RE CHENG JONATHAN

HCB 1888/2024

[2024] HKCFI 3669

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1888 OF 2024

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REASONS FOR JUDGMENT

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1.  At the hearing of the petition presented by the petitioner Ultimate Prosperity Limited (“Petitioner”)  on 18 March 2024 (“Petition”), I made the usual bankruptcy order against the debtor Mr Cheng Jonathan (“Debtor”).  These are the reasons for my judgment.

2.  The Petition is based on the Debtor’s failure to comply with a statutory demand dated 10 January 2023 (“SD”).  The SD relied on the summary judgment dated 25 November 2022 given by Master Bonnie Cheng in HCA 229/2022 (“Judgment”)  against the Debtor for US$15,113,628.14 and HK$323,296.44 together with interest and costs (“Debt”).

3.  The Petition was served on the Debtor by way of substituted service pursuant to the order of Master D To made on 22 August 2024 (“Service Order”).

4.  There is no dispute that the Debtor is liable to pay the Debt and, therefore, the Petitioner is entitled ex debito justitiae to seek a bankruptcy order against the Debtor (Re Chan Chun Chuen[2021] HKCFI 2385 at §14).   

5.  As the Debtor has failed to comply with the SD, he is deemed unable to pay his debts by virtue of s.6A(1)(a)  of the Bankruptcy Ordinance (Cap. 6)  (“BO”).   

6.  On 3 December 2024, the Debtor filed a Notice of Intention to Oppose the Petition (“Notice”), stating that (1)  there is a bona fide dispute on substantial grounds in respect of the Debt given that the Petitioner is an unlicensed money lender and the effective interest of the loan exceeds 60% p.a. such that the loan agreement is unenforceable (“Appeal Ground”); and (2)  he does not submit to the jurisdiction of Hong Kong in that he (a)  was not domiciled in Hong Kong, (b)  was not present in Hong Kong on the day the Petition was presented, and (c)  “had not at any time in the period of 3 years ending with that day been ordinarily resident, had a place of residence or carried on business in Hong Kong” (“Jurisdiction Ground”).

7.  On 4 December 2024, the Debtor’s solicitor filed an affirmation (“Lo 1”)  exhibiting an undated and un-notarised affirmation of the Debtor in opposition to the Petition (“Cheng 1^st”). 

8.  On 6 December 2024, the Debtor issued a summons seeking “insofar as necessary” leave under rule 68 of the Bankruptcy Rules (Cap. 6A)  and s.100(4)  of the BO to file (1)  the Notice and (2)  Lo 1^st (which exhibited Cheng 1^st)  (“Time Summons”).  In support of the Time Summons, the Debtor’s solicitor filed another affirmation exhibiting an undated and un-notarised 2^nd affirmation of the Debtor (“Cheng 2^nd”). 

9.  At the first callover hearing on 9 December 2024, Ng J observed that Cheng 1^st and Cheng 2^nd were only signed statements and  no affirmation in opposition had been made by the Debtor, and adjourned the Petition and the Time Summons to the present hearing.

10.  On 11 December 2024, the Debtor took out a summons to set aside the Service Order (“Set Aside Summons”), which was supported by an affirmation made by the solicitor exhibiting the Debtor’s undated and un-notarised 3^rd affirmation (“Cheng 3^rd”).

11.  The requirement under rule 68 is mandatory and must be complied with.  This is reinforced by §16.1 of PD 3.1 which states that an application for extension of time to file such notice must be supported with good reasons, and the court would normally grant leave to the respondent to file an affidavit out of time conditional upon payment into court.  It is incumbent upon the Debtor to satisfy the court that there is a good reason to justify the extension of time sought.  Absent explanation for the delay, there is no proper basis to deny the Petitioner’s right to seek an immediate bankruptcy order (Re Liu Jiangyuan [2023] HKCFI 2326 at §§24-25).

12.  I am not satisfied that the Debtor has shown good reasons to justify the extension of time to file the Notice (which expired on 9 May 2024[1])  even if the court were to treat Cheng 1^st and Cheng 2^nd as affirmations (which they are not):

(1)  There is no explanation in Cheng 1^st as to why there was a 3-month delay in filing the Notice.  The Debtor’s assertion in Cheng 2^nd that his bank account had been frozen was not a justification for seeking extension of time as rule 68 only requires the Debtor to state the grounds in opposition to the Petition. 

(2)  In any event, on his own case, the Debtor’s bank account had since May 2024 been unfrozen, and he discovered the existence of the Petition sometime after May 2024.  Yet, no step was taken by the Debtor to contest the Petition. 

(3)  The Debtor’s assertion that he decided to “refrain from showing hostility” so as not to ruin the ongoing negotiations rings very hollow.  There is no detail on the alleged negotiations.  It is difficult to see how filing the Notice would hinder the alleged negotiations.  The Debtor only has himself to blame if he waited until late November 2024 to obtain legal advice.

13.  As no good reason has been shown by the Debtor, there is no basis for the court to exercise its discretion to allow the Debtor to file the Notice out of time or to raise the grounds stated therein. 

14.  In any event, I do not think that the grounds raised in the Notice constitute valid grounds in opposition to the Petition.

15.  The Appeal Ground fails for the following reasons:

(1)  A debtor’s delay in prosecuting an appeal, coupled with a complete absence of explanation for the delay is sufficient for the court to hold that the appeal should not affect the petitioner’s right to seek a bankruptcy order against the debtor (Re Koon Wing Yee [2023] HKCFI 2301 at §26).

