The Joint and Several Trustees of the Property of Hau Po Man Stanley v. Hau Po Fun Ivy and Another

HCB 924/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 924 OF 2002

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Coram: Hon Lam J in Court

Date of Hearing: 28 June 2004

Date of Decision: 10 July 2004

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D E C I S I O N

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1.Pursuant to leave granted by Deputy Judge Poon on 25 July 2003, the trustees in bankruptcy ["the Trustees"] brought proceedings under Sections 50 and 51 of the Bankruptcy Ordinance against the sister of the bankrupt and her husband to seek relief in respect of alleged unfair preference.

2.The background facts, which are not disputed by the parties, are as follows. The bankrupt was a dentist. He petitioned for his own bankruptcy on 15 January 2002. Bankruptcy order was made on 27 May 2002. The Trustees were appointed at a creditors' meeting on 3 September 2002. According to the statement of affairs produced by the bankrupt on 11 January 2002, the total amount of unsecured debts owed by him was $21,140,305.22. There were 8 creditors on the list and two of them accounted for $20,000,000 of his indebtedness, namely Teddy Chien (a personal friend to whom the bankrupt owed $17 million) and Tsun Fat Finance Co. Ltd. (to whom he owed $3 million). One of the other creditors was Ivy Yuen ["the Sister"], a sister of the bankrupt. He owed her $150,000. The other indebtedness comprised of debts due to securities companies for margin accounts (about $850,000 odd) and credit card debts (about $130,000 odd).

3.The bankrupt did not have any substantial asset available for payment of these debts when he filed the statement of affairs. In the 12 months prior to 11 January 2002, he had earned $463,500 from his dental practice and had received other incomes by way of realization of some life insurance policies and other investment and properties in the sum of $2,592,008.08.

4.Teddy Chien obtained summary judgment against the bankrupt on 6 December 2001 in High Court Action No. 2892 of 2001 for the sum of $17 million. Tsun Fat Finance Company Limited obtained judgment of $3 million in High Court Action No. 3426 of 2001 on 25 August 2001.

The transactions

5.The Sister had advanced money to the bankrupt from time to time and there had been repayments by the bankrupt. In these proceedings, the Trustees sought recovery from her and her husband in respect of four repayments,

(a) $4 million paid by Novel Gain Enterprise Limited to the Sister by two cheques dated 18 January 2000;

(b) transfer of 1 share in Maxi Worth Limited to the Sister on 20 December 2000 representing a repayment of $500,000;

(c) transfer of a motor vehicle in April 2001 to the husband of the Sister (the 2nd Respondent herein) representing a repayment of $200,000;

(d) cash repayment of $650,000 on 24 July 2001.

6.The bankrupt's own statements as to how these repayments came to be made can be found in what he wrote in his letters to the Trustees dated 19 February and 30 March 2003 respectively.

"Repayment to Ivy Yuen

Around March 2000, I incurred heavy losses in the stock market after the tech stock collapsed. I approached Ivey Yuen for a loan of $1,500,000 and on March 17, 2000, Ivy Yuen deposited $1,500,000 into my HSBC account. I gave Ivy Yuen an IOU indicating that the loan would be repaid in 6 months' time. After repeated requests from Ivy Yuen for repayment, I finally managed to procure transfer of my share in Maxiworth Co. Ltd. which was holding a debenture of the Clearwater Bay Golf Club, to Ivy Yuen in around Dec. 2000 for a consideration of $500,000. In around April 2001, I transferred a motor vehicle to Derek Yuen for a consideration of $200,000. Later on in around June 2001, I further paid Ivy Yuen $650,000 after surrendering my life policies with Manulife and Prudential Assurance leaving behind a balance of $150,000 still owed to Ivy Yuen.

Regarding the $4,000,000 paid in January 2000, it was a repayment made by Novel Gain Enterprise Ltd. to Ivy Yuen."

