RE KE MING CAI

HCB 5676/2019

[2021] HKCFI 1155

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5676 OF 2019

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J U D G M E N T

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Introduction

1.  There is before this court an amended bankruptcy petition filed on 26 August 2020 (“Petition”) by Wong Yan Kong (“Petitioner”) against Ke Ming Cai (“Debtor”).  The Petition is based on the Debtor’s non‑compliance with a statutory demand dated 6 December 2019 (“statutory demand”) for the sum of over HK$8.489 million (“Debt”). 

2.  The Debt had its origin in 3 loans (“Loans”) advanced by the Petitioner to Mr Lin Qing Xiong (“Lin”) between January and April 2016 in the respective sums of US$1,052,241.65, US$616,981.60 and US$410,674.10.  The Loans were evidenced by 3 Acknowledgements of Debt (“Acknowledgements”) dated 21 January 2016 and 8 April 2016 which were signed by Lin as the borrower and the Debtor as one of the guarantors.  In the Acknowledgements, Lin confirmed having received the full amount of the Loans whereas the Debtor confirmed he voluntarily took up liability for the Loans as one of the guarantors. 

3.  Lin defaulted in repaying the Loans.  In June and August 2018, the Petitioner commenced bankruptcy proceedings against Lin and the Debtor respectively (“Bankruptcy Proceedings”). 

4.  On 17 September 2018, the Petitioner, Lin and the Debtor executed a written settlement agreement (“Settlement Agreement”) whereby inter alia

(1)  the parties acknowledged the Loans and the fact that the Debtor was 1 of the guarantors;

(2)  the Petitioner and Lin agreed to reduce the amount of the Loans and accrued interest from over US$1.797 million to US$1.38 million ie HK$10,852,320, and that after deducting Lin’s 2 partial repayments totaling HK$2 million, his indebtedness became HK$8,852,320;

(3)  the parties agreed to settle the Bankruptcy Proceedings on condition that (i) on 17 September 2018, Lin should repay the Petitioner the 1st instalment of at least HK$500,000 and (ii) thereafter the same amount on the 15th day of each month, until the total sum of HK$8,852,320 was fully repaid;

(4)  If Lin at any time failed to perform his aforesaid obligation to repay, all outstanding amount would become immediately due and payable together with interest at 2% p.m.; and

(5)  the Debtor agreed to continue to act as the guarantor of Lin’s indebtedness under the Settlement Agreement.

5.  After the Settlement Agreement, Lin gave a cashier order and 17 post-dated cheques to the Petitioner for him to deposit every month when repayment was due.  After the 1st instalment of HK$500,000 was paid, the Petitioner withdrew the Bankruptcy Proceedings against Lin and the Debtor in September and November 2018 respectively.  However, Lin defaulted under the Settlement Agreement as only the cashier order and 2 cheques of HK$500,000 each could be cashed while the rest were dishonored. 

6.  Hence, in the statutory demand, the Debt was described as pursuant to the guarantee given by the Debtor in the Settlement Agreement and Lin’s default thereunder. 

Further Background

7.  After the filing of the Petition, the Debtor commenced HCA 1745 of 2020 on 14 October 2020 against Lin as 1st Defendant and the Petitioner as 2nd Defendant.  In the Statement of Claim (“Statement of Claim”), the Debtor asserted that:

“6. On each of the 5 or more occasions occurring in or around December 2014, April 2015, August 2015, December 2015 and/or April 2016 respectively, inside Unit 1502, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong (‘Unit 1502’), in the presence of Mr Cai Jinxu (蔡金旭) (‘Mr Cai’), and speaking face-to-face in the Minnan Dialect (閩南語), Ds said to P that D1 had to personally borrow money from D2, but D2 would only lend to D1 if P would sign and act as a guarantor for that personal loan. On each of those occasions, Ds emphasized the loan was a personal loan and had nothing to do with the parties’ respective corporations (‘the Representation’).

7. In reliance on the Representation, bearing in mind D1 was an uncle to P’s wife, P agreed to sign and/or act as a guarantor for Ds as requested by Ds vis-à-vis various documents (‘the Documents’), including but not limited to the following: -

Particulars of the Documents

7.1 3 Chinese acknowledgments of debts (借條) dated 21^st January 2016, 8^th April 2016 and 8^th April 2016 respectively (‘the Acknowledgement of Debts’); and

7.2 A Chinese settlement agreement (還款協議) dated 17^th September 2018 (‘the Settlement Agreement’).

…

9. At all times, the Representation was false and known to Ds to be false because: -

Particulars of Falsity

9.1 At all times, known to Ds, there was never any personal loan between them, and Ds never intended to create any personal loan between them.

9.2 At all times, known to Ds, the Documents were in fact part of a larger fraudulent scheme involving D1’s Company, D2’s Company and/or their related companies (collectively, ‘Ds’ Companies’).

