RE ZULIFQAR ALI

HCB 6146/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6146 OF 2011

------------------------

------------------------

-------------------------

J U D G M E N T

-------------------------

1.  This is the application by Mr Zulifqar Ali (“Bankrupt”) for a stay of the bankruptcy order granted by Recorder A Chow SC on 26 July 2012 (“bankruptcy order”). Standard Chartered Bank (Hong Kong) Limited (“the Petitioner”) opposes the application.

2.  The background of the case is set out a judgment of Recorder A  Chow SC herein dated 26 July 2012 (“Judgment”). In summary, what happened was this.

3.  The Bankrupt was a director and the 99.9% shareholder of Azico International (Hong Kong) Limited (“Azico”). The Petitioner issued proceedings in HCA 1224/2010 against the Bankrupt for the amounts due under three guarantees dated 28 September 2007, 19 March 2009 and 25 September 2009 in respect of the obligations of Azico towards the Petitioner under some banking facilities.

4.  A Defence and Counterclaim bearing the name of counsel was filed on behalf of the Bankrupt in HCA 1224/2010.  The Petitioner applied for summary judgment under Order 14 of the Rules of the High Court.  The Bankrupt did not appear, either in person or by counsel or solicitors, at the hearing before Master R Lai on 20 December 2010. The  Petitioner obtained a final judgment (“Final Judgment”) for the principal sum of HK$12,910,033.13 plus interest thereon and costs of the action. The Bankrupt has not appealed against the Final Judgment.

5.  The Petitioner then served a statutory demand based on the Final Judgment on the Bankrupt. Upon non-compliance with the statutory demand, the Petitioner presented a bankruptcy petition (“Petition”) against the Bankrupt on 30 September 2011.

6.  At the hearing of the Petition, the Bankrupt contended he was not liable under the Final Judgment because certain documents relied upon by the Petitioner in HCA 1224/2010 were forged by the general manager of Azico, a Mr Afsheen. In particular, the Bankrupt said that he was not in Hong Kong between 19 September 2009 and 22 December 2009 and thus he could not have signed the 3^rd Guarantee or the 2^nd Facilities Letter on the dates of those documents ie 24 & 25 September 2009, or in the presence of the named witnesses.  It would also appear to be the Bankrupt’s case that the Petitioner’s letter dated 24 September 2009 which supplemented and amended the 1^st Facilities Letter and the Petitioner’s letter dated 17 November 2009 which supplemented and amended the 3^rd Facilities Letter were not signed by him and his signatures there were forged.

7.  Recorder A Chow SC rejected the Bankrupt’s allegations as not credible. His reasons were recorded in paragraphs 12 to 16 of the Judgment.

“12. First, the allegation of forgery was never raised in his Defence and Counterclaim filed in HCA 1224/2010. In that pleading, the [Bankrupt] did not dispute the validity of the 3 Facilities Letters or the 3 Guarantees. His defence to the Petitioner’s claim at that stage was essentially that the Petitioner, in breach of contract and/or its duties to act in good faith or to deal fairly with Azico/the [Bankrupt] and/or equitable duty of care, unilaterally suspended or withdrew the banking facilities granted to Azico without any prior warning.

13. Second, the [Bankrupt], in an attempt to explain why there was no challenge against the 3 Facilities Letters and the 3 Guarantees in the Defence and Counterclaim, alleges that his solicitors and counsel failed to follow his instructions. Indeed, the [Bankrupt] went so far as to allege that his solicitors and counsel might have accepted advantages from unidentified bank officers of the Petitioner for not doing their best endeavours to protect his rights and interests in the civil action. This allegation is contained in a statement made by the [Bankrupt] to the ICAC dated 20 March 2012, a copy of which was handed up to the court in the course of the [Bankrupt]’s submissions. I consider this allegation to be totally incredible.

14. Third, it appears from the [Bankrupt]’s written statement that he did, in or about September 2009, sign bank documents relating to an application for banking facilities under the Government’s Special Loan Guarantee Scheme. As mentioned above, both the 2^nd and 3^rd Facilities Letters were dated September 2009, but the one which the [Bankrupt] does not contend to be forged (ie the 3^rd Facilities Letter) did not relate to the Government’s Special Loan Guarantee Scheme, whereas the one which the [Bankrupt] contends to be forged (ie the 2^nd Facilities Letter) did relate to the Government’s Special Loan Guarantee Scheme. It is likely, therefore, that the [Bankrupt] did sign the allegedly forged 2^nd Facilities Letter.

15. I should add that although it is not in dispute that the [Bankrupt] was not in Hong Kong between 19 September 2009 and 22 December 2009, it does not necessarily follow that the 2^nd Facilities Letter and 3^rd Guarantee which were dated 24 September 2009 and 25 September 2009 respectively were signed on those dates. The evidence of Leung Yee Chun, the Head of Hong Kong, Group Special Assets Management of the Petitioner, which I accept, is that it was likely that the documents were first signed and returned by the [Bankrupt] to the Petitioner before they were signed by the “witnesses”.

