HKCFI 578
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
BANKRUPTCY PROCEEDINGS NO 3819 OF 2011
Re: HO YUK WAH DAVID (the Bankrupt)
||IP PUI LAM ARTHUR
IP PUI SUM
(Joint and Several Trustees in bankruptcy)
||ALAN CHUNG WAH TANG and
HOU CHUNG MAN (Joint and Several Liquidators of Asia-Pac Infrastructure Development Limited)
Before: Hon Au-Yeung J in Chambers
Date of Hearing: 2 May 2019
Date of Decision: 8 April 2020
D E C I S I O N
1. The applicants are the Joint and Several Trustees (“Trustees”) in bankruptcy of Ho Yuk Wah David (“Bankrupt”).
2. The respondents (“Tang” and “Hou” respectively and Liquidators collectively) are the Joint and Several Liquidators of Asia-Pac Infrastructure Development Ltd (“APIDL”), which commenced liquidation in April 2013.
3. This is the Trustees’ application by way of Summons dated 6 October 2017 under section 29 of the Bankruptcy Ordinance (Cap 6) (“section 29”) for an order that the Liquidators do produce information and documents set out in the Schedule to the Summons, or else explain by affidavit what has happened to those documents.
4. The information and documents sought pertain to APIDL’s commercial relationships with 3 companies which are Funders of APIDL’s claim against its former legal advisors in HCA 806/2006 (“806 Action”). The Trustees believe that the Bankrupt is involved in the operations of the Funders and might be entitled to share in their profits from funding the 806 Action. The Trustees say that their duty to investigate the Bankrupt’s affairs requires them to look into the funding arrangements involving APIDL.
5. Further, having regard to the Bankrupt’s track record in litigation finance, the Trustees also seek to investigate the funding arrangements involving APIDL in legal proceedings other than the 806 Action.
6. The information and documents sought can be classified as follows:
(1) Class 1 concerning the Funders (§§1, 4, 5.1-5.5 of the Schedule);
(2) Class 2 concerning other funders in the 806 Action (§5.6 of the Schedule); and
(3) Class 3 concerning other funders in proceedings other than the 806 Action (§6 of the Schedule).
§§2 and 3 of the Schedule are not pursued by the Trustees.
7. The Liquidators say that the Funders are not related to the Bankrupt. The Trustees have not produced evidence that the Funders or other funders are related to the Bankrupt. Information or documents sought simply have nothing to do with the Bankrupt and hence the Trustees’ functions as trustees of the estate.
8. The core issue turns on whether the Funders or other funders are related to the Bankrupt.
9. The background is largely not disputed and is taken from the helpful summaries of Mr David Chen, counsel for the Trustees, and Mr Carolan and Mr Kwok, counsel for the Liquidators.
10. On 2 August 2011, a Bankruptcy Order was made against the Bankrupt on his own petition. The Trustees were appointed on 30 September 2011 at the general meeting of creditors. According to the Bankrupt’s Statement of Affairs, his debts exceeded $160 million but he had negligible assets. The Trustees’ investigations, however, showed that the Bankrupt retains an interest in the Asia-Pac group of companies, including APIDL which he founded in about 1996.
11. Despite his bankruptcy, the Bankrupt has been operating a complex scheme using offshore companies and nominees to conceal his assets, continue to carry on his business ventures and litigation, and pay for his personal and family expenses. (The Trustees say there are 30 of such offshore companies but have only named 12.) Through these offshore companies and his family members, the Bankrupt diverted a significant amount of funds out of reach of his creditors. See Re Ho Yuk Wah David (Bankrupt)  2 HKLRD 603 (“March 2015 Decision”), §4, To J.
12. APIDL was/is involved in various sets of legal proceedings in Hong Kong, including HCA 16778/1999 (“16778 Action”), the 806 Action and HCA 971/2012 (“971 Action”).
13. The 16778 Action was commenced by APIDL in 1999 against its former management for breach of duties. It was settled at the beginning of 2011.
14. The 806 Action was commenced by APIDL in 2006 against its former solicitors for alleged negligence. After APIDL was wound up on 10 April 2013 and Tang and Hou were appointed as its provisional liquidators (later full liquidators on 30 April 2013), they decided to continue the 806 Action on APIDL’s behalf. However, as APIDL had limited funds, Tang and Hou had to seek litigation funders.
15. From April 2013 to February 2015, Tang and Hou secured interim funding from 3 Funders: True Treasure Enterprises Ltd (“True Treasure”), China New Investments Ltd (“CNIL”) and Fidelity Insurance Company Ltd (“FICL”).
