RE DENG JIANG

HCB 181/2024

[2024] HKCFI 2260

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 181 OF 2024

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REASONS FOR JUDGMENT

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1.  By a petition presented on 9 January 2024 (“Petition”), the petitioner Ms Gong Hua (龔華) (“Petitioner”), seeks a bankruptcy order against Mr Deng Jiang (鄧江) (“Debtor”) on the ground that the Debtor has failed to comply with a statutory demand served upon him on 27 November 2023. At the 3^rd callover hearing of the Petition, I made a usual bankruptcy order against the Debtor. These are the reasons for my judgment.

Background facts

2.  The following facts are not in dispute. 

3.  By a loan agreement dated 20 July 2019 entered into between the Petitioner (as lender) and the Debtor (as borrower) (“Loan Agreement”) the parties acknowledged and agreed, inter alia, that (1) the Petitioner had advanced a loan in the aggregate sum of RMB18 million to the Debtor in 3 tranches, with RMB8 million advanced on 4 January 2012, RMB2 million advanced on 5 February 2013 and RMB8 million advanced on 17 May 2013; (2) interest on the loan is 12% per annum; (3) the loan together with interest accrued thereon shall be repaid by 31 December 2019; and (4) any dispute shall be submitted to Shanghai Arbitration Commission (上海仲裁委員會) (“SAC”) for determination.

4.  In breach of the Loan Agreement, the Debtor did not repay the loan or the interest accrued thereon by 31 December 2019. 

5.  On 9 March 2023, the Petitioner commenced arbitration against the Debtor at the SAC.  On 9 June 2023, the Petitioner and the Debtor entered into a mediation agreement, whereby they agreed that (1) as at 31 May 2023, the Debtor owed  RMB16.8 million and interest of RMB1 million, and (2) the Debtor would repay the amount by 9 instalments with the first instalment of RMB1.8 million payable on 20 July 2023.  The mediation agreement was subsequently confirmed in a mediation statement (調解書) issued by the SAC on 29 June 2023 (“Mediation Statement”).

6.  The Debtor did not repay the debt in accordance with the mediation agreement.  On 15 September 2023, the Petitioner commenced proceedings against the Debtor in Wuhan City Jianghan District People’s Court (武漢市江漢區人民法院) (“Jianghan Court”) to enforce the Mediation Statement.

7.  By enforcement notice (執行通知書) dated 18 September 2023, Jianghan Court notified (inter alios) the Debtor about the enforcement proceedings and required him to perform the obligations under the Mediation Statement and pay additional interest for the delay in payment together with costs of the enforcement proceedings.  This was followed by a consumption restriction order (限制消費令) issued by Jianghan Court on 7 October 2023 against the Debtor, restricting him from incurring high level or unnecessary expenditures or traveling out of the Mainland without the permission of Jianghan Court.

8.  At the meeting held on 27 November 2023 at 4pm at a coffee shop in Wuhan (“Coffee Shop”), the Petitioner served a statutory demand dated 6 November 2023 (“SD”) requiring the Debtor to pay RMB17,963,475 (“Debt”) within 21 days thereof, which comprises (1) the amount payable under the Mediation Statement (RMB17.8 million); (2) the costs of SAC (RMB158,475); and (3) the costs of enforcement proceedings (RMB5,000).   

9.  The Debtor did not comply with the SD. 

10.  On 9 January 2024, the Petition was presented and a certificate of service of statutory demand was filed certifying that the SD had been personally served on the Debtor at the Coffee Shop on 27 November 2023.  The Petition was scheduled to be heard before a Master on 5 March 2024. 

11.  On 5 February 2024, the solicitors for the Debtor filed a notice to act.  The Petition was served upon the Debtor’s solicitors on 8 February 2024.  On 20 February 2024, the Debtor filed a notice of intention to oppose petition (“Notice”) stating that he intends to dispute the Petition on the following grounds:

(1)  “service of the SD” according to rule 46(2) of the Bankruptcy Rules (Cap. 6A) (“BR”);

(2)  “the [Petitioner’s] recovery of debt within the jurisdiction of [Hong Kong]”;

(3)  the validity and enforcement of the Mediation Statement within Hong Kong; and

(4)  the Debtor’s domicile and conduct of carrying on business within Hong Kong within 3 years immediately preceding the presentation of the Petition under s.4(1)(a), (c)(ii) of the Bankruptcy Ordinance (Cap. 6) (“BO”).

