RE LEADING HOLDINGS GROUP LTD

HCCW 343/2022

[2023] HKCFI 1770

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 343 OF 2022

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J U D G M E N T

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A. INTRODUCTION

1.  This is the hearing of the Summons issued by the Company (“Summons”) seeking an order to strike out the winding-up petition (“Petition”) presented by the petitioner (“P”) together with the substantive hearing of the Petition.

2.  By the Petition dated 27 September 2022, P asks that the Company be wound up on the ground that it is indebted to P in the sum of US$1.3 million plus interest at the rate of 12% per annum totalling US$1,397,500 (“Debt”), which arises out of the 12% Senior Notes Due 2022 (“Notes”) issued by the Company on 28 June 2021.

3.  According to the Petition:- P is the beneficial/equitable holder/owner of the Notes in the sum of US$1.3 million; the Company acted in breach of the Indenture governing the Notes (“Indenture”) by failing to make payment of the principal sum and interest of the Notes on 22 June 2022; the Company is insolvent as it is unable to pay its debts; and further or alternatively, P is entitled to present the Petition as a contingent and prospective creditor of the Company.

4.  By the Summons dated 19 October 2022, the Company has applied for an order that the Petition be struck out or dismissed for abuse of process as P had no standing to present the Petition. In particular, it is denied that P is a contingent or prospective creditor of the Company.

5.  By an order dated 6 January 2023 made by Peter Ng J, the substantive hearing of the Petition was adjourned for substantive argument to be heard together with the Summons.

6.  The central issue in this hearing therefore hinges on P’s locus to present the Petition against the Company, particularly the question whether P is a contingent or prospective creditor of the Company. In this regard, it is perhaps unfortunate that the Petition contains little particulars of the facts relied upon in support of the contention that P is a contingent and prospective creditor. Instead, these are set out in the legal submissions lodged on behalf of P. This would appear objectionable, and the Court may take the view that it is not open to P to rely on any fact or grounds not fairly stated in the Petition: see Re China Oceanwide Group Limited [2023] HKCFI 455, Linda Chan J, §§20-32. Nevertheless, since the Company has not taken any pleadings point, I proceed to deal with such contention by P. As it transpires, ultimately I do not find favour with P’s contention and in light of such findings, the deficiency in the pleadings in the Petition is thus immaterial, but I fully endorse Linda Chan J’s remark in Re China Oceanwide at §32 that the Court expects practitioners and parties to abide by the principles on pleading the material facts in a petition in future.

B. BACKGROUND

B1. The Company

7.  The Company is a company with limited liability incorporated in Cayman Islands on 15 July 2019 and was registered in Hong Kong on 23 October 2019 under Part 16 of the Companies Ordinance (Cap. 622) as a registered non-Hong Kong company. The registered office of the Company is in Cayman Islands and the principal place of business of the Company is in Hong Kong. The shares of the Company are listed on the Hong Kong Stock Exchange under stock code 6999.

B2. The Notes

8.  On 28 June 2021, the Company issued the Notes. As submitted by Mr Ho on behalf of the Company (which is not seriously disputed by P), the pertinent legal structure and features of the Notes may be summarised as follows:

(1) The Notes were constituted by the Indenture between the Company, The Bank of New York Mellon, London Branch (“BNYM” or “Trustee”), and various guarantors.

(2) The Indenture is governed by New York law. It governs all contractual rights and obligations under the Notes.

(3) The Company, as the Notes issuer, has no direct contractual relationship with the ultimate beneficial investors in the Notes. Instead, the Company’s books show only one registered global note (“Global Note”), and only one registered holder of the Global Note (“Holder”).

(4) The Global Note was executed by the Company and delivered to the Trustee which also served as the common depositary (“Common Depositary”) (Section 2.04(c) and (d) of the Indenture).

(5) The Global Note was registered in the name of the Common Depositary for the accounts of Euroclear and Clearstream (Section 2.04(c) of the Indenture).

(6) The Holder of the Global Note is the Person in whose name the Global Note is registered in the Note register maintained by the Company (Sections 1.01 and 2.04(c) of the Indenture). The Holder is the owner of the Global Note for all purposes (Section 2.05(c) of the Indenture).

(7) On the facts, BNYM is the sole Holder (as well as the Trustee and the Common Depositary) of the Global Note. In contrast, P is neither a party to the Debenture nor the Holder of the Global Note.

(8) Investors (such as P) do not acquire the Global Note. Instead, each investor purchases a portion of the indirect beneficial interest in the Global Note via their intermediaries, such as banks and brokers who have accounts with Euroclear or Clearstream (Section 2.06 of the Indenture). Transfers of beneficial interests in the Global Note may be effected only through a book-entry system maintained by Euroclear and Clearstream (or their respective agents) (Sections 2.05(g) and 2.06 of the Indenture).

9.  Further, the following provisions of the Indenture are of particular relevance (and hence quoted here for ease of reference):

“Section 2.06. Book-entry Provisions for Global Notes.

… So long as the Notes are held in global form, the Common Depositary (or its nominee) will be considered the sole holder of the Global Notes for all purposes under this Indenture and “holders” of book-entry interests will not be considered the owners or “Holders” of Notes for any purpose. As such, participants must rely on the procedures of Euroclear and Clearstream and indirect participants must rely on the procedures of the participants through which they own book-entry interests in order to transfer their interests in the Notes or to exercise any rights of Holders under this Indenture …

Section 6.06. Limitation on Suits.

