RE MARGARET CHIU

HCB 7106/2018

[2020] HKCFI 617

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7106 OF 2018

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J U D G M E N T

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1.  By a petition presented on 10 December 2018, V Capital Limited, the petitioner, seeks a bankruptcy order against Ms Margaret Chiu (“debtor”).

2.  The hearing was scheduled to be heard on 3 February 2020 but was adjourned due to the general adjournment of court proceedings announced by the Judiciary.  Given the nature of the proceedings (which determines the status of the debtor) and the fact that the petition was presented in as early as December 2018, this court decided to fix the hearing on an early date (i.e. 6 April 2020) and proceed with the hearing during the general adjournment. 

3.  At the hearing, Mr Kenny Lin (appearing with Mr Jeffrey Lee) informs the court that the debtor has decided to discharge the legal team and acts in person as there are certain matters which the legal team considers unable to advance on her behalf.  Therefore, the court releases the legal team and the debtor acts in person.  The debtor confirms that she adopts the written submissions prepared by Mr Lin.   

4.  The debtor seeks to adduce her 5^th affirmation (“Chiu 5^th”) as further evidence in opposition to the petition, which is only provided to the court and the petitioner at the hearing.  The application to adduce Chiu 5^th strikes me as a tactical manoeuvre deployed by the debtor in the hope that the petition can be adjourned, and I refuse the application for the following reasons:

(1)  There has been inordinate delay and inaction on the part of the debtor in filing any new evidence.  The debtor filed her third affirmation on 24 April 2019 (“Chiu 3^rd”) in which she provided further documents in relation to her assets and encumbrances and provided an update on the matters set out in her previous affirmations (summarised in §25 below).  Since then, for almost one year, there has been no attempt on the part of the debtor to adduce any further affirmation until this hearing. 

(2)  The matters set out in Chiu 5^th were admittedly well known to the debtor.  It was open to the debtor to set them out in an affirmation and applied for leave to adduce it if she wished to do so.  She claims that the reasons why this was not done earlier were because her secretary had fallen ill and her legal advisers failed to include the documents she had provided to them, and she was not aware that the petitioner would criticise her for not disclosing supporting documents in relation to her liabilities[1]. I am unable to accept her assertions.  By the time the debtor made Chiu 2^nd and Chiu 3^rd, the petitioner had already made much criticisms on the deficiency of her disclosure (see §§21 and 23 below) and she had been able to enlist the assistance of her secretary. 

(3)  Allowing the debtor to adduce Chiu 5^th would prejudice the interest of the petitioner as it would effectively be deprived of an opportunity to consider and respond to the matters raised in Chiu 5^th. 

A.    BACKGROUND FACT

5.  The following fact and matters are not in dispute. 

6.  The debtor is the legal and beneficial owner of 99.9% shares[2] of a Hong Kong company, Marspan Limited (“Marspan”) which, in turn, is the registered owner of a property located at Lots 2 and 630, Demarcation District No 238 (“Property”). 

7.  The late Deacon Chiu passed away on 17 March 2015, and was survived by his wife and 8 children including the debtor.  On 3 February 2016, letters of administration were granted to Mrs Chiu as the administratrix (“Administratrix”) of the estate of the late Deacon Chiu (“Estate”).     

8.  By a deed dated 24 October 2016 made between inter alios the debtor and the petitioner, the debtor promised to pay the balance of the extension fee, the second extension fee and the professional fees to the petitioner.  Apart from a partial payment of HK$7 million paid to the petitioner on 2 March 2017, the debtor failed to pay the amount due.      

9.  The petitioner through its former solicitors’ letter of 6 March 2017 demanded the debtor to pay the remaining balance of US$5,710,281.08, but no payment was made by the debtor.  At that time, the Property was unencumbered.   

10.  Between 8 March 2017 and 13 July 2018, the debtor caused Marspan to create the following encumbrances over the Property (collectively “5 Mortgages”) as security for the loans advanced to her:

(1)  a mortgage dated 8 March 2017 in favour of CS Credit Limited (“CS Credit”), which was registered at the Land Registry on 21 March 2017 (“1^st Mortgage”);

(2)  a mortgage dated 29 January 2018 in favour of Asset Bridge Development Limited (“Asset Bridge”), which was registered at the Land Registry on 30 January 2018 (“2^nd Mortgage”);

(3)  a mortgage dated 1 February 2018 in favour of CS Credit, which was registered at the Land Registry on 26 February 2018 (“3^rd Mortgage”);

(4)  a legal charge dated 4 June 2018 in favour of Jad Wealth (Asia) Development Limited (“Jad Wealth”), which was registered at the Land Registry on 28 June 2018 (“4^th Charge”); and

(5)  a mortgage dated 13 July 2018 in favour of E Capital Limited (“E Capital”), which was registered on 7 August 2018 (“5^th Mortgage”).

