RE CHEUNG KWAN

CACV 232/2020

[2021] HKCA 282

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 232 OF 2020

(ON APPEAL FROM HCB NO 705 OF 2019)

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REASONS FOR JUDGMENT
AND DECISION ON COSTS

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Hon Kwan VP (giving the Reasons for Judgment and Decision on Costs of the Court):

1.  This is an appeal of the debtor, Madam Cheung Kwan, against the bankruptcy order made against her by Linda Chan J on 3 June 2020. We dismissed her appeal at the conclusion of the hearing. These are the reasons for judgment of the court.

Background

2.  The background matters have been set out in some detail in the judgment below.  For present purpose, the relevant background may be summarised as follows.

3.  The debtor is a sophisticated business woman with substantial commercial experience.  From November 2011, she was the non‑executive chairman of a substantial company known as Kazakhstan Potash Co Ltd (“KPC”) which is engaged in the exploration and mining of potash mines in Kazakhstan, and the shares of which are listed on the Australian Stock Exchange.  Since July 2013, she has been the beneficial owner of all the shares in China-Asia Resources Fund (“CAR”) and acted as its director through a corporate entity.  CAR became a creditor of KPC in June 2013 through the subscription of its convertible notes. Since May 2016, she has been a substantial shareholder of China Cloud Copper Co Ltd, the shares of which are listed on The Stock Exchange of Hong Kong Ltd (“SEHK”), and from September 2016 she has been its executive director and chairman.  From 27 November 2015 to 7 June 2018, she was an executive director of Burwill Holdings Ltd (“Burwill”), another listed company in Hong Kong.

4.  On 10 April 2015, CAR subscribed for 138 million shares in Burwill and by 2 June 2015, CAR became the second largest shareholder of Burwill.

5.  By a subscription agreement dated 5 May 2015, Burwill subscribed for shares in KPC and on completion of its subscription on 5 January 2016 became the single largest shareholder of KPC.

6.  The bankruptcy petition, presented by CM International Capital Ltd, was founded on a statutory demand for US$25 million odd.  The debt arose out of two deeds of guarantee given by the debtor as the guarantor in favour of the petitioner dated 4 November 2015 (“1^st Guarantee”) and 15 January 2016 (“2^nd Guarantee”) to guarantee the respective indebtedness of two companies incorporated in the British Virgin Islands, Insight Go Ltd (“Insight Go”) and Star Way Enterprise Ltd (“Star Way”).

7.  According to the documents adduced by the petitioner, by a facility agreement dated 4 November 2015 (“1^st FA”), the petitioner agreed to advance a term loan in the amount of US$9.2 million (“1^st Loan”) to Insight Go for the purpose of acquiring 273,876,923 shares (equivalent to 4.99% of the issued shares) in Burwill at HK$0.26 per share.  The conditions precedent stipulated in the 1^st FA included execution of these agreements as security for the 1^st Loan: (1) a security agreement dated 4 November 2015 by which Insight Go agreed to create a first legal mortgage over all the shares to be acquired in Burwill; (2) a debenture dated 4 November 2015 by which Insight Go agreed to create a fixed and floating charge over all its assets; and (3) the 1^st Guarantee executed by the debtor.

8.  The petitioner caused the proceeds of the 1^st Loan to be paid into the bank account of Insight Go on 6 November 2015.  Insight Go purchased 4.92% of the issued shares in Burwill with the proceeds and, as mentioned above, the debtor became an executive director of Burwill on 27 November 2015.

9.  The 2^nd Facility Agreement (“2^nd FA”) was entered into on 15 January 2016 between the petitioner and Star Way, by which the petitioner agreed to advance a term loan of US$9 million (“2^nd Loan”) to Star Way for the purpose of acquiring 266,545,275 shares (equivalent to 4.99% of the issued shares) in Burwill at HK$0.26 per share.  The conditions precedent stipulated in the 2^nd FA were similar to the 1^st FA. They required execution of these agreements all dated 15 January 2016 as security for the 2^nd Loan: (1) a security agreement by which Star Way agreed to create a first legal mortgage over all the shares to be acquired in Burwill; (2) a debenture by which Star Way agreed to create a fixed and floating charge over all its assets; and (3) the 2^nd Guarantee executed by the debtor.

