RE TRILLION GLORY LTD

HCCW 399 & 483/2024

[2025] HKCFI 1456

HCCW 399/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 399 OF 2024

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AND

HCCW 483/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 483 OF 2024

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(Heard Together)

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REASONS FOR JUDGMENT

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1.  There are 2 petitions before the court, both presented by Seatown Private Credit Master Fund (“Petitioner”):

(1) The petition presented on 8 July 2024 against Trillion Glory Limited (“Trillion”) in HCCW 399/2024; and

(2) The petition presented on 19 August 2024 (as amended on 17 October 2024) against R&F Properties (HK) Company Limited (“R&F”) in HCCW 483/2024 (together “Petitions”).

2.  At the callover hearing, this Court dismissed the Petitions and ordered costs against the Petitioner. These are the reasons for my judgment.

3.  The manner in which the parties dealt with the Petitions show that there is a lack of understanding of the nature and purpose of winding-up petitions as a result of which much time and costs have been wasted:

(1) The parties have filed a total of 12 affirmations, including expert evidence on valuation without leave of the court, and the hearing bundles contain 2,630 pages.

(2) Although 5 sets of submissions have been lodged by counsel for the Petitioner, the companies and the opposing creditors, none of them focuses on the real issue, which is whether a creditor whose debt has been secured by effectively all the assets of the companies has any real interest in seeking a winding-up order against the companies.

Factual background

4.  Trillion was incorporated in Hong Kong on 21 April 2017. It is wholly owned by Noble Ease Limited (“Noble”) which in turn is wholly owned by R&F.

5.  R&F was incorporated in Hong Kong on 25 August 2005 and is wholly owned by Guangzhou R&F Properties Co., Ltd (“Guangzhou R&F”). Guangzhou R&F is a joint stock limited company established in the Mainland and its shares have been listed on the Main Board of The Stock Exchange of Hong Kong Ltd (stock code: 2777). Guangzhou R&F through its subsidiaries and associated companies principally engage in property development, hotel development and operations, recreation and tourism business primarily in the Mainland.

6.  Trillion holds 100% equity in Guangzhou Trillion Glory Investment Co., Ltd (“Hotel WFOE”) which in turn holds 69 real estate properties in the Mainland.

7.  The Petitioner is a fund managed by an alternative investments firm and engages in investments in private credit opportunities primarily in Asia Pacific.

8.  By a term loan facility agreement dated 13 January 2023 (“Facility Agreement”) made between inter alios the following parties, a loan in the amount of US$540,417,000 (“Loan”) was advanced by the Lenders to Trillion:

(1) Trillion as “Borrower”;

(2) Guangzhou R&F as “Parent”;

(3) R&F and Noble as “Guarantors”;

(4) The Petitioner, Hammer Capital Opportunities Investment Limited (“Hammer”), Knight Prosper Limited (“Knight”), and Mr Cheung Chung Kiu (“Cheung”) as “Lenders”; and

(5) Serica Agency Limited as “Security Agent”.

9.  The Facility Agreement is governed by Hong Kong law. The outstanding principal of the Loan was advanced by the Petitioner (18%), Hammer (52%), Knight (12%) and Cheung (18%). The rights of the Lenders in connection with the Facility Agreement and the Finance Documents executed pursuant thereto are separate and independent and may be exercised by any of them.

10.  Except the Petitioner, the other 3 lenders who together hold 82% of the outstanding principal of the Loan oppose the Petitions (collectively “opposing creditors”).

11.  The Loan is secured by a suite of security including the security given by R&F and Trillion:

(1) A share mortgage created by R&F in respect of all the issued shares in Noble;

(2) A share mortgage created by Noble in respect of all the issued shares in Trillion;

(3) A floating charge created by each of Noble and Trillion over all their undertakings and assets, both present and future;

(4) An assignment by way of security whereby Noble and Trillion assigned all the rights and interest in the “Custodian Account”, “Custodian Account Bank Rights”, “Cash Collateral” and “Custodian Agreement” (as defined in the security agreement) (collectively “Bank Balances”) executed by Noble and Trillion to the Security Agent[1] (“1^st Assignment”);

(5) A Security Assignment and Subordination Deed (“2^nd Assignment”) executed by inter alios R&F, Noble and Trillion whereby each of R&F and Noble (as junior creditors) (a) assigned to the Security Agent all their rights and interest in the “Junior Liabilities”, the “Junior Finance Documents” (as defined therein) to the Security Agent (collectively “Receivables”), and (b) covenants not to demand or receive any payment or repayment from Trillion and Noble without the prior consent of the Security Agent[2];

(6) An equity pledge created by Trillion over the 100% equity in Hotel WFOE in favour of the Security Agent[3]; and

(7) A guarantee given by Hotel WFOE in favour of the Security Agent.

