CHEN YUNG NGAI KENNETH, one of the joint and several trustees of the property of the Bankrupt, LI SHU CHUNG v. KAREN JANE LI AND OTHERS

HCA 415/2021

[2026] HKCFI 1130

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 415 OF 2021

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

1.  Mr LI Shu Chung Ken (“the Bankrupt” or “Ken Li”) was engaged in a series of litigation with his father and sister. He lost and was ordered to pay costs of over HK$11.10 million in aggregate. On his judgment creditors’ petition, he was made bankrupt in 2019. This is the trial of the claim by Mr Kenneth Chen, one of his joint Trustees in Bankruptcy (“the Trustees”) to set aside certain transactions which are said to be in fraud of creditors. The subject matter of those transactions are (i) the entire shareholding in D6 (“Joesh”); and (ii) 34% shareholding in D7 (“Roteland”), of which Joesh is the registered shareholder.

2.  It is the Trustees’ case that the Bankrupt is the beneficial owner of the 34% shareholding in Roteland, based on the repeated admissions made by the Bankrupt and Joesh on oath in other legal proceedings to that effect.

3.  It is also the Trustee’s case that the shares in Joesh were transferred from the Bankrupt to his family members, D1-D5, without consideration (“the Disposition”), shortly after a judgment was handed down against the Bankrupt, to evade an adverse cost order.

4.  The present causes of action are:

(1) As against the Bankrupt: an order to set aside the Disposition under sections 49 and 51A of the Bankruptcy Ordinance, Cap 6 (“BO”) and section 60 of the Conveyancing and property Ordinance, Cap 219 (“CPO”); and

(2) As against D1-D5: constructive trust in holding the shares of Joesh for the Bankrupt, by reason of their unconscionable, dishonest and malicious conduct.

5.  Out of all the Defendants, only D2 and D6 acknowledged service and filed defences. They denied that the Bankrupt ever held the beneficial interest in Joesh, but that if any shares were held in the name of the Bankrupt, they were held on trust for the Bankrupt’s wife and his children (D1-D5). Joesh also did and does not hold the 34% Roteland shares on trust for the Bankrupt or anyone.

6.  D2 was originally represented by lawyers. He had actively defended these proceedings until he filed a notice to act in person on 22 February 2024. ln his letters since May 2024, he has repeatedly stated that he would adopt a neutral and independent stance, that he had no personal stake in the outcome and that he would accept any decision of the Court. He did not attend the pre-trial review and the trial.

7.  D6 was wound up in the BVI in December 2023. Its solicitors, Jones Day, had ceased to act since March 2024. D6’s liquidators have informed the Court by letters that they decided not to carry on and shall not participate in the proceedings on behalf of D6; they would take a neutral stance instead.

8.  Pursuant to the Order dated 16 June 2025, “service of the Writ, Concurrent Writ, Concurrent Amended Writ, Concurrent Re-Amended Writ and Concurrent Re-Re-Amended Writ and subsequent summonses, notices, orders, affidavits, witness statements, skeleton submissions and any other documents relating to or arising out of this action on all Defendants up to the Pre-Trial Review on 3 June 2025 are deemed valid, effective and sufficient”.

9.  In view of paragraphs 5-8 above, I am satisfied that all the Defendants had been served. D2 and D6 had notice of the trial but chose not to attend. I thus proceeded to hear the case in the absence of the Defendants.

10.  Although the defendant is absent, a plaintiff still has an obligation to fairly present its case and identify points of factual or legal note which may be of benefit to the defendant. The plaintiff should not pursue claims that are not sustainable and should identify to the court points which a defendant had taken before it decided to play no further part in the action. The plaintiff should also consider and bring to the Court’s attention points which had not been taken by the defendants but which might well have been had they decided to defend the proceedings. See Pacific Rainbow International Inc v Shenzhen Wolverine Technology Ltd & ors [2023] 4 HKC 322, §5, Au-Yeung J.

B. BACKGROUND

B1. The parties

11.  The Bankrupt was adjudged bankrupt on 11 October 2019. The Trustees were appointed on 14 November 2019.

12.  D1 is the Bankrupt’s wife (“Mrs Li”).

13.  The 2^nd to 5^th Defendants (“Joshua”, “Charlotte”, “Amy” and “Isabella”, respectively), are children of the Bankrupt and Mrs Li. There is another son (“Joseph”) and a daughter.

14.  Joesh is a company incorporated in the BVI. Its certificate of incumbency was previously produced in early 2018 to Lee Shu Hang and Seline Li as executors of the estate of the Bankrupt’s father and Seline Li (collectively, “the Petitioners”) to show that the Bankrupt was not a registered shareholder or director of Joesh at that time.

15.  Roteland is a Hong Kong company.

(1) Based on the records of the Companies Registry, Joesh holds 34% of Roteland. The remaining 66% is held by Everwish Holdings Ltd (“Everwish”), owned and/or controlled by the Bankrupt’s father, Lee Sai Nam (“Lee Senior”).

(2) Roteland in turn holds a property at 5A, Wiltshire Road, Kowloon Tong, Hong Kong (“the Family Residence”).

B2. Background leading to the bankruptcy order

16.  Lee Senior sued the Bankrupt and Joseph in HCA 1711/2009 claiming beneficial ownership over all the shareholding in Luen Tat Watch Band Manufacturer Limited (“Luen Tat”) and Hong Kong Pak Tat Trading Co (“Pak Tat”). The Bankrupt counterclaimed against Lee Senior and his sister, Seline Li. It was hostile litigation.