10.  The petitioner caused the proceeds of the 2^nd Loan to be paid into the bank account of Star Way on 21 January 2016.  Star Way purchased 4.85% of the issued shares in Burwill with the proceeds.

11.  Pursuant to the security agreements dated 4 November 2015 and 15 January 2016, the shares in Burwill acquired by Insight Go and Star Way (“Burwill Shares”) were deposited into a custodian account.

12.  The petitioner entered into a supplemental agreement with each of Insight Go and Star Way dated 18 January 2016 for these borrowers to provide top-up security if the price of the shares in Burwill should fall below HK$0.26 per share.  By these supplemental agreements, Insight Go and Star Way agreed to deposit top-up cash in that event, being HK$0.26 less the closing price multiplied by the number of Burwill Shares.

13.  In May 2016, the debtor lent HK$2 million to Star Way for the latter to pay interest to the petitioner in respect of the 2^nd Loan.  In June 2016, through the arrangement of the debtor, four sums totalling HK$5.26 million were remitted by a company known as Wealthy Capital Enterprise Inc to the bank account of the petitioner to pay interest due in respect of the 1^st Loan.

14.  The 1^st Loan became due on 7 November 2017. The 2^nd Loan became due on 22 January 2018.  On those maturity dates, the trading prices of the shares in Burwill closed at HK$0.32 and HK$0.31 respectively.  It was not until 31 August 2018 that the share price fell below HK$0.26.

15.  The petitioner made two demands against the debtor.  By an email dated 9 February 2018, the petitioner stated that the value of Burwill Shares fell below the principal of the 1^st and 2^nd Loans and demanded repayment of US$22,051,000 (being the principal, interest and profit sharing payable by the borrowers, not including overdue penalty interest) and deposit of top-up “guarantee money”^[1] into the custodian account.  By another email dated 31 August 2018, the petitioner referred to the principal and interest due under the 1^st and 2^nd Loans and the continuing decline in the value of the charged shares and demanded for deposit of top‑up “guarantee money” into the custodian account to avoid enforcement of the charge.

16.  Despite the demands, Insight Go and Star Way did not make any repayment or deposit top-up cash into the custodian account.

17.  The petitioner served a statutory demand on the debtor on 21 December 2018 of US$25 million odd, being the amount due and payable as at 31 August 2018 under the 1^st and 2^nd Guarantees.  The bankruptcy petition was presented on 31 January 2019.  The petitioning debt was US$26,866,937.44 (“the Debt”).

18.  In the Notice of Intention to show cause filed on behalf of the debtor on 21 March 2019, she stated that she intended to show cause against the petition on six grounds: (1) there was no valid or proper service of the statutory demand; (2) the Loans were not due on the dates specified in the petition; (3) the Loans are secured; (4) had the petitioner liquidated the Burwill Shares on the maturity dates of the Loans, the Debt would have been fully settled; (5) the Debt is not for a liquidated sum; and (6) the petitioner is unable to prove that the debtor is unable to pay or has no reasonable prospect of being able to pay the Debt.  With the possible exception of ground (4), the other grounds were not pursued before the judge.

19.  On 19 August 2019, trading in the shares of Burwill was suspended.  A winding-up petition has since been presented against Burwill.

20.  The substantial grounds for disputing the Debt were raised for the first time in the 2^nd affirmation of the debtor filed on 9 September 2019.  In gist, her case is that the transactions entered into by the petitioner on 4 November 2015 and 15 January 2016 were a sham.  They were created for the purpose of enabling the petitioner to invest in approximately 10% of the shareholding in Burwill without making disclosure to the SEHK in accordance with the law.  The purported borrowers of the Loans, Insight Go and Star Way, were at all material times the corporate vehicles of the petitioner and under its control.  The dressed up Loans were in fact the petitioner’s investment in Burwill, and Insight Go and Star Way were “phantom platform corporate vehicles”^[2] used by the petitioner to each acquire not more than 5% of Burwill’s issued shares.  Being an “influential independent person”, the debtor was asked by the petitioner to provide the Guarantees for the sham transactions.  The debtor agreed to do so because the petitioner is an overseas investment company under the China Minsheng Investment group and she hoped that the China Minsheng Bank (“CMB”) would advance a loan to CAR which would be used to finance KPC’s acquisition of potash mine.  An agreement dated 13 November 2015 was indeed entered into by CMB to advance US$75 million to CAR^[3].  At that time^[4], the then director of the petitioner, Liao Feng (“Liao”), made a verbal promise to her that the Guarantees were merely to comply with formalities and would not be pursued at any time.

