RE KUNG KWOK CHING

IN THE SUPREME COURT OF HONG KONG

IN BANKRUPTCY

NO. B354 OF 1985

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JUDGMENT

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1. This is an application for a receiving order. Mr Larkin who appeared for the Official Receiver, took a neutral stance.

2. The petitioner is the mother of the debtor who was one of the defendants in a probate action instituted by the petitioner to pronounce for the force and validity of her late husband's will. The action was tried by me in August 1983 when I found in favour of the petitioner and made amongst other orders an order for costs against the debtor and his brother Kung Kwok Sun who was the other defendant in those proceedings. A further order for costs was made by the Court of Appeal on the 28th of February 1984 which was varied on the 22nd March 1984. The costs have since been taxed and allowed by a Master at a total sum of $576,268. No payment has been made either by the debtor or Kung Kwok Sun who are jointly and severally liable.

3. A bankruptcy notice based upon the amount due was served upon the debtor on the 7th of May 1985, but was not complied with. The debtor admits that the amount is due and that he has also failed to comply with the bankruptcy notice. However, he contends that sufficient grounds have been raised whereby in the exercise of its discretion, the Court should not make a receiving Order.

4. Essentially, it is argued on the debtor's behalf that he holds shares in two private companies, viz. 300 shares in Sam Kwong Weaving Factory (1952) Limited (Sam Kwong) and 200 shares in Yue Lung Investment Co. Limited (Yue Lung) which, when sold, should provide sufficient funds to discharge his indebtedness to the petitioner. The shares were the subject matter of a charging order obtained by the petitioner in May 1985. However, the order in respect of the shares in Sam Kwong was discharged on the 31st July 1985. It is not in dispute that the debtor has taken no steps to dispose of his shares in Sam Kwong since the charging order was discharged.

5. Criticism was levelled by Mr. Bell who appeared on behalf of the debtor, that although the shares in Yue Lung were disclosed in the petition and should be worth, if sold, to about $269,940, no disclosure was made in respect of the shares in Sam Kwong which it is therefore contended resulted in a breach of the provisions of Section 6(2) of the Bankruptcy Ordinance Section 6(2)  provides:-

"If the petitioning creditor is a secured creditor, he must in his petition either state that he is willing to give up his security for the benefit of the creditors in the event of the debtor being adjudged bankrupt, or give an estimate of the value of his security. In the latter case he may be admitted as a petitioning creditor to the extent of the balance of the debt due to him after deducting the value so estimated in the same manner as if he were an unsecured creditor."

This situation seems to have arisen as a result of a misapprehension by the petitioner's solicitor. Whilst these facts have been shown to be inconsistent, the true position has now been reflected to show that the debtor's ownership is not in dispute. Mr. Bell, nevertheless, submitted that the petition should be dismissed by reason of the petitioner's failure to plead this security. However, as it has been shown to be a pure mistake without any prejudice having been caused to the debtor who has, at all times, known the true position, I am unable to agree. Accordingly I find no merit in this submission.

6. It is apparent from the evidence that the boards of the two companies, Yue Lung and Sam Kwong, are at loggerheads and that there is no likelihood that the shares of the debtor in either of the two companies can be disposed of in the near future. There are restrictions imposed by the Articles of Association on the sale of shares and difficulties have already been encountered as to the validity of directors meetings in respect of which litigation has already taken place.

7. Mr. Bell also argued that the petition has been pursued because of an ulterior motive and points to the fact that the proceedings have been restricted to the debtor and not to Kung Kwok Sun against whom there is also a charging order in existence relating to the shares that he holds in the same two companies and also two other companies. Accordingly, he submitted that the charging order over the shares of Kung Kwok Sun together with the charging order over the debtor's shares in Yue Lung are more than sufficient to pay the amount due to the petitioner. Whether or not there are sufficient assets available to be realised is not relevant for the test to apply is can the debtor pay his debts as and when they fall due. If he is not in a position to realise his assets within a short period he must be regarded as commercially insolvent. A further argument raised on behalf of the debtor is that the petitioner has herself or in conjunction with others hindered or hampered the debtor in his efforts to dispose of the shares. The Court is not concerned with the motives of the petitioner nor with such actions that have already taken place. It is for the debtor to show that the difficulties that he has encountered with regard to the sale of his shares can be resolved within a reasonable time in which event, an adjournment could be sought for this purpose. It is significant that there was no application for an adjournment for it is clear that there can be no resolution of these matters within the foreseeable future.

8. Unless the debtor can establish very special circumstances the petitioner is entitled to an order, see Ex parte Yeatman Re Yeatman (1880) 16 ChD 125, Re Whitley Ex Parte Mirfield Commercial Co. Ltd. (1891) (65 LT 351) and Re A Debtor (1949) 1 All E.R. 652. No grounds have been put forward on behalf of the debtor that amount to very special circumstances to justify the Court exercising its discretion in refusing the petitioner's application. There will therefore be the usual receiving order with costs.