Getting sued - asset protection strategies?

cramb0 · 20-10-2015, 09:48 PM

Hi Guys

Would appreciate some help!

I signed a lease in Feb 2015 on a commercial space in HK under my LLC.

What transpired was a complete mess with illegal structures, dodgy contractors, cost and time blowouts.

The icing on the cake was finding out my girlfriend was pregnant (due next month) and wanted to have baby in Oz hence we had to leave HK.

I spent over 250K HKD in removing the landlords illegal structures hence making it F&B license ready as well as paying 30K per month dead rent since Feb.

Hence about 2 months ago started to try and negotiate with landlord about breaking my lease. She is not giving an inch and immediately instructed her lawyer to issue notice to me to pay up the remaining of the contract - around 550K HKD.

I stalled the past 2 months and have paid the rent and been trying to get a new tenant. I have had many people close but yet to get someone to sign. I am still trying to get someone else in the property.

This month I had to relent and tell her I simply cannot afford to pay anymore rent and that she should deduct the remaining rent from my 90K HKD bond.

I know she is going to flip out and instruct her lawyers to issue me more demands - most likely tomorrow.

So here are my questions...

1. Am I legally obliged to pay her the remainder of the rental contract up front as asked for by her lawyers?
2. What options do I have with regards to asset protection? ie can I create a new hold co and transfer by inventory there or to another client to get the my inventory off the company books.
3. Am I or the other directors personally liable for anything?
4. Presuming I don't pay and she tries to take this to court - what is the timeline on this ? surely this can't be optimal for her?

BTW I am now overseas but my company in HK is still running as per normal. I have a rental property in HK that my friend is housesitting. I have HK bank accounts still but no cash in there. All my personal liquid assets are in positions of stocks and shares in London based brokerage accounts.

Any help is much appreciated as this has been stressing me out for months now.

Best Regards

big_panda · 21-10-2015, 12:13 AM

If you signed up the lease using a limited liability company then the debt is owed by the company to the landlord. The landlord would need to apply for summary judgement and then if you are unable to pay, apply to liquidate the company. Any assets would be realised to pay the debt owed. In this situation you might just let the landlord take this course of action knowing the company has no assets.

However, if you provided a personal guarantee of the company's obligations under the lease, then you will have personal liability and the landlord could seek to enforce the judgement against you if you were a primary obligor. You say you have a flat in your name in Hong Kong - the landlord could obtain a charging order and seek a sale to cover the amounts owed. If thats the case - you could consider selling your flat asap and repatriate your funds overseas. This doesn't stop the landlord from seeking a bankruptcy order against you and may have implications for you back in Australia if this surfaces while obtaining a loan or mortgage ect, and will ruin your credit in HK.

dumbdonkey · 21-10-2015, 03:16 AM

just have the baby in the hong kong.

emx · 21-10-2015, 06:17 AM

Originally Posted by cramb0:

dodgy contractors, cost and time blowouts.

You get what you paid for.

https://geoexpat.com/forum/341/threa...ml#post3184549

The icing on the cake was finding out my girlfriend was pregnant (due next month) and wanted to have baby in Oz hence we had to leave HK.

She can come back to to HK once the baby is born.

I spent over 250K HKD in removing the landlords illegal structures hence making it F&B license ready as well as paying 30K per month dead rent since Feb.

Hence about 2 months ago started to try and negotiate with landlord about breaking my lease. She is not giving an inch and immediately instructed her lawyer to issue notice to me to pay up the remaining of the contract - around 550K HKD.

I stalled the past 2 months and have paid the rent and been trying to get a new tenant. I have had many people close but yet to get someone to sign. I am still trying to get someone else in the property.

Must be a very small cafe space for 30K per month. Surely you can get a cafe tenant in for the remaining 18 months. Lower the price on offer and take the loss.

1. Am I legally obliged to pay her the remainder of the rental contract up front as asked for by her lawyers?

Yes.