"Repayments to Ivy Yuen

Around October, 1997, I borrowed from Ivy Yuen $3,000,000 to settle part of my margin calls. On or before Dec. 10, 1997, I approached Ivy Yuen for another loan of $3,000,000. Since I had not repaid Ivy Yuen anything yet for the previous loan, Ivy Yuen would only consent to lend me money again on the condition that I gave her some form of guarantee from Novel Gain Enterprises Ltd. which was holding my residential property at Shouson Hill Road. Ivy Yuen at the same time advised me that she was about to buy a new flat and that I should, when informed by her, pay on her behalf to her lawyer from $2,000,000 which would be the initial deposit for the flat. As agreed, Novel Gain Enterprises Ltd. undertook to indemnity Ivy Yuen and her husband $4,000,000 which would be the remaining balance of the $6,000,000 she lent me. After repeated efforts from Ivy Yuen to ask Novel Gain Enterprises Ltd. for repayment of the $4,000,000 loan, the property at Shouson Hill Road was finally sold and part of the proceeds was paid by Novel Gain Enterprises Ltd. to Ivy Yuen to settle the outstanding loan."

7.Initially, the Trustees also pursued against the Sister for another $2 million repaid by the bankrupt. On the evidence, the $2 million was repaid in December 1997. Mr Harris properly accepted when he opened his case on behalf of the Trustees on 28 June 2004 that such repayment was outside the 2 years period and the Trustees could not pursue the same.

8.At the beginning of the hearing, for reasons given orally, I dismissed a late application by the Trustees to have a split trial of the issues of liability and quantum. I did not consider such an exceptional course to be appropriate on the facts of this case. The valuations of the share of Maxi Worth Limited and the motor vehicle are relevant to the issue of liability as well as quantum. If the Trustees wanted to challenge the valuations of these assets, they should have prepared such evidence and placed the same before the court well in advance. The Respondents should be given a fair opportunity to deal with it. I did not accept that the Trustees could reserve their position on valuations by seeking a split trial. It would be unfair to the Respondents if they were not able to fight liability on the basis that there could not be any challenge to the valuations as the evidence stands.

9.Both counsel indicated to the court that they would not apply for cross-examination of any witnesses. Hence, the evidence was all set out in the affidavits and affirmations before the court.

10.In respect of the $4 million, it was a repayment for the balance of two loans of $3 million each made by the Sister to the bankrupt in October and December 1997. The Sister did not have enough money to lend to the bankrupt and she had to borrow from others to advance the second loan. To secure her position, the Sister required the bankrupt to procure a guarantee for $4 million from Novel Gain Enterprise Limited ["NGEL"]. NGEL was the registered owner of a house at Shouson Hill which was used by the bankrupt and his family as residence. The bankrupt and his wife were the shareholders and directors of NGEL in 1997. NGEL gave the guarantee as requested on 11 December 1997.

11.For the two loans of $3 million, $2 million was repaid on or about 22 December 1997 when the Sister purchased a flat in Shatin. That left a balance of $4 million.

12.The bankrupt ceased to be a director of NGEL on 8 January 1999. One of his daughter replaced him as the director. Further, on 24 June 1999, he executed transfer of his share in NGEL in favour of another daughter. The bought and sold notes and instrument of transfer were duly stamped.

13.The Sister's case is that when the repayment of $4 million was made by NGEL on 18 January 2000 after the sale of the Shouson Hill property, the bankrupt was neither its shareholder nor director. Further, the repayment was for the discharge of the liability of NGEL under the guarantee dated 11 December 1997. The Sister used part of the $4 million to repay people from whom she had borrowed monies to fund the second loan of $3 million.

14.However, the transfer of shares was not recorded in the annual return filed on 22 June 2000. Mr Harris invited this court to infer that the transfer was not registered in the share register kept by the company since the company secretary Wellwin (Nominees) Limited who prepared the annual return of 2000 was unaware of the transfer. He submitted that in the circumstances, at the most transfer only effected a transfer of the equitable interest in the shares and the bankrupt remained as the legal owner of the shares.

15.Pursuant to application made on 23 August 2000, NGEL was deregistered under Section 291AA(9) of the Companies Ordinance.

16.On or about 17 March 2000, the bankrupt asked for another loan of $1.5 million from the Sister. The Sister was only prepared to grant him a 6 months loan. However, the bankrupt failed to make repayment upon the expiry of 6 months. The Sister pressed for repayment by letters and her husband went to the clinic of the bankrupt many times to press for payment. The Sister explained how some partial repayments were made in Paragraph 15 of her affirmation,