11.  On 24 September 2018, the petitioner obtained a judgment by consent (in HCA 1431/2017) against the debtor, which required the debtor to pay within 30 days the following amounts: (1) US$3,677,168.23 as outstanding extension fees, (2) US$1,450,000 as outstanding professional fees, and (3) interest on the extension fee at 5% p.a. from 4 February 2017 up to date of judgment (“Judgment Debt”).   

12.  The debtor did not pay any part of the Judgment Debt by the due date.  On 26 October 2018, the petitioner issued a statutory demand requiring the debtor to pay or compound for the Judgment Debt and interest accrued thereon at judgment rate from 27 October 2018 until payment (“SD”).  The SD was served on the debtor on 2 November 2018.   

13.  On 29 November 2018, the petitioner obtained a charging order absolute over the debtor’s shares in Marspan (the order nisi was made on 30 October 2018). 

14.  On 10 December 2018, the petition was presented and served on the debtor.  In the petition, the petitioner relied on the Judgment Debt and the SD which had not been complied with or set aside.  In relation to the security held by the petitioner (i.e. charging order absolute), the petition stated (at §5) that it holds security and estimates the value of the security at HK$9,999, based on the registered share capital of Marspan.   

15.  On 24 December 2018, an order was made against the debtor (in HCA 1431/2017) requiring her to disclose, inter alia, documents relating to (1) her salary and professional fees received for the last 3 years and (2) the receipt and use of the loans secured by the 5 Mortgages (“1^st Disclosure Order”). 

16.  By letter dated 24 January 2019, Messrs SW Tai & Co (“SWT”), on behalf of the debtor, requested the Administratrix to provide copies of the letters of administration and schedule of assets and liabilities in relation to the Estate.  The Administratrix through Messrs Woo Kwan Lee & Lo’s letter of 25 January 2019 declined the request, and stated that the administration was still “at the stage of conducting valuation of the assets and ascertaining the debts”, and the debtor “is entitled to approximately one-sixteenth of the net asset value of the Estate” (“WKLL Letter”).   

17.  On 29 January 2019, the debtor through SWT produced some documents to the petitioner in purported compliance with the 1^st Disclosure Order.

18.  By letter dated 29 January 2019 to Messrs Jun He, solicitors for the petitioner (“JunHe”), SWT stated that the debtor had instructed them to “immediately take out an application” for an account and inventory of the Estate, and to make an offer on the following terms (“1^st Offer”):

(1)  the debtor shall forthwith place the Property for sale and undertakes to sell the Property upon receiving an offer to purchase it for not less than HK$170,000,000;

(2)  upon sale of the Property and discharging all encumbrances, the debtor undertakes to apply the net proceeds to settle the Judgment Debt;

(3)  the debtor undertakes to take out an application for account and inventory of, and interim distribution from, the Estate;

(4)  the debtor undertakes that upon receiving the interim distribution from the Estate, she shall utilise the funds received to first discharge the Judgment Debt; and

(5)  the petition shall be withdrawn or stayed sine die with liberty to restore. 

19.  On 30 January 2019, the petition was heard before a Master.  On 31 January 2019, the debtor filed an amended notice of intention to oppose the petition stating that she “intends to show cause against the petition” but without stating the grounds relied upon.  On 1 February 2019, JunHe complained that the notice failed to specify the ground of opposition, as required by r 68 of the Bankruptcy Rules.  No step was taken by the debtor to rectify the defect or to file an affirmation in opposition.    

20.  At the 1^st callover hearing of the petition on 18 February 2019, Anthony Chan J made an order that if the Property is not sold by 4 March 2019, the debtor “is to file and serve an affirmation setting out the valuation of the Property and all of the [debtor’s] existing indebtedness with appropriate supporting evidence on or before 11 March 2019” (“2^nd Disclosure Order”).

21.  In their letter dated 27 February 2019 to SWT, JunHe complained about the inadequacy of the documents provided by the debtor and required her to rectify the breach of the 1^st Disclosure Order.  By a further letter dated 11 March 2019, JunHe required the debtor to rectify the breach of the 1^st Disclosure Order and to disclose all her assets and liabilities in accordance with the 2^nd Disclosure Order. 

