Re Lin Qingxiong

CourtHigh Court (Hong Kong)
Judgment Date03 June 2020
Neutral Citation[2020] HKCFI 884
Judgement NumberHCB6306/2019
Subject MatterBankruptcy Proceedings
HCB6306/2019 RE LIN QINGXIONG

HCB 6306/2019

[2020] HKCFI 884

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6306 OF 2019

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Re: LIN QINGXIONG (林清雄) Debtor
Ex-Parte: GUOTAI JUNAN SECURITIES Creditor
(HONG KONG) LIMITED (Petitioner)

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Before: Hon Ng J in Court
Date of Hearing: 14 May 2020
Date of Judgment: 3 June 2020

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J U D G M E N T

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Introduction

1. There is before this court a bankruptcy petition dated 16 October 2019 (“Petition”) presented by Guotai Junan Securities (Hong Kong) Limited (“Petitioner”) against Mr Lin Qing Xiong (“Debtor”). The Petition is based on the Debtor’s non‑compliance with a statutory demand dated 15 August 2018 (“statutory demand”) for the sum of HK$223,488,571.93 (“Debt”)[1].

2. The Debt arose out of 2 Deeds of Guarantee dated 7 April 2014 (“1st Guarantee”) and 12 May 2015 (“2nd Guarantee”)signed by the Debtor (collectively “Guarantees”) as guarantor in favour of the Petitioner in respect of the indebtedness of 2 securities account holders of the Petitioner viz Merit Lead Investments Limited (“Merit Lead”), a BVI company wholly owned by the Debtor and Mr Qiu Zhiqiang (“Qiu”), a business partner of the Debtor.

3. The execution of the Guarantees by the Debtor and the failure of Merit Lead and Qiu to fully repay their indebtedness to the Petitioner is not in dispute. At the hearing, Mr Tse confirmed to this court there was no dispute as to the amount of the Debt as such.

4. The sole issue for this court is whether the Debtor had raised a bona fide dispute to the Debt on substantial grounds.

Background

5. The Petitioner is a Chinese securities company listed on the main board of the Hong Kong Stock Exchange and provides diversified financial services including inter alia securities brokerage services.

6. The Debtor was one of the founders of Wang Tai Holdings Limited (“Wang Tai”), a company listed in Hong Kong in 2014. He was also Wang Tai’s chairman[2] and majority shareholder[3] at all material times.

7. On or about 7 April 2014, Merit Lead opened a securities margin account with the Petitioner (“Merit Lead Margin Account”) and entered into various agreements with the Petitioner including inter alia a Client Agreement for Securities Trading (《證券交易客戶協議書》) and an Agreement for Securities Margin Trading (《保證金賬戶客戶協議書》) pursuant to which the Petitioner provided margin facilities to Merit Lead for investing in securities.

8. At the same time, the Debtor executed the 1st Guarantee in respect of Merit Lead’s indebtedness to the Petitioner. The 1st Guarantee provides, inter alia, that:

(1) The Guarantor will pay GTJAS on demand and hereby guarantees the repayment to GTJAS on demand of all sums of money which now are or shall hereafter become due to GTJAS from the Principal in respect of any transaction in the account of the client at GTJAS with all interest, costs, commission and other charges and expenses which GTJAS may charge against the Principal and all costs, charges and expenses which GTJAS may incur in enforcing or obtaining payment of the sums of money due to GTJAS from the Principal. It shall not be necessary for GTJAS to make any demand on or take any action against the Principal before making any demand on or recovering payment from me/us (Clause 2).

(2) This guarantee shall continue in force and be a continuing guarantee and shall be applicable to the whole outstanding balance that may become due to GTJAS from the Principal (Clause 3).

(3) So long as there are any monies outstanding under the Principal’s Account with GTJAS, this guarantee shall be irrevocable and binding as a continuing security on me/us, my/our assigns, executors and administrators (Clause 10).

(4) It is understood and agreed that none of the terms or provisions of this guarantee may be waived, altered, modified or amended except in writing duly signed for and on GTJAS’s behalf (Clause 24).

