DBS BANK (HONG KONG) LIMITED V. NG HI YIN HYDI V. BANKRUPTCY PROCEEDINGS NO. 15656 OF 2009 DBS BANK (HONG KONG) LIMITED V. LEE YUK LAN V. BANKRUPTCY PROCEEDINGS NO. 15657 OF 2009 DBS BANK (HONG KONG) LIMITED V. NG YUEN KWAN V. BANKRUPTCY PRO

HCB 15655, 15656/2009
and HCB 15657, 15658/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 15655 OF 2009

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

BETWEEN

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

REASONS FOR JUDGMENT

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

BACKGROUND

1.  By way of 4 separate Petitions dated 29 December 2009 which are to be heard together, the Petitioner (DBS Bank (Hong Kong) Limited) now seeks to bankrupt the following 4 debtors:

(a)     Ng Hi Yin Hydi (“Hydi”), the named debtor under HCB 15655/2009;

(b)     Lee Yuk Lam (“Lee”), the named debtor under HCB 15656/2009;

(c)      Ng Yuen Kwan (“Ng”), the named debtor under HCB 15657/2009; and

(d)     Lam Wing Lin (“Lam”), the named debtor under HCB 15658/2009.

2.  On 1 December 2003, the Petitioner granted banking facilities to two Hong Kong companies, namely, Diorva Knitters Limited (“Diorva HK”) and Golden Magnificent Garments Limited (“Golden”).  This facility was granted under a facility letter dated 1 December 2003 (the “2003 Facility Letter”) which has not been produced in evidence.  At the material times, these two Hong Kong companies had/have the following shareholders and directors:-

Diorva HK
Shareholders	Shares
Ng Yuen Kwan (“Ng”)	1
Diorva Holdings Company Limited (BVI)	99
Directors
Ng Yuen Kwan (“Ng”)
Lam Wing Lin (“Lam”)
Golden
Shareholders	Shares
Ng Hi Yin Hydi (“Hydi”)	1
Lee Yuk Lan (“Lee”)	1
Directors
Ng Hi Yin Hydi (“Hydi”)
Lee Yuk Lan (“Lee”)

As for Diorva BVI, Ng holds 33 and Lam holds 30 out of a total of 108 shares.  Ng and Lam are also the only two directors.

3.  On 4 December 2003, pursuant to the 2003 Facility Letter, Ng and Lam executed 2 “all-monies” guarantees in favour of the Petitioner, by which they both guaranteed the indebtedness that would become owing by Diorva HK and Golden to the Petitioner (the “2003 Guarantees”). According to public records, Hydi and Lee were, at the material times, the only two shareholders and directors of Golden.  However, for reasons not explained by the Petitioner in evidence, Hydi and Lee were not required to act as guarantors for the debts of Golden.  On the contrary, Ng and Lam were requested to and did act as guarantors for debts of Golden when neither of them were shareholders or directors of Golden.

4.  At the time of execution of the 2003 Guarantees, Ng and Lam were each given a “Notice to individual third party security provider” written in both English and Chinese (the “Third Party Notices”).  Each of them also signed on a bilingual Confirmation and Acknowledgement to signify their knowledge and acceptance (the “Confirmations”).

5.  In June 2008, the Petitioner again agreed to grant banking facilities to Diorva HK and Golden.  The nature and terms upon which such banking facilities were granted had been set out in facility letter dated 12 June 2008 (the “2008 Facility Letter”).  This 2008 Facility Letter has been adduced in evidence which contains the following salient points:-

(1)     It was addressed jointly to Diorva HK and Golden at a common address, namely, Flat B, 7^th Floor Tung Luen Industrial Building, 1-4 Yip Shing Street, Kwai Chung, New Territories (“7/F Tung Luen”).

(2)     It referred to Diorva HK and Golden as the two borrowers and various facility limits that were to be enjoyed by each of them were collectively described in one single facility letter.