21.  The evidence filed by the debtor in opposition comprised two affirmations made by her, an affirmation of Zhou Wei (“Zhou”), and an affirmation of Shi Lei (“Shi”).  Zhou was the sole shareholder of Star Way from at least 15 July 2015 and one of its two directors.  Shi became the sole shareholder of Insight Go on 17 September 2015 and was one of its two directors.  Zhou and Shi made affirmations to corroborate the debtor’s case.

22.  The evidence filed by the petitioner comprised three affirmations of its director Wang Dongzhi, an affirmation of its former director Liao, and an affirmation of its director Ms Song Shuren (“Ms Song”). Ms Song was at all material times one of the two directors of Insight Go and Star Way.

The judgment below

23.  The judge rejected the debtor’s assertions of sham and illegality as unbelievable, and held that the debtor has not shown a bona fide dispute of the Debt on substantial grounds.  Six reasons were given in the judgment:

(1)  The debtor’s assertions bear the hallmarks of a recent invention and neither the debtor, Shi nor Zhou had been able to produce any documents in support of their assertions.

(2)  Her assertions are flatly contradicted by contemporaneous documents.  Prior to signing the 1^st and 2^nd Guarantees, the petitioner’s representative, Liu Chao, issued a written advice^[5] (“Advice”) to her which described the nature of the Loans and the Guarantees to be provided and advised her to review the financial position of the borrowers and seek independent legal and financial advice before deciding whether to provide the Guarantees.  In the presence of David Lo Kwok Kwei, a solicitor of David Lo & Partners (“DLP”), the debtor signed on a copy of the Advice to confirm that she had received and understood the Advice on each occasion. She also signed a confirmation of the guarantor^[6] (“Confirmation”) addressed to DLP on each occasion to confirm that she understood the nature of the FAs and the Guarantees, and specifically that:

“(1) The Lender requested that [DLP] to provide the legal advice as stated below to [the debtor], such that upon executing the Guarantee, [the debtor] could not claim that [she is] not legally bound by the Guarantee.

…

(5) During the meeting, Mr Lo showed [the debtor] the Guarantee, and requested [her] to carefully read the Guarantee and raise questions. Mr Lo explained that the following is a summary of the main terms of the Guarantee and their implications, but not in full and/or exhaustive:-

…

(c)  The Guarantee will provide guarantee to the Lender for the loan described in clause 5(a) above.  Moreover, in the Guarantee, [the debtor] will undertake to repay the loan when the Borrower does not repay any amount as stated in clause (a) above.  This means that in accordance with the terms of the Guarantee, [the debtor] will become the guarantor of the Borrower’s repayment obligations owed to the Lender under the terms of the Loan Agreement; [the debtor] shall bear personal legal obligations for the loan; the Lender may sue [the debtor] for the loan.  If the Borrower does not repay the loan on time, the Lender has the right to enforce its rights and interests under the Guarantee through legal proceedings to obtain repayment.”

Further, the alleged promise made to the debtor by Liao was inconsistent with the provisions of the Guarantees, being clauses 3.2, 3.16(d) and 3.17.

