Disposition of property with intent to defraud creditors

In Cheung Ying Lun v Legal Way Ltd ([2013] HKEC 1817, CFI) Legal Way owed the plaintiffs around HK$2 million as a result of an order made requiring Legal Way to pay the plaintiff’s legal costs arising out of other proceedings between them. Soon after that order Legal Way assigned a property it owned for HK$2 million to another company. The evidence showed that this price meant that the sale had been at a substantial undervalue. The plaintiffs sought a declaration that the sale was voidable on the basis that it was a disposition with intent to defraud creditors (s. 60 of the Conveyancing and Property Ordinance). They succeeded.

Since consideration had been given, the question was whether it had been established that Legal Way had acted with intent to defraud creditors ([26]). There was ample evidence to establish this intent (including the substantial undervalue, and the fact that the sale came soon after the judgment that gave rise to the liability to the plaintiffs). The inference was that the transaction had been entered into to defraud creditors ([29]). The defendants had made no attempt to rely on the defence in s.60(3) of the CPO.

Michael Lower

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