(3)     Section D set out the “Security and Conditions Precedent”.  Clauses 5 to 15 read as follows:-

“5. Continuing Guarantee and Indemnity for HKD1,200,000.- plus interest and other charges duly executed by Lam Wing Lin and Ng Yuen Kwan for the account of Diorva Knitters Limited.

6. Continuing Guarantee and Indemnity for HKD2,254,245.- plus interest and other charges duly executed by Lam Wing Lin and Ng Yuen Kwan for the account of Diorva Knitters Limited.

7. Guarantee and Indemnity for HKD4,000,000.- plus interest and other charges duly executed by Lam Wing Lin and Ng Yuen Kwan for the account of Diorva Knitters Limited.

8. Guarantee and Indemnity for an unlimited amount duly executed by Lam Wing Lin and Ng Yuen Kwan for the account of Diorva Knitters Limited.

9. Guarantee and Indemnity for an unlimited amount duly executed by Diorva Holdings Company Limited for the account of Diorva Knitters Limited.

10. Guarantee and Indemnity for an unlimited amount duly executed by Golden Magnificent Garments Limited for the account of Diorva Knitters Limited.

11. Guarantee and Indemnity for an unlimited amount duly executed by Lam Wing Lin and Ng Yuen Kwan for the account of Golden Magnificent Garments Limited.

12. Guarantee and Indemnity for an unlimited amount duly executed by Diorva Holdings Company Limited for the account of Golden Magnificent Garments Limited.

13. Guarantee and Indemnity for an unlimited amount duly executed by Diorva Knitters Limited for the account of Golden Magnificent Garments Limited.

14. Guarantee and Indemnity for an unlimited amount duly executed by Lee Yuk Lan for the account of Golden Magnificent Garments Limited.

15.     `Guarantee and Indemnity for an unlimited amount duly executed by Ng Hi Yin Hydi for the account of Golden Magnificent Garments Limited.”

(4)     The Petitioner must have known that Diorva HK, Golden and Diorva BVI are all related companies under the so-called Diorva Group.  The Petitioner must also have known that all the above debtors herein are involved in the business of the Diorva Group although each may have separate role in specific related companies within the Diorva Group.

(5)     It is also apparent that Ng and Lam assume greater roles in the Diorva Group as compared to Hydi and Lee.  This must also have been known to the Petitioner, hence probably why Hydi and Lee were originally not required to stand as guarantors for Golden’s debt in the 2003 Facility Letter.

6.  Pursuant to the 2008 Facility Letter:

(a)     Hydi and Lee each executed an “all-monies” guarantee in favour of the Petitioner whereby each of them guaranteed the indebtedness that may become owing by Golden to the Petitioner (the “2008 Guarantees”).  At the same time, each of them also respectively received a “Third Party Notices” and signed a “Confirmation” to signify their knowledge and acceptance.

(b)     Further to the 2003 Guarantees, Ng and Lam each also received a further bilingual “Notice to individual third party security provider – Amendment of Facilities” and they signed to signify their knowledge and acceptance (the “Amendment Notices”). This was to ensure their knowledge that the 2003 Guarantees would extend to cover the 2008 Facilities.

7.  The Petitions against Hydi and Lee are based on their liability as guarantors for Golden under the 2008 Guarantees, Golden having default in making full repayment to the Petitioner in respect of the banking facilities granted under the 2008 Facility Letter.  The debt due and remained outstanding as at the date of the Statutory Demands (28 October 2009) comprised of HK$12,563,007.06 and US$213,777.65 with further interest accruing thereafter.

8.  The Petitions against Ng and Lam are based on their liability as guarantors for both Diorva HK and Golden under the 2003 Guarantees, both companies having defaulted in making full repayment to the Petitioner in respect of the banking facilities granted under the 2008 Facility Letter.  The debt due and remained outstanding as at the date of the Statutory Demands (28 October 2009) comprised of HK$13,593,078.84 and US$213,777.65 with further interest accruing thereafter.

