DS v. EGHCL

HCSD 30/2024

[2025] HKCFI 1546

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO. 30 OF 2024

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DECISION

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Introduction

1.  By an application dated 16 August 2024, the Applicant seeks to set aside the statutory demand dated 30 July 2024 issued by the Respondent.

Material Background

2.  The Applicant is the sole director of Full World Trading Ltd (“Full World”).

3.  It is not in dispute that:-

(1)  Full World had been supplying healthcare products to the Respondent.

(2)  In around March 2022, due to shortage of supply, Full World was unable to complete some purchase orders, which the Creditor had fully paid already.

(3)  In the circumstances, Full World was liable to make refund or restitution to the Respondent, and the amount involved was HK$14,054,395.

4.  Against the aforesaid background, Full World, the Respondent and the Applicant entered into a deed of settlement dated 15 March 2023 (the “Deed of Settlement”)  , which contained the following material terms:-

(1)  Full World should repay the indebtedness of HK$14,054,395 on various dates from 31 March 2023 to 28 February 2024: see clause 2.

(2)  If Full World failed to pay any sum that was due and payable, the Respondent could issue a notice and declare that the full amount be immediately due and payable: see clause 3.

(3)  The Applicant guaranteed and undertook to procure the due and punctual performance of all the obligations on the part of Full World. The Applicant aslo agreed that the obligations under undertakings should be enforced against himself as sole or principal obligor: see clauses 4.1 and 4.2.

5.  As of 30 January 2024, Full World had only repaid HK$1,250,000 to the Respondent.  It did not make repayment pursuant to the schedule under clause 2 of the Deed of Settlement.

6.  Thus, by the demand letter dated 30 January 2024, the Respondent exercised its right under clause 3 of the Deed of Settlement and declared that the entirety of the outstanding debt (ie HKL$12,804,395)  became immediately payable.

7.  Upon further liaison, on 22 March 2024, Mr Ng Tin Shui (also known as Roger Ng)  provided a further guarantee (the “Further Guarantee”)  in favour of the Respondent to secure the outstanding indebtedness.

8.  It is the Applicant’s case that in the course of liaising with the Respondent, he on the one hand and on the other hand the representatives of the Respondent reached an oral agreement (the “Alleged Oral Agreement”)  that:-

(1)  Full World should procure a repayment of HK$2,650,000 by the end of March 2024.

(2)  The Applicant and/or Full World should procure the Further Guarantee by Mr Roger Ng.

(3)  The due date for paying the balance of the indebtedness be postponed to the end of March 2025.

9.  From 27 February 2024 to 20 March 2024, Full World paid the sum of HK$2,650,000 in 5 instalments, and a further aggregate sum of HK$360,000 was paid subsequently on various dates from 20 May 2024 to August 2024.

10.  Be that as it may, relying on the Alleged Oral Agreement, the Applicant contends that the principal sum claimed under the statutory demand (ie HK$9,894,395)  had not yet been due as of the date of the statutory demand (ie 30 July 2024).

11.  The Applicant also alleges that the Deed of Settlement was signed for the Respondent’s auditing purposes, and he was given to understand that the same would not be enforced against him.

12.  

Legal Principles on Setting Aside a Statutory Demand

13.  Rule 48(5)(d)  of the Bankruptcy Rules provides that the court may grant an application to set aside a statutory demand if:

“the court is satisfied, on other grounds, that the demand ought to be set aside”.

14.  The applicant bears the burden of satisfying the court that there is a valid reason that the demand ought to be set aside: DCKD v JPWL [2022] HKCFI 1059 at para 22 (per Linda Chan J).

15.  When considering an application to set aside, the Court is only undertaking a limited exercise and will only be concerned with whether the creditor is able to pursue bankruptcy proceedings founded on the statutory demand: see Budge v AF Budge (Contractors)  Ltd [1997] BPIR 366, 372A-D, per Peter Gibson LJ).

16.  As Kwan J (as she then was)  explained in Re Choy Wai Bor (HCB 8565/2001, 28 May 2002)  at para 22:

“[T]he mechanism to set aside a statutory demand is intended to be a filtering process to protect the debtor against a petition being presented based on a statutory demand that is demonstrably unjustified.”

