RE LIN YIFAN

HCB 721/2024

[2024] HKCFI 3666

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 721 OF 2024

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JUDGMENT

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1.  This is the substantive hearing of the bankruptcy petition (“the Petition”) filed by The Pride Opportunities Fund (“the Petitioner”) on 30 January 2024 seeking a bankruptcy order against Mr Lin on the ground that Mr Lin has failed to comply with the statutory demand dated 13 September 2023 (“the SD”) for payment of HK$10,622,908.14 (“the Petitioning Debt”).

2.  The Petitioning Debt is based on a consent award (“the Consent Award”) made pursuant to a settlement agreement dated 4 July 2017 (“the Settlement Agreement”) by Madam Arbitrator Elaine Liu.

3.  Mr Kwan, for Mr Lin, advanced two grounds to oppose the Petition. First, the Petitioner does not satisfy the jurisdictional requirements under section 4(1) of the Bankruptcy Ordinance, Cap. 6 (“the BO”). Second, Mr Lin has a bona fide dispute about the Petitioning Debt. These two grounds are stated in Mr Lin’s Notice by Debtor of Intention to Oppose Petition (Form 17) filed pursuant to Rule 68 of the Bankruptcy (Forms) Rules, Cap. 6B on 22 March 2024.

4.  I shall first deal with the jurisdictional challenge.

5.  Section 4(1) of the BO provides,

(1)  A bankruptcy petition shall not be presented to the court unless the debtor –

(a)  is domiciled in Hong Kong;

(b)  is personally present in Hong Kong on the day on which the petition is presented; or

(c)  at any time in the period of 3 years ending with that day –

(i)  has been ordinarily resident, or has had a place of residence, in Hong Kong; or

(ii)  has carried on business in Hong Kong.

6.  Mr Lin’s position is that he was not domiciled in Hong Kong and not personally present in Hong Kong on 30 January 2024 (the day when the Petition was presented) and he 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.

7.  The relevant period for the purpose of section 4(1)(c) is between 31 January 2021 and 30 January 2024 (“the Relevant Period”).

Ordinarily resident in Hong Kong?

8.  Linda Chan J in Re Deng Jiang [2024] HKCFI 2260 explained the ordinarily resident requirement under section 4(1)(c)(i) of the BO in the following term:

“34. … this means that “the person must be habitually and normally resident here, apart from temporary or occasional absences of long or short duration” and the word “habitually” connotes two characteristics of residence, namely that of (1) residence adopted voluntarily and (2) for settled purposes (IRC v Lysaght [1928] AC 234 (HL); Lau San Ching v Liu Apollonia (1995) 5 HKPLR 23, p.31).”

9.  Mr Kwan fairly draws my attention to Re Cao Zhong [2021] HKCFI 3143 in which Mr Recorder William Wong SC held that it is not necessary for the petitioner to show that the debtor was ordinarily resident in Hong Kong throughout the period of three years. The consideration is whether the debtor was ordinarily resident in Hong Kong of unspecified duration at any time during the period of 3 years. There is also no need to show that the debtor had any intention to remain in Hong Kong permanently or indefinitely (in contrast to the requirement of domicile). The learned Recorder further held that a person can have ordinary residence in more than one country at the same time.

10.  Mr Kwan highlights that there must be a settled purpose for the residence of the debtor in Hong Kong and it means that the purpose of living where one does has sufficient degree of continuity: Re Wong Lei Kwan Joanne [2009] 3 HKLRD 173 at §16 per Barma J (as he then was).

11.  In Re Kok Hiu Pun [2002] 3 HKLRD 20, Kwan J (as she then was) at §28 cited with approval the following speech of Lord Buckmaster in Inland Revenue Commissioners v Lysaght [1928] AC 217 at 234,

“… ordinarily resident means in my opinion no more than that the residence is not casual and uncertain but that the person held to reside does so in the ordinary course of his life.”

12.  The Petitioner basically relies on two matters to establish that Mr Lin was ordinarily resident in Hong Kong at some time during the Relevant Period. First, there is no dispute that in 2018, Mr Lin acquired permanent residency in Hong Kong when his ex-wife’s application to the Capital Investment Entrant Scheme (“the Scheme”) in 2010 was approved. Mr Lin was her dependent in her application.

