In re Kwok

640 B.R. 514

IN RE: Ho Wan KWOK, Debtor.

CASE No. 22-50073 (JAM)

United States Bankruptcy Court, D. Connecticut.

Signed June 15, 2022

APPEARANCES ¹ Jeffrey L. Jonas, Brown Rudnick LLP, Seven Times Square, New York, NY 10036, Attorney for the Debtor.

Peter Friedman, O'Melveny & Myers LLP, 1625 Eye Street NW, Washington, DC 20006, Attorney for Pacific Alliance Asia Opportunity Fund, L.P.

Carollynn Callari, Callari Partners, LLC, One Rockefeller Plaza, 10th Floor, New York, New York 10020, Attorney for Creditors Rui Ma, Weican Meng, and Zheng Wu.

Holley L. Claiborn, Office of the United States Trustee, 150 Court Street, Room 302, New Haven, CT 06510, Attorney for the United States Trustee.

Irve J. Goldman, Pullman & Comley, 850 Main Street, 8th Floor, Bridgeport, CT 06604, Attorney for the Official Committee of Unsecured Creditors.

RE: ECF No. 183

MEMORANDUM OF DECISION AND ORDER DENYING MOTION TO DISMISS WITHOUT PREJUDICE AND GRANTING JOINDER TO MOTION FOR APPOINTMENT OF CHAPTER 11 TRUSTEE

Julie A. Manning, Chief United States Bankruptcy Judge

I. Introduction

On February 15, 2022, Ho Wan Kwok (the "Debtor"), filed a voluntary Chapter 11 petition commencing this case. Although the Debtor's case has been pending for only four months, numerous motions and applications have been filed by the Debtor, the Office of the United States Trustee, creditors, and entities or individuals related to the Debtor. Several extensive hearings have been held, including the most recent evidentiary hearing on a motion to dismiss the Debtor's case or appoint a Chapter 11 trustee.

The issues raised by the parties in the voluminous pleadings, and the information and evidence presented during hearings held in this case, confirm that the Debtor's case is unusual, complicated, and often contentious. Based on the specific facts and circumstances of this case, including the review of the record, the evidence presented by the parties, and the complex factual and legal issues that have been brought before the Court, pursuant to 11 U.S.C. § 1112(b), the Court finds that it is in the best interests of creditors and the estate not to dismiss or convert the Debtor's case at this time and to instead appoint a Chapter 11 trustee.²

II. Jurisdiction

This Court has jurisdiction over this motion pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). This Court has the authority to hear this matter pursuant to the General Order of Reference entered on September 21, 1984 by the United States District Court for the District of Connecticut.

III. History of Proceedings

It is essential to examine the events that have occurred in the Debtor's case to determine whether dismissal, conversion, or the appointment of a Chapter 11 trustee is in the best interests of creditors and the estate. At the core of the Debtor's case is a luxury yacht known as the "Lady May," allegedly purchased for €41,000,000.00, and other assets that may belong to the Debtor including an apartment in the Sherry-Netherlands Hotel in Manhattan allegedly purchased for approximately $70,000,000.00 in 2015. When viewed as a whole, the circumstances surrounding the Debtor's case demonstrate why the appointment of a Chapter 11 trustee, as opposed to dismissal or conversion of the Debtor's case, is in the best interests of creditors and the estate.

The Debtor's Motion to Extend Time to File Schedules and Statements

As noted above, the Debtor commenced this case on February 15, 2022, by filing a voluntary Chapter 11 petition. The Debtor filed the list of the twenty largest unsecured creditors with the petition and identified Pacific Alliance Asia Opportunity Fund L.P. ("PAX") as the Debtor's largest creditor with a debt of approximately $254,000,000.00. ECF No. 4 at p. 1.

The Debtor did not file the Schedules or the Statement of Financial Affairs with his petition, but did timely file a Motion to Extend Deadline to File Schedules or Provide Required Information to May 2, 2022 (the "Motion to Extend Time to File Schedules and Statements," ECF No. 27). In support of the requested extension of time, the Debtor states that his ‘background is admittedly extraordinary" and additional time would allow him to retain professionals necessary to assist with the preparation and filing of the Schedules and Statements and to secure the financing to administer his Chapter 11 case. ECF No. 27 at p. 2.

