RE YUEN HOI PO

HCB 5988/2024

[2025] HKCFI 1454

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5988 OF 2024

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D E C I S I O N

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A.  Introduction

1.  This is the substantive hearing of the amended petition of Mr Frank Chow (the “Petitioner”) filed on 28 August 2024 seeking to bankrupt Mr Yuen Hoi Po (the “Debtor”).

2.  The Petitioner alleged the Debtor had been indebted to him to the extent of HK$64,788,561.37.

3.  The Debtor contended that he had raised a bona fide dispute on substantial grounds.

B.  Material Background

4.  The Petitioner first came to Hong Kong in 2016 through the admission scheme for Mainland Talents and Professionals.

5.  In satisfaction with the scheme, the Petitioner was offered employment by a company named Hong Kong Builder Finance Ltd, of which Mr Lei Hong Wai (“Raymond Lei”) and Mr Cheung Kwok Wai Elton (“Elton Cheung”) were directors.

6.  Through Raymond Lei, the Petitioner and the Debtor became acquainted during a hiking activity.

7.  It is not in dispute that whilst the Petitioner and the Debtor respectively maintained good relationship with Raymond Lei all along, the Petitioner and the Debtor were not close friends.

8.  The Debtor was a substantial shareholder and director of a listed company.  It appeared that he was active in investing in stocks and financial products.

9.  In April 2019, Everbright Securities Investment Services (HK) Ltd (“Everbright”) requested the Debtor to cover a shortfall in his margin account by depositing either HK$30 million in cash or stocks of sufficient market value to maintain the margin ratio.

10.  It is common ground that the Debtor resorted to Raymond Lei for assistance, and in May 2019 Raymond Lei approached the Petitioner.

11.  It is the Petitioner’s case that:-

(1)  He owned 8,790,000 shares in a listed company named SuperRobotics Holdings Ltd (the “SuperRobotics Shares”), the market value of which was around HK$42 million at the time.

(2)  He agreed to sell the SuperRobotics Shares to the Debtor at a market price of HK$42,455,700.

(3)  However, since the Debtor was in financial difficulty at the time, he granted a loan of HK$42,455,700 in favour of the Debtor.  The loan was repayable within 6 months, and the Debtor should pay 10% interest per annum.

(4)  Whilst the sale and purchase of the SuperRobotics Shares were evidenced by the bought and sold notes (“B&S Notes”), the loan was evidenced by a loan agreement dated 27 May 2019 (the “Loan Agreement”).

(5)  Raymond Lei, as the middleman, was the person who prepared the B&S Notes and the Loan Agreement.

(6)  Since the Debtor has failed and/or refused to pay the indebtedness under the Loan Agreement, he is entitled to seek a bankruptcy order against him.

12.  The Debtor’s case is as follows:-

(1)  In light of the Petitioner’s friendship with Raymond Lei, the Petitioner agreed to “lend” the SuperRobotics Shares to himself, such that he would be in a position to answer Everbright’s margin call (the “Stock Lending Exercise”). This was a favour.

(2)  Raymond Lei was the middleman.  He instructed his personal assistant, namely Ng Ka Hang (“Anthony Ng”), to prepare the documents for effectuating the Stock Lending Exercise.

(3)  With a view to avoiding lengthy verification exercise to be undertaken by the parties’ mutual stockbroker (namely Global Mastermind Securities Ltd (“GMS”)), Anthony Ng decided to effectuate the Stock Lending Exercise under the pretense of a sale and purchase transaction.  This was the reason why he prepared the B&S Notes and the Loan Agreement.

(4)  Despite the contents of the B&S Notes and the Loan Agreement, it was agreed and/or understood that the provisions of these documents would not be implemented or enforced.  It was expected that his liquidity issues were only temporary.

(5)  In the circumstances, he did not pay attention to the contents of the documents when he signed the B&S Notes and the Loan Agreement.

13.  It appeared that in around late October 2019, the Petitioner was in need of cash. In the circumstances, on 29 October 2019 the Petitioner had the following conversations with Raymond Lei via WeChat (the “October 2019 Conversations”):-

(1)  The Petitioner initiated the conversations by stating that the SuperRobotics Shares that he lent to the Debtor were due and should be returned (那些借給海波^[1]的股票已經到期).

(2)  When the Petitioner asked when the SuperRobotics Shares would be returned and when the interest would be paid, Raymond Lei immediately indicated that the SuperRobotics Shares were lent to the Debtor as a favour and it was not mentioned that interest would be charged (那些借股票給他只是幫忙，沒有說收海波利息的).

