Yeung So Lai (楊素麗) v Art Excel Ltd [2026] 1 HKLRD 427; [2025] HKCA 957 (Vincent Chen)
Vincent Chen represented the respondent in Yeung So Lai (楊素麗) v Art Excel Ltd [2026] 1 HKLRD 427; [2025] HKCA 957.
In December 2022, the Lender loaned money to a company (the Borrower), with X as one of the guarantors (the Loan Agreement). The loan was also secured by second mortgages on three properties owned by “mortgagor companies” wholly owned by X’s holding company which were not parties to the Loan Agreement. On the same day as the Loan Agreement, the Borrower entered into an agreement with a purported Introducer, agreeing to pay an introducer fee. The Borrower duly paid the introducer fee. A copy of the cheque for the fee was signed by the same person who also signed the Loan Agreement on behalf of the Lender. In March 2023, the Borrower defaulted. In January 2024, the Lender issued a statutory demand for the outstanding principal and interest which was served on X in April 2024. X then applied to have the statutory demand set aside in May 2024. The Judge set aside the statutory demand on the basis that the Lender was an unlicensed money lender and hence the loan was not recoverable pursuant to s.23 of the Money Lenders Ordinance (Cap.163) (the MLO). The Judge held that the exemption for loans to a company secured by a mortgage under para.2(a) of Pt.2 of Sch.1 to the MLO (the Exemption) only applied to a mortgage provided by the borrower itself. The other grounds were rejected, including that: (i) the Lender held security (ie the three second mortgages), the value of which exceeded the value of the debt and hence the statutory demand should be set aside under the Court’s residual discretion under r.48(5)(d) of the Bankruptcy Rules (Cap.6A, Sub.Leg.) (the BR) (the Security Ground); and (ii) the introducer fee agreement was a sham and hence should constitute partial repayment, and as such the amount of the debt had been overstated (the Overstatement of Debt Ground). The Lender appealed. X, in her Respondent’s Notice, sought to argue inter alia that the Court of Appeal should find for her on the Security Ground and the Overstatement of Debt Ground.
Held, allowing the appeal, dismissing the Respondent’s Notice and granting the Lender leave to present a bankruptcy petition after 21 days, that:
(1) The Exemption covered the situation of a loan being made to a company secured by a registered mortgage and was not restricted to a mortgage given by the borrower company but extended to a mortgage provided by a third party. The natural and ordinary meaning was clear and there was no place to graft into it a further requirement that the mortgage was confined to a mortgage of the borrower’s own assets. As the Exemption applied, the Lender was not a “money lender” under the MLO and hence the issues surrounding unlicensed money lenders and the loan being unrecoverable did not arise. Further, X had not established that the Lender ran any money lending business despite her evidentiary burden to do so (Universe Link Industries Ltd v Liggars Ltd [1999] 2 HKLRD 383, HKSAR v Chen Keen (alias Jack Chen) (2023) 26 HKCFAR 157, Re Lau Kam Sing Dickie [2023] HKCA 506, LB v F Ltd [2023] 2 HKLRD 157 applied). (See paras.37-44.)
(2) As for the Security Ground, X could not rely on r.48(5)(c) of the BR because it only applied where the debtor was the direct owner of the mortgaged land. The residual discretion in r.48(5)(d) should not be exercised as the Lender had the right not to seek recourse against the security prior to taking steps against X as per the terms of the Loan Agreement and by law. A creditor owed no duty to a surety to exercise its power of sale over mortgaged properties and could decide for itself what remedies to pursue. For a court to exercise its residual discretion under r.45(5)(d), it would require circumstances which would make it unjust for the statutory demand to give rise to the consequences of a debtor being regarded as unable to pay such debt and for the petition to be founded on that basis. There were no such circumstances in the present case (Re Debtor (1 of 1987) [1989] 1 WLR 271, The China and South Sea Bank v Tan Soon Gin George [1990] 1 AC 536, Cheng Wai Kei v Commerzbank Aktiengesellschaft [2002] 2 HKC 340, X v Y [2020] HKCFI 3178 applied; X v Y [2019] HKCFI 2880 distinguished). (See paras.28, 49-56.)
(3) As for the Overstatement of Debt ground, an overstatement of indebtedness did not automatically entitle a debtor to have the statutory demand set aside. The relevant question was whether injustice would be caused to the debtor by allowing the demand to stand. No prejudice had been shown in this case as there was no evidence that X would be able to pay the substantial balance in any event (Chan WS v CC Bank [2022] 3 HKLRD 520 applied). (See paras.58-59.)
[The above is excerpted from the headnote to the report in HKLRD.]