22.  On 11 March 2019, the debtor filed her 1^st affirmation (“Chiu 1^st”) in which she:

(1)  produced a one-page valuation report dated 3 October 2018 from Dudley Surveyors Limited, which valued the Property at HK$155,000,000;

(2)  provided the names of mortgagees and dates of the 5 Mortgages and copies of such Mortgages; and

(3)  stated the total outstanding amount (inclusive of interest) secured by the 5 Mortgages was HK$108,475,795.47 and, therefore, the “net value” of the Property was HK$46,524,204.53. 

23.  In response, the petitioner filed an affirmation on 13 March 2019 in which it:

(1)  criticised the debtor’s failure to disclose all her liabilities and any documents “showing receipt and use of the Mortgaged Funds” and breach of the 1^st and 2^nd Disclosure Orders, despite the repeated reminders issued by the petitioner;

(2)  identified the other liabilities shown in the documents produced by the debtor.  These included (a) net amount of HK$561,681.20 owed to the banks[3]; (b) 7 outstanding loans in the total amount of HK$18,224,950[4]; (c) 5 ongoing legal proceedings against the debtor with aggregate claims of HK$15,173,154.43[5]; and

(3)  produced a valuation report dated 9 March 2019 prepared by Citiland Surveyors Limited (“Citiland”) which opined that the market value of the Property was HK$73,200,000. 

24.  On 19 March 2019, the debtor filed her 2^nd affirmation (“Chiu 2^nd”) whereby she:

(1)  produced an “updated” valuation report dated 13 March 2019 prepared by Landscope Christie’s, which valued the Property at HK$170,000,000;

(2)  stated that she had since 29 January 2019 put the Property for sale in the open market “with firm instructions to sell the Property upon an offer of not less than HK$170,000,000”;

(3)  had on 1 February 2019 engaged an exclusive agent to market and sell the Property, which had been negotiating the price with prospective buyers who were prepared to offer “something in the region of HK$150,000,000” although there was no firm offer to buy the Property at HK$170,000,000; and

(4)  corrected the outstanding amounts secured by the 4^th Charge and the 5^th Mortgage, such that the total outstanding amount secured by the 5 Mortgages was HK$108,500,000 and the “net value” of the Property was HK$61,500,000.

25.  In Chiu 3^rd, the debtor said that she had:

(1)  engaged 2 additional property agents to market and sell the Property “upon an offer of not less HK$170,000,000”;

(2)  commenced HCMP 165/2019 on 4 February 2019 against the Administratrix in the hope that she would receive a “substantive update on the progress of her administration of the Estate” and, through SWT’s letter of 13 February 2019,  requested the Administratrix to provide a true account of the Estate and to “actively consider an interim distribution where appropriate”.  Her negotiations with the Administratrix and other beneficiaries did not come to fruition, but she believed that her share of the Estate would be “in excess of HK$80,000,000 at the very least”;

(3)  a receivable of HK$11,900,000 owed by Ms Angela Leung (“Receivable”), against whom she had served a statutory demand on 7 May 2018, followed by a bankruptcy petition filed on 20 June 2018.  The petition was scheduled to be heard on 23 May 2019 and as the assets held by Ms Leung exceeded the amount owed to the debtor, the debtor was “confident of enforcing” the Receivable;

(4)  a fixed salary of HK$40,000 per month from her employment; and

(5)  3 sources of “significant income”, being (a) the net value of the Property at HK$61,500,000, (b) the entitlement in the Estate of at least HK$80,000,000, and (c) the Receivable. 

26.  At the 3^rd callover hearing of the petition on 29 April 2019, Ng J gave leave to the debtor to file Chiu 3^rd and adjourned the petition for substantive argument.  Ng J also ordered the parties to tender the makers of the valuation reports for cross-examination.  This has become unnecessary, as neither party has issued any notice to cross examine the maker of the report relied on by the other party.   

27.  In his submissions, Mr Lin refers to a letter from Messrs Siao Wen Leung (“SWL”) of 24 January 2020[6] which, he submits, contains a “new open offer” made by the debtor in the following terms (“2^nd Offer”):

(1)  the debtor shall forthwith enter into a deed of undertaking to procure Marspan to use its best endeavours to sell the Property at the prevailing market price as soon as practicable and, after discharging all encumbrances, apply the net sale proceeds to settle the Judgment Debt;

(2)  the debtor shall forthwith enter into a deed of assignment with the petitioner whereby she shall assign her entitlement under the Estate “to the extent as is sufficient to extinguish the outstanding [Judgment Debt]”; and

(3)  upon satisfaction of the Judgment Debt, the aforesaid deeds shall cease to have effect.

