RE: LI CHIU FAN ("the Debtor") and EX PARTE: EAST ASIA CREDIT CO. LTD.

HCB917/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO.917 OF 1999

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

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

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

R E A S O N S

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

1. At the hearing of the bankruptcy petition presented by East Asia Credit Company Limited against Li Chiu Fan ("the Debtor"), the Debtor was adjudged bankrupt. The reasons appear below.

2. The petition first came before me on 6 September 1999. At that hearing, the Debtor sought an adjournment on the basis that a 'restructuring' proposal was being negotiated. An adjournment of seven days was granted.

3. According to the summary of his financial position presented to the court, the Debtor is indebted to unsecured creditors to the tune of $307 million. His two largest creditors are Mr Ma Mok, a friend to whom $142.55 million is owing and another is a company to whom over $95 million is owing. The "informal proposal" put before the court at the adjourned hearing on 13 September was to the effect that "a close friend" would provide the Debtor with a cash injection of $6 million for the purpose of satisfying his debts. In addition, the Debtor whose present salary is $50,000 per month indicated his willingness to provide 30% of his monthly salary to creditors but only over the next 20 months.

4. At that hearing, it transpired that the "close friend" was no less than Mr Ma. Further, it was intimated that the second largest creditor who had agreed to consider the 'informal proposal' was likely to support it. The petition was accordingly further adjourned for seven days to enable the Debtor to make a proper application for an individual voluntary arrangement.

5. The Debtor did not avail himself of that opportunity when the matter was restored on 20 September 1999. The second largest creditor was apparently willing to support the informal proposal but the informal proposal had been revised : Mr Ma was only willing to advance $1 million and not $6 million as had originally been the case. Whilst the original proposal would have meant a return of 2% to the creditors, under the revised proposal, recovery was to be less than 0.5%. To my mind, the informal proposal was neither serious nor viable : I viewed with grave suspicion the stance apparently taken by the Debtor's two largest creditors which together amounted to over 75% of the total indebtedness. It made no commercial sense and one was left with the impression that there was more to it than met the eye. It was also significant that the Debtor's intention to assign part of his future salary towards repayment of his debts is limited to 20 months which is a far cry from the norm. These troubling features were drawn to the Debtor's attention. Yet nothing was done to address them despite a further two week adjournment.

6. At the adjourned hearing on 4 October 1999, the Debtor applied for a further adjournment. That was refused. In my judgment, the Debtor has had ample opportunity to apply for an interim order. Rather, he has chosen to ignore the procedure clearly laid down in the Ordinance.

7. Procedural defects aside, the informal proposal as revised is plainly neither serious nor viable. Had this been an application for an interim order, it would have been an appropriate case for the court to refuse to exercise its discretion. The relevant principles are stated by the Vice Chancellor in Hook v. Jewson Ltd. [1997] 1 BCLC 664 at 669 h-i :

"...If, in a particular case, the judge before whom the application for an interim order comes concludes that the proposal is not one which can be described as serious and viable, it would be expected that as a matter of discretion the judge would refuse to make an interim order. Judges must, I think, be careful not to allow applications for interim orders simply to become a means of postponing the making of bankruptcy orders in circumstances where there is no apparent likelihood of benefit to the creditors from such postponement."

For these reasons, it would not be a proper exercise of the court's discretion to grant any further adjournment and the only appropriate order in the circumstances is the bankruptcy order sought.