HK court adjourns HK$90m margin-debt bankruptcy over broker sale-duty row

The Court of First Instance has adjourned a broker's bankruptcy petition claiming about HK$90.2 millionJudiciary over two margin accountsJudiciary, holding that the debtor raised a bona fide dispute on substantial groundsJudiciary that the broker dealt with the charged shares in breach of its duty as chargeeJudiciary and in bad faith.

The petition by Kingston Securities Limited against Sie Winston (HCB 2212/2026)Judiciary rested on a statutory demand served on 9 February 2026Judiciary. It comprised HK$38,738,817.01 plus interest said to be owed personally on a margin account in the debtor's own nameJudiciary, and HK$51,465,186.35 plus interest guaranteed by the debtor for a margin account in the name of his company Sino Advisor International LimitedJudiciary. Deputy High Court Judge Gary CC Lam heard the petition on 27 October 2026Judiciary and gave judgment on 10 November 2026Judiciary.

The debtor's narrowed case was that the broker sold or held the collateral in breach of its chargee duty and in bad faithJudiciary. The accounts had been under heavy margin calls since May 2016Judiciary, when the broker cut the margin ratio for China Baoli Technologies Holdings Limited (stock code 164) shares to 0%Judiciary, yet the accounts were not suspended until 29 August 2022Judiciary and the China Baoli shares were only sold in March 2023 for under HK$300,000Judiciary. The debtor pointed to selective sales, including only 80,000 of 10 million shares in stock 8125 in July 2018 for HK$20,000Judiciary while other shares were sold to raise about HK$4.8 millionJudiciary, and long stretches with no enforcement despite shortfalls exceeding HK$20 millionJudiciary.

The court restated the chargee's duties: on choosing to sell, a chargee must act in good faith and take reasonable precautions to obtain the best price reasonably obtainable, never selling hastily at a knock-down priceJudiciary. Clauses giving the broker "absolute discretion" over disposal do not exclude that dutyJudiciary and must be exercised in good faith, rationally and consistently with the contractual purposeJudiciary. The duty is owed to the borrower and to the suretyJudiciary, whose guarantee may be discharged where the creditor acts in bad faithJudiciary; in context, inaction can amount to bad faith rather than mere passivity.

Against that standard, the broker's explanation — the accounts remained solvent, deposits were placed from November 2018 and HK$500,000 monthly payments were offered from June 2019 — could not be accepted summarilyJudiciary. Six years of tolerated margin calls pointed prima facie to breach of the Securities and Futures Commission's Guidelines for Securities Margin Financing ActivitiesJudiciary, including the duties to stop waiving margin calls for poor payers and to stop further advances where calls are outstandingJudiciary. Combined with the unexplained pattern of selling the 8125 and China Baoli shares last or in small amountsJudiciary, and the potential conflict that the broker was the placing agent for the 8125 initial public offeringJudiciary while the introducer connected with the broker held 26.51% of China BaoliJudiciary, the evidence needed trial rather than summary determinationJudiciary.

Rather than dismissing the petition, the court adjourned itJudiciary pending the debtor's related action HCA 755/2026 against the broker and othersJudiciary, preserving the petition presentation date for creditorsJudiciary, with costs reserved and separate directions to expedite that action.

Legal basis: chargee's duty of sale in Gentle Soar Limited v CMBC Capital Finance Limited [2021] HKCFI 3450 at section 38 and China and South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536; contractual discretion controlled per Braganza v BP Shipping Ltd [2015] 1 WLR 1661; Securities and Futures Commission Guidelines for Securities Margin Financing Activities section 6, especially clauses 6.5 and 6.6.