28.  The petitioner did not respond to the 2^nd Offer. 

29.  At the hearing, Ms Frances Lok, counsel for the petitioner, draws the court’s attention to another letter dated 1 April 2020 from SWL which contains a further offer in these terms (“3^rd Offer”):

“We are instructed to renew the [2^nd Offer] with an additional right (an irrevocable one until the Judgment Debt is fully discharged) for [the petitioner] to inquire about the Probate, its status and value etc in the meantime – in the name of [the debtor]. With this direct approach for [the petitioner] to inquire about the value of the Estate, there would be no need for bankruptcy. In addition, this beefed up proposal (i.e. the assignment deed and authorising [the petitioner] to act as our representative to make enquiries directly with the probate lawyers regarding the actual process and valuations etc of the Probate) would seem to address [the petitioner’s] major concerns i.e. they do not know the value of probate and when payment will be disbursed to the beneficiaries.”

30.  Ms Lok informs the court that the petitioner does not accept the 3^rd Offer which, she submits, only creates a burden on the petitioner to make enquiry with the Administratrix. 

B.      DISCUSSION

31.  It is not in dispute that:

(1)  the debtor is liable to pay the Judgment Debt (and interest accrued thereon), which is a liquidated sum due and payable to the petitioner;

(2)  the SD has not been complied with;

(3)  the debtor does not presently have the means to pay the Judgment Debt; and

(4)  the 1^st to 3^rd Offers made by the debtor to compound for the Judgment Debt were not accepted by the petitioner. 

32.  In light of the aforesaid matters, by virtue of s 6A(1)(a) and s 6D(1)(a) of the Bankruptcy Ordinance (Cap 6) (“Ordinance”), the petitioner is entitled to seek a bankruptcy order against the detor unless she is able to satisfy the court that the 1^st to 3^rd Offers (or any of them) meet the requirements of s 6D(3)(a) – (b) and the petitioner’s refusal of such offer(s) was unreasonable.    

33.  Mr Lin contends that the petition should be dismissed for the following reasons:

(1)  the debtor had made the 1^st Offer and 2^nd Offer to compound for the Judgment Debt, but the petitioner acted unreasonably in refusing to accept them; and

(2)  the debtor has “a reasonable prospect of being able to pay” the Judgment Debt, taking into account the net value of the Property and her “undisputed entitlement under the Estate”.

34.  Ms Lok, counsel for the petitioner, takes issues with the latter point which she submits, correctly, has never been raised by the debtor in her affirmations or notice of intention to show cause.  I shall deal with the latter point first.

B1.    Reasonable prospect of being able to pay

35.  Mr Lin submits that the debtor has a reasonable prospect of being able to pay the Judgment Debt because:

(1)  the Property is “a readily realisable asset that could be sold at the prevailing market price” and, according to Landscope Christie’s valuation, would leave a “substantial net value of over HK$50,000,000” after discharging all encumbrances.  Reliance is placed on Her Majesty’s Revenue and Customs v Garwood [2012] BPIR 575 at §38, where Chief Registrar Baister said, in the context of that case, he would adjourn the case further “to give the debtor one final opportunity to sell the property at what now appears to be a realistic price”; and

(2)  the debtor has “reasonable prospects of succeeding” in the proceedings against the Administratrix for interim distribution of the Estate.  It is “only a matter of time” that the debtor will receive “her undisputed entitlement under the Estate” which she believes to be in excess of HK$80,000,000.

36.  Based on the above 2 matters, Mr Lin contends that the court should dismiss the petition pursuant to s 9(3) of the Ordinance, which provides:

“If the court is not satisfied with the proof of the petitioning creditor’s debt or of the service of the petition, or is satisfied by the debtor that he is able to pay his debts or has a reasonable prospect of being able to pay them, or considers that for other sufficient cause no order ought to be made, the court may dismiss the petition.”

37.  Mr Lin further submits that in considering whether the debtor has a reasonable prospect of being able to pay the petitioning debt, the test is whether the debtor can pay it out of cash or readily realisable assets in his hands, relying on Sandell v Porter (1966) 115 CLR 666.  For this purpose, no regard may be given to “future contingencies” or “future income” as such contingencies and income may or may not be available, citing Re Lam Ngai Fung Tony, HCB 4641/2001, 3 December 2001, at §13 (per DHCJ To, as he then was).   

