RE WU CHUN KWAN

HCB 4259/2018

[2019] HKCFI 2802

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4259 OF 2018

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REASONS FOR DECISION

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Introduction

1.  The Petitioners, the Debtor’s major creditors, seek an appointment of interim trustee and special managers in respect of the Debtor. I am told that this is the second application for appointment of interim trustee and special managers in the last 20 years.

2.  I granted an ex parte order appointing interim trustee and special managers on 9 September 2019 and continued the ex parte order until further order or the determination of the Bankruptcy Petition on 7 November 2019. I now give my reasons.

3.  The Petitioners are judgment creditors the Debtor and are owed approximately RMB 350 million plus interest, pursuant to two judgments awarded in May 2017 (the “Judgments”).

4.  As a matter of jurisdiction, the Court may appoint an interim manager to protect the Debtor’s estate before the making of a bankruptcy order.

5.  In the present case, the Debtor’s assets include a complex web of substantial interests in companies incorporated in Hong Kong and the Mainland. It is submitted that the Debtor had been dissipating assets and evading service. As a result, the Petitioners have not been able to enforce their judgment or progress the bankruptcy petition.

6.  Most recently, the Petitioners learned that the Debtor might have passed away in the autumn of 2018, but no confirmation could be obtained. Nonetheless, the Petitioners learned that the Debtor’s assets were still changing hands this year, as late as June 2019.

7.  This application was made on an urgent ex parte but on notice to the Official Receiver basis because the Debtor’s assets and affairs are in dire need of management, preservation and investigation.

Material facts

8.  The Debtor was a businessman carrying on the business of hotel and restaurant operation and property development mainly in the Mainland. The Petitioners are in the business of property development in Hong Kong and the Mainland.

9.  Prior to some of the transfers, the Debtor’s assets included controlling shareholdings in Weldon Holdings Limited (“Weldon”), Pak Ho Hotel International Investment (HK) Limited (“Pak Ho”), China New City Holdings Limited, Guangzhou Chao Hao Restaurant Co Ltd (“GZ Restaurant”) and Kai Tak Holdings Limited (“Kai Tak”).

10.  Weldon holds 70% of the shares in Guangdong Weldon Hotel Co Ltd (“GD Weldon”), a company incorporated in the Mainland. GD Weldon holds substantive assets including a hotel in Guangzhou namely, Weldon Hotel-Guangzhou.

11.  In the course of 2010 and 2011, the Debtor borrowed money from the Petitioners.

12.  In May 2017, because of the Debtor’s default, the Petitioners obtained the Judgments.

13.  Mr Ho for the Petitioners submitted that the Debtor appeared to have transferred many of his valuable assets to avoid creditors’ enforcement since 2012, including the following:

(1) In September and October 2012, the Debtor through Kai Tak paid approximately HK$73 million to his then wife, Madam Chan Hoi Ching (“Madam Chan”), or to her credit for the purchase of a residential property in Hong Kong.

(2) Between September 2016 and January 2017, the Debtor paid approximately HK$27 million to his son (“Son”) or to his credit for the purchase of a residential property in Hong Kong.

(3) In January 2017, the Debtor assigned to Madam Chan his share in a jointly owned property for no consideration.

(4) The Debtor further transferred his shareholding in GZ Restaurant to his niece.

(5) In April 2018, the Debtor transferred away all his shares in Weldon Holdings Limited shortly before the Petitioners’ charging order to show cause was made.

14.  Mr Ho for the Petitioners further submitted that in July 2018, the Petitioners issued a bankruptcy petition against the Debtor. However, the Petitioners have not been able to serve the bankruptcy petition on the Debtor because the Debtor was evading service.

15.  In February 2019, the Petitioners commenced an action under section 60 of the Conveyancing and Property Ordinance (Cap 219) (“Section 60 Action”) against the Debtor, Madam Chan, the Son and other parties to set aside the above transactions (except shares in GZ Restaurant) on the basis that they were dispositions of assets with intent to defraud creditors.

16.  After the Petitioners’ unsuccessful attempt to serve the bankruptcy petition on the Debtor in the Mainland in September 2019, the Debtor has completely disappeared.

17.  Recently the Petitioners learnt of the Debtor’s alleged demise in these circumstances:

(1) On 11 June 2019, through their solicitors (Messrs Wilkinson & Grist (“W&G”)), Madam Chan and the Son served a defence to the Section 60 Action which alleged that the Debtor had passed away in October 2018.

(2) On 19 June 2019, W&G informed the Petitioners that their clients did not have the death certificate and did not know the date, place or circumstances under which the Debtor passed away.

(3) On 30 August 2019, W&G on behalf of Madam Chan sent a letter to the Court enclosing a draft affirmation of a Mainland lawyer stating, inter alia, that the Debtor passed away on 17 September 2018.

(4) However, so far, no personal representatives could be located.

18.  In the meantime, despite the Debtor’s alleged death, the Petitioners discovered that:

(1) a Notice of Change of Company Director (Form ND2A) dated 10 January 2019 which purported to appoint a new director to Pak Ho bore the Debtor’s signature.  

(2) a vehicle originally registered under the Debtor’s name in Hong Kong was transferred away in June 2019; and

(3) GD Weldon, GZ Restaurant and the Debtor are now subject to a Mainland litigation commenced by China Cinda Asset Management Co, Limited Guangdong Branch claiming approximately RMB 193 million (“PRC Litigation”).  The hearing of the PRC Litigation was scheduled on 26 September 2019, a short period for the hearing of the ex parte application. The concern was that if no one representing the Debtor appears, judgment is likely to be entered to the prejudice of the Petitioners.