(3)  The debtor’s assertion that the Loans were the petitioner’s investment in Burwill Shares and that she has no interest in or control over Insight Go and Star Way is wholly inconsistent with undisputed facts and matters, namely: her conduct in arranging for payment of interest due and payable by the two borrowers; she had never challenged the two demands made by the petitioner against her in February and August 2018 to repay the Loans and deposit top-up “guarantee money”; she was involved in the management of Burwill as executive director from November 2015 to 7 June 2018, whereas the petitioner did not have any role in its management; until the petitioner took step to replace the shareholder of Insight Go at the end of 2016, the sole shareholder of Insight Go (Shi) and Star Way (Zhou) were both nominated by the debtor and were unknown to the petitioner.

(4)  The suggestion that the debtor was asked to sign the Guarantees as mere formality made no sense, nor has she proffered any explanation why the petitioner required the alleged formality when the two borrowers would provide security for the Loans in the form of security agreements and debentures.

(5)  Her reliance on the control exercised by the petitioner over Insight Go and Star Way is misplaced, as it was agreed by the parties that the petitioner was entitled to appoint a director for each company and an authorised signatory of their bank accounts to ensure that the assets held by these companies could not be disposed of without the petitioner’s consent.

(6)  As for the contention that the petitioner would have taken steps to realise the Burwill Shares after the maturity dates of the Loans if it were a genuine lender and would have more than sufficient money to repay the amounts due, there is nothing unusual for the petitioner not to enforce such security provided by the borrowers.  There was evidence that the petitioner had been monitoring the share prices of Burwill and demands were made against the debtor and the borrowers when the prices fell below the amount owed.

24.  Having held that the debtor’s assertions are incredulous, the judge did not find it necessary to deal with the legal arguments of the debtor on sham, illegality and estoppel by convention and gave brief reasons why they are untenable.

The grounds of appeal

25.  Mr Anson Wong, SC^[7], who appeared for the debtor on appeal and below, raised three broad grounds of appeal.

26.  First, the judge erred in failing to apply the principles correctly in determining whether a transaction is a sham, in that the court is not restricted to examining the four corners of the document and that it may examine external evidence, which includes the parties’ explanation and the circumstantial evidence, such as evidence of subsequent conduct of the parties (Artech Development Ltd v Possimo Ltd [2018] HKCFI 344 at §13, which cited Hitch v Stone [2001] STC 214 at 230a to e).

27.  Second, the judge erred in failing to take into account relevant evidence in her evaluation of the credibility of the debtor’s case.

28.  Third, the judge erred in rejecting the debtor’s case as unbelievable on the basis of the six reasons in the judgment.

29.  Mr Wong also raised brief arguments on the law relating to illegality.  It is not necessary to deal with them as the focus at all times is whether the factual basis for raising the defence of illegality would be made out.

The approach in this appeal

30.  This is an appeal against the making of a bankruptcy order.  As the making of a bankruptcy order is within the exercise of the judge’s discretion, in accordance with well-established principles the appeal court would not lightly interfere with the judge’s discretion unless the judge had erred in law, or was under a misapprehension of material facts, or had failed to take relevant matters into account, or had taken irrelevant matters into account, or that the decision was “plainly wrong”. (Lo Chun Cheong v Au Wai Ming, CACV 167/2015, 18 November 2016, §12)

31.  Further, as the grounds of appeal essentially seek to overturn the evaluation of evidence and findings of fact made by the judge, even though the findings were based on affidavit evidence and contemporaneous documents rather than oral evidence, the appeal court should be reluctant to interfere with the lower court’s finding of fact. See R(Z) v Hackney London Borough Council [2019] PTSR 2272 at §67, per Lewison LJ, who quoted these statements of Lord Kerr of Tonaghmore JSC in In re DB’s Application for Judicial Review [2017] NI 301 at §80:

“The statements in all of these cases and, of course, in [McGraddie v McGraddie [2013] 1 WLR 2477] itself were made in relation to trials where oral evidence had been given. On one view, the situation is different where factual findings and the inferences drawn from them are made on the basis of affidavit evidence and consideration of contemporaneous documents. But the vivid expression in [Anderson v City of Bessemer (1985) 470 US 564] that the first instance trial should be seen as the ‘main event’ rather than a ‘tryout on the road’ has resonance even for a case which does not involve oral testimony. A first instance judgment provides a template on which criticisms are focused and the assessment of factual issues by an appellate court can be a very different exercise in the appeal setting than during the trial. Impressions formed by a judge approaching the matter for the first time may be more reliable than a concentration on the inevitable attack on the validity of conclusions that he or she has reached which is a feature of an appeal founded on a challenge to factual findings. The case for reticence on the part of the appellate court, while perhaps not as strong in a case where no oral evidence has been given, remains cogent. …”

