XCHRX Re IP LAM ON

HCSD 11/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 11 OF 2000

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REASONS FOR DECISION

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1. This is an application by Mr Ip Lam On to set aside a statutory demand which I dismissed when the matter came before me on 3 January 2001. I now give my reasons for so doing. This was originally to be heard with a similar application by Madam Ip Lai Fan, but her application for legal aid on 14 December 2000 caused the automatic stay of proceedings to come into effect. Mr Ip also made an application at the hearing for an adjournment in order to obtain legal representation, and, indeed, repeated his application several times in the course of it, which I also dismissed. I also give my reasons for this decision, which I will deal with first.

APPLICATION FOR ADJOURNMENT

2. The statutory demand which is the subject of these proceedings was issued on 17 March 2000, and the application to set it aside was filed on 28 April 2000 together with Mr Ip's affidavit in support. On 5 June 2000 a date was fixed for the matter to be heard on 3 November 2000. The respondent creditor's affidavit was filed on 20 October 2000 and on 26 October 2000 the applicant, Mr Ip, filed a notice to act in person and the next day applied for legal aid. When the application came before Madam Justice Yuen on 3 November the respondent applied for the stay under the Legal Aid Ordinance to be lifted. This was refused, but the judge ordered that an early date be given for the adjourned hearing. This was fixed for 3 January 2001, and notice of the hearing was given to the applicant in the middle of December, legal aid having been refused on 30 November.

3. At the hearing before me, the basis of Mr Ip's application to adjourn was that he wanted time to find a lawyer to represent him, and that he now had a promise of a loan of money to pay for legal representation. He said that he had done nothing before to seek representation as he thought the hearing was for another adjournment rather than a substantive hearing. The application was opposed by Mr Ng for the respondent as being a delaying tactic, and that a further adjournment would cause more prejudice to the respondent who was being kept out of its money on a debt, the existence of which was not seriously disputed, and where the grounds of the application to set aside were extremely unlikely to succeed.

4. I agree with Mr Ng. The applicant has had ample time to raise money to pay for legal representation and appears to have done little since legal aid was refused. He also knew that an early hearing had been ordered and that he needed to act swiftly if a new lawyer was to be able to take up the case. In the circumstances it does appear that this is an effort to delay what, as I find below, is the inevitable outcome of these proceedings, and the prejudice to the respondent in that delay, and in increased costs, must lead to this application being dismissed. I accordingly ordered the matter to proceed.

APPLICATION OT SET ASIDE STATUTORY DEMAND

5. The debt the subject of these proceedings arises out of general banking facilities granted to Richwin Holdings Ltd and Onglory Development Ltd secured by a legal charges over 15 properties owned by a number of third parties, but none by Mr Ip, and deeds of guarantee given by Mr Ip dated 30 August 1995. Defaults having been made by the two companies, four of the mortgaged properties were sold, but the owners of the remaining 11 refused to surrender possession and proceedings were commenced against them and the two companies in 1998, which resulted in possession orders being made on 25 November 1998. Meanwhile proceedings were also instituted against Mr Ip on his guarantees and judgment under Order 14 obtained on 14 December 1998 in the sum of $20,654,557.25 with interest and costs on the indemnity basis. This not being paid, the statutory demand was issued for the sum of $20,766,118.54, with detailed calculations as to how this sum was arrived at taking into account interest and costs, and clearly having allowed for the sums recovered from sale of the four properties. Since then a number of adjustments have reduced the sum outstanding to $19,483,827.16.

6. The applicant seeks to set this aside on the ground that the respondent holds the 11 properties still as security, that these are of sufficient value to cover the debt, and that they are not referred to in the statutory demand. He clearly relies here on Rule 48(5)(c) of the Bankruptcy Rules which reads as follows:

The Court may grant the application if:-

.........

(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 44(5) is not complied with in respect of it, or the Court is satisfied that the value of the security equals or exceeds the full amount of the debt; ......

7. Rule 44(5) of the rules, dealing with the matter of security, reads as follows:

(5) If the creditor holds any security in respect of the debt, the full amount of the debt shall be specified, but?

(a) there shall in the statutory demand be specified the nature of the security, and the value which the creditor puts upon it as at the date of the demand; and

(b) the amount of which payment is claimed by the demand shall be the full amount of the debt, less the amount specified as the value of the security.

8. There is also an allegation that the respondent agreed not to enforce the judgment if the applicant would not contest the Order 14 application in 1998. I will deal with these separately.

Compliance with rule 44(5)

9. Mr Ng points out that it is not necessary for the creditor to specify the security in the demand as the properties are owned by third parties, not Mr Ip, which is not in dispute, and are accordingly not security over property of the person by whom the debt is owed. He cites in support of this the judgment of Le Pichon J, in Re. Kwok Chok Yee. Ex Parte: The Hongkong & Shanghai Banking Corporation Limited HCB 670 of 1999 where she said, at p. 2:

"Secured creditor" is defined in section 2 of the Ordinance as meaning -

"a person holding a mortgage, charge or lien on the property of the debtor or any part thereof, as a security for a debt due to him from the debtor."

For the purposes of this petition, the relevant debtor is the guarantor and not the Company. The properties in question that had been mortgaged to the Bank were properties that belonged to the Company and not the Debtor. The security provided is thus a third party security. After being referred to In re A Debtor (No.310 of 1988)[1989] 1 WLR 452, counsel for the Debtor accepted that the debt founding this petition is not a secured debt.

10. This must be right. Rule 44(5) only relates to security of the debtor himself, and security provided by others need not be specified. On the same basis, neither need I consider its value, as the second part of rule 48(5)(c) clearly refers to the same security, namely that of the debtor. However, for the sake of completeness I will do so.

Value of properties

11. In his affidavit in support, the applicant gives a value of $21,000,000 for the properties, and said that he was arranging for a valuation report to be prepared. No such valuation has ever been produced by him. However, the respondent has produced a valuation in its affidavit from AA Property Services Ltd which places a value on the remaining properties of $3,760,000. Since the filing of that affidavit, there has been no further evidence from the applicant to either dispute this valuation or to produce his own.

12. As this is the only evidence before me, I have no difficulty in finding that the debtor has failed to satisfy me that the value of the remaining security comes anywhere near the amount of the debt, and certainly does not equal or exceed it.

Agreement not to enforce

13. In paragraph 12 of his affidavit, the applicant gives evidence of an assurance he says he received from the respondent that the guarantee would not be enforced until the securities were realised and only then if the proceeds were insufficient, and says that he only agreed to submit to judgment in reliance on that assurance. I gather that he is saying that the respondent is now estopped from trying to enforce the debt as a result of that agreement.

14. There are two reasons why I find no merit in this argument. The first is that he does not say what his defence would have been if he had chosen to defend. The obvious conclusion from this is that there was none. The second, following from that, is that there is no consideration for such an agreement. I would add that such an agreement defies common sense. There appears to have been no other way for the respondent to recover its debt than by selling the security, which, as I have found, was woefully inadequate, and to pursue the applicant. To have agreed not to do the latter would not make commercial sense. I accordingly also find that the debtor has failed to satisfy me on this ground as well.

Conclusion

15. For these reasons I dismissed the debtor's application with costs, including the costs of the hearing on 3 November 2000, and ordered that the creditor have authority to issue a bankruptcy petition on or after 17 January 2001.