RE LEUNG KA CHUN

HCB 2617/2024

[2024] HKCFI 3042

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 2617 OF 2024

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REASONS FOR JUDGMENT

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1.  At the hearing of the petition presented by 成都圓中僑信商貿有限公司(“Petitioner”) on 17 April 2024 (as amended on 15 August 2024) against Mr Leung Ka Chun (“Debtor”), I made a usual bankruptcy order against the Debtor. These are the reasons for my judgment.

2.  By a loan agreement dated 1 September 2021 (“Loan Agreement”) entered into between, inter alios, the Petitioner as lender and 廣州國藝匯影影視傳播有限公司 as borrower (“Borrower”), the Petitioner agreed to lend RMB29 million (“Loan”) to the Borrower with interest at 10% p.a..  The Debtor executed a deed of guarantee dated 1 September 2021 whereby he (alongside with another guarantor named therein) agreed to guarantee the obligations of the Borrower under the Loan Agreement (“Guarantee”).

3.  The Loan was drawn down on 2 September 2021 and became repayable on 1 September 2022, being 12 months from the date of the Loan Agreement.  The Borrower failed to repay the Loan or the interest accrued thereon.  Nor did the Debtor pay the amount fallen due.

4.  As at 8 June 2023, the amount due and payable by the Debtor to the Petitioner was RMB30,126,650.84 (“RMB30.12m”).

5.  On 24 July 2023, a statutory demand dated 8 June 2023 was served upon the Debtor by way of substituted service requiring him to pay RMB30.12m (“SD”).  The Debtor did not comply with the SD.

6.  On 25 March 2024, the Petitioner obtained leave to file the petition against the Debtor.  On 17 April 2024, the petition was presented.   

7.  On 12 June 2024, the Debtor’s solicitors, Messrs. Tung, Ng, Tse & Lam, filed a Notice to Act and a Notice of Intention to Oppose Petition (“Notice”).  In the Notice, the Debtor merely states that he “intends to show cause against the petition and that he intends to dispute the Creditor’s debt and the validity of the service of the [SD]”.  No substantive ground in opposition to the petition or the debt has been identified.  

8.  On 13 August 2024, leave was given to the Petitioner to amend the petition which corrected the amount of the debt to RMB30,102,650.84 (“Debt”)[1].

9.  By summons issued on 2 September 2024, the Debtor applied for security for costs in the amount of HK$560,000 on the ground that the Petitioner is out of the jurisdiction (“Security Summons”).  On 8 October 2024, the Debtor filed an affirmation in opposition to the petition (“Leung 1^st”).

10.  At the hearing, I dismissed the Security Summons with costs as it was a waste of time and costs for the Debtor to pursue such application where the issue of whether there is a bona fide dispute on substantial ground in respect of the Debt would be determined by the Bankruptcy Court summarily (Re Deng Jiang [2024] HKCFI 2260 §18).

11.  As the Debtor failed to comply with the SD, he is deemed unable to pay his debts by virtue of s.6A(1)(a) of the Bankruptcy Ordinance (Cap. 6).  

12.  The burden is on the Debtor to show that there is a bona fide dispute on substantial grounds in respect of the Debt and for this purpose, the Debtor has to adduce sufficiently precise evidence to establish a defence of substance, not just a fair probability of one (Leung Cherng Jiunn [2016] 1 HKLRD 850, §27; Re Soetrisno Farida [2019] HKCFI 2756, §11).  In this regard, it is not enough for the Debtor merely to raise “a cloud of objections on affidavits” (Artech Development Ltd v Posismo Limited [2018] HKCFI 344, §10(4)).

13.  The evidential burden is even higher where, as here, a debtor is seeking to disown a document which he admittedly signed.  It is well established that a person of full age and understanding is bound by the documents he signed unless he can establish a recognised legal basis to disown such documents.  For this purpose, the facts constituting the particular vitiating factor relied on must be pleaded and established by evidence (Ming Shiu Chung & ors v Ming Shiu Sum & ors (2006) 9 HKCFAR 334, §§84-87, per Ribeiro PJ).

14.  Mr Thomas Yeon, counsel for the Debtor, confirms that the Debtor no longer takes issue with the validity of service of the SD.  The only issue is whether the assertions raised in Leung 1^st constitute a bona fide dispute on substantial grounds in respect of the Debt. 