32.  The point made by Lewison LJ in §67 was approved by Lady Arden JSC in In re DB’s Application for Judicial Review [2020] 1 WLR 4327 at §§118 to 119.  Lady Arden emphasised that the function of the appeal court is simply one of review.

33.  Applying the above principles, this court should be reluctant to interfere with the judge’s evaluation of the evidence, unless it is demonstrated that the judge had fallen into palpable errors in the findings of fact.  The appellate process is not designed to give a litigant a platform to repeat submissions made in the court below on the evidence and factual aspects in the hope of persuading the appeal court to come to a different view from the primary judge (WYSL v FHCBA [2019] HKCA 814 at §42).

34.  Applying the above principles, we turn to consider the grounds of appeal.

1^st ground of appeal: failing to apply legal principles correctly

35.  Mr Wong submitted that the judge erred in holding that the two requirements for establishing a sham as stated in §14 of Artech Development Ltd v Possimo Ltd are not met.  The relevant part of §14 is as follows:

“Thus, in order to establish the Loan Agreement is a sham, the Company must adduce evidence to show that both the Petitioner and the Company (1) intended that the Loan Agreement would not create the legal rights or obligations it appeared to create; and (2) intended that the Loan Agreement would mislead a third party into believing the parties had created those rights and obligations.”

36.  In §46 of the judgment, the judge held that requirement (1) cannot be met, “given that the contemporaneous documents discussed [in ground (2) of the six reasons] all show that both the petitioner and the debtor intended the Guarantees to be binding on the debtor”. And as there is no suggestion that “the Guarantees would mislead (or have misled) any third party”, requirement (2) is also not established.

37.  Mr Wong submitted that the contemporaneous documents relied on by the judge, being the Guarantees, the Advice and the Confirmation, are the very documents which the debtor claimed to form part of the sham and would on their face suggest there were binding transactions.  The judge was in error in placing full reliance on these documents and should have examined external evidence, including the parties’ explanation and circumstantial evidence.  Further, there is no legal requirement that for a sham to be established, the legal document would in fact mislead or have misled any third party.  The correct question the judge should ask is whether the parties intended the document to mislead a third party.

38.  It is wrong to say that the judge had relied only on the contemporaneous documents and did not examine external evidence, including the parties’ explanation and circumstantial evidence such as evidence of their subsequent conduct. See §§35 to 44 of the judgment. Reasons (1), (3), (4) and (5) of the six reasons in the judgment show clearly that external evidence has been taken into consideration in assessing the credibility of the debtor’s assertions that all the agreements signed between the parties, including the Guarantees, are a sham.

39.  Reading the words quoted in §46 of the judgment in the context of §45 (in which the two requirements in Artech Development Ltd v Possimo Ltd are set out), the judge was focusing on whether there was evidence to show the intention of both parties that the contemporaneous documents would not create the legal rights or obligations they appeared to create.  The words quoted in §46 sought to bring out the incredulity of the debtor’s assertion in light of the very clear wording of the contemporaneous documents she had signed and confirmed.  The words in §46 should not be read in isolation but should be read with the earlier parts of the judgment.  It would not be a fair and proper reading of the judgment that in finding there was no evidence to show intention of both parties that the contemporaneous documents would not create the legal rights or obligations they appeared to create, the judge only had regard to the documents and not the other evidence which she had considered thoroughly in the earlier paragraphs.

40.  There is no substance in the complaint that the judge had misapplied requirement (2) in Artech Development Ltd.  Further, as rightly pointed out by Mr Richard Khaw, SC^[8] for the petitioner, once it is held that requirement (1) cannot be met, there could hardly be any basis to establish intention of both parties for the contemporaneous documents to have the effect of misleading a third party.

