Section 60 of the Conveyancing and Property Ordinance (Cap. 219) (CPO) (see here) provides that every disposition of property made with intent to defraud creditors shall be voidable. A recent Hong Kong court decision in HG Property Investment Limited v Cheng Mei Holdings Limited & Ors [2024] HKCFI 750 discusses the application of this section.
The court confirmed that for the purpose of a section 60 CPO claim, fraud or dishonesty must be distinctly alleged and distinctly proved, and it must be sufficiently particularised. It is not open to the court to simply infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty. An intent to defraud the creditors must be shown.
In this case, the Plaintiff tried to introduce a claim to set aside a Sale and Purchase Agreement for a commercial property based on section 60 of the CPO, alleging that the vendor entered into the sale with intent to defraud its creditors.
The Plaintiff sought to allege fraud by claiming that the sale was at an undervalue (when compared with the consideration for the same property under a previous Sale and Purchase Agreement which did not proceed to completion) and that the purchase price has not been paid in full.
The court disallowed the Plaintiff’s attempt to introduce the section 60 CPO claim and found that such claim disclosed no reasonable cause of action. On the evidence, the court considered that the sale was for valuable consideration, noting in particular, that any alleged undervalue may be the result of market conditions, increase in interest rates, lack of interested buyers etc. The court also took into account that the sale proceeds were used for repaying the secured creditors and such sale was supported by them. The court commented that there was genuine commercial rationale behind the sale and it would require something more to suggest any intent on the part of the vendor to defraud its creditors.
The court also rejected the reliance on the unpaid portion of the purchase price to infer fraud and accepted the explanation put forward in respect of such arrangement, and noted that the Plaintiff had put forward no basis to argue that the purchaser had notice of the alleged intent to defraud.
It is clear from this case that any intent to defraud creditors will not be lightly inferred by the court. The court will scrutinise the relevant factual background and the commercial rationale behind the disposition of the property in considering whether the facts support the contention of fraud or dishonesty.
For further information, please contact:
Paul Kwan, Partner, Deacons
paul.kwan@deacons.com
