Petition – bona fide dispute as to debt – whether higher standard required for resisting petition on ground of bona fide dispute than for resisting application for summary judgment
P, an insurance company, served on D, its former agent, a statutory demand based on a total debt comprising two debts which D had since paid P and two other debts which remained outstanding, namely: (a) sign-on fee advance of HK$2,932,200; and (b) a 25 percent sign-on fee advance of HK$140,700 to D’s “downline agent” (“K”). On D’s non-compliance, P presented a bankruptcy petition against D. The Recorder dismissed the petition, holding that there was a bona fide dispute on substantial grounds as to whether the HK$2,932,200 sign-on fee was due and payable as at the date of the statutory demand; and P could not rely on the HK$140,700 sign-on fee to K, as it was a liability founded on a guarantee signed by D (the “Guarantee”) which document was not mentioned in the statutory demand. P appealed, arguing that the Recorder appeared to reject its submission that “where a debtor opposes a petition on the ground that there is a bona fide dispute on the debt on substantial grounds, the debtor has a higher standard to discharge than resisting an application for summary judgment under O. 14 of the Rules of High Court” (Cap. 4A, Sub. Leg.) (the “RHC”).
Held, dismissing the appeal, that:
- The tests for establishing a bona fide dispute on a debt on substantial grounds and for resisting an application for summary judgment under O. 14 r. 3 of the RHC involved different considerations in respect of evidence. The distinction lay in establishing a bona fide defence for resisting a bankruptcy petition and a fair probability of establishing a bona fide defence for obtaining leave to defend a civil action, whether unconditionally or with conditions. In that sense, the threshold test for resisting a petition would require a higher standard of proof.
- Notwithstanding this difference, the threshold tests in both situations were broadly similar. If a petition was dismissed on the basis of a bona fide dispute on substantial grounds, it would be unlikely that summary judgment could be obtained. Conversely, where a defendant had obtained leave to defend, it would be most unlikely that a petition would be granted.
- The Recorder had not failed to apply the relevant legal principles in dismissing the petition based on a bona fide dispute on substantial grounds as regards the HK$2,932,200 sign-on fee; or applied a lower standard to the evidence required to establish such a defence.
- The dispute could not be properly decided in a bankruptcy petition. There was a real dispute, to a substantial extent, on disputed questions of fact which should be resolved in a civil action with pleadings and oral evidence.