RE ECOGREEN INTERNATIONAL GROUP LTD

HCCW 27, 28/2024

[2024] HKCFI 1574

HCCW 27/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 27 OF 2024

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AND

HCCW 28/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 28 OF 2024

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(heard together)

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REASONS FOR JUDGMENT

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1.  At the hearing of the 2 petitions presented by the petitioner, Hang Seng Bank Limited (“Petitioner”) on 15 January 2024 against EcoGreen International Group Ltd[1] (“Listco”) and Doingcom International Ltd (“DIL”), I made the usual winding up order against both companies. These are the reasons for my judgment.

Background

2.  Listco was incorporated in the Cayman Islands in March 2003. It has since January 2004 been registered as an oversea company[2] and subsequently a registered non-Hong Kong company under the Companies Ordinance (Cap. 622). Listco has a principal place of business in Hong Kong at Central Plaza. The shares had since 2004 been listed on The Stock Exchange of Hong Kong Limited (“HKEx”) (stock code 2341) until it was delisted on 27 October 2023.

3.  Listco is the ultimate holding company of a group of companies which engage in production and trading of fine chemicals products for use in food, pharmaceuticals, perfume, cosmetics and personal care products (“Group”) held by a number of indirect subsidiaries established in the Mainland.

4.  DIL was incorporated under the former Companies Ordinance (Cap. 32) on 18 June 2021. It is wholly owned by Listco. Its paid up capital is HK$100 million. It is one of the intermediate holding companies within the Group and holds a wholly owned subsidiary, Zhangzhou Huiyou Enterprise Co., Ltd, in the Mainland.

5.  The Petitioner is a lender and the security agent under a loan agreement dated 27 May 2020 (“Loan Agreement”) entered into between Listco and a syndicate of 10 lenders (“Syndicate”).

6.  DIL executed a guarantee dated 27 May 2020 in favour of the Petitioner (“Guarantee”) whereby it agreed to guarantee the liabilities of inter alios Listco under the Loan Agreement.

7.  Pursuant to the Loan Agreement, the Syndicate granted a term loan in the amount of US$185 million to Listco.

8.  As at 22 May 2023, the amount due and payable by Listco to the Syndicate was US$194,542,755.78. Despite the demands made by the Petitioner’s letters dated 14 June 2023, neither Listco nor DIL paid the amount due.

9.  The Petitioner commenced proceedings in the Fujian Xiamen Intermediate People’s Court (“Xiamen Court”) on 28 June 2023 against inter alios Listco and DIL for breach of the Loan Agreement and the Guarantee. This resulted in the Mediation Agreement dated 28 June 2023. On the same date, the Xiamen Court issued a mediation award based on the Mediation Agreement (“Award”) whereby Listco and DIL shall pay to the Petitioner by 30 June 2023, (1) outstanding principal in the amount of US$185 million; (2) interest accrued up to 22 May 2023 in the amount of US$9,542,755.78; (3) legal fees and expenses in the amounts of RMB2,826,973 and HK$839,000; and (4) interest from 23 May 2023 at contractual rates.

10.  Despite the Award, neither Listco nor DIL paid the amount due. As at 24 September 2023, the amount owed by Listco and DIL was US$201,285,820.45, RMB 2,826,973 and HK$839,000 (“Debt”).

11.  On 16 November 2023, the Petitioner served a statutory demand on each of Listco and DIL requiring them to pay the Debt together with interest accrued thereon (together “SDs”).

12.  Listco and DIL did not comply with the SDs. On 15 January 2024, the Petitioner presented the petition in HCCW 27/2024 against Listco and another petition in HCCW28/2024 against DIL.

13.  As Listco and DIL have failed to comply with the SDs, by virtue of s.178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“Ordinance”), they are deemed insolvent.

Grounds in opposition

14.  At the first hearing of the petitions before this Court on 25 March 2024, Mr Michael Lok, counsel for Listco and DIL, confirmed that the Debt was not in dispute but opposed the petitions on 2 main grounds.

15.  First, Mr Lok submitted that the petition against Listco is defective as it failed to plead any facts and matters in support of the 3 core requirements (Excellent Asia (BVI) Ltd v Mas Media Group Ltd [2021] HKCFI 3605 §3). The Petitioner should not be allowed to rely on facts or matters not fairly stated in the petition and ask the court to make a winding up order on the basis of unpleaded facts and grounds (Re China Oceanwide Group Ltd [2023] HKCFI 455, §§21-32).

16.  The submission was well founded. The petition in respect of Listco did not contain any plea in respect of the 3 core requirements. Leave was granted to the Petitioner to file an amended petition to set out the facts and matters in support of its contention that the court should exercise its discretionary jurisdiction to wind up Listco, which is a registered non-Hong Kong company.

