CHUI TAK KEUNG DUNCAN v. VIP CREDIT LTD (formerly known as CNI CREDIT LTD)

HCB 7518/2020

[2022] HKCFI 3480

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 7518 OF 2020

_______________

_______________

_______________

J U D G M E N T

_______________

1.  The petition before the court, presented on 10th November 2020 (“the Petition”), is based on a debt of $1,074,000 (“the Debt”), said to be owed by the Debtor to the Petitioner under a loan agreement. A statutory demand was earlier presented on 16th October 2020 (“the Statutory Demand”). The Debtor does not dispute that the Debt was incurred, but says that it has been repaid.

2.  The Debtor’s evidence as to repayment is set out in the 2nd Affidavit of Chui Tak Keung Duncan (“Debtor 2nd”).

3.  The Debt is said to have been repaid via (1) repayments made to Sun Fung Capital Limited (“Sun Fung”) and (2) repayments made directly to the Petitioner. The repayments said to have been made were set out in a letter from Messrs Tang & So, the Debtor’s then solicitors, to the Petitioner’s then solicitors of 9th November 2020.

Relevant principles

4.  Where a debt is not disputed or is clearly established, and the procedural requirements have been complied with, a petitioning creditor has a prima facie right to a bankruptcy order: Ho Ying Pat Bobby v Overseas Way (China) Ltd [2011] 2 HKLRD 837 at [12] per Le Pichon JA.

5.  In order to show a bona fide defence, sufficiently precise evidence is required from a debtor. See Re Leung Cherng Jiunn [2016] 1 HKLRD 850 at [26] (Kwan JA, as she then was).

Repayments to Petitioner

6.  The repayments said to have been made to the Petitioner can be dealt with briefly. Debtor 2nd sought to exhibit copies of cheques and deposit slips evidencing the repayments made to the Petitioner as set out in Messrs Tang & So’s letter of 9th November 2020. However, those repayments had in fact already been taken into account by the Petitioner when calculating the amount due to it, as shown in exhibit CKK-5 to the 3rd Affirmation of Chan Ka Kin (“Chan 3rd”). Whilst there were one or two minor discrepancies between the list of repayments in the letter of 9th November 2020 and CKK-5,[1] it is clear that the repayments in the letter have all been taken into account in CKK-5.

Repayments via Sun Fung

7.  For the repayments said to have been made to the Petitioner via Sun Fung, the Debtor’s case is that he was pressured to make payments to Sun Fung, a company to which Yau Chung Hong, Peter (“Mr Yau”) one of the founders of the Petitioner, had earlier referred the Debtor.

8.  The background is that the Debtor had obtained a number of loans from various parties.

8.1 He owed the Petitioner some $1m in June or July 2019, and monthly interest on that loan of $49,500 which he paid regularly. By March 2020 he still owed the Petitioner some $1m.[2]

8.2 He owed Cheung Hung, Ben (“Mr Cheung”), another founder of the Petitioner, $6m in principal and several months’ worth of $180,000 monthly interest in around June or July 2019.[3]

8.3 He owed Sun Fung money borrowed in September 2019, which loan had been arranged by Mr Yau. This loan was eventually paid off in full on 31st March 2020.[4]

8.4 He owed Honest Smart Finance Limited (“Honest Smart”), another company to which Mr Yau had referred him, an unspecified amount, which was eventually paid off in 13th March 2020.[5]

9.  The Debtor says that in early July 2019, Mr Cheung was himself indebted to Mr Yau, and both Mr Cheung and Mr Yau asked the Debtor to pay Mr Cheung so that Mr Cheung could pay Mr Yau.[6] The Debtor made various repayments on behalf of Mr Cheung to Mr Yau. Some of the payments were made to Sun Fung. Mr Yau then offered to make a new loan of $2m to the Debtor, on condition that the Debtor use part of the funds to pay Sun Fung on behalf of Mr Cheung.[7] In around late November to early December 2019, Mr Yau once again told the Debtor that he needed to collect money from Mr Cheung for a long outstanding loan to Sun Fung. He pressured the Debtor to make payments on behalf of Mr Cheung (which Mr Cheung owed to Mr Yau), or else he would procure Sun Fung and Honest Smart to commence proceedings against the Debtor.[8]

10.  The Debtor says that he fully repaid Sun Fung and Honest Smart in March 2020, so that by April 2020, his only indebtedness to Mr Yau was the amount owed to the Petitioner: Debtor 2nd, paragraph 21. (This leaves out his debt to Mr Cheung, identified in Debtor 2nd paragraph 11.) The Debtor says that he then prepared various post-dated cheques to Sun Fung which were to be (1) payments on behalf of Mr Cheung, and (2) payment of $2m out of the $8m by then owed by the Debtor to Mr Cheung.[9] He then prepared further post-dated cheques to Sun Fung after Mr Yau insinuated that there were debt collection agents who would be keen to collect $7m from him ($1m owed to the Petitioner and $6m owed to Mr Cheung).[10] In fact, Chan 3rd exhibits notifications from the banks involved that all of these cheques were either dishonoured or countermanded by the Debtor upon presentation.

