, and the holding, management and ultimate realisation of the properties was the business of the companies.  If the properties were held as trading stock, they were the trading stock of the companies in question.  There is no basis to say, nor have I understood the petitioner to contend, that the companies were simply nominees holding the properties on trust for Madam Chen and Mr Ng.

13.  The inevitable conclusion, therefore, is that the petitioner has failed to establish jurisdiction for making a bankruptcy order against Madam Chen and that, for that reason, the petition must be dismissed.

14.  In the circumstances, it is unnecessary to consider the further question whether the petitioner has unreasonably refused to accept Madam Chen’s offer to secure the judgment debt by granting a charge over the 80% shareholding in Peckson which Madam Chen says she owns. Given that her beneficial ownership of that 80% interest is still subject to litigation with Mr Ng in the BVI (albeit there is a first instance judgment in her favour upon retrial as ordered by the Privy Council), if it were necessary to deal with the question I would be inclined to think that the petitioner had not acted unreasonably in refusing the offer within the meaning of s 6D(3) of the Bankruptcy Ordinance.