(3)  In response, the Debtor said that he was in financial difficulty.  If no interest was payable, that was fine; however, he needed to recover the SuperRobotics Shares as soon as possible (我現在是非常困難的，哥說什麼都沒有，也沒關係，我要盡快收回我的票).

(4)  Raymond Lei then indicated that the B&S Notes and Loan Agreement were created for the purpose of satisfying the internal requirements of the bank and/or the security firm.  The reality was that there had been no sale and purchase of the SuperRobotics Shares; nor had there been any borrowing of money. Raymond Lei also stressed the truth was that the Debtor merely borrowed the SuperRobotics Shares from the Petitioner (合約只是給銀行和證券公司看的，而海波又不是真的買股票，所以沒有借款，付利息的問題，他只是向你借股，這是確實的事實).

(5)  Raymond Lei further indicated that he would discuss the matter with the Debtor and make arrangement to return the SuperRobotics Shares (你想取回股票沒有問題，我會和他商量如何安排退回給你).

(6)  In response, the Petitioner said he understood and he thanked Raymond Lei (那我明白了，謝謝哥).

14.  Despite the October 2019 Conversation, there had been no follow-up action and nothing materialized.

15.  Between 14 June 2024 and 3 July 2024, the Petitioner and the Debtor exchanged WeChat messages with each other.  These WeChat messages did not show that the Petitioner demanded the Debtor for payment pursuant to the Loan Agreement.

16.  On 17 July 2024, the Petitioner and the Debtor met at the Petitioner’s office (the “July 2024 Meeting”):-

(1)  According to the Petitioner, he demanded the Debtor to make repayment during the July 2024 Meeting. Whilst the Debtor did not deny liability, he requested that more time be given.

(2)  According to the Debtor, the Debtor showed him the B&S Notes and the Loan Agreement during the July 2024 Meeting, and this was the first occasion where he saw the completed documents.  He immediately pointed out that he had not purchased the SuperRobotics Shares and that the Stock Lending Exercise was merely a temporary measure arranged by Raymond Lei.  Whilst he agreed that the SuperRobotics Shares be returned, he invited the Petitioner to liaise with Raymond Lei.

17.  After the July 2024 Meeting, the Petitioner issued a WeChat message to thank the Debtor for visiting him.

18.  On 1 August 2024, the Petitioner served a statutory demand on the Debtor during a tea meeting.

19.  On 28 August 2024, the Petitioner took out the bankruptcy petition herein.

20.  The Debtor alleged that he was not aware of the nature of the statutory demand (which was drafted in English).  He only knew that the Petitioner commenced legal proceedings against him on 3 September 2024.

C.  Legal Principles on Bankruptcy Petition

21.  The legal principles governing a bankruptcy petition are trite and summarized by Linda Chan J in Guy Kwok Hung Lam v CP Global Inc & Anor [2025] HKCFI 1220 at paras 19(2)-(4) as follows:-

“ (2) An unpaid creditor whose debt is not in dispute is entitled ex debito justitiae to seek a bankruptcy order against the debtor.

(3) The burden is on the debtor to show that there is a bona fide dispute on substantial grounds in respect of the debt. 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).

(4) It is not enough for the debtor merely to raise “a cloud of objections on affidavits” (Re Posismo Limited [2018] HKCFI 344, §10(4)). The court would caution itself against unsubstantiated and unparticularized assertions (Re Cheung Chi Mang [2018] HKCFI 984, §13(3), per Ng J; Re Cheung Kwan [2020] HKCFI 1033, §§30-31).”

22.  In Re Han Catherine, ex parte Zhongtai Financing (Hong Kong) Ltd [2019] HKCFI 2274 at paras 3-5, DHCJ William Wong SC (as he then was) stated:

“3.  It is well established that the burden is on a debtor to demonstrate to the Court with sufficiently precise factual evidence that there is a bona fide dispute of the petitioning debt on substantial grounds.  It is not enough for a debtor to simply raise some factual disputes and submit that such factual disputes have to be resolved in a trial.

4.  In Re Leung Cherng Jiunn (debtor) [2016] 1 HKLRD 850, Kwan JA (as she then was) at §27 said:

‘27. I would endeavour to state my understanding of the law in this way:

(1)   For the purpose of establishing a bona fide dispute on substantial grounds, I could discern no meaningful difference between a bankruptcy petition and a winding-up petition, notwithstanding the material differences in procedure between the two as noted by the Judge at [20] and r.70 of the Bankruptcy Rules which has no equivalent in winding-up. See Re Malcolm Westley Casselle at [24].

