RE NAM HO KWAN

HCB 6470/2021

[2022] HKCFI 3160

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6470 OF 2021

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J U D G M E N T

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1.  This is a creditor’s bankruptcy petition (“the Petition”), presented by Prudential Brokerage Limited (“the Petitioner”) against Mr Nam Ho Kwan (“the Debtor”). The petition is based on the Debtor’s failure to comply with a statutory demand dated 7^th September 2021 seeking repayment of a debt of $39,530,038.58 (“the Debt”).

2.  The Debtor originally sought to dispute the Debt, but no longer seeks to do so, and instead, asked for an adjournment of the Petition for three months to “allow a potential investor to complete his due diligence exercise”. It was said that the investor would be willing to purchase certain shares for $50m, whereupon Mr Nam would be able to repay the Petitioner in full.

3.  In support of his application for adjournment, the Debtor took out summonses of 28^th September 2022 and 30^th September 2022 to file the 2^nd Affirmation of Nam Ho Kwan and the 3^rd Affirmation of Nam Ho Kwan. In summary, these affirmations describe negotiations for the acquisition of what are said to be the Debtor’s shares (“the Shares”) in Hao Bai Ltd, a company listed in Hong Kong, owned through his corporate vehicle Harmony Asia International Limited (“Harmony”). It is said that there is a potential buyer (“Beijing Yuntai”) for the Shares, subject to due diligence, and that a period of around three months is required for the due diligence. A letter from Beijing Yuntai dated 26^th September 2022, suggesting terms of the proposed acquisition, is exhibited. It is further said that Beijing Yuntai is willing to make a deposit of 5% of the total purchase price, being $2.5m, as “sincerity money” to show its sincerity in completing the acquisition, by mid-October 2022.

4.  The Petitioner opposes the application for adjournment and the applications to file further evidence. However, the Petitioner was content to proceed on the basis that the court should consider the new evidence on a de bene esse basis, in order to save time and costs.

The applicable principles

5.  The court will exercise its power to adjourn a petition only if there is credible evidence that there is a reasonable prospect that the petition debt will be paid within a reasonable time. See Sekhon v Edinton [2015] 1 WLR 4435 at [19]; Ho Ying Pat Bobby v Overseas Way (China) Ltd [2011] 2 HKLRD 837 at [12].

6.  Mr Sik Chee Ching, counsel for the Debtor, acknowledged that the hurdle he had to surmount is high, but submitted that the necessary requirements were satisfied, as:

6.1  the negotiations have reached the due diligence stage;

6.2  there is a fixed timeline for the acquisition of the Shares, with due diligence completed before 31^st December 2022;

6.3  there is no basis to doubt Beijing Yuntai’s financial ability to complete the acquisition;

6.4  Beijing Yuntai has concrete business reasons to acquire the Shares;

6.5  Beijing Yuntai has now offered to put forward a payment of $2.5m as “sincerity money”.

7.  However, I agree with Mr Terrence Tai, counsel for the Petitioner, that the Debtor has not made out a case for adjournment.

7.1  The three-month adjournment is being sought only for the purpose of Beijing Yuntai carrying out its due diligence exercise, and even then, 31^st December 2022 is only given as an “expected” date. No date as to completion of the sale has been given, or when the Debt would thereafter be paid.

7.2  The purchase price of $50m is described by Beijing Yuntai in its letter of 26^th September 2022 as only a “preliminary intention” and “subject to adjustment” after the conduct of the due diligence exercise. As Mr Sik acknowledges, Beijing Yuntai may change its mind as to whether it wishes to proceed. It is therefore not known whether the Debt would be paid at all.

7.3  The Shares represent 41.85% of the shares in a listed company. If Beijing Yuntai were to acquire them, it would have to make a mandatory general offer under rule 26 of the Securities and Futures Commission’s Codes on Takeovers and Mergers and Share Buy-Backs. There is no mention in the proposed terms of the transaction as to how Beijing Yuntai is to comply with the rule, or how the offer would affect the time for repayment of the Debt.

7.4  As Beijing Yuntai’s letter of 26^th September 2022 indicates, any transfer of funds for the acquisition would need to comply with foreign exchange management laws of the PRC. There is no evidence as to whether the transfer could be achieved or the timeframe which would be necessary to achieve it.

7.5  The “sincerity money” being offered by Beijing Yuntai is only a small fraction of the Debt and it is not even being suggested that any of it will be paid to the Petitioner.

7.6  There is therefore no credible evidence to show that there is a reasonable prospect that the Debt will be paid within a reasonable time.

8.  Furthermore, as the Petitioner has pointed out:

8.1  the Shares are registered in the name of Harmony, which has been ordered to be wound up by the court, based on the same Debt,

8.2  the shares were in fact deposited in 2018 by Harmony into the securities margin trading account held by Harmony with the Petitioner, as security for payment of amounts owed by Harmony to the Petitioner;

8.3  pursuant to the Securities Margin Trading Agreement signed by the Debtor on behalf of Harmony and the Petitioner, the Petitioner (on behalf of Harmony) had represented that Harmony had and would maintain unencumbered and absolute title to the charged securities (which included the Shares).

9.  Given these circumstances, Mr Sik rightly acknowledges that the consent of Harmony’s liquidators and the Petitioner would be necessary for the sale of the Shares. Crucially, the Petitioner has indicated that it is not prepared to give such consent, in the light of the uncertainty of the proposal put forward. Mr Sik submitted that the Petitioner is duty bound to consider the proposal when more details are forthcoming. However, as Mr Tai submits, the Petitioner as creditor has an unfettered choice as to how, and against whom, it should proceed to recover the Debt, citing Lau Yu v. The Hongkong and Shanghai Banking Corporation Ltd [2019] 2 HKC 18 at [35]. The Debtor’s proposal is therefore doomed to fail, thus rendering any adjournment pointless.

10.  In the light of the above, it will be apparent that I do not consider that the 2^nd Affirmation of Nam Ho Kwan dated 28^th September 2022 or 3^rd Affirmation of Nam Ho Kwan dated 30^th September 2022 are of probative value in determining the Debtor’s application for an adjournment, and the summonses of 28^th September 2022 and 30^th September 2022 seeking leave to file them are dismissed.

11.  No ground has been made out for seeking a further adjournment of the Petition. The Debt not being disputed, the Petitioner is entitled ex debito justitiae to a bankruptcy order against the Debtor. I make the usual bankruptcy order against the Debtor, with costs to the Petitioner.