RE LEE RAYMOND CHO MIN

HCB 7452/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7452 OF 2009

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HCB 7453/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7453 OF 2009

_________________________

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D E C I S I O N

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INTRODUCTION

1.  Under HCB 7452 of 2009, bankruptcy order was granted against Ms Lee Priscilla Hwang (“Priscilla Lee”) on 31 August 2009.

2.  Under HCB 7453 of 2009, bankruptcy order was granted against Mr Lee Raymond Cho-Min (“Raymond Lee”) on 31 August 2009.

3.  Raymond Lee and Priscilla Lee are husband and wife.

4.  Mr John Robert Lees (“Mr Lees”) and Mr Mat Ng were appointed as joint and several trustees (“the Trustees”) of the estates of Priscilla Lee and Raymond Lee respectively (collectively referred to as “the Bankrupts”) on 23 September 2009.

5.  For each case, there is an application on the part of the Trustees by way of summons filed herein on 26 July 2013 for an order suspending the running of the relevant period for the bankrupt’s discharge pursuant to section 30A(3) of the Bankruptcy Ordinance, Cap 6.  The grounds as stated in the respective summonses are that (a) the conduct of the Bankrupts before and after the bankruptcy has been unsatisfactory; and (b) the Bankrupts have failed to co-operate in the administration of the estate.

6.  Since the background and complaints against the Bankrupts are very similar, the summonses are heard together.

7.  While Mr Lees filed various affidavits in support and in reply under HCB 7452 of 2009, they referred to the contents of the 3^rd, 5^th and 6^th affidavits of Mr Lees filed under HCB 7453 of 2009 which were intended to be used in support of both applications aforesaid.  Similar approach was adopted by Priscilla Lee who relied on the 2^nd and 3^rd affidavits of Raymond Lee filed under HCB 7453 of 2009.

The Law

8.  There is no dispute as to the law applicable.  The difference between the parties is how the same should be applied.

9.  The Court should adopt a two-stage approach.  Barma J (as he then was) in Re Wong Hing Wah Michael[1] said at paragraph 14 of his judgment:

“… [There] are two stages involved when the court is considering the exercise of its powers under section 30A(3). It is first necessary to determine whether one or more of the grounds mentioned in section 30A(4) has been established. If this is done, the court then moves on to consider whether or not, in the exercise of its discretion, a suspension of the automatic discharge that would otherwise have been available to the bankrupt should be ordered. It will not be in every case where a ground for suspension is made out that a suspension will be called for or imposed. In determining whether or not a suspension should be ordered, the court will have regard to all the circumstances of the case, including the nature of the acts complained of and the post-bankruptcy conduct of the bankrupt.”

10.  As to what conduct is regarded as unsatisfactory, the learned judge explained at paragraph 16:

“However one regards the height of the threshold, it seems to me that the appropriate test for whether or not the conduct complained of is to be regarded as unsatisfactory is, as Deputy Judge A To put it (in paragraph 17 of his judgment), whether the conduct is such as society would be prepared to condone without any expression of disapproval. If it is not, the conduct in question will be unsatisfactory. In each case, the conduct complained of will have to be examined against all the relevant background facts, and consideration given as to whether or not the hypothetical reasonable man would regard it as unsatisfactory.”

11.  It should be borne in mind that no bankrupt has an unconditional right to an automatic discharge.  In order to obtain discharge, the bankrupt must abide by the requirements of the Bankruptcy Ordinance Cap 6 during the bankruptcy period.[2]

12.  Such requirements include doing all such acts and things in relation to his property and the distribution of the proceeds amongst his creditors as may be reasonably required by the trustees (s 26(2), Cap 6) and a bankrupt shall aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors (s 26(3), Cap 6).

The Trustees’ Complaints

13.  The Trustees’ complaints have arisen in relation to the following matters:

(a) in resisting the Trustees’ attempts to obtain control of assets belonging to the bankruptcy estates of the Bankrupts that are situated in the United States;

(b) in respect of monies owed by East-West Enterprises Co. Ltd. (“EWE”) to Raymond Lee;

(c) in relation to the debt owed by Oasis Consulting HK Limited (“OCHKL”) to Raymond Lee;

(d) in respect of monies advanced by Priscilla Lee to OCHKL;

(e) the delay by the Bankrupts in providing the Trustees with permission to access bank statements;

(f) Raymond Lee failed to provide settlement agreement to the Trustees; and

(g) the Bankrupts have failed to disclose various aspects of their salaries and benefits since 3 February 2012.

14.   Mr Patrick Fung SC and Mr William Wong SC, Counsel for the Bankrupts, classified the complaints under 8 headings (Items B1 to B8 of their skeleton submission).  In the course of the hearing, it has been made clear that the matters discussed under Item B1 (Failure to meet the Trustees in a timely manner) are not subject matter of the present applications.

Assets in the United States / Item B2

15.  It is a complaint against the Bankrupts.

16.  In the course of the administration of the estates of the Bankrupts, the Trustees came to know that the Bankrupts had extensive assets in the United States.

17.  According to the Statements of Affairs of Raymond Lee, he solely held a 33.33% interest in EWE.[3] He is the president of EWE.  The other 2 shareholders are David Lee and Karen Lee, being brother and sister of Raymond Lee, each owning one third of the shares.  EWE directly owned a portfolio of 5 commercial real estate properties.[4]

18.  The Bankrupts held a joint interest in 7 US corporations.  Upon the investigation of the Trustees, they discovered that these interests included, a 71.4% interest in Oasis Development Enterprises Inc (“ODE”) and a 71.4% interest in Oasis Consulting Inc (“OCI”).[5]

19.  ODE is a real estate investment and management corporation which is the managing entity of a group of real estate investment companies known as the Oasis Group, which owned 16 properties.  At the time of bankruptcies, Raymond Lee was the chairman, co-president and co-chief executive officer and Priscilla Lee was the co-president and co-chief executive officer.  Both of them together with Mrs Karen Hwang (the mother of Priscilla Lee), Mr Philip Lee and Mr Ivan Chow were the directors.[6]

20.  OCI provides employees and human resources, accounting and other services to ODE.  At the time of bankruptcies, Raymond Lee was the president and chairman.  The Bankrupts together with Mrs Karen Hwang and Mr Philip Lee were the directors.[7]

21.  On 24 November 2009, the Trustees made an application under Chapter 15 of the US Bankruptcy Code to have the Hong Kong bankruptcy proceedings against the Bankrupts recognized as “foreign main proceedings” and the Trustees be recognized as “foreign representatives” (“the Chapter 15 Application”).  According to the Trustees, these designations would allow for a moratorium on action being undertaken against the Bankrupts’ assets in the US similar to the automatic stay provided by section 12 of the Bankruptcy Ordinance, Cap 6.

22.  The Bankrupts opposed to the Chapter 15 Application denying that the bankruptcy proceedings in Hong Kong were “foreign main proceedings” and that Hong Kong was the “centre of main interest”.

23.  ODE, OCI, EWE and their 27 affiliated entities (the US Companies”) also filed an opposition.  In their opposition,[8] they stated that the US properties comprised of 16 commercial properties with more than 1,475,000 square feet leased to over 80 tenants and 2 undeveloped parcels (“the Oasis Group Portfolio”).  These properties are owned through a network of affiliated companies and most of them are directly owned by a single-asset special purpose entity (“SPE”) established as a limited liability company (“LLC”). ODE typically directly owns no more than one percent in the shares or membership interests of these affiliates but manage them through the terms of certain operating agreements executed by investors (known as members) in the various LLCs.  In most cases, ODE is the manager of its affiliated SPEs; some SPEs are directly or indirectly owned or controlled by ODE Asia, LLC, an investment vehicle (“ODE Asia”)[9].  Raymond Lee was the president and chairman of ODE Asia while Priscilla Lee was the vice chairman.  They together owned, directly or indirectly, a total of 45.26% of the membership interest in ODE Asia.[10]

24.  For the 5 properties owned by EWE, more than 150,000 square feet were leased to over 60 tenants (“the EWE Portfolio”).[11]  The EWE Portfolio and the Oasis Group Portfolio are collectively referred to as the US Portfolio.

25.  The Bankrupts’ ownership interest in each of the US Portfolio is comprised of their interests in ODE, ODE Asia and/or EWE and their direct or indirect ownership of membership interests in the SPEs which own the properties.

26.  There were 33 other individual and institutional investors who have invested in one or more of the companies in the Oasis Group[12].

27.  The Bankrupts owned a minority of the equity in 20 out of 22 real estate properties under the US Portfolio.  For the other 2, their combined interest is less than two-thirds.  In August 2009, the US Portfolio was valued at US$175,190,000.  The then current outstanding loan debt was around US$228 million. The equity attributable to the Bankrupts was around US$2,870,000.[13]  Although half of the properties were valued at less than the outstanding mortgage debt, the properties generated significant operating revenue.

28.  After the filing of the oppositions, there were negotiations between the Trustees, Bankrupts and the US Companies.  In February 2011, the Bankrupts and the US Companies withdrew their oppositions to the Chapter 15 Application on such terms as set out in the stipulation (“the Stipulation”) annexed to and as part of the order of the US court dated 28 February 2011(“the Chapter 15 Order”)[14].