13.  Second, the Petitioner points to the movement record issued by the Mainland Immigration Bureau covering the Relevant Period (“the Mainland Movement Record”). From the Mainland Movement Record, it can be seen that the travel document that Mr Lin used in those trips was his “Mainland Travel Permit for Hong Kong and Macao Residents” (“the Home Return Permit”).

14.  The evidence of Mr Lin is that despite his acquisition of permanent residency in Hong Kong, throughout his ex-wife, his two children and he have been residing in Guangzhou and spent 99% of his time there. He has never had the intention to leave the Mainland or relocate to anywhere else. His household registration is still in the Mainland.

15.  Mr Lin relies on the Mainland Movement Record to show that during the Relevant Period, he only visited Hong Kong 10 odd times mainly for travelling or visiting friends. During such visits, he mainly made day trips only or stayed over in a hotel except on one occasion, because of the Covid-19 pandemic, he was unable to book his rail ticket home and he was stranded in Hong Kong for 10 odds days.

16.  Mr Lin admits having purchased a residential unit known as Flat A, 2/F, Cristallo, 279 Prince Edward Road East, Ho Man Tin, Kowloon (“the HMT Flat”) in 2018. For this purchase, the agreement between the developer and Mr Lin was that completion would only take place 3 years after the signing of the sale and purchase agreement. Once the sale and purchase agreement was signed, Mr Lin would have possession of the HMT Flat and he was only required to pay management fees and rates. He was only required to pay monthly mortgage payments in 2022. Because of his default in mortgage payments, the mortgagee gained possession of the HMT Flat. Before that, he only stayed in the HMT Flat once when he was stuck in Hong Kong without a train ticket to his home town Guangzhou in early 2022 due to the Covid-19 pandemic.

17.  Mr Lin avers that apart from him no one else has ever resided in the HMT Flat. He accepts that he was the applicant for the utility services including water supply, electricity supply, town gas and internet service for the HMT Flat.

18.  Mr Lin also used the HMT Flat as his address as the registered address for both his bank account and his mobile phone account.

19.  On the other hand, Mr Lin is the sole director and shareholder of a locally incorporated company named Good Fortune (China) Investment Holdings Limited (“Good Fortune”). In the Annual Return of Good Fortune, the HMT Flat was given as the address of Mr Lin.

20.  For completeness, in the Settlement Agreement, Mr Lin used Flat 35, 25/F, Celestial Heights, 80 Sheung Shing Street, Kowloon, Hong Kong as his correspondence address. This property was bought by his ex-wife and was sold a few years ago. Mr Lin avers that he never resided in this property for the past three years.

21.  Mr Lin’s evidence is far from impressive and does not appear to be reliable. His bare assertions are not supported by any relevant documentary evidence. I have little difficulties in concluding that Mr Lin was ordinarily resident in Hong Kong at some point of time within the Relevant Period for the following reasons.

22.  First, it took 8 years for the application of Mr Lin’s ex-wife under the Scheme to be approved. Mr Lin did not have to apply along aside with his ex-wife as her dependent in the first place and he could have abandoned the application if he so wished. It is clear that Mr Lin was indeed desirous of a permanent residency in Hong Kong together with his ex-wife. With the permanent residency obtained in 2018, he should have the intention to reside in Hong Kong on a voluntary basis with a settled purpose as the dependent of his ex-wife.

23.  Mr Lin’s purchase of the HMT Flat immediately following his acquisition of permanent residency in 2018 is obviously for the purpose of his residency in Hong Kong. He paid over HK$35 million for the HMT Flat and made it fully habitable, equipped with all the essential utilities. The HMT Flat was for his occupation only and not for rent. Mr Lin did not say that it was for any investment purposes.

24.  The Mainland Movement Record shows 3 short trips and an about 40-day trip from the Mainland to Macau. However, I do not think that the complete picture is revealed by the Mainland Movement Record. Mr Lin could have entered Hong Kong via Macau and vice versa after leaving the Mainland or before returning to the Mainland.

25.  Mr Lin is shown to have entered Hong Kong on 2 January 2022 and returned to the Mainland on 12 February 2022 via a port in Macau. Mr Lin alleges that he had just spent 10 odd days in Hong Kong during that period.