9.  Counsel for the Petitioner and the debtors agreed that the existence, nature and quantum of the outstanding indebtedness of Golden and Diorva HK (in their capacities as principal debtors) towards the Petitioner are not in dispute.

10.  Basing on the evidence and skeleton arguments filed by the parties, the debtors’ opposition to the Petition can be summarized as follows:-

(a)     Defective service of the Statutory Demands and the Petitions.

(b)     With the exception of Ng, the other 3 debtors (ie. Hydi, Lee and Lam) are asserting that there is a bona fide dispute on substantial grounds in relation to their indebtedness. Specifically, they are alleging that the respective guarantees executed by them in favour of the Petitioner were procured by undue influence on the part of Ng.

(c)      The outstanding indebtedness owned by Golden and Diorva HK is fully secured and it is open to the Petitioner to recover the same from, amongst others, a Mainland company named Xinfeng County Fengfu Knitters and Garments Company Limited (“Xinfeng Fengfu”) which is a solvent company with sizeable assets.

11.  At the hearing, Counsel for the Petitioner and Counsel for the debtors agreed that if the Court is not satisfied with the propriety of the services of the various Statutory Demands, the Petitions would have to be dismissed following the decision of Re Lam Lai Wah Susanna [2002] 4 HKC 334, at paragraphs 17 to 21.  In the end, I ruled that services of the Statutory Demands on the debtors were defective and accordingly I dismissed all four Petitions.  I now give written reasons for my decision.  I would add that consequent upon my ruling on service, parties agreed that I need not deal with the arguments on “bona fide dispute on substantial grounds”.  I would also add that Counsel for the debtors informed the Court that in any event, he did not wish to argue the “secured indebtedness ” point.

APPLICABLE LEGAL PRINCIPLES

12.  There is no disagreement between the parties on the applicable legal principles.  In relation to the service of a Statutory Demand, the requirements and the proof of service of the Statutory Demand are provided for in rr.46 and 49 of the Bankruptcy Rules, Cap 6A.

13.  Pursuant to r.46(2) of the Bankruptcy Rules, there should be personal service of the Statutory Demand where that is practicable. Where it is not, the Petitioner must do all that is reasonable for the purpose of bringing the Statutory Demand to the debtor’s attention.  What is reasonable must be adjudged objectively in the light of the information actually or constructively available to the creditor at the time (Re Wong Lei Kwan Joanne [2009] 3 HKLRD 173 at para. 32; and Re Lam Lai Wah Susanna, ibid, at para. 22).

14.  Service of a Statutory Demand by advertisement can be sufficient for the purposes of r.46(2) where personal service cannot be effected.  In such a case, if all other reasonable means of bringing the Statutory Demand to the debtor’s attention have been attempted, such an advertisement will satisfy the requirements of r.46(2) (Re Pang Mei Lan May [2005] 1 HKC 319 at para. 23).

15.  Further, as observed by Barma J in the judgment of Re Pang Mei Lan May, at paras. 25 to 26, the extent of a petitioning creditor’s duty to do all that is reasonable for the purpose of bring the Statutory Demand to the debtor’s attention would entail the following:-

“…But the steps to be taken by the creditor must, I think, also include doing all that is reasonable to effect personal service, such as the taking of reasonable steps to obtain an address at which personal service might be effected…If a creditor has not been able to serve the debtor at the address or addresses which he has in his records but has other information or other means available which might enable him to obtain an address for service, it seems to me that he should make use of them, where it is reasonable to expect him to do so, with a view to bringing the statutory demand to the attention of the debtor.