29.  Paragraph 5 of the Chapter 15 Order provides that

“5. Pursuant to 11 U.S.C. §1520(a)(1) section 362 of the Bankruptcy Code shall be applicable to the Foreign Debtors such that all entities (as that term is defined in section 101(15) of the Bankruptcy Code), other than the Foreign Representatives and their expressly authorized representatives and agents, are hereby stayed from:

a) executing against the Foreign Debtors’ assets;

b) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the Foreign Debtors, or to recover a claim against the Foreign Debtors;

c) the enforcement of a judgment against the Foreign Debtors or against property of the Foreign Debtors’ estates;

d) any act to obtain possession of property of the Foreign Debtors’ or of property from the Foreign Debtors’ estates or to execute control over property of the Foreign Debtors’ estates;

e) any act to create, perfect, or enforce a lien or other security interest, set-off, or other claim against the Foreign Debtors or any of their property;

f) any act to collect, assess, or recover a claim against the Foreign Debtors;

g) transferring, relinquishing or disposing of any property of the Foreign Debtors to any person or entity other than the Foreign Representatives; and

h) the setoff of any debt owing to the Foreign Debtors against any claim against the Foreign Debtors;

provided, however, in each case, such injunction shall be effectively solely within the territorial jurisdiction of the United States.”

30.  In July 2011, the Trustees requested the Bankrupts to confirm that they would take all necessary action to transfer their shares in the US Companies (“the Equity Interest”) to the Trustees.  The Bankrupts refused on the ground that such transfer would be in breach of paragraph 9 of the Stipulation.  Thus, the Trustees applied for an order[15] directing the turnover of all assets of the Bankrupts in the US to the Trustees (“the Turnover Motion”) in September 2011.[16]  In the Turnover Motion, apart from the Equity Interest, the Trustees identified 4 other groups of assets, namely, (a) account assets valued at around US$500,000; (b) a real property at Brookline; (c) stocks in some United States companies (not the US Companies); and (d) timeshare interest.

31.  The Bankrupts opposed to the Turnover Motion. In relation to the Equity Interest, they adopted the arguments advanced by the US Companies which also opposed to the Turnover Motion to the extent of the turning over of the Equity Interest.  By then, the Oasis Group Portfolio comprised of 13 commercial properties with 1.2 million square feet leased to over 75 tenants and 1 undeveloped parcel.

32.  The US Companies argued that since 13 out of 16 of the properties under the Oasis Group Portfolio were subject to mortgage loan facilities, the turnover of the Equity Interest would trigger defaults under those loans and lead to severe consequences including the rights of the lenders to accelerate loan debts, to foreclose upon and sell the properties and pursuant to guarantees given by Raymond Lee, seek full recourse against him for loan debts around US$180 million.  Enforcement of their rights by the lenders would extinguish the Equity Interest and the equity interests of other investors or owners of the US Companies.  Therefore, the US Court should not grant the motion because it cannot be satisfied that “the interests of creditors and other interested entitles, including [the Bankrupts], are sufficiently protected”.[17]

33.  In February 2012, the Trustees and the Bankrupts resolved their differences under the Turnover Motion except the turnover of the Equity Interest and the real property at Brookline.  Subsequently in June 2012, the US Court granted the Turnover Motion. 

34.  The Trustees are of the view that the oppositions raised by the Bankrupts in respect of the Chapter 15 Application and the Turnover Motion as both non-cooperation and unsatisfactory conduct after the commencement of the bankruptcy.

35.  Counsel for the Bankrupts submitted that the Bankrupts are not required to comply with each and every of the Trustees’ requests regardless of the reasonableness of the requests citing s 26(2) of the Bankruptcy Ordinance, Cap 6 which only requires a bankrupt to “generally do all such acts and things in relation to his property and the distribution of the proceeds amongst his creditors, as may be reasonably required by the trustee.” Counsel submitted that it is not unreasonable to oppose the applications as the Bankrupts are entitled to have the issues between the parties, including what properties are to be included in the estates of the Bankrupts, to be determined under the US law.

36.  I do not accept this submission.  By virtue of s 58(1) and (3), Cap 6, on the making of a bankruptcy order, the property of the bankrupt shall vest in the trustee.  Under Hong Kong law, the Bankrupts are duty bound to co-operate with the Trustees for the administration of their estates.  Section 26(3) provides that “[a bankrupt] shall aid to the utmost of his power in the realization of his property and the distribution of the proceeds among his creditors.”  Raising the oppositions are clearly conducts against such duty.[18]  By so doing, the Bankrupts were trying to prevent the Trustees from reaching their assets, and most importantly, the Equity Interest, and that, if successful, may lead to severe adverse consequences to the administration of the estates of the Bankrupts and prejudice the interests of the creditors.  Without the Chapter 15 Application, proceedings against the Bankrupts in the United States may continue to proceed and any creditor of the Bankrupts may execute against the assets of the Bankrupts in the United States.  Without the Turnover Motion, the Trustees cannot have any control or effective control over the Equity Interest.   

37.  In the Memorandum of Judge Feeney on the Turnover Motion dated 4 June 2012, the judge pointed out that:

“Section 103(a) of the Bankruptcy Code provides in relevant part: “Except as provided in section 1161 of this title, chapters 1,3, and 5 of this title apply in a case under chapter 7, 11, 12, or 13 of this title, and this chapter, sections 307, 362(o), 555 through 557, and 559 through 562 apply in a case under chapter 15.” 11 U.S.C. §103(a). Accordingly, neither section 541(a) nor 541(c)(1) are applicable to a determination of property of the Hong Kong bankruptcy estates, and the determination of property of the estates must be made under Hong Kong law” [19](emphasis added).

It is crystal clear that such conclusion can be reached easily by a simple reference to section 103(a) and, in my view, any argument to the otherwise is bound to fail. As the estate of a bankrupt comprises of “all property belonging to or vested in the bankrupt at the commencement of the bankruptcy”[20], the Equity Interest must form part of the estates of the Bankrupts. It is also beyond argument.

38.  The only real issue is therefore whether the interests of creditors and other interested entitles, including the Bankrupts, are sufficiently protected.[21]  At page 44 of the Memorandum, the judge referred to In re Atlas Shipping A/S, 404 B.R. 726 (Bankr. S.D.N.Y. 2009):

“One court has described “sufficient protection” as embodying three basic principles: “the just treatment of all holders of claims against the bankruptcy estate, the protection of U.S. claimants against prejudice and inconvenience in the processing of claims in the [foreign] proceeding, and the distribution of proceeds of the [foreign] estate substantially in accordance with the order prescribed by U.S. law.”  In re Artimm, 335 B.R. at 160 (analyzing under §304(c) of the old Code, but notingthat the analysis would be “essentially the same” under §1521(b)).”

39.  At page 49 of the Memorandum, the judge observed that:

“[The] Hong Kong Bankruptcy Ordinance provides for the just treatment of holders of claims against the Foreign Debtors’ bankruptcy estate and for distributions of proceeds substantially in accordance with the Bankruptcy Code and that any U.S. claimants will not be prejudiced or inconvenienced because the Chapter 15 proceedings shall remain open.”

40.  At page 60 of the Memorandum, the judge opined that:

“[The] provisions of the Bankruptcy Ordinance also provide sufficient protection – indeed more protection than what would be available under the Bankruptcy Code.”

41.  The Bankrupts raised opposition to the Chapter 15 Application and subsequently acceded to it.  They raised opposition to the Turnover Motion and the US Court eventually ruled against them.  In my view, while the real intent on the part of the Bankrupts in raising oppositions may not be causing delay to and/or obstructing the administration of their estates, in reality, they did.  The Bankrupts have to face the consequences of their choice.

42.  Counsel for the Bankrupts referred me to various parts of the Memorandum of Judge Feeney where the judge commented that the Bankrupts have been “making cogent and sincere arguments” and their concerns were “valid” and submitted that the Bankrupts’ arguments were not wholly unmeritorious or made in bad faith.  While that may be so, it does not mean that the Bankrupts had acted satisfactorily or co-operatively.  In my judgment, the Bankrupts should have co-operated with the Trustees by voluntarily turnover the Equity Interest to the Trustees.  If for any reason they believed they cannot do so, they should have clearly explained to the Trustees.  They should not have actively opposed to the Turnover Motion. 

43.  It is my ruling that the Trustees have proved their case under this head.

Money owed by EWE to Raymond Lee / Item B3

44.  This complaint directs at Raymond Lee only.

45.  The Trustees complained that the conduct on the part of Raymond Lee was unsatisfactory because he failed to provide further information about the indebtedness owing to him by EWE as evidenced by the redacted balance sheet of EWE dated 30 September 2009 notwithstanding their request by letter dated 4 June 2013.[22]  The sum involved is around US$58,000.

46.  Raymond Lee submitted that since after the Turnover Motion, he was no longer a shareholder of EWE.  He can do nothing to entertain the request aforesaid.  The decision to provide information rested with the board of directors acting in accordance with legal advice. Indeed, he has abstained from voting in any resolution of the company on matters which relates to the bankrupt estate.[23]

47.  With the evidence now before me and in the absence of any evidence that Raymond Lee had acted improperly, for example, in influencing the other directors of EWE not to accede to the said request, I have to accept the submission of Raymond Lee.

48.  It is my ruling that the Trustees have failed to prove this head.

Loan owed by OCHKL to Raymond Lee / Item B5

49.  In the light of paragraphs 6, 55 to 68 of 3^rd Lees, I am of the view that the Trustees only complained against Raymond Lee though they, in these paragraphs, also set out the backgrounds leading to another complaint against Priscilla Lee to be discussed herein below.