2^nd ground of appeal: failing to take into account relevant evidence

41.  Mr Wong submitted that the judge failed to take into account the following evidence.

42.  First, Insight Go was incorporated on 2 September 2015 and at the inception the petitioner was its sole shareholder.  Shi only became the sole shareholder in place of the petitioner on 17 September 2015.  Ms Song was at all times one of the first two directors of Insight Go and Star Way.  Although these matters are mentioned in the judgment, the judge did not consider the petitioner’s evidence how it came to know of these companies and how Ms Song came to be appointed a director.  Liao’s evidence that the petitioner only came to know of these companies during negotiations and that Ms Song was appointed as a director to protect the petitioner’s interest in the securities cannot sit comfortably with the evidence that the petitioner was the first sole shareholder of Insight Go and Ms Song was the first director of both companies, as such evidence would show that the petitioner was involved in setting up these companies.

43.  Second, the judge failed to consider that save for the payments of interest in mid- 2016, there is no evidence of any further demands of interests pursuant to the FAs.

44.  Third, in respect of the payments of interest of Insight Go in mid-2016, the judge failed to consider the debtor’s evidence that such payments were requested by the petitioner and contemporaneous documents show that the petitioner had agreed to “reimburse” the party who paid the interests for Insight Go.

45.  Fourth, the judge failed to consider that the petitioner did not take any step to sell the Burwill Shares charged by the borrowers and that the petitioner did not give any commercially sensible reason for failing to do so.

46.  Fifth, the judge failed to consider that the internal documents adduced by Liao showed that the transactions were only approved internally by the petitioner after the relevant legal documents had been executed, by one day in the case of the 1^st Loan and five days in the case of the 2^nd Loan.

47.  Sixth, the judge failed to consider that the debtor’s case is corroborated by the affirmations of Zhou and Shi, who have no personal interest in the outcome of the proceedings.

48.  The above submissions, as pointed out by Mr Khaw, are by and large a repetition of some of Mr Wong’s arguments before the judge.  We agree with Mr Khaw that the submissions are untenable and will deal with them succinctly.

49.  On the first matter, we do not think the fact that the petitioner was the first sole shareholder of Insight Go and that Ms Song was appointed the first director of the two companies can be regarded as “highly pertinent circumstantial evidence” in support of a sham, as contended by Mr Wong.  The judge had borne in mind how the two companies came to be set up and the appointment of their sole shareholders and first directors and considered these matters in light of all other relevant evidence in evaluating the credibility of the debtor’s assertion.

50.  As to the second matter, this is factually incorrect in that the petitioner had made two further demands on the borrowers in February and August 2018, which included a demand for payment of interest.  The debtor had never challenged those demands in any contemporaneous document.

51.  In respect of the third, it would appear from the petitioner’s letter dated 30 June 2016 that the petitioner had brought legal proceedings against Insight Go and when the proceedings were pending, the petitioner received payment of the interest due from a third party associated with the debtor and agreed to return the sum to the third party in the event of recovery from Insight Go.  There is nothing unusual about the arrangement and does not support the case of a sham.

52.  The fourth matter was rejected by the judge for the reasons set out in §43 of the judgment.  We agree with her reasons.

53.  As for the fifth matter, the date when internal approval documents came into existence does not support the allegation of the transactions being a sham.  To the contrary, the fact that internal approval was required and obtained is inconsistent with the suggestion that the transactions were intended to be a sham.

54.  The sixth and last matter, that the debtor’s case was corroborated by the affirmations of Zhou and Shi, is not a point of substance.  We agree with Mr Khaw as neither Zhou nor Shi has any connection or dealing with the petitioner, it defies common sense to suggest that they would agree to participate in a sham arrangement for the benefit of the petitioner.