17.  On 9 December 2015, DHCJ Leung (as he then was) handed down judgment, holding against the Bankrupt on all issues and ordered him to bear costs of that action (“HCA 1711/2009 Judgment”).

18.  The Bankrupt appealed but the HCA 1711/2009 Judgment was upheld by the Court of Appeal in CACV 2/2016 by a judgment dated 19 January 2017 and the Bankrupt was ordered to pay costs.

19.  Pursuant to 2 Allocaturs, both dated 27 November 2017, issued in HCA 1711/2009 (“the Allocaturs”) the Bankrupt was liable to pay costs of HK$4,875,523.20 and HK$4,914,211.70, together with interests at judgment rate.

20.  Meanwhile, in February 2016, about 3 months after the HCA 1711/2009 Judgment, the Disposition took place, whereby D1-D5 became shareholders of Joesh. Joshua and Charlotte became the directors of Joesh.

21.  On 24 September 2018, the Petitioners issued a petition against the Bankrupt in HCB 5475/2018 (“the Bankruptcy Proceeding”). The Debt (based on the Allocaturs) was HK$11,178.433.30.

22.  On 16 September 2011, Joesh petitioned in HCCW 302/2011 for an order that Everwish or Roteland buy out Joesh’s shares in Roteland or that Roteland be wound up.

23.  The Bankrupt contested the bankruptcy petition on 4 grounds, amongst which was that he had made a reasonable settlement proposal, ie to charge the Debt against the 34% Roteland shares (“the Settlement Proposal”).

24.  On 11 October 2019, the Bankrupt was adjudged bankrupt by Au-Yeung J in HCB 5475/2018 (“the Bankruptcy Judgment”): [2019] HKCFI 2500. All of the defences of the Bankrupt were rejected, with an order for costs to the Petitioners on indemnity basis (§136 of the Bankruptcy Judgment).

25.  On 14 November 2019, the Trustees were appointed.

26.  As of March 2021, the proof of debts submitted by the creditors amounted to approximately HK$171.1 million. The Debt amounted to about 7.36% of the total amount of proof of debts.

C. OWNERSHIP OF THE JOESH SHARES

27.  The New Joesh Trust was a purported trust set up by the Bankrupt on or around 23 June 2009 to replace the purported Joesh Trust set up by him on or around 29 March 1995. The Bankrupt was the settlor, protector and beneficiary of the purported New Joesh Trust at all material times. There were professional trustees (BNP) engaged by the Bankrupt.

28.  As admitted in §93 of the witness statement of the Bankrupt dated 27 September 2013 in HCA 1711/2009, when BNP found out about the Bankrupt’s litigations with Lee Senior, they indicated to the Bankrupt that they did not wish to be involved in the litigations. Hence, on 16 July 2010, the 2 shares in Joesh were transferred back to the Bankrupt.

29.  Accordingly, from 16 July 2010 until the Disposition in February 2016, the Bankrupt had held the only 2 shares in Joesh (ie 100% shareholding), with both the legal title and full beneficial interest.

30.  About 3 months after the HCA 1711/2009 Judgment, the Disposition occurred, whereby the Bankrupt caused Joesh to allot shares and transfer the entire shareholding away. He no longer remained a registered shareholder of Joesh. The shareholding of Joesh became this:

D1 (Mrs Li)	500 shares	50%
D2 (Joshua)	125 shares	12.5%
D3 (Charlotte)	125 shares	12.5%
D4 (Amy)	125 shares	12.5%
D5 (Isabella)	125 shares	12.5%
TOTAL	1000 shares	100%

31.  This transfer did not include Joseph, who was also subject to a costs order in the HCA 1711 Judgment; and the Bankrupt’s youngest daughter, who was a minor at that time.

32.  The effect of the Disposition is that it divested the bulk of the Bankrupt’s assets to his family members to the prejudice of the Bankrupt’s creditors. The Trustees dispute the validity of this Disposition.

D. THE BANKRUPT’S BENEFICIAL OWNERSHIP OVER THE 34% ROTELAND SHARES

33.  The Bankrupt had repeatedly admitted on oath in other legal proceedings that he was the beneficial owner of the 34% Roteland shares.

D1. HCA 351/2010

34.  In his affirmation filed on 10 March 2010 (§5), the Bankrupt stated:

“In other words, since about 1995, the 1^st Defendant [Lee Senior] and I have always been the only two beneficial owners of all of the Company’s [Roteland’s] shares and the 1^st Defendant and I are respectively in control of 224,000 shares (66%) and 115,600 shares (34%) in [Roteland] through our respective nominees/companies in our control.”

35.  In his 2^nd affirmation filed on 23 April 2010 (§§16-17), the Bankrupt stated:

“16. In view of the joint acquisition of the Property by the 1^st Defendant [Lee Senior] and myself at the ratio of 66 to 34, it was all along the agreement between the 1^st Defendant and myself that I shall be beneficially entitled to 34% shareholding in the Company [Roteland]. This is borne out by the records filed by the Company [Roteland] with the Companies Registry which were produced as exhibit “LSC-2” to my 1^st Affirmation. In particular:

(1) In about 1995, I and Anley Trustees Limited (controlled by me) held 3,400 and 112,200 out of 340,000 shares of the Company (altogether 34%), whilst Polylane (controlled by the 1^st Defendant) held 224,400 out of 340,000 shares (66%).