(2)   The wording of O.14, r.3 is different from the test of bona fide dispute on substantial grounds.  The test of bona fide dispute involves different considerations in respect of the evidence.  The difference may not be significant, but there is still a difference. See ICS Computer at 183F and Re Yuen Mun Wa at [11].

(3)   The distinction between the two tests lies in establishing a bona fide defence (for resisting a petition) and a fair probability of establishing a bona fide defence (for obtaining leave to defend a civil action, whether unconditionally or with condition).  So in that sense, the threshold test for resisting a petition would require a higher standard.  See ICS Computer at 183G–J and Re Grandfield Pacific Hotel Ltd at [11].

(4)   Notwithstanding this difference, it is fair to say that the threshold tests in both situations are broadly similar, as noted in the two recent English authorities.  If a petition is dismissed on the basis there is a bona fide dispute on substantial grounds, it would be most unlikely that summary judgment could be obtained.  Most probably, the defendant would be given leave to defend, whether unconditionally, or with conditions imposed if his defence is regarded as shadowy.  Conversely, where a defendant has obtained leave to defend, unconditionally or with conditions, it would be most unlikely that a petition would be granted.  See Markham v Karsten at [45].  The statements of Rogers J in ICS Computer at 183E–F did not suggest otherwise.

(5)   This is not to say it should be easier for a creditor to succeed in a petition than in seeking summary judgment in a civil action, notwithstanding the higher threshold test for resisting a petition in the sense as explained above.  It is well established that petitions are not meant to be used for the purpose of debt collection and the winding-up or bankruptcy jurisdiction of the court would be exercised only in very clear cases.  Where oral evidence is required to decide a real and substantial dispute of fact, the court will dismiss the petition. And if there is an abuse of process in invoking the jurisdiction of the court in an improper manner, the petitioning creditor may be ordered to pay indemnity costs.’ (emphasis added)

5.  I am of the view that the key is for the Court to assess whether there are real and substantial disputes of fact which render the summary procedure of a bankruptcy and/or winding up proceedings unsuitable for the determination of such real and substantial disputes of fact.  In such scenario, the validity of petitioning debt would need to be fully investigated in a trial.  However, peripheral and/or disputes of fact which do not go to the foundation of the petitioning debt are normally distractions and are irrelevant in determining whether there are bona fide disputes to the petitioning debt on substantial grounds.”

D.  Deliberation

23.  Mr Jose-Antonio Maurellet SC, leading Mr Lai Chun Ho and Mr Han Sheng Lim, (for the Debtor) submitted that under the Shares Lending Exercise, the parties did not have the intention to enforce the terms and provisions in the B&S Notes and the Loan Agreement.

24.  Relying on Chitty on Contract (35^th Ed) at paras 4-214 & 16-033 and Rogers v Hadley (1863)159 ER 94 at 104, Mr Maurellet pointed out that the court may disregard a written term that is not part of a true agreement when there is cogent extrinsic evidence showing that “what appears to be a valid and binding contract is in fact no contract at all”.

25.  In their written submissions, Mr Edward Tang, together with Mr Ryan Chan, (for the Petitioner) bluntly pointed out the Debtor ran a case of sham.

26.  As Diplock LJ (as Lord Diplock then was) pointed out in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802C-F, a sham in law means:

“ … acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities … that for acts or documents to be a ‘sham,’ with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.” (emphasis added)

27.  Mr Tang reminded me that the court would not lightly find a transaction to be a sham as there is a strong presumption that the parties intended to be bound by the provisions of the agreements into which they entered: see A v A [2007] 3 FLR 467 at para 53 (per Munby J, as he then was).

28.  Despite the different formulations, it appears to me that the crux of the parties’ dispute is whether the Shares Lending Exercise existed and whether the parties genuinely intended that the terms and provisions in the B&S Notes and the Loan Agreement carried no effect at all.

29.  For the following reasons, I am of the view that the Debtor has adduced sufficiently credible and particularized evidence to show that the Shares Lending Exercise did exist. In my view, it was highly arguable the agreement and/or mutual intention of the parties were that:-

(1)  the Petitioner simply “lent” SuperRobotics Shares to the Debtor in order to enable him to meet the margin call from Everbright;

(2)  there was neither sale and purchase of the SuperRobotics Shares nor borrowing of money; and

(3)  the terms and provisions of the B&S Notes and the Loan Agreement were not meant and/or intended to be enforceable.

