RE LEE, YUK LUN

HCB 8823/2025

[2026] HKCFI 2365

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 8823 OF 2025

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REASONS FOR JUDGMENT

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I.  INTRODUCTION

1.  The hearing was the first hearing before Judge of the Petition filed on 17 November 2025. The Petition was based on a Statutory Demand served on 12 December 2024 (the “Statutory Demand”) for an amount of HK$5,200,000, an amount represented by a cheque dated 23 December 2020 (the “Cheque”) drawn by the Debtor in favour of the Petitioner but was dishonoured on 25 January 2021 upon presentation.

II.  THE PETITIONER’S CASE

2.  The Petitioner’s case was purely based on the Cheque.

3.  As Mr Victor Lui, counsel for the Petitioner, submitted, a bill of exchange like a cheque would be a separate and distinct contract from the underlying transaction, an unliquidated cross-claim under the underlying agreement would be no defence to an action on the bill, and a bill would be treated as the equivalent of cash: see T v W [2022] 1 HKLRD 610 at §26 per G Lam JA. Therefore, the Petitioner’s case was a strong one. However, it did not follow that it is a conclusive one. As Mr Christopher Chain SC, leading Mr Stephen Siu, counsel for the Debtor, submitted, the Court would in certain circumstances look into the underlying transactions to see whether the cheque in question was valid or releases. Mr Chain referred me to by way of example Ka Man Trading Co. (a firm) v Albert White & Co. Ltd., HCA 2548/1977, 2 February 1978. That was a case of summary judgment, where the defendant raised a defence that the plaintiff and the defendant agreed that the cheques issued by the defendant would not be presented, and the court granted unconditional leave to defend. Mr Chain also referred me to Chitty on Contracts (36^th edition) §§26-001 – 26-007 for the well established proposition that parties could agree to release themselves from obligations previously agreed, for his submissions that the parties could agree to release the cheque drawer from the obligations represented by the cheque.

4.  Mr Lui also highlighted the Debtor had been in wilful default in handling the Statutory Demand. In particular, he pointed out that the Statutory Demand was served on 12 December 2024. However, the Debtor did not acknowledge or accept service of the Statutory Demand. Nor did he make any application to set aside the Statutory Demand. Mr Lui referred me to Re Ling Kam Chung, HCB 12052/2003 ,25 August 2003 at §§7, 11-12 in support of his submissions that wilful default by a debtor in handling or setting aside a statutory demand would be a weighty factor against the debtor. With respect, after all, the Court still had to examine whether there was any bona fide dispute on substantial grounds. In proper context, failure promptly to deal with a statutory demand may cast doubt on the credibility on the debtor’s defence raised later which would have been raised in the first place should the defence be true. But in other context, this may not be as useful in the assessment of whether the defence was bona fide or not. Each case depends on its own facts. The fact in Re Ling Kam Chung, supra, was that there was no dispute over the debt, which was a judgment debt. As Barma J said in Re Mian Mohammad Mahmood, HCB 3782/2008, 20 August 2009 at §22:-

“… the consequence of failing to set it aside is not to prevent the Debtor from disputing the debt, but to deem him unable to pay his debts. Finally, it should be noted that in Ling Kam Chung, the statutory demand was based on a judgment debt, as to which there would be little scope for dispute – a situation quite different from that here, where there is no judgment (default or otherwise) in favour of the Petitioner.”

III.  THE DEBTOR’S CASE

5.  In the Notice by Debtor of Intention to Oppose Petition filed on 28 January 2026, the Debtor set out two grounds:-

(1)  The Cheque was presented for payment before fulfilment of the condition of delivery agreed between the Debtor and the Petitioner; and

(2)  There was a full and final sentiment between the Petitioner and the Debtor regarding the Cheque and as a result no debt was due from the Debtor to the Petitioner.

6.  According to the affirmation filed by the Debtor on 30 March 2026 (the “Debtor’s Affirmation”):-

(1)  In around 2015, the Petitioner was indebted to the Debtor in the sum around HK$25 million. The Petitioner kept delaying repayment to the Debtor on the excuse that the Debtor’s friend a Mr Li had not fully paid the Petitioner for Mr Li’s purchase of shares in a listed company from the Petitioner.

(2)  Upon discussion, the Petitioner and the Debtor agreed to resolve the disputes globally whereby:-

(a)  The Petitioner would subscribe for HK$25 million convertible bond (“CB”) from Code Agriculture (Holdings) Limited;

(b)  If Mr Li did settle the outstanding purchase price before the expiry of the CB, then the Petitioner would transfer the CB to the Debtor at nil consideration; and

(c)  If Mr Li did not settle the outstanding purchase price before the expiry of the CB, the shares converted under the CB would be used to offset the outstanding purchase price and the balance of the principal due under the CB would be transferred to the Debtor.

(3)  Accordingly, on 5 November 2015, the Petitioner became the holder of the CB. Although the Petitioner was the holder, the Debtor kept the Certificates of the CB. In fact, in these proceedings, it was the Debtor, but not the Petitioner, who produced the Certificates of the CB as evidence and the loss report of the original Certificates of the CB.

(4)  The CB was originally due on 5 November 2018 but was extended subsequently to 31 December 2020.

(5)  In 2016, 2018 and 2020, in total, 228,461,367 shares were converted under the CB.

(6)  In around May 2020, the Debtor requested the Petitioner to transfer the CB to him urgently, but the Petitioner refused, claiming that Mr Li had not yet settled the outstanding purchase price. At that time, the principal due under the CB was HK$18 million, while the outstanding balance due and owing by Mr Li to the Petitioner was around HK$5.2 million.