50.  During the administration of the estate of Raymond Lee, the Trustees found that OCHKL owed certain sums of money to the Bankrupts, including a sum of around HK$986,058 as an “amount due to the Lees” which appeared in a draft unaudited balance sheet of OCHKL as at 30 September 2009.[24]

51.  In January 2011,[25] the Trustees asked Raymond Lee when the sum of US$79,500, being a sum owing to him by OCHKL as he stated in his affidavit,[26] dated 29 January 2010, filed under the Chapter 15 Application, would be remitted to the estate.  By another letter,[27] the Trustees asked Priscilla Lee when the sum of US$302,524 (around HK$2,361,072) being a sum owing to her by OCHKL as she stated in her statement of affairs dated 18 September 2009,[28] would be remitted to the estate.

52.  By a letter dated 14 February 2011,[29] Raymond Lee replied that since he was no longer a director of OCHKL, he was not in the position to comment and indicated that the Trustees should contact OCHKL direct.  Priscilla Lee replied in the same way as Raymond Lee did.

53.  By a letter dated 15 September 2011,[30] OCHKL through their solicitors, stated that:

(a) there was a sum due to Priscilla Lee in the amount of HK$2,361,072;

(b) there was no record due to Raymond Lee in the amount of US$79,500; and

(c) the sum of HK$986,058 was advanced by Raymond Lee in the nature of quasi-capital or loan capital and was non-refundable.

54.  A week later, by a letter dated 23 September 2011, Raymond Lee said that the sum of US$79,500 amounts to quasi-capital and non-refundable and, by September 2009, the amount owing to him was HK$986,000.

55.  In their letter dated 31 October 2011, the Trustees queried the answers given by OCHKL and demanded for payment of the sums owing to the Bankrupts.[31]

56.  Since OCHKL did not make any payment, the Trustees subsequently presented a winding up petition against OCHKL on 6 December 2012. OCHKL eventually repaid the debt owing to Priscilla Lee in the sum of HK$2,361,072.01 and the debt owing to Raymond Lee in the sum of HK$986,028.14[32] and the petition was dismissed by consent on 25 February 2013.

57.  The Trustees are of the view that Raymond Lee changed his stance in relation to the sums owed to him because he wanted to prevent the loan to become part of his estate.  This conduct is unsatisfactory and also shows that Raymond Lee fails to co-operate in the administration of the estate.

58.  It was submitted on behalf of Raymond Lee that there was no change of stance.  The words “quasi-capital” and “non-refundable” merely provide a more precise description of the nature of the debt owing to Raymond Lee.

59.  I do not accept the submission.  First, Raymond Lee did not mention that the sum owing to him was non-refundable until his letter dated 23 September 2011.  In fact, in his letter dated 14 February 2011, he said:

“As regard to when the approximate amount of US$79,500 will be available to be remitted to my estate from [OCHKL], you will appreciate that since I am no longer a Director of [OCHKL], I am not in any position to comment upon this. No doubt you will contact [OCHKL] directly, in need?”

It clearly shows that the sum owing to him is not non-refundable as otherwise he would have said so but not asking the Trustees to contact OCHKL.

60.  The only conclusion that I can draw from the change of position is that Raymond Lee tried to prevent the debt to form part of his estate.  This is unsatisfactory conduct and shows that he fails to co-operate with the Trustees in the administration of his estate. It is my ruling that the Trustees have proved this head.

Monies advanced by Priscilla Lee to OCHKL/ Item B6

61.  The complaint under this heads concerns the Bankrupts.

62.  As mentioned above, OCHKL repaid the debt owing to Priscilla Lee in the sum of HK$2,361,072.01.  This sum is in fact the amount remaining from sums including a sum of HK$5 million that was transferred from the Bankrupts’ joint bank account by way of a cheque dated 25 February 2009. This is regarded as a loan and is documented by a promissory note issued by OCHKL to Priscilla Lee also dated 25 February 2009.[33]  The promissory note was signed by the Bankrupts, as directors of OCHKL.

63.  From a schedule provided by OCHKL on 13 August 2012,[34] the Trustees came to know that this loan was utilized to make various payments to different parties including the legal advisers and financial advisers of the Bankrupts for the period between 7 May 2009 and 31 August 2009.  On each occasion when a payment was made, the amount owing to Priscilla Lee was treated to have been reduced by the same amount. 

64.  On 30 April 2013 and 2 May 2013, Raymond Lee sent revised schedules to the Trustees.[35]

65.  The latest schedule shows that there were 2 deposits, to the credit of Priscilla Lee, back in July and September 2008 in the sums of HK$366,000 and HK$66,000 respectively.  Adding the HK$5 million loan, the total credit balance with OCHKL was HK$5,432,000 as on 25 February 2009.  OCHKL paid various expenses for and on behalf of the Bankrupts from 14 May 2009 to 31 August 2009. It should be noted that the bankruptcy petitions herein were filed on 27 May 2009 and bankruptcy orders were made on 31 August 2009.

66.  The Trustees are of the view that, by virtue of s 42(1), Cap 6, the expenses paid on behalf of the Bankrupts as from 27 May 2009 onwards are void.  The total sum involved is around HK$2.7 million.[36]  The payments included HK$850,000 and HK$500,000 to the legal advisers of the Bankrupts and HK$366,614 to their financial advisers.  Such pre-bankruptcy conduct was grossly unsatisfactory in that it preferred the payees to the general body of creditors.

67.  Raymond Lee, in 2^nd RL, explained that:

“ 45. The HK$5,000,000 was advanced by PHL[37] to OCHKL on 27 February 2009, 3 months before the filing of the bankruptcy petition by Winchesto on 27 May 2009, as a loan to OCHKL for the settlement of the personal expenses of PHL and me. At that time, PHL and I were heavily engaged in litigation, as well as the negotiation with creditors over IVA proposals. These professional charges were settled with PHL’s loan account with OCHKL.

46. At the time of the filing of the bankruptcy petition, we were was not advised that OCHKL could not repay PHL’s loan of HK$5,000,000 by settling our professional charges and making other payments on our behalf. PHL and I directed all these payments to be made out of PHL’s account with OCHKL without any knowledge of any legal requirement which imposed restrictions on such payments. We had not been advised by our then Solicitors Messrs. Joseph Li & Co. that the payments made after the date of filing of the bankruptcy petition against PHL (i.e. 27 May 2009) were void under Section 42(1) of the Bankruptcy Ordinance. However, I have now been advised by LCC[38] that PHL could have applied to court to seek validation or post-transaction ratification of most of these payments, since the bulk of the payments made after 27 May 2009 comprised payments for the settlement of professional charges, such as payments to Joseph Li & Co, Grant Thornton. I also note that these payments included donations to charities and churches (see “JRL-40”).”

68.  Counsel for the Bankrupts submitted that the Bankrupts had only made an honest and inadvertent mistake because the payments would not have been made had the Bankrupts been advised of the matter.  Further, the Bankrupts could have obtained validation or post-transaction ratification for most of the payments in question.

69.  I do not accept the submission.  The explanation of the Bankrupts is ambiguous and lacks particulars.  They claimed that they “had not been advised by [their] then solicitors Messrs Joseph Li & Co that the payments made after the date of filing of the bankruptcy petition against [Priscilla Lee] (i.e. after 27 May 2009) were void under Section 42(1) of the Bankruptcy Ordinance.”  Does it mean that they did ask Messrs Joseph Li & Co on this subject and they were told that the payments were valid?  Or it only means that the Bankrupts did not ask and thus they were not advised.  Assuming it is the former for the benefit of the Bankrupts, they said nothing about when did they ask, why did they ask and what exactly they were told.  Most important of all is that there is no evidence from Messrs Joseph Li & Co in this regard.

70.  Further, why should the Bankrupts make such a loan arrangement and let OCHKL pay their expenses.  From the letter to the Court dated 25 March 2014 in reply to my query made during the hearing, the Bankrupts told the Court that this was the first time such loan arrangement was made.  Since almost all the payments made by OCHKL were made by cheques, why didn’t the Bankrupts simply ask their staff at OCHKL to prepare cheques drawn on the Bankrupts’ bank account and arrange them to be signed by the Bankrupts to settle payments?

71.  Up till the hearing, there is no application to the Court to validate the payments and there is no plausible reason why that is not done.  The fact remains that the payments are void under s 42(1).  While Counsel for the parties submitted how the Court should or might deal with such application if made, I am of the view that I should not make any specific finding in this regard as so doing would simply be making speculation.  Indeed, there are over 50 payments[39] and there is simply no or very limited materials before me as to, for example, how to justify the need to spend or pay,[40] what is the payment for,[41] why the amount spent is appropriate[42] and so on, to make a specific finding for a particular payment.   

72.  It is my ruling that the Trustees have proved their case under this head.

The delay by the Bankrupts in providing the Trustees with permission to access bank statements / Item B7

73.  This complaint is against the Bankrupts.

74.  The Trustees complained that there was delay on the part of the Bankrupts in providing authorization letters to enable them to obtain bank statements from various banks in the US.  Such conduct is unsatisfactory.

75.  It is true that the Trustees requested for written authorization as early as in January 2012.  Raymond Lee replied on 5 April 2012, after a reminder of the same date from the Trustees, that he was still taking legal advice and said that he would revert shortly.  There was no reply from Priscilla Lee.

76.  On 5 April 2012, the US legal advisers acting for the Bankrupts wrote to the US legal advisers of the Trustees making enquiry if the Trustees still need the authorizations.

