GG v LL Ltd [2025] 1 HKC 660, [2024] HKCFI 2302
Vincent Chen represented the respondent in GG v LL Ltd [2025] 1 HKC 660, [2024] HKCFI 2302.
On 21 December 2022, a Loan Agreement was signed between the Lender, a company as borrower (‘Borrower’), and two individuals including the applicant as guarantors. The loan was also secured by Second Mortgages on properties owned by companies (‘mortgagor companies’) which were wholly legally and beneficially owned by the applicant indirectly. Meanwhile, a Fee Letter was signed between the Borrower and a company as introducer (‘Introducer’), whereby the Borrower agreed to pay the Introducer an introducer fee of $10.8 million upon drawdown of the loan. On the day of drawdown, the Borrower paid the said sum of $10.8 million to the Introducer. On 21 March 2023, the Borrower failed to pay interest. On 23 April 2024, the Statutory Demand (‘SD’) was served on the applicant. On 10 May 2024, the applicant applied to set aside the SD on the following grounds: (1) the Lender holds the Second Mortgages as security, the value of which equals or exceeds the debt (‘Security ground’); (2) the Lender is an unlicensed money lender, and therefore, pursuant to s 23 Money Lenders Ordinance (Cap 163), the loan is not recoverable (‘Unlicensed money lender ground’); (3) the Fee Letter was a sham, and the Introducer was the Lender’s agent, consequently, the Borrower’s payment of $10.8 million to the Introducer constituted partial repayment of the loan, and the amount of the debt therefore had been overstated by at least $10.8 million (‘Overstatement of Debt ground’); (4) alternative to the Overstatement of Debt ground, the sum of $10.8 million should be treated as interest, and therefore the effective rate of interest would amount to 53.6% per annum, allowing the court to reopen the transaction (‘Interest ground’).
Held, setting aside the statutory demand:
(1) Regarding the Security ground, the mere fact that third party-owned security was available to the Lender did not change the Applicant’s inability to pay. When the Lender was doing what the law entitled it to do (ie pursuing the guarantor rather than resort to third party-owned security), there was no injustice to the applicant which the court should prevent in the exercise of its residual discretion under r 48(5)(d) of Bankruptcy Rules (Cap 6A). X v Y [2019] HKCFI 2880 ; [2020] HKCU 2119; In re a Debtor (No 1 of 1987) [1989] 1 WLR 271; China and South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536; and Mark Eugene White v Davenham Trust Ltd [2011] EWCA Civ 747 considered (paras 11.2 – 12, 15-17).
(2) Regarding the Unlicensed money lender ground, as it was said in the Lender’s affirmation that the Lender engaged in investment in securities and ‘does not run any money lending business as such’, the applicant had satisfied the Court that there was a substantial defence that the Lender was not a licensed money lender, that the loan was not an exempted loan and thus was unrecoverable under s 23 of Money Lenders Ordinance (Cap 163). This ground alone was enough to set aside the SD. Silver Bound Capital Ltd v Ho’s Holding Co Ltd & Ors [2003] HKCU 409 (HCA 9682/2000, Deputy High Court Judge To, 17 April 2003, unreported) considered (paras 18.5 – 22).
(3) Regarding the Overstatement of debt ground, even if there had indeed been an overstatement of the debt by $10.8 million, it could not justify setting aside the SD, because the applicant had not suggested that she was able to repay the substantial balance of the outstanding amount of the debt (paras 26.1 – 26.2).
(4) Regarding the Interest ground, as the effective rate of interest would only be 22% per annum, it did not exceed the statutory threshold (paras 27.2 – 28).
[The above is excerpted from the headnote to the report in HKC.]