10.     On each of the 5 or more occasions occurring in or around December 2014, April 2015, August 2015, December 2015 and/or April 2016 respectively, the Representation was made by Ds to P fraudulently …”

Deliberation

8.  It is a well‑established legal principle that in order to successfully oppose a Petition, a debtor has to show a bona fide dispute to the debt on substantial grounds, by sufficiently precise evidence which is believable, and must establish that he actually has a defence of substance, not just a fair probability of one: Re Tam Mei Kam unrep, HCB 3777 of 2011, 25 April 2012, Barma J (as he then was); Re Yuen Mun Wa (debtor) [2012] 5 HKLRD 108; Re Chan Hon Kwong unrep, HCB 6548 of 2016, 27 April 2017. 

9.  As confirmed by Mr Lam, the Petition is opposed on the following grounds succinctly summarized in Mrs Daley’s Executive Summary at para 4 (i), (iv) and (v) thereof:

(1)  The Petitioner has failed to prove the Debt in that he had not exhibited a single sheet of paper showing he had transferred the amount of the Loans to Lin.  (“Ground 1”)

(2)  The Debtor had entered into the Settlement Agreement as guarantor on the fraudulent misrepresentation that the indebtedness stated in it was a genuine personal loan from the Petitioner to Lin when in fact it was not.  (“Ground 2”)

(3)  As a variant to Ground 2, the Debtor agreed to be the guarantor of Lin’s indebtedness in the Settlement Agreement under a mistake in that there was nogenuine personal loan from the Petitioner to Lin.  (“Ground 3”)

10.  The sole issue for determination by this court is thus whether the Debtor had raised a bona fide dispute to the Debt on substantial grounds.

11.  All 3 Grounds are unmeritorious. 

12.  The allegation that the Loans did not exist and the Petitioner has failed to prove the Debt is wholly inconsistent with the contemporaneous documents viz the Acknowledgments, the Settlement Agreement, Lin’s 3 part payments of HK$500,000 to the Petitioner by a cashier order and 2 cheques, and the numerous post-dated cheques issued by Lin in favour of the Petitioner.  It is important to note that the Debtor did not dispute the authenticity of the Acknowledgments and the Settlement Agreement or the fact that that he had signed and finger-printed on them.  In the Acknowledgments, Lin expressly confirmed he had received the full amount of the Loans while the Debtor expressly stated he voluntarily agreed to take up liability as a guarantor.  In the Settlement Agreement, Lin and the Debtor reconfirmed the existence of the Loans.

13.  In this context, one should bear in mind that the Petitioner, Lin and the Debtor are all experienced businessmen.  As stated in the Statement of Claim, the Debtor was at all material times the Chairman, an Executive Director, and a major shareholder of Da Sen Holdings Group Limited (大森控股集團有限公司), a Cayman corporation listed on the Hong Kong Stock Exchange.  One should also bear in mind that the Loans amount was over US$2 million.  It is just plainly unbelievable that someone like the Debtor would sign the Acknowledgments and the Settlement Agreement if he was not satisfied with the existence of the Loans.

14.  What is more, there is no satisfactory explanation as to when or the circumstances under which the Debtor found out that the Loans did not exist.  The only explanation given by the Debtor is one paragraph in his affirmation in opposition which claims that Lin told him the Loans were not personal loans from the Petitioner to Lin.  Rather, they represented the financial arrangement of the business dealings between the Petitioner’s and Lin’s companies. 

15.  The time when the Debtor found out that the Loans did not exist is important as this could shed light on why the Debtor only commenced HCA 1745 of 2020 on 14 October 2020, over 4 years after the Acknowledgements.  Alternatively, it would corroborate Mrs Daley’s submission that the Debtor’s case is a recent fabrication.  As for the circumstances under which Lin made the admission to the Debtor, no details were provided in the Debtor’s affirmation.  One cannot help asking why Lin would out of the blue tell the Debtor that the Loans were not personal loans and therefore indirectly admit the fraudulent scheme pleaded in the Statement of Claim. 

16.  Importantly, apart from the Debtor’s self-serving bare assertion, there is no evidence to show that the Loans were the financial arrangement of the business dealings between the Petitioner’s and Lin’s companies as alleged.  Given the seriousness of the plea of fraud, it is incumbent on the Debtor to provide cogent evidence in support of that plea.  In this court’s view, the Debtor’s evidence is anything but cogent. 

17.  As for the allegations of fraudulent misrepresentation and mistake, they are nothing but self-serving bare assertions by the Debtor.  Since this court is satisfied that the Loans were personal loans from the Petitioner to the Debtor and they did exist, the allegations of fraudulent misrepresentation and mistake simply fall away. 

18.  To conclude, this court is not satisfied that the Debtor has shown a bona fide dispute to the Debt since his evidence is neither sufficiently precise nor believable.  In the premises, the Petitioner is entitled to a bankruptcy order against the Debtor.

Disposition and costs

19.  Counsel for the parties having agreed that costs should follow the event, there shall be a usual bankruptcy order against the Debtor and an order that the costs of the Petition, including all costs previously reserved, if any, be to the Petitioner, to be taxed if not agreed, with certificate for Counsel.