(2) In about 2008, Joesh (controlled by me) held 115,600 out of 340,000 shares of the Company (altogether 34%), whilst the 1^st Defendant’s vehicle held 224,400 out of 340,000 shares (66%).

17. Indeed, my entitlement as to 34% of the shareholding in the Company [Roteland] has never been challenged by the 1^st Defendant, who admitted my shareholding entitlement at paragraph 3 of his Affirmation. Needless to say, my 34% shareholding entitlement is reflective of the agreement with the 1^st Defendant that I shall be entitled to 34% interest in the Property (albeit through the Company as our corporate vehicle).”

D2. HCA 853/2010

36.  In the Bankrupt and Joesh’s Amended Defence and Amended Counterclaim (§9(2)), verified by a statement of truth signed by the Bankrupt, filed on 15 September 2010, it was pleaded that:

“At all material times, Ken Li held and still holds a 34% shareholding in Roteland by himself and/or through his nominee (currently being Joesh) in line with his 34% beneficial interest in the Property. In particular, at or around 1995, a total of 112,200 shares in Roteland were allotted to Anley Trustees Limited Corporation, the nominee and trustee of Ken Li. At the same time, Ken Li still held 3,400 shares in Roteland in his own name whilst LSN [Lee Senior] held 224,400 shares in Roteland through his nominee Polylane Limited (“Polylane”). Thus, Ken Li and LSN owned and/or controlled 34% and 66% shareholding in Roteland respectively. The aforesaid shares would not have been allotted to and held by the respective nominees of Ken Li and LSN but for their corresponding 34% and 66% beneficial interest in the Property as pleaded hereinabove.”

D3. HCA 1711/2009

37.  In the witness statement of the Bankrupt (§31) dated 27 September 2013, verified by a statement of truth signed by the Bankrupt and affirmed and adopted by the Bankrupt on oath at the trial that took place on 26-28 March 2014, the Bankrupt stated that:

“Roteland was operated as a quasi partnership between LSN [Lee Senior] and me. Since 1993, LSN and/or his nominees held 66% of the shares in Roteland, whilst my nominees and/or I held the remaining 34% of the shares in it. Since 1987, we have been the only directors of Roteland. See Document 5 of my 3^rd Supplemental List of Documents being copy of Annual Return of Roteland from 1987 to 2009.”

D4. HCCW 302/2011

38.  In §5 of Joesh’s Amended Petition for winding-up of Roteland, filed with a verifying affirmation of the Bankrupt on 3 November 2017, it was pleaded that:

“Ken Li [the Bankrupt] is the eldest son of the family. The Petitioner [Joesh] is [sic] and Anley Trustees Limited (“Anley”) both incorporated in the British Virgin Islands (“BVI”) was (sic) corporate vehicles through which Ken Li held his shares in the Company [Roteland].”

39.  In §8 of the Amended Petition, it was pleaded that:

“The registered shareholders of the Company [Roteland] and their shareholdings have undergone a number of changes since the date of incorporation. From 21 December 1993, all the issued shares have been held by and registered in the names of Ken Li [the Bankrupt] and Lee Senior (or their respective corporate vehicles and nominees) as to 34% and 66% respectively …”

The latest position, from July 2008 to the date of the Amended Petition showed that the shareholders were Joesh and Everwish, still holding in the proportion of 34% and 66%, respectively.

40.  In §2 of Joesh’s Amended Particulars of Claims, verified by a statement of truth signed by the Bankrupt, filed on 3 November 2017, it was pleaded that

“2. Ken Li holds his shares in the Company [Roteland] through the Petitioner [Joesh] and previously through Anley Trustees Limited (“Anley”) (both incorporated in the British Virgin Islands (“the BVI”).”

3. Lee Senior holds his shares in the Company [Roteland] through Everwish Holdings Limited, the 3^rd Respondent herein (Everwish”) and previously through a number of ‘corporate vehicles, including Polylane Limited (“Polylane”), Westminister Assets Limited (“Westminister”), and, Allied Ever Holdings Limited (“Allied”) (all of which were incorporated in the BVI).”

…

5. Since 21 December 1993 until 31 July 2008, all the issued shares have been held by and registered in the names of Ken Li and Lee Senior (or their respective corporate vehicles and nominees) as to 34% and 66% respectively. From 31 July 2008 to date, 115,600 Shares or 34% of the capital of the Company [Roteland] have been and still are registered in the name of the Petitioner [Joesh], whilse 224,400 Shares or 66% of the capital of the Company [Roteland] have been and still are in the name of the 3^rd Respondent [Everwish] as nominee for Lee Senior.”

41.  In §14 of Joesh’s Amended Points of Reply filed on 12 February 2018, verified by a statement of truth signed by the Bankrpupt, it was pleaded that:

“Save it is denied that shares in the Company [Roteland] were held in accordance with the directions and/or instructions of LSN, Paragraph 13 is noted. It is averred that in line with Ken Li’s beneficial interest (34%) in the Property, he held at all material times and still holds by himself and/or through his nominee (currently being Joesh) a 34% shareholding in the Company [Roteland].”