9. Subsequently, on or around 7 May 2015, the Petitioner as lender issued a facility letter (保證金貸款確認書) (“Merit Lead Facility Letter”) for the advancement of HK$145,000,000 to Merit Lead which was countersigned by Merit Lead as borrower and by the Debtor, Qiu and another as guarantors on 12 May 2015. Under the terms of the Merit Lead Facility Letter, Merit Lead should pledge not less than 272,000,000 Wang Tai shares into the Merit Lead Margin Account as security. In about mid-2015, the Wang Tai shares were pledged with the Petitioner[4].

10. On or about 16 April 2014, Qiu opened a securities margin account with the Petitioner (“Qiu Margin Account”) and entered into various agreements with the Petitioner including inter alia a Client Agreement for Securities Trading (《證券交易客戶協議書》) and an Agreement for Securities Margin Trading (《保證金賬戶客戶協議書》) pursuant to which the Petitioner provided margin facilities to Qiu for investing in securities.

11. Subsequently, on or around 7 May 2015, the Petitioner as lender issued a facility letter (保證金貸款確認書) (“Qiu Facility Letter”) for the advancement of HK$63,000,000 to Qiu which was countersigned by Qiu as borrower and by the Debtor, Merit Lead and another as guarantors on 12 May 2015. Under the terms of the Qiu Facility Letter, Qiu should also pledge his Wang Tai shares into the Qiu Margin Account as security.

12. At the same time, the Debtor executed the 2nd Guarantee as guarantor of Qiu’s indebtedness to the Petitioner. The 2nd Guarantee contained the same terms as stated in paragraph 8 above.

13. By a letter dated 9 March 2018, the Petitioner demanded the Debtor, as guarantor, for payment of HK$149,968,546.64, being Merit Lead’s indebtedness under the Merit Lead Margin Account as at that day.

14. On 15 August 2018, the Petitioner issued the statutory demand to the Debtor demanding payment of HK$223,488,571.93, being the total indebtedness of Merit Lead and Qiu.

15. By a letter dated 27 August 2018, the Petitioner demanded the Debtor, as guarantor, for payment of HK$60,819,879.38, being Qiu’s indebtedness under the Qiu Margin Account as at that day.

16. On 16 October 2019, the Petitioner presented the Petition against the Debtor.

Deliberation

17. It is a well‑established legal principle that in order to successfully oppose a Petition, a debtor has to show a bona fide dispute to the debt on substantial grounds, by sufficiently precise evidence which is believable, and must establish that he actually has a defence of substance, not just a fair probability of one: Re Tam Mei Kam unrep, HCB 3777 of 2011, 25 April 2012, Barma J (as he then was); Re Yuen Mun Wa (debtor) [2012] 5 HKLRD 108; Re Chan Hon Kwong unrep, HCB 6548 of 2016, 27 April 2017.

18. As stated earlier, the sole issue which falls for determination is whether the Debtor has raised a bona fide dispute to the Debt on substantial grounds.

19. According to Mr Tse’s skeleton submissions at para 6, the dispute is “whether the Petitioner is estopped[5] from enforcing its rights against the Debtor in view of what happened in 2018”. In fact, as explained below, on the basis of the Debtor’s evidence, the real dispute is whether there was actual release by the Petitioner of the Debtor’s liabilities under the Guarantees upon Mr Li Dongfan (“Mr Li”) agreeing to take up all of his liabilities to the Petitioner and becoming in effect the guarantor of Merit Lead and Qiu in around April 2018 (“Dispute”).

20. In summary, according to the Debtor, what happened was that in early 2018, Mr Li offered to buy all his shares in Wang Tai which were then pledged with the Petitioner. On or around 18 March 2018, Mr Li and the Debtor orally agreed that, subject to the Petitioner’s approval, and in consideration of Mr Li taking up all the Debtor’s financial responsibilities and debts with the Petitioner, he would transfer all his Wang Tai shares to Mr Li (“Proposed Transaction”).

21. What happened afterwards...

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