38.  I do not think the argument assists the debtor, as the petition is based on the debtor’s “inability to pay” a debt which is payable immediately (under s 6A(1)(a)), rather than “no reasonable prospect of being able to pay a debt which is not immediately payable” (a separate limb under s 6A(2)).  For the reasons stated in §§31 – 32 above, the petitioner has established the debtor’s inability to pay the petitioning debt for the purpose of s 6(2)(c) of the Ordinance.    

39.  Even if “reasonable prospect of being able to pay” the Judgment Debt is relevant (which it is not), I do not think the debtor has discharged the burden of showing that she has a reasonable prospect of being able to pay the Judgment Debt.

40.  First, the issue in Sandell v Porter was whether the debtor was insolvent at the time the preference was made, and the test of insolvency under s 95 of the Bankruptcy Act 1924 – 1960 (Cth) was “an inability to pay debts as they fall due out of the debtor’s own money”.  It was in this context that Barwick CJ said:

“But the debtor’s own moneys are not limited to his cash resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business, of the debtor. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from the evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.”

41.  The insolvency test propounded in Sandell v Porter has no application to the present case.  As stated in §38 above, the test of “inability to pay” a debt payable immediately is that prescribed by s 6A(1) of the Ordinance.   

42.  Second, it is clear that the “assets” relied on by Mr Lin (described in §35 above) are not “readily realisable” or that the debtor is able to use them to pay the Judgment Debt, given that:

(1)  The debtor has since January 2019 put the Property for sale, but has not been able to sell it at the price she insisted (i.e. HK$170,000,000). Irrespective of what the experts said about the “market price” of the Property, the history of the matter shows that there is no buyer in the market who is willing to buy the Property at HK$170,000,000.  As the debtor did not (and still does not) accept any offer price at less than HK$170,000,000, it is unnecessary to consider whether the Property can be realised at a lower price.

(2)  On any view, the debtor’s inability to sell the Property over a period of 15 months shows that the Property is not an asset which can be realised by the debtor “within a relatively short time”.        

(3)  It was the debtor who insisted that the Property could only be sold for at least HK$170,000,000, despite the obvious lack of willing buyer in the market.        

(4)  As for the debtor’s interest in the Estate, again the history of the matter shows that although the Administratrix had been appointed in February 2016, the debtor has not been able to ascertain the value of the Estate (and hence the value of her interest in the Estate), let alone obtain any distribution from the Estate.  There is simply not basis for the debtor to say that she has a reasonable prospect of obtaining an interim distribution from the Estate within a relatively short time.   

B2.    Unreasonable refusal

43.  S 6D(3) of the Ordinance provides:

“(3) The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debt or is satisfied –

(a) that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented;

(b) that the acceptance of that offer would have required the dismissal of the petition; and

(c) that the offer has been unreasonably refused,

and, in determining for the purposes of this subsection whether the debtor is able to pay all his debts, the court shall take into account his contingent and prospective liabilities.” (underlined added)

44.  The meaning of the words “compound for” in s 6D(3)(a) – (c) was considered in Cheung Wah v China State Bank Ltd [1999] 4 HKC 185, at 190, where Riberio J (as he then was) held that they are of sufficient width to encompass offer to pay in full generally, and certainly where the agreement is for this to be done by instalments over a period of time. 

45.  The 3^rd Offer merely repeats the 2^nd Offer and gives a “right” to the petitioner “to enquire about the Probate”.  Leaving aside the repetition of the 2^nd Offer, I do not think the 3^rd Offer constitutes an offer to compound for the Judgment Debt.  In any event, I agree with Ms Lok that this “right”, if accepted, would impose a burden on the petitioner to enquire with the Administratrix and the petitioner does not consider that it is in its interest to do so.  In my view, it is reasonable for the petitioner to reject the 3^rd Offer.   