D5. Other evidence corroborating the Bankrupt’s admission as to beneficial ownership of the 34% Roteland shares

42.  The admissions were reinforced by the Bankrupt’s witness statement dated 8 April 2022 in the UK Business and Property Courts, explaining his assets and 6 loan agreements between him as the borrower and ACJJIA Limited as the lender from 10/2015 to 2/2016 for a sum of HK$11.4 million. All the 6 loan agreements were prepared by a UK firm Berwin Leighton Paisner LLP. The recitals of these loan agreements stated that:

(1) ACJJIA Limited was held by the Purported New Joesh Trust which was settled by the Bankrupt;

(2) The Bankrupt was a beneficiary of the Purported New BNP Trust.

43.  The fact that the Bankrupt has always been in control and beneficially owned the shares of Joesh and Roteland are fortified by the letters from BNP[1], which confirmed that:

(1) Joesh Trust was formed on 29 March 1995 and was terminated on 24 July 2009.

(2) The New Joesh Trust was formed on 23 June 2009. The Bankrupt had reserved power under the Purported New Joesh Trust.

(3) The Bankrupt was the only settlor of both Trusts.

(4) In respect of the discretionary powers of the trustees under each of these Trusts, during the period of administration for which BNP acted as trustee, BNP looked only to the Bankrupt for guidance.

44.  The Bankrupt himself confirmed in his letter dated 22 April 2025 copied to this Court, that he “became a beneficiary of the New Joesh Trust around April 2014”.

45.  In defence to the petition for his bankruptcy, the Bankrupt had put forward the Settlement Proposal. Charlotte’s affirmation in support of her father never mentioned about who owned the beneficial interest in the Joesh shares or that the Bankrupt had provided any consideration in return for the Settlement Proposal.

E. DEFENCE

46.  D2’s defence is that:

(1) At all material times (since about March 1995), the Bankrupt “did not ever hold any beneficial interests in Joesh”. If he did have any shareholding registered in his own name, such shares were held on trust for and on behalf of D1-D5. This trust was created in or about July 2010, when BNP terminated the then discretionary trust and transferred the relevant trust assets to the Bankrupt as the trustee of a bare trust in favour of D1-D5.

(2) D2 used to hold about 1/8 of the issued capital of Joesh. However, he was tired of the greed of his uncle and aunt in the assets of his grandfather and their endless disputes with the Bankrupt. So in about June 2020, D2 signed all requisite transfer document to give up his shareholding in Joesh to his siblings at nil consideration. The relevant transfer document he signed did not name the targeted transferee, despite D2’s knowledge that such transferee was meant to be one of his siblings. D2 has not retained any copy of the transfer document as signed. He has never held any beneficial interest in Joesh after he ceased his shareholding since about 29 June 2020.

47.  D2 and D6

(1) admit that Joesh is the registered shareholder of 34% Roteland shares, which in turn holds the Family Residence;

(2) but claim that, at all material times, Joesh did not and does not hold 34% Roteland shares on trust for, or as nominee of, the Bankrupt or for any one as alleged or at all.

F. ISSUES

48.  The issues can be classified as:

(1) Roteland Shares Issue: Whether the Bankrupt was the beneficial owner of the Roteland Shares at the time of his bankruptcy and Joesh was the Bankrupt’s nominee/trustee to hold the shares on his behalf;

(2) BO Issue: Whether the Joesh Shares as allotted and transferred in the Disposition should be vested in the Plaintiff pursuant to BO sections 49 and 51A;

(3) CPO Issue: Whether the Disposition should be set aside pursuant to CPO section 60; and

(4) Constructive Trust Issue: Whether D1-D5 are constructive trustees of the Joesh Shares.

G. ASSESSMENT OF CREDIBILITY

49.  Plaintiff’s witnesses: There is only the unchallenged evidence of Mr Kenneth Chen and Mr Li Shu Hang (brother of the Bankrupt). Their evidence was largely based on documentary evidence and is credible.

50.  D2 and D6: as they have not attended the trial, their witness statements shall not be considered. Their pleaded cases are starkly contradicted by the irrefutable evidence from the Bankrupt himself (Section D above).

51.  Further, the confirmation of BNP shows that the Bankrupt has always been in full control of the purported 1995 Joesh Trust and the purported New Joesh Trust. He was the “appointer”, “settlor” and “protector” of the purported Trusts, and the only person to whom BNP sought guidance. The Bankrupt has had access to professional service providers until BNP ceased to act as trustees. There is no evidence to show that the Bankrupt was or why he needs to be a bare trustee thereafter.

52.  D2 and D6’s cases are not credible.

53.  The Bankrupt: He is neither a party nor a witness. He had written to the Court on 28 July 30 and August 2025 complaining that he was not called as a witness and that the Trustees pursued their claims without verifying with the Bankrupt or BNP. In my view, that was a matter for the parties to decide and none of them had seen fit to call him.

54.  In assessing whether the Bankrupt had really disposed of his shareholding in Joesh, this Court is entitled to look into his past affirmations and past judgments (all in related cases) to assess his credibility. It is a fact that the Courts have repeatedly criticized the Bankrupt’s lack of honesty and credibility. By way of example:

(1) In the Bankruptcy Judgment, Au-Yeung J held that:

(a) “…the history known to the court and the Petitioners was that: Ken Li (i) has been dishonest (as repeatedly found by the court); (ii) transferred away the … shareholding in Joesh to evade the Debt; and (3) was hostile towards his family all along. The Petitioners could not be blamed for being sceptical of him.” (§128)

(b) “This is a case where Ken Li has fought litigation and lost but refused to accept the consequence of having to pay costs. He evaded the Debt by transferring away assets to his wife and children. He plainly has had a place of residence in Hong Kong, was ordinarily resided here or was domiciled here in the 3 Years. He evaded service, changing his version as to place of residence as and when it suited him. The jurisdiction defence fails.” (§132)

(c) The Bankrupt was found to have evaded service of the Statutory Demand (§88) and that his challenge to the service of the bankruptcy petition was “disingenuous” (§97).