77.  By an email dated 18 April 2012, the Trustees informed their US legal advisers that they still required the authorizations.  There is however no evidence before me that such reply was related to the US legal advisers of the Bankrupts or the Bankrupts.

78.  Nothing happened until 8 April 2013 when the Trustees renewed their requests for the authorizations.  The Bankrupts provided the same on 2 May 2013.

79.  It appears to me that there was a communication problem and the Bankrupts should not be blamed.

80.  It is my ruling that the Trustees have failed to prove their case under this head.

Failure to provide settlement agreement to the Trustees / Item B7

81.  This complaint directs at Raymond Lee only.

82.  It concerns the Global Settlement Agreement dated 5 February 2004 (“the GSA”) between the Lee family and Samuel Tak Lee.  On 14 September 2010, the Trustees requested information about the GSA and payments made to Raymond Lee under the GSA. Messrs. Liu, Choi & Chan, solicitors acting for Raymond Lee, made a prompt reply that Raymond Lee was not entitled to any payment under the GSA and made reference to the confidentiality clause, which restrict the disclosure of the contents of the settlement agreement, in the GSA.  They also stated that Raymond Lee had received bonus payment for his contribution to the litigation and negotiation process.

83.  Further information and documents were provided to the Trustees upon request except a copy of the GSA.  Messrs Liu, Choi & Chan however refused to provide the same in the light of the confidentiality clause.

84.  As a result, the Trustees took out an application under s 29, Cap 6, against Mr Benjamin Choi, a partner of Messrs Liu, Choi & Chan. Eventually the Court directed Mr. Choi to provide a copy of the GSA.

85.  The Trustees submitted that Raymond Lee is a party of the GSA and is entitled to obtain a copy of the same, even if he did not have one in his possession, from his legal adviser.  Further, there is also no question of confidentiality as can be seen from the judgment of Mr Recorder A Chow, SC at paragraph 44,

“The Trustees have effectively stepped into the shoes of Raymond Lee by virtue of their appointment in relation to Raymond Lee’s estate in bankruptcy and thus there can be no question of any breach of confidentiality arising from the production of the GSA to the Trustees.”

86.  I accept the submission of the Trustees that Raymond Lee should have requested a copy of the GSA from his legal adviser and then provide the same to the Trustees.  Failure to do so is clearly unsatisfactory conduct.

The bankrupts have failed to disclose various aspects of their salaries and benefits since 3 February 2012 / Item B8

87.  This complaint is against the Bankrupts.

88.  The Trustees complained that Raymond Lee failed to give the exact value of his salary, or the housing allowance which he received as part of his salary from companies controlled by the Lee family in Hong Kong.  Further, he also failed to specify the exact salary that he and Priscilla Lee had received from the US Companies. On 5 August 2013, the US legal advisers of the Trustees wrote to the US legal advisers of the Bankrupts requesting for all income records from February 2012 to May 2013 but there was no reply up till the hearing.

89.  Counsel for the Bankrupts submitted that the Bankrupts are trying to trace the documents and would provide them to the Trustees once they are available.

90.  The Bankrupts ought to know that they have to disclose information about their income and salary to the Trustees.  They should have provided such information to the Trustees even if the Trustees did not make any express request.  The Bankrupts should also keep the related documents properly so that the same can be provided to the Trustees whenever they are in need.

91.  Obviously, the Bankrupts have failed their duties as aforesaid.  In the absence of any explanation as to why they cannot provide the information even up to the hearing, I can only conclude that their conducts are unsatisfactory. It is my ruling that the Trustees have proved their case under this head.

Exercise of Discretion

92.  In these matters, there were unsatisfactory pre-bankruptcy and post-bankruptcy conducts.  The Bankrupts also failed to co-operate with the Trustees in the administration of their estates.

93.  It is trite law that the Court should take an overall view of the matter when exercising its discretion under s 30A(3), Cap 6.[43]

94.  Unsatisfactory pre-bankruptcy conduct must be of exceptional gravity to warrant a suspension of automatic discharge.[44] Whether a suspension is merited depends on the nature of the conduct in question, whether the bankrupt has been cooperative with his trustees, whether he has complied with his obligations under the Bankruptcy Ordinance, and his conduct of his affairs during his bankruptcy. [45]

95.  In Re Tong Yuk Kin[46], DHCJ To (as he then was) held at paragraph 21:

“…[T]he court should take a balanced view. It should balance the interest of the bankrupt, the interest of his creditors, the public interest in the bankrupt’s rehabilitation and the demands of commercial morality underpinning the bankruptcy laws. It should take into consideration all the circumstances leading to the bankruptcy and not just the conduct complained of. It should consider the seriousness of the conduct, the bankrupt’s conduct after the commencement of bankruptcy, the degree of co-operation he has shown with the trustee during the relevant period and the effort he has contributed to repaying his debt. In an appropriate case, the court should consider the risk to the commercial community should the bankrupt be allowed to resume full commercial activity. The discretion to suspend the running of the relevant period should not be lightly exercised. But in its balancing exercise, the court should not allow the bankruptcy regime to be abused.”

96.  It should be noted that the unsatisfactory pre-bankruptcy conduct herein involves preference over certain creditors.  The unsatisfactory post-conduct involves preventing certain assets to form part of the estates of the Bankrupts.  As pointed out by DHCJ To in Re Tong Yuk Kin at paragraph 16:

“Preference over some creditors to the prejudice of the general pool of creditors, even if not fraudulent, is unforgivable and deserves some form of punishment to mark the society’s disapproval of such conduct. Concealing assets or putting one’s asset out of reach of the trustee in preparation for bankruptcy is not forgivable. Such conducts amount to abuse of the bankruptcy regime which the society would not condone.”

97.  For the reasons aforesaid, I am of the view that I should exercise my discretion in making a suspension order.

98.  It is a serious matter. Much time and legal costs (around HK$4.8 million just for the US legal advisers of the Trustees) had been incurred for the proceeding in the US. The value of the assets of the Bankrupts in the US and the payments made through OCHKL after the filing of the bankruptcy petitions herein are substantial. 

99.  In respect of Raymond Lee, I make an order that the relevant period do cease to run for a period of 18 months commencing 30 August 2013.

100.  In respect of Priscilla Lee, her case is relatively less serious.  I make an order that the relevant period do cease to run for a period of 15 months commencing 30 August 2013.

101.  I also make an order nisi (to become absolute 14 days after the handing down of this decision) that the Bankrupts do pay costs of the respective applications against them including all costs reserved to be taxed if not agreed with certificate to counsel.

Mr Paul Carolan, instructed by Deacons, for the Trustees

Mr Patrick Fung SC and Mr William Wong SC, instructed by Liu, Choi & Chan, for the Bankrupts on 7 January 2014

Mr Daniel Fung SC and Mr David Chen, instructed by Liu, Choi & Chan, for the Bankrupts on 19 March 2014

HCB 7452/2009
and HCB 7453/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7452 OF 2009

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(HEARD TOGETHER)

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J U D G M E N T

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Introduction

1. I have before me 3 summonses taken out in two bankruptcy proceedings, pursuant to Section 29 of the Bankruptcy Ordinance, Cap 6, and Rule 25 of the Bankruptcy Rules, Cap 6A. HCB 7452/2009 relates to the bankruptcy of Lee Priscilla Hwang also known as Priscilla Hwang Lee (“Priscilla Lee”), and HCB 7453/2009 relates to the bankruptcy of Lee Raymond Cho Min also known as Raymond Cho Min Lee and also known as Lee Cho Min Raymond (“Raymond Lee”).

2. Raymond Lee and Priscilla Lee are husband and wife.  On 31 August 2009, they were declared bankrupt by this court.

3. On 23 September 2009, John Robert Lees and Mat Ng of John Lees Associates (now known as JLA Asia Limited) were appointed joint and several trustees (the “Trustees”) of the properties of Raymond Lee and Priscilla Lee.

4. Raymond Lee and Priscilla Lee used to be directors of a Hong Kong company known as Oasis Consulting HK Limited (“Oasis”).  They ceased to be directors of Oasis upon their bankruptcy.  Raymond Lee is currently still a registered shareholder of 1 share in Oasis, but it appears that he holds it on trust for the benefit of a company known as ODE Asia Limited (“ODE”), pursuant to a Declaration of Trust dated 18 October 2001.

5. ODE is a subsidiary of another company known as M W Lee & Sons Enterprises Ltd, said to be one of the main operating companies of the “Lee Family”, of which Raymond Lee is a member.  ODE is currently the registered holder of all the remaining 774,999 shares in Oasis, having been transferred 697,499 and 77,500 of those shares by Raymond Lee and Priscilla Lee respectively on 18 October 2001, and was the corporate director of Oasis between 14 September 2009 and 14 May 2012.

6. Raymond Lee and Priscilla Lee are currently the Executive Vice President and Senior Vice President respectively of Oasis.

7. Richard Andrew Henry Gardener (“Gardener”) was until recently the general manager of Oasis.  He also assists Raymond Lee and Priscilla Lee with their personal affairs and represents them in their dealings with the Trustees.

8. Choi Shui Hung (“Benjamin Choi”) is a partner of a firm of solicitors known as Liu, Choi & Chan.  His firm acted for the executors of the estate of Raymond Lee’s grandmother, and various members of the Lee Family in relation to a global settlement agreement (“GSA”) dated 5 February 2004 which apparently was designed to settle a complex and long-running litigation originally initiated by one Samuel Tak Lee involving various members of the extended Lee Family.  Liu, Choi & Chan also act for Raymond Lee and Priscilla Lee in relation to an action brought against them by Oasis Mezzanine Funding Limited in HCA 320/2009.

