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23 October 2019 | by LexisNexis Hong Kong


In Yeung Lui Ming v Tang Mo Lin Irene [2019] HKCU 2809, the Hong Kong Court of First Instance set aside a transfer of shares and a sale of cemetery sites by a bankrupt as they constituted transactions at an undervalue and/or disposals with intent to defraud the creditors.


Wong Yuk Tung (the “Bankrupt”) held 20% shareholding in Cheong Tai (the “Company”), in which he transferred the shares to the only and other director and shareholder of the Company, Wong Tang Mo Lin Irene (“Tang”) for a consideration of HK$60 million (the “Share Transfer”) pursuant to a sale and purchase agreement (the “Agreement”). Under the Agreement, the consideration comprised of $46 million that was allegedly used to set-off a debt owed by Perfecta and Panty Perfecta (collectively, the “Perfecta Group”) to the Company which was assumed by the Bankrupt and around $13 million in cash. Furthermore, the Agreement stated that the Bankrupt would at no consideration procure one of the Bankrupt’s companies, Bright Success (“Bright Success”), to transfer the legal and beneficial ownership of 38 cemetery sites to Tang or her nominee (“Cemetery Transfer”). The Cemetery Transfer was executed by a deed of transfer (the “Deed”). Both the Agreement and the Deed were entered into within a period of 2 years prior to presentation of the bankruptcy petition of the Bankrupt on which he was adjudged bankrupt.

The appointed Trustees-in-Bankruptcy (“Trustees”) sought a declaration that the Agreement and the Deed constituted transactions at an undervalue under section 49 of the Bankruptcy Ordinance (“BO”) and/or dispositions with intent to defraud creditors under section 60 of the Conveyancing and Property Ordinance (“CPO”) and that as such were void as against the Trustees. The Trustees also sought an order for the defendants (Tang and the Company) to repay them the shortfall in the consideration under the Agreement or such sums as the court thinks fit.


Whether the Share Transfer was at an undervalue

Section 49(3) of the BO states the definition of a transfer at an undervalue as “a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the debtor”. To determine whether the consideration purportedly provided by Tang was significantly less than the consideration provided by the Bankrupt was a question of fact. It required a comparison between the value obtained and the value of the consideration provided by Tang for those transactions. The court considered the adequacy of consideration was based on what a reasonably well-informed potential purchaser was prepared to pay.

Referring to this case, the court accepted that the $60 million was not significantly less than the value in money’s worth of the sale shares. However, the Bankrupt did not and had never received the full consideration because part of the transaction consisted of unsecured debt owed to the Bankrupt by Perfecta Group and no consideration for the Cemetery Transfer. Therefore, there was no full consideration as part of consideration was deemed illusory. The court concluded that the consideration in the transactions represented 13.22% less than the actual value, which constituted sale at undervalue. Also considering the aspect of illusory consideration, such as no consideration for the Cemetery Transfer, the undervalue was as high as 79.37%.

Whether the disposals were with an intent to defraud the creditors

The alternative case of the Trustees was the Share Transfer under the Agreement and the Cemetery Transfer under the Deed were dispositions with intent to defraud creditors and were voidable. The court also found that the Bankrupt had the intent to defraud his creditors through the Share Transfer.

Although it was asserted that the Bankrupt’s intention to dispose of the sale shares was to enable him to concentrate or focus on the business of Perfecta Group, the court held that it was a false assertion. The Bankrupt and Tang had a very close and tight business relationship for three decades. Tang and the Company had been very supportive of the Bankrupt and lending heavily to Perfecta Group over the years. Tang must have full knowledge of the Bankrupt’s dire financial conditions. There was no reason why Tang did not know that the Bankrupt’s real reason for selling the sale shares was not to enable him to focus on the business of Perfecta Group, but to hide her common intention with the Bankrupt behind the Agreement and the Deed in order to defraud the creditors.

Overall, there was evidence to infer that the Bankrupt’s intention to prefer Tang to other creditors would eventually cause the general creditors to lose out. It could also be drawn that Tang was a knowing party to the fraud. Hence, the court held that the Share Transfer was a disposition with intent to defraud creditors. The court ordered Tang to pay damages to the estate of the Bankrupt in the amount of the shortfall in consideration for the sale shares.

For more information on related topics, please see:

Annotated Ordinances of Hong Kong – Bankruptcy Ordinance (CAP 6), Conveyancing and Property Ordinance (CAP 219)

Butterworths Hong Kong Bankruptcy Law Handbook – Sixth Edition

Halsbury’s Laws of Hong Kong – Bankruptcy, Companies and Corporations, Land

Hong Kong Encyclopaedia of Forms and Precedents – Companies, Commercial Contracts, Land

Lexis Advance ® Hong Kong Practical Guidance – Hong Kong Corporate, Hong Kong Commercial

For enquiries about the above publications, please contact your Account Manager via sales.hk@lexisnexis.com

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