16.     Fourth, on the basis of the [Bankrupt]’s own written statement, he had discovered that Afsheen forged his signature on his personal cheque dated 4 May 2010 and obtained money from his account.  Nevertheless, he said that he still trusted and relied on Afsheen to introduce Tony Au & Partners to act as his solicitors in HCA 1224/2010.  Such conduct on the part of the [Bankrupt] does not seem to me to make sense.”

8.  On 23 August 2012, the Bankrupt appealed against the bankruptcy order. On 9 January 2013, Kwan JA ordered the Bankrupt to pay HK$100,000 into court as security for costs within 28 days, failing  which the appeal would stand dismissed without further order. The Bankrupt did not pay the security.

9.  On 5 February 2013, the Bankrupt issued a Notice of Intended Application for Leave to Appeal against Kwan JA’s order.  On 22 April 2013, Kwan JA directed the Bankrupt to file a Notice of Motion for leave to appeal to the Court of Final Appeal within 28 days, in default of which the Notice would be dismissed with costs. As the Bankrupt did not file the Notice of Motion as directed, Kwan JA dismissed the Notice on 16 July 2013.

10.  Section 104 of the Bankruptcy Ordinance, Cap. 6, (“BO”) provides that the court may at any time for sufficient reason make an order staying the proceedings under a bankruptcy petition, either  altogether or for a limited time on such terms and subject to such conditions as the court may think just.

11.  In Re Chow Shun Yung unrep. HCB 5334 of 2004, 10 June 2005, Kwan J (as she then was) expressed the very strong view that it was undesirable to grant a general stay of a bankruptcy order pursuant to section 104 of BO. This was because of the prejudice that might be caused to creditors and the administration of the estate of the bankrupt by a general stay. Rather, the learned judge considered that a stay, even if warranted by the circumstances of the case, should be limited to certain steps or consequences, such as the gazetting or advertising of the bankruptcy order, and on condition that the bankrupt should attend the Official Receiver and give an account of his assets and liabilities. 

12.  In Re David C. Buxbaum unrep. HCB 7637 of 2004, 16 September 2005, Kwan J (as she then was) reiterated her view against granting a general stay of a bankruptcy order. The reason was that a general stay would not only release the bankrupt from all his statutory obligations and duties under the BO but would seriously hamper the ability of Official Receiver (or the trustee in bankruptcy) to control over the bankrupt and his property. Further, in the interests of the creditors, it was vital that there should be no undue delay in ensuring that the Official Receiver (or the trustee in bankruptcy) was put in a position in which he could ascertain the assets of the estate and take appropriate steps to preserve them.

13.  This court fully agrees with the learned judge’s observations. In those two cases, the stay was sought pending appeal. However, it appears to this court that the observations made by the learned judge apply a fortiori to the present case where there is not even a pending appeal, and the possibility of a late appeal against the bankruptcy order, in view of the procedural history, is remote.

14.  I should add that in the United Kingdom, with the repeal of section 113 of the 1914 Act (the equivalent of section 104 of BO), there is no longer any power to stay all proceedings under a bankruptcy order. The Insolvency Rules 1986 only provide for suspension of the steps that would be taken upon the making of a bankruptcy order viz. gazetting of the bankruptcy order, its advertisement, and notification of the Chief Land Registrar for registration of the bankruptcy order in the register of writs and orders affecting land: rules 6.34(2) &(3).

15.  As stated by the learned editors of Muir Hunter on Personal Insolvency at paragraph 7-351:

“An order suspending action, i.e., restraining advertisement and registration, will presumably only be made where the debtor gives notice of his intention to appeal against the bankruptcy order, or applies to set it aside on the grounds that it ought not to have been made…

Because of the possibility of prejudice to creditors, a stay of the proceedings is rarely granted; and the most which a court will be prepared to do is to stay advertisement of the bankruptcy order, on such terms as it considers just, e.g. ordering the debtor to attend upon the official receiver and give an account of his assets and liabilities, and particularly his bank accounts. Although the court would not normally order a stay of the proceedings, it would expect the official receiver only to do the minimum necessary in the circumstances, pending a bona fide application by the debtor to appeal against, or to annul, the bankruptcy order.”

16.  It appears from the Bankrupt’s affirmation dated 20 June 2013 and his submissions that the reason for the stay application is to enable him to reopen the Final Judgment in HCA 1224/2010 by raising the forgery defence. However, the forgery defence has been decidedly rejected by Recorder A Chow SC at the hearing of the Petition and the Bankrupt has thus far exhausted all appeal avenues with regard to the bankruptcy order. Further, even if the forgery defence were to succeed, it would only affect one of the three guarantees in question ie the one dated 25 September 2009. Assuming the Bankrupt is able to challenge the validity of that guarantee, he would still owe the Petitioner millions of dollars, more than enough to support the Petition and the bankruptcy order.

17.  In these circumstances, this court is of the firm view that no useful purpose will be served by granting a stay of the bankruptcy order, or  for that matter granting any order, to facilitate the Bankrupt in re‑arguing the forgery defence. Further, this court is of the firm view that the potential prejudice to creditors and the work of the trustees in bankruptcy is such that no stay of the bankruptcy order should be granted.

18.  As the Bankrupt has failed to make out any valid case for a stay of the bankruptcy order, the application is dismissed.

19.  This court would make an order nisi that the costs of and occasioned by the application be to the Petitioner to be taxed if not agreed.