RE DEXIN CHINA HOLDINGS COMPANY LTD

HCCW 164/2024

[2024] HKCFI 1610

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 164 OF 2024

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REASONS FOR JUDGMENT

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1.  At the hearing of the petition presented by China Construction Bank (Asia) Corporation Limited, the petitioner (“Petitioner”), against Dexin China Holdings Company Limited (“Company”) I made a usual winding up order against the Company. These are the reasons for my judgment.

Background

2.  The Company was incorporated in the Cayman Islands.  It has since 15 June 2018 been registered as a non-Hong Kong under the Companies Ordinance (Cap. 622).  The principal place of business of the company is at China Resources Building, 26 Harbour Road, Hong Kong.  The shares of the Company have since 26 February 2019 been listed on the Main Board of The Stock Exchange of Hong Kong Limited (“HKEx”) (stock code: 2019).

3.  The Company is an investment holding company and holds a number of subsidiaries (together “Group”) which engage in the business of property development and construction services, property investment and hotel operation in the Mainland.  According to the Company’s annual report for the year ended 31 December 2022, its business involved 146 projects in 25 cities and the Group had land reserve of 14.6 million square metres. 

4.  Pursuant to an Indenture dated 3 December 2020 (“Indenture”) executed by inter alios the Company and the Petitioner (as trustee for itself and the holders of the Notes), the Company issued a series of 9.95% senior notes due 2022 (collectively “Notes”). 

5.  Under the Notes, the Company was obliged to pay US$350 million to the Petitioner upon their maturity on 3 December 2022 and interest was payable every 6 months with the first payment due on 3 June 2021.

6.  The Company failed to pay the interest due on 3 June 2022 and failed to pay the principal upon maturity of the Notes on 3 December 2022.   

7.  As at 23 February 2024, the Company was indebted to the Petitioner the sum of US$410,073,125 (“Debt”).  On the same day, the Petitioner served a statutory demand on the Company requiring it to pay the Debt within 21 days thereof (“SD”). 

8.  The Company did not pay any amount to the Petitioner.  On 20 March 2024, the petition was presented against the Company.

9.  As the Company failed to comply with the SD, by virtue of s.178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“Ordinance”), the Company is deemed insolvent.

Grounds of opposition

10.  Ms Queenie Lau SC (leading Mr Thomas Wong), counsel for the Petitioner, submits that the Company does not have any proper ground to oppose the petition for the following reasons:

(1)  Hu 1^st (as defined in §11 below) should be disregarded altogether since the Company has neither sought leave to file its evidence out of time nor provided any explanation for the very substantial delay; and

(2)  In any event, the 2 contentions raised in Hu 1^st viz., (a) the second core requirement is not satisfied, and (b) some holders of the Notes are opposed to the Petition, are both plainly meritless.

11.  As regards the first point, Ms Lau submits that the Company failed to comply with rule 32(1) of the Companies (Winding-up) Rules (Cap. 32H), which required evidence in opposition to be filed by 29 March 2024[1]. It was only until 5 June 2024 that the Company filed the Affidavit of Tsui Ming Lun, which exhibited 胡一平的非宗教式誓詞 dated 4 June 2024 (“Hu 1^st”).This was despite the fact that on 8 May 2024, the Company issued a summons for a validation order in respect of the transfer of fully paid-up shares, which was granted by DHCJ Le Pichon on 28 May 2024.

12.  The Company did not issue any summons to apply for extension of time to file any affirmation out of time.  Nor did the Company provide any explanation for the delay in Hu 1^st.  It was only until 7 June 2024 that the Company belatedly filed the affirmation of Li Weixiang but the only explanation proffered was that the Company had been conducting without prejudice discussions with various holders of the Notes and decided to delay giving instructions to the solicitors to prepare an affirmation in opposition. I do not think that this provides a justification for the court to grant leave to the Company to file Hu 1^st and without the usual condition requiring the Company to pay the Debt into court[2]. As the Company does not have the means to pay the Debt, there is no useful purpose for the court to grant conditional leave for the Company to file Hu 1^st. It follows that there is no evidence in opposition to the petition.   

13.  Even if, contrary to my view, there is a proper basis for the court to grant leave for the Company to file Hu 1^st without any condition, I do not think that the grounds raised by the Company have any merit.   

14.  The Company contends that there is no reasonable possibility of benefit that a winding up order would benefit the Petitioner such that the second core requirement for the court to exercise the discretionary jurisdiction to wind up a foreign company under s.327(3) of the Ordinance is not met.  Reliance is placed on the following matters:

(1)  The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) [3]. 

(2)  It is “highly unlikely” that the listing status of the Company will have any residual value if the Company is wound up.  The Petitioner has not adduced evidence to establish that there is a real, not a hypothetical prospect of the listing being realised for an amount that produced a meaningful return to creditors (Re China Huiyuan Juice Group Ltd [2021] 1 HKLRD 25, §§30-33).

(3)  The “substantive assets” of the Group are held through BVI subsidiaries and their subsidiaries.  Save for some negligible amount of cash balance in bank accounts, the Company does not hold any assets in Hong Kong which are readily realizable[4].

