RE CHINA SINGYES SOLAR TECHNOLOGIES HOLDINGS LTD

HCCW 234/2019

[2019] HKCFI 2559

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 234 OF 2019

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REASONS FOR DECISION

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1.  This is an application by China Singyes Solar Technologies Holdings Limited (the “Company”) for a validation order under section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance,Cap 32 (the “Ordinance”).

2.  The purpose of the validation order sought is to enable the Company to pay its operating expenses and restructuring costs in order to facilitate its on-going debt restructuring exercise.  The proposed restructuring has the support of more than 98% of the relevant creditors.

3.  Prior to the issue of the summons herein, Deutsche Bank AG, Hong Kong Branch (the “Petitioner”), gave its in-principle consent to this application on the condition that the Petitioner be provided with more financial information.

4.  On 12 September 2019, I granted the requested validation order with minor amendments and the provision that the Company has to supply supporting documents, including but not limited to invoices and receipts which evidence payments to be made by the Company and a summary of the relevant scope of work to the Petitioner.  For the avoidance of doubt, the Company is entitled to redact documents which it claims legal professional privilege.  Now I give my reasons.

Background

5.  The Company is incorporated in Bermuda, registered in Hong Kong as a non-Hong Kong company, and listed in Hong Kong.

6.  The Company is a holding company of a number of subsidiaries which operate businesses in Hong Kong, Macao and the Mainland, focusing on the renewable energy business.

7.  On 6 August 2019, the Petitioner presented a winding-up petition against the Company (the “Petition”) on the basis of the Company being indebted to the Petitioner under two term sheets between the Company and the Petitioner in the form of break fees in the sum of approximately US$6.3 million.  The Company disputes the petitioning debt on the basis that the term sheets did not create any legal obligations.

8.  In the meantime, the Company is in the process of restructuring its various onshore and offshore debts.  In summary, the Company’s on-going restructuring efforts involve the following:

(1)  The restructuring of the Company’s offshore debt securities by means of a scheme of arrangement (the “Debt Restructuring”)which at present has the support of more than 98% of the relevant creditors;

(2)  The restructuring of the Company’s onshore and offshore loans; and

(3)  An investor subscribing for about 67% of the Company’s share capital (the “Share Subscription”).

9.  The Share Subscription is conditional on the successful implementation of the Debt Restructuring.  Without the Share Subscription, the Company’s wider restructuring will also collapse which will make all creditors worse off.

10.  I agree that it is essential that the Debt Restructuring process is not disrupted.  Progressing the Debt Restructuring requires payment of the outstanding and expected fees due to advisors and service providers.

11.  However, the Company’s ability to make payments has been hindered by the Petition because upon becoming aware of the Petition, the Company’s banks, in the usual manner, have frozen the Company’s accounts.

12.  Hence, the present application to validate the payment of the Company’s operating expenses and costs relating to the Debt Restructuring.

Legal principles governing the exercise of discretion under section 182

13.  The legal principles relating to the exercise of the Court’s discretion in granting a validation order under section 182 of the Ordinance are well established.  In brief, before the Court grants a validation order, the Court needs to be satisfied that the payments to be sanctioned will be beneficial and advantageous to the company and its creditors.  (See Re Luen Cheong Tai Construction Co Ltd[2004] 1 HKLRD 735 at §6 per A Cheung J (as he then was); China City Construction (International) Co Ltd v Value Partners Hong Kong Ltd [2018] HKCFI 2316 (HCCW 166/2018, unreported, 12 October 2018), per Deputy High Court Judge Le Pichon.)

14.  In Wilson v SMC Properties Ltd[2015] 2 BCLC 173 at §36,Mr Registrar Briggs said:

“(viii) In considering whether a validation order is likely to be beneficial to the creditors of the company, Harman J emphasised in Re Fairway Graphics Ltd [1991] BCLC 468 that the court will have regard to the interests of all of the creditors and not just certain creditors who may be supporting the winding-up petition or be willing to consent to the application under s 127.”