Thus, where a creditor has one or more addresses for a debtor, personal service should ordinarily be effected at each of those addresses. Where a creditor has one or more avenues by which an address for service might be obtained, he should, if it is reasonable for him to do so, follow up those avenues so as to obtain, if possible, an address for service.  Whether or not it will be reasonable to expect him to do so will depend on the particular circumstances of the case, including the ease with which the step in question can be taken, and the likelihood of obtaining information which might enable personal service to be effected.  If an enquiry can be made without much difficulty or effort, it will generally be reasonable to make it even if the chances of obtaining information are not particularly high.  On the other hand, where the chances of obtaining information that might enable personal service to be effected are good, it may be reasonable to take steps which are more onerous or involve the expenditure of greater time or effort…”

16.  Furthermore, on the burden of proof, Barma J (at paras. 35 to 37) explained the approach to be adopted as follows:-

(1)     The debtor bears the initial burden of showing that the creditor has not taken all steps that were reasonable for the purpose of bring the Statutory Demand to the debtor’s notice and to cause personal service to be effected.  The debtor will have to identify the omitted steps;

(2)     once the above is established, the burden then lies on the creditor to show that those steps could not or would not have led to the Statutory Demand being brought to the debtor’s attention; and

(3)     if the evidence is uncertain as to whether or not those steps would have been of utility, it would be right to give the debtor the benefit of doubt.

STEPS UNDERTAKEN BY THE PETITIONER

17.  According to the affirmations of service filed by the Petitioner, attempts to personally serve the Statutory Demands and/or to bring the Statutory Demands to the attention of the debtor were effected in the following ways:-

          HCB 15655/2009 (re Hydi) and HCB 15656/2009 (re Lee)

(1)     As advised by the officer of the Petitioner, the “usual and/or last-known address” of Hydi and Lee was equally at 22^nd Floor, Tung Luen Industrial Building, Nos. 1-4 Yip Shing Street, Kwai Chung, New Territories (“22/F Tung Luen”).  The Petitioner deposed that it did not have knowledge of any other address of Hydi and Lee for which service of documents could be effected.

(2)     Personal service of the Statutory Demands on Hydi and Lee was first attempted on 30 October 2009 at 22/F Tung Luen by a clerk of the Petitioner’s solicitors.  No one answered the door. There was no neighbouring unit.  Enquiries were made at the management office. A caretaker told the clerk that he did not know Hydi or Lee and that the occupants of 22/F Tung Luen had moved out in January 2009.

(3)     A second attempt of personal service at 22/F Tung Luen on 2 November 2009 was equally in vain.  Another caretaker told the clerk that he had no knowledge of Hydi and Lee.

(4)     Then, on 3 November 2009, the Petitioner’s solicitors sent 2 letters by pre-paid ordinary post, one to Hydi and one to Lee, both addressed to 22/F Tung Luen with a view to making 2 appointments for effecting personal service of the Statutory Demands on Hydi and Lee at the 22/F Tung Luen address.  On the appointed dates and times, nobody answered the door at 22/F Tung Luen.  No additional information could be obtained from the management office or caretakers.

(5)     Based on the above, the Petitioner submitted that all reasonable and practicable efforts had been made and accordingly, 2 similar notices were advertised in Ming Pao Daily News on 17 November 2009 in order to bring the Statutory Demands to the notice of Hydi and Lee respectively.

          HCB 15657/2009 (re Ng) and HCB 15658/2009 (re Lam)

(6)     As advised by the officer of the Petitioner, the “usual and/or last-known address” of Ng and Lam was equally at 7/F Tung Luen.  The Petitioner deposed that it did not have knowledge of any other address of Ng and Lam for which service of documents could be effected.

(7)     Personal service of the Statutory Demands on Ng and Lam was first attempted on 30 October 2009 at 7/F Tung Luen by a clerk of the Petitioner’s solicitors.  The said premises was then under renovation.  A man answered the door and identified himself as a decoration worker and said he had no knowledge of Ng or Lam.  Enquiries were made at a neighboring unit but no one answered.  Enquiries were then made with the management office.  A caretaker told the clerk that he did not know Ng and Lam and that the occupants of 7/F Tung Luen had moved out in January 2009.