12.  This was followed by a summons dated 28 February 2024 issued by the Debtor for security of costs in the amount of HK$545,875 on the ground that the Petitioner is out of the jurisdiction and does not have any assets in Hong Kong and stay of proceedings pending provision of such security (“Security Summons”). 

13.  The Security Summons is supported by an affirmation of Lau Yu Fung Wilson dated 27 February 2024 (“Lau 1^st”) where he sets out the background facts (§§5-14), details of the grounds relied upon by the Debtor in opposing the Petition (§§15-38), and the grounds for seeking security for costs (§§39-43). 

14.  There was no explanation as to why the Debtor did not make the affirmation.  It is clear from Lau 1^st that the factual matters and the documents exhibited thereto could only have been provided by the Debtor himself, and the solicitor does not have any personal knowledge of the same. 

15.  At the hearing on 5 March 2024, the Master adjourned the Petition and the Security Summons to the Bankruptcy Judge. 

16.  In the meantime, a new settlement agreement (執行和解協議) dated 11 March 2024 was entered into between the Petitioner and the Debtor whereby the parties confirmed that as at 11 March 2024, the Debtor was indebted to the Petitioner in the amount of RMB15,519,736.30 (“Revised Debt”), which shall be repaid by 7 instalments with the first instalment of RMB3 million payable on 12 March 2024 and the second instalment of RMB2.54 million payable on 30 June 2024 (“New Settlement Agreement”). 

First callover hearing – dismissal of Security Summons

17.  At the first callover hearing on 18 March 2024 before this Court:

(1)  The Petitioner’s solicitors referred to the New Settlement Agreement and proposed to adjourn the Petition to 8 July 2024 to see if the Debtor would honour the agreement and pay the next instalment due on 30 June 2024.

(2)  Counsel for the Debtor[1] proposed directions for filing affirmations and adjournment for arguments in respect of the Security Summons, and adjournment of the Petition pending determination of the Security Summons. 

(3)  I dismissed the Security Summons with costs against the Debtor assessed at HK$10,000. 

18.  The Security Summons and the directions proposed by the Debtor’s counsel show a lack of understanding on the summary nature of bankruptcy proceedings.  It is worth reminding the practitioners the relevant principles and the practice of the Bankruptcy Court:

(1)  A petitioning creditor has to set out his grounds for seeking a bankruptcy order in the petition[2] and other information required by rules 50(2)-(3) and 51 of the BR, followed by an affirmation verifying the facts stated in the petition[3].

(2)  Where debtor has failed to comply with a statutory demand, he is deemed insolvent by virtue of s.6A(1) of the BO. The petitioner has discharged the onus of showing that the debtor is unable to pay his debt, as required by s.6(2)(c) of the BO.

(3)  If a debtor opposes a bankruptcy petition, he shall file a notice with the Official Receiver specifying the grounds on which he intends to show cause, and shall post to the petitioning creditor or to his solicitors a copy of the notice, in each case 3 days before the day on which the petition is to be heard before a Master[4]. The requirement under rule 68 is mandatory and must be complied with[5]. If no such notice is filed, the court may treat the petition as uncontested and make a bankruptcy order against the debtor.

(4)  The burden is on the debtor to show that there is a bona fide dispute on substantial ground by adducing sufficiently precise factual evidence which is believable, and must establish that he has a defence of substance, not just a fair probability of one[6].  For this purpose, it is incumbent upon the debtor to file an affirmation to make good his grounds in opposition to the petition. 