11.  The Debtor then says that he continued to receive pressure to make payments on behalf of Mr Cheung to Sun Fung, and he continued to make payments to Sun Fung and the Petitioner. He says that by about mid July 2020, however, Mr Yau said he did not want to be too harsh, so that he asked the Debtor to ask Mr Cheung to repay his own debt to Sun Fung, and the Debtor could repay Mr Cheung when his own funding arrived.[11]

12.  All of this background then forms the basis of the assertion in Debtor 2nd paragraph 31 that “all the rest of the payments I made to Sun Fung after 1 April 2020 was so paid in accordance with instructions given by Mr Yau or King in order to settle my own indebtedness towards the Petitioner under extreme circumstances where I was either threatened or intimidated.” However, as can be seen from the summary above, none of the earlier part of the affidavit prior to paragraph 31 sets out any evidence that any payments actually made to Sun Fung were in fact payments to the Petitioner,[12] or even any arrangement that payments made to Sun Fung were to be treated as payments to the Petitioner. Insofar as parts of the affidavit after paragraph 31 are relied on, the Debtor simply sets out records of payment made to Sun Fung from April to September 2020 (paragraph 32). Even if there were payments made to Sun Fung, the Debtor has not adduced any sufficiently precise evidence that such payments were made as a form of indirect payment to the Petitioner.

13.  Whilst the Debtor’s skeleton argument asserts that he was instructed by Mr Yau and others to repay the Petitioner by making payments to Sun Fung, the Debtor acknowledged at the hearing that he has in fact not produced any evidence of such instructions. He said that he has not had enough time to do so as he was only given a week to produce Debtor 2nd, but in fact the Petition was presented in October 2020. He said that after the presentation of the Petition, the parties were focussing on the validity of the voluntary arrangement he had proposed, but he would have known by the time of the judgment in HCBI 2/2021 of 30th September 2022 that the Petitioner would likely be pursuing the Petition. The Debtor also submitted that as a fact of life, matters may be imperfectly documented, but this submission cannot be used to overcome the requirement to adduce sufficiently precise evidence to support his case that there is a bona fide dispute as to the Debt.

14.  Therefore, the supposed numerous factual issues identified in paragraphs 4.7 and 4.8 of the Debtor’s skeleton do not arise for determination. Nor is it for the Petitioner to show why Sun Fung was entitled to payments from the Debtor and to disprove that they were payments to settle the Debt, as suggested by paragraph 5.6 of the Debtor’s skeleton.

Other arguments

15.  In his skeleton argument, the Debtor raised a few additional grounds of opposition to the Petition.

16.  The Debtor said that the Petitioner failed to set out the basis for the Debt in the Statutory Demand, the Petition, or the Petitioner’s affirmations. However, the Statutory Demand in fact specifically identifies the Debt as being the outstanding principal of $1m and interest of $74,000 owed under a loan agreement of 28th May 2014, and this is confirmed in the Petition and the supporting affirmation. In any event, the Debtor does not dispute the Debt, but simply says that it has been paid.

17.  The Debtor also said that it is only in Chan 3rd that the Petitioner provided a summary of all repayments made by the Debtor and the accrual of overdue interest. It is said that the Petitioner wrongly demanded interest of $49,500 rather than $45,000 after the outstanding principal had been reduced from $1.1m to $1m in July 2018. However:

17.1 there is no evidence that the Petitioner demanded any specific sum of repayment each month;

17.2 it was the Debtor who stated in Chui 2nd that he had been paying $49,500 monthly interest, not realising that the Petitioner had been demanding a higher amount of interest than was due under the loan agreement. However, the table of repayments shows that the Debtor’s repayments varied from month to month;

17.3 as the Petitioner points out, it is not the case that the Debtor “over-repaid” outstanding interest such that such excess repayments could have been used to pay off the outstanding principal.

18.  In his original affidavit filed on 21st October 2022 in opposition to the Petition, the Debtor had said that the deadline to file his appeal against the judgment of 30th September 2022 in HCBI 2/2021 fell on 28th October 2022 and time had not yet expired. He had said that it was premature for the Petitioner to say that no stay of execution had been obtained, because he (the Debtor) had not filed any appeal yet, so there was nothing before the court to enable it to determine whether he had strong grounds of appeal or not. However, the deadline for appeal has since passed, and it is not now suggested that the Debtor has strong grounds of appeal.

19.  In that affidavit, the Debtor had also said that it was unfair for the Petitioner to press for a bankruptcy order when the Debtor had not been able to comply with r.122Y(4) of the Bankruptcy Rules in indicating whether or not he intends to make a revised proposal or to invite re-consideration of the original proposal, since he has not been served with the order regarding the revocation of the approval of the voluntary arrangement given at the creditors’ meeting of 24th March 2021. However, nothing in r.122Y prevents the Debtor from giving notice earlier if he wishes, and he has in fact since done so.

Disposition

20.  I therefore order that the Debtor be declared bankrupt.

21.  I further make a costs order nisi that the costs of and occasioned by the Petition, including all costs reserved, should be paid to the Petitioner and Official Receiver out of the Debtor’s estate, to be taxed if not agreed.