15.  In exercising its discretion under section 182 of the Ordinance, the Court will have to take into account the following considerations:

(1)  The discretion is entirely at large and is not confined to any express statutory requirements.

(2)  The policy which underlies section 182 is the assets of the insolvent company should be distributed pari passu amongst the same class of creditors.

(3)  The policy is not of invariable application. The overriding consideration is what is in the best interests of the creditors. There are cases where it may be beneficial for the company and the unsecured creditors that dispositions made during the closing period should be permitted to be made so that a company can continue the business in its ordinary course.

(4)  In deciding whether to make a validation order in such a scenario, the Court should endeavour to ensure that the interests of the unsecured creditors are not prejudiced.

(5)  Whether it is desirable that the company should be enabled to carry on its business involves a certain degree of speculation. The Court has to carry out a balancing exercise.  It should not, save in special circumstances, validate any transaction or transactions where the result might be that one or more pre-liquidation creditors get paid in full at the expense of other creditors, who will only receive a dividend, unless there are special circumstances making such a course in the best interests of the creditors generally.  A good example might be where good supplied before the presentation of a petition,which are essential for the company to continue its business,have not yet been paid for.  The Court, depending on the facts of the case, might exercise its discretion to validate payments made after a petition was presented.

(6)  In considering whether a validation order is likely to be beneficial to the creditors of the company, the Court will have due regard to the views and interests of all of the creditors and not just certain creditors who may be supporting the winding-up petition or be willing to consent to the validation application.

16.  A recent application of the above legal principle is the case of Bank of India v Bergner (HK) Ltd [2019] HKCFI 1171 (HCCW 45/2019,unreported, 9 April 2019) where Coleman J at §§37 – 38 said:

“37. ... it does seem to me that the company has satisfied the relevant test that the transactions from general trading are likely to be profitable and, therefore, would increase its assets so as to benefit all creditors.

38.  As already noted, it seems that this view is shared by a significant body of the banking creditors, even if not by the petitioner bank itself.  I look not to their wishes, but to what they think is in their interests and it seems to me, and I agree,that general trading is likely to be in the general interests of the creditors as a class.”

Exercise of discretion

17.  Applying the above legal principles to the facts of the present case, I am of the view that a validation order should be granted for the following reasons:

(1)   The majority of the creditors (indeed including the Petitioner)are of the view that the Debt Restructuring should be proceeded with.

(2)   As a matter of fact, the Company’s indebtedness has to be restructured in order to return the Company to its ordinary operations.  A successful restructuring would bring in approximately HK$1.53 billion through the Share Subscription and would therefore benefit the Company’s creditors as a class,including the Petitioner.

(3)   The on-going restructuring of the Company’s indebtedness requires the continuation of the Company’s operations and the assistance of restructuring professionals and other service providers.

(4)   Hence, I am of the view that the payments sought to be validated are beneficial to the Company and its creditors. On the other hand, the absence of a validation order would probably destroy the Company’s hitherto widely-accepted restructuring efforts, to the detriment of all stakeholders. (See Re Reveiler Skin-Pro Ltd HCCW 82/2010, unreported,1 March 2010, at §17 per To J.)

18.  The Company is actively progressing its debt restructuring exercise which has widespread support from its creditors.  The disposition of property and payments sought to be validated are to enable the Company to progress the restructuring to fruition which would be in the interest of the Company’s creditors generally.  Without a validation order, the Company’s restructuring would be put to a halt to the detriment of all of its creditors.

19.  Indeed, Mr Wood who appeared for the Petitioner sensibly did not object the application.  The Petitioner only wanted to have more information of the payments to be validated.

Disposition

20.  For all the reasons stated above, I duly granted an order in terms of the summons dated 5 September 2019 with minor amendments and the provision as set out in paragraph 4 above.

21.  Finally, it remains for me to thank Mr Ho for the Company and Mr Wood for the Petitioner for their help assistance.