Re Zhu Guoling

HCB 462/2024

[2025] HKCFI 458

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 462 OF 2024

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JUDGMENT

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1.By a petition presented on 18 January 2024 (the “Petition”), Valuable Property Limited (華盛資本証券有限公司) (the “Petitioner”), seeks a bankruptcy order against Zhu Guoling (朱國玲) (the “Debtor”) on the ground that the Debtor has failed to comply with a statutory demand served upon her on 8 June 2023 (the “SD”) and repay USD 2,809,056.51 (the “Debt”).

2.This is the hearing of the Petition, which is disputed by the Debtor. The Debtor has also taken out 3 summonses:

(1)  summons filed on 9 May 2024 to set aside the leave granted to the Petitioner to issue the Petition (the “Setting Aside Summons”);

(2)  summons filed on 9 May 2024 to amend the Notice by Debtor of Intention to Oppose Petition (the “Amendment Summons”);

(3)  summons filed on 2 October 2024 for leave to file the 2^nd Affirmation of Leung Eviana Bon Yuen dated 2 October 2024 (the “New Evidence Summons”).

3.The Petitioner does not oppose the Amendment Summons and the New Evidence Summons and I therefore grant an order in terms of the Amendment Summons with fixed costs of HK$1,040 to the Petitioner for each of the summonses.

Background Facts

4.The following summary is from the skeleton of Mr Nicholas Oh (counsel for the Petitioner) and is largely undisputed.

5.The Petitioner is a securities brokerage company licensed under the Securities and Futures Ordinance (Cap. 571) (“SFO”) for dealing in and advising on securities and futures contracts, as well as asset management.

6.The Debt relates to Shinsun Holdings (Group) Co., Ltd. (“Shinsun”), a Chinese real estate developer company listed on the Main Board of the Stock Exchange of Hong Kong, owned and controlled by Chen Guoxiang, the late husband of the Debtor until either 2019 or 2023 (the year of his death).

7.Following the Petitioner’s assistance to Shinsun in relation to a notes issuance in June and August 2021, Shinsun opened a margin account with the Petitioner intending to engage the Petitioner to continue to do so.

8.A personal guarantee was required for opening a margin account and Shinsun and the Petitioner agreed for the Debtor to be the guarantor. The account opening form was accompanied by the Letter of Personal Guarantee signed by the Debtor dated 12 October 2021 (the “Guarantee”) as well as the Town Gas bill as proof of address.

9.Shinsun entered into a Financial Adviser Appointment Agreement dated 7 January 2022 (the “FAAA”) appointing the Petitioner as the Financial Adviser in relation to an exchange offer of 12.50% senior notes due 23 January 2022 issued by Xiang Sheng Holding Limited (祥生控股有限公司) (the “Exchange Offer”).

10.The Exchange Offer was completed on 18 January 2022 and the Petitioner issued a fee letter dated 18 January 2022 and an invoice dated 16 February 2022 for fees and expenses totalling USD 3,645,400.

11.Only USD 1,000,000 was paid on 23 March 2022. The Petitioner issued a further demand letter dated 30 March 2022 demanding Shinsun to pay the outstanding USD 2,645,000 immediately.

12.On 12 May 2022, the outstanding debt of USD 2,645,400 was transferred to Shinsun’s account no. 10656780-100481261 maintained with the Petitioner.

13.After selling notes issued by Shinsun and held in Shinsun’s account on 15 November 2022 and 22 March 2023, the Debt amounted to USD 2,809,056.51 after taking into account accrual of interest. The Petitioner’s case is that the Debtor is responsible for the Debt pursuant to the Guarantee.

Grounds of Opposition

14.The Debtor filed a notice of intention to oppose the Petition (the “Notice”) on 14 March 2024, and an amended notice of intention to oppose the Petition (the “Amended Notice”) stating that she intends to dispute the Petition on the following grounds:

(1)  She is not domiciled in Hong Kong, nor was she in Hong Kong at the time when the SD and the Petition were issued on 8 June 2023 and 18 January 2024 respectively.

(2)  She is not ordinarily resident or has a place of residence in Hong Kong, nor has she been carrying on business in Hong Kong in the period of 3 years ending with the date of the Petition.

(3)  There is no outstanding debt due and payable by the Debtor to the Creditor as:

(a)  the Guarantee did not relate to the alleged Debt;

(b)  her obligation under the Guarantee has been discharged by reason of a material variation of the principal contract between the Petitioner and Shinsun;

(c)  she did not have knowledge of the Debt incurred by Shinsun; and

(d)  The Debt is disputed by Shinsun.

(4)  Service of the SD is irregular and defective.

(5)  The ex parte leave granted to the Petitioner to issue the Petition was obtained as a result of material non-disclosure.