9. The 3 summonses were all taken out by the Trustees on 20 January 2012.

10. In the summons taken out in HCB 7452/2009 (“the 1^st Summons”), the Trustees seek an order that, inter alia:

(1)  Oasis shall make discovery of the documents referred to in items (1) to (8) of the Schedule thereto (“the 1^st Schedule”);

(2)  Gardener shall make discovery of the documents referred to in items (9) to (10) of the 1^st Schedule; and

(3)  Gardener shall attend the court at such time and place as the court shall direct for the purpose of being examined under Section 29 of the Bankruptcy Ordinance.

11. In respect of the 1^st Summons, the parties are agreed that:

(1) Oasis will give discovery of the documents referred to in items (1) and (5) of the 1^st Schedule;

(2) there are no documents to be disclosed in respect of items (3), (4), (8), (9) and (10) of the 1^st Schedule;

(3) accordingly, the remaining issues to be determined are –

(a) whether Oasis should give discovery of the documents referred to in items (2), (6) and (7) of the 1^st Schedule; and

(b) whether Gardener should be examined under Section 29 of the Bankruptcy Ordinance.

12. In the summons taken out in HCB 7453/2009 against Oasis and Gardener (“the 2^nd Summons”), the Trustees seek an order that, inter alia:

(1) Oasis shall make discovery of the documents referred to in items (1) to (11) of the Schedule thereto (“the 2^nd Schedule”);

(2) Gardener shall make discovery of the documents referred to in items (12) to (13) of the 2^nd Schedule; and

(3) Gardener shall attend the court at such time and place as the court shall direct for the purpose of being examined under Section 29 of the Bankruptcy Ordinance.

13. In respect of the 2^nd Summons, the parties are agreed that:

(1) Oasis will give discovery of the documents referred to in items (1), (3), (7) and (8) of the 2^nd Schedule;

(2) there are no documents to be disclosed in respect of items (4), (5), (6), (11), (12) and (13) of the 2^nd Schedule;

(3) accordingly, the remaining issues to be determined are –

(a) whether Oasis should give discovery of the documents referred to in items (2), (9) and (10) of the 2^nd Schedule; and

(b) whether Gardener should be examined under Section 29 of the Bankruptcy Ordinance.

14. In the summons taken out in HCB 7453/2009 against Benjamin Choi (“the 3^rd Summons”), the Trustees seek an order that, inter alia, Benjamin Choi shall make discovery of the documents referred to in items (1) to (6) of the Schedule thereto (“the 3^rd Schedule”).

15. In respect of the 3^rd Summons, the parties are agreed that:

(1) there are no documents to be disclosed in respect of items (5) and (6) of the 3^rd Schedule;

(2) consideration of item (3) of the 3^rd Schedule should be deferred pending the Trustees’ consideration of the documents to be discovered in respect of items (1) and (2) of the 3^rd Schedule, assuming that an order is made for their disclosure; and

(3) accordingly, the remaining issue to be determined is whether Benjamin Choi should give discovery of the documents referred to in items (1), (2) and (4) of the 3^rd Schedule.

The court’s approach in an application under Section 29 of the Bankruptcy Ordinance

16. There is no dispute between the parties as to the court’s approach in an application under Section 29 of the Bankruptcy Ordinance.

17. Section 29(1) of the Bankruptcy Ordinance states as follows:

“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.”

18. My attention has been drawn to the judgment of the Court of Appeal in Re Hau Po Man Stanley (In Bankruptcy) [2008] 1 HKC 256, in which the following guidance is given:

“20. It is common ground the power conferred by s. 29(1) is discretionary in nature. Its purpose is to enable:-

“… the court to help a trustee to discover the truth and circumstances connected with and to gather information about the bankrupt’s property, affairs and dealings, in order that the trustee may be able, as effectively as possible, and with as littleexpense as possible, to complete his function; to put the affairs of the bankrupt in order and to administer the bankruptcy in all its various aspects, including the getting in of any assets of the bankrupt” (emphasis supplied).

(para. 37 of the judgment below, citing Re Poulson, a bankrupt [1976] 2 All ER 1020; Williams and Muir Hunter in the Law and Practice in Bankruptcy, 9^th Ed., p. 113; Muir Hunter on Personal Insolvency, Vol. 1, July 2006, para. 3-2511 and Butterworths Hong Kong Bankruptcy Law Handbook, 3^rd Ed., para. 29-01 at p. 133).

21. There is also no dispute regarding how the discretion should be exercised:-

(a) the applicant must satisfy the court the essential condition that the provision of information or documents is reasonably required for him to carry out his functions;

(b) the applicant must also establish a prima facie case that the respondent is able to provide such information or documents;

(c)  if the above criteria are met, the court must carefully strike a balance between the applicant’s reasonable requirements and the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to the person concerned.  The burden is on the applicant to satisfy the court, after balancing all the relevant factors, there is a proper case for such an order to be made.”

19. At paragraph 32 of the judgment, the Court of Appeal also said that what clearly is not permissible under Section 29(1) of the Bankruptcy Ordinance is a mere “fishing” expedition on the part of the applicant. However, that statement ought to be read in light of paragraph 31 of the judgment, in which the Court of Appeal said that a trustee should not make an application under Section 29(1) of the Bankruptcy Ordinance irrespective of costs or proportionality, but is expected to deploy commercial judgment.

20. Both parties agree that the principles relating to the court’s exercise of similar powers in the insolvency context under Section 221 of the Companies Ordinance are relevant to an application under Section 29 of the Bankruptcy Ordinance.  Section 221(1) and (3) of the Companies Ordinance states as follows:

“(1) The court may, at any time after the appointment of a provisional liquidator or the making of a winding-up order, summon before it any officer of the company or person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or any person whom the court deems capable of giving information concerning the promotion, formation, trade, dealings, affairs, or property of the company.

…

(3) The court may require him to produce any books and papers in his custody or power relating to the company …”

21. The leading authority in Hong Kong regarding the proper exercise of the court’s powers under Section 221 of the Companies Ordinance is the judgment of the Court of Final Appeal in Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 766.  The following passages taken from the judgment of Lord Millet NPJ (with whom the other members of the Court of Final Appeal agreed) set out the position clearly:

“25. The section is a vital part of the statutory insolvency regime. It is designed to meet the difficulties faced by liquidators in finding out what has happened to the company’s assets and what has caused the failure of the company. It has often been observed that a liquidator is usually a stranger to the affairs of the company. He relies on orders for examination and production to reconstitute the knowledge of the company, in circumstances where the records are often inadequate, in order to be able to perform his duties in recovering the company’s assets and generally to enable him to carry out his functions effectively and with as little expense and as expediently as possible.

…

27. It has been repeatedly stated, and the legislative purpose demands, that the powers conferred on the court by the section or its overseas equivalents are wide, general and unlimited. The liquidator must satisfy the court that the information or documents sought are reasonably required to enable him to carry out his functions. In considering this question, the authorities establish that great weight should be given to the views of the liquidator, for he is an officer of the court and alone has the necessary knowledge of the problems facing him in understanding the affairs of the company and his reasons for seeking production of documents in the terms proposed; moreover, there are often great difficulties in seeing how the terms of the order can be cut down and remain effective: see In re Rolls Razor Ltd (No.2) [1970] Ch 576 at p.592 per Megarry J; In re Castle New Homes Ltd[1979] 1 WLR 1075at 1092, per Slade J; Cloverbay Ltd (Joint Administrators) v. Bank of Credit and Commerce International SA[1991] Ch 90 per Sir Nicolas Browne-Wilkinson V.-C. at p.104; and British & Commonwealth Holdings Plc v. Spicer and Oppenheim (supra).

28. The jurisdiction conferred on the court by the section is necessarily wide, and being of an inquisitorial nature it is capable of working with great severity against third parties: see Re North Australian Territory Co. (1890) 45 Ch D 87 at p.93 per Bowen LJ. The width and potentially oppressive nature of the jurisdiction, however, is tempered by the fact that it does not follow that the court is bound to make an order merely because it has jurisdiction to do so. It has a discretion to make or refuse the order sought or to modify or limit its terms…

29. In exercising its discretion, the court must endeavour to strike a balance between the liquidator’s reasonable requirements and the need to avoid making an order that is unreasonable, unnecessary or oppressive to the party from whom the documents or information are sought: see for example In re British & Commonwealth Holdings Plc (Nos 1 and 2)[1992] Ch 342 at p.370 perRalph Gibson LJ, and at p.384 per Woolf LJ; British & Commonwealth Holdings Plc v. Spicer and Oppenheim (supra)at p.439; Re BCCI (No.12)[1997] 1 BCLC 526 at p.537 per Robert Walker J. These cases have been consistently followed in Hong Kong: see for example the Chark Fungcase (supra).

