RE WILLIAM JOHN LAU

HCB8450/2008
& HCSD27/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 8450 OF 2008

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AND

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO. 27 OF 2008

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(HEARD TOGETHER)

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REASONS  FOR  JUDGMENT

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Introduction

1.  Mr William John Lau and Ms Alison Wan Yuk Lin are 53% and 47% shareholders of Skydon Development Limited (“Skydon”).  The other two shareholders are Ms Angela Lee Wai Shuen and Mr Yau Wai Kuen.  Ms Wan is also a director and chairman of the board.

2.  Mr Lau commenced HCA1255/2006, a derivative action on behalf of Skydon, against Ms Wan, Skydon, Ms Lee, Mr Yau and one Mr Chang Che Hang for damages.  He also commenced HCCW576/2007 against Skydon, Ms Wan, Ms Lee and Mr Yau under sections 168A and 177(1)(f) of the Companies Ordinance, Cap.32.

3.  The defendants in HCA1255/2006 applied to strike out Mr Lau’s claims.  By order dated 28 July 2008, Deputy High Court Judge Au made no order on the striking out application but awarded costs to them against Mr Lau, which were assessed at HK$93,800.

4.  Ms Wan’s case is that she alone funded HCA1255/2006.  The other personal defendants have authorized her to conduct the action on their behalf.  They have also confirmed that Ms Wan is solely entitled to the benefit of the said costs order and do not seek to recover any part thereof.

5.  Mr Lau has failed to pay the costs.  Ms Wan then served a statutory demand dated 22 September 2008 on him and when the demand was unsatisfied presented a bankruptcy petition on 14 October 2008.

6.  Mr Lau took out two applications :

(1)     to set aside the statutory demand out of time; and

(2)     to “set aside” the bankruptcy petition.

7.  The grounds that he raised in the applications are identical.  That being the case, the applications would stand or fall together.

8.  On 2 July 2009, after hearing the parties, I set aside the statutory demand, dismissed the petition and awarded Mr Lau costs of HK$12,000.  I had indicated that I would give the reasons in writing, which I now do.

Discussion

9.  Where a debtor appears to have a counterclaim, set-off or cross-demand which equals or exceeds the debt specified in the statutory demand, the court may set aside the statutory demand : see Rule 48(5)(a) of the Bankruptcy Rules, Cap. 6. 

10.  As noted, Mr Lau has commenced HCA1255/2006 against Ms Wan and others.  He pleaded that Skydon and the other shareholders, including Ms Wan, had in breach of some oral agreements, failed to procure Skydon to pay him monthly payments representing return of his investment and dividends.  He claimed against Skydon and alternatively the shareholders HK$840,000 and other damages to be assessed.  The proceedings are still continuing.

11.  I am satisfied that on the materials before the court Mr Lau appears to have a substantive counter-claim against Ms Wan, which well exceeds the costs specified in the statutory demand.  Mr Lau is entitled to invoke Rule 48(5)(a).

12.  The application to set aside the statutory demand was late by 18 days.  Mr Hart for Ms Wan complained that there is no excuse for Mr Lau to bring the application out of time.  I accept that ignorance of the procedure alone is not a sufficient excuse.  But I think the most important consideration is whether Mr Lau has raised a valid ground for setting aside the statutory demand.  As I have ruled, he has.  And I cannot see how Ms Wan would have suffered any prejudice by reason of the delay.  Indulgence should be given to Mr Lau to take out the application out of time.

13.  What I have said above is sufficient to dispose of the applications before the court.  For completeness, I will briefly deal with the other grounds relied on by Mr Lau briefly as follows.

14.  First, Ms Wan had misappropriated funds of Skydon to pay her legal fees.  This allegation, disputed by Ms Wan strenuously, is wholly irrelevant.

15.  Second, by letter dated 9 October 2008 Mr Lau had indicated that he was willing to secure or compound for the debt.  What he offered was his shares in Skydon.  But the value of the shares is in dispute.  More importantly, because of HCCW576/2007, any transfer of his shares is not permissible unless otherwise ordered by the court : see section 182 of the Companies Ordinance.  Absent any requisite court order, the offer is not a valid one.

16.  Third, Mr Lau said he is entitled to a dividend of HK$56,500 payable by Skydon.  But that does not affect his liability to pay Ms Wan the costs.  In any event, under section 182, any declaration of dividend is not permissible without the court’s sanction, which there is none.

17.  Fourth, Ms Wan had previously served a statutory demand on the same debt dated 26 August 2008 which was not pursued.  This is irrelevant.

18.  Fifth, the costs order was made in favour of all the defendants and Ms Wan cannot pursue it alone.  But as noted, it was Ms Wan who funded the action.  The other individual defendants have confirmed that she alone is entitled to the benefit of the costs order and they are not seeking recovery against Mr Lau.  Skydon is just a nominal defendant, HCA1255/2006 being a derivate action.  In the circumstances, Ms Wan is in my view entitled to pursue the costs order alone.

Conclusion

19.  For the above reasons, I set aside the statutory demand and dismissed the bankruptcy petition.

20.  Costs should follow the event.  Having taken the matter in the round, I made a gross sum assessment and ordered Ms Wan to pay Mr Lau costs of the application to set aside the statutory demand and the bankruptcy petition assessed at HK$12,000 forthwith.