Jurisdiction Ground

15.Grounds (1) and (2) are jurisdictional challenges to the Petition.

16.Under section 4 of the Bankruptcy Ordinance (Cap. 6) (the “Ordinance”), a bankruptcy petition can only be presented against a debtor who is: -

(1)  Domiciled in Hong Kong; or

(2)  Personally present in Hong Kong on the day on which the petition is presented; or

(3)  At any time in the period of 3 years ending with that day of the presentation of the petition (1) has been ordinarily resident or has had a place of residence in Hong Kong; or (2) has carried on business in Hong Kong.

17.It is not disputed that the burden falls on the Petitioner to prove there is jurisdiction to present the Petition.

18.In the Petition, originally domicile alone was set out as a ground in establishing jurisdiction. However, the Petitioner filed a summons on 30 October 2024 (the “Petition Amendment Summons”) applying to amend the Petition such that the additional grounds of “place of residence”, “ordinarily resident” and “carrying on business in Hong Kong” were added.

19.In Re: Patrick Major Lee, Debtor[1], Barma J (as he then was) noted that: “… it does not seem to me that it is necessary for the facts on which jurisdiction is based to be mentioned in the petition – it would usually suffice to set out the petitioning debt and the grounds on which the bankruptcy order is sought.” However, Barma J nonetheless proceeded to grant leave for the petitioner to amend and to add the further grounds of jurisdictional bases out of an abundance of caution.

20.In the present case, as the Debtor has already dealt with these grounds in her affirmation, I consider that there is no prejudice to allow the Petition Amendment Summons, with fixed costs of HK$1,040 to the Debtor.

Place of Residence

21.The property known as “Flat A, 28/F, Tower 1, Imperial Cullinan, 10 Hoi Fai Road, Kowloon, Hong Kong” (the “Property”) was registered under the joint names of the Debtor and her son until it was sold to her daughter in October 2022. The Debtor had also listed the address of the Property as her residential address in the annual return of Hong Yuan International Holdings Ltd (“Hong Yuan”) and Hong Run International Holdings Ltd (“Hong Run”). The Debtor holds a permanent Hong Kong Identity Card and has a right of abode in Hong Kong.

22.On these bases, the Petitioner submitted that the Debtor has had a place of residence in the relevant period (3 years ending with the day the Petition was presented: between 18 January 2021 to 18 January 2024).

23.However, as regards the “Place of Residence Ground”: “the place of residence (a) must be that of the debtor, and (b) is a settled or usual place of abode, and connotes some degree of permanence, continuity or some expectation of continuity, and (c) is a de facto situation rather than a matter of legal right (Re Cao Zhong [2021] HKCFI 3143, §39)” [2] (Emphasis added)

24.The Debtor deposed that she had been living in Zhejiang Province, Mainland for most of her early years of her life until 2007, and she had emigrated to Canada in or around 2007 and has been living there for nearly 20 years. Mr Oh submitted that the Debtor’s account should be disbelieved as she could not explain why she managed to obtain a Hong Kong Identity Card (which normally required a person to have resided in Hong Kong for at least 7 years). Whilst that might in some instances be a valid criticism, there is no evidence on when the Debtor’s permanent identity card was obtained and under what circumstances it was acquired. In any event, the status of permanent residence can be lost. There is insufficient evidence for the court to dismiss the Debtor’s account only based on the fact that she has a permanent identity card.

25.In any event, the Debtor also deposed that she had not entered Hong Kong since 2021 and was not in Hong Kong during the entirety of the relevant period and instead has been staying in Canada since late April 2023. There is nothing to contradict this evidence. Even if the Debtor had in the past stayed in Hong Kong for more than 7 years, that alone may not satisfy the requirement that the residence needs to be a “settled or usual place of abode”, in light of the evidence that the Debtor no longer uses the Property as a permanent residence as such.

26.Although the Property was sold to the Debtor’s daughter, there is no evidence that the Debtor would still be able to or did stay in the Property. Likewise, the fact that the Debtor had entered the Property address as her residential address in the annual returns of various companies is only one factor to be taken into account and if factually that is not the reality, such entry in the Companies Registry records would only amount to a false declaration on the Debtor’s part rather than supporting the Petitioner’s contention.

27.I am of the view that the evidence does not support the Petitioner’s contention that the Debtor had a “settled or usual place of abode” during the relevant period.