46.  As for the 1^st and 2^nd Offers, there is no dispute that they satisfy the requirements of s 6D(3)(a) – (b). 

47.  The test for determining whether a creditor’s refusal of an offer is unreasonable for the purpose of s 6D(3)(c) was stated by Deputy Judge Timothy Lloyd QC in Re A Debtor (No 32 of 1993) [1995] 1 All ER 628, a case involving s 271(3) of the Insolvency Act 1986 which is in all material respects the same as our s 6D(3).  The learned Deputy Judge held that the reasonableness or otherwise of the refusal is to be judged at the date of the hearing and the test is an objective one:-

“ … whether a reasonable creditor, in the position of this petitioning creditor, and in the light of the actual history as disclosed to the court, would have accepted or refused the offer. However, I think it has to be borne in mind that there could be a range of reasonable positions on the part of the hypothetical reasonable creditors. In order to conclude that the refusal was unreasonable, it seems to me that the court has to be satisfied that no reasonable hypothetical creditor would have refused the offer, and that the refusal of the offer was therefore beyond the range of possible reasonable actions in the context.” (at 639d – f) (underlined added)

48.  Since Re A Debtor (No 32 of 1993), the test has been consistently applied and followed by the courts in subsequent decisions.  The relevant principles and considerations applicable to s 6D(3)(c) have been summarised by DHCJ Lok (as he then was) in Re Ho Sik Tung Terry [2012] 5 HKLRD 777 (at §10) as follows:

“(a) in determining whether a petitioner’s refusal of the debtor’s offer is unreasonable, the court has to be satisfied that no reasonable hypothetical creditor in the petitioner’s position, and in the light of the actual history, would have refused the offer: Re a debtor (No. 32 of 1993) [1995] 1 ALL ER 628, 639d-f and 640a-b;

(b) the position should be considered only as between the petitioner and the debtor without regard to the position of other possible creditors or the impact on the entire body of creditors: Re a debtor (No. 32 of 1993), p. 640g;

(c) in considering the debtor's offer, the petitioner is entitled to have regard to his own interests and is not required to balance his interests against those of the debtor, or to take a chance, or to show patience or generosity, even though some creditors might do so. Acting reasonably is not the same as acting justly, fairly or kindly: IRC v. a Debtor [1995] BCC 971, 974B-F;

(d) if a debtor wishes his proposals to be looked at with sympathy, it is incumbent on him to be full, frank and open with the petitioner in respect of his statements of his position: Re a debtor (No. 32 of 1993), p. 640a-c;

(e) in considering a debtor’s ability to repay the debt, no regard should be given to future contingencies such as profit or income from future contracts if he is permitted to carry on his business: Re: Phillip and Lion Far East Ltd, CWU No. 130 of 1991 (17 May 1991); Re: Lam Ngai Fung Tony, HCB 4641/ 2001 (3 December 2001);

(f) future income may be relevant only as part of the total circumstances  to be considered regarding whether a debtor’s offer to secure or compound for a debt has been unreasonably refused by the petitioner: Re: Lam Ngai Fung Tony.”

49.  Mr Lin does not dispute the above principles.  He relies on the propositions summarised in Garwood (at §23), and submits that in considering how to exercise the discretion conferred by s 6D(3), the court has to take into account the following additional matters:

(1)  the court is not limited to considering the matters taken into account by the petitioning creditor when the offer of security was refused; it must look at all the relevant factors and their impact on the reasonable hypothetical creditor (HM Customs and Excise v Dougall [2001] BPIR 269 at 272G, per Lightman J);

(2)  that includes the history (Ross & Holmes v Commissioner for HM Revenue and Customs [2010] 2 All ER 126, at §45, per Henderson J);

(3)  a rigid institutional policy of rejecting offers to secure could be a relevant consideration, since the reasonable hypothetical creditor was obliged to consider an offer on its merits (HM Customs and Excise v Dougall, at 273); however, “coherent in-house policies” are not necessarily wrong (Ross & Holmes, §51); and

(4)  the costs and resources implications for the creditor are a “highly material consideration” (Inland Revenue Commissioners v A Debtor [1995] BCC 971 at 976, Robert Walker J (as he then was); Ross & Holmes §§49, 52).

50.  Ms Lok submits that the petitioner’s refusal to accept the 1^st Offer is “very reasonable” and, in any event, the debtor fails to prove that no reasonable hypothetical creditor in the position of the petitioner would have refused the 1^st Offer for the following reasons.

51.  First, the 1^st Offer “is shrouded in uncertainty” in that:

(1)  there is no detail on the value of the Estate or when the Estate will make distribution to the beneficiaries;

(2)  for over a year, the Property has still not been sold.  Although a mortgagee has commenced proceedings to take possession of the Property (in HCMP 1/2019), such proceedings have been converted into a writ action, which will complicate any sale of the Property;

(3)  it is unclear who are the beneficial owners and creditors of Marspan (other than the 5 mortgagees), and the current financial position of Marspan is unknown; and

(4)  the value of the Property is “in doubt”.  The Landscope Christie’s valuation of HK$170,000,000 is based on “unwarranted assumptions” including availability of vacant possession, free of encumbrances and mistaken size of the Property.  In any event, the valuation was done in March 2019 and had not taken into account recent events which adversely affected property prices.   

