Re Liu Jiangyuan

HCB 1227/2023

[2023] HKCFI 2326

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1227 OF 2023

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R E A S O N S  F O R  J U D G M E N T

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1.At the hearing of the petition presented by Donghai Investment Holding Limited (“Petitioner”) on 7 March 2023 (as amended on 21 June 2023[1]) (“Petition”), I made a usual bankruptcy order against Ms Liu Jiangyuan (劉江湲) (“Debtor”). These are the reasons for my judgment.

2.The Debtor holds a Hong Kong identity card.  She has office address at a unit at Pacific Place in Admiralty, a unit at World Wide House in Central and another unit in Siu Wai Industrial Centre in Cheung Sha Wan (collectively “Business Addresses”).  She was the registered owner of a flat at Nova, 88 Third Street (“Property”) until the same was sold in March 2023.

3.Pursuant to a guarantee dated 12 July 2017 entered into between the Debtor and the Petitioner (“Guarantee”), the Debtor agreed to guarantee the obligations of Honghua Investment Fund Limited (“Fund”) including paying the amount due and payable to the Petitioner under the Private Placing Memorandum dated July 2017 (as subsequently amended in February 2018 and May 2018) (“PPM”).   

4.The Fund defaulted in paying following amounts due and payable under the PPM:

(1)  Class A Fixed Return for the period of 1 January 2020 to 18 March 2022 in the amount of HK$22,136,986.30 (“Class A Return”);

(2)  Class B Fixed Return for the period of 1 January 2020 to 18 March 2022 in the amount of HK$22,136,986.30 (“Class B Return”);

(3)  Subscription amount for Class A Shares in the amount of HK$100 million (“Class A Subscription”); and

(4)  Subscription amount for Class B Shares in the amount of HK$100 million (“Class B Subscription”).

5.The Debtor was liable to pay the aforesaid amounts pursuant to clause 2.1 and 2.2 of the Guarantee.    

6.As at 18 March 2022, the amounts stated in §4 remained unpaid, and the total amount payable by the Debtor was HK$244,273,972.60 (“Debt”). 

7.On 22 April 2022, the Petitioner served a statutory demand dated 28 March 2022 (by way of advertisement) requiring the Debtor to pay the Debt (“SD”) .   

8.The Debtor did not comply with the SD and is deemed insolvent by virtue of s.6A(1)(a) of the Bankruptcy Ordinance (Cap. 6). The Petitioner has discharged the onus of showing that the debtor is unable to pay his debt, as required by s.6(2)(c) of the same Ordinance.    

9.On 10 June 2022 and 7 July 2022, copies of the SD, the Guarantee and the PPM were provided by Messrs. Kwok Yih & Chan (“KYC”), the Petitioner’s solicitors, to Messrs. Franki Ho & Associates (“FHA”), the solicitors for the Debtor .

10.By letter dated 27 October 2022 to FHA, KYC referred to the documents provided to the Debtor and stated that if the Debtor failed to pay the Debt within 7 days, bankruptcy proceedings would be commenced against her .

11.By another letter dated 16 November 2022 to FHA, KYC put on record that the Debt had not been paid and the Petitioner would proceed with bankruptcy proceedings against the Debtor without further notice .

12.On 7 March 2023, the Petition was presented.  By letter to FHA dated 7 March 2023, KYC provided a copy of the Petition and verifying affirmation to FHA.  In the same letter, KYC referred to the proposed sale of the Property by the Debtor to Ms Liu Yanna (“Proposed Sale”) and put the Debtor on notice that the Proposed Sale may constitute a transaction at an undervalue or a disposition to defraud creditors under s.60 of the Conveyancing and Property Ordinance (Cap. 219).  The Petitioner reserves the right to apply for an order requiring the Property or the sale proceeds to be vested in the trustee of the bankruptcy of the Debtor’s estate.

13.In response, FHA in their letter dated 9 March 2023 stated that they had no instructions to accept service of the Petition or the affirmation and returned the same to KYC.

14.By letter dated 15 March 2023 to FHA, KYC referred to the fact that FHA had received the SD and the supporting documents on behalf of the Debtor and the further letters of 27 October 2022 and 16 November 2022 regarding the Debtor’s failure to pay the Debt.  As FHA acted for the Debtor in the Proposed Sale, which appear to be completed less than one week before the filing of the Petition, they should clarify (1) what is the amount remaining after discharging the mortgage in favour of the mortgagee (“Sale Proceeds”); (2) whether and when did FHA transfer the Sale Proceeds to the Debtor; and (3) whether the Debtor is prepared to pay the Sale Proceeds to the Petitioner to settle the Debt.

15.In their letter dated 16 March 2023, FHA stated that the information requested by KYC is “confidential and privileged information”, the Proposed Sale has nothing to do with the Petitioner and they are not aware of any legal basis for the Petitioner to make the request.

16.As FHA refused to accept service of the Petition and KYC was not able to effect personal service of the Petition on the Debtor.  On 30 March 2023, the Petitioner applied for leave to serve the Petition on the Debtor by way of substituted service.  The application was supported by the affirmations filed on 30 March 2023, 28 April 2023 and 23 May 2023.

17.On 18 July 2023, Master J Wong granted leave to the Petitioner to serve the Petition on the Debtor by substituted service, requiring the Petition be (1) sent by prepaid post to the Business Addresses and the Property, and (2) advertised in a Chinese newspaper.

