The importance of pursuing an appeal diligently and lodging applications timely in bankruptcy proceedings

DLA Piper Hong Kong recently represented Dr. Hui Chi Ming as a judgment creditor (Judgment Creditor) and petitioner to a bankruptcy proceeding against Mr. Koon Wing Yee (Debtor). In the judgment of Re Koon Wing Yee [2023] HKCFI 2301, the Court of First Instance made a bankruptcy order against the Debtor because he had failed to show a bona fide dispute on substantial grounds regarding the debt. The Debtor’s delay in pursing his appeal and lodging applications were sufficient for the Court to decide that an appeal should not affect the Judgment Creditor’s right to seek a bankruptcy order. DLA Piper team was led by Harris Chan (Partner), assisted by KC Tai (Of Counsel) and Rita Chow (Senior Associate).

 

FACTS OF THE CASE

After a 14-day trial, the Debtor was ordered to pay the Judgment Creditor damages with interests for the amount of HKD246,789,748 (Debt) by judgment dated 20 January 2023 (Judgment).

The Debtor filed a notice of appeal against the Judgment and filed a notice of setting down an appeal on 16 February 2023 and 20 February 2023 respectively (Appeal).

The Judgment Creditor filed a statutory demand requiring the Debtor to pay the Debt on 15 March 2023 but the Debtor did not comply with the statutory demand. Subsequently, the Judgment Creditor applied for a garnishee order against the Debtor on 20 March 2023 and issued a summons seeking security for costs in respect of the appeal on 24 March 2023.

On 12 July 2023, the Debtor filed a supplemental notice of appeal raising additional grounds of appeal.

A petition for bankruptcy against the Debtor was filed on 28 June 2023 (Petition) and the first hearing of the Petition before the Master was fixed to be heard on 29 August 2023. However, the Debtor only filed a notice of intention to oppose the Petition on 22 August 2023.

On 28 August 2023, the day before the hearing of the Petition, the Debtor filed a summons seeking a stay of execution of the Judgment (Stay Application) and an affirmation in support of the Stay Application (Debtor’s first Affirmation).

On 31 August 2023, the Debtor applied for an order to dismiss the Petition, alternatively to stay all proceedings pending the determination of the Appeal (Dismissal Summons). The Debtor filed an affirmation on the same day, containing exhibits of 1,178 pages (Debtor’s second Affirmation).

 

ISSUE

The issue before the Court was whether the Debtor had showed that there was a bona fide dispute on substantial grounds in respect of the Debt.

 

NO BONA FIDE DISPUTE

The Court made a bankruptcy order against the Debtor as he had failed to discharge the burden of demonstrating that there was a bona fide dispute on substantial grounds in respect of the Debt for the following reasons:

• The Court did not consider it appropriate to re-open the Judgment entered against a debtor after a fully-contested trial;
• The fact that the Appeal is lodged was insufficient to satisfy the Court that there were cogent grounds to deprive the Judgment Creditor of the fruit of the Judgment;
• The Debtor’s delay in perusing the Appeal and the Stay Application without explanation was sufficient for the Court to hold that the Appeal should not affect the Judgment Creditor’s right to seek a bankruptcy order against the Debtor; and
• The Debtor was unable to put forward any justification as to why he should be allowed to deprive the Judgment Creditor of the fruit of the Judgment pending the determination of the Appeal.

In addition, the other enforcement actions taken out by the Judgment Creditor and the change of the Debtor’s legal team (which is not supported by evidence) did not support the Debtor’s contention that there was no delay in pursuing the Appeal. Further, the Debtor’s delay in pursuing the Appeal and the Stay Application showed that the Debtor did not consider that there was a reasonable prospect of succeeding in the Appeal.

 

AN ABUSE OF PROCESS

Linda Chan J found that it was an abuse of process to file the Dismissal Summons and the Debtor’s second Affirmation at the eve of the hearing of the Petition for the following reasons:

It was an ambush on the part of the Debtor to file the Dismissal Summons and the Debtor’s second Affirmation less than 2 clear days before the hearing of the Petition, where on the same day the Judgment Creditor was required to lodge hearing bundles and submissions;

The only purpose of the Debtor’s second Affirmation with voluminous exhibits was to ensure that the Petition cannot be determined at the fixed hearing;

It was unnecessary to file the Debtor’s second Affirmation because the Stay Application, the Debtor’s first Affirmation, notice of appeal and the supplemental notice of appeal had already been included in the hearing bundles lodged by the Judgment Creditor’s solicitors;

The Debtor knew that the function of the bankruptcy court is not to go behind the Judgment which was given by the Court after a fully contested trial;

All practitioners must be well aware that it was unnecessary to issue such a summons for opposing a bankruptcy petition and applying for a stay or dismissal; and

The Debtor’s solicitors lodging another set of bundles containing 1,178 pages was in breach of PD 3.1 §14.2 (Bankruptcy and Wining-Up Proceedings) and PD 3.8 §6 (Electronic Bundles and Skeleton Arguments for All Applications on Company, Winding-Up and Bankruptcy Matters).

 

TAKEAWAY

This decision demonstrates the importance of pursuing an appeal diligently. Excuses such as busy dealing with other enforcement actions against the debtor and the change of legal team will not be accepted by the Court as explanations for pursuing the appeal and making applications late. Last-minute applications and filings could also be viewed by the Court that the applicant did not consider that there is a reasonable prospect of succeeding in his appeal.

Although the Court did not make a wasted costs order against the Debtor’s solicitors for last-minute filings and breaching the Practice Directions, the Court’s criticism towards the Debto’s solicitors warns practitioners about complying fully with the Practice Directions.

In addition, the Court is not prepared to order a stay or dismissal of the bankruptcy proceedings if the debtor admits that he has no financial means to pay or secure the debt. Instead, the debtor should raise substantive defence for his Appeal in order to justify why he should deprive the successful party of the judgment debt pending determination of his appeal.