"The 2nd Respondent attended the dental office of Hau Po Man Stanley many times. They had hot disputes in his office as to why he still did not pay back the sum of HK$1,500,000.00 to me. The hot disputes sometimes aroused the attention of some of the patients of Hau Po Man Stanley and when this happened he tried to calm him down. However, my husband kept pressing hard for payment from Hau Po Man Stanley. The hot disputes sometimes had driven his patients away. This had caused much embarrassment and incovneience to Hau Po Man Stanley and he finally decided to transfer one share of Maxi Worth Limited to me on 20th December 2000. Exhibit hereto and marked "HPFI-12" are true copies of the Bought/Sold Notes and Instrument of Transfer dated 20th December 2000 of Maxi Worth Limited. I did not receive any cash from Hau Po Man Stanley, my husband therefore continued to attend the said dental office for payment. On one or two occasions of Hau Po Man Stanley even considered reporting the matter to the Police as the hot disputes adversely affected his profession. Hau Po Man Stanley then transferred a vehicle with Registration No. DK 889 from a company called Sweetways Ltd. to my husband the 2nd Respondent and a further sum of HK$650,000.00 being cash redemption of a life insurance of Hau Po Man Stanley in June 2001 reducing the outstanding amount of the loan to HK$150,000.00"

17.According to the bankrupt, the $650,000 cash repayment was funded by proceeds of his life insurance policies.

The law relating to unfair preference

18.The relevant statutory provisions are Sections 50, 51, 51A and 51B of the Bankruptcy Ordinance Cap. 6. These are modelled on Sections 340, 341, 342 and 435 of the Insolvency Act 1986 in England. Broadly speaking, the following basic elements must be present in order to constitute an unfair preference,

(a) a preference within the meaning of Section 50(3) was given by the bankrupt at the relevant time;

(b) the bankrupt was influenced by the requisite desire as defined in Section 50(4) when he gave the preference;

(c) the bankrupt was insolvent at the time of the transaction or he became insolvent in consequence of that transaction, see Section 51(2).

19.As regards the act of preference, Morritt J said the following in relation to the English equivalent of our Section 50(3)(b) in Re Ledingham-Smith [1993] BCLC 635,

"The phrase 'will be better' in relation to the event of the individual's bankruptcy used in Section 340(3)(b) envisages a bankruptcy after the doing of the thing in question. It also predicates that the position will be better, not may be."

On the facts of that case, the court held that there was no preference because at the time when the payment was made, it could not be said that the payee would inevitably be benefited by the payment since further service were to be provided by the payee after the payment. There was no evidence to show that when such payment was made, it would definitely be in excess of payment for services to be rendered in the immediate future. The evidence was that if the payment had not been made, the subsequent services would not be rendered.

20.In Re MC Bacon Ltd [1990] BCC 78, Millett J (as he then was) stressed that in view of the deliberate and complete change of the wordings in the legislation, citation of cases decided under the old fraudulent preference provisions might not be of assistance. At p. 87E to p. 88C, His Lordship highlighted some differences between the old law and the new law and explained the requirements under the new law. In contrasting the distinction between the concept of desire under the new law and that of intention under the old law, Millett J made the following points,

(a) Intention is objective, desire is subjective. A man can choose the lesser of two evils without desiring either (p. 87G).

(b) The relevant desire is a desire to produce the effect of putting a creditor/surety/guarantor into a position which, in the event of the company going into insolvent liquidation, will be better than the position he would otherwise have been in (p. 87H).

(c) A man is not to be taken as desiring all the necessary consequences of his actions (p. 87H).

(d) "Some consequences may be of advantage to him and be desired by him; others may not affect him and be matters of indifference to him and while still others may be positively disadvantageous to him and not be desired by him, but be regarded by him as the unavoidable price of obtaining the desired advantages."

(e) A transaction will not be set aside unless the debtor positively wished to improve the creditor's position in the event of his/ its own insolvent liquidation (p. 88A).

(f) Mere presence of the requisite desire is not sufficient. The desire must have influenced the decision to enter into the transaction. That requirement is satisfied if it was one of the factors which operated on the minds of those who made the decision. It need not be the only factor nor a decisive one (p. 88B to C).

21.In the context of corporate insolvency, Millett J said it is still possible to uphold a transaction made by a company in financial difficulties provided that the company is actuated only by proper commercial considerations (p. 87H). See also Re Fairway Magazines Ltd [1993] BCLC 643 at p. 649g. However, it is important to bear in mind that the statutory criteria is whether the transaction in question is influenced by a desire on the part of the debtor to improve the position of the creditor and this is the question that the court should address. Whilst proper commercial consideration for a transaction might provide an evidential basis for undermining an inference of the existence of such a desire, it is by no means the only possible way to rule out the existence of the requisite desire. Take the extreme example of a debtor being forced to make a payment under duress, that payment would not be caught as unfair preference since the requisite desire is absent.