2. What options do I have with regards to asset protection? ie can I create a new hold co and transfer by inventory there or to another client to get the my inventory off the company books.

is it a HK LLC or Cayman LLC?

https://geoexpat.com/forum/145/thread194161-2.html

BTW I am now overseas but my company in HK is still running as per normal. I have a rental property in HK that my friend is housesitting. I have HK bank accounts still but no cash in there. All my personal liquid assets are in positions of stocks and shares in London based brokerage accounts.

So boot out the house sitter and get a proper tenant in your rental property.

Morrison · 21-10-2015, 06:57 AM

Dont take it personal, people here use property as a tool to make money for retirement.
Social Welfare not so good here, thus her attitude

cramb0 · 21-10-2015, 08:28 AM

Thanks for your replies - especially EMK for your condescending tone!

Couple of things which might have come across ambiguous ...

We are not having baby in HK as don't have private heath and GF wants to be around her family.

I have vacated the premises - when I say my business is running as normal that means the "business entity" that is on the lease. It is a separate business and not impacting / involved with the actual premises. I know now this is a rookie error to have a lease in your holding company name.

The premises is small yes and 30K doesn't sound a lot but it is when its coming out of your pocket.

I don't own my property/flat - I am just sub letting it out whilst I am away for remainder of the lease (6 months). I was just trying to illustrate my current commitments in HK.

I am pretty confident someone will take the place over the next few months. I just want the landlord to to use my bond to cover this period as it seems like I am throwing good money after bad by continuing to pay the rent. I am pretty sure even if I found a new tenant that she would keep my bond regardless so hence would be good if they agreed to that.

With regards to legal advice it I have been quoted 3500 HKD for 30 mins (junior) and 7000 HKD for someone more senior - does this sound about right to anyone with experience?

Cheers!

big_panda · 21-10-2015, 09:24 AM

Originally Posted by cramb0:

With regards to legal advice it I have been quoted 3500 HKD for 30 mins (junior) and 7000 HKD for someone more senior - does this sound about right to anyone with experience?

Those rates should at least buy you one hour of their time.

cramb0 · 22-10-2015, 08:31 AM

Thanks JRKOB for your reply and links.

I also spoke to someone yesterday who is going through a similar situation and what they told me gave me some degree of comfort. In summary for their situation the time & costs spent in getting this to court vs just keeping the deposit and everyone moving on with their lives made the landlord begrudgingly drop any threat of legal action eventually.

I am still actively helping find a new tenant - ie replying to enquiries, working with agents etc so hopefully I can get someone in there ASAP!

MandM! · 23-10-2015, 01:03 PM

I think the main question here is did you provide a personal guarantee or is it simply under the company LLC?

One of the above posts talk about the landlord having the responsibility to mitigate losses, I think this bar is set extremely low, and to prove this one way or the other is often difficult and often to put the responsibility on the tenant to prove the landlord did not.

The company directors can have personal responsibility if there is neglect or fraud involved. Doesn't sound like the case here.

If your company has assets, then those could be taken if the landlord succeeds in court, which could take quite some time too.

With residential property, landlords will typically keep the deposit and get a new tenant in there in a couple weeks, hence having some profit and potentially higher rent. Therefore there is no loss to sue. For commercial however, those could be empty for quite some time and I think it makes sense for the landlord to sue you, as the landlord is entitled to the 550k.

The baby, subletting your apartment, the dodgy contractors and illegal constructions are all not relevant to the commercial rental topic. If you tried to get money for the illegal structure, then there should have been some notices sent to the landlord with estimates, then possibly you could enact the works after the landlord refused to do so and withhold the money. In the end, this never works out good and the tenant still losses, even if you go down the court route. So best to avoid these places to begin with. The dodgy contractors are a norm here and would be difficult to track down. I've had issues where I hired a company then they say that employee they sent is part of another company that shut down or some BS like that. Never ending. Got the consumer council involved, they can't do anything but send you a PDF form of a court form.

Transferring assets. Well, if you get caught, that sounds like jail. Need to check the paper trail. Winding up the company is an option so you don't have to keep putting money into it, depending if your company is profitable or not. You can always open another company.

Good luck!