TSANG SHEK HING v. WONG CHI KAN

HCB 7137/2021

[2023] HKCFI 64

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 7137 OF 2021

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J U D G M E N T

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INTRODUCTION

1.  This is the substantive hearing of the Bankruptcy Petition presented by the petitioner on 29 December 2021 against the respondent.  The said Petition was presented on the basis of the respondent’s non-compliance with a statutory demand dated 30 April 2021 for the total sum of $600,000 (“the Statutory Demand”). 

UNDISPUTED OR INDISPUTABLE FACTS

2.  The petitioner’s son (“Ng”), the respondent and more than 20 other people got to know one another during the Animation-Comic-Game Hong Kong in 2015.

3.  Since then, the aforesaid group of people (“the Cosplay Group”)  met in gatherings regularly.

4.  On 3 December 2019, a sum of $450,000 was transferred from the petitioner’s bank account to the respondent’s bank account (“the First Transfer”).

5.  On 2 March 2020, a company known as Fancy Galaxy Limited (“FG Limited”)  was incorporated.  At that time, only the respondent and another person known as Leung Yui Hin (“Leung”)  were the directors and shareholders of FG Limited.

6.  On 21 February 2020, a sum of $150,000 was transferred from the petitioner’s bank account to the respondent’s bank account (“the Second Transfer”).

7.  The respondent had not repaid any part of the First Transfer or the Second Transfer to the petitioner or Ng.

THE PARTIES’ RESPECTIVE CASES

The petitioner’s case

8.  In around August 2018, the respondent introduced a time-deposit plan (“the 2018 Plan”)  to members of the Cosplay Group via their Facebook chat group.  It was represented by the respondent that his employer (Guotai Junan Securities (Hong Kong)  Limited)  (“Guotai Junan”)  had offered the 2018 Plan to its staff, and the deposits made towards the 2018 Plan would attract a monthly interest of 3.5%.  The respondent told the Cosplay Group that anyone interested in joining the 2018 Plan through him could transfer the amount to his personal bank account, and he would distribute the interest earned to the participating members on a monthly basis.

9.  Neither did the petitioner nor Ng participate in the 2018 Plan.

10.  On around 1 August 2019, the respondent introduced a new staff time-deposit plan (“the 2019 Plan”)  offered by his employer in the Cosplay Group.  The respondent represented that:

(1)  The 2018 Plan would be cancelled in August 2019;

(2)  Participants of the 2018 Plan might choose to withdraw the principal deposited into the 2018 Plan or to transfer the same to the 2019 Plan;

(3)  Participants in the 2019 Plan might place deposits into this time-deposit plan on the 1^st to 3^rd day of every month.  If the deposit was kept in the 2019 Plan for at least a month, such participants would be able to earn interest at the rate of 3% per month on the 4^th day of the following month.

11.  Ng deposited $20,000 into the respondent’s personal bank account on 3 August 2019 for the purpose of joining the 2019 Plan.

12.  On 31 August 2019, Ng deposited a further sum of $230,000 into the respondent’s personal bank account for the purpose of joining the 2019 Plan.  The total amount of deposits made by Ng personally was therefore $250,000.

13.  Ng received from the respondent interest payments on a monthly basis at the rate of 3% per month thereafter.

14.  Having heard from Ng about the 2019 Plan in around November 2019, the petitioner decided to join the 2019 Plan, and therefore, with the assistance of Ng, transferred the sum of $450,000 from her own bank account to the respondent on 3 December 2019 through internet banking.

15.  On 21 February 2020, the petitioner transferred another $150,000 to the respondent for the purpose of depositing the same into the 2019 Plan.

16.  Since October 2020, the respondent has failed to pay the petitioner (nor Ng)  interest for the deposited sums.  Subsequently, the respondent failed to pay any interest at all. 

17.  Despite the issuance of the Statutory Demand, the respondent has failed to repay the deposited sums to the petitioner.

The respondent’s case

18.  In around August 2019, the respondent and numerous members of the Cosplay Group (including Ng and his wife)  (whom the respondent described as “FGL Founders” in his affirmations)  discussed the setting up of a company for the purpose of carrying on online media marketing business. 

19.  As a result, FG Limited was incorporated on 2 March 2020 (even though the respondent and the aforementioned members of the Cosplay Group had already commenced the business of FG Limited since around August 2019, and two YouTube channels had been created in November 2019 and February 2020 respectively).