22.In my judgment, the guiding principles for ascertaining whether the requisite desire was present are those set out in Paragraph 20 above.

23.The case law also established that in respect of the requisite desire, the relevant time to consider is the time when the decision is made to do the act that constitute preference instead of the time when the act was performed, see Re MC Bacon Ltd [1990] BCC 78 at p. 88C; Re Fairway Magazines Ltd [1993] BCLC 643 at p. 649h.

24.By reason of the fact that the Sister is a relative of the bankrupt, she is an associate within the meaning of Section 51B. Therefore, there is a presumption under Section 50(5) that the bankrupt was influenced by the requisite desire in deciding to give a preference to her. That presumption could be rebutted by evidence to the contrary.

25.As regards the insolvency of the bankrupt at the time of the transaction, there is a presumption under Section 51(2) in respect of a transaction at an undervalue between a debtor and an associate. However, since there is no evidence of undervalue before me, the presumption is not applicable in the present case.

The $4 million payment by N GEL

26.On the face of it, the payment was not made by the bankrupt. Although the guarantee of December 1997 was signed by the bankrupt as one of the director of NGEL in respect of an indebtedness of the bankrupt, there is insufficient evidence before this court to justify an inference that the bankrupt played any part in the payment in January 2000.

27.To start with, the Trustees had not adduced any evidence to make out a case that the bankrupt was an alter ego of NGEL and the property of NGEL belonged to the bankrupt beneficially. Whilst it is correct that the bankrupt had been a director and shareholder of NGEL and the property of NGEL was used by him and his family members as residence, these facts alone could not justify the piercing of corporate veil. There is no evidence to suggest that the company was used as a device to conceal the true ownership of the assets to evade liability. As acknowledged by Mr Harris, it was quite common for people in this jurisdiction to set up company to hold real property.

28.Mr Harris however relied on the provisions in Section 50(3)(b) to argue that preference includes anything suffered by the bankrupt to be done. He contended that the bankrupt had connived in the payment of the $4 million by NGEL. That submission could only be valid if at the time of the payment, the bankrupt had control over the affairs of the company. The evidence is that the bankrupt was no longer a director of NGEL when the payment was made.

29.Although the 2000 annual return still recorded that the bankrupt was a shareholder, I cannot ignore the effect of the share transfer documents of June 1999. The Trustees referred to a number of matters to attack the transfer,

(a) reference by the bankrupt in the letter of 30 March 2003 to the property as "my residential property";

(b) consideration of the transfer was $1,000, much lower than the value of the property held by NGEL;

(c) the incorrect information contained in the annual return as to the shareholders of NGEL;

(d) the transferee was a daughter of the bankrupt and she had subsequently paid for some holiday expenses of the bankrupt.

30.I do not think these matters, whether taken individually or collectively, were sufficient to establish that the transfer was a sham and the bankrupt retained control over NGEL on the date of payment. I do not read the letter of 30 March 2003 as a confession by the bankrupt that he was the beneficial owner of the property. He was only explaining how the guarantee came into existence. There is no evidence before this court to show that the $1,000 consideration was an undervalue having regard to the then financial position of NGEL. It has to be remembered that by June 1999, NGEL had already undertaken liability under the guarantee to the extent of $4 million. There is no information as to the net asset position of NGEL in June 1999 after such liability is taken into account. Even if this court were to draw the inference that the transfer had not been registered in the books of NGEL, Mr Harris accepted that the transfer could operate to transfer the beneficial interest in the share. The transfer documents were duly stamped and there is no suggestion that they were not authentic. I am not prepared to draw any inference from the payment of a trip to Taiwan in the sum of $2,706 by the daughter who happened to be the transferee that the transfer was not a bona fide one. I note that in the evidence filed by the Trustees, the earliest date the bankrupt was alleged to be insolvent was November 1999.

31.In my judgment, the Trustees failed to prove that the bankrupt had taken part in the decision by NGEL to repay the $4 million in January 2000. In fact, the Trustees did not produce any evidence in respect of the sale of the property by NGEL. Had the Trustees so minded, they could have sought an inquiry pursuant to Section 29 of the Bankruptcy Ordinance concerning the details of the sale and the payment of $4 million in order to ascertain the precise role played by the bankrupt, if any. But they have not done so. Alternatively, the Trustees could issue subpoena calling persons involved in the transactions to give evidence in these proceedings. Again they have not done so. Instead they chose to rely on matters which, on analysis, only provide slender support to their case.