30. Over the years the courts have laid down general principles governing the balancing exercise which the court is called upon to undertake. They are conveniently set out in the Cloverbay case (supra) at pp 102-103 per Sir Nicolas Browne-Wilkinson V.-C. and In re British & Commonwealth Holdings Plc (Nos 1 and 2) [1992] Ch 342 at p.372 per Ralph Gibson LJ and at p.392 per Woolf LJ. They can be summarised as follows:

(1) The liquidator must show that the documents are reasonably required to enable him to carry out his functions, not that they are necessary to enable him to do so;

(2) the case for making an order under the section in respect of a former officer is usually stronger than in respect of a stranger who owes no fiduciary duties to the company and who is not under a statutory duty to assist the liquidator;

(3) there is an element of oppression in requiring a party to provide information which exposes him to potential liability;

(4) an order for oral examination is likely to be more oppressive than an order to produce documents;

(5) it is oppressive to require a person suspected of wrongdoing to prove the case against himself on oath prior to proceedings being brought;

(6) an order is not necessarily oppressive because it is inconvenient for the party subject to it or causes him a lot of work or may make him vulnerable to future claims;

(7) in the light of the summary nature of the procedure and the need for expedition, the court cannot be expected to indulge in fine judgments as to the precise width of the order which should be made; and

(8)   the court must take care not to cut down the width of the order sought by the liquidator in a way which would risk making it ineffective.”

22. At paragraph 33 of the judgment, Lord Millet NPJ went on to contrast the powers of the court to order discovery in an ordinary civil litigation with the powers of the court under Section 221 of the Companies Ordinance and stated the following:

“The power of a court or arbitral tribunal to order discovery is very narrow, and narrower than the powers of the court under s.221 in at least two respects. First, discovery is limited to documents which “relate to any matter in question in the action” in circumstances where there are existing proceedings in which the issues have been defined by the pleadings.  Section 221 by contrast is concerned with documents “relating to the company” in circumstances where there is no dispute and there are no existing proceedings or issues defined by pleadings.  Secondly, a party seeking discovery is not entitled to the production of documents which may help him discover whether he has other claims not covered by the pleadings; he must not be engaged on a “fishing” or speculative expedition.  The liquidator, by contrast, is necessarily engaged in just such an expedition and the purpose of s.221 is to enable him to carry it out effectively.” (underlining added)

23. The above passage suggests that the liquidator may make an application under Section 221 of the Companies Ordinance even where the application may be regarded as a “fishing” or speculative expedition.  As earlier mentioned, the Court of Appeal in Re Hau Po Man Stanley (In Bankruptcy) considered that an application may not be made for such purpose under Section 29 of the Bankruptcy Ordinance, although what the Court of Appeal seemed to have in mind, when it referred to “a mere ‘fishing’ expedition”, was an application made irrespective of costs or proportionality. Whatever maybe the true position, there is no dispute that the trustees are required to show that the documents or information sought are reasonably required for them to carry out their functions, and this is the test that I shall apply when considering the present applications.

24. In Re Lai Kwok Ying (A Bankrupt), HCA 8750/2007, Kwan J (as she then was) stated at paragraph 5 of her judgment that the approach of the court in an application under Section 29 of the Bankruptcy Ordinance or Section 221 of the Companies Ordinance is as stated by the Court of Appeal at paragraph 21 of its judgment in Re Hau Po Man Stanley (In Bankruptcy), and at paragraph 6 the learned judge stated that in considering if the information or document is reasonably required to enable the trustees to carry out their functions, great weight would be given to the views of the trustees.

Item (2) of 1^st Schedule and Item (2) of 2^nd Schedule

25. The following documents are sought by the Trustees under Item (2) of the 1^st and 2^nd Schedules:

“Documents evidencing all payments made by [Oasis] on behalf of the Bankrupt in relation to the Bankrupt’s expenses from five years prior to the Bankruptcy of the Bankrupt and from 31 August 2009 to date”.

26. At the hearing, Mr Paul Carolan for the Trustees confirmed that the Trustees would not be seeking documents relating to payments made by Oasis on behalf of Raymond Lee and Priscilla Lee during the period of 5 years prior to their bankruptcy, and would confine the applications to documents relating to payments made since 31 August 2009.

27. It appears from the Trustees’ First Report to the Court dated 20 January 2012 (“the First Report”) that Oasis has entered into a tenancy agreement with the landlord of a flat at 10/F Wing Way Court, 10 Kennedy Road, Hong Kong which has been used as the residence of Raymond Lee and Priscilla Lee, and has been paying the rents for that flat, after their bankruptcy.  It also appears from the 1^st Affidavit of John Lees that Oasis has been meeting other expenses on behalf of Raymond Lee and Priscilla Lee.  The Trustees consider that the provision by Oasis of documents evidencing payments of such other expenses may assist them, for example, in trying to determine the level of income or financial support that Raymond Lee and Priscilla Lee have been receiving during the course of their respective bankruptcy periods, which will in turn allow them to consider whether it would be appropriate to make an application for an income payment order in relation to income earned by them during their respective bankruptcy periods.

28. A number of objections to the Trustees’ request have been raised by Mr William Wong on behalf of Oasis, some of which are said to be general and applicable to other requests by the Trustees as well.

29. First, Mr Wong says that there is no suggestion by the Trustees that Raymond Lee and Priscilla Lee have not been cooperative in the provision of documents or information, and that the Trustees should have asked them for relevant documents and information first before turning to third parties such as Oasis or Gardener.  Whilst I am not saying that Raymond Lee and Priscilla Lee have not been truthful or forthcoming in the provision of documents and information to the Trustees, it seems to me that, generally speaking, a trustee in bankruptcy is entitled to seek information from different sources in order to thoroughly carry out his investigations, and is not confined to obtaining information from the bankrupt himself.

30. Second, Mr Wong says that the amounts of the indebtedness of Oasis to Raymond Lee and Priscilla Lee are not in dispute.  This is a matter which I shall come back later in this judgment. However, even if the amounts of the indebtedness are not in dispute, I do not see that to be an answer to the Trustees’ request for the documents sought under Item (2) of the 1^st and 2^nd Schedules.

31. Third, Mr Wong says that the Trustees have not explained why the documents sought are reasonably required.  I have set out the Trustees’ reason for seeking the documents above, which I have taken from the First Affidavit of John Lees.  I also consider that the Trustees have shown that the documents are reasonably required for them to carry out their functions, bearing in mind the weight which the court would accord to the trustees’ view in this type of application.

Items (6) of 1^st Schedule and Item (9) of 2^nd Schedule

32. The following documents are sought by the Trustees under Item (6) of the 1^st Schedule:

“Documentation relating to past loan(s) made by the Bankrupt to [Oasis] (including but not limited to Promissory Note: OCHK 001) and documents relating to any repayments made by [Oasis] to the Bankrupt in respect of these loan(s) and the status or purpose of these loan(s).”

33. It appears from the First Report that in 2008 and 2009, Priscilla Lee paid or advanced a total sum of about HK$5.5 million to Oasis.  In her statement of affairs dated 18 September 2009, Priscilla Lee stated that the amount owing by Oasis to her was only US$302,524 (equivalent to approximately HK$2.36 million).  This figure is consistent with what appears on a draft balance sheet of Oasis as at 30 September 2009. It would seem, therefore, that Oasis has repaid approximately HK$3.14 million to Priscilla Lee.

34. The Trustees have not, however, seen evidence of the repayment, notwithstanding a letter sent to Priscilla Lee dated 24 January 2011 asking for details of any repayment made by Oasis.

35. Mr Wong’s objection to this request of the Trustees is that the amount of the indebtedness owing by Oasis to Priscilla Lee has been admitted, and there is no dispute on the amount of the indebtedness, and thus the documents sought are not reasonably required by the Trustees.  Whilst it true that the Trustees have once made a statutory demand dated 16 August 2011 on Oasis for the amount of US$302,524 owing by it to Priscilla Lee, it is clear from the First Affidavit of John Lees that the Trustees do not accept that the true amount of the indebtedness is necessarily that which has been stated by Priscilla Lee.  Also, the Trustees wish to consider documentation relating not just to the loans totalling HK$5.5 million but also any other loans or advances which might have been made by Raymond Lee or Priscilla Lee to Oasis but which the Trustees are not presently aware of, and documentation relating to any repayments which might have been made by Oasis.  In my view, the Trustees’ request is a reasonable one which would assist them in carrying out their investigations and functions, and the documents sought are reasonably required by the Trustees for such purposes.

36. The following documents are sought by the Trustees under Item (9) of the 2^nd Schedule:

“Documentation relating to all loan(s) past and present made by the Bankrupt to [Oasis] (including but not limited to loans in the sum of HK$986,058.63 and US$79,500) and documents relating to any repayments made by [Oasis] to the Bankrupt in respect of these loan(s) and the status or purpose of these loan(s) (including but not limited to documents relating to any demands made by the Bankrupt to [Oasis] for repayment of loan(s) made by the Bankrupt to [Oasis])”.

37. The evidence regarding the current state of Oasis’ indebtedness to Raymond Lee is not straight forward.  In summary, Raymond Lee stated in an affidavit dated 29 January 2010 in connection with certain bankruptcy proceedings in the US that Oasis owed him a debt in the amount of US$79,500.  However, in the draft balance sheet of Oasis as at 30 September 2009, the amount of the indebtedness owing by Oasis to Raymond Lee and Priscilla Lee is stated to be HK$986,058.63.

38. In Liu, Choi & Chan’s letter dated 15 September 2011, it was said on behalf of Oasis that there was no record of any sum in the amount of US$79,500 due by the company to Raymond Lee. As regards the amount of HK$986,058.63, Liu, Choi & Chan said that although it was recorded as an amount due to Raymond Lee, it was not repayable or refundable because it was a payment made by Raymond Lee in the nature of “quasi-loan” or “loan capital” to Oasis and hence not refundable.  Liu, Choi & Chan also expressed the belief that the sum of US$79,500 was part of the sum of HK$986,058.63 and therefore there had been double‑counting of the amount due.