26.  To substantiate this allegation, Mr Lin could have produced a movement record issued by the Hong Kong Immigration Department and it would tell when he left Hong Kong after his entry on 2 January 2022. He could have given more details about his accommodation in Macau and produced receipts if he had paid for such accommodation. Mr Lin for unknown reason has not done any one of this.

27.  I am unable to accept that the stay of Mr Lin in Hong Kong in January 2022 (“the January 2022 Stay”) only lasted for 10 odd days on the evidence. Nor can I accept that the January 2022 Stay was involuntary because he could not get a train ticket to Guangzhou. Mr Lin did not attempt to explain the purpose and the intended duration of his trip to Hong Kong on that occasion. Moreover, Mr Lin must be able to return to the Mainland by other means too. If he could return to the Mainland via Macau, there is no reason why he could not have done so much earlier and there was no need for him to be grounded in Hong Kong for 10 odd days.

28.  Mr Lin accepts that he resided at the HMT Flat during the January 2022 Stay. I believe that the January 2022 Stay together with other brief visits in Hong Kong amounting to about 68 days are sufficient to prove that he was ordinarily resident in Hong Kong during the Relevant Period.

29.  I accept the submission of Mr Liu, for the Petitioner, that Mr Lin’s purported lengthy residence in Guangzhou within the Relevant Period is irrelevant as he could be ordinarily resident in two places at the same time.

30.  Mr Liu, for the Petitioner, submits that Mr Lin’s use of the Home Return Permit is indicative of his adoption of Hong Kong as his residence voluntarily and for settled purposes. I am unable to accept this submission. The Home Return Permit is a travel document and it would make Mr Lin’s trips to Hong Kong easier. I opine that his use of this travel document was more out of convenience and had little to do with his residence in Hong Kong.

Place of Residence in Hong Kong?

31.  Even if I were wrong to find that Mr Lin was ordinarily resident in Hong Kong despite his long absences during the Relevant Period, I believe that the jurisdictional requirement of section 4(1)(c)(i) is satisfied on the ground that Mr Lin had a place of residence in Hong Kong.

32.  In Re Pang Yufeng [2024] HKCFI 663, DHCJ Le Pichon at §28 referred to Re Ku Chu Keung (a debtor) [2007] 2 HKLRD 292 and cited the following summary of the legal principles on place of residence in Hong Kong with approval,

“29. A person has a place of residence in Hong Kong if he has a place of residence such as a house or lodging to which to return and which he occupies or has the intention to occupy as a place of residence;

i. It is not necessary that the occupation of a place of residence be for the whole of the 3 Years, provided that the debtor had a place of residence at some time during the 3 Years;

ii. A person may have more than one place of residence at the same time; and

iii. Whether a person is resident in a particular place and whether that residence is permanent are questions of fact and degree.

30. In Re Ku Chu Keung, the debtor could stay at his young brother’s home when he returned to Hong Kong. It was held that this may not be the debtor’s home but it was still his place of residence in Hong Kong to trigger the court’s bankruptcy jurisdiction.”

33.  In the present case, the HMT Flat was clearly Mr Lin’s place of residence in Hong Kong on his own evidence. Mr Lin purchased the HMT Flat and it was registered in his name. He ensured that it was well-equipped and fit for the purpose of his residence. He indeed stayed there in the January 2022 Stay. There is no evidence that Mr Lin ever did anything to rent out the HMT Flat.

34.  Mr Kwan submits that there is no substantiality of the stay of Mr Lin in Hong Kong and Mr Lin could have no residence in Hong Kong. Mr Lin merely stayed at the HMT Flat for 10 odd days. The HMT Flat thus was not his place of residence in Hong Kong.

35.  I cannot accept this submission. In the first place, I am unable to accept Mr Lin’s evidence that he only stayed 10 odd days within the period from 2 January 2022 to 12 February 2022 for the reasons given above. He should have produced cogent evidence relating to his alleged accommodation elsewhere. Mr Lin could not produce a single piece of documentary evidence to support his allegation that he had stayed in hotels.

36.  Mr Lin has acquired permanent residency in Hong Kong and given his status as a Hong Kong permanent resident, he built his home at the HMT Flat. Mr Lin had all the intention to occupy the HMT Flat as his place of residence in Hong Kong. In my view, there is no question that the HMT Flat was his place of residence in Hong Kong until his mortgagee dispossessed him of the same.