32.It should be noted that the statutory presumption in Section 50(5) cannot assist the Trustees in this respect. Until and unless they establish that the payment was a preference given by the bankrupt, the question of desire is not engaged and the presumption does not begin to operate.

33.There is another reason why the payment by NGEL could not be a preference. The payment would only constitute a preference if it has the effect of putting the Sister into a position which, in the event of the bankruptcy of the debtor, will be better than the position she would have been in if that payment had not been made. As submitted by Mr Chan, the Trustees did not attack the guarantee of December 1997. Hence, what NGEL did in January 2000 in making the $4 million payment was only a performance of its obligation under the guarantee. That obligation it was legally bound to perform even if the debtor was made bankrupt. The payment itself did not improve the position of the Sister. She enjoyed the benefit of the guarantee irrespective of the bankruptcy of her brother.

34.Mr Harris submitted that but for the payment, the bankrupt and his estate would have the benefit of the $4 million. He suggested that the Trustees might seek a winding up of NGEL to have the asset of that company distributed to the bankrupt's estate. There are three answers to that submission. First, as mentioned above, I find that the bankrupt ceased to be a beneficial shareholder of NGEL since June 2000. Second, NGEL was deregistered on 19 January 2001. The Trustees did not challenge the bona fide of that deregistration in these proceedings. Although there are procedures for reinstatement of the company, it seems to me to be far-fetched to suggest it should be reinstated in the present circumstances. Third, even assuming for a moment that the bankrupt remains a shareholder of NGEL and the company has not been dissolved, his right to the $4 million must rank subsequent to the company's liability to its creditors. By reason of the December 1997 guarantee, the Sister became a creditor of NGEL and she must have a better right than the bankrupt (or his estate) to the $4 million.

35.For these reasons, I hold that the payment of $4 million by NGEL was not a preference within Section 50 and the Trustees' claim against the Sister in that respect fails.

The three transactions from December 2000 to July 2001

36.The dispute between the parties in respect of these transactions focused on the question of lack of requisite desire. The Sister contended that because these repayments were made by the bankrupt under pressure from her husband and herself, the bankrupt was not influenced by the requisite desire in deciding to pay. It is accepted that by reason of the statutory presumption, the burden of rebutting such a desire rests on the Sister.

37.I have referred to the evidence of the Sister in her affirmation. In addition, she produced some letters written by her to the bankrupt between November 2000 and February 2001 to support her case. Her affirmation was also confirmed by her husband in his affirmation. As mentioned, the Trustees did not cross-examine them. Nor did they adduce any evidence to show that no such pressure had been exerted. I find nothing inherently implausible in the evidence of the Sister and her husband and I accept their evidence. I find as a fact that they did exert pressure on the bankrupt as deposed by them.

38.The question is whether such evidence rebutted the presumption of requisite desire. Although the burden of proof is on the Sister, the ultimate question is still whether the bankrupt was influenced by the requisite desire when he made those payments or transfers. In answering that question, what I said in Paragraphs 20 to 23 above are relevant.

39.Mr Harris submitted that where there is no direct evidence of the bankrupt's state of mind, the existence or absence of the requisite desire may be inferred from the relevant circumstances. I agree. In the present case, apart from what was said in his letters to the Trustees set out above, the bankrupt did not give evidence in these proceedings as to what was in his mind when he made these payments or transfers to his Sister. One must have regard to the circumstances surrounding the transactions. I note that the three transactions spanned over 8 months and involved transfer of non-liquid assets in two instances and proceeds from life insurance policy in the third instance. Pressure exerted by the Sister and her husband is one of the relevant circumstances (see Ian Fletcher, The Law of Insolvency, 3rd Edn. Para. 8-074 to 075). The financial state of the bankrupt at the material time is also relevant. He was obviously insolvent by that stage. The payment of $650,000 took place on 24 July 2001 and Tsun Fat Finance Company Limited obtained a judgment of $3 million on 25 August 2001.

