Re Yuen Yiu Fai

CACV 227/2024

[2025] HKCA 273

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 227 OF 2024

(ON APPEAL FROM HCB NO 7494 OF 2023)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.This is the debtor’s appeal against his bankruptcy order made by Linda Chan J on 13 May 2024.  He has been acting in person on appeal.

Background

2.The relevant background matters may be stated as follows.

3.It is not in dispute that the petitioner, Chow Ki Ling Catherine, advanced $4.8 million to the debtor, Yuen Yiu Fai.  This was evidenced by a loan agreement they both signed effective on 18 October 2020 (“Loan Agreement”).  The Loan Agreement provided for $5 million to be repaid (which covered the principal and interest) on 31 January 2021. 

4.By a letter to the debtor dated 1 December 2021, the petitioner’s former solicitors informed him that two cheques ($1 million dated 30 November 2020 and $4 million dated 31 January 2021) he drew in favour of the petitioner were dishonoured upon presentation for payment and notices of dishonour had been given to him.  The solicitors gave notice that unless he was to pay $5 million within seven days, legal proceedings would be brought against him for recovery without further notice.

5.The debtor issued seven cheques to the petitioner totalling $5 million ($500,000 dated 28 January 2022, $500,000 dated 15 February 2022, $500,000 dated 28 February 2022, $500,000 dated 15 March 2022, $1 million dated 1 April 2022, $1 million dated 15 April 2022 and $1 million dated 30 April 2022), all of which were dishonoured.

6.It is also not disputed that the debtor transferred two sums to the petitioner in partial settlement of the loan.  $100,000 was transferred on 31 January 2022 and $200,000 on 28 February 2022.

7.On 15 June 2023, the petitioner issued a statutory demand to the debtor for the balance outstanding being $4.7 million. The statutory demand was served on the debtor personally on 13 November 2023 by a clerk of the present solicitors of the petitioner[1].

8.On 6 December 2023, the debtor’s former solicitors wrote to the petitioner’s solicitors referring to the statutory demand and stating the debtor’s instructions that he is not indebted to the petitioner for $4.7 million as alleged.  The letter went on to say that even if the debtor was so indebted, “it was agreed that the whole of the said sum of HK$4,700,000 was used to set off against the shares in Swift Encorder Limited transferred to and beneficially owned by Mr Soon Wei Hung who is [the petitioner’s] son.”  The defendant’s solicitors demanded the petitioner to withdraw the statutory demand within five days and to acknowledge that she would not issue any bankruptcy petition, failing which legal action would be taken including an application to set aside the statutory demand.

9.The petitioner’s solicitors replied by letter dated 8 December 2023 asserting that the debtor had failed to establish any bona fide dispute on substantial grounds regarding his liability for the debt.  The petitioner’s solicitors asked the debtor to provide necessary particulars with supporting documents and authorities explaining how the shares held by Soon Wei Hung (“Soon”) were utilized to set off against the loan. The debtor’s solicitors were informed if they failed to provide evidence to substantiate the allegation by 12 December 2023, the petitioner would proceed with issuing a bankruptcy petition.

10.As no response was received, the bankruptcy petition was filed on 13 December 2023.  The petition contained an endorsement on the back sheet of the hearing date (9 February 2024) and time before a master and a notice to the debtor that if he intended to show cause against the petition, he must file with the Official Receiver a notice showing the grounds and post a copy to the petitioner, in each case three days before the hearing of the petition[2]. The petition was served on the debtor personally on 17 January 2024[3].

11.As the debtor did not file any notice to show cause, the master’s clerk informed the petitioner’s solicitors on 8 February 2024 that they were excused from attendance on the basis that the petition was unopposed.  The debtor, acting in person, appeared at the hearing before the master on 9 February to oppose the petition.  The master adjourned the hearing to 19 March 2024 for the petitioner’s solicitors to attend.

12.At the hearing before the master on 19 March 2024, the debtor again acted in person.  He claimed that he had not received the statutory demand and the petition and he needed more time to instruct legal representatives to make an affidavit in opposition.  The master adjourned the petition before a judge on 25 March 2024.

The hearing before the judge on 25 March 2024

13.The petition came before the judge on 25 March 2024.  Up to that time, no notice of intention to show cause or affidavit in opposition was filed by the debtor.  The debtor appeared by counsel, who took two points.

14.First, it was submitted that the petition was defective, as it was pleaded in §4 that the statutory demand was served on the debtor personally on “13 December 2023”, when the petition was presented on the same day.  There must be at least three weeks from service for the petitioner to rely on the failure to comply with the statutory demand as inability to pay under section 6A(1)(a) of the Bankruptcy Ordinance, Cap 6.