(4)  The Company has substantial assets and business in the Mainland[5]. A liquidator appointed in Hong Kong will not be able to achieve any value in the Mainland and a winding-up order made in Hong Kong would be an exercise in futility. 

15.  Cap. 645 has no application to the Company and is irrelevant. 

16.  As regards the second core requirement, the court adopts a pragmatic approach and considers whether there is a reasonable possibility of a sufficient benefit accruing to the petitioner from being permitted to set in motion the winding-up procedure in Hong Kong in respect of a foreign company.  The benefit need not be monetary or tangible in nature, and is met “so long as the benefit can be said to be a real possibility, rather than a merely theoretical one”.  Even if there is nothing for the liquidator to administer, the court may hold that the second requirement is satisfied so long as there is “some useful purpose serving the legitimate interest of the petitioner” (Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd (2022) 25 HKCFAR 98, §§54, 56, 61, 83).

17.  By reason of the following matters, the second core requirement is plainly satisfied:

(1)  As the Company is a listed company, the leverage or commercial pressure created by the petition itself constitutes a sufficient benefit to the Petitioner (cf. Shandong Chenming §§62-67, 80-83).

(2)  The Company carried out substantial fund-raising activities in Hong Kong including issuing the Notes in Hong Kong which were listed on HKEx. 

(3)  The Company has bank accounts at Hang Seng Bank and Bank of China which have been used to defray the expenses of the principal office in Hong Kong[6].  Although the combined balance of these accounts as at 30 April 2024 was less than HK$80,000, it is reasonable to infer that substantial funds must have been paid into and out of the bank accounts held by the Company in Hong Kong given that the Notes were issued in Hong Kong.  If and to the extent that the Company has lent the funds raised to any direct or indirect subsidiaries to finance their business and the same have not been repaid, such amounts are assets of the Company and may be recovered by the liquidators upon the winding up of the Company. 

(4)  The winding up of the Company would enable liquidators to take control over the Company and, thereafter, to conduct a proper investigation into the Company’s assets and affairs and where possible, recover assets for the benefit of the creditors as a whole (cf. Re Up Energy Development Group Ltd [2022] 2 HKLRD 993 §§47-48).

(5)  Although the Company was incorporated in the Cayman Islands, there is no suggestion that the Company has maintained any office or carried out any substantive activity in the Cayman Islands.  By contrast, the Company’s shares have since 2019 been listed on HKEx and has a principal place of business in Hong Kong.  There is a reasonable possibility of benefit that the liquidators appointed in Hong Kong will be able to seek recognition and assistance from the Mainland courts under the “Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region” issued in May 2021.   

18.  In his Skeleton, Mr Alex Fan, counsel for the Company, argues that the third core requirement is not met as the Petitioner “is merely acting in the capacity of the Trustee acting on behalf of the holders of the [Notes]”.  The argument only falls to be rejected.  The Petitioner is one of the holders of the Notes.  As the Notes were listed on HKEx, it is reasonable to infer that there are holders who are subject to the in personam jurisdiction of the court. 

19.  As for the Company’s contention that some holders of the Notes oppose the petition[7], it does not constitute a valid ground for the court to adjourn the petition.

20.  The starting point is that a petitioner whose debt is not in dispute is entitled ex debito justitiae to a winding up order against the company.  The burden lies on the company to demonstrate good grounds for the court not to make such an order against it.  As stated in Re Jiayuan International Group Limited [2023] HKCFI 1254, §12(3):

“If the company opposes the petition on the ground that there is a reasonable prospect of being able to restructure and compromise the debts and restore its solvency, it has to demonstrate to the court that a concrete restructuring proposal or a scheme of arrangement has been prepared and put forward to the creditors for their consideration, and such proposal or scheme has the support of the requisite majorities of creditors. It is not enough for the company to point to certain commercial discussions with some creditors or make a general assertion that it has been actively pursuing a restructuring proposal. Nor is it enough for the company to say that it is only seeking a short adjournment of the petition. Unless the company is able to demonstrate that there is some useful purpose in adjourning the petition, there is no proper basis for the court to delay the creditor’s right in seeking an immediate winding up order against the company.”

21.  In the present case, all that the Company said is that some unidentified holders of 49.71% of the Notes are in discussion with the Company regarding a “contemplated restructuring plan”.  The assertion is not supported by any documents.  Even assuming it is true, I do not see how the ongoing discussions can be taken as the holders having expressed their opposition to the petition.

22.  Although the Company produced some letters signed by 5 holders who, it is said, hold 8.63% of the Notes, none of them has filed any notice of intention to appear in and opposes the petition.  More importantly, the letters only referred to discussions with the management team and/or their advisers regarding a “contemplated restructuring plan”.  There was no mention of what the “plan” entailed or when such plan would be made available to the other creditors including the Petitioner.  As the Company has not demonstrated that there is any concrete restructuring plan, let alone one which has the support of the requisite majorities of the creditors, there is no proper basis for the court to delay the Petitioner’s right in seeking an immediate winding up order against the Company.