(d) “In the liquidation process of Luen Tat under HCCW 497/2009, Ken Li had been dishonest in filing bogus proof of debts and colluding with liquidators to raise false allegations of tax evasion and insolvency. The Petitioners have every reason to believe that if Roteland is wound up, Ken Li (who has been hostile and malicious) would play the same sort of gamesmanship to complicate the liquidation process and to obstruct the Petitioners from getting paid.” (§129)

(2) In Allied Ever Holdings v. Li Shu Chung (unrep., HCCW 497/2009, 27/11/2017), DHCJ To held that:

(a) The Bankrupt filed “spurious proof” of debt with arguments that were considered to be “absurd” and that the genesis of the proof of debt “not only bears the hallmark of a recent concoction, but speaks volumes of [the Bankrupt’s] bad faith” (§§47-48).

(b) The Bankrupt and the liquidators’ ground of objection was not made bona fide (§73).

(3) In the HCA 1711/2009 Judgment, DHCJ Leung held that the Bankrupt’s pleaded case had undergone a “sea change” and that the Bankrupt’s assertions “did not come about fairly and squarely at the first opportunity but only introduced by way of substantial amendments far from swiftly indeed called for explanation.” (§214)

(4) In Luen Tat Watch Band Manufacturer Limited v. Li Shu Chung [2020] HKCFI 984, K Yeung J held that the Bankrupt had the intent to and had been evading service of the writ and adopted a “catch me if you can” approach (§§39 and 39(h)).

55.  Further, the Bankrupt had a track record of conveniently blaming his former or current solicitors whenever he was in difficulty explaining his case or inconsistencies. For example:

(1) In the HCA 1711/2009 Judgment, DHCJ Leung held that:

“Whenever asked to explain, Ken almost invariably blamed it on his former legal representatives. Caution must be exercised before accepting such excuse as fact, when it came handy for Ken to blame the former legal representatives who could not be heard. I must say that his evidence as to the manner in which he had instructed his legal representatives, to the extent it could legitimately be revealed and considered by the court, at different stages of his evidence in court was far from impressive. Nor was his reference to time constraint a full, if any good, answer. I have no reservation in categorizing his explanation as wholly incredible.” (§215)

(2) In the Bankruptcy Judgment, after quoting §215 of the HCA 1711/2009 Judgment, Au-Yeung J held that there was a reason to be wary that the Bankrupt “is adopting the same pattern of laying blame on his (current) solicitors” (§43).

(3) In Luen Tat Watch Band Manufacturer Limited v. Li Shu Chung [2020] HKCFI 984, K Yeung J held that:

“He provided in the HCA 594 Writ as his address the NT Address. He blames that on his ‘solicitors’. He claims that ‘they’ had advised him that it would be preferable to cite a Hong Kong address. He chooses not to disclose the identities of his ‘solicitor’, or whether he had been advised as to why the provision of a Hong Kong address would be ‘preferable’. His claim in this regard is devoid of particulars, and is incredible;” (§39(d), italics original)

56.  It can thus be seen that at least for 12 years from 2010 to 2022, the Bankrupt had consistently admitted that he beneficially owned the Roteland shares. He was in control of the Joesh Trust and New Joesh Trust. And yet he now denies the same. The Courts have in judgments throughout 2015 and 2020 continually criticized the Bankrupt’s lack of credibility and litigation conduct. He would make false assertions whenever it suited him to do so, even in the light of clear, objective evidence to the contrary. He makes false assertions that he does not have beneficial ownership in Joesh shares in this case so as to avoid letting the Trustees lay hands on his valuable Joesh shares. He lacks credibility.

H. ISSUE 1 – ROTELAND SHARES ISSUE

57.  The evidence in Section D above is unchallenged and I give full weight to it. I have no hesitation in finding that the Roteland shares were and are beneficially owned by the Bankrupt. That was also the reason why he was able to put forth the Settlement Proposal in the Bankruptcy Proceedings. The defence of D2 and D2 are empty challenges.

58.  Joesh holds 34% of Roteland. Section D5, §§42-44 are particularly important. The confirmation of BNP was weighty evidence to show that the Bankrupt was the person in sole control of the Joesh Trust and New Joesh Trust. The Bankrupt admitted that he became the beneficiary from 2014. Since BNP dropped out, the Bankrupt has undoubtedly been the legal and beneficial owner of Joesh but for the Disposition. If he never had beneficial interest in Joesh and the same had all along been held on trust for D1-D5, there was no reason why he had to effect the Disposition at all. I have no hesitation in finding that Joesh was the Bankrupt’s nominee or trustee in holding the Roteland share on his behalf.

I. [NO SECTION I]

J. ISSUE 2 – BO ISSUE

J1. Legal principles under BO

59.  Section 49 BO provides that:

“(1) Subject to this section and sections 51 and 51A, where a debtor is adjudged bankrupt and he has at a relevant time (defined in section 51) entered into a transaction with any person at an undervalue, the trustee may apply to the court for an order under this section.

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that debtor had not entered into that transaction.