A Holder of Notes may not institute any proceeding, judicial or otherwise, with respect to this Indenture or the Notes, or for the appointment of a receiver or trustee, or for any other remedy under this Indenture or the Notes, unless:

(a) the Holder has previously given the Trustee written notice of a continuing Event of Default;

(b) the Holders of at least 25% in aggregate principal amount of outstanding Notes make a written request to the Trustee to pursue the remedy;

(c) such Holder or Holders offer the Trustee indemnity and/or security and/or prefunding satisfactory to the Trustee against any costs, liability or expense to be incurred in compliance with such written request;

(d) the Trustee does not comply with the request within (i) 60 days after receipt of the written request pursuant to clause (b) above or (ii) 60 days after the receipt of the offer of indemnity and/or security and/or prefunding satisfactory to it pursuant to clause (c) above, whichever occurs later; and

(e) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes do not give the Trustee a written direction that is inconsistent with the written request.

Section 6.07. Rights of Holders to Receive Payment.

Notwithstanding anything to the contrary, the right of any Holder to receive payment of the principal of, premium, if any, or interest on, such Note, or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, which right shall not be impaired or affected without the consent of the Holder.” [Emphasis added]

10.  Section 2.06 is of fundamental importance because it reflects the common features of the global note structure (which I will explain further below) under which only the holder (and the trustee) of the global note is recognized and can exercise any rights under the global note, whereas “holders” of book-entry interests will not be considered the owners or holders of the global note for any purpose. As such, participants (such as DBS Bank in the present case) must rely on the procedures of Euroclear and Clearstream and indirect participants (such as P in the present case) must rely on the procedures of the participants through which they own book-entry interests in order to transfer their interests in the global note or to exercise any rights of the holder under the same.

11.  Echoing the above, the Indenture also contains provisions in Sections 6.06 and 6.07 which are commonly referred to as the “No Action Clause” and the “Right to Payment Clause” respectively. These provisions reinforce the position that only the holder of the global note (but not “holders” of book-entry interests) may institute any judicial proceedings, subject however to express limitations (although such limitations do not apply to an action to enforce payment). As a result, indirect participants such as P simply do not have any directly enforceable rights against the Company under the terms of the Indenture.

B3. P’s beneficial interest in loan

12.  On its pleaded case, P is the beneficial/equitable holder/owner of the Notes in the sum of US$1.3 Million. In particular, as pleaded by P:

(1) According to a Statement of Account for the Purpose of Liquidation/Bankruptcy Claim dated 17 February 2023 (“Statement of Account”) issued by Euroclear Bank SA/NV (“Euroclear”') to DBS Bank Ltd (“DBS Bank”), it was certified that (a) as of 15 February 2023, DBS Bank had a holding of US$1.3 Million of the Notes in a Euroclear account and (b) such holding is allocated in the books of DBS Bank to P. P therefore avers that its beneficial interest is held through DBS Bank Ltd via Euroclear.

(2) P’s beneficial interest is also evidenced by a securities holding report issued by the DBS Bank, showing that P held and holds US$1.3 Million of the Notes.

(3) The Notes are held by DBS Bank on behalf of P pursuant to the Custody Agreement dated 15 June 2021 between P (as client) and the DBS Bank (as custodian) (“Custody Agreement”). Pursuant to clause 2.3.1 of the Custody Agreement, the custody account is established in the name of P to reflect the fact that securities do not belong to DBS Bank and to segregate the securities from the assets of DBS Bank and from the assets of the other clients of DBS Bank. Accordingly, P’s holding of the Notes is entered in P’s securities account and the Notes held therein do not belong to DBS Bank but to P.

(4) All rights attaching to the Notes, including rights of enforcement, have been transferred to P, albeit held indirectly through DBS Bank and by book-entry. P, being the person to whose account the Notes have been credited, is the beneficial/equitable holder/owner of the Notes.

(5) Under the Indenture, the Company promised to (1) repay the principal sum of the Notes on 27 June 2022 and (2) pay interest on the interest payment dates on 28 December 2021 and 27 June 2022. Yet, no repayment of the principal sum and no payment of interest were made by the Company on 27 June 2022. It is thus P’s case that the Company is unable to pay its debt.

(6) Further or alternatively, P is entitled to present the Petition as a contingent and prospective creditor of the Company.

(7) In the further alternative, P relies on the statutory demand served by P on the Company on 11 August 2022 demanding the Company to pay or secure or compound for the Debt to P’s satisfaction, but the Company has failed or neglected to pay or secure or compound for the Debt or any part thereof despite the lapse of over 3 weeks.

13.  In my view, there should be little dispute on the evidence that P is the indirect owner of sub-interest in US$1.3 Million of the Notes via the DBS Bank and, in turn, Euroclear and ultimately BNYM as the Holder of the Notes. On the other hand, it is also beyond dispute that P cannot directly enforce and sue the Company on the Debt, and hence the statutory demand does not really assist P. Rather, the real issue is whether P, as the indirect owner of such sub-interest, has locus to present the Petition as contingent creditor of the Company.

C. ISSUES AND PARTIES’ POSITION

C1. Key issue

14.  The key issue is whether P has locus to present the Petition against the Company, and in particular: (i) whether P as owner of beneficial interest in the loan in question has standing to present the Petition; and (ii) whether P is a contingent creditor of the Company in that P would have a direct claim against the Company in the event of issuance of definitive notes.

15.  Depending on the Court’s decision on standing, it may be necessary to consider further issues such as whether the Company is insolvent.

C2. Petitioner’s case

16.  P does not dispute that it has no directly enforceable right against the Company under the Indenture of the Note. Nevertheless, P argues that it has standing to present the Petition mainly on two grounds.

17.  