16. The 971 Action is an action by the Trustees against the Bankrupt and various BVI companies who allegedly hold APIDL on behalf of the Bankrupt. On 18 November 2004, the Bankrupt sold his indirect shareholding in APIDL. The Trustees contend that the sale was a sham and that the Bankrupt still retains a beneficial interest in APIDL (as at the commencement of his bankruptcy and as of now). The Trustees seek against the Bankrupt and the 4 corporate shareholders: (1) a declaration that they hold their interest in APIDL for the Bankrupt; (2) an order that those shares be transferred to the Trustees. The trial of the 971 Action has taken place in September 2019 and judgment has been reserved. Nothing turns on the merits of the 971 Action here.
17. The Trustees believe that the Bankrupt is involved, through his offshore companies and family members, in litigation finance.
18. Historically, one piece of the litigation funded by the Bankrupt and/or his associates concern CWT Textile Supplies Co Ltd (in creditors’ voluntary liquidation) (“CWT”), of which Tang and Alison Wong Lee Fung Ying (“Wong”) were the joint and several liquidators (“CWT Liquidators”).
(1) CWT sued its former auditors for professional negligence. The matter was settled and the CWT Liquidators were paid a settlement sum of $45 million.
(2) A significant part of the settlement sum was paid to Topmark Asia Ltd (“Topmark”) as the consultant of CWT and Sun Ascent International Ltd (“Sun Ascent”) as the funder of the CWT litigation.
(3) The Trustees believe that the Bankrupt was the person behind Topmark and Sun Ascent. The belief is substantiated by one Yu Yang’s evidence in the 971 Action that the CWT litigation was an investment project of the Bankrupt’s family members.
19. Another piece of historical litigation concerned the bankruptcy case of Lee Siu Fung Siegfried (“LSF Case”), of which Tang and Wong were the joint and several trustees in bankruptcy.
(1) Out of the $45 million settlement sum received in the CWT litigation, $1.56 million was used for the LSF Case.
(2) Hou’s own evidence was that “the funders for the LSF Funding and Sun Ascent apparently belonged/were related to same group of investors or they were investors with a close business relationship”.
20. Turning to the present Summons, the Trustees’ case as regards funding of APIDL’s claim in the 806 Action is as follows:
(1) APIDL received funding from Yu Yang, who was the Bankrupt’s brother-in-law until the Bankrupt’s divorce with Yu Yang’s sister in 2015. According to the agreement between Yu Yang and the Bankrupt, the proceeds obtained from the 806 Action would be paid out:
(a) First, to the Bankrupt’s family members for their investment capital;
(b) Then, to Yu Yang (and his sister) for their investment capital;
(c) Finally, any remaining proceeds would be distributed between (i) Yu Yang and his sister (total 60%) and (ii) the Bankrupt’s family members (total 40%).
(2) By three separate Deeds of Assignment all dated 3 August 2009, the 2nd to 4th plaintiffs in the 806 Action assigned their causes of action within that Action to APIDL, the 1st plaintiff. The 4th plaintiff, Greater Beijing Region Expressways Ltd (“GBRE”), received $1 million and was entitled to receive 30% of the proceeds from the 806 Action.
(3) Hou’s evidence was that:
(a) True Treasure provided funding to APIDL from April 2013 to February 2015; and
(b) CNIL and FCIL provided at least $6.5 million in funding to APIDL in February 2015.
C. LEGAL PRINCIPLES UNDER SECTION 29 OF THE ORDINANCE
21. Section 29 of the Ordinance provides, insofar as relevant:
“(1) The court may, on the application of the Official Receiver or trustee, at any time after a bankruptcy order has been made against a bankrupt summon before it the bankrupt or his spouse, or any person known or suspected to have in his possession any of the estate or effects belonging to the bankrupt or supposed to be indebted to the bankrupt, or any person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property, and the court may require any such person to produce any documents in his custody or power relating to the bankrupt, his dealings or property. (underline added)
(1A) The court may require a person referred to in subsection (1), other than the bankrupt, to submit an affidavit to the court containing an account of his dealings with the bankrupt or to produce any documents in his possession or under his control relating to the bankrupt or the bankrupt’s dealings, affairs or property.
(2) If any person so summoned, after having been tendered a reasonable sum, refuses to come before the court at the time appointed, or refuses to produce any such document, having no lawful impediment made known to the court at the time of its sitting and allowed...