(3) For the purposes of this section and sections 51 and 51A, a debtor enters into a transaction with a person at an undervalue if

(a) he makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide for him to receive no consideration;

(b) he enters into a transaction with that person in consideration of marriage; or

(c) he enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the debtor.”

60.  BO section 51(1)(a) provides:

“(1) Subject to subsections (2) and (3), the time at which a debtor enters into a transaction at an undervalue or gives an unfair preference is a relevant time if the transaction is entered into or the unfair preference given—

(a) in the case of a transaction at an undervalue, at a time in the period of 5 years ending with the day of the presentation of the bankruptcy petition on which the debtor is adjudged bankrupt”

61.  BO sections 51(2), (3) provide:

“(2) Where a debtor enters into a transaction at an undervalue or gives an unfair preference at a time mentioned in subsection (1)(a), (b) or (c) (not being, in the case of a transaction at an undervalue, a time less than 2 years before the end of the period mentioned in subsection (1)(a)), that time is not a relevant time for the purposes of sections 49 and 50 unless the debtor -

(a) is insolvent at that time; or

(b) becomes insolvent in consequence of the transaction or preference,

but the requirements of this subsection are presumed to be satisfied, unless the contrary is shown, in relation to any transaction at an undervalue which is entered into by a debtor with a person who is an associate of his (otherwise than by reason only of being his employee).

(3) For the purposes of subsection (2), a debtor is insolvent if

(a) he is unable to pay his debts as they fall due; or

(b) the value of his assets is less than the amount of his liabilities, taking into account his contingent and prospective liabilities.”

62.  BO section 51A(1) provides:

“(1) Without prejudice to the generality of section 49(2) or 50(2), an order under either of those sections with respect to a transaction or unfair preference entered into or given by a debtor who is subsequently adjudged bankrupt may (subject as follows):

(a) require any property transferred as part of the transaction, or in connection with the giving of the unfair preference, to be vested in the trustee as part of the estate;

(b) require any property to be so vested if it represents in any person’s hands the application either of the proceeds of sale of property so transferred or of money so transferred;

(c) release or discharge (in whole or in part) any security given by the debtor;

(d) require any person to pay, in respect of benefits received by him from the debtor, such sums to the trustee as the court may direct;

(e) provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or in part) under the transaction or by the giving of the unfair preference to be under such new or revived obligations to the person as the court thinks appropriate;

(f) provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be charged on any property and for the security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction or by the giving of the unfair preference; and

(g) provide for the extent to which any person whose property is vested by the order in the trustee, or on whom obligations are imposed by the order, is to be able to prove in the bankruptcy for debts or other liabilities which arose from, or were released or discharged (in whole or in part) under or by, the transaction or the giving of the unfair preference.”

63.  “Associate”, as defined under BO section 51B, includes the debtor’s spouse, relative, or spouse of a relative of the debtor or his spouse.

64.  “Transaction” has been “held to be a comprehensive word which included any dealing with property”: Hong Kong Bankruptcy Law Handbook (8^th Ed.) §49.05. It is clear from BO section 49(3) that a transaction includes the making of a gift.

J2. Application of sections 49, 51 and 51A BO

65.  Firstly, the Disposition was plainly a “transaction” as it was a dealing with shares and as Mr Wong SC submits, was an arrangement with sufficient degree of mutuality.

66.  Secondly, the Disposition was made in 2016, within 5 years of the presentment of the Petition in 2018. It was then within 3 months after the HCA 1711/2009 Judgment was handed down, the costs order of which the Bankrupt has never complied with. The Bankrupt plainly wanted to keep the Joesh shares out of reach of his judgment creditors.

67.  Thirdly, the Disposition was made to the Bankrupt’s family members and hence was a transaction with “associates”. It is thus presumed under sections 51(2) and 51B(2) BO that the Bankrupt was insolvent at the time of the transaction or has become insolvent in consequence of the transaction.

68.  Mr Chen’s legal representatives had enquired with D1-D5, the Bankrupt and legal representatives of Joesh but received no constructive response as to whether or not consideration was provided. None of D1-D5 have rebutted the presumption of insolvency. Nor is there evidence to show that the Bankrupt was solvent at the time of the Disposition.

69.  Fourthly, the Disposition was made without consideration from D1-D5 to the Bankrupt.

70.  However, in her email dated 19 April 2021 to Mr Chan, Mrs Li referred to D1 to D5 as “previous shareholders” of Joesh. She provided a Register of Members of Joesh showing (i) that D2 acquired his 125 shares in Joesh on 15 February 2016 for a sum of US$125; and (ii) an alleged transfer of 125 shares from D2 to D5 on 29/6/2020.

71.  With regard to item (i), it has never been D2’s case that he paid any consideration for the Disposition. Even if he had really paid US$125, it was still at an undervalue because, according to Mr Kenneth Chen, the shareholding in Joesh was worth no less than HK$61.2 million as of July 2018 and HK$57.46 million as of November 2017.

72.  With regard to item (ii), the email from Mrs Li to Mr Chen was said to be a message which D2 asked Mrs Li to pass on. The Register of Members appeared to support D2’s case of his transfer to a sibling. It was perplexing that D2 had not verified with Mrs Li before pleading his own defence. This further cast doubt on the credibility of his defence, when the Registered of Members came into being and its accuracy.