17.  Second, Mr Lok submitted that substantial progress had been made by Listco and DIL to restructure their debts which, if successful, would allow both companies to restore to solvency. In this regard, he relied on the following facts and matters:

(1) Prior to the general economic downturn in 2022, the Group had performed steadily with a healthy cashflow. It had turnover of RMB 870 million in 2022 and RMB 700 million in 2023. Based on Listco’s draft management accounts, it had net assets of RMB 445.6 million as at 31 December 2023. As for DIL, it had net deficit of RMB 15.5 million based on its draft accounts.

(2) The Group has 3 major projects in the Mainland which have not been pledged or encumbered save for some charging orders granted by the Mainland courts.

(3) Listco and DIL had been proactively taking steps to push forward a restructuring proposal including looking for external advisors, engaging in various rounds of negotiations with both onshore and offshore creditors with a view to introducing a comprehensive restructuring in respect of their debts. These included: (a) one of Listo’s indirect subsidiaries, Xiamen Doingcom Chemical Co. Ltd (“Xiamen Sub”), had commenced a Pre-restructuring process which was expected to be sanctioned by the Mainland court in June 2024; (b) the Group had implemented a “Ring-Fenced Operation” with funding from a Xiamen state-owned enterprise; and (c) the intended investment by CITIC Trust and other interested investors.

(4) Listco and DIL intended to put forward a restructuring proposal which would cover their onshore and offshore debts (“Restructuring Proposal”). The Restructuring Proposal would comprise an onshore restructuring (“Mainland Scheme”) and an offshore restructuring in the form of a scheme to be sanctioned by the Hong Kong court (“HK Scheme”).

(5) The Mainland Scheme was intended to cover the debts of the key operating companies established in the Mainland which would involve (a) establishing a new vehicle (“NewCo”) to hold all the onshore business and operating assets of the Group; (b) 25% of the debts would be converted into 6-year loan note to be issued by NewCo; and (c) 75% of the debts would be converted into equity of NewCo. CITIC Trust had indicated its in-principle agreement to provide new funding of RMB300 million by way of “community liabilities” to NewCo (“Onshore New Funding”) which, if provided, would enable the Group to overcome its short term liquidity issues and to repay its onshore debts.

(6) As for the HK Scheme, it was intended to compromise the debts owed to the offshore creditors by (a) making a cash payment to the creditors, to be financed from the HK$80 – 150 million to be raised by Listco through issuing new shares to new investors (“Offshore New Funding”); (b) converting the debts into new shares to be issued by Listco. For this purpose, 3 special purpose vehicles had already been incorporated in Hong Kong in May 2023 which, in turn, would hold 3 Mainland companies based on a “light-asset model”, that is, “to take up the operating business of various business segments of the Group without the underlying assets”. Further business operating assets would be injected into Listco by a state-owned enterprise based in Chongqing and its shareholders in return for new shares to be issued by Listco (“New Business Injection”).

(7) The Restructuring Proposal, if implemented, would provide a higher return to the creditors a liquidation of Listco and DIL. In view of the likely availability of Onshore New Funding, the Offshore New Funding and the New Business Injection, the Restructuring Proposal could not be said to be unfeasible. It had the support of some creditors of Listco and DIL and was underpinned by a concrete timetable. The proposed 12-week adjournment would align with the plan to introduce a scheme of arrangement by mid-2024.

(8) However, the Restructuring Proposal was contingent upon the successful resumption and maintenance of the listing of Listco’s shares, and HKEx had already decided to cancel its listing in October 2023, and the decision was upheld by the Listing Review Committee. Listco decided to apply for leave to apply for judicial review of the decision.

18.  Although the evidence before the court did not show that the Restructuring Proposal was one which had the support of the requisite majority of the creditors, having regard to (1) the progress which had been made by Listco and DIL in respect of the onshore debts; (2) the possible new fundings which might be raised by Listco; and (3) the fact that the petition in respect of Listco was defective such that no winding up order could be made against Listco, this Court considered that it was appropriate to adjourn the petitions for 10 weeks with directions on filing of evidence including an affirmation to be filed by Listco to provide an update on the Restructuring Proposal.

19.  After the adjournment, the Petitioner filed the amended petition in HCCW 27/2024 which set out the facts and matters in support of the 3 core requirements. In short:

(1) Listco has sufficient connections with Hong Kong by reason of (a) its listing status in Hong Kong; (b) its principal place of business in Hong Kong; (c) its board meetings and general meetings were held in Hong Kong; (d) 2 of its principal subsidiaries (including DIL) and another wholly owned subsidiary are Hong Kong companies; and (e) the Loan Agreement was entered into in Hong Kong and was performed in Hong Kong.