(5)  The court will consider the grounds raised by the debtor and the reply affirmation filed by the petitioner and decide whether there is a bona fide dispute on substantial ground in respect of the debt.  If there is such a dispute, the petition will be dismissed.  Conversely, if the debtor fails to show that there is a bona fide dispute, a usual bankruptcy order will be made against him. 

(6)  Generally, it would be a waste of time and costs for a debtor to seek security for costs as unlike a civil action which involves filing of pleadings, discovery and a trial, a bankruptcy petition does not involve any such steps and the petition will be disposed of summarily.  This is enshrined in PD 3.1 “Bankruptcy and Winding-Up Proceedings” §§14.2 and 16. 

(7)  This is particularly so where, as here, there is no dispute that the Debt is due and payable and the Debtor has failed to comply with the SD, such that the Petitioner is entitled ex debito justitiae to seek a bankruptcy order against the Debtor.  The Bankruptcy Court would not allow a debtor who is insolvent to waste time and costs in pursuing such application.

19.  Having regard to the fact that the parties had entered into the New Settlement Agreement and the Petitioner was prepared to agree to an adjournment to see if the Debtor would pay the 2^nd instalment, the Petition was adjourned to 8 July 2024. 

20.  However, the Debtor defaulted on paying the 2^nd instalment due on 30 June 2024. 

2^nd callover hearing

21.  At the 2^nd callover hearing on 8 July 2024, Ms Noel Chan, counsel for the Debtor, opposed the Petition on the following grounds:

(1)  The “jurisdictional gateways” under s.4(1) of the BO are not met.  The burden is on the Petitioner to satisfy the court that one of the jurisdictional gateways is satisfied so that the court may assume jurisdiction over the Debtor (Re Chow Kam Fai [2004] 1 HKLRD 161, §§14-15) (Jurisdiction Ground).

(2)  The alleged personal service of the SD out of jurisdiction is “disputed” and in any event, there was a “defect in this process in that the time-limits referred to (and wherever it appears) in that SD were not amended with the addition of 21 days as per the mandatory requirement to be observed in Practice Direction 3.1 at §2.3”.  Failure to serve the SD is an extremely serious matter and renders defective the petition founded on the SD (Re Lam Chik Sing [2009] 2 HKLRD 107, §17) (Service Ground).

22.  Ms Chan proposed to adjourn the Petition for arguments with leave to the Debtor to file an affirmation in opposition to the Petition within 28 days. 

23.  I did not think that the directions proposed by Ms Chan were appropriate:

(1)  Noreason or justification were advanced by Ms Chan as to why the court should give leave to the Debtor to file another affirmation in opposition to the Petition when he had ample opportunity to make and file such affirmation in the past 6 months but he chose not to do so. 

(2)  In any event, the detailed grounds in opposition to the Petition had already been stated in Lau 1^st with supporting documents exhibited thereto.   

Service Ground

24.  The Service Ground is wholly without merit:

(1)  The Debtor had received the SD on 27 November 2023 and never complied with the same. 

(2)  By the time the Petition was presented on 9 January 2024, the extended periods for (a) making an application to set aside the SD[7] and (b) complying with the SD[8] had already expired. 

(3)  There was therefore no basis for the Debtor to contend that the Petition was presented prematurely or that he had been prejudiced in any way by the omission to state the additional 21 days.

(4)  There was no non-compliance with the BR.  All that rule 46(2) requires is that the Petitioner “shall do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, to cause personal service of the demand to be effected”.  By providing a copy of the SD to the Debtor in person, the Petitioner has fully complied with the requirement to bring the SD to the attention of the Debtor. 

25.  The Petition was adjourned to 19 August 2024 to give an opportunity to the Petitioner to file evidence in reply to Lau 1^st as it became clear that the Debtor had no intention to comply with the New Settlement Agreement and would continue to contest the Petition.   

26.  On 9 August 2024, the Petitioner filed her 2^nd affirmation (“P 2^nd”) in reply to the grounds in opposition raised by the Debtor in Lau 1^st. 

3^rd callover hearing

27.  Shortly before the 3^rd callover hearing, the Debtor issued a summons on 14 August 2024 to seek leave to file an affirmation of Chun Hei Man which exhibits the Debtor’s affirmation signed on the same date (“D 1^st”). 