Domicile /Ordinary Residence

28.“In relation to ‘Domicile Ground’, a person can acquire a domicile by, and only by, residing there with the intention to reside there permanently. In determining whether a person has such intention, the court must have regard to the motive for which he has taken up residence there. An existing domicile is deemed to continue until it is proved that the person has acquired a new domicile, and the burden is on the person who asserts a change of domicile to prove the same (Re Cao Zhong, §§52-53)”[3]

29.The Debtor deposed in her affirmation that she has neither resided in Hong Kong nor treated it as her permanent home. Instead, the Debtor lived in Zhejiang Province until around late 2000s and emigrated to Canada in 2007, having resided there since 2007 and obtained her Canadian passport in around 2012. She is also a Canadian citizen. Since around 2021, she was “grounded” in China due to the then prevailing quarantine restrictions until mid-2023 when she returned to Canada. The Debtor had produced evidence in the form of receipts from various shops in Canada and the Mainland during the relevant period to show that she was not in Hong Kong.

30.The Debtor also deposed that her previous visits to Hong Kong were for the sole purpose of accompanying her husband. Since his passing away, there was no longer any reason for her to go to Hong Kong.

31.It was submitted by Mr Jeff Yau, counsel for the Debtor, that there is nothing which suggests that the Debtor had abandoned or changed her domicile from Canada (or from China) to Hong Kong.

32.On the strength of such evidence, I am persuaded that the Debtor has shown that there was no intention on her part to reside in Hong Kong permanently. The domicile gateway is not established.

Carrying On Business in Hong Kong

33.“As for “Carrying on Business Ground” (s.4(1)(c)(ii) of the BO), the business or business activities must have been carried out in the debtor’s own or personal capacity, rather than in the capacity of an officer or servant on behalf of another business (Re Cao Zhong, §§49-50[4]). The phrase “carrying on business” is wider than carrying on a trade[5], and denotes something of a permanent character, and the business was carried on only where there was some degree of management or control[6].”[7]

34.The Petitioner relies on the fact that on the Debtor’s own admission, she was a director of both Hong Yuan and Hong Run until 15 April 2024, i.e. only after the Petition was presented and served, in support of its contention that she had carried on business in Hong Kong.

35.However, the Debtor’s evidence is that the two companies’ only involvement was in pre-listing reorganization transactions and had no actual business activities/operations during the 3-year period. There is no evidence to rebut the Debtor’s explanation.

36.I am therefore of the view that the Petitioner has failed to establish that the Debtor has carried out business in her own capacity with a degree of management or control.

37.On another note, although the Debtor has submitted to the non-exclusive jurisdiction of the courts of the HKSAR pursuant to Clause 24 of the Guarantee, parties agreed that jurisdiction cannot be conferred by agreement if the requirements in section 4 of the Ordinance are not satisfied.

38.The Petitioner has failed to establish jurisdiction in issuing the Petition against the Debtor.

Service Ground

39.The service challenge is without merit:

(1)  The Debtor had received the SD on 8 June 2023 and has acknowledged receipt by replying from her email address at “[email protected]”. This email address was the address the Debtor used in previous email communication with the Petitioner’s solicitors. The solicitors had attempted to effect personal service at the addresses provided by the Debtor and to make an appointment with the Debtor for personal service to no avail.

(2)  Rule 46(2) of the Bankruptcy Rules (Cap. 6A) requires that the Petitioner “shall do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, to cause personal service of the demand to be effected”. (emphasis added)

(3)  The Petitioner had made visits to the Property and Unit 22, Level 16, The Hong Kong Club Building, 3A Chater Road, Central, Hong Kong (an address provided by the staff of Shinsun) and attempted to effect personal service to the Debtor in person. Having failed to effect service personally at those addresses, the Petitioner proceeded to serve the SD to the Debtor by email (and the Debtor had acknowledged receipt). In such circumstances, the Petitioner has done all that is reasonable to bring the SD to the attention of the Debtor and fully complied with the requirement.

(4)  I am of the view that in these circumstances, Rule 46(2) has been complied with.

The Material Non-Disclosure Ground

40.The Debtor complained that in answering the court’s requisitions when applying for ex parte leave to issue the Petition, the Petitioner has deliberately omitted or downplayed the fact that the Debtor was not in Hong Kong at the material time and that the Debtor had no plan to visit Hong Kong. This is incorrect as the Petitioner had in fact informed the court that “[the Debtor declared] that she was not currently in Hong Kong and planned to engage Hong Kong lawyers to liaise with [the Petitioner].”

41.The Debtor also complained that the Petitioner had not drawn the attention of the court to the fact that the Debtor holds a Canadian passport and that the Property is not owned by the Debtor.

42.However, the fact that the Debtor holds a Canadian passport is already set out in the Petition itself. The Debtor was also a joint owner of the Property at the material time.

43.As I am of the view that there is no merit in the material non-disclosure point, the Setting Aside Summons is therefore dismissed with costs to the Petitioner.

