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Re Li Wing Sang

Judgment Cited authorities 6 Cited in 2 Precedent Map Related
Vincent
Judgment Date12 April 2019
Neutral Citation[2019] HKCFI 924
Year2019
Judgement NumberHCB4740/2018
Subject MatterBankruptcy Proceedings
CourtCourt of First Instance (Hong Kong)
HCB4740/2018 RE LI WING SANG

HCB 4740/2018

[2019] HKCFI 924

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4740 OF 2018

________________________

RE: LI WING SANG (李永生)
 Debtor
EX PARTE: CREDIT SUISSE AG, HONG KONG Petitioner

________________________

Before: Deputy High Court Judge R Ismail SC in Chambers
Date of Hearing: 2 April 2019
Date of Decision: 2 April 2019
Date of Reasons for Decision: 12 April 2019

________________________

REASONS FOR DECISION

________________________

INTRODUCTION

1. At the end of the hearing on 2 April 2019 of a bankruptcy petition presented on 15 August 2018 (“the Petition”) by Credit Suisse AG, Hong Kong Branch (“the Petitioner”) against Li Wing Sang (“the Debtor”), I granted a bankruptcy order. I now give my reasons.

BACKGROUND FACTS

2. The background is largely undisputed. The following is largely extracted from the Debtor’s skeleton argument.

3. The Debtor has had an account with the Petitioner since August 2012. The Debtor has been an executive director and chairman of Tech Pro Technology Development Limited (Stock Code 3823) since December 2009 and March 2011 respectively.

4. The Debtor made use of the Petitioner’s loan facilities. Pursuant to, inter alia, a memorandum of charge dated 14 August 2012 (“MOCA”), the Debtor deposited shares listed on the Stock Exchange of Hong Kong (“SEHK”) in the Account as security.

5. By an agreement dated 29 September 2016, the Petitioner and the Debtor agreed to a repayment plan in relation to the then outstanding liabilities in the amount of HK$79,852,110.90 (“the Repayment Agreement”). Pursuant to the Repayment Agreement, the Debtor procured further securities to be provided to the Petitioner.

6. The Debtor fell behind with payments under the Repayment Agreement in about November 2016.

7. From January 2017, the Petitioner pressed the Debtor for repayment.

8. In February 2017, the Petitioner beganto liquidate the Debtor’s security in order to reduce the secured indebtedness.

9. By October 2017, the Petitioner held the following SEHK listed shares in the Account as security:

(1) 24,500,000 shares in Hanergy Thin Film Power Group Ltd (“Hanergy”) (“Hanergy Shares”);

(2) 400,000 shares in Chi Ho Development Holdings Ltd (“CHD”); and

(3) 1,607,500 shares in Li Bao Ge Group Ltd (“LBG”).

10. On 9 October 2017, the Petitioner issued a statutory demand (“the SD”). It specified that the full amount of the outstanding debt was HK$73,712,541.23 and estimated the value of the security it held at HK$11,046,175. The Petitioner put a “HK$0” value upon the Hanergy Shares.

11. Shortly beforehand, the Debtor received a monthly investmentreport dated 30 September 2017 stating the value of the Hanergy Shares to beHK$3.91 per share (its last trading price), with a total value of US$12,263,502.

12. Between 10 April and 25 July 2018, the Hanergy Shares were sold to Mr Simon Tam (“Tam”) for a total amount of HK$12,250,000. The proceeds of the such sales were applied by the Petitioner in partial settlement of the outstanding debt.

THESE PETITION PROCEEDINGS

13. On 15 August 2018, the Petitioner presented the Petition against the Debtor.

14. The Petition claims that:

(1) The Debtor was indebted to the Petitioner in the sum of HK$67,229,322.15 as at 31 July 2018 due and owing under a facility letter dated 12 June 2015 and the Repayment Agreement (“the Petition Debt”).

(2) The SD was served by the Petitioner on the Debtor on 16 October 2017 for the sum of HK$73,712,541.23, less the value of securities estimated to have a value of HK$11,046,175.

(3) Since service of the SD, the Petitioner has applied proceeds of sales of charged securities in partial settlement of the debt demanded, so that the amount outstanding is the amount claimed in the Petition.

(4) The Petitioner holds further securities for the payment of the Debt whose value was estimated as at 14 August 2018 as HK$1,132,512.50.

(5) The Petition is not made in respect of the secured part of the Debt.

15. The Debtor filed an affirmation dated 29 January 2019 (“Li”) to challenge the Petition.

16. The Petitioner in reply filed the affirmation of Wai Tuen AngelaLeung dated 19 March 2019 (“Leung”) and the affirmation of Ng Kong Sang dated 19 March 2019 (“Ng”).

