RE: YEUNG LIU WING CHAU, PAMELA ("the Debtor") and EX PARTE: LI MEI TRADING CO. ("the Petitioner")

HCB3637/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO.3637 OF 1999

------------

-----------------------

R E A S O N S

-----------------------

1. The petitions are based on debts arising under guarantees provided by Yeung Kai Fai, Frank and Yeung Liu Wing Chau, Pamela ("the debtors") in respect of loans advanced by the petitioner to Pam & Frank International Holdings Ltd ("Holdings"). The amount alleged to be due is US$1.53 million. The debtors accepted that they owe the petitioner US$1.3 million. At the hearing of the petitions, bankruptcy orders were made. The reasons appear below.

2. Whilst the precise amount of the debt is disputed, what is admitted to be due is at least US$1.3 million. The debtors have put forward a proposal to repay the outstanding monies by 18 instalments. This is not acceptable to the creditor. The debtors' ability to repay depends on the continued solvency of Holdings.

3. At the hearing on 6 March 2000, Yuen J gave the debtors leave to file affidavits to disclose :

(1) efforts made to sell their real properties in the USA;

(2) efforts made to sell their shares in Holdings; and

(3) all relevant documents relating to the proposed restructuring.

On 22 March 2000, Mr Yeung filed a second supplemental affirmation to deal with these matters. Contrary to what on 6 March 2000 had been estimated to be the value of the three US condominiums owned by the debtors of US$200,000, they are currently valued at US$101,000. They have not been sold although an offer has been received in respect of one of them at US$26,500.

4. As to the one million shares owned by them in Holdings, 500,000 were sold on 22 March 2000 at HK$0.37 per share, yielding approximately US$24,000.

5. Holdings as well as its wholly owned subsidiary, Pam & Frank Industrial Co. Ltd ("Industrial") are undergoing a financial restructuring which is expected to be completed by the end of March 2000. Whilst a winding-up petition has been presented against Industrial, that has not yet been heard. Under the restructuring, fresh banking facilities of $30-$40 million will be available, and it is Mr Yeung's belief that Industrial will be able to generate profits comparable to its profits in 1994 and 1995 of $32 million to $55 million a year. The debtors are the President and Deputy President of Industrial and their repayment proposal is predicated on anticipated profits. These they will not receive if their contracts of employment with Holdings to act as President and Deputy President of Industrial are terminated upon their being adjudicated bankrupt. Both Holdings and Industrial have stated that upon the debtors' bankruptcy, their contracts of employment would be terminated.

6. Counsel for the debtors sought a two-week adjournment for the following reasons : first, by then the status of the restructuring would be known; second, the first of the 18 instalments will have been paid on 3 April 2000; thirdly, the outcome of the winding-up petition will also be known.

7. As noted above, the creditor finds the instalment payments unacceptable. One particular objection was that the proposed repayments are to be in RMB. That was met by the debtors' agreement at the hearing through their counsel to repay in US dollars. Then it was noted that the promise to pay was made on behalf of Industrial when the principal debtor was not Industrial but Holdings with the debtors as the guarantors. Since the debtors are no longer directors of either Holdings or Industrial, it is a little curious that they would be in any position to cause the profits to be applied to repay the debt.

8. The real question, however, is the viability of the repayment proposal which depends entirely on whether or not the anticipated profits will in fact be generated. There is no evidence before the court other than the bare assertion of Mr Yeung that there is every reason to expect the profitability to reach the levels anticipated. Moreover, the repayment period of 18 months is a long one.

9. In these circumstances, little purpose would be served in acceding to the application for a two-week adjournment. Accordingly, the application for an adjournment was refused.