52.  Second, the 1^st Offer simply requires the petitioner “to wait for an indefinite time to recover the Judgment Debt”, which is even worse than the repayment proposal in Re Ho Sik Tung Terry, where the court held that it was reasonable for the creditor to refuse the offer even though it included a timetable for repayment.

53.  Third, the petitioner is entitled to reject the 1^st Offer which does not constitute any security, but is merely another “promise” of the debtor.  The history of the matter shows that the debtor has repeatedly failed to honour her promises to pay the petitioner, and the petitioner does not have confidence in any further promises made by the debtor.  This is reinforced by the fact that to-date, the debtor still failed to disclose all her liabilities supported by appropriate documents, which constituted a breach of the 2^nd Disclosure Order. 

54.  Lastly, a bankruptcy order, if made, would at least result in a full investigation of the debtor’s assets and liabilities, which the petitioner has not been able to achieve on an ad hoc basis.

55.  Ms Lok makes no further submission on the 2^nd Offer, and contends that it is reasonable for the petitioner to reject it for the same reasons summarised above.   

56.  Mr Lin, on the other hand, submits that the petitioner acted unreasonably in rejecting the 1^st and 2^nd Offers which, he says, “are evidently in the best interests” of the petitioner for the following reasons.

57.  First, the debtor’s offer to sell the Property and apply the net proceeds to pay the Judgment Debt is not a “bare promise to pay” in that:

(1)  the criticisms against Landscope Christie’s valuations are unwarranted as the assumptions used are “common and widely accepted assumptions in an expert valuation report”, and Citiland used the same assumptions in its valuation.  The lack of direct comparables confirms the uniqueness of the Property.  The mistaken size was only used in Dudley’s report, which the debtor no longer relies on;

(2)  based on Landscope Christie’s valuation, the Property has a market value of HK$170,000,000.  It is clear that after discharging the 5 Mortgages, there will be “a substantial net value that would be sufficient to fully or substantially repay the petitioning debt”;

(3)  the debtor has been taking “active steps to get the Property sold on the market”.  The Property has been subject to “several offers in the region of HK$150,000,000” and, as such, its marketability is not in doubt; and

(4)  the alleged loss of confidence on the debtor does not assist the petitioner.  The steps taken by the debtor in selling the Property is no different from the debtor in Garwood, and the court held that “at most, he could be criticised for holding out for too high an asking price for too long” or “at worst an error of judgment” and the disorder in not paying on time is “a sign of incompetence and a far cry from, say, the fraud perpetrated in the Dougall case”.

58.  Second, the petitioner’s speculations that there may be other beneficial owners or creditors of Marspan are “nothing but desperate attempts at [sic] ex post facto justification”, especially when the point has never been taken before.

59.  Third, there is no uncertainty in the debtor’s entitlement in the Estate.  It is “only a matter of time” that the debtor will receive her undisputed entitlement under the Estate.

60.  Fourth, it was unreasonable for the petitioner to reject the 2^nd Offer, given that the debtor had (1) abandoned the condition that the Property could only be sold for not less than HK$170,000,000, (2) offered to enter into a deed of undertaking to procure Marspan to sell the Property at prevailing market price as soon as practicable and apply the net proceeds to repay the Judgment Debt, and (3) offered an “exclusive security” by way of an assignment of the debtor’s entitlement under the Estate to extinguish the debt owed to the petitioner, which would not be available to the petitioner if the debtor were made bankrupt. 

61.  Fifth, a bankruptcy order is a “less advantageous course” for the petitioner, given that:

(1)  the debtor has been residing in the Property, and by virtue of s 43F(1) of the Ordinance, the trustee in bankruptcy may not seek an order for sale of the Property until one year after the bankruptcy order;

(2)  the petitioner has not pointed to any antecedent transactions which could be set aside under the Ordinance; and

(3)  the debtor’s “offers of security in making full recovery of the petitioning debt” provides a prospect of payment in full than a bankruptcy order (cf. Ross & Holmes, §52).

62.  Further, the debtor places much emphasis on (1) the “security” offered under the 2^nd Offer which, she says, constitute a “pledge” of her interest in the Estate; (2) the rarity of the Property and the opinions of the valuer and the estate agents engaged by her, all of which confirm that the market price of the Property is at least HK$170,000,000; and (3) a bankruptcy order would only result in a forced sale of the Property at a depressed price and, as such, it must be in the interests of the petitioner if no bankruptcy order is made against her.