3^rd ground of appeal: erred in rejecting the debtor’s case based on the six reasons

55.  Mr Wong sought to answer the six reasons in the judgment with these submissions (the submissions also made under the 2^nd ground and already dealt with above will not be repeated):

(1)  The judge wrongly criticised the debtor for being unable to produce any documents in support of her case, the very nature of the transactions being a sham would mean that no document can be produced to directly contradict the legal documents signed by the debtor.  There is no legal requirement that the details of the grounds for opposing the petition should be stated in the Notice of Intention to show cause under rule 68 of the Bankruptcy Rules, Cap 6A and Form 17 of the Bankruptcy (Forms) Rules, Cap 6B.  Further, there was a breakdown in communication between the debtor and her former solicitor.

(2)  The judge was wrong to have regard to the contemporaneous documents (the Advice, the Confirmation and provisions in the Guarantees) without regard to the external evidence.  On a fair reading of the debtor’s 2^nd affirmation, the verbal promise made to her by Liao that the Guarantees would not be pursued at any time was made before she signed the Guarantees.

(3)  The judge failed to recognise that the debtor has in fact disputed the receipt of the two demands by email in February and August 2018.  The judge is wrong to assume that the petitioner would like to participate in the management of Burwill in the absence of evidence.  The judge misunderstood the evidence of Shi and Zhou that whilst they were introduced to the petitioner through the debtor, it was the petitioner who requested them to be the petitioner’s nominees to hold Insight Go and Star Way.

(4)  The judge failed to recognise that the debtor was not in any position to explain why the petitioner internally needed the Guarantees as part of the formality for the sham loans.  The debtor had said she was told by Liao that the petitioner internally needed an “influential independent person” to provide personal guarantee for the sham loans.

56.  We do not think the above submissions, cumulatively or separately, would have made any material impact on the validity of the six reasons in the judgment.  Adopting the same numbering, our reasons for rejecting some of the contentions raised are as follows:

(1)  As already mentioned, the judge rejected the debtor’s assertions after a thorough review of all the material evidence, including the inability of the debtor to produce any document to support her assertions of sham transactions and the absence of any objection or protest to the transactions prior to the filing of her 2^nd affirmation in September 2019, in light of the debtor’s background as a sophisticated business woman with substantial commercial experience.  Rule 68 of the Bankruptcy Rules provides that where a debtor intends to show cause against a petition, he shall file a notice “specifying the grounds on which he intends to show cause”.  Plainly, the Notice of Intention to show cause filed by the debtor did not mention the ground relied on by her to show cause at the hearing of the petition before the judge, namely, that the Loans and the Guarantees are sham transactions.

(2)  The judge is correct in noting that the debtor did not expressly mention in her 2^nd affirmation that the alleged promise of Liao was made before she signed the Guarantees.  In any event, this does not have any significant impact on the judge’s assessment of the veracity of the debtor’s assertions.

(3)  The judge cannot be criticised for taking the view that the petitioner never had any role in the management of Burwill (in contrast to the debtor who was appointed an executive director shortly after the purchase of shares by Insight Go with the proceeds of the 1^st Loan) did not sit well with the assertion that the petitioner was the beneficial owner of 10% of its shareholding.  It is common sense that a substantial shareholder would wish to be represented on the board of directors, whether directly or through a nominee.

(4)  The judge made a fair observation it makes no sense that the debtor was asked to sign the Guarantees as mere formality and that the debtor gave no explanation why such formality was required, despite her extensive involvement in substantial and listed companies and her familiarity with commercial transactions including the use of corporate vehicles to hold shares and the provision of personal guarantee by the real owner of the borrower.  Counsel’s contention that the debtor was not in a position to explain why the petitioner internally needed the Guarantees as part of the formality was not mentioned by the debtor in her lengthy affirmation.

Conclusion and costs

57.  For the above reasons, none of the grounds of appeal are of merit.  There are no valid grounds to disturb the judge’s evaluation of the evidence and the findings of fact and they are simply insufficient for the appeal court to interfere with the judge’s exercise of discretion in making the bankruptcy order.  We have therefore dismissed the debtor’s appeal.

58.  There is no question that costs of the appeal should follow the event.  Mr Khaw sought costs against the debtor on an indemnity basis.  As we are not wholly satisfied that this is an appropriate case for indemnity costs, we will order costs to be taxed on a party and party basis.  We will grant a certificate for two counsel to the petitioner.