28.  At the hearing, Ms Chan submits that the court should grant leave to the Debtor to file D 1^st “in which [the Debtor] sets the record straight concerning facts material to the Jurisdiction Ground, and this involves rectifying the numerous factual inaccuracies in [P 2^nd] pertaining to [the Debtor’s] personal circumstances spanning the period from 2003 to 2024, which has only now been put in focus by [the Petitioner] by way of [P 2^nd]”. 

29.  The application for leave to adduce D 1^st is wholly without merit and is rejected for the following reasons:

(1)  There is a complete lack of explanation on the delay and inaction on the part of the Debtor and why he waited until the eve of the 3^rd hearing to adduce the further evidence. 

(2)  The delay is inexcusable.  The Debtor filed the Notice on 20 February 2024 stating the grounds in opposition to the Petition.  He must have been advised that the burden is on him (rather than the Petitioner) to adduce evidence to raise a bona fide dispute on substantial ground in respect of the Debt. 

(3)  It is not suggested that the Petitioner has raised any new grounds in P 2^nd in support of the Petition such that the Debtor should be allowed to respond to such new grounds.  This is reinforced by Ms Chan’s submission where she puts the reason for seeking leave to file D 1^st as to set “the record straight”. 

(4)  There is no justification as to why the Debtor should be allowed to file yet another affirmation when he has elected to state the evidence in support of his grounds in Lau 1^st.

(5)  It seems to me that the application is no more than a delaying tactic deployed by the Debtor in the hope that the Petition will be adjourned. Such tactic will not be condoned by the court.

30.  In any event, I have considered the contents of D 1^st on a de bene esse basis, and I do not think that the matters stated therein support the Debtor’s contention on the Jurisdiction Ground. 

31.  The Service Ground has already been raised in Lau 1^st and are rejected for the reasons stated in §24 above.

Jurisdiction Ground

32.  Section 4 of the BO provides as follows:

“(1) A bankruptcy petition shall not be presented to the court under section 3(1)(a) or (b) unless the debtor -

(a) is domiciled in Hong Kong;

(b) is personally present in Hong Kong on the day on which the petition is presented; or

(c) at any time in the period of 3 years ending with that day –

(i) has been ordinarily resident, or has had a place of residence, in Hong Kong; or

(ii) has carried on business in Hong Kong.

(2) The reference in subsection (1)(c) to a debtor carrying on business includes –

(a) the carrying on of business by a firm or partnership of which the debtor is a member; and

(b) the carrying on of business by an agent or manager for the debtor or for such a firm or partnership.”

33.  The principles relevant to each limb under s.4 of the BO have been sufficiently stated in Re Cao Zhong [2021] HKCFI 3143 and may be summarized as follows:

(1)  It would usually suffice if the petitioner sets out the petitioning debt and the grounds on which the bankruptcy order is sought, as it is for the debtor to raise a challenge to the court’s jurisdiction under s.4 of the BO (Re Cao Zhong, §32(1)-(5))[9].

(2)  As regards “Place of Residence Ground” (second limb of s.4(1)(c)(i) of BO), the place of residence (a) must be that of the debtor, and (b) is a settled or usual place of abode, and connotes some degree of permanence, continuity or some expectation of continuity, and (c) is a de facto situation rather than a matter of legal right (Re Cao Zhong, §39);

(3)  As for “Carrying on Business Ground” (s.4(1)(c)(ii) of the BO), the business or business activities must have been carried out in the debtor’s own or personal capacity, rather than in the capacity of an officer or servant on behalf of another business (Re Cao Zhong, §§49-50[10]).  The phrase “carrying on business” is wider than carrying on a trade[11], and denotes something of a permanent character, and the business was carried on only where there was some degree of management or control[12].