37.  Mr Liu submits that if this court accepts that the jurisdictional requirements in section 4(1)(c)(i) of the BO is satisfied, it is unnecessary to determine whether Mr Lin carried on business or domiciled in Hong Kong during the Relevant Period. I agree.

38.  I would, nevertheless, express my grave doubt as to whether, on the evidence, the Petitioner can make out the grounds under section 4(1)(a) and/or 4(1)(c)(ii).

39.  In conclusion, the Petitioner has proved to my satisfaction that the jurisdictional gateways may be invoked by reason of my factual findings that Mr Lin was ordinarily resident in Hong Kong and had a place of residence at some time during the Relevant Period.

Bona fide dispute over the Petitioning Debt?

40.  The bankruptcy jurisdiction having been triggered, I now assess the merits of the challenge of Mr Lin to the Petitioning Debt.

41.  Given Mr Lin’s failure to comply with the SD and has not paid the Petitioning Debt, the Petitioner has discharged his onus of showing that Mr Lin is unable to pay his debt pursuant to section 6(2)(c) of the BO.

42.  Mr Lin now has the onus to show a bona fide dispute on substantial grounds by sufficiently precise evidence which is believable and must establish that he has a defence of substance. It is not sufficient for him to raise a cloud of objections on affidavits: Re Assouline Jacques Isaac [2023] HKCFI 2269 per Linda Chan J at §10(2).

43.  In broad terms, the defence advanced by Mr Lin is that there was a global settlement among the parties to the effect that the Petitioner would release Mr Lin from their liabilities relating to, among other things, the Petitioning Debt.

44.  I shall further give an outline of the purported defence below by the adoption of Mr Kwan’s summary in his written submissions.

45.  First, there is an explanation for the Petitioning Debt. In 2012, Mr Lin wished Mr Wan to extend a loan to him and after negotiation, it was agreed that a loan would be granted by the Petitioner to Good Fortune and the latter would issue bonds to the Petitioner. The Petitioner was held by Mr Wan and his wife.

46.  Because of the default of Good Fortune in 2016, the Petitioner commenced arbitration proceedings against Good Fortune. By the Consent Award, Good Fortune was adjudged liable to pay the settlement sum of HK$14,687,000 to the Petitioner. Mr Lin was the guarantor of the settlement sum. Pursuant to the Consent Award, Good Fortune repaid around HK$9.4 million to the Petitioner as of May 2018.

47.  On the other hand, there was another debt owed by Mr Lin to a joint venture company known as Pride Finance Limited (“Pride Finance”). Pride Finance was set up by Mr Wan and Mr Lin in 2014 carrying on moneylending business in the Mainland. Mr Wan held through his nominees 51% interest and Mr Lin held through his nominees the remaining 49% interest in Pride Finance.

48.  Subsequently Pride Finance was in financial difficulties due to bad debts from their Mainland clients amounting to over RMB44 million.

49.  Mr Lin agreed to repay such bad debts (“the PRC Debt”) to Pride Finance because they were approved by him.

50.  By January 2018, the total indebtedness owing by Mr Lin to Pride Finance amounted to RMB65 million as evidenced by a document known as 補充契據.

51.  Lastly, there was a personal loan extended by Mr Wan to Mr Lin in the sum of around HK$3 million about 6 to 7 years ago. After some repayment, the outstanding balance was around HK$200,000 to HK$300,000 (“the Personal Debt”).

52.  By late 2019, there were three outstanding debts subsisting among the parties: the Petitioning Debt, the PRC Debt and the Personal Debt.

53.  Mr Lin’s allegation is that the Petitioner, Mr Wan, Mr Lin, Good Fortune and Pride Finance entered into a global settlement agreement in around 2019-2020 (“the Global Agreement”). One Mr Chen was purportedly a witness to the Global Agreement.

54.  According to the affirmation of Mr Lin (§34), the Global Agreement contained the following four terms:

(1)  Pride Finance would assign the PRC Debt to the Petitioner;

(2)  The Petitioner would waive and cancel the liabilities of Good Fortune;

(3)  Mr Wan would waive and cancel the Personal Debt; and

(4)  Mr Lin would instruct Mr Chen, who was one of his debtors, to repay the Petitioner part of the PRC Debt on his behalf.