15.Second, it was asserted that the debtor had a bona fide dispute of the debt on substantial grounds and he sought an adjournment to demonstrate this on affidavit to be filed within 28 days.  Counsel gave a brief summary of the debtor’s primary case.  While it was admitted that money was advanced to him by the petitioner, the advancement was not in the nature of a loan but was “part of a series of transactions that formed the basis of an agreement and arrangement” among the petitioner, Soon and the debtor in respect of an “equity investment”.  Soon and the debtor had invested substantially in a technology based business.  The benefit of the advancement was “the consideration of a transfer of shares in a Hong Kong private limited company Swift Encoder Limited[4] (“Company”)”.  The debtor no longer owed money to the petitioner due to the settlement arrangement among the petitioner (who had initially advanced money to the debtor in support of Soon’s ventures), Soon (who had received valuable shares of the Company on account of the money advanced) and the debtor.  The petitioner should not be permitted to isolate the advancement of money being the petitioning debt from the rest of the dealings between the parties.  The debtor intended to rely on communications and contemporaneous documents to support his case.

16.The petitioner’s solicitors sought leave at the hearing to amend the date of “13 December 2023” in §4 of the petition to “13 November 2023” on the ground that it was a typing error.  The judge granted leave to amend. 

17.The judge was not satisfied on counsel’s submissions there was a bona fide dispute of the debt on substantial grounds.  She refused to adjourn the petition for the debtor to file affidavit evidence.  Instead of making a bankruptcy order immediately, she adjourned the petition on the debtor’s undertaking to pay the debt to the petitioner within 42 days, failing which the debtor would not oppose the petition.  The debtor gave the undertaking by his counsel.  The petition was adjourned to 13 May 2024.

The hearing before the judge on 13 May 2024

18.The debtor failed to pay the petition debt within 42 days, ie by 6 May 2024.  The petitioner’s solicitors informed the judge’s clerk by letter dated 7 May 2024 and sought permission to be excused from attendance at the coming hearing.

19.Acting in person by this time, the debtor filed his 1^st affidavit without leave on 10 May 2024, largely repeating the submissions made by his counsel as mentioned above.  No documents were exhibited to this affidavit.  He asked for leave to file a second affidavit within 14 days from 13 May 2024.

20.In light of the debtor’s 1^st affidavit, the petitioner’s solicitors attended the hearing on 13 May.

21.The judge heard submissions from the debtor, the petitioner’s solicitors and counsel for another creditor who presented a bankruptcy petition against the debtor subsequently.  She gave oral reasons for making a bankruptcy order on the amended petition.  The subsequent petition was withdrawn.  The judge was satisfied on the documentary evidence that the petition debt was established and that the debtor had not shown a bona fide dispute of the debt on substantial grounds.  Moreover, he had not abided by his undertaking not to oppose the petition when he failed to pay the debt to the petitioner.

This appeal

22.The debtor filed a notice of appeal on 6 June 2024 against the judge’s order given on 13 May 2024.  Four grounds of appeal were advanced in the notice of appeal:

(1)  The judge is wrong in allowing the petitioner to amend the petition during the hearing on 25 March 2024, even after objection from the debtor.

(2)  The judge is wrong in denying the debtor’s request to submit an affidavit during the hearing on 25 March 2024.  She is wrong in providing limited options to the debtor either to accept an immediate bankruptcy order or give an undertaking to pay the petition debt to the petitioner within 42 days, failing which he would not oppose the petition. 

(3)  The judge is wrong in denying permission to the debtor to adduce his 1^st affidavit within 14 days of 13 May 2024 during the hearing on 13 May 2024.  The debtor has already filed his 1^st affidavit on 10 May 2024.

(4)  The judge should adjourn the hearing on 13 May 2024 to review the debtor’s 1^st affidavit and for the petitioner to reply to it instead of making a bankruptcy order on 13 May.

Legal principles

23.It should be noted there is no appeal against the judge’s order on 25 March 2024, notwithstanding there are complaints against that order in grounds (1) and (2) of the notice of appeal.  The appeal is brought against the judge’s order made on 13 May 2024.  If the debtor is dissatisfied with the order on 25 March 2024, he should have filed a notice of appeal against it within time, to set aside the order giving leave to amend the petition and to remove the condition imposed in the order for adjourning the hearing of the petition to 13 May 2024[5].

24.A bankruptcy order is made in the exercise of the court’s discretion.  Further, this appeal relates to the exercise of the judge’s discretion in refusing an adjournment for the debtor to file evidence in opposition.  It is well established that the appeal court would not interfere with the judge’s exercise of discretion unless it is shown that the judge had made an error of law or was wrong in principle, or had misapprehended material facts, or took into account irrelevant matters or failed to take into account relevant ones, or that the decision reached in the exercise of discretion was plainly wrong or outside the generous ambit within which a reasonable disagreement is possible[6].