Applicable legal principles

19.  Section 13 of the Bankruptcy Ordinance (Cap 6) (the “Ordinance”) provides that the Court may, if it is shown to be necessary for the protection of the estate, at any time after the presentation of a bankruptcy petition and before a bankruptcy order is made, appoint the Official Receiver to be interim trustee of the property of the debtor or of any part thereof, and direct him to take immediate possession thereof or of any part thereof.

20.  Section 15(1) of the Ordinance provides that the Court may, on the application of the Official Receiver or of any creditor or creditors, and if satisfied that the nature of the debtor’s estate or business or the interests of the creditors generally require the appointment of a special manager of the estate or business other than the Official Receiver, appoint a manager thereof accordingly, who shall have such powers (including any of the powers of a receiver) as may be entrusted to him by the Official Receiver.

21.  The appointment of interim trustee is equivalent to the appointment of provisional liquidators over a corporate debtor (See But Ka Chon v Interactive Brokers LLC [2019] HKCA 873 at footnote 29).

22.  The principles governing the appointment of provisional liquidators are well-established (eg Re China Solar Energy Holdings Ltd (No 2) [2018] 2 HKLRD 338 at §26 per Harris J).  In summary, before the Court would be willing to make the appointment, the Court would need to be satisfied that there is a need to safeguard against the risk of dissipation of the company’s assets or if there is a need for independent investigation. As to whether it is right for a provisional liquidator to be appointed in all the circumstances, this is to be decided on the basis of commercial realities, the degree of urgency and need established by the petitioner, and the balance of convenience according to the circumstances.

23.  I am of the view that, similarly, the principal purpose of appointing an interim trustee is the urgent protection of the debtor’s estate. An example is Barker v Baxendale-Walker [2018] EWHC 2518 (Ch) which concerned the appointment of interim receivers under section 296 of the UK Insolvency Act 1986 which is the English equivalent of section 13 of the Ordinance. The case demonstrates the typical circumstances warranting the appointment of interim trustee. There the bankruptcy petition was presented on 29 March 2018 on an expedited basis and came before the High Court on 4 April 2018 to determine whether interim receivers should be appointed. The bankruptcy order was made on 11 July 2018. In respect of the appointment of interim trustee, the English Court said (at §2 and §5):

“ 2. … [The petitioner] at the time submitted that unless interim receivers were appointed there was a real risk that the debtor’s assets would be diminished or dissipated before a bankruptcy order could be made. It was for [the petitioner] to make good that submission.

…

5.   … I determined that interim receivers should be appointed. I found firstly, that his assets could be diminished if he abused the process of litigation as he had in the past, and secondly that his disclosure at the hearing was far from satisfactory. He claimed that he had no assets other than a small stipend, but in fact the documentation disclosed that he is a director and shareholder of two companies which held shareholder funds of over £2 million.”

Analysis

24.  I am of the view that the facts of the present case justify the appointment interim trustee and special managers.

25.  First, what is most pressing is that some independent professionals have to be appointed to deal with the PRC Litigation so that the interests of the Petitioners and other creditors of the Debtor will not be adversely affected.

26.  Secondly, it is also a material concern to the Court that despite the Debtor’s alleged death in autumn last year, assets belonging to the Debtor seem to be changing hands as recently as June this year. This certainly calls for investigation sooner rather than later.

27.  Thirdly, I agree that there is prima facie evidence that the Debtor had been doing his utmost to evade service of the bankruptcy petition, thereby frustrating the normal progress of the bankruptcy proceedings.

28.  Fourthly, the status of the Debtor needs to be ascertained. As a result of the uncertainty about the Debtor’s alleged death, the Petitioner remains unable to progress the bankruptcy proceedings using rule 60 of the Bankruptcy Rules (Cap 6A) which provides that if a debtor against whom a bankruptcy petition has been filed dies before service thereof, the Court may order service to be effected on the personal representatives of the debtor or on the Official Administrator or on such other persons as the court may think fit. There is a need for the Bankrupt Petition to proceed expeditiously.

29.  As the Petitioner continues to be hampered by the Debtor’s evasion of service and his unconfirmed death, it has become palpably urgent to appoint someone independent to take immediate possession of the Debtor’s estate and start the necessary investigation without delay.

30.  Indeed, after the appointment on an ex parte basis, the recent letter from the Official Receiver’s Office dated 6 November 2019 confirms that useful and meaningful functions were performed by the interim trustee and special managers. The Official Receiver supports the continuous appointment of interim trustee and special managers until further order or the hearing of the Bankruptcy Petitioner. Mr Wong for the Debtor’s wife and son remains neutral to the Petitioner’s application.

31.  The Official Receiver rightly concerns about the progress of the Bankruptcy Petition.  Mr Ho for the Petitioner informed this Court that the Petitioner will progress the Bankruptcy Petition expeditiously.

Disposition

32.  For all the above reasons, I am of the view that this is a suitable case for the appointment of interim trustee and special managers and the ex parte order dated 9 September 2019 is continued until further order or the determination of the Bankruptcy Petition.

33.  Finally, it remains for me to thank Mr Ho for the Petitioner, Ms Chan of the Official Receiver’s Office and Mr Wong for Madam Chan and her two children for their very helpful assistance to this Court.