RE ROTHWELL LAURENCE JAMES

HCB 7851/2025

[2026] HKCFI 4971

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7851 OF 2025

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D E C I S I O N

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1.  On 13 October 2025 the Petitioners presented a Petition seeking a bankruptcy order against the Debtor for failure to comply with a statutory demand. The statutory demand was in respect of a debt of HK$75,344.48 (“Debt”). The Debt arises from (1) orders made by Master Queenie Lau and Mr Justice Yeung on 17 May 2021 and 26 November 2021 respectively in HCA 1692/2019 (“Action”) against the Debtor and Callum Trevor Lam (“Mr Lam”) totalling HK$35,344.48 for which they were jointly and severally liable and (2) orders made by Master MK Liu on 6 May 2024 in the Action for HK$40,000 against Mr Lam and the Debtor for which they were also jointly and severally liable. The Petition sets out the detailed calculation of the Debt, which takes into account sums owed by the Petitioners to the Debtor and Mr Lam. I do not understand the calculation of the Debt to be contentious.

2.  In his 1^st affirmation in opposition to the Petition the Debtor says in [11] “My objection is a narrow procedural one. I respectfully submit that it would be unjust and procedurally improper to permit the insolvency jurisdiction to be invoked in advance of the Court’s own pending determination as to whether enforcement of the costs orders relied upon should proceed at this stage”. In [24], [28] and [29] the Debtor continues “The Petitioners rely upon certain costs orders made in earlier proceedings between the parties. I do not dispute that such costs orders exist, nor that they were duly made by the Court against both sides” ….. “I do not assert that the costs orders are invalid, nor do I contend that the statutory demand is incapable of being issued as a matter of law” …… “The issue raised by the Affirmation is not whether the Petitioners may ever enforce the costs orders, but whether it is procedurally proper for them to deploy the insolvency jurisdiction before the Court has determined whether enforcement should proceed at this stage”. On the face of these passages the Debtor is acknowledging that the Debt is payable, but asserting that there is a simple procedural reason why the Petitioners should not have issued the Petition. Despite this his 1^st affirmation is 20 pages, his 2^nd affirmation 170 pages and he served a 95-page skeleton argument with 51 authorities. However, properly understood the issues are straightforward, although not for the reasons that I glean from the material the Debtor have filed, the Debtor was thinking when preparing his 1^st affirmation.

3.  The defence amounts to this.

(1) The Petitioners have stated through their solicitors that if the Debtor is bankrupted, they will discontinue the Action.

(2) If they do so they will have to pay the Debtor’s costs which will exceed the Debt.

(3) This being the case it would be improper to make a bankruptcy order, because necessarily the discontinuation of the Action will create a situation which is inconsistent with the Debtor owing the Petitioners money and being treated as bankrupt.

(4) Additionally, the Debt has been calculated by setting-off the costs orders in the Debtor’s favour and “That offset is not satisfaction”: [649] of the 2^nd affirmation. It seems to be inherent in this evidence that the Debtor is suggesting that before the Petitioners can enforce payment of the balance due under the costs orders they have to make actual payment to him of the sums in his favour. They cannot set-off these sums “arithmetically”: [649] of the 2^nd affirmation.

(5) The Petition is brought for an improper collateral purpose, namely, to provide a mechanism for ending the Action without any adverse costs order.

(6) He has not been properly served.

4.  A person who believes that he is owed a liquidated sum of money, i.e., a debt, may serve a statutory demand on the debtor[1]. If the statutory demand is not satisfied, the creditor may present a bankruptcy petition and rely on the statutory demand as establishing both locus and insolvency[2]. In order to defeat a petition presented on the basis of non-payment of a statutory demand, the debtor must prove that he has a bona fide defence on substantial grounds[3]. If the debtor fails to do this generally the creditor is entitled to a bankruptcy order ex debito justitae[4]. These are elementary principles of bankruptcy law familiar to lawyers practising in the field. There is no reference to them in the 190 pages of evidence and 95 pages of written submissions produced by the Debtor. An asserted improper motive in presenting a petition in respect of an undisputed or undisputable debt is not an assertion of a bona fide defence on substantial grounds.

5.  The nearest one gets to the assertion of a defence by the Debtor is the fourth point, namely, that although he admits that he owes the Petitioners pursuant to the costs orders more than they owe him, they are not entitled to rely on the balance in their favour until they have paid him. This is plainly wrong.

6.  The other arguments (other than the service point, which I deal with later) are based on false assumptions. First, that it is improper for a creditor, who has an undisputable debt to issue a bankruptcy petition if he is also motivated by a desire to achieve by the bankruptcy another advantage. No authority supports this contention. If a debtor refuses to pay a debt a creditor is entitled to seek a bankruptcy order. This entitlement is not lost or qualified because the creditor will secure another and collateral benefit. Secondly, although an as-of-yet unquantified order for costs that the court is satisfied will result in the debtor being owed by the creditor more than the debt relied on by the creditor constitutes a bona fide defence on substantial grounds[5], the assertion that at some time in the future the debtor may obtain such a costs order does not. Thirdly, the Debtor’s argument that the Petitioners’ purpose in issuing the Petition is to manufacture a situation, which allows them to discontinue the Action with no order as to costs, is speculation. It does not appear to be disputed by the Petitioners that they would prefer to terminate the Action and in principle would be amenable to doing so with no order as to costs. However, if the Petition is dismissed it does not follow that the Petitioners will discontinue the Action if they must pay the Debtor’s costs of the Action. On the contrary the most obvious assumption is that if the Petition is dismissed, they will continue with the Action. More significantly it is likely that they assume that if the Court finds in their favour and the Debtor is faced with the prospect of a bankruptcy order being made, he will pay the Debt. I note that I asked the Debtor at the hearing whether if I rejected his arguments, he would pay the Debt rather than have the Court make him bankrupt. He unsurprisingly said yes.

7.  So far as service is concerned the position is, as I understand it, as follows. The Petitioners obtained an order for substituted service of the Petition on the Debtor. The Petition was served in accordance with the order. The Debtor says that the order was improperly obtained, because it was unnecessary. I understand that an application was issued to set aside the order for substituted service, but it appears not to have been progressed. The impression I had at the first hearing of the Petition was that the Debtor accepted that he had been served, certainly in practice, and he was not taking this point. That being said, as the order for substituted service has not been set aside, in my view the Court should proceed to deal with the Petition on the basis that it has been properly served.

8.  In my view the Debtor’s opposition to the Petition is misconceived. Unless he pays the Debt I will make a bankruptcy order.

9.  I will make the following orders:

(1) The Petition be listed for hearing at 10am on 28 September 2026 at which time a bankruptcy order will be pronounced unless by 5pm on 19 September 2026 the Debt has been settled in full.

(2) General liberty to apply.

(3) A costs order nisi that the Debtor pays the Petitioners’ costs on an indemnity basis.