(4)  In relation to “Domicile Ground” (s.4(1)(a) of the BO), a person can acquire a domicile by, and only by, residing there with the intention to reside there permanently.  In determining whether a person has such intention, the court must have regard to the motive for which he has taken up residence there.  An existing domicile is deemed to continue until it is proved that the person has acquired a new domicile, and the burden is on the person who asserts a change of domicile to prove the same (Re Cao Zhong, §§52-53). 

34.  As for ordinarily resident ground under the first limb of s.4(1)(c)(i) of the BO (“Ordinarily Resident Ground”), this means that “the person must be habitually and normally resident here, apart from temporary or occasional absences of long or short duration”, and the word “habitually” connotes two characteristics of residence, namely that of (1) residence adopted voluntarily and (2) for settled purposes (IRC v Lysaght [1928] AC 234 (HL); Lau San Ching v Liu Apollonia (1995) 5 HKPLR 23, p.31).  A person can have ordinary residences in two countries or places at the same time, and involuntariness may negative ordinary residence (Butterworths Hong Kong Bankruptcy Law Handbook, §4.07, p.34).

35.  In the present case, the Debtor’s Hong Kong identity card number is stated in the Petition[13] alongside with his current address in Wuhan, and the 5 addresses in Hong Kong at which the Debtor was residing or carrying on business at the time of contracting the Debt in respect of which the Petition is presented[14].  These facts have been verified by the Petitioner’s affirmation and are sufficient to show that one or more of the jurisdictional gateways is satisfied. 

36.  In D 1^st, the Debtor contends that the jurisdictional gateways are not satisfied for the following reasons:

(1)  He and his family has had a place of residence in Hong Kong since 2003 but this has ceased to be the case within the 3-year period ending with presentation of the Petition on 9 January 2024 (§§4-5);

(2)  The statement that the Debtor “permanently relocated to Hong Kong since 27 June 2008” is inaccurate and quite misleading (§6);

(3)  From 2003 to 2008, the Debtor spent most of his time in Wuhan, living at his property at Century Huating which he still owns and resides.  Given his marriage to his Hong Kong-resident wife in 2003, he travelled between Hong Kong and Wuhan but he never abandoned his own life and ties in Wuhan (§§7-8);

(4)  Given that Mainland does not recognize dual citizenship, he cancelled his household registration in Wuhan and renounced his Chinese citizenship so that he could acquire his “Hong Kong citizenship, and subsequently permanent residence qualification”, but he did this “for convenience” so that he could travel and stay in Hong Kong more flexibly (§9);

(5)  Throughout the period from 2008 to 2016, the Debtor spent a greater portion of time in Wuhan and he “never abandoned [his] life in Wuhan and never had the intention of doing so”, and he continued to travel to Wuhan so that “[he] could maintain [his] ongoing personal, business and social commitments in Wuhan, which continue to anchor [him] there”.  His wife and daughter also travelled to Wuhan to be with him, evidenced by the travel records exhibited to P 2^nd (§10). 

(6)  Although he and his wife once bought a property in Hong Kong, it was sold in October 2016.  Since then, he stayed in his property in Wuhan.  Thus, even if his domicile had in 2008-2009 changed to Hong Kong, this was “certainly abandoned and [his] domicile had certainly changed back to Wuhan in late 2016 (although [he] consider[s] Wuhan to be [his] place of domicile and permanent residence throughout)” (§§11-13).

(7)  Although his wife and daughter resided in a rented property in Hong Kong, they both left Hong Kong in late 2018, and his wife now lives with him in Wuhan.  Therefore, his permanent residence status in Hong Kong “does not necessarily reflect that as a matter of fact [he is] anchored in Hong Kong, or that [he] or any of [his] immediate family members reside, let alone permanently reside, in Hong Kong for a settled purpose”.  He does not have had a place of residence within the 3-year period (§§14-16).

(8)  He is not ordinarily resident in Hong Kong during the 3-year period as all his visits to Hong Kong “have been brief, transient and infrequent, each lasting no more than three days, largely for attending activities related to the non-profit political associations or for social visits”.  During the visits, he stayed in hotels (§17).