40.Mr Harris referred to the bankrupt's indebtedness to the other creditors at that time and he submitted it would be unfair to other creditors if these transactions, which clearly preferred the Sister, were allowed to stand. The objective effect of these transactions is not the test. The statutory test is by reference to the subjective desire of the bankrupt. Hence, even though the objective result of these transactions was an improvement of the position of the Sister vis-à-vis the other creditors, that would not be sufficient to trigger the court's power in respect of unfair preference unless the requisite desire is present. In this connection, it is noteworthy in Paras. 1247 to 1258 of the Report of the Cork Committee on Insolvency Law and Practice, the Australian model focusing solely on effect of payment was rejected. Having said that, it is of course open to the court to examine the objective effects of the transactions to see whether it is likely or unlikely that the bankrupt was influenced by these effects when he gave the preference. However, as observed by Millett J, a man is not to be taken as desiring all the necessary consequences of his actions.

41.Whilst the burden of proof is on the Sister, I do not agree with the submission of Mr Harris that the Trustees could not do anything to rebut the assertions of the Sister. They could certainly try to gather evidence from the other creditors to see whether similar pressure had been exerted by them around that period. They could also cross-examine the bankrupt about his motive in making these payments by a Section 29 inquiry or in these proceedings. In the present case, the Trustees chose to adopt a rather passive approach. The only evidence about steps taken by other creditors is the judgments obtained by two of them in August and December 2001 respectively.

42.I do not think there is a rule of law that in order to rebut the statutory presumption of requisite desire, an associate has to show the absence of commensurate pressure from other creditors and I reject Mr Harris' submission to that effect. Ultimately, it is a question of fact. I do not find it easy since neither party called the bankrupt to give evidence about his state of mind at the time of these transactions. The difficulty is compounded by the lack of cross-examination of the Sister and her husband as to the details of the pressure exerted by them.

43.On the evidence before me, I find on the balance of probabilities that the bankrupt made the payment of $650,000 and transferred the share in Maxi Worth Limited and the car as an inevitable choice of the lesser of the two evils instead of having a desire to improve the position of the Sister in the event of his bankruptcy. The visits by the husband of the Sister to his clinic were obviously causing great difficulties to his practice. The fact that the bankrupt had to make two transfers of non-liquid assets in December 2000 and April 2001 respectively to allay them (the share in Maxi Worth Limited representing interest in a club membership and the car was acquired 6 years ago), in my judgment, reflected the intensity of the pressure. The cash payment was the last transaction and it was derived from proceeds of life insurance policies. Had there been a desire to prefer the Sister on the part of the bankrupt, it is more likely that the cash payment would be made earlier. Further, bearing in mind the availability of other cash income during the 12 months before 11 January 2002 as set out in the bankrupt's statement of affairs, had he been influenced by a desire to prefer the Sister, it is likely that he would fully repay the debt due to the Sister. As it happened, he still owed the Sister a sum of $150,000.

44.Therefore, I hold that the Sister has successfully rebutted the statutory presumption and the claims of the Trustees also failed in regard to these transactions.

Conclusion

45.In the circumstances, I order the application of the Trustees to be dismissed with an order nisi that they shall pay the Respondents' costs of the application, such costs to be taxed if not agreed.

46.At the end, I would like to remind insolvency practitioners by referring to a passage in Totty & Moss on Insolvency, Volume 2, Para. H4-06,

"The usefulness of the presumption [of requisite desire] should not be overstated. Its effect is merely to reverse the burden of proof. Where, therefore, there is reason to believe that a director or bankrupt can adduce convincing reasons why the preference was given, proceedings should not be issued merely on the basis that it is up to the creditor to rebut the presumption. When the creditor succeeds in doing so he will be entitled to his costs as against the [trustee] in the same way as if the [trustee] had failed to discharge his burden of establishing the desire to prefer."

47.I was told that in the instant case, the Trustees had obtained an indemnity from one of the creditors. Even so, it is trite that not only must a trustee evaluate the merits of the case before applying for leave to commence this sort of proceedings, they should review its merits from time to time after they have a chance to consider the evidence of the opponents. As mentioned above, there are various means to secure the necessary information from those involved in the relevant transactions to challenge the case of the creditor and in case of doubt, it may be more appropriate to conduct an inquiry under Section 29 instead of launching a Section 50 application right away.

Representation:

Mr Jonathan Harris, instructed by Messrs Johnson, Stokes & Master, for the Applicants

Mr Kenneth C L Chan, instructed by Messrs Hau, Lau, Li & Yueng, for the 1st and 2nd Respondents