73.  In view of the analyses in this Section, I find that the claim under BO sections 49 and 51A is established. The result of the Disposition was that the creditors are subjected to a significant risk of being unable to recover their debts in full. I thus make an order to restore the position to what it would have been if the Bankrupt had not effected the transaction with consequential orders for D1-D5 to vest the Joesh Shares in the Trustees.

K. ISSUE 3 - CPO ISSUE

K1. Legal principles under CPO

74.  Section 60 of CPO provides that:

“(1) Subject to subsections (2) and (3), every disposition of property made, whether before or after the commencement of this section, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.

…

(3) This section does not extend to any estate or interest in property disposed of for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the disposition, notice of the intent to defraud creditors.”

75.  An applicant seeking to set aside the disposition bears the burden to prove two elements: (i) that the disposition was “made with intent to defraud creditors”; and (ii) that he or she is “a person thereby prejudiced” by the disposition: Chau Yuet Ching Brenda v Chan Bo Man William [2021] HKCFI 640 at §79; Chan Sze Wing v Congruence Chinese Medicine & Jing Luo Health Ltd, HCA 866/2012 (unreported, 15 October 2020) at §22.

76.  “To defraud creditors” means “to delay, hinder or defraud the creditors”: Skink Ltd v Comtowell Ltd [1994] 2 HKC 286 at 291D-E.

77.  Tradepower (Holdings) Ltd v Tradepower (HK) Ltd (2009) 12 HKCFAR 417 held that the requisite intent to defraud is a matter of fact to be inferred from the evidence as a whole (§85).

“88. Where it is objectively shown that a disposition of property unsupported by consideration is made by a disponor when insolvent (or who thereby renders himself insolvent) with the result that his creditors (including his future creditors) are clearly subjected at least to a significant risk of being unable to recover their debts in full, such facts ought in virtually every case to be sufficient to justify the inference of an intent to defraud creditors on the disponor’s part. In cases falling outside the rule, that is, in cases where the disposition is made for valuable consideration, or where the disponor is not insolvent or where the disposition does not deplete the fund potentially available to the creditors, an actual intent to defraud creditors must be shown as an inference properly to be drawn on the available evidence before s.60 is engaged.

…

91. Whether the disponor was insolvent at the material time and whether the disposition was made for consideration are questions of fact to be objectively determined. Where the insolvency of the disponor became clear a relatively short time – a matter of months – after he disposed of his property, the onus falls upon him to show that he was not insolvent when or upon making the disposition.”

92.  As to the exception of “valuable consideration and in good faith or upon good consideration and in good faith not having notice of the intent to defraud creditors” under s.60(3) CPO:

(1) The purchaser must not have notice of the grantor’s fraudulent intent at the time of the disposition. Notice that the disposition would prejudice the grantor’s creditors may be sufficient even though the grantor might not have appreciated this result: Cornish v. Clark (1872) LR 14 Eq 184; Sulanser Co Ltd (In Liq) v. China Allied Holdings Ltd [1999] 2 HKLRD 189.

(2) Notice under s.60(3) CPO includes constructive notice, in the sense that the transferee does not “wilfully shut his eyes”: Catherwood Ltd v. Feng Jin Liang [2018] HKCFI 2383 at §§145-146.

K2. Application of section 60 CPO

93.  The Joesh shares are “property”. The allotment and transfer of Joesh shares to D1-D5 fell within the meaning of “disposition” under section 60 CPO.

94.  As found in §58 above, the Bankrupt was and is the beneficial owner of 100% shareholding in Joesh. D1-D5 were and are merely nominees holding the Joesh shares on his behalf.

95.  Mr Chen, being one of the Trustees, is a “person thereby prejudiced” by the Disposition, given that he represents the interest of the creditors of the Bankrupt. The Joesh shares could have been realized to pay the creditors but for the Disposition.

96.  With regard to the Bankrupt’s intent to defraud creditors, I have considered the following factors:

97.  Firstly, the timing of the Disposition was critical. It was 3 months after the HCA 1711/2009 Judgment and about a month after the appeal was launched. The Bankrupt’s intent was plainly to avoid paying costs as ordered.

98.  Secondly, the transfer was to all of the Bankrupt’s immediate family members, except Joseph (who was subject to a costs order under the same HCA 1711/2009 Judgment) and the Bankrupt’s youngest daughter (who was a minor at the time of the Disposition). The Bankrupt plainly would not want his and Joseph’s judgment creditors to lay hands on the Joesh shares.

99.  In the Bankruptcy Judgment (at §128), I took the view that the Bankrupt transferred away, amongst others, the shareholding in Joesh to evade the petitioning Debt. I am reinforced in this view having considered the full circumstances of the transfer now before me.

100.  Thirdly, 2 years after the Disposition, the Bankrupt offered the Settlement Proposal as one of his defences to the Bankruptcy Proceeding. He plainly retained control of the beneficial interest in the Joesh and Roteland shares.

101.  Fourthly, none of the Defendants had provided consideration for the Disposition; and have not run the defence under section 60(3) CPO.

102.  Having regard to the above factors the irresistible inference is that the Bankrupt had intent to defraud his creditors.

103.  The conduct of the Bankrupt post-bankruptcy order reinforced that view. He absconded to England. The Trustees applied for recognition of the HK bankruptcy order in UK. When the Bankrupt was cross-examined in the UK recognition proceedings, he admitted that he was bitter about the outcome of HCA 1711/2009. Hence, he on purpose made it difficult for the Petitioners to serve the Statutory Demand. This piece of evidence showed that he had actual intent to delay or hinder his creditors.