Bona Fide Dispute as to the Debt

44.Having concluded that the jurisdiction to issue the Petition against the Debtor has not been established, it is not strictly necessary to consider the bona fide dispute challenge. However, for completeness, I also agree with the Debtor that there is a bona fide dispute as to the Debt:

(1)  The Guarantee provides:

“In consideration of [the Petitioner] agreeing to provide or continue to provide to [Shinsun] securities trading, whether on margin or otherwise, margin facilities, futures trading, stock options trading and other financial accommodation and related services pursuant to or under the Agreement made between [the Petitioner] and [Shinsun] (the “Agreement”) comprising the Account Opening Form and the Client Agreement (Securities Trading Account), the Client Agreement (Futures Trading Account) and/or the Client Agreement (Stock Options Trading Account) attached thereto (as may be amended or supplemented by [the Petitioner] from time to time) … the undersigned Guarantor hereby agrees and covenants with [the Petitioner] and declares as follows:

1. Guarantee: The Guarantor unconditionally and irrevocably guarantees to [the Petitioner] that, if for any reason [Shinsun] does not pay any sum payable by it under the Agreement, including without limitation all expenses, cost and losses payable thereunder, by the time, on the date and otherwise in the manner specified by [the Petitioner], the Guarantor as primary obligor will pay to [the Petitioner] that sum on demand by [the Petitioner] provided [the Petitioner] shall not be under any obligation, whether to the Guarantor, [Shinsun] or otherwise, to make any such demand or to make such demand at any particular time.”

(2)  It can thus be seen that the Guarantee is confined to “the Agreement” which comprises of:

(a)  the Account Opening Form and

(i)  the Client Agreement (Securities Trading Account);

(ii)  the Client Agreement (Futures Trading Account);

(iii)  the Client Agreement (Stock Options Trading Account)

attached thereto (as may be amended or supplemented by [the Petitioner] from time to time)

(3)  The Client Agreement (Securities Trading Account) defines “Account” as: “one or more securities trading accounts opened and maintained by [the Petitioner] and [Shinsun]; whilst “Agreement” is defined as: “this Client Agreement between [the Petitioner] and [Shinsun] (including the Account Opening Form) as may be varied, amended or supplemented from time to time. It manifests the contractual relationship between [the Petitioner] and [Shinsun] wherein [the Petitioner] act as [Shinsun’s] agent, or in such other capacity as disclosed to [Shinsun], in the buying, selling or otherwise dealing of securities and attend to other related administrative matters.” It can thus be seen that the transactions contemplated relate to the trading of securities.

(4)  I am therefore of the view that Clause 7.7 of the Client Agreement (Securities Trading Account) which provides: “… [Shinsun] shall pay all [Shinsun’s] indebtedness to [the Petitioner] on demand or earlier when due at [the Petitioner’s] request…” only covers such indebtedness having arisen out of securities trading transactions.

(5)  In this instance, the indebtedness arose out of the Exchange Offer under the FAAA. The Guarantee on the face of it does not cover such indebtedness.

(6)  Insofar as it is suggested that the indebtedness under the FAAA could be transferred under Clause 14.9.3 of the Client Agreement (Securities Trading Account), I reject such a submission, as it is clear that the wording only concerns a transfer credit (not debts) from one account to another for purposes of settling indebtedness.

(7)  Further, even if such transfer of debt is allowed under the Client Agreement (Securities Trading Account), such transfer would amount to a variation of the scope of potential liability faced by the Debtor. This would amount to a material variation which the Debtor (in the present state of evidence) has no knowledge of nor has she consented to such variation. It is reasonably arguable that the Debtor has been discharged from her obligation under the Guarantee due to such material variation.

(8)  The Court is entitled to look at the surrounding factual circumstances to identify the scope and object of the contract of guarantee which must be strictly construed so that no liability is imposed on the surety which is not clearly and distinctly covered by the terms of the guarantee.[8]

45.The Petition ought to be dismissed on the ground that there is a bona fide dispute.

Conclusion

46.The Petition is therefore dismissed on the grounds of lack of jurisdiction and bona fide dispute as to the debt.

Costs

47.Costs follow the event. The Debtor should be entitled to costs of the Petition, except that the Debtor was unsuccessful in her material non-disclosure and service challenges and the Setting Aside Summons is dismissed. As the material non-disclosure point and the service point took up approximately 20% of the hearing time, she should not be entitled to such costs of the hearing.

48.Therefore, on a nisi basis, the Debtor should be entitled to costs of the Petition, except that the Debtor is only entitled to 80% of the costs of the substantive hearing. The Official Receiver’s costs in the sum of HK$ 4,100 to be deducted from the Petitioner’s deposit. Such costs order nisi shall become absolute in the absence of any application to vary within 14 days hereof.

Mr Nicholas Oh, instructed by Ellalan, for the Petitioner

Mr Jeff Yau, instructed by Nixon Peabody CWL, for the Debtor

Attendance of the Official Receiver was excused