(8)     A second attempt of personal service at 7/F Tung Luen on 2 November 2009 was equally in vain.  Another caretaker told the clerk that he had no knowledge of Ng and Lam.

(9)     Then, on 3 November 2009, the Petitioner’s solicitors sent 2 letters by pre-paid ordinary post, one to Ng and one to Lam, both addressed to 7/F Tung Luen with a view to making 2 appointments for effecting personal service of the Statutory Demands on Ng and Lam at the 7/F Tung Luen address.  On the appointed dates and times, another renovation worker attended the door.  He said he did not know Ng and Lam.  No additional information could be obtained from the management office or caretakers.

(10)   Based on the above, the Petitioner submitted that all reasonable and practicable efforts had been made and accordingly, 2 similar notices were advertised in Ming Pao Daily News on 17 November 2009 in order to bring the Statutory Demands to the notice of Ng and Lam respectively.

18.  In the affirmations filed by the debtors in opposition of the Petitions, it has been revealed that in fact, the Petitioner and the Diorva Group and DBS Bank (China) were engaged in a debt restructuring scheme in 2009.  During the negotiations, the Petitioner and DBS Bank (China) were represented by the same team of officers and led by Mr Wayne Yuk Wing Cheung (the Petitioner’s deponent in these proceedings).  These negotiations resulted in a Facility Letter dated 11 May 2009 being issued in respect of banking facilities granted by the Petitioner to Diorva HK and Golden (“2009 Facility Letter”).  The Petitioner did not dispute the above facts.  Unfortunately, the 2009 Facility Letter has not been included in the evidence.  The Petitioner also admitted that pursuant to the 2009 Facility Letter, a total of 6 guarantees were executed by 3 Chinese companies particularized hereunder in respect of the banking facilities granted to Diorva HK and Golden. These 3 Chinese companies were:-

(i)      “新丰縣丰富紡織製衣有限公司”  (“Xinfeng Fengfu”) which is located at Zicheng Industrial Area, Fengcheng Town, Xinfeng County, Guangdong, PRC (“the Xinfeng’s Premises”);

(ii)       “深圳帝業針織有限公司”(“Shenzhen Diye”) which is located at two places, namely (a) Room 318, 3/F, Block 505, Pengi Shangbu Industrial Area, Huaqiang North Road, Futian District, Shenzhen, Guangdong, PRC (“the Futian Premises”); and (b) District 73, Shanghe Village, Xixiang, Baoon District, Shenzhen, Guangdong, PRC (“the Shanghe Premises”).

(iii)    “帝法針織製衣(深圳)有限公司”(“Diorva Shenzhen”) located at Rear Block, 4/F, 48 Gonghe Gongye Street, Xixiang Road, Baoon District, Shenzhen, Guangdong, PRC (“the Baoon Premises”).

19.  The 2 Chinese guarantees executed by Xinfeng Fengfu stated Lee as its legal representative“法定代表人”.  Lee executed the 2 guarantees given by Xingfeng Fengfu over the indebtedness of Diorva HK and Golden respectively in her capacity as a legal representative of Xingfeng Fengfu.  In respect of the guarantee given by Xingfeng Fengfu for Golden’s indebtedness, Lee also executed it in her capacity as an authorized signatory of Golden.

20.  The 2 Chinese guarantees executed by Shenzhen Diye stated Ng as its legal representative and he executed them in that capacity.  For the guarantee given in respect of Golden’s indebtedness, Lee executed it in her capacity as an authorized signatory of Golden.  For the guarantee given in respect of Diorva HK’s indebtedness, Ng also executed it in his capacity as an authorized signatory of Diorva HK.

21.  The 2 guarantees executed by Diorva Shenzhen stated Ng as its legal representative and he executed them in that capacity.  For the guarantee given in respect of Golden’s indebtedness, Lee executed it in her capacity as an authorized signatory of Golden.  For the guarantee given in respect of Diorva HK’s indebtedness, Ng also executed it in his capacity as an authorized signatory of Diorva HK.

