THE HONGKONG & SHANGHAI BANKING CORPORATION LTD. v. TREVOR ERNEST BOUCHER

HCB821/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO.821 OF 1999

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Reasons Handed Down : 9 September 1999

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R E A S O N S

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1. This petition, presented by the Hongkong & Shanghai Banking Corporation Limited ("the Petitioner"), is for a bankruptcy order against Trevor Ernest Boucher ("the Debtor"). The debt upon which the petition is based is in a sum in excess of $700,000.

2. A bankruptcy order was made at the hearing. The reasons appear below.

3. At the first hearing on 16 August 1999 before Ribeiro J, a direction was given that the Debtor's proposal for an interim order be circulated to all creditors and that they be allowed at least three working days to consider any proposal that would be put forward. On that basis, the petition was adjourned to 30 August 1999. There was a delay in submitting the proposal apparently due to the typhoon that affected Hong Kong over the weekend of 21 and 22 August.

4. In outline the proposal contains a proposed repayment programme suggested by the Debtor. He is employed by a company called Clover Leisure and Accessories Limited ("Clover") which has indicated that it will fully support the repayment schedule outlined by the Debtor. According to the affidavit filed by the Debtor on 16 August 1999 prior to the hearing before Ribeiro J, his ability to make the proposed repayment hinges upon the fortunes of Clover although he is but an employee. In any event, Clover's financial condition in turn depends on orders being obtained from an American company known as David Sullivan Inc. ("Sullivan") which has been granted a contract to supply staff uniforms and apparel accessories to a company known as Subway. The adjournment granted by Ribeiro J was to enable the Debtor to flesh out his proposals and to seek the creditors' response.

5. There is before me, in draft, the second affidavit of Mr Krause. Counsel for the Debtor undertakes to have this sworn and filed. It is apparent from the second affidavit that the Debtor's total indebtedness is $14.7 million. The proposal has the support of creditors representing $3.2 million or approximately 21%. It has been rejected by the Petitioner as well as another creditor. Together they hold 23% of the indebtedness. Another creditor, ING Bank, which holds 34% of the indebtedness has apparently "verbally expressed no interest in pursuing the matter of recovery of his guarantee or in participating in any scheme" to the Debtor. In support, there is a manuscript letter sent by the Debtor to Mr Krause. There is no direct evidence from ING Bank as to its position.

6. Counsel for the Debtor sought a further adjournment. Initially an adjournment of seven days was sought on the basis that that would give the Debtor sufficient time to persuade the ING Bank to support the proposal. As the hearing progressed, the adjournment sought became one of 14 days for reasons which appear below.

7. The settlement offer circulated to the creditors is contingent upon the support of at least 75% of known claims against the Debtor, and also upon Clover "achieving and sustaining profitable operations for the period of the proposed repayment schedule". The offer represents a repayment over three years of 35% of the current known claims against the Debtor. Given the terms of the settlement offer, the status of Clover's operation is plainly critical. In this regard, the following passage from paragraph 6 of Mr Krause's second affidavit is particularly relevant :

"..., I have concern over the ability of Clover to achieve sustainable profitable operations. This concern remains, as I still cannot independently verify the value and term of the orders expected from David Sullivan Inc. in respect of the supply of staff uniforms to the Subway Group. [The Debtor] informs me that orders for thirty to forty percent of the contract will be issued in the near future with delivery over the next six months. The value to Clover in terms of gross profit before company overheads over that period is estimated at between HK$450,000 and HK$600,000. However, until orders are placed by David Sullivan Inc. I am unable to confirm or provide further comment on the ability of [the Debtor] with the support of Clover to comply with his proposed arrangements."

8. Thus even if a week's adjournment were granted and the ING Bank could be persuaded to support the proposal (an assumption which is not supported by any evidence), that still leaves grave doubts over Clover's ability to achieve sustainable profitable operations which, of course, underpins the viability of the proposed scheme.

9. According to the Debtor, Sullivan is expected to place its orders within the next two weeks. Sullivan's letter dated 9 August 1999 which is relied on by the Debtor is wholly non-committal in terms of the placing of the Subway order with Clover. There is nothing further from Sullivan upon which the Debtor could derive support or comfort whether as to the timing of the orders or as being the supplier with whom such orders would be placed. In the circumstances, an adjournment for a week will achieve nothing. The question therefore is whether an adjournment for two weeks is warranted.

10. Not only was the adjournment not supported by a majority in number and value of the creditors, the question whether or not Sullivan would place the expected orders is wholly at large and a matter for speculation. Having regard to these matters as well as the reservations and caveats that Mr Krause has to the viability of the proposed scheme as matters stand, it would not be appropriate for the court to exercise its discretion to grant the adjournment sought. In my judgment, no useful purpose would be served : it would merely postpone the inevitable. For these reasons, the application by the Debtor for an adjournment was refused.