17.  In DCKD v JPWL (supra) at para 24, Linda Chan J stated:-

“For the purpose of demonstrating that the debt is disputed on substantial grounds within rule 48(5)(b), the Applicants must establish by sufficiently precise factual evidence which is believable that they have a defence of substance, not just a fair probability of one (Chan Ping Lam Waymond v Noble Art Ltd, CACV 270/2012, 30 September 2013, §8, per Fok JA (as he then was)). The Court will consider the case being put forward with a reasonably critical eye, testing the case against the other background facts and circumstances (Lai Kar Yee v The Prudential Assurance Company Limited, CACV 233/2014, 9 June 2017, §12, per Barma JA).”

Deliberation

18.  I am not of the view that the Applicant has demonstrated that there is a bona fide dispute on substantial grounds in respect of the indebtedness under the Respondent’s statutory demand.

19.  For the following reasons, I reject his contentions based on the Alleged Oral Agreement.  I also reject the suggestion that the Respondent agreed that payment be postponed to the end of March 2025 as alleged.

20.  First of all, had the Alleged Oral Agreement existed, the parties would have recorded the same in writing.  This did not happen.  Mr Roger Ng’s Further Guarantee was encapsulated by a properly prepared legal document.  In contrast, the Alleged Oral Agreement was not recorded in any agreement or memorandum.  This was hardly explicable.  In this connection, I do not lose sight of the fact that the Applicant was a seasoned businessman and/or business executive. Since 2014 he has been serving as an executive director of a listed company.  I do not believe that he was contented to leave the matter overhanging in the air.

21.  Second, there is no contemporaneous document that sheds light on the alleged discussion that payment of the outstanding sum be postponed to the end of March 2025.  In this connection, I have carefully studied Exhibit SDTM-5.  There was extensive discussion in relation to the proposal that a property be put forward as security and the arrangement relating to Mr Roger Ng’s Further Guarantee.  However, there was no discussion on postponing the payment deadline till the end of March 2025.  In my view, the postponement alleged by the Applicant now was not discussed at all, and this was why the same was not reflected by the contemporaneous WhatsApp messages.

22.  Third, the Applicant was unable to provide any meaningful details as to how the parties orally agreed that payment of the outstanding sum be postponed to the end of March 2025.  The Applicant was unable to pinpoint the date of the alleged agreement and the words spoken by the parties.  In my view, the Applicant’s allegations are not credible.

23.  Fourth, the Applicant’s case is not consistent with the conduct on the part of Full World.  Had the parties agreed that payment of the outstanding sum be postponed to the end of March 2025, there was no reason why Full World would have “prematurely’ paid the aggregate sum of HK$360,000 by a few tranches during the period from 20 May 2024 to August 2024. Again, this was not explicable.

24.  Whilst Mr Philip Wang (solicitor for the Applicant)  accepted that the Deed of Settlement was valid, he emphasized the Applicant was given to understand that the Deed of Settlement would not be enforced against him personally.

25.  I have no hesitation in rejecting this bare assertion, which is flatly contradicted by the terms and provisions of the Deed of Settlement. 

26.  I have no doubt that the Deed of Settlement is a serious legal document. In my view, the parties intended and understood that the same should carry legal effect.

27.  There is no substance in the Applicant’s assertion that the Deed of Settlement was created for auditing purposes only.  This bare assertion makes no sense to me. None of the WhatsApp messages in Exhibit SDTM-5 remotely supports the suggestion that the Respondent did not intend the Deed of Settlement to be enforceable.  In any event, the fact that the Respondent might wish to comply with the advice of the auditors simply does not support the conclusion that the Deed of Settlement was meant to be unenforceable against the Applicant.

Conclusion and Disposition

28.  For all the above reasons, I hold that there is no valid ground for setting aside the statutory demand dated 30 July 2024.

29.  I make the following orders:-

(1)  The Applicant’s application dated 16 August 2024 is dismissed.

(2)  The Respondent is authorized to present a bankruptcy petition against the Applicant based on the Applicant’s failure to comply with the statutory demand dated 30 July 2024 after 14 days of this Decision.

30.  Costs should follow the event.

31.  Although I am unimpressed by the Applicant’s case and assertions, I am not of the view that this is an exceptional case where an order of indemnity costs is justified.

32.  I order that the Applicant should pay the Respondent’s costs in respect of the application dated 16 August 2024, summarily assessed at HK$130,000.

32.  I thank Mr Philip Wang and Mr Wong Yu Yat Anson for their assistance.