55.  Mr Lin alleges that all the contemporaneous records of the Global Settlement in the form of Wechat exchanges vanished because of the suspension of service by Wechat in or about May 2021 and he is unable to retrieve such records from Wechat.

56.  The Petitioner denies the existence of the Global Agreement.

57.  I am unable to accept there can be a genuine dispute about the Petitioning Debt in light of the Global Agreement.

58.  First and foremost, it is utterly unbelievable that Mr Lin did not find it necessary to reduce the Global Agreement into writing when it purportedly involved disposition of enormous amounts of money and his huge liabilities.

59.  There is not a shred of documentary evidence to support the existence of the Global Agreement at all. No written enquiries with Wechat are available to show that a real effort was made to retrieve the alleged records of the Global Agreement.

60.  Mr Kwan relies on the Assignment of the PRC Debt to show that Mr Lin and Pride Finance did perform the Global Agreement. I fail to see how the broad resolution of Pride Finance dated 23 December 2019 and the share transfer documents could start to evidence the performance of the Global Agreement. They did not refer to the Global Agreement understandably because on the evidence of Mr Lin, they came into being before the conclusion of the Global Agreement in 2020 (after the Ching Ming Festival).

61.  Secondly, Mr Liu submits that under the Global Agreement, the Petitioner only agreed to waive and cancel the liabilities of Good Fortune purportedly and had nothing to do with the Petitioning Debt. Mr Kwan argues that the Petitioning Debt in fact originated from Mr Lin’s guarantee over the debts owed by Good Fortune to the Petitioner.

62.  Mr Kwan is right in the broad sense but there is no reason why the parties did not mention the Petitioning Debt and make specific reference to the Consent Award in the Global Agreement. These must be at the forefront of their minds when they decided to make a global settlement.

63.  Thirdly, I agree with Mr Liu that the terms of the Global Agreement were not sufficiently particularized so as to make it appear to be a respectable and workable agreement. For example, how much of the PRC Debt and when Mr Chen would be instructed to repay the Petitioner is unknown.

64.  Fourthly, Mr Wan in his 3^rd Affirmation points out that the transfer of the shareholding of Mr Lin in Pride Finance had nothing to do with the Petitioning Debt. In its last financial report for the financial year ended 31 December 2020, the loss of Pride Finance amounted to HK$42,812,455 and the net assets only amounted to HK$170,902. As affirmed by Mr Lin, Pride Finance experienced a severe bad debt problem.

65.  Indeed Pride Finance commenced winding up proceedings shortly afterwards and was de-registered before long.

66.  Mr Lin has made no denial of these matters let alone adducing any rebuttal evidence.

67.  Under those circumstances, it is inconceivable that the Petitioner would agree to accept the shareholding of Mr Lin in Pride Finance as a quid pro quo for a waiver of the Petitioning Debt.

68.  Fifthly, Mr Wan denies having received any payment or other forms of assets in the discharge of the Petitioning Debt. Again, Mr Lin says nothing about this.

69.  Lastly, the debt assignment agreement dated 15 May 2020 between the Petitioner and Mr Lin does not really assist Mr Lin to establish the Global Agreement. It is inconsistent with the purported term of the Global Agreement to start with. It also makes no reference to Good Fortune and its liability at all.

70.  In the circumstances, the Global Agreement is in my view plainly a fabrication. I am not satisfied on the evidence that there is any bona fide dispute about the Petitioning Debt.

Conclusion and Order

71.  For the reasons given, I find that this court has the bankruptcy jurisdiction over Mr Lin by reason of his being ordinarily resident in Hong Kong and his place of residence in Hong Kong at some point of time during the Relevant Period.

72.  Further, I am not convinced that Mr Lin has discharged the burden in showing that there is a genuine dispute on substantial grounds about the Petitioning Debt. His inability to pay the Petitioning Debt is established. Both of the two grounds in opposition must fail.

73.  Accordingly, I make the usual bankruptcy order against Mr Lin. I make a costs order nisi that Mr Lin do pay the Petitioner its costs of and occasioned by the Petition, including all costs reserved, to be taxed if not agreed. Absent any application by summons for a variation of the costs order nisi, it will become absolute 14 days from today.

74.  It remains for me to thank Mr Liu and Mr Kwan for their helpful assistance in this matter.