Re Lee Ming Cheung

HCB 607/2019

[2020] HKCFI 1945

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 607 OF 2019

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J U D G M E N T

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Introduction

1.The petition was adjourned pending the application by the debtor, Mr Lee, to set aside the statutory demand.  His application was dismissed.  His appeal to the Court of Appeal (“the Appeal”) is pending.  This is the Petitioner’s application to restore the hearing of the petition and to have a bankruptcy order issued against Mr Lee.

2.Mr Lee opposes the restoration and asks that the petition be adjourned pending (i) the Appeal or (ii) his renewed application for a stay pending the Appeal.

Background

3.The Petitioner entrusted HK$938,022 to Mr Lee since 2006 for investment in the Hong Kong Stock Market.  The amount ballooned to over HK$4.7 million when the Petitioner demanded Mr Lee to liquidate the Petitioner’s portfolio and repay the total value as of the closing price on 21 February 2018.  Mr Lee has, through various whatsapp messages promised to repay.  Despite demands, and after taking into account a part payment, an amount of HK$4,676,284.31 (“the Debt”) is still due and owing from Mr Lee.

4.The petition is not premised on a judgment debt but a statutory demand against Mr Lee on 16 August 2018 in respect of the Debt. The statutory demand was not complied with.  The Petitioner issued the petition on 29 January 2019.

5.Mr Lee applied to set aside the statutory demand.  He asserted that the amount said to be due was not a debt but should have formed the subject matter of a claim arising out of an alleged breach of trust.  The proper remedy was an order for account and the bankruptcy court has no jurisdiction to hear the petition.  The petition was adjourned pending resolution of that application.

6.The application to set aside the statutory demand was dismissed by DHCJ William Wong SC in HCSD 11/2019, on the grounds that the application was taken out of time and that there was no bona fide dispute as to the Debt on substantial grounds.

7.Mr Lee filed a notice of appeal on 4 November 2019 under CACV 511/2019. The Petitioner applied for security for costs pending the Appeal.  That application is pending disposal on the papers by the Court of Appeal.  The Court of Appeal informed Mr Lee that a hearing date for the Appeal could only be fixed after all interlocutory applications have been disposed of.

8.On 8 November 2019, Mr Lee applied to stay the present petition pending appeal.  DHCJ Le Pichon dismissed the application on 5 March 2020 on the grounds that (i) the appeal on the ground of lack of proper service of the statutory demand was remotely arguable; (ii) the contention that the claim was not for a debt was not arguable; and (iii) Mr Lee has failed to demonstrate that the appeal was arguable.

9.Mr Lee renewed his application for stay pending appeal in CAMP 104/2020.  The Court of Appeal took the view that Mr Lee’s renewed stay application should not be issued in the Appeal as the decision refusing stay was not made under the HCSD proceedings, and will be disposed of when the Court comes to determine the Petitioner’s application for security for costs.

10.In such circumstances, the Petitioner took the view that the petition should be restored for hearing despite the Appeal.

11.Mr Lee submits that if a bankruptcy order is granted, it will stifle the Appeal in that the right to prosecute the Appeal will be vested in the hands of the trustee in bankruptcy, who may decide not to proceed with the Appeal.  See First Asia Finance Ltd v Tsoi Tin Kwan Fanny, unreported, CACV 149/2015, 18 May 2017. He therefore asks for adjournment of this petition until resolution of the appeal, or until resolution of the renewed stay application.

Analyses

12.It is trite that a refusal to set aside a statutory demand precludes the applicant from relying on the same grounds for opposing the bankruptcy petition unless there is a change of circumstances.  In practice it means that the applicant will often have no defence to the petition after an application to set aside a statutory demand fails.  That is why it is not uncommon, where an application to set aside a statutory demand and a bankruptcy petition based on that demand are both pending, for the petition to be fixed to be heard immediately after the application to set aside, with the expectation that the outcome on the petition will inevitably follow the outcome of the application to set aside.  See Chan Yuk Lun v Chan Ying Chit [2015] 1 HKLRD 501 at §11, G Lam J.

13.An appeal does not operate as a stay of proceedings.

14.As the matter presently stands, the statutory demand was validly served on Mr Lee.  Even though no affirmation has been filed in opposition to the petition, the grounds have been set out in his affirmations in the bundle, eg in respect of the stay application and the security for costs application in the Appeal.

15.All the grounds in opposition to the statutory demand have been decided against Mr Lee by DHCJ William Wong SC.  There is no order for stay pending the Appeal.  There is no change of circumstances to show that the renewed application for stay has any merits.

16.In the judgment handed down by the Court of Appeal 1.75 hours before this Decision, the Court of Appeal held that:

(1) It has not been shown that Mr Lee’s appeal has such a high prospect of success that the Court of Appeal should decline to order security (§5.3); an order for security for costs was thus made; and

(2) The renewed application for stay had no merits and was dismissed.

17.Any further adjournment of the petition will only incur unnecessary costs and cause prejudice to the Petitioner.

18.There being no defence, and the debt due has not been satisfied, I am satisfied that it is appropriate to grant a bankruptcy order against Mr Lee.  I make an order accordingly.  Costs of the petition shall be to the Petitioner, payable out of the estate.

19.I thank counsel for their assistance.

Ms Hillary Kong, of ONC Lawyers, for the Petitioner

Mr Vincent Chen, instructed by Henry Chiu & Partners, for the Debtor

Ms Cindy Li, instructed by the Official Receiver for OREC