RE LI CHI HO

HCB 10975/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 10975 OF 2001

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J U D G M E N T

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1. This is a petition brought by the Bank of Communications against the debtor, Mr Li Chi Ho, based on a judgment debt obtained in High Court Action No.200 of 2000 on 29 August 2000.

2. The debtor together with other individuals including Madam Chan Pui Yu Fanny and Madam Lee Lai Ngor were guarantors for a Company known as Kingly Kin Development Limited ("the Company"). As the Company had defaulted in payment to the petitioner, proceedings were brought against the Company and the individuals who had stood as guarantors. The judgment sum was HK$976,002.98 with interest. As at 24 May 2001, the total indebtedness of the Company and the guarantors stood at HK$1,060,340.46.

3. On 20 July 2001, the petitioner issued a statutory demand against the debtor and this was served on him personally on 6 August 2001. The petition herein was filed on 22 November 2001 and it was served on the debtor personally on 23 November 2001.

4. The petition was re-amended on 9 March 2002 to comply with Section 6B(1) of the Bankruptcy Ordinance, Cap. 6, relating to security held by the petitioner. The debtor was previously unrepresented. He appears at this hearing by his solicitor, Mr Yiu Po Tung.

5. The only ground for opposing this petition taken by Mr Yiu is that the debtor has made an offer to the petitioner to compound for the debt in the petition and that offer has been unreasonably refused. Hence, the petition should be dismissed under Section 6D(3) of the Ordinance.

6. On behalf of the petitioner, it was submitted by Mr Wong Shing Tak that the petitioner did not unreasonably refuse the debtor's offer to compound the debt, taking into account the previous payment record of the debtor and the terms offered by the debtor in the compromise. The background of the matters leading to the offer or offers made by the debtor may be summarized as follows.

7. On 1 October 2000, the debtor and two other guarantors indebted to the petitioner, Madam Chan Pui Yu and Madam Lee Lai Ngor, wrote to the petitioner offering to pay the debt which stood at about HK$1 million by instalments of HK$6,000 a month. In early January 2001, the petitioner telephoned the debtor and informed him that the petitioner would accept instalment payment of HK$6,000 a month. That offer was confirmed by a letter from the petitioner to the debtor, Madam Chan and Madam Lee on 24 February 2001, in which it was stated that as the debtors had defaulted in payment in the past, the present offer to pay by HK$6,000 a month was accepted on condition that they would be punctual in making payment of each and every instalment on the 15th day of the month; and if they should fail to comply with that condition and make punctual payment, the petitioner would issue execution proceedings against them including applying for a bankruptcy order.

8. It is not in dispute that the debtor and the other two individuals did not make punctual payment of the instalment due on 15 February 2001. Although repayments were made for the months of March and April 2001, there were no further repayments since then. In view of the breach of the condition to make punctual payment, the petitioner instructed solicitors in about June 2001 and the statutory demand was issued against the petitioner in July 2001 as I have mentioned.

9. The debtor has explained that the reason why he had failed to keep up with the instalment payments was because his mother was seriously ill and required expenses for surgery. Hence, he was in temporary financial difficulty and could not meet the payments as he had agreed.

10. In about August 2001, after the statutory demand was served on the debtor, the three debtors contacted the petitioner and offered to negotiate with the petitioner to pay the debt by instalments. However, the petitioner refused to negotiate with the debtors. According to the petitioner, the debtors were asked to pay all the overdue instalments first before the petitioner would negotiate further with them. As they had refused to pay the overdue instalments, the petitioner did not enter into any negotiation with them.

11. The other two debtors Madam Lee and Madam Chan were adjudged bankrupted by this court on 4 February 2002 and they were directed by the Official Receiver to pay the total of HK$5,256.50 a month to the petitioner. It was contended by the debtor that as he is able and willing to pay HK$2,000 a month to the petitioner, his instalment combined with the sum of HK$5,256.50 from the other two debtors would mean that the petitioner would recover in total HK$7,256.50 a month. Thus, the aggregate repayments would have exceeded the sum of HK$6,000 a month previously agreed. Hence it was submitted on his behalf that the petitioner's refusal to accept his offer to pay at HK$2,000 a month is unreasonable.

12. I should also mention that according to the debtor, he has a job earning HK$3,900 a month and of his earnings, he claims he is able to pay HK$2,000 to settle the petitioner's debt. The debtor and his brother are the owners of a property which has been mortgaged to another bank and according to the debtor, the outstanding redemption figure at present is about HK$1.1 million and the loan instalments owing to that other bank is HK$15,000 a month. That property is let to a tenant at the rent of HK$12,000 a month and is insufficient to pay off the monthly mortgage instalments. The debtor has no other means and assets to pay the debt in the petition.

13. Section 6D(3) of the Ordinance has been considered in some English cases and the test formulated in those cases has been applied in Hong Kong. According to the case of Re a Debtor (No.32 of 1993) [1995] 1 All ER 628 at 639 to 640, in applying this provision, the court has to bear in mind that there could be a range of reasonable positions on the part of a hypothetical reasonable creditor. In order to come to the view that the creditor's refusal is unreasonable, the court has to be satisfied that no reasonable hypothetical creditor would have refused the offer and that the refusal of the offer was beyond the range of possible reasonable actions in the context. It is also relevant to look at the past repayment history when considering the reasonableness or otherwise of the creditor's refusal.

14. In the present circumstances, taking into account the repayment history, that the debtor had defaulted in making punctual repayment in the past, and that his best offer is to pay HK$2,000 a month towards a debt which stood at over HK$1 million, I am unable to say that the refusal by the petitioner to accept his offer is unreasonable.

15. As the debt is not in dispute and the debtor has no ability to make payment, it would be appropriate to make a Bankruptcy Order against him with costs to the petitioner.