K3. Alleged onward transfer

104.  I have dealt with D2’s defence of onward transfer of his shares to D5 in §§70-72 above. I do not think such onward transfer, which (even on Joshua’s own case) was made to an associate of the Bankrupt without consideration, would affect the outcome under CPO section 60.

105.  All the criteria in section 60 CPO have been met. I therefore order that the Disposition be set aside in favour of the Trustees.

L. ISSUE 4 – CONSTRUCTIVE TRUST ISSUE

106.  The analyses in the Sections above are sufficient to dispose of this action. It was out of abundance of caution that Mr Kenneth Chan also seek a declaration that D1-D5 hold the Joesh shares and their traceable proceeds on constructive trust to secure the estate’s proprietary interest over the Joesh shares, just in case other creditors lay hands on those shares. I just deal with this cause of action briefly.

107.  Mr Wong SC relies on Guaranty Bank and Trust Company v. ZZZIK Inc Limited (unrep., HCA 1139/2016, 18/7/2016), where DHCJ Cooney SC summarized the legal principles for a proprietary constructive trust claim as follows:

(1) When property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient, so that the money is recoverable and traceable in equity (§§28-30);

(2) Even if the recipient is not a party to the fraud, if his state of knowledge is such as to make it unconscionable for him to retain the money, the defrauded claimant has a tracing remedy, i.e. the property is held on constructive trust for the claimant (§§32);

(3) Knowledge does not have to be acquired at the time of receipt, but can be acquired subsequently while the money is still in the recipient’s hands (eg the recipient may gain knowledge of the fraud from any injunction order, pleadings and other court documents served on such recipient) (§§33-34).

108.  I see difficulties with this cause of action. It cannot be said that D1-D5 obtained the Joesh shares by fraud on the Bankrupt. In any case, the fraud was not particularized. The knowledge required in sub-paragraphs 107(2) and (3) above was not pleaded either. Rather, the Court is invited to infer knowledge from the fact that the Disposition was made without consideration (§34, RAOSC). Without disrespect, lack of consideration would fail the valuable consideration test but is insufficient to infer knowledge of the Bankrupt’s fraudulent intent.

109.  There are other pleas in the RASOC that are said to give rise to constructive trust:

(1) In §27B, it is alleged that the Bankrupt “implanted” D1-D5 to raise false and/or misleading allegations to the effect that Joesh absolutely owned and owns the 34% Roteland shares and that the shareholding in Roteland no longer has anything to do with the Bankrupt. The acts of implanting were not pleaded.

(2) In §38, there are pleas that D1-D5 had “unconscionable, dishonest and malicious conduct”; that they conspired with the Bankrupt in adamantly refusing to return the shareholding in Joesh; that D1-D5 had been obstructive and uncooperative; that they had been dishonest, hostile and malicious. These are wholly unparticularized.

110.  Only D2 had made an alleged onward transfer of his shares to his siblings and filed a defence. The other Defendants took a passive role. There is no evidence that D3-D5 had joined in any agreement or arrangement to act in concert with anyone or had any dishonest or fraudulent intent.

111.  I decline to rest my decision on constructive trust.

M. CONCLUSION AND COSTS

110.  The Plaintiff has proven his case. I therefore order as follows:

(1) There be a declaration that the Bankrupt was at all material times and still is the beneficial owner of 34% Roteland Shares registered under the name of Joesh (D6) and Joesh was at all material times and still is a trustee or nominee of the Bankrupt in respect of those Roteland Shares;

(2) The Disposition be set aside;

(3) Joesh do transfer the 34% Roteland Shares to the Trustees of the Bankrupt’s estate;

(4) Pursuant to section 51A of BO, Joesh’s shares being transferred to D1-D5 be vested in the Plaintiff as part of the estate of the Bankrupt;

(5) D1 to D5 are each to do all such acts necessary to transfer the Joesh Shares registered under each of their names to the Trustees, including executing instruments of transfer, bought and sold notes and other documents of transfers.

111.  Costs should follow the event and be borne by D1 to D5 jointly and severally. D7 played no active role in the defence.

112.  In respect of D2 and D6, there is justification for ordering costs on higher basis against them for the following reasons:

(1) Their defences, devoid of particulars and evidence in support, were doomed to fail on facts and law.

(2) Despite their active defence at the earlier stage of these proceedings, D2 eventually adopted a “neutral stance” and Joesh’s liquidators decided not to participate in these proceedings further. They did not attend the trial although they have filed witness statements, which led to unnecessary costs and wastage of time.

(3) Default judgment could not be obtained against the other Defendants since the defence of D2 and D6 are not severable and a trial was inevitable.

(4) D2 and D6 proposed a stay pending mediation and yet refused to respond to the Plaintiff’s repeated mediation requests. I find D2 and D6’s refusal to participate in mediation to be unreasonable. It also led to delay in setting down for trial for about a year until the 4^th case management conference in 2024.

113.  The whole scheme of things showed tactics of D2 and D6 to defer doomsday as much as possible. Costs should be on indemnity basis.

114.  I therefore order, on a nisi basis, that:

(1) The Plaintiff shall have costs of this action with certificates for 2 counsel; to be borne by D1, D3, D4 and D5 on party-and-party basis, and by D2 and D6 on indemnity basis.

(2) All costs are to be taxed if not agreed.

115.  I thank counsel for their assistance.