12.  The following facts and matters are not in dispute:

(1) The financial statements of R&F for the year ended 31 December 2023 show that it was insolvent and had net liabilities of US$850 million[4].

(2) Apart from insignificant cash balance, the only asset of R&F is its investment in Hotel WFOE[5]. Such investment is held through R&F’s direct and indirect wholly owned subsidiaries, that is, Noble and Trillion.

(3) The financial statements of Noble for the period ended 31 August 2024 show that it was insolvent and had net liabilities of US$10,850[6].

(4) The only assets of Noble are (a) the 100% shareholding in Trillion, (b) the amount due from Trillion (US$360.3 million), (c) the long term investment with a book value of US$128,650[7]; and (d) the amount owed by Trillion (US$2,806 million), which represented the repayments of the Loan said to have been made by R&F (through Noble) on behalf of Trillion since 2017[8].

(5) The financial statements of Trillion for the period ended 31 August 2024 show that it was insolvent and had net liabilities of US$382 million[9].

(6) The only assets of Trillion are the 100% equity in Hotel WFOE and cash equivalent of US$1,284[10].

(7) The only liabilities of Trillion are the Loan and the US$2,806 million due to Noble[11].

13.  The upshot of the facts and matters described in §§11-12 above is that, as the Petitioner well knew:

(1) R&F had provided security for the Loan, namely (a) a share mortgage over 100% shareholding in Noble; and (b) the 2^nd Assignment over the Receivables.

(2) Noble had provided security for the Loan, being (a) a share mortgage over the 100% shareholding in Trillion; (b) a floating charge over all its assets, present and future; (c) the 1^st Assignment over the Bank Balances; and (d) the 2^nd Assignment over the Receivables.

(3) Trillion had provided security for the Loan, being (a) a floating charge over all its assets, present and future; and (b) an equity pledge over the 100% equity in Hotel WFOE; and (c) the 1^st Assignment over the Bank Balances.

(4) In other words, all the assets of Noble and Trillion are subject to security created in favour of the Security Agent, who hold such security for the benefit of the Lenders including the Petitioner.

(5) No free or unencumbered asset will be available to any unsecured creditor (if exists) even if Trillion is wound up by the court.

(6) Similarly, as the only meaningful asset of R&F is its 100% shareholding in Noble, no free or unencumbered asset will be available to any unsecured creditors even if R&F is wound up by the court.

14.  On 31 October 2023, the Loan became due and payable but no payment was made by Trillion, Noble or R&F.

15.  Subsequently, the parties entered into a deed and other finance documents for the purpose of implementing a standstill in respect of the Loan and the Facility Agreement.

16.  On 6 June 2024, the Petitioner’s solicitors served a statutory demand on each of Trillion and R&F (“SDs”), requiring them to pay US$109,508,261.51 which represents 18% of the outstanding principal and accrued interest on the Loan (“Debt”).

17.  Trillion and R&F did not comply with the SDs. In July and August 2024, the Petitions were presented.

18.  On 2 September 2024, the Security Agent issued a notice of enforcement of security interests as well as notice of crystallization of floating charge to Trillion, Noble and R&F.

19.  On 3 September 2024, receivers were appointed over the shares in Noble and Trillion (“Receivers”). Since their appointment, the Receivers having been trying to take control over Hotel WFOE but they have not been able to do so owing to the opposition of Mr Li Sze Lim (“Mr Li”), the chairman of Guangzhou R&F[12].

Discussion

20.  It is well established that where a petitioner asserts that the company is insolvent, secured creditors stand apart from the collective process of liquidation and do not have any real interest in the company’s assets except those on which they have security. It is only the unsecured creditors who have any real interest in the company. This is because a security creditor has the right to realise the security provided by the company for the purpose of repaying the debt owed to it (Re Progetto Jewellery Company Limited [2022] HKCFI 364, §40).

21.  The practice of the Companies Court in dismissing a petition for absence of free assets and absence of any other interest has been described in French, Applications to Wind Up Companies, 4^th ed., §§2.139 – 2.140 in this way:

“If it is shown that a company has no assets available for the payment of unsecured creditors, and the petitioner cannot demonstrate any other interest in having the company wound up, the court may, in the exercise of its discretion, dismiss the petition. In the past this was particularly the case where all the company’s assets were charged to secure payment of a debt exceeding their value…

The practice of dismissing a petition because the petitioner has no interest in a winding up is not affected by IA 1986, s125(1)[13]”.

