LI MAN YAN v. TSOI KWAI YING

HCSD 15 / 2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO. 15 OF 2010

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BETWEEN

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D E C I S I O N

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A. Introduction

1.  This is the Applicant’s application to set aside the statutory demand (“the Statutory Demand”) issued by the Respondent on 12 April 2010.

2.  The Statutory Demand was based on a judgment debt of $240,000 (inclusive of the principal sum of $200,000 and interest thereon and costs up to 28 December 2009) granted under a final judgment (by consent) dated 28 December 2009.

B. The Applicant’s ground to set aside

3.  The Applicant’s grounds to set aside the Statutory Demand can be summarised as follows:

(1) The Applicant is in great financial difficulties (in light of his other liabilities and obligations arising from his divorce) and an Individual Voluntary Arrangement (“IVA”) order was made in about April 2008. Under the IVA, he was required to pay $12,030 each month to various financial institutions. On top of those, he is required to pay $12,000 monthly for mortgage repayments in relation to a property which he has been ordered to transfer his interest in it to his ex-wife under the divorce, and $8,000 monthly for maintenance to his ex-wife. With a present monthly net income of $40,000, he could only barely maintain a living and has no other means to repay the Respondent the judgment debt forthwith or by monthly installments commencing forthwith.

(2) Despite that the Applicant agrees to pay a high interest rate of 15% per annum to compensate the Respondent, the Respondent has refused to accept his proposal of repayment of the judgment debt by way of monthly installments (which are to commence from September 2012) as devised by the Applicant’s IVA consultant and proceeded to issue the Statutory Demand.

(3) The rejection of the Respondent to accept this repayment proposal and to issue the Statutory Demand would cause injustice to other creditors (benefiting and to be benefited under the IVA) if the Applicant is to be bankrupted eventually pursuant to the Statutory Demand.

C. Discussion

4.  Under Rule 48(5) of the Bankruptcy Rules (Cap 6A) (“the Rules”), the Court may set aside a statutory demand if:

“(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;

(b) the debt is disputed on grounds which appear to the court to be substantial;

(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 44(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or

(d) the court is satisfied, on other grounds, that the demand ought to be set aside.”

5.  From the above, it is clear that the Applicant is not relying on rule 48(5)(a) – (c) in the present application.

6.  Under rule 48(5)(d), the Court may set aside a statutory demand if it is satisfied that there are substantial reasons shown by an applicant that there are circumstances which would make it unjust for the statutory demand to give rise to the consequences in that particular case that call for the court’s intervention.  See: Re a Debtor (No. 1 of 1987) [1989] 1 WLR 271 at 276D-E per Nicholls LJ; Budge v A F Budge (Contractors) Ltd (in receivership and liquidation) [1997] BPIR 366 at 371 per Peter Gibson LJ.

7.  In my view, in assessing whether there would be such unjust consequences in a particular case that demand the court’s intervention if the subject matter statutory demand is not set aside, the Court is entitled to and should look at all the circumstances of the case, including the interests of the person issuing the statutory demand.

8.  Looking at the circumstances of the present case, I am not satisfied that there are such unjust consequences that call for the Court’s intervention:

(1) The Respondent is a judgment creditor and is entitled to issue the Statutory Demand as of right.

(2) When the Applicant consented to the judgment debt, the IVA was already in place and thus it must be obvious to him at that time that there was the possibility of a statutory demand being issued against him if he failed (which was likely) to repay the judgment debt.

(3) It is not unreasonable for the Respondent to reject the proposal under the IVA to repay her only in September 2012 after the Applicant has settled his other debts owed to other creditors. There is some legitimacy in the Respondent’s complaint that such an arrangement to subject her right to repayment after all the other creditors is unfair to her as a judgment creditor.

(4) The fact that the Applicant is in great financial difficulties and would not be able to satisfy all creditors at the same time does not provide any unjust circumstances per se, as this would almost invariably be the situation where an undisputed debt under a statutory demand is not satisfied by the debtor.

9.  I would therefore refuse to set aside the Statutory Demand.

D. Conclusion

10.  I will dismiss the Applicant’s application with costs to the Respondent to be taxed if not agreed.  I would further make an order under rule 48(7) of the Rules that that Respondent is authorized to issue a bankruptcy petition against the Applicant after 21 days form the date of this order.