39. The above explanations offered by Liu, Choi & Chan are not accepted by the Trustees.  It seems clear that there is a dispute both as to the actual amount advanced by Raymond Lee to Oasis and as to whether any amount is repayable by Oasis to Raymond Lee.  In these circumstances, it is clear that the documents sought are reasonably required by the Trustees to carry out their functions.

Item (7) of 1^st Schedule and Item (10) of 2^nd Schedule

40. The following documents are sought by the Trustees under Item (7) of the 1^st Schedule and Item (10) of the 2^nd Schedule:

“The management accounts as of December 2011 and/or the latest audited accounts of [Oasis] for the year ended 2011 including documents evidencing the sources of income of [Oasis].”

41. As earlier mentioned, the Trustees are investigating into the actual amounts owing by Oasis to Raymond Lee and Priscilla Lee, as well as loans or advances which might have been made by Raymond Lee or Priscilla Lee to Oasis but which the Trustees are not presently aware of.

42. Oasis is on any view of the matter indebted to Priscilla Lee and it is possible that Oasis is also indebted to Raymond Lee, but it has been said by Liu, Choi & Chan that Oasis is insolvent.  Thus, the documents sought by the Trustees would enable them to determine the recoverability of the debts owing by Oasis to Priscilla Lee and/or Raymond Lee.  An application under Section 29 of the Bankruptcy Ordinance can properly be made to seek information for determining whether it is worth pursuing those debts against Oasis: see McPherson’s Law of Company Liquidation, 2^nd Ed, p.945; Gerah Imports Pty Ltd v The Duke Group Ltd (in liquidation) (1994) 12 ACSR 513.

Items (1), (2) and (4) of 3^rd Schedule

43. Under Item (1) of the 3^rd Schedule, the Trustees seek the production by Benjamin Choi of a non-redacted and complete copy of the GSA.  It is not in dispute that Raymond Lee is a party to the GSA.  However, Benjamin Choi has said in an affidavit that Raymond Lee is not entitled to be paid anything under the GSA but was joined a party thereto in order to give comfort to Samuel Tak Lee’s side. It is also common ground that Raymond Lee has received 5 payments totalling more than HK$34 million from moneys derived from the GSA, but it is said by Benjamin Choi that such payments were made under a scheme set up by members of the extended Lee Family on the side of T Y Lee (Raymond Lee’s father) who have contributed to the litigation and negotiation process.

44. Since Raymond Lee is a party to the GSA, he is prima facie entitled to receive a copy of the GSA (although Raymond Lee has stated that he does not have a copy of it).  The Trustees have effectively stepped into the shoes of Raymond Lee by virtue of their appointment in relation to Raymond Lee’s estate in bankruptcy and thus there can be no question of any breach of confidentiality arising from the production of the GSA to the Trustees.  In my view, the Trustees are not bound to accept the explanations provided by Benjamin Choi and are entitled to ascertain for themselves the rights (if any) of Raymond Lee under the GSA by examining the provisions of the GSA.

45. Further, it appears from the explanations given by Benjamin Choi in respect of the GSA that one of the terms thereof was that Samuel Tak Lee would buy all the shares in Prudential Enterprise Limited.  Some of shares in Prudential Enterprise Limited to be purchased by Samuel Tak Lee (namely, 18 shares) were originally bequeathed to Raymond Lee under the will of his late grandmother, but they were later disclaimed by Raymond Lee pursuant to a deed of disclaimer and release dated 4 March 2005.  Although the legal title to the 18 shares was vested in the executors of the will of Raymond Lee’s late grandmother and not in Raymond Lee, he was joined as a party to the GSA in view of his interest in those shares under the will of his late grandmother and also in order that he would be bound by the provisions and covenants relating to the sale and purchase of the shares.  The Trustees consider that, in the circumstances, Raymond Lee might have divested himself of a valuable asset in favour of a third party or third parties, and require a copy of the GSA to review the circumstances in which the transfer and disclaimer took place.  It also seems to me that the GSA would be potentially relevant for the purpose of determining the value of the 18 shares in Prudential Enterprise Limited disclaimed by Raymond Lee.

46. Item (2) of the 3^rd Schedule, as amended by Mr Carolan orally at the hearing, relates to:

“Documentation evidencing the total of all payments to Raymond Lee from the settlement”.

47. The “settlement” here is a reference to the GSA.  The payments in question have been identified in the Trustees’ letter dated 11 October 2010 to Liu, Choi & Chan, being the 5 payments mentioned above.  It is apparent, however, from Liu, Choi & Chan’s letter dated 28 October 2010 in reply that the Trustees either had already obtained or were given the relevant cheques in respect of the 5 payments.  At the hearing, Mr Carolan said that the Trustees also sought documents relating to the “source” of those 5 payments.  However, this request is outside the scope of Item (2) of the 3^rd Schedule as amended, and in any event it must be apparent that the payments were sourced from moneys paid under the GSA.  On the materials before me, I am not satisfied that documents evidencing the “source” of the 5 payments are reasonably required by the Trustees to carry out their functions.

48. Under Item (4) of the 3^rd Schedule, the Trustees seek the production by Benjamin Choi of a non-redacted and complete copy of the Grant of Probate relating to the Estate of Raymond Lee’s late grandmother, Madam Lee Ng Chan Wa (“the Deceased”).  From the redacted version of the will of the Deceased, it is clear that Raymond Lee is a specific legatee under the will, and also a beneficiary of a discretionary trust of the residuary estate of the Deceased.  Apparently, Raymond Lee has already received various payments from the Estate of the Deceased.  Again, it seems to me that the Trustees are entitled to consider the full and complete version of the will to determine what rights or benefits Raymond Lee is entitled to in the Estate of the Deceased.

49. In all, I consider that the Trustees have established that they reasonably require the documents referred to in Items (1) and (4), but not Item (2), of the 3^rd Schedule to carry out their functions.

50. In respect of the above documents or classes of documents, it has not been suggested that they do not exist or that Oasis or Benjamin Choi are unable to produce them.  Also, I do not consider their production to be unreasonable, unnecessary or oppressive to Oasis or Benjamin Choi. I would therefore exercise my discretion to order production of the items in dispute, save in respect of Item (2) of the 3^rd Schedule.

Examination of Gardener under Section 29 of Bankruptcy Ordinance

51. The Trustees wish to examine Gardener on matters previously put to him in the form of a list of questions sent to him under cover of Deacons’ letter dated 22 July 2011 and possibly on other matters arising from the documents obtained through the present applications.  Gardener declined to meet the Trustees or answer the questions on the basis that the questions put to him related to matters which might have come to him in his capacity as an employee of Oasis and were confidential.

52. Mr Wong submits that it is well established that an order for examination is more oppressive than an order for the production of documents, particularly where the person to be examined is a third party and where the Trustees can obtain the same information from the bankrupts themselves.  However, Gardener was formerly the general manager of Oasis and has been dealing with the Trustees on behalf Raymond Lee and Priscilla Lee.  It is apparent that he is able to provide answers to the questions which the Trustees wish to put to him, but is unwilling to do so.  I do not consider that the Trustees are confined to seeking answers from the bankrupts only. 

53. Mr Wong also submits that the questions which the Trustees wish to put to Gardener relate to the affairs of Oasis and are thus not relevant.  However, Oasis is indisputably a debtor of Priscilla Lee and possibly of Raymond Lee, and there are disputes as to the amounts of the indebtedness.  Having looked at the list of questions proposed to be put to Gardener, I consider that they are relevant to the Trustees’ exercise of their functions.

54. Next, Mr Wong says that Raymond Lee and Priscilla Lee are neither directors nor beneficial shareholders of Oasis and they themselves are not entitled to seek information from Oasis.  I do not see how this is relevant to the question of whether the Trustees ought to be entitled to examine Gardener to elicit information for the purpose of carrying out their functions.

55. Lastly, Mr Wong submits that the Trustees are seemingly trying to ascertain the financial position of Oasis through examining Gardener “so as to gain an upper hand in their negotiations with [Oasis]”.  However, as mentioned above, an application under Section 29 of the Bankruptcy Ordinance can properly be made by the Trustees for the purpose of determining whether it is worth pursuing against Oasis for the debts which it owes to Raymond Lee and/or Priscilla Lee.

56. In all, I would exercise my discretion to order that Gardener be examined under Section 29 of the Bankruptcy Ordinance.

Disposition

57. In respect of the 1^st Summons, I make an order that Oasis shall produce the documents referred to in items (1), (2), (5), (6) and (7) of the 1^st Schedule as sought (subject to Mr Carolan’s clarification mentioned in paragraph 26 above), and in terms of paragraphs (3) and (4) thereof.

58. In respect of the 2^nd Summons, I make an order that Oasis shall produce the documents referred to in items (1), (2), (3), (7), (8), (9) and (10) of the 2^nd Schedule as sought (subject to Mr Carolan’s clarification mentioned in paragraph 26 above), and in terms of paragraphs (3) and (4) thereof.

59. In respect of the 3^rd Summons, I make an order that Benjamin Choi shall produce the documents referred to in items (1) and (4) of the 3^rd Schedule as sought.

60. I also make a costs order nisi that the Trustees shall have the costs of these applications, including all costs reserved, to be taxed if not agreed and paid forthwith.