18.On 28 August 2023, FHA filed a notice to act for the Debtor.   

19.At the hearing before Master J Wong on 29 August 2023, the Debtor through FHA stated that she opposed the Petition.  No notice of intention to show cause, as required by rule 68 of the Bankruptcy Rules (“BR”), was filed by the Debtor. 

20.On 30 August 2023, the Debtor filed a Notice of Intention to Oppose Petition (“Notice”) out of time. 

21.In the Notice, the Debtor states that she opposes the Petition on the following grounds:

(1)  She denies any liability under the Guarantee;

(2)  She “had and has neither knowledge nor true implication of the [Guarantee];

(3)  She has not been given any chance or sufficient time to read the Guarantee;

(4)  She “has never been informed nor advised to seek independent legal advice”;

(5)  She has been “pushed by the management of the listed company and/or its associated entity to sign the [Guarantee] in a rush manner”; and

(6)  She “was under pressure and influence from the management of the listed company and/or its associated entity in signing the [Guarantee]”.

22.No application has been made by the Debtor to seek extension of time to file the Notice.  Nor has the Debtor made any affirmation to explain the delay in filing the Notice or to substantiate the grounds stated in the Notice. 

23.At the hearing before this Court, Mr Colin Leung, counsel for the Debtor, does not apply for extension of time to file the Notice.  Instead, he submits that the court “should not be bothered by the minor complaint by the Petitioner for a small delay of a few days” and contends that the Debtor has served the Notice which sets out “her substantial grounds to challenge seriously the purported Guarantee”.   

24.I have no hesitation in rejecting the submission that the delay in filing the Notice is a minor matter or that it is something which the court should ignore:

(1)  The requirement under r.68 is mandatory and must be complied with by a debtor.  Where a debtor fails to comply with r.68 and applies for extension of time to file a notice to oppose a petition, it is incumbent upon the debtor to explain to the court why he/she was not able to comply with the rule.  The court will then assess the breach against the background of the matter and considers whether there is a good reason to extend the time for the debtor to comply with the rule. 

(2)  In the present case, the Debtor failed to comply with r.68 and did not make any application for extension of time.  She chose not to file any affirmation to explain why she was not able to comply with r.68.  This is not surprising as the Debtor has had the SD, the Guarantee and the PPM provided to her by 7 July 2022 at the latest (even assuming she did not have copies of such documents until KYC provided them to FHA), more than one year before the hearing.  The Debtor would not be able to explain why having had the documents for more than one year, she was still not able to raise her grounds in opposition to the Petition as required by r.68.

(3)  The Debtor was obviously aware of the imminent risk that a bankruptcy order would be made against her.  After being told that a bankruptcy petition would be presented against her, the Debtor took step to dispose of the Property and refused to disclose the whereabouts of the Sale Proceeds. 

25.In the absence of any explanation for the delay, there is no proper basis for the court to deny the right of the Petitioner to seek an immediate bankruptcy order against the Debtor.   

26.For this reason alone, I do not think there is any valid ground for the court to adjourn the Petition.

27.Further, in opposing a bankruptcy petition, the debtor has to show a bona fide dispute on substantial grounds in respect of the Debt by adducing sufficiently precise evidence which is believable, and must establish that she has a defence of substance, not just a fair probability of one (Re Leung Cherng Jiunn [2016] 1 HKLRD 850, at §27, per Kwan JA (as she then was); Re Soetrisno Farida [2019] HKCFI 2756, at §11, per Ng J).  In this regard, it is not sufficient for the debtor to merely raise “a cloud of objections on affidavits” (Artech Development Ltd v Posismo Ltd [2018] HKCFI 344, at §10(4), per Ng J). 

28.I am unable to see how the grounds stated in the Notice can be said to be “substantial”:

(1)  The Debtor has not filed any evidence, let alone sufficiently precise factual evidence which is believable to substantiate her grounds stated in the Notice. 

(2)  If the Debtor had any substantial grounds to oppose the Petition, the same would have been raised in good time and be substantiated by an affirmation.  The fact that the Debtor has not been able to raise any substantial grounds after having had the SD for over a year shows that she does not think much of the grounds stated in the Notice. 

29.In any event, the Guarantee is admittedly signed by the Debtor.  It is well established that persons of full age and understanding are bound by the documents they signed unless they can establish a recognised legal basis to disown such documents.  For this purpose, the facts constituting the particular vitiating factor relied on must be pleaded and established by the evidence (Ming Shiu Chung & ors v Ming Shiu Sum & ors (2006) 9 HKCFAR 334 at §§84-87, per Ribeiro PJ).

30.The Debtor has not identified, let alone established by evidence, a recognised legal basis or the particular vitiating factor relied on in seeking to disown the Guarantee.  None of the grounds stated in the Notice constitute a valid ground to disown the Guarantee given that:

(1)  Even if the Debtor did not understand or did not read the Guarantee or did not take any independent legal advice before signing the Guarantee, that does not per se invalidate the Guarantee.

(2)  As regards the pressure or influence of the (unidentified) management of the (unidentified) listed company and/or its associated entity allegedly applied to the Debtor, they were acts of those unidentified parties and cannot be attributed to the Petitioner.