25.In opposing a bankruptcy petition, the debtor has to show a bona fide dispute of the petition debt on substantial grounds by adducing sufficiently precise factual evidence which is believable, and must establish he has a defence of substance, not just a fair probability of one.  The court necessarily has to take a view on the evidence, to see whether the debtor is merely “raising a cloud of objection on affidavits” or whether there really is substance in the dispute he raised[7].

26.We turn to consider the four grounds of appeal.

Ground (1)

27.The order of 25 March 2024 granting leave to amend the petition is not the subject of this appeal.  Quite apart from the consideration that this ground is procedurally impermissible, it is wholly devoid of merit.

28.The date of service of the statutory demand stated in the petition (13 November 2023) is plainly a clerical error.  The correct date was given in the 1^st affidavit of the process server made on 5 December 2023, which was filed with the petition on 13 December 2023.  The debtor had clearly been served the statutory demand as his solicitors referred to it in their letter to the petitioner’s solicitors dated 6 December 2023.  The judge is plainly right in exercising her discretion to give leave to amend.

Ground (2)

29.The complaint that the judge was wrong to refuse the debtor’s application to adjourn the petition for him to file an affidavit in opposition within 28 days and to give him the alternative of accepting an immediate bankruptcy order or giving an undertaking to pay within 42 days is again procedurally impermissible, as the order of 25 March 2024 is not the subject of this appeal.

30.In any event, this complaint is without merit.  It is a challenge against the judge’s exercise of discretion and there is no basis for the appeal court to interfere in the absence of one of the established grounds as mentioned above.

31.The debtor was served with the statutory demand on 13 November 2023 and the petition on 17 January 2024.  As early as 8 December 2023, he was asked by the petitioner’s solicitors to provide necessary particulars with supporting documents to explain how the shares held by Soon were being utilized to set off against the loan as alleged.  No supporting documents were ever provided.  Prior to the hearing on 25 March 2024, he had ample time to file a notice of intention to show cause giving his grounds of opposition and an affidavit in opposition.  His submissions raised a cloud of objections but the documentary evidence adduced by the petitioner (the Loan Agreement, the nine dishonoured cheques) was unanswered.  Further, the two partial repayments totalling $300,000 in January and February 2022 are inconsistent with his subsequent contention in December 2023 and by his counsel on 25 March 2024 that he no longer owed money to the petitioner as her son had received “valuable shares of the Company on account of the money advanced”.  We agree with the judge’s assessment that the submission of the debtor’s counsel had not raised a bona fide dispute of the debt on substantial grounds.

32.The judge could have made a bankruptcy order there and then.  Instead, she exercised her discretion to adjourn the petition on condition that the debtor was to provide an undertaking to pay the debt to the petitioner within 42 days, failing which he would not oppose the petition. We do not think the judge could be criticized for exercising her discretion to adjourn the petition on condition of payment of the debt within the prescribed period in these circumstances.  As for further requiring the debtor not to oppose the petition if he should fail to pay, this did not add very much to the effect of the undertaking.  As things had transpired, it did not deter the debtor from changing his mind not to oppose the petition when he failed to pay, nor did it achieve the purpose of saving the petitioner’s time and costs as her solicitors decided to attend the hearing on 13 May 2024 to protect her interest in light of the debtor filing an affidavit in opposition without leave[8].

33.There is no basis for the appeal court to interfere with the judge’s exercise of discretion in refusing to adjourn the petition for the debtor to file evidence and instead adjourning the petition on condition of payment of the petition debt.

Grounds (3) and (4)

34.The complaint is that the judge is wrong for not allowing the debtor to rely on his 1^st affidavit filed without leave on 10 May 2024 at the hearing on 13 May 2024.  The debtor repeated the contents of his 1^st affidavit in his written submissions to this court, which is improper.  We have nevertheless considered his 1^st affidavit on a provisional basis.

35.We see no basis to interfere with the judge’s exercise of discretion or her discretion in making a bankruptcy order immediately.  Quite apart from the fact that it is contrary to the debtor’s undertaking not to oppose the petition if he failed to pay the debt by 6 May 2024, his 1^st affidavit does not add anything to his case.  To the contrary, the additional details in that affidavit further showed up the inconsistency of his defence.  He claimed that the transfer of valuable shares of the Company was completed on 14 July 2021 and Soon then became a controlling shareholder and was appointed sole director on the same date.  For this reason, he no longer owed any money to the petitioner.  This is clearly inconsistent with the transfers he made to the petitioner in January and February 2022, and which he did not dispute were in partial settlement of the debt.

Conclusion

36.None of the grounds of appeal are of merit.  There is no dispute that costs should follow the event.  We dismiss the debtor’s appeal with costs to the petitioner, to be taxed if not agreed.

Mr Bernard Lam, instructed by Vitus Lawyers, for the Petitioner (Respondent)

The Debtor, acting in person

The Official Receiver, attendance excused