Debtor who overturned bankruptcy in previous landmark case declared bankrupt once again

On 24 March 2025, the Hong Kong Court of First Instance made a second bankruptcy order against Mr Guy Kwok-Hung Lam.  This bankruptcy order arises from a costs order made against Mr Lam in previous proceedings (the "2021 proceedings") for HK$ 2.4 million (the "Debt").  CP Global Inc and CP Assets Limited, the beneficiaries of the costs order and petitioners in this case, issued a statutory demand for the Debt, but Mr Lam failed to comply and is deemed unable to pay his debts under section 6A(1)(a) of the Bankruptcy Ordinance.

Mr Lam was previously declared bankrupt in the 2021 proceedings, but that bankruptcy order was overturned in two landmark appeals.  The Court of Appeal and the Court of Final Appeal both dismissed the bankruptcy petition because the underlying credit and guaranty agreement, for which Mr Lam was the guarantor and from which the petitioning debt arose, contained an exclusive jurisdiction clause in favour of the courts of New York.  The higher courts held that the dispute concerning the petitioning debt should therefore first be determined by proceedings in New York.  For more details, see our blog posts here (on the Court of Appeal judgment) and here (on the Court of Final Appeal judgment).

Discussion

It is well established that where the debt is based on a judgment, the Court will treat the judgment as prima facie evidence that the debtor is indebted to the creditor.  The burden then shifts to the debtor to demonstrate that there is a dispute on substantial grounds in respect of the debt.  In this case, the Court found that Mr Lam failed to meet this burden and was particularly unimpressed by his delay tactics, as detailed below:

1. Mr Lam argued that the service of the statutory demand was defective because it was sent to him by email and not served on him personally.  The Court clarified that serving a statutory demand by email meets the requirements under Rule 46(2) of the Bankruptcy Rules and paragraph 2.1(b) of Practice Direction 3.1 to "bring the statutory demand to the debtor's attention", provided the creditor and debtor have communicated via that email address during the 12 months preceding the date of the statutory demand.  Additionally, the petitioners also sent the statutory demand to Mr Lam by fax, ordinary and registered post to his residential address and to his solicitors.

2. Mr Lam claimed that the costs order was "faulty" and that the bankruptcy petition in the 2021 proceedings was a "violation of justice".  The Court found both claims to be misconceived: Mr Lam did not articulate why the costs order was "faulty" and crucially, there has been no appeal against the costs order so it remains binding and enforceable against Mr Lam.  The alleged "violation of justice" simply does not stand since the New York Court in fact dismissed Mr Lam's claim for a declaration that the appointment of receivers and all actions taken by the receivers were null and void.

3. Mr Lam offered to pay the Debt once he receives certain proceeds from an alleged land sale by 30 September 2025.  While the Court recognised that it is for the petitioners to decide whether or not to accept this "offer", it commented that the "offer" cannot be regarded as reasonable or acceptable based on the total lack of evidence and certainty.

4. Mr Lam attempted to rely on his affirmation filed (without leave) just three days before the hearing and a skeleton argument filed a day after the hearing.  The judge expressed that such delay tactic would not be condoned by the court.

Comments

The Court of First Instance has made Mr Lam bankrupt for the second time in just under four years, albeit for a different debt this time.  In the absence of any evidence demonstrating that the debt is subject to a bona fide dispute on substantial grounds, the Courts will not hesitate to proceed with declaring an individual bankrupt.

For more information, please contact Jojo Fan, Managing Partner, Paul Quinn, Partner, Rachael Shek, Partner, Truman Mak, Partner, Sara Troughton, Knowledge Lawyer or your usual Herbert Smith Freehills contact.