Mr Paul Carolan, instructed by Deacons, for the Trustees in both cases

Mr William Wong, instructed by Liu, Choi & Chan, for the respondents in both cases

HCB 7452 /2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCYPROCEEDINGS NO. 7452 OF 2009

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HCB 7453 /2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCYPROCEEDINGS NO. 7453 OF 2009

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REASONS  FOR  JUDGMENT

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Introduction

1.  Two bankruptcy petitions are involved.  The debtors therein are husband and wife.  The background facts leading to the petitions are identical.  It was undisputed the principal debt owed by the debtors to the petitioner amounted to US$10 million.  The amount of interest payable thereon was, however, disputed.  The petitioner claimed that it totalled about US$4.3 million whereas the debtors alleged it was only around US$2.1 million.  The amount of legal costs payable was also in issue.

2.  Although technically the petitions were independent, because of the common factual background, and the same issues being raised by the debtors, both petitions will be dealt with in this reasons for judgment.

3.  Usual bankruptcy orders together with costs were made in respect of both petitions at the end of the hearing.  The reasons for the orders appear below.

Amounts Outstanding

4.  The principal loan relied upon in the petitions was US$10 million.

5.  In the debtors’ affidavits, the debtors contended in effect that the rate of default interest should be 20% per annum (instead of 40% which must have been the interest rate used in the petitions).  The debtors also disputed the quantum of the legal costs claimed by the petitioner (US$45,151).

6.  For the purpose of the hearing on 31 August, the petitioner was prepared to proceed on the basis of the lower rate of default interest and that the amount of legal costs be completely disregarded.

7.  Further, the petitions also referred to security being held by the petitioner.  The petitions estimated its value to be US$10,000.  The debt relied on to support the petitions did not include the value of the security held.

S. 6D(3), Bankruptcy Ordinance (Cap. 6)

8.  The debtors’ main ground of opposition is based on s. 6D(3), Cap. 6 which reads:-

“The court may dismiss the petition if it … is satisfied-

(a)  that the debtor has made an offer to … compound for a debt in respect of which the petition is presented;

(b)  that the acceptance of that offer would have required the dismissal of the petition; and

(c)  that the offer has been unreasonably refused, and, in determining for the purposes of this subsection whether the debtor is able to pay all his debts, the court shall take into account his contingent and prospective liabilities” (emphasis supplied).

9.  The relevant legal principles are undisputed.

10.  In Cheung Wah v. The China State Bank Ltd., HCB 659/1999 (20 August 2009), a case where a bankruptcy order was rescinded, Ribeiro J. (as he then was) made the following observations:-

“The reason why the offer of settlement was refused is, as I have said, the Bank's insistence on payment of HK$100,000 by way of legal costs. The key question therefore becomes whether such insistence made the refusal unreasonable.

In this context, Mr Nasir has helpfully cited the decision of Timothy Lloyd QC sitting as a Deputy Judge of the English High Court in Re A Debtor (No 32 of 1993) [1995] 1 All ER 628. That was a case involving section 271(1)(3) of the Insolvency Act 1986 which is in all material respects the same as the relevant provisions of our section 6D. The learned Deputy Judge there held (i) that the reasonableness or otherwise of the refusal was to be judged at the date of the hearing and (ii) that the test was :-

‘ ....... whether a reasonable creditor, in the position of this petitioning creditor, and in the light of the actual history as disclosed to the court, would have accepted or refused the offer.’

He added:-

‘However, I think it has to be borne in mind that there could be a range of reasonable positions on the part of the hypothetical reasonable creditors. In order to conclude that the refusal was unreasonable, it seems to me that the court has to be satisfied that no reasonable hypothetical creditor would have refused the offer, and that the refusal of the offer was therefore beyond the range of possible reasonable actions in the context.’

That is p. 69 of the Report.” (emphasis supplied) (para. 23 and 24 thereof).

(Cheung Wah was referred to by the debtors)

11.  In re Lam Kwok Hing Wilfred, HCB 3560/2003 (21 November 2003), I said this in relation to s. 6D(3):-

“the following legal principles are undisputed:-

(a)  in determining whether a petitioner's refusal of the debtor's offer is unreasonable, the court has to be satisfied that no reasonable hypothetical creditor in the petitioner's position, and in the light of the actual history, would have refused the offer: Re a debtor (No. 32 of 1993) [1995] 1 ALL ER 628, 639d-f and 640a-b;

15.  The analysis of the debtors’ financial adviser concluded that, in the event of a contractual compromise, the estimated potential return to the creditors would be about 9.5% of their claims.  This compared a lot more favourably with a return which ranged between 0.5% to 2.4% before costs in the event of a bankruptcy.

16.  In more concrete terms, the contractual compromise proposed by the debtors was:-

(a)  an upfront payment of US$1 million (1.17% return);

(b)  a total payment of US$4.5 million by 6 half-yearly payments of US$750,000 each (or 7.8% return).

According to the debtors’ financial adviser:-

“[the source] of funds [is] principally from future net cash inflow to be generated from the US properties, with an average of under US$1 million in every 6 month[s]”.

The above income was qualified by the financial adviser:-

“However, this income source could be significantly reduced or wiped out entirely if the US property market collapsed”.

17.  A few words need to be spent on the US properties.  Again, according to the financial adviser:-

(1)  the US properties appeared to be held by US companies at least some of which the debtors have controlling equity interests;

(2)  these companies have been engaged mainly in property investments and leasing businesses in the US;

(3)  their key assets and liabilities were real properties which were securities for various mortgage loans;

(4)  any transfer of the equity interests by, or bankruptcy proceedings against, the debtors would constitute an event of default, which might lead to the foreclosure of the mortgaged properties;

(5)  in the event of a bankruptcy or “fire sale”, the US assets would not be sufficient to pay off the US liabilities.

The value of the US properties has not been clearly stated in the financial adviser’s report.  But the amount of personal guarantees for the US mortgage loans was put at US$219 million.

18.  According to the debtors’ affidavits, after the meeting with the creditors, the creditors sought further background financial information.  The debtors supplied over 3 box files of information for their review.  However, the petitioner (and the other creditors) subsequently rejected the settlement proposal.

19.  The debtors contended that the petitioner’s refusal was unreasonable and therefore s. 6D(3) was triggered.

20.  The petitioner disagreed with the debtors’ above contentions.

21.  First, the petitioner argued that the debtors’ proposal was so uncertain it did not amount to an “offer” within the meaning of s. 6D(3).  The uncertainties are related to:-

(a)  the source of funds.  In this connection, the petitioner relied on the qualification in the financial adviser’s report: “… this income source [net cash inflow to be generated from the US properties] could be significantly reduced or wiped out entirely if the US property market collapsed”.  The recent volatility of that market is well-known;

(b)  the creditors’ entitlement.  The proposal only laid down their maximum entitlement with no protection against market adversity at all.  Their entitlement in the event of a market rebound was not covered and required further discussion;

(c)  (as stated in para. 1 and 4 to 5 above) the disagreement regarding the amount of debt.  Further, the parties also differed as regards the value of the security held by the petitioner.

The financial adviser also recognised the uncertainties.  They qualified their proposal by statements such as “to outline the [debtors’] financial position”, “to explore the possibility of reaching a compromise”, “to discuss in broad terms”, “to agree the way forward” and “any discussion of settlement terms will be subject to contract”.

22.  Second, and related to the first point above, if the proposal should somehow be regarded as an “offer” as defined by s. 6D(3), the “acceptance” of such an offer would only result in an adjournment of the petition hearing.  The petition could not properly be dismissed when the matter is still pending further negotiation.  The need for negotiation was acknowledged by the debtors during the hearing.

23.  Third, because of the lack of full and frank disclosure by the debtors, and evidence of the debtors’ continuing luxurious lifestyle, the petitioner was entitled to doubt if they had used their best endeavours to provide the best debt recovery to the creditors: para. 12 to 16 and 18, Ma’s 2^nd affidavit.

Further Evidence

24.  In relation to the question of full and frank disclosure, the debtors sought an adjournment of the hearing and leave to adduce further affidavit evidence.  I did not consider an adjournment should be granted; nor did I consider it appropriate to grant time for further evidence to be filed.

25.  Ma’s 2^nd affidavit was filed about 10 days before the petition hearing.  There should be sufficient time to file any evidence in response before the hearing.

26.  Further, the qualifying remarks of the financial adviser concerned future events (such as market movements or terms of negotiation) (see para. 16 to 17 and 21 above for details).  Additional evidence is unlikely to throw further light on such matters.

27.  The petitioner’s rejection of the proposal fell within the “range of reasonable positions” which a reasonable hypothetical creditor could have adopted.  So was their conclusion regarding the debtors’ lack of full and frank disclosure.  There is no evidence of improper motive such as oppression or other ulterior purpose on the petitioner’s part: Re a Debtor (No 32 of 1993) [1995] 1 All ER 628, 640e-f.

28.  Finally, it should be abundantly clear from the petitioner’s skeleton argument the petitioner wanted to seek a bankruptcy order forthwith.  Yet the debtors still “played the cards close to their chests” and did not respond (whether by way of affidavit or written submission) to that important aspect.

Conclusion

29.  I agreed with the petitioner and disagreed with the debtors.  It was inappropriate to exercise the power conferred by s. 6D(3).  On the contrary, I considered it appropriate to grant the orders referred to in para. 3 above.