15.  In Leung 1^st, the Debtor asserts inter alia that:

(1)  In or about August 2021, he was approached by Mr Kian Chow (“Mr Chow”), the chairman and chief executive officer of National Arts Entertainment and Culture Group Limited (國藝娛樂文化集團有限公司) (“National Arts”), who represented that National Arts was seeking a loan of HK$30 million (“Intended Loan”) from HK Monkey Securities Limited (金猴證券有限公司) (“HK Monkey”) and requested the Debtor to provide security for the Intended Loan by pledging his shares in National Arts.

(2)  Mr Chow reassured the Debtor that his potential loss would be limited to the shares pledged as security, and he would not be personally liable for any outstanding sum which might remain unpaid.

(3)  At the meeting held in late August 2021, Mr Chow and Ms Rainbow Chan (“Ms Chan”), a responsible officer of HK Monkey, represented to the Debtor that he would be given several documents to sign to effect the provision of security for the Intended Loan.  The Debtor was only presented with a number of signing pages and he signed on those pages.

(4)  Mr Chow and Ms Chan never mentioned that the Debtor would be a guarantor of the Intended Loan or that the signing pages were part of a guarantee for the Intended Loan.

(5)  On 1 September 2021, the Debtor transferred 1,403,400,000 shares in National Arts (“Shares”) from his margin account to an escrow account maintained by HK Monkey for the purpose of pledging those shares as security for the Intended Loan.

(6)  The Debtor only became aware he had signed on the Guarantee when the petition came to his notice.  He had no intention to create any legal relationship with the Petitioner and never consented to entering into the Guarantee.

16.  Mr Yeon contends that no valid contract has been entered into between the Petitioner and the Debtor for the following reasons:

(1)  There was no communication between the Petitioner and the Debtor prior to entering into the Guarantee.  The evidence shows that Mr Chow and Ms Chan are totally unrelated to the Petitioner.  Neither of them has ever informed the Debtor that he would be a guarantor of the Intended Loan or that the Petitioner would be involved in the pledge arrangement.

(2)  There is serious doubt as to whether the entirety of the Guarantee was made available to the Debtor.  Although the word “guarantor” appears on the signing page, it does not change the fact that the Debtor signed the page against the oral representations and assurances made by Mr Chow and Ms Chan.  Nor does it show that the Debtor knew that he signed the document as a guarantor of the Loan lent by the Petitioner to the Borrower.

(3)  The transfer of the Shares from the Debtor to HK Monkey suggests the Debtor only agreed to pledge the Shares as security for the Intended Loan, rather than agreeing to enter into the Guarantee.   

17.  In my view, the Debtor failed to discharge the burden of showing that there is a bona fide dispute on substantial grounds in respect of the Debt. 

18.  The Debtor admittedly signed the Guarantee and is bound by the terms thereof.  Apart from his bare assertions, the Debtor has not been able to adduce any document, contemporaneous or otherwise, in support of the alleged representations or that he only agreed to provide the Shares as security for the Intended Loan.  The first time the Debtor raised the assertions was in Leung 1^st, which was only filed 6 days before the hearing.  No explanation has been proffered by the Debtor as to why he did not raise the assertions after the Petitioner had demanded for payment of RMB30.12m or when he filed the Notice.

19.  Further, the assertion that the Debtor had no intention to sign a guarantee is flatly contradicted by the fact that on the execution page, the words “Name of the Guarantor Leung Ka Chun” appeared next to the Debtor’s signature.  At the bottom of the same page, there was a note which stated that “In the case where there are more than one Guarantor, the Guarantor may elect to sign on the same Guarantee or sign separate Guarantees”. 

20.  As for costs, Mr Raphael Leung, counsel for the Petitioner, asks for indemnity basis, relying on clauses 11.3 and 17 of the Guarantee and Re Yu Pun Hoi [2024] HKCFI 960 §76.  I do not think that it is appropriate to order costs on a higher scale as the Petitioner’s costs will be paid out of the estate of the Debtor.  If costs were ordered on an indemnity basis, it would mean that the creditors, rather than the Debtor, would have to bear the higher costs.  There is no justification for allowing the Petitioner to recover its costs at the expense of the other creditors.