(2)  The fact that the debtor does not prosecute the appeal diligently shows that he does not think too much of his appeal.  Whatever the court may think of the appeal, if the debtor is not prosecuting it seriously, the court should not allow the petition to be affected by it (Re Choy Wai Bor, HCA 8565/2001, 28 May 2002, at §§37-38).

(3)  The Judgment was entered against the Debtor more than 2 years ago.  Although the Debtor filed a notice of appeal on 9 December 2022, he did not take any step to prosecute the appeal until 28 November 2024 when Messrs. Haldanes informed the Petitioner that the Debtor intended to fix a hearing date for the appeal.  As a result, the hearing of the appeal will only take place on 10 June 2025. 

(4)  In the meantime, no application for stay of execution has been made.  The Judgment remains enforceable.

(5)  The above is sufficient to dispose of this ground.  In any event, the Debtor has not shown that the Money Lenders Ordinance (Cap. 163)  applied to the loan which gave rise to the Judgment. The loan agreement was made between the Petitioner (a BVI company)  and the borrower (a Cayman Islands company).  The precondition that the lender was carrying on a business as money lender in Hong Kong or advertising, announcing or holding itself out as so conducting is not met (Hong Kong Shanghai (Shipping)  Ltd v The Owners of the Ships or Vessels “Cavalry” [1987] HKLRD 287 at 296I). 

16.  The Jurisdiction Ground also fails for the following reasons:

(1)  The Petition states that the Debtor is domiciled in Hong Kong with last known addresses at Admiralty Centre and University Heights, which has been verified by affidavit.  It is for the Debtor to raise a challenge to the court’s jurisdiction (Re Deng Jiang [2024] HKCFI 2260 at §33(1)).  There is no admissible evidence from the Debtor to contradict this fact.

(2)  On 18 October 2024, Messrs. Haldanes on behalf of the Debtor filed a Notice to Act and requested the Petitioner to provide a full set of the papers in relation to these proceedings, without any reservation of the right to contest jurisdiction.  The Petitioner duly served the papers on Haldanes on the same date. 

17.  In any event, I do not think that the Debtor has discharged the burden of showing that he has changed his domicile:

(1)  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 Deng Jiang  §33(4).

(2)  The Debtor admits that he has since 2017 worked in Hong Kong and has since early 2020 rented and stayed at the University Heights until December 2022.[2] He continues to use a residential address in Braemar Hill Road by providing it to the bank albeit that he claims that the address is that of his friend but provides no evidence in support of the assertion. This shows that the Debtor has since 2017 resided and worked in Hong Kong. There is no admissible evidence to show that during this period, the Debtor intended to reside elsewhere, let alone permanently. I do not accept his belated assertion in Cheng 3^rd (§13), where he claims that he had no intention to reside in Hong Kong permanently. If there were any truth in that assertion, I would expect the Debtor to have said so at the outset.

18.  Even if, contrary to my view, there were any proper basis to allow the Debtor to raise the Jurisdiction Ground and to rely on Cheng 1^st and Cheng 2^nd as evidence, it seems to me that the “facts” and matters stated in Cheng 1^st and Cheng 2^nd show that the court has jurisdiction over the Debtor on the “ordinary residence” limb (under s.4(1)(c)(i)  of BO)  or the “carried on business” limb (under s.4(1)(c)(ii)  of BO), such that there would be no utility in the court adjourning the Petition for the parties to argue on the Jurisdiction Ground:

(1)  Ordinary residence means that the person must be habitually and normally resident here, apart from temporary or occasional absences of long or short duration. The petitioner does not need to show that the debtor was ordinarily resident throughout the 3-year period. Nor is there any requirement to show the debtor had any intention to remain in Hong Kong indefinitely or permanently (Re Pang Yufeng [2024] HKCFI 663 at §§38-39).  

(2)  The Debtor admits that he resided and worked in Hong Kong from 2017 until (at least)  December 2022. The mere fact that he left Hong Kong after December 2022 is immaterial because occasional absence, even for a long duration, would not make him cease to be ordinarily resident (Re Deng Jiang at §§34, 37(2)). His subjective characterisation of the University Heights address as a “hotel” is wholly irrelevant.

(3)  The Debtor admits in Cheng 1^st (§§36-40)  that he carried on business in Hong Kong from 2017 and his company, LC Capital Limited, carried on business at the address at Admiralty Centre during that period. Although the Debtor asserts that he left Hong Kong in December 2022 and has not returned, the fact remains that his company, LC Capital Limited, continued to exist until it was wound up by the court in December 2023. This shows that the Debtor has during the 3-year period carried on business in Hong Kong.

19.  The Set Aside Summons should be dismissed in limine.  As stated above, the Debtor has through Messrs. Haldanes accepted service of the Petition.  Even if there were any defect in the Service Order (which has not been shown), it would be pointless to set aside the Service Order as the Debtor has on 18 October 2024 accepted service of the Petition. 

20.  Leaving aside the fact that there is no admissible evidence in support of the Set Aside Summons, it has no merits:

(1)  The Debtor alleges that the Petition failed to disclose the existence of his address at 21A Dunvegan Road, Applecross, Western Australian 5163 (“Australian Dunvegan Address”), as recorded in the Personal Guarantee which formed the basis of the Judgment.

(2)  This is immaterial as the Debtor stated (in Cheng 3^rd)  that he had moved from the Australian Dunvegan Address in December 2023.  More importantly, there is no suggestion by the Debtor that the University Heights and Admiralty Centre addresses and his email addresses have not been used by him.  To the contrary, the Debtor accepts that he used the two addresses and the email addresses although he claims that (a)  LC Capital has been evicted from the Admiralty Centre in 2022; (b)  he has not returned to University Heights since 2022; and (c)  he ceased to use the two email addresses after LC Capital was wound up in December 2023.