On February 28, 2022, the Office of the United States Trustee (the "UST") and PAX filed strenuous objections to the Motion to Extend Time to File Schedules and Statements. In the objections, both the UST and PAX assert the Debtor's case was filed in direct response to a $134,000,000.00 contempt order entered against the Debtor arising out of his involvement in secreting the Lady May out of New York to protect it from being seized. PAX's objection also asserts that the Debtor has flouted the New York state court orders and abused the judicial process in an attempt to evade enforcement of the $116,000,000.00 judgment PAX won against him. PAX notes that the New York state court found "Kwok, who is a self-declared multi-billionaire, had secreted his assets in a maze of corporate entities and with family members," and as a result of his elaborate schemes to avoid his creditors, the New York Supreme Court docket contains over 1,180 entries, "almost all of which involve ... [Kwok's] efforts to avoid and deceive his creditors by parking his substantial personal assets with a series of corporations, trusted confidants, and family members." PAX Objection, ECF No. 50 at p. 2. Furthermore, PAX asserts that there are at least three materially false and/or misleading statements in the Debtor's petition, including his sworn (mis)representation that he has less than $100,000.00 in assets which is completely incompatible with the New York state court's finding just days before that Kwok "holds a beneficial interest in and controls the Lady May." Id .

PAX's Automatic Stay Motion

On March 1, 2022, just two weeks after the Debtor's case was filed, PAX filed a Motion for Entry of Order Confirming Inapplicability of the Automatic Stay or, in the alternative, Relief from the Automatic Stay (the "Automatic Stay Motion," ECF No. 57). The Automatic Stay Motion sets forth extensive, detailed, and serious allegations against the Debtor. PAX argues that the automatic stay did not apply in this case due to the imposition of sanctions entered against the Debtor in the pre-petition New York state court action. PAX states that the court's sanctions held the Debtor in civil contempt for failure to return the Lady May to New York in violation of its orders. The Debtor filed an Objection to the Automatic Stay Motion, in which the Debtor does not dispute the imposition of the sanctions, but instead argues that he does not own or control the Lady May. Debtor's Objection to Automatic Stay Motion, ECF No. 83 at p. 7.

The Debtor's Schedules and Statement of Financial Affairs

On March 9, 2022, the Debtor filed his Statement of Financial Affairs, ECF No. 77, and Schedules, ECF No. 78. The Debtor asserts in the Schedules and Statement of Financial Affairs that he owns assets valued at $3,850.00 and lists liabilities in the amount of $373,803,498.09. In global notes that limit and disclaim the Debtor's declarations made under penalty of perjury in the Statement of Financial Affairs, the Debtor further asserts he: (i) has the use and occupancy of, but not title to, real property in Greenwich, Connecticut owned by a limited liability company wholly owned by his wife; (ii) wholly owns the membership interests in another limited liability company that holds all of the cooperative shares in an apartment in the Sherry-Netherlands Hotel in Manhattan in trust for a separate limited liability company owned by his son, Qiang Guo; and (iii) had access to the use of the Lady May owned by HK International Funds Investments (USA) Limited ("HK"), a limited liability company owned by his daughter, Mei Guo. ECF No. 77 at p. 4-5.

The UST Motion for Examiner or Chapter 11 Trustee

On March 18, 2022, less than two weeks after the Debtor filed his Schedules and Statement of Financial Affairs, the UST filed a Motion for Order Directing the Appointment of an Examiner, or in the alternative, Motion for Order Directing the Appointment of a Chapter 11 Trustee (the "UST Motion for Examiner or Chapter 11 Trustee," ECF No. 102). The UST argues that it is in the best interests of creditors and the estate to appoint an examiner or a trustee because the Debtor, a public figure and a self-proclaimed billionaire living in exile from his native China, claims that he has no regular income and virtually no assets yet seemingly has access to significant funds, including the ability to procure a $1,000,000.00 retainer for his counsel in this case. The UST notes its concerns about the "odd combination of what appears to be artificial self-created ‘poverty’ by the Debtor to insulate himself from creditors" and the Debtor's filing of this case to "obtain protection from creditors owed millions." ECF No. 102 at p. 2. Furthermore, the UST states that its concerns are validated by: (i) "the Debtor's marginalization of his schedules and statement of financial affairs to the point of being meaningless;" (ii) the Debtor "brazenly disclaims any responsibility or liability for any of the information in the bankruptcy documents pursuant to self-serving, anti-fiduciary language in the ‘Global Notes;’ " and (iii) "the Debtor's inability and/or unwillingness to recognize and accept his obligations to provide full, complete and accurate information, to fulfill fiduciary obligations to his estate and his creditors, and to meet his obligations as a debtor in possession." Id .

The Notice of Appointment of the Committee of Unsecured Creditors

On March 21, 2022, three days after the UST filed the Motion for Examiner or Chapter 11 Trustee, the UST filed a Notice of Appointment of Creditor...