17. Although further arguments were raised in evidence, by the time of the hearing, the Debtor disputed the Petition on the following grounds only:

(1) The SD is defective by reason of its incorrect valuation of the security held by the Petitioner.

(2) The Debtor has a cross-claim in excess of the Petition Debt.

THE DEFECTIVE SD ARGUMENT

Relevant legal principles

18. Section 6(2) of the Bankruptcy Ordinance (Cap 6) (“BO”) provides:

“ (2) Subject to sections 6A to 6C, a creditor’s petition may be presented to the court in respect of a debt or debts if, but only if, at the time the petition is presented—

(a) the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds $10,000 or a prescribed amount;

(b) the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured;

(c) the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay; and

(d) there is no outstanding application to set aside a statutory demand served under section 6A in respect of the debt or any of the debts.” [emphasis added]

19. Section 6A(1)(a) of the BO provides:

“ (1) For the purposes of section 6(2)(c), the debtor appears to be unable to pay a debt if, but only if, the debt is payable immediately and either—

(a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as ‘the statutory demand’) in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, at least 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside in accordance with the rules; or

….”

20. Rule 44(5) of the Bankruptcy Rules (Cap 6A) (“the Rules”) provides:

“ Form and content of statutory demand

…

(5) If the creditor holds any security in respect of the debt, the full amount of the debt shall be specified, but—

(a) there shall in the statutory demand be specified the nature of the security, and the value which the creditor puts upon it as at the date of the demand; and

(b) the amount of which payment is claimed by the demand shall be the full amount of the debt, less the amount specified as the value of the security.”

21. Section 6B(1) of the BO provides:

“ Creditor with security

(1) A debt which is the debt, or one of the debts, in respect of which a creditor’s petition is presented need not be unsecured if either—

(a) the petition contains a statement by the person having the right to enforce the security that he is willing, in theevent of a bankruptcy order being made, to give up his security for the benefit of all the bankrupt’s creditors; or

(b) the petition is expressed not to be made in respect of the secured part of the debt and contains a statement by that person of the estimated value at the date of thepetition of the security for the secured part of the debt.”

22. Rule 48 of the Rules addresses a hearing of an application to set aside a statutory demand. Rule 48(5) provides:

“ (5) The court may grant the application if—

(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;

(b) the debt is disputed on grounds which appear to the court to be substantial;

(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 44(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or

(d) the court is satisfied, on other grounds, that the demand ought to be set aside.” [emphasis added]

23. A debtor may also challenge a bankruptcy petition on the basis that there are substantial grounds for thinking that the petitioner might be fully secured: Platts v Western Trust & Savings Ltd [1996] BPIR 339, cited in Re Choi Chi Kwun, ex p Overseas Union Bank Limited HCB 517/2000 (unreported, 12 May 2000), DHCJ Kwan (as she then was).

24. It is clear that:

(a) A creditor can only petition in respect of an unsecured debt;

(b) If a creditor holds security:

(i) he must value that security in the statutory demand; and

(ii) he must state in the petition either:

(1) that he is willing to give up his security if a bankruptcy order is made; or

(2) that the petition is not made in respect of the secured part of the debt, along with a statement of the value of the security for the secured part of the debt as at the date of the petition.

25. The parties by their counsel agreed:

(1) A debtor may challenge the valuation of the security in the SD or the petition.

(2) A debtor could, at the petition hearing, dispute the security valuation given in the SD.

(3) If it was found at the petition stage that the security valuation in the SD was wrong, but that the true security value did not equal or exceed the petition debt, then the validity of the statutory demand would depend on whether the defect had caused prejudice to the debtor (eg Re Leung Cherng Jiunn [2016] 1 HKLRD 850 at §§15 – 16).

26. However, the parties’ counsel were not agreed as to what happens if at the petition stage, it was found that the security valuation in...

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2 cases
  • Cp Global Inc. (Receivers And Managers Appointed) And Another v Guy Kwok-hung Lam And Another
    • Hong Kong
    • Court of First Instance (Hong Kong)
    • 21 July 2021
    ...estimated value at the date of the petition of the security for the secured part of the debt.” 56. Reliance is placed on Re Li Wing Sang [2019] HKCFI 924 where DHCJ R Ismail SC quoted s 6B of the BO and stated (at §23) that a debtor may “challenge a bankruptcy petition on the basis that the......
  • Re Guy Kwok-hung Lam
    • Hong Kong
    • Court of First Instance (Hong Kong)
    • 21 July 2021
    ...estimated value at the date of the petition of the security for the secured part of the debt.” 56. Reliance is placed on Re Li Wing Sang [2019] HKCFI 924 where DHCJ R Ismail SC quoted s 6B of the BO and stated (at §23) that a debtor may “challenge a bankruptcy petition on the basis that the......

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