22.  In his skeleton arguments, Mr Look Chan Ho, counsel for the Petitioner, seeks an immediate winding-up order against R&F and Trillion on the following grounds:

(1) The Debt is not in dispute. Where the debt is established and not satisfied, the burden is on the companies to demonstrate that there are “exceptional circumstances” for the court not to make a winding up order (Ebbvale Ltd v Hosking [2013] 2 BCLC 204 §25; RHB Bank Bhd v Bob TX Food Empire Pte Ltd [2024] SGHC 305 §60).

(2) The Receivers’ contentions viz, a winding up order against Trillion (a) may affect the ongoing proceedings brought by the Receivers on behalf of Trillion in the Mainland for the purpose of taking control over Hotel WFOE; and (b) may disrupt their attempt to sell the shares in Noble and Trillion, do not constitute exceptional circumstances.

(3) There is a “positive case for investigation: investing wrongdoing and maximizing recovery” in respect of the alleged “breach of duties owed to [Trillion]”, “procuring and/or inducing a breach of agreements”, “conspiracy to injure the economic interest of [Trillion]” and violating the “anti-deprivation principle” in insolvency law. Only liquidators have the statutory power to investigate these allegations effectively. A dual-track process maximises recovery for all stakeholders.

(4) As regards R&F, (a) its proposed restructuring provides no basis to oppose the Petition as no restructuring plan has yet been proposed; (b) its stated intention to pursue an English scheme of arrangement cannot compromise the Debt which is governed by Hong Kong law; (c) Hotel WFOE is the “primary source of available assets” but its current value “cannot satisfy the Hotel WFOE Guarantee fully”, as confirmed by the Petitioner’s valuation expert; (d) the existence of third party security is “no defence to insolvency petitions” (Re Fame Dragon International Investment Ltd, HCCW 373/2016, 20 March 2017 §22; White v Davenham Trust Ltd [2011] Bus LR 1443 §40); and (e) “granting an insolvency remedy is not unfair” (Chan Siew Lee Jannie v Australia and New Zealand Banking Group Ltd [2016] SGCA 23; [2016] 3 SLR 239 §§35-37; Lau Yu v The Hongkong and Shanghai Banking Corp Ltd [2018] HKCA 744; [2019] 2 HKC 18 §§35-36).

23.  No submission has been advanced by Mr Ho on the obvious issue of absence of free assets and the Petitioner’s lack of interest in seeking a winding-up order against R&F and Trillion. At the hearing, this Court asks Mr Ho to address the issue and explain why the Petitioner should be allowed to pursue the Petitions when it has no intention to give up the security provided by R&F and Trillion in the event that the court makes a winding-up order against the companies. In response, Mr Ho submits that:

(1) The value of the security provided by R&F and Trillion is inadequate. The expert evidence on valuation shows that the realizable value of the assets of Hotel WFOE is unlikely to be sufficient to meet the liabilities of Hotel WFOE and the Loan. Hotel WFOE needs to discharge its liabilities first before any surplus can be paid up to Trillion and caught by the floating charge.

(2) The Receivers have made allegations of serious wrongdoings allegedly undertaken by third parties to the detriment of Trillion. The causes of action for breach of duties and transactions to defraud creditors can be made by the liquidators acting on behalf of Trillion and R&F against the wrongdoers. The avoidance provisions under CWUMPO are personal to the liquidators and can only be invoked by them after the court making a winding-up order against R&F and Trillion.

24.  The submissions do not assist the Petitioner:

(1) As regards the first point, even assuming the valuation evidence adduced by the Petitioner is admissible and is correct, it merely confirms the fact that the value of Hotel WFOE is sufficient to discharge all the liabilities of Hotel WFOE and the surplus will be available for repayment of the Loan.

(2) As for the second point, the so-called need for investigations and the causes of action which may be pursued against the wrongdoers have not been pleaded in the Petitions. It is not open to the Petitioner to rely on unpleaded matters in seeking a winding-up order against R&F and Trillion (Re China Oceanwide Group Ltd [2023] HKCFI 455, §§16-32). The same goes to Mr Ho’s contention that there is a “positive case for investigation” as described in §22(3) above.

(3) In any event, the so-called causes of action are assets of Trillion and, therefore, are caught by the floating charge given by Trillion in favour of the Security Agent.

25.  For the above reasons, it is clear that the Petitioner, as a secured creditor and together with the other Lenders, are entitled to take all the assets of Noble and Trillion and hence R&F and realise them for the purpose of repaying the Loan, has no real interest in seeking a winding-up order against R&F and Trillion. In any event, there is no utility in the court making a winding-up order against Trillion and R&F as neither of them has any free assets which may be collected or realised by the liquidators for the benefit of any unsecured creditors.