RE ASIA TODAY LTD (In Provision Liquidation)

HCMP 1368/2021 and HCCW 76/2020
(HEARD TOGETHER)

[2021] HKCFI 3841

HCMP 1368/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1368 OF 2021

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 76 OF 2020

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(HEARD TOGETHER)

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D E C I S I O N

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1.  I have before me a petition seeking sanction of a scheme of arrangement introduced by Asia Today Limited (“Company”) with its unsecured creditors (“Scheme” and “Scheme Creditor” respectively). The Company is incorporated in Hong Kong. The Company is the holding company for a business group which engages in international apparel and fashion. Its core business involves retailing in Germany and Austria.

2.  The group’s retail arm in Europe suffered great losses during the COVID outbreak and went into insolvency proceedings in Germany and Austria, thereby causing the Company’s balance sheet and cash flow insolvency.  On 27 March 2020, the Company issued a winding up petition against itself and applied for the appointment of provisional liquidators, who were appointed by order of this court on the same day.  On 21 December 2020 the court granted the provisional liquidators restructuring powers which led to the introduction of the present Scheme.

3.  The ultimate beneficial owners of the investor who has agreed to inject fresh capital into the Company, include the Company’s management, an ultimate major shareholder and a creditor of the Company.  The investment is thus akin to a management buy-out.

4.  The Scheme is quite straight forward.  It provides for a cash distribution spread out over monthly instalments, which if introduced successfully will result in an estimated recovery of between 55% and 56.5% for unsecured creditors, which is considerably better than the estimated return on a liquidation of between 4.5% and 8.3%.

5.  The Company’s total debts owed to the Scheme Creditors, amount to approximately HK$218 million.  At the meeting convened pursuant to the order that I made on 21 September 2021, all those who attended, representing HK$113.6 million of the unsecured debt, and totalling 48 unsecured creditors, voted in favour of the Scheme.  No Scheme Creditor has appeared before me today to contest the petition.

6.  In considering whether to sanction a scheme, the court applies some well-established principles which were recently restated in Re China Singyes Solar Technologies Holdings Ltd[1]such that the court would consider in particular the following:

(1)  whether the scheme is for a permissible purpose;

(2)  whether creditors who were called on to vote as a single class had sufficiently similar legal rights such that they could consult together with a view to their common interest at a single meeting;

(3)  whether the meeting was duly convened in accordance with the Court’s directions;

(4)  whether creditors have been given sufficient information about the scheme to enable them to make an informed decision whether or not to support it;

(5)  whether the necessary statutory majorities have been obtained;

(6)  whether the Court is satisfied in the exercise of its discretion that an intelligent and honest man acting in accordance with his interests as a member of the class within which he voted might reasonably approve the scheme; and

(7)  in an international case, whether there is sufficient connection between the scheme and Hong Kong, and whether the scheme is effective in other relevant jurisdictions.

7.  I am satisfied that these criteria are satisfied.  The only minor wrinkle is that a small proportion of the debt, 2%, is governed by German law and, therefore, as matter of Hong Kong law will not be compromised by the Scheme. However, in determining whether this a reason not to sanction a scheme, the court is concerned whether or not this will affect the Scheme’s efficacy as the court will not sanction a scheme that serves no purpose[2].  The Scheme Creditors who have debt governed by German law have not indicated any objection to the Scheme, and given the small out of the debt, it seems to me reasonable to proceed on the basis that it does not constitute an impediment to the Scheme’s successful introduction.

8.  I shall, therefore, grant an order sanctioning the Scheme in the form presented to me.

9.  There is one further associated application that I need to deal with.  The order appointing the provisional liquidators provided, as is normal, that their costs be paid out of the assets of the Company.  The provisional liquidators seek an amendment to that order to provide that their costs can be paid by the investor, as provided for in the restructuring agreement which facilitated the introduction of the Scheme.  The court has sanctioned a similar payment arrangement recently in Re Burwill Holdings Limited[3]. I will do so in this case.