RE JOHN WANG

HCB21646/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO.21646 OF 2003

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J U D G M E N T

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The petition

1. This is a bankruptcy petition taken out by Bank of China, Singapore Branch ("BOCSB"), against the debtor, Mr John Wang for a debt in the aggregated sum of US$59,980,000 being the amount due and outstanding under :

(a) a joint and several guarantee dated 7 December 1983 in respect of banking facilities granted to Acada Developments Company Limited;

(b) a joint and several guarantee dated 7 December 1983 in respect of banking facilities granted to Fonda Oil Co. Ltd; and

(c) a joint and several guarantee dated 15/19 April 1996 granted to Fonda Oil Co. Ltd.

Background facts

2. The background facts leading to this petition have been admirably set out by Reyes J in his Reasons for Decision handed down in HCSD Nos. 22, 23 & 24 of 2003 on 5 December 2003. For present purposes, I will simply adopt them.

How the petition presented

3. Before proceeding any further, I would like to make one observation on how the petition was presented.

4. It was first presented on 18 December 2003. The petitioner named therein is Bank of China ("BOC"). It was signed on behalf of BOC by Mr Li Guang Ying ("Mr Li"), the deputy general manager of BOCSB.

5. On 15 March 2004, the petition was amended. The effect of the amendment is to treat BOCSB as the petitioner. It was also signed by Mr Li. In paragraph 7 of the petition, it is said that :

"By a Power of Attorney dated 15 April 1998 ('the Power') Bank of China head office appointed Mr Zhu Hua, General Manager of the Petitioner ('Mr Zhu'), as its lawful attorney. Pursuant to the power to appoint substitute attorney under [the Power], [Mr Zhu] appointed [Mr Li] as the Petitioner's substituted attorney by a Deed of Substitution dated 8 August 2001 ('the Deed'). Therefore [Mr Li] is duly authorized to sign and present the Petition herein dated 16 December 2003 and this Amended Petition on behalf of the Petitioner."

6. Since the amendment, the present proceedings have been conducted on the basis that BOCSB is the petitioner. However, as a matter of law, a branch office of a corporation does not have a separate legal entity. Thus, BOCSB is not a legal entity separate from BOC. Although the amended petition purported to treat BOCSB as the petitioner, such amendment is of no effect. The petitioner has all along remained BOC.

7. Mr Ho, counsel for the debtor, submitted that in the circumstances, the amended petition should be re-amended to replace BOCSB by BOC as the petitioner. However, I agree with Ms Poon, counsel for the petitioner, that it would not be necessary. For BOCSB and BOC are of the same legal entity.

The test

8. I now turn to the grounds raised by the debtor in opposing the petition. I remind myself that in bankruptcy petitions begun by creditors, as is the present case, the burden rests squarely on the debtor to raise a bona fide dispute on substantial grounds regarding the debt. If he fails to do so, a bankruptcy order will be made against him.

9. The debtor has raised a total of four grounds in opposition. I will look at them in turn.

The petitioner is not a legal entity

10. The debtor first contended that the petitioner (BOCSB) is not a legal entity and therefore does not have the capacity to issue the present proceedings. As I have demonstrated above, the proper petitioner remains BOC. And it is common ground that BOC is a legal entity. This ground must fail.

The petitioner must have a common seal

11. The debtor next contended that the petitioner (BOCSB) must have a common seal. Since the petition is not properly affixed with the common seal, it is defective.

12. I first deal with the factual question whether BOCSB has a common seal. The evidence before me clearly shows that BOCSB does not have a common seal. The debtor has not adduced any credible evidence to the contrary.

13. I next turn to the submission that the petition is not affixed with a common seal, thereby rendering it defective. This assumes that a petition presented by a corporate petitioner must be affixed with its common seal. This assumption is misconceived.

14. Paragraph 4 of Practice Directions 3.1 on Bankruptcy and Winding-up Proceedings addresses the problems in cases where petitions by corporate petitioners are sometimes presented without proper authority. Paragraphs 4.3 and 4.4 provide :

"4.3 Practitioners are reminded that an officer of a corporation who lodges a bankruptcy petition on behalf of the corporation, or who swears an affidavit of truth of statements in a bankruptcy petition, must be duly authorized in writing under the seal of the corporation so to do. The petition and affidavit must also recite the authority under seal.

S4.4 For a corporate petitioner which does not possess a corporate seal, the petition and the affidavit should recite the fact that the company does not have a seal. The petition and affidavit must also recite the authority by which the officer lodges the bankruptcy petition."

15. Thus, what is required is that the officer must be duly authorized to present the petition under seal or, if the corporate petitioner does not possess a common seal, by some other means. The point is : the officer must be duly authorized by the corporate petitioner to present the petition. There is no requirement in the Practice Directions that when a petition is presented by a corporate petitioner, it must be affixed with its common seal.