30.  First of all, the contemporaneous WeChat messages exchanged between the Petitioner and Raymond Lei during the October 2019 Conversations amply support the Debtor’s case and flatly contradict the Petitioner’s case:-

(1)  As pointed out in paragraph 13 above, when the Petitioner approached Raymond Lei, he indicated that the SuperRobotics Shares were merely “lent” to the Debtor (那些借給海波的股票已經到期).  Had the Petitioner sold the SuperRobotics Shares to the Debtor absolutely, he would not have said this; nor would he have said that he wanted to get back the SuperRobotics Shares as soon as possible (我要盡快收回我的票)

(2)  During the conversations, Raymond Lei unequivocally mentioned that the purpose of the Shares Lending Exercise was to do a favour for the Debtor and no interest was chargeable (那些借股票給他只是幫忙，沒有說收海波利息的) (他只是向你借股).

(3)  Raymond Lei emphasized that the Debtor did not purchase any stocks and thus he did not borrow any money (而海波又不是真的買股票，所以沒有借款，付利息的問題).  In this connection, Raymond Lei further explained that the B&S Notes and the Loan Agreement were created for the purpose of satisfying the internal requirements of the bank and/or the security firm (合約只是給銀行和證券公司看的).

(4)  Had the Petitioner sold the SuperRobotics Shares to the Debtor and lent money to him, he would have categorically refuted Raymond Lei’s assertions.  Instead of doing so, the Petitioner simply thanked Raymond Lei for the clarification and indicated that he understood the matter (那我明白了，謝謝哥).

(5)  In the premises, it appeared that the Petitioner accepted Raymond Lei’s assertions.

31.  Second, Raymond Lei filed an affirmation in support of the Debtor’s defence.  Again, he emphasized that under the Shares Lending Exercise, the Petitioner simply “lent” the SuperRobotics Shares to the Debtor.  Raymond Lei was merely the middleman between the Petitioner and the Debtor, and he did not appear to have an interest in the outcome of the present proceedings.  More importantly, Raymond Lei’s evidence was consistent with and corroborated by the contemporaneous WeChat messages during the October 2019 Conversations.  Based on the available materials, I have no reason to doubt Raymond Lei’s evidence. I do not believe that Raymond Lei was prepared to commit forgery simply because the Debtor was his good friend.

32.  Third, whilst the Petitioner’s case is contradicted by the WeChat messages during the October 2019 Conversations, there is not a shred of contemporaneous documents (such as telephone messages or emails) showing that the SuperRobotics Shares were sold to the Debtor and that the Petitioner had lent money to the Debtor.  After the October 2019 Conversations, the Petitioner did not even bother to send a WeChat message to either the Debtor or Raymond Lei demanding repayment.  As Mr Maurellet pointed out at the hearing, the contemporaneous WeChat between the Petitioner and Raymond Lei showed that the Petitioner was in financial difficulty as of July 2024.  In my view, there was no reason why the Petitioner did not issue a WeChat message to the Debtor chasing repayment.  This was hardly explicable.

33.  Fourth, I disagree with Mr Tang’s submissions that the Petitioner had no reason to lend the SuperRobotics Shares to the Debtor (which was a favour).  Although the Petitioner was merely the Debtor’s acquaintance, Raymond Lei was indeed a good friend of the Petitioner.  As evidenced by the WeChat message on 5 June 2024, the Petitioner expressed his gratitude to Raymond Lei for taking care of him throughout the years and he indicated that he would repay him when his circumstances improved. In my view, there was nothing unusual about the fact the Petitioner would do a favour for a good friend of Raymond Lei.

34.  Fifth, I am of the view that it is, to say the least, arguable that the arrangement under Shares Lending Arrangement was commercially explicable. As of 27 or 28 May 2019 (ie the dates of the Loan Agreement and B&S Notes), there was urgency to answer Everbright’s margin call.  In this connection, it was Raymond Lei and Anthony Ng’s evidence that if a substantial transfer of shares without payment was effectuated in the absence of supporting documentation, the transaction would be subject to stringent and lengthy scrutiny by GMS.  Although it was possible to execute a formal stock lending agreement, this was not something that GMS encountered regularly, and as such the internal verification exercise was expected to be lengthy and complicated.  In the circumstances, Anthony Ng decided to orchestrate the transfer under the pretense of a bought and sold note in addition to a vendor’s loan arrangement.  This would be straightforward.  In my view, the evidence of Raymond Lei and Anthony Ng makes commercial sense and I am not in a position to reject the same summarily on affidavits.

