DONG CHENGXUAN AND OTHERS v. CHINA SAITE GROUP CO LTD

HCCW 346/2020

[2021] HKCFI 2889

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 346 OF 2020

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D E C I S I O N

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1.  I have before me a petition to wind up the Company on the grounds of insolvency. This is the adjourned hearing of the petition. The Company and its debts give rise to issues which have been coming before the Companies Court for consideration in significant numbers during the course of the last two years.

2.  The Company is incorporated in the Cayman Islands and listed on the Main Board of the Stock Exchange of Hong Kong.  Its creditors in Hong Kong seem to consist very largely of Mainland individuals who have brought what is commonly referred to somewhat misleadingly as bonds issued by the Company. These bonds appear to be normally in the sum of HK$10 million and are individual loans to the Company.  They are not part of a publicly tradable series of notes.  Although this has not been explained in the evidence, I assume that they were structured, as in my experience they commonly are, so that they gave the lender the right of residency in Hong Kong.

3.  The Company and the Group of which it is the apex has experienced financial problems which have prevented it repaying the interest on the bonds, which resulted in the issue of the petition.  There is no dispute that the three core requirements are satisfied in the present case.  The issue for consideration today is whether or not the petition should be adjourned in order to allow the Company to introduce a scheme of arrangement.  A hearing date for an application for an order that a meeting of creditors takes place to consider and vote on a scheme has been fixed for on 21 January 2022.

4.  A number of creditors have come forward and taken a position in relation to the Company’s application for an adjournment.  As I understand it they represent somewhere in the region of 12% to 13% of the Company’s total debt.  Slightly more in terms of value favour an immediate winding up order.  The reason why the Petitioners and the supporting creditors seek an immediate winding up is that they doubt the creditability of the proposed restructuring and the scheme.  I must say, however, that having heard counsel for the Petitioner, it was unclear whether or not the Petitioner and the supporting creditors fully understood what has been proposed and how the restructuring efforts had progressed.

5.  Mr Ho on behalf of the Company suggested that the court could approach an assessment of the parties’ respective positions by considering three matters.  The first was the availability of money to pay creditors; the second was a plan and the third, a timetable.  The principle reason why there is no dispute that the three core requirements are satisfied is that there is US$4.9 million in the Company’s account with DBS Bank (“DBS”).  The Company’s proposal involves in the first instance, the immediate payment of that sum into court to secure it and in respect of that an application for a validation order has been issued.  The second is that cash will be raised by note issues.  Two note purchase agreements have both been negotiated and signed with the result that if the scheme is sanctioned, HK$160 million will be paid into a special purpose vehicle, administrated by scheme administrators and that these sums will be used to make the first tranche of payment to scheme creditors.

6.  There will then be a subsequent series of payments over the course of the following six years out of the surplus the Company anticipates making so that creditors are paid in full; in other words there will be no haircut.  As the only evidence before the court is that in the event an immediate winding up order were to be made, the only assets the creditors in Hong Kong would be likely to have recourse to is the US$4.9 million, it follows that regardless of whether or not the second stage of the proposed restructuring proves to be successful, as long as the first stage, namely, the payment of HK$160 million, is successfully implemented, scheme creditors will be better off if a scheme is sanctioned, than they will be if an immediate winding up order is made.

7.  Mr Ho acknowledges that there is no evidence before the court or available to creditors, that allow an informed assessment of whether or not the Company is likely to be able to trade successfully during the following six or seven years in order that it can comply with the second proposed stage of the restructuring.  However, that of itself does not mean that what is proposed will not be beneficial to creditors.  The first component of the proposed restructuring of itself constitutes a perfectly rational reason why some of the unsecured creditors have agreed to support an adjournment.  It seems to me that there is sufficient certainty that the proposed restructuring will proceed with the result that the scheme will be introduced, which will allow the creditors to consider whether what is proposed is to their advantage within a reasonable period of time, that this is an appropriate case in which to grant an adjournment of the petition.

8.  I will adjourn the petition to 10am on 21 January 2022.  That hearing will be a case management conference which will coincide with the hearing in chambers of the originating summons issued in order to commence introduction of a scheme of arrangement.  At that stage, it will be possible to assess what further adjournments or otherwise of the petition should be directed.  There is no need for the petition to be heard on that day if the parties agree that it be adjourned by consent.

9.  As I have mentioned earlier, there is an application by the Company for a validation order which facilitates the payment into court of the sum currently in DBS.  I assume that there is no objection to that validation order being made as I have determined that the petition should be adjourned.  I will hear counsel in relation to that matter.

10.  There is no objection to that validation order being made.  I will, therefore, make an order in the terms of the application.  I will reserve the costs of the hearing of the petition today.