(2) There is a reasonable possibility of benefit that a winding up order would benefit the Petitioner having regard to (a) the leverage created by the petition; (b) the liquidator would be able to investigate into Listco’s affairs and recover assets for the benefit of the creditors in respect of (i) the cash discrepancy when the Group only had bank balance of RMB 160,000 as at 31 December 2021 but its books stated the cash balance of the Group on the same date at RMB 1,580 million; and (ii) the cyber attack announced on 6 April 2022 which was said to have rendered Listco to be unable to access its accounting records for 2021.

(3) As for the third requirement, the Petitioner is based in Hong Kong, most of the banks within the Syndicate are either incorporated in Hong Kong or are Hong Kong branches of a foreign bank.

20.  The above facts and matters are either not in dispute or are indisputable. It seems to me that by reason of these matters, the 3 core requirements for the court to exercise its discretion under s.327(1) of the Ordinance are satisfied.

21.  Despite the adjournment, Listco and DIL have not made any real progress in respect of the Restructuring Proposal. In particular, nothing has been done in respect of the HK Scheme.

22.  As regards the Mainland Scheme:

(1) A draft scheme document had been prepared by the joint administrators of Xiamen Sub (“JPAs”) which was belatedly dispatched to all the creditors of the Group by 27 May 2024.

(2) A trust structure with “the onshore business operating assets of the Group, including that of [Xiamen Sub] which is now the subject of the [Mainland] Pre-[re]structuring, together with the onshore and offshore liabilities, will be assigned to a structure involving the [NewCo]”. CITIC Trust will be appointed as trustee over the trust and a management committee will be formed to oversee the same which, it is said, will better protect the interests of the Group’s creditors as a whole.

(3) CITIC Trust, a leading trust company in the Mainland owned by CITIC Group, has already indicated its in-principle agreement to take up the role as trustee.

(4) As to the scope of “onshore business operating assets of the Group” which will be injected into NewCo (and, in turn, held by the Trust), Xiamen Sub is currently the only entity covered by the Pre-restructuring (and later the Mainland Scheme). That said, other key operating onshore companies of the Group are expected to be included to the Mainland Scheme under the Mainland legal concept of “fusion of corporate personality” shortly after the Pre-restructuring proceeds to “bankruptcy restructuring” in around June 2024.

(5) However, the Mainland Scheme is subject to certain conditions, one which is EcoGreen Fine Chemical Group Limited (“EFCGL”), a key subsidiary (which holds various operating subsidiaries and assets of the Group), is currently in voluntary liquidation. Representatives of Deloitte Hong Kong and Deloitte Shenzhen have been appointed as its liquidators. The liquidators have not agreed to the inclusion of EFCGL in the Mainland Scheme and the Proposed Restructuring.

(6) China CITIC Financial Asset Management Co. Ltd (中國中信金融資產管理股份有限公司), which is affiliated to CITIC Trust (intended trustee) and forms part of the China CITIC Group, has indicated its in-principle agreement to provide Onshore New Funding by way of “community liabilities” in the total sum of RMB350 million.

(7) Xiamen International Trust Co. Ltd (廈門國際信託有限公司) (“XIT”), a reputable local municipal-level state-owned enterprise, has likewise indicated its in-principle agreement to provide funding to Xiamen Sub, which XIT orally indicated could be up to RMB100 million, including an urgent, first-stage injection of RMB50 million.

(8) Listco and DIL expect to be able to compromise the debts owed to onshore and offshore creditors if the Mainland Scheme and the HK Scheme can be implemented.

(9) Listco and DIL have already successfully (a) obtained the JPAs’ support letter for the Pre-restructuring; (b) received the support of the Xiamen FSB and Xiamen Bankruptcy Court Chairman; and (c) “a majority of onshore bank creditors holding 76% of the Group’s major onshore bank borrowings have either indicated support for and/or their receptive attitude towards the Pre-[re]structuring/PRC Scheme”.

23.  As for the HK Scheme, no progress has been made during the adjournment:

(1) The intended proposal of incorporating new special purpose vehicles will not be pursued. Nor will the HK Scheme dependent upon the Offshore New Funding.

(2) The companies have yet to confirm their engagement of a restructuring advisor in Hong Kong, although they intend to do so by June 2024.

(3) Listco’s application for leave to apply for judicial review against the delisting decision will be heard on 22 July 2024.

(4) Most importantly, Listco has not addressed the obvious question of how the HK Scheme can be implemented, in the absence of the New Offshore Funding.

24.  The Debt represents 55.8% of Listco’s indebtedness. The Petitioner has rejected the Restructuring Proposal and confirms that it will not support the HK Scheme or participate in the Mainland Scheme. This is understandable as none of the so-called Onshore New Funding, the Offshore New Funding and the New Business Injection has been secured by Listco and DIL. Nor has Listco been able to revive its listing status. Without the new funding, the new business and the revival of Listco’s listing status, there is no prospect of Listco and DIL being able to implement the Mainland Scheme or the HK Scheme. There is no useful purpose for the court to grant any further adjournment in respect of the petitions.