35.  Sixth, there is no evidence showing that the Debtor and the Petitioner negotiated the purported sale price in respect of the SuperRobotics Shares.  The Debtor was a sophisticated businessman and/or business executive.  Bearing in mind the volume of stocks involved and the amount of the consideration, I am of the view that had the purported sale and purchase exercise under the B&S Notes been genuine, the Debtor would have requested for a discount and the parties would have negotiated with each other.  This did not happen.

36.  Seventh, Mr Tang pointed out that the Debtor only expressly raised the defence based on the Shares Lending Exercise at a late stage of the proceedings. In this connection:-

(1)  In his first affirmation filed on 25 November 2024, the Debtor said that he was not aware of documents that were signed at the occasion on 27 May 2019. He did not expressly allege that the SuperRobotics Shares were merely “lent” to him.

(2)  Against this background, at the hearing on 23 December 2024, Linda Chan J expressed adverse comments on the Debtor’s case.  In light of the adverse comments, the Debtor’s former solicitors indicated that the petitioning debt would be repaid within 42 days.

(3)  However, on 22 January 2025, the Debtor filed his 2^nd affirmation as well as the affirmations made by Raymond Lei and Anthony Ng. There, the Debtor expressly raised the defence based on the Shares Lending Exercise.

(4)  It is true that the defence based on the Shares Lending Exercise was raised at a late stage of the proceedings.  However, I am not of the view that such defence was a recent concoction.  As pointed out in paragraphs 13 and 30 above, the understanding under the Shares Lending Exercise was evidenced by the contemporaneous WeChat messages that were exchanged during the October 2019 Conversations.  In my view, the reality was that the Petitioner’s former legal representatives failed to formulate the Petitioner’s case in a proper manner. This is unfortunate, but not uncommon in civil litigation.

37.  Eighth, in his oral submissions, Mr Tang emphasized that as the Debtor signed the B&S Notes and the Loan Agreement without seeking to understand their contents, he must be bound by the same.  In my view, the fact that the Debtor did not bother to understand the terms and conditions of the B&S Notes and the Loan Agreement was simply consistent with the fact that the Shares Lending Arrangement existed. The B&S Notes and the Loan Agreement were merely formalities and the parties’ agreement and/or understanding were such that the Debtor “borrowed” the SuperRobotics Shares from the Petitioner.  In the circumstances, it was understandable as to why the Debtor did not bother to understand the contents of these documents.  I am unable to accept Mr Tang’s contention that the B&S Notes and the Loan Agreement should take effect simply because the Debtor did not read and understand the contents.  This contention ignored the background against which these documents came into existence.

E.  Disposition and Conclusion

38.  For all the above reasons, I am satisfied that the Debtor has raised a bona fide dispute on substantial grounds.  This court should not usurp the function of a civil court and decide the disputes between the parties: see Re Leung Cherng Jiunn [2016] 1 HKLRD 850 at para 20 (per Kwan JA, as she then was).

39.  In the premises, upon the Debtor’s undertaking to return the SuperRobotics Shares to the Petitioner upon request, I dismiss the amended petition herein.

40.  I make a costs order nisi that whilst the Debtor should pay the Petitioner’s costs prior to 22 January 2025 to be taxed if not agreed (with certificate for two counsel), the Petitioner should pay the Debtor’s costs after 22 January 2025 to be taxed if not agreed (with certificate for two counsel).

41.  For the following reasons, I am inclined to the view that this is the fair costs order:-

(1)  Only on 22 January 2025 did the Debtor disclose the defence based on the Shares Lending Exercise, which is, in my view, credible and arguable. Prior to 22 January 2025, the Debtor did not disclose any arguable defence.  Thus, he should bear the Petitioner’s costs prior to 22 January 2025.

(2)  Having considered the 2^nd affirmation of the Debtor and the affirmation of Raymond Lei (which disclosed the defence based on the Shares Lending Exercise and which was filed on 22 January 2025), the Petitioner should have appreciated that the Debtor had raised a bona fide dispute on substantial grounds and he should not have continued to prosecute the bankruptcy petition herein.  Thus, he should bear the Debtor’s costs after 22 January 2025.

42.  Mr Edward Tang, Mr Ryan Chan, Mr Jose Maurellet SC, Mr Lai Chun Ho and Mr Han Sheng Lim have rendered helpful assistance to me. I express my gratitude to them.