20.  At the material time, as FG Limited was still yet to have its own bank accounts, it was agreed among the “FGL Founders” that the respondent’s personal bank account should be used as FG Limited’s account in the meantime.

21.  Before August 2019, a number of the FGL Founders had deposited monies into a company known as Chief Group Limited for the purpose of joining a time deposit plan run by the said Chief Group Limited. This plan ended on 31 July 2019.  At the time, the depositors were given two choices: they could withdraw their deposits, or if they wanted to invest in FG Limited, they could have their deposits transferred to FG Limited as interest-bearing loans.  The respondent had warned the depositors that there would be risk of investment because interest payments would only be made by FG Limited if it managed to make any profit.

22.  Ng had made two deposits into the respondent’s personal account in the total sum of $250,000 on 3 August 2019 and 31 August 2019 respectively as interest-bearing loans for FG Limited.

23.  In around November 2019, Manulife Hong Kong approached the respondent to do shooting and video production for their internal training (“the Manulife Project”).  Even though FG Limited had not been incorporated yet, the respondent informed the “FGL Founders” that he would take this project as a project of FG Limited.  Apart from doing the Manulife Project, the respondent and others also prepared videos relating to finance and investment to be posted on the YouTube channels of FG Limited. They also explored the possibility of hosting classes relating to finance and investment. 

24.  Because of the above projects and plans, the “FGL Founders” were convinced that FG Limited would become a profitable business.  On top of that, the “FGL Founders” were very close to one another. Therefore, they provided more and more interest-bearing loans to FG Limited since December 2019, and those loans included the monies deposited under the First Transfer and the Second Transfer. 

25.  In relation to the First Transfer, when the respondent asked Ng whether the deposit should be counted as a loan provided by him (Ng)  or his mother, Ng answered that the loan of $450,000 “should be under his name”[1].

26.  For the Second Transfer, Ng had told the respondent expressly on 21 February 2020 that the sum of $150,000 should be counted “as a loan provided by his mother”[2].

27.  The assertion that the deposits were made as interest-bearing loans to FG Limited is supported by the audited financial statements of FG Limited for the period ended 31 March 2021 (“the Audited Financial Statements”).

28.  The respondent had warned members of the Cosplay Group the risk of investment in one of his chat group messages in that the payments of interest were conditional upon FG Limited making profit.

29.  Interest payments could be made by FG Limited to the “FGL Founders” at first because it was originally making profit.  However, no further profit could be made upon, inter alia, the failure of the Manulife Project.

THE LEGAL PRINCIPLES

30.  The relevant legal principles have been summarized by Anthony Chan J in Re Yeung Man [2022] HKCFI 1472 and I would respectfully adopt the same as follows:

“6. The applicable principles are trite. The burden of establishing a bona fide dispute on substantial ground(s)  is on the debtor. The debtor must adduce sufficiently precise factual evidence which is believable, and must establish that he has a defence of substance, not just a fair probability of one: see Re Hong Kong Investments Group Ltd [2018] HKCFI 984, per Ng J, §11.

7. Where the bona fide dispute turns to a substantial extent on disputed questions of fact which require viva voce evidence, the bankruptcy court is not the forum for resolving whether the debt is due, and the petition would be dismissed: Re Hong Kong Investments Group Ltd, §12.

8.  The court must be satisfied that the debtor’s assertions are believable.  It is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.  In other words, the evidence is not to be approached with a wholly uncritical eye: Re Yueshou Environmental Holdings Ltd, HCCW 142/2013, unrep, 16 July 2014, per Harris J, §8.”

BONA FIDE DISPUTE?

31.  It has been submitted on behalf of the respondent that there is bona fide dispute to the alleged debts on substantial grounds which, it was said, the respondent has established by sufficiently precise and believable evidence. 

32.  In a gist, the respondent alleged that the First Transfer and the Second Transfer were loans which Ng and/or the petitioner advanced to FG Limited.  It was said that they agreed to do that because Ng knew that FG Limited had great potential to earn profits, and that it indeed had been earning profits at the beginning. 