(7)  Upon negotiation, the Petitioner agreed that the CB could be transferred to the Debtor upon his payment of HK$12,800,000  to the Petitioner for the CB and Mr Li’s full payment of the then outstanding balance of HK$5.2 million.

(8)  The Debtor urgently required the transfer of the CB to him. Therefore, he agreed to make effort to locate Mr Li and persuade him to repay the Petitioner. The Debtor agreed to give the Cheque to the Petitioner in order to give some additional comfort to the Petitioner, based on the mutual understanding and agreement at that time “that the Cheque would be returned to [the Debtor] once Mr Li repaid the said HK$5.2 million, and that [the Debtor] would use my best endeavours to locate Mr Li and persuade him to make the said repayment by the date of the Cheque”: see §14 of the Debtor’s Affirmation.

(9)  Accordingly, the Debtor made a payment of HK$12.8 million by way of two cashier orders to the Petitioner, the copies of which the Debtor exhibited to his affirmation.

(10)  In December 2020, the Debtor told the Petitioner that he still could not locate Mr Li. Upon negotiation, the Petitioner and the Debtor agreed that the Debtor shall continue to use his best endeavours to locate Mr Li and persuade him to make repayment to the Petitioner, and the Petitioner would keep the Cheque in his possession until the end of the validity period of the Cheque.

(11)  However, on 25 January 2021, the Petitioner presented the Cheque without any prior notice to the Debtor. After the Cheque was dishonoured, on around 15 April 2021, the Debtor wrote a letter to the Petitioner in reply to the Petitioner’s demand letter, stating that the Debtor would like to negotiate further with the Petitioner.

(12)  In late December 2021, the Petitioner and the Debtor came to the conclusion that it would be impossible to locate Mr Li and in any event, even if he could be located, Mr Li would be unable to repay the Petitioner. Therefore, upon discussion, the Petitioner and the Debtor “reached a full and final settlement with the following effect” [(the “Settlement Agreement”)]:-

(a)  [The Debtor] would procure 5 million shares in Simplicity Holdings Limited (Stock Code: 8367, “Simplicity”) (“5 Million Shares”) to be transferred to the Petitioner at nil consideration; and

(b)  [The Debtor] would issue an instruction to HSBC to stop payment of the Cheque, and the Petitioner would not proceed any further against [the Debtor] in relation to the Cheque”: see §20 of the Debtor’s Affirmation.

(13)  In performance of the Settlement Agreement, the Debtor sent a stop instruction to HSBC and transferred the 5 Million Shares to the Petitioner. In support, the Debtor exhibited copies of the correspondence with HSBC, copies of share certificates endorsed with “Received by: Wong Wai Man” who the Debtor said was the Petitioner’s associate, and copies of the share transfer journal of Simplicity showing that the shares had been transferred to the Petitioner.

(14)  The share price of Simplicity had been fluctuating significantly since January 2022, and the Petitioner had been complaining to the Debtor that he had entered into a bad deal.

7.  As regards the Debtor’s apparently delay in handling the Statutory Demand, the Debtor said that he was hospitalised in December 2024, January 2025 and February 2025, and therefore, he had not been responsive to the Statutory Demand. He produced his medical records in support.

IV.  NO REPLY FROM THE PETITIONER

8.  At the outset of the hearing, I asked Mr Lui whether the Petitioner would like to file any evidence in reply to the Debtor’s evidence. Mr Lui answered in the negative, and repeated the same when I asked him again.

9.  So, there was no evidence to deny anything said in the Debtor’s evidence.

V.  ANALYSIS

10.  It was not a must that reply evidence must be filed. The Court would still make a bankruptcy order if the debtor’s own evidence is not sufficient to raise any bona fide dispute on substantial grounds.

11.  In the present case:-

(1)  There was an unexplained four-year gap between the dishonour of the Cheque and the issuance of the Statutory Demand, which could be explained by the Debtor’s evidence in relation to the Settlement Agreement and the Petitioner’s subsequent complaint of having entered into a bad deal;

(2)  The transfer of the 5 Million Shares, supported by documentary evidence, was not explained by the Petitioner but explained by the Debtor’s evidence in relation to the Settlement Agreement. Mr Lui emphasised that there was no sufficient evidence to link up the 5 Million Shares to the Cheque. The Debtor’s evidence on affirmation was evidence. I would consider this evidence in the evaluative assessment of all the evidence. In this regard, I bore in mind that the Petitioner chose not to file any evidence to explain the 5 Million Shares.

(3)  While a cheque was a separate and distinct contract from the underlying agreement, when the Debtor’s evidence went to the underlying agreement essentially to say that the underlying agreement, if any, was settled or superseded by the Settlement Agreement, the Petitioner made a conscious decision not to file any evidence to challenge such evidence and to explain his version of the underlying agreement.

(4)  The Debtor’s evidence was supported by documentary evidence like the shares journal showing that the 5 Million Shares had been registered in the name of the Petitioner.

12.  Having considered the above, as well as the Debtor’s evidence and the Petitioner’s lack of evidence to the contrary, I was satisfied that there was a bona fide dispute on substantial grounds at least on the Settlement Agreement raised by the Debtor.

VI.  CONCLUSION

13.  In the circumstances, I dismissed the Petition with costs to the Debtor, with the Official Receiver’s costs to be deducted from the deposit.