63.  In my view, the debtor fails to establish that the petitioner acted unreasonably in refusing to accept the 1^st and 2^nd Offers.

64.  First, the petitioner was entitled not to accept the 1^st and 2^nd Offers which were couched in uncertain terms and did not even include a fixed time table for paying the Judgment Debt. 

65.  Second, the debtor had not disclosed the financial position of Marspan, such that it was impossible for the petitioner to assess whether there would in fact be any net proceeds available for paying the Judgment Debt.  As the debtor is a shareholder of Marspan, she is only entitled to receive her share of the surplus assets from Marspan qua shareholder, after Marspan has discharged all its liabilities.       

66.  Third, the debtor’s reliance on the opinions of Landscope Christie’s or the estate agents as evidence of the market value of the Property or the “uniqueness” of the Property is misplaced, given that (1) the valuation given by Landscope Christie’s was made in March 2019 and is out of date; and (2) as a matter of fact, no buyer in the market was willing to buy the Property at HK$170,000,000. 

67.  Fourth, even if (which has not been made out by the debtor) there would be some net proceeds available for paying the Judgment Debt, the debtor has had 15 months to sell the Property and apply the net proceeds, to pay the Judgment Debt if she wished to do so.  On any view, this was more than a reasonable time for the debtor to sell the Property so as to avoid a bankruptcy order.  Unlike the debtor in Garwood (relies on by Mr Lin), (1) who had hitherto not been able to sell his 50% interest in the property due to his dispute with the co-owner, and (2) had reduced the asking price of the property 4 times to increase the chance of a successful sale, the debtor insisted that the Property could only be sold for no less than HK$170,000,000.  This was despite the significant changes to the market condition in the past year or so.  It does not lie in the debtor’s mouth to say that the petitioner acted unreasonably in refusing to give her further time to sell the Property.

68.  Fifth, the petitioner had more than sufficient bases to say that it did not consider the debtor’s promises to pay the Judgment Debt would be honoured, having regard to the fact that the debtor had repeatedly failed to honour her promises to pay (§§8 – 9, 11 – 12) and failed to disclose all her liabilities or provide appropriate supporting evidence of such liabilities as required by the 2^nd Disclosure Order (§§20 – 25 above).   

69.  Sixth, despite a lapse of 15 months since her enquiry made with the Administratrix, the debtor is still unable to say what is the value of her entitlement under the Estate or when she will receive distribution.  While the debtor may have done all that she could in obtaining an account of and an interim distribution from the Estate, I consider a reasonable hypothetical creditor in the position of the petitioner would say enough is enough, and did not want to wait until the debtor receives distribution from the Estate.  This is particularly so when the full extent of the debtor’s liabilities remains unclear, such that it is possible that some creditors will take enforcement actions against any distribution which will be paid to the debtor.  If this happens, the debtor will not be able to apply the distribution from the Estate to pay the Judgment Debt.   

70.  Seventh, I do not think it would necessarily be more beneficial to the petitioner to accept a security in the form of an assignment of the debtor’s interest in the Estate.  Assuming such assignment can be created by way of security (neither Ms Lok nor Mr Lin has made any submissions on the point), the validity of the assignment may be impugned as an unfair preference under s 50 of the Ordinance, should a creditor decide to seek a bankruptcy order against the debtor.  I cannot rule out this possibility, given the extent of the debtor’s liabilities owed to the 4 mortgagees and chargee and the other liabilities described in §23 above, as compared to the lack of any liquid asset available to the debtor.   

71.  Lastly, I accept a reasonable hypothetical creditor in the position of the petitioner would come to the view that a bankruptcy order, if made, would at least result in a full investigation of the debtor’s assets and liabilities, which the petitioner has not been able to achieve in the past 2 years. 

72.  For completeness, although the petitioner has obtained a charging order against the debtor’s shares in Marspan, such security would not affect the petitioner’s right to seek a bankruptcy order against the debtor, given that the debtor has not challenged the estimated value of the security stated in the petition, and the petitioner is bound by its estimate when it comes to prove its debt (Re Button, ex p Voss [1905] 1 KB 602 (CA)). 

C.      CONCLUSION

73.  For the above reasons, the petitioner is entitled to seek a bankruptcy order against the debtor.  I make a usual bankruptcy order against the debtor.