(9)  His business ties in Hong Kong came to an end when Sincere World Far East Ltd (“Sincere World”) and Sky Hero Holdings Ltd were deregistered on 8 September 2023 and 14 September 2007 respectively. As for Kinghome Environmental Technologies Co., Ltd (“Kinghome”), it is inactive and carries on no business activity at all.  More importantly, he has never personally conducted any business through these Hong Kong companies.  The other companies identified in TOLFIN’s report are not associated with him, but are concerned with another person who shares the same name as him (§§18-21). 

(10)  His association with various political associations in Hong Kong is purely a voluntary and non-profit basis, and no business activity is conducted by him personally through these channels.  His work in Wuhan focus on real estate and he has not personally conducted business in Hong Kong within the 3-year period (§§22-24).

37.  In my judgment, the Ordinarily Resident Ground is clearly satisfied for the following reasons:

(1)  It is not in dispute that the Debtor is and has since 27 June 2008 been a permanent resident of Hong Kong[15]. Prior to that, he has applied to cancel his household registration (戶口) in Wuhan.  After obtaining his permanent residence in Hong Kong, the Debtor applied for and was issued with a “Mainland Travel Permit for Hong Kong and Macao Permanent Residents” (also known as “Home Return Permit” (回鄉證)) (“Travel Permit”) in 2011 and subsequently renewed it in 2019.  This confirms that the Debtor has adopted Hong Kong as his residence voluntarily and for settled purpose.

(2)  The mere fact that after 2016, the Debtor decided to spend much of his time in Wuhan is neither here nor there.  It is well established that occasional absences, even for a long duration, would not make him cease to be ordinarily resident in Hong Kong (see §34 above). 

(3)  The Debtor’s assertion that since 2016, he has changed his domicile from Hong Kong to Wuhan permanently is irrelevant to the Ordinarily Resident Ground.  Even if (contrary to my view) it is relevant, the assertion rings very hollow as there is simply no evidence to suggest that the Debtor has ever applied to renounce his permanent residence or to resume his household registration in Wuhan.  This is reinforced by the fact that in 2019, he still applied for renewal of the Travel Permit. 

38.  Further, the Carrying on Business Ground is also satisfied given that:

(1)  It is not in dispute that of the 5 addresses in Hong Kong stated in the Petition, the address at Lippo Centre was the business address used by the Debtor (and his wife) in the annual return of Sincere World made up to 23 July 2023 and the annual return of Kinghome made up to 3 June 2023[16];

(2)  The Debtor is a shareholder and director of Sincere World and a director of Kinghome.  His position as director of both companies shows that he has (at least) some degree of management over them.  In any event, there is no suggestion that the Debtor is an employee[17] of either company. 

(3)  In the message sent by the Debtor to the Petitioner on 7 December 2023, the Debtor said that he travelled to Hong Kong not just to see his family, but also for work[18].

(4)  It is also not in dispute in May 2023, the Debtor visited  HKCPPCC (Provincial) Members Association Ltd (港區省級政協委員聯誼會).  He remains a member of 港澳武漢市政協委員 and 香港漢港聯誼會.  In December 2023, he applied to Jianghan Court for permission to come to Hong Kong for the purpose of participating in election campaign and voting in the District Council election in Hong Kong qua vice president of 香港漢港聯誼會[19].  Such activities constitute carrying on “business” for the purpose of s.4(1)(c)(ii) of the BO (see §33(3) above).

39.  Having concluded that the Ordinarily Resident Ground and Carrying on Business Ground are satisfied, it is not necessary to consider the Domicile Ground. 

40.  If and insofar as the Domicile Ground becomes relevant, I consider that by reason of the matters stated in §37(1) above, the Debtor’s domicile remains in Hong Kong.  The burden is on the Debtor to prove that he has changed his domicile from Hong Kong to Wuhan, but he has failed to discharge such burden having regard to the facts and matters stated in §§37(2)-(3) and 38 above.

41.  The Debtor fails on both the Service Ground and the Jurisdiction Ground. As he is insolvent and unable to pay the Debt, it is appropriate for the court to make a usual bankruptcy order against him.