16. Here, the petition was presented on the basis that BOCSB does not have a common seal. But as pointed out above, the proper petitioner is BOC. And it can hardly be disputed that BOC does have a common seal. Mr Li was not authorized to present the petition under BOC's common seal. Paragraph 4.3 of the Practice Directions has not been complied with. But is it fatal and does it render the petition and the amended petition defective? The answer is no.

17. As I have pointed out, the effect of paragraphs 4.3 and 4.4 of the Practice Directions is to ensure that the petition is duly presented with authority. The debt giving rise to this petition was contracted by the debtor with BOCSB under the underlying transactions in Singapore. The Power appointed Mr Zhu as BOC's lawful attorney in Singapore, handling all matters affecting BOCSB's business in Singapore, including taking out legal action. By virtue of the Deed, Mr Li was appointed as Mr Zhu's substitute in performance of his duties under the Power. Here, the debt, the underlying transactions and the ensuing legal proceedings all fall within the ambit of Mr Zhu's and hence Mr Li's duty and power. The Deed, read together with the Power, does authorize Mr Li to present the present and sign the petition on behalf of BOC. In other words, both the petition and the amended petition were thus duly authorized by BOC to be presented.

18. That being the case, the non-compliance with paragraph 4.3 of the Practice Directions is a mere technical slip that can and should be safely waived.

19. As an incidental point, the debtor argued that the Power was only sealed with the seal of the board of directors and not the common seal of BOC. The Power was therefore defective. It is a wholly unmeritorious argument. For the debtor recognized that Mr Wang Xuebing ("Mr Wang"), the then chairman of BOC who signed the Power did have the authority at the time to sign the Power on behalf of BOC. In any event, the debtor has not demonstrated why the Power would be rendered defective merely because it was affixed with the seal of the board of directors and not BOC's common seal.

20. For these reasons, I will rule against the debtor on this ground.

The petitioner's authority has been revoked

21. The third ground raised by the debtor relates to the authority to issue the petition. The debtor argued that Mr Wang had been arrested and sentenced to 12 years imprisonment on 12 December 2003. Mr Wang's authority in the circumstances must have been revoked by implication, if not by actual termination by BOC, thus rendering the Power invalid or ineffective.

22. The Power is silent on the governing law. But looking at its substance and the circumstances under which it was issued, one can reasonably argue that the Power is governed by PRC law. The debtor has not adduced any evidence on the applicable PRC law that supports his contention. He proceeded on the basis that Hong Kong law applied to the Power. Assuming that Hong Kong law is applicable to the Power or the effect of its governing law is similar to Hong Kong law, the debtor's argument must nevertheless fail. As noted above, the debtor accepted that when Mr Wang signed the Power, he had the due authority to do so. He now argued that the subsequent revocation of Mr Wang's authority renders the Power ineffective or revoked. Mr Ho has been unable to cite any authority to support this retrospective revocation theory. Further, the Power was issued to authorize Mr Zhu and not Mr Wang to act on behalf of BOC. The revocation of Mr Wang's authority would not have revoked Mr Zhu's authority.

23. Further, Clause 22 of the Power provides that the Power shall remain in force until a notice or its revocation is registered with the Registry of the Supreme Court of Singapore. There is simply no evidence before me to show that such a notice has been so registered.

24. This ground must fail.

Reyes J's decision under appeal

25. The fourth ground is this. The debtor's appeal against Reyes J's decision of dismissing his application to set aside the statutory demand (CACV Nos. 361, 362 and 363/2003) would be heard on 25 June 2004. If he succeeded in the appeal, the present proceedings would be taken over by event. On 17 June 2004, I adjourned the hearing pending the result of this appeal.

26. On 25 June 2004, the Court of Appeal dismissed the appeal. The Reasons for Judgment was handed down on 2 July 2004. Mr Ho disagreed with the Court of Appeal's decision and reasoning. But the Court of Appeal's decision is binding on me. This must be the end of the matter insofar as this court is concerned.

27. This last ground also fails.

Conclusion

28. For the above reasons, none of the grounds raised by the defendant has merit. He has failed to demonstrate that he has a bona fide dispute on substantive grounds. I will therefore make a bankruptcy order against him.

[Further Submissions]

29. Mr Ho asked me not to issue the bankruptcy order until the time to appeal has expired. I see no merit in such an application at all. The petitioner is entitled to the fruit of the judgment and to proceed with the steps following the debtor's bankruptcy forthwith.

30. On costs, I will order that costs of this petition, including all the costs reserved, to be taxed if not agreed.