Nature of the transferred sums

33.  The respondent’s allegation that the transferred sums were loans advanced to FG Limited is, in my view, unsupported by his own evidence:

(1)  The respondent’s assertions that the deposits made by the Cosplay Group were initially taken by Chief Group Limited and that they were subsequently transferred to FG Limited upon the depositors’ consent are contradicted by what he stated in his own messages, in which he clearly represented that the original deposit plan was replaced by a new plan run by the same company.  On 1 August 2019, he sent the following messages in the chat group of the Cosplay Group (in which Ng was one of the members):

“另外公司已出通告，8月開始原有員工plan將取消，會由以往浮動回報全部轉做固定3%月息…之前跟嘅果份1年3.5%固定月息不變，直至完晒為止，所以大家聽日4點就會收到第一次利息…我哋原有果嚿大概8月1號起就會轉入新嘅員工plan，假設唔提出黎嘅，即係每份會多咗$31出黎，想我入咗比返大家先定連埋8月嘅利息一次過過帳 ?”

“公司唔再做舊果個plan”

“Backoffice話之前個system有bug唔可以再用，所以以後都會係呢個固定每份$1000，每月派3％”

(emphasis added)

(2)  What the respondent stated in paragraph 18 of his 4^th Affirmation as quoted below is also contradicted by the messages referred to in the preceding sub-paragraph:

“Since I ceased to be employed by Guotai Junan, the time deposit plan … had therefore ended. The funds invested in the said time deposit plan would be transferred to a new company (i.e. FGL). For those who did not wish to invest in FGL, they could withdraw the funds. For those who wished to invest in FGL or did not request to withdraw the funds, the fund would be rolled over to FGL.”

(3)  It appears that the respondent was also suggesting that he had made the above clear in the Cosplay Group chat group. This is contradicted by the respondent’s message below by which he answered the following question raised by Ng “問你個問題，呢個plan你預計會唔會有做到5年以上 ?”:

“仲有2年半我就離職呢間果間公司，之後轉去法國巴黎銀行做，我同果邊deal咗照樣會有呢架個plan，不過會得返每月2.4%現金派息…果邊我暫時簽咗3年約” (emphasis added)

(4)  The respondent said he had warned the Cosplay Group on the risk of investment in that interest payments would only be made by FG Limited if it managed to make profit.  However, this was not borne out by the actual warning which he gave at the material time when he was asked “而家固定3％有風險嗎” by one of the members of the Cosplay Group:

“風險係中國爆炸破產咗以後無中國就無錢派”

(5)  When Ng asked the respondent for more details about the operation of the “plan”, the respondent gave the following answer which was totally inconsistent with his case that the deposits would be treated as investment in FG Limited:

“$1000/unit 無限時，但最少要擺足1個月，每月頭3號或前入前為當月，draw錢要2號或之前通知我，假設今月入咗，下月頭1-4號會派息，即係你可以放一個月收完息拎埋錢走唔繼續都得，全部要跟我名落員工plan公司先會造保底。System內部組合成份因商業秘密不能透露，但內容都係同定息產品有關” (emphasis added)

(6)  The above answer also contradicted with the respondent’s implication that Ng and other Cosplay Group members founded FG Limited with him together.  If Ng and others were such founders, it does not make sense for the respondent to say that there were certain “commercial secrets” which could not be disclosed to Ng and others.

(7)  More importantly, by the above message, Ng clearly represented that the “plan” had something to do with “fixed-interest product” rather than an investment in FG Limited, the name of which was not even mentioned in the message.  Further, it is clear from the respondent’s messages that he did not refer to any company which he allegedly founded together with the “FGL Founders” at all.

(8)  The following messages sent by the respondent to Ng also show that the “plan” which the respondent referred to was not offered by FG Limited:

(a)  When Ng said he would like to subscribe a sum of $450,000 to the “plan” for his mother, the respondent responded that:

“隨意，反正食得晒有餘…公司預咗做到100億，有排都用唔晒啲額”

(b)  When Ng said he would like to ask his family member to put all money into the respondent’s “plan”, the respondent made the following reply, which, again, shows that the “plan” had nothing to do with FG Limited, which is not a state-owned enterprise at all:

“我無所謂，反正公司會幫員工包底…而且我果間係國企，死晒民企都未死到我果間” (emphasis added)

(9)  It appears that the respondent was suggesting that FG Limited was able to make interest payments to the depositors at the beginning (it is undisputed that regular interest payments had been received by Ng up to September 2020)  because it managed to make profit at that time.  In this regard, the respondent specifically referred to the Manulife Project[3].  However, on the other hand, the respondent admitted that the Manulife Project was done on a free-trial basis.  It is therefore totally not understood (and the respondent did not explain)  how it could be said that the Manulife Project brought any profit to FG Limited at all.

(10)  The respondent’s allegation that FG Limited could afford to pay interest at the monthly interest rate of 3.5% (or at least 3%)  to its investors by reason of its ability to make profit is also contradicted by his own evidence: It can be seen from the Audited Financial Statements that during the first year of its incorporation, the total revenue received by FG Limited was only $434,739 ($419,300 + $15,439).  However, according to the respondent, by the end of May 2020 (i.e. before the cancellation of the Manulife Project and before the “FGL Founder” became “negligent and uncooperative”[4]), FG Limited had already received loans in the total sum of $2,328,884[5].  FG Limited was simply unable to afford the 3% monthly interest payable to the depositors, even if the entirety of $434,739 could be used as the source of funds for interest payment.

(11)  It also seems that the respondent is suggesting that no interest payment could be made subsequently because FG Limited’s business was not profitable anymore.  As aforesaid, the respondent gave this explanation by reference to the cancellation of the Manulife Project in June 2020 and the negligence and failure to cooperate on the part of the “FGL Founders” since around 3 June 2020.  Furthermore, it is undisputed that the petitioner/Ng did not receive any further interest payment from the respondent since February 2021[6]. However, when Ng chased the respondent for further interest payment (together with the repayment of the principal), the respondent had never cited “no profit made by FG Limited” as the reason for his failure to make interest payments.

34.  I have not lost sight of the respondent’s argument that the Audited Financial Statements would support his assertion that the monies transferred from the petitioner’s accounts were interest-bearing loans made to FG Limited.  However, taking the respondent’s case to the highest, he could only say that upon his receipt of the First Transfer and the Second Transfer, he had injected the monies into FG Limited and recorded them as loans advanced to FG Limited.  However, that per se cannot assist him because that was not what he represented to Ng as to how the monies received would be used.  

35.  Furthermore, there is no objective evidence (such as messages exchanged with Ng or Ng’s acknowledgement in writing)  that it was agreed between the respondent and Ng that the First Transfer and the Second Transfer should be treated as loans advanced to FG Limited.  In the circumstances where no such evidence had been produced to the auditor for perusal (because no such evidence existed), the Audited Financial Statements are at best self-serving, and it cannot be said that such a document is independent evidence in support of the respondent’s case as alleged, since the content of the auditor’s report in this regard must only have been based on what the auditor had been instructed by the respondent[7].

36.  The respondent also relied on the minutes of the board of directors’ meeting of FG Limited in support of his case.  In my view, such minutes do not assist him either, because:

(1)  They are self-serving – there is no dispute that Ng or the petitioner had never been provided with these minutes before;

(2)  The minutes are contradicted by the messages which the respondent sent to Ng in that:

(a)  While the respondent represented to Ng that monies deposited into the “plan” would enjoy a fixed interest rate of 3% per month, the minutes recorded that the interest was not fixed;

(b)  While the respondent represented to Ng that the minimum period that the monies had to be placed in the “plan” was just one month, the minutes seem to suggest that the monies had to remain in FG Limited for 3 years (“三年期3%本金”);

(c)  Even in the event the words “三年期3%本金” do not mean that the monies had to be kept by FG Limited for 3 years but only that “the plan” would last for 3 years, this is inconsistent with the respondent’s representation (made in answer to Ng’s question as to whether the “plan” would last for more than 5 years)  that: “仲有2年半我就離職呢間果間公司，之後轉去法國巴黎銀行做，我同果邊deal咗照樣會有呢架個plan，不過會得返每月2.4%現金派息…果邊我暫時簽咗3年約”. 

Identity of the real creditor

37.  In her written submissions, Ms Mok for the respondent submitted that, in any event, it was Ng rather than his mother who provided the interest-bearing loans, and therefore the proper petitioner herein should be Ng.

38.  However, Ms Mok accepted at the hearing that the Second Transfer ($150,000)  must be regarded as the petitioner’s deposit.  In my view, this must be right because that was the respondent’s own evidence (see paragraph 26 above).  It was also recorded by the respondent himself as such in various documents such as FG Limited’s ledgers and minutes of directors’ meeting.

39.  Ms Mok also fairly conceded that since there is no doubt that the Second Transfer was made under the name of the petitioner, her argument on this “identity of creditor” point in relation to the First Transfer, even if accepted, would not advance her case at all.

40.  I therefore do not find it necessary to deal with this point further.

Credibility of the petitioner/Ng

41.  Ms Mok had made various other submissions for the purpose of attacking the credibility of the petitioner and of Ng.  In my view:

(1)  These submissions are misconceived because the burden is on the respondent to establish a bona fide dispute on substantial ground(s), and he must adduce sufficiently precise factual evidence which is believable for this purpose.  As discussed above, he has plainly failed to do so;

(2)  In any event, as I will further explain below, Ms Mok’s points cannot hold water at all.

42.  Firstly, it was said that since it is undisputed that the petitioner had never had any direct communication with the respondent, she simply was not in the position to make any verifying affirmation, and Ng should have made it rather. 

43.  The short answer is that Ng had also made two affirmations for the purpose of supporting the Petition herein.

44.  Secondly, it was alleged that the petitioner had changed her case drastically since the service of the Statutory Demand and the filing of the Petition herein, in that Ng’s involvement was not mentioned therein at all. 

45.  It is true that Ng’s involvement was not mentioned at all in the Statutory Demand nor in the Petition.  However, I do not accept that there was any “change” in the petitioner’s case.  The failure on the part of the petitioner to mention that his son, Ng, was involved in the matter does not render any part of the Petition incorrect or incredible as alleged.

46.  Thirdly, it was submitted that, given the respondent’s young age, Ng’s evidence that the respondent had claimed himself to be a senior official of Guotai Junan is unbelievable, and that even if he had so claimed, his peers in the Cosplay Group would not have believed in it. 

47.  In my view, the conclusion reached in the present Petition would have been the same with or without this allegation.

48.  Fourthly, it was said that since it is evident that the respondent had never mentioned the word “Guotai” in the chat messages, those messages can be interpreted in different ways. 

49.  This is a red herring.  As I have mentioned above, the “plan” which the respondent described in his messages to Ng at the material time was clearly not related to any proposed investment in FG Limited. In the circumstances of the present case, whether he had mentioned about “Guotai” is beside the point.

50.  Fifthly, Ms Mok submitted that the Court should disregard the chat messages in the Cosplay Group chat group because it is evident that a lot of the messages therein (which covered the alleged promotion of the alleged 2019 Plan by the respondent)  had been deleted since then and the respondent is now unable to produce the conversations which were exchanged at the material time among the Cosplay Group members. 

51.  This line of submission is not supported by evidence because the deleted messages were all sent on 19 April 2021[8] – way after the respondent’s promotion of the alleged 2019 Plan.

52.  More importantly, as admitted by Ms Mok, the chat messages between Ng and the respondent on the 2019 Plan in the period between 9 August 2019 and 26 July 2020 had been kept intact and placed before the Court in their entirety.  In my view, these messages plainly show that the respondent’s case is hopeless and incredible.

53.  Sixthly, it was pointed out that the respondent had never promoted any “plan” to the petitioner directly, nor did the respondent induce or defraud her in making payment to him.

54.  However, at the very least, Ng had acted as an agent for the petitioner in relation to the Second Transfer.  Whether there had been any direct communication between the petitioner and the respondent is neither here nor there.

55.  Seventhly, it was submitted that, in the light of Ng’s close relationship with other members of the Cosplay Group, his denial of any knowledge about FG Limited is incredible. 

56.  I do not think this forensic point can assist the respondent.  The indisputable fact is that when the respondent introduced the “plan” to Ng, the respondent had not mentioned about FG Limited nor its business at all.  Hence, in my view, it would not make any difference even if Ng had heard about FG Limited beforehand.

57.  Lastly, Ms Mok relied on a number of receipts in an attempt to show that FG Limited had incurred a substantial amount of expenses on the purchase of cameras and video equipment.  She stated that the source of funds for such purchases must have come from the loans granted by members of the Cosplay Group (including Ng). 

58.  While the respondent might well have used the deposits made by Ng and others for the purchase of equipment for FG Limited, that does not mean that those funds should necessarily be treated as loans granted to FG Limited.  The respondent’s own messages which I have referred to above, in my view, are fatal to his case.

ORDER

59.  For the above reasons, I make the usual bankruptcy order with costs against the respondent.