22.  The stance taken by the Petitioner is that said 6 guarantees are irrelevant to the Petitioner’s claims under the 2003 and 2008 Guarantees as they relate only to the 2009 Facility Letter.  The Petitioner further argued that although it knew of the addresses of the Baoon Premises, the Futian Premises, the Shanghe Premises and the Xingfeng Premises, these addresses should not be taken as the last known addresses of the debtors.  In my judgment, these arguments completely missed the point.  The evidence of this debt restructuring exercise in 2009 and the resultant acceptance of these 3 PRC companies as guarantors for the banking facilities granted to Golden and Diorva HK indicate that the Petitioner was fully conversant with the inter-relationship between the debtors, Golden; Diorva HK and the 3 PRC companies.  After failing to reach the debtors at their respective usual /last known addresses in Hong Kong, it was only reasonable to expect the Petitioner to make enquiries with these 3 PRC companies with a view to contacting the debtors.  I am not suggesting that the Petitioner should go all the way to these addresses in the PRC to effect personal services of the Statutory Demands on the debtors.  That would, in my view be unreasonable and impracticable.  It might also involve a game of “cat and mouse”, not knowing when a particular debtor could be reached at one of those 4 PRC addresses at any given date or time.  In any event, I do not think the Petitioner should be expected to effect personal service outside the jurisdiction.  However, the Petitioner could send letters, faxes or make telephone calls to these premises with a view to contacting the debtors and making appointments with them for effecting personal service when they should return to Hong Kong.  I can readily infer that apart from knowing the addresses of these 4 premises (which the Petitioner admitted), the Petitioner would also have knowledge of their telephone numbers, fax numbers or even email addresses in the course of the debt restructuring exercise.  Such attempts to contact the debtors at the PRC premises would not involve any great efforts and would not be unduly burdensome, given the serious consequences to the debtors for failing to comply with the Statutory Demands.  There was also a real possibility, to say the least, that the debtors could be contacted and the Statutory Demands be brought to their attention.  The Petitioner wholly failed to explain why such relatively simple steps were not undertaken.  Neither has the Petitioner attempted to establish that these steps, even if taken, could not or would not have led to the Statutory Demands being brought to the debtors’ attention.  I would also add that in fact, soon after the advertisements of the Petitions in newspapers were brought to the attention of the debtors they promptly intervened in these proceedings.

23.  Counsel for the debtors also made another point which I think is of merits.  He referred me to an “Admissions of Facts Pursuant to Notice” filed by the Petitioner pursuant to Order 27, rule 2.  In this document, the Petitioner admitted knowledge of the fact that Diorva HK was wound up on 26 August 2009 and that liquidators were appointed.  In other words, at least in relation to Ng and Lam, the Petitioner should have known that the liquidators of Diorva HK was a possible source of information as to their whereabouts or contact details.  Again, no explanation whatsoever has been provided by the Petitioner for their failure to make enquiries with the liquidators of Diorva HK.

24.  In the circumstances, I am satisfied that the Petitioner has failed to comply with Rule 46(2) of the Bankruptcy Rules and I accordingly dismiss all four Petitions with costs to each of the debtors (Respondents) to be taxed if not agreed.  Counsel for the debtors referred me to a without prejudice letter written by the solicitors representing Hydi and Lee to the Petitioner’s solicitors with a view to arguing for a taxation basis more favourable than party-and-party basis.  The said letter merely threatened that if their offer were not accepted, they would invite the Court to make an order for summary assessment.  At the end of the hearing, I asked Counsel for the debtors whether he was ready for summary assessment and he answered in the negative.  In my view, the said letter do not constitute a valid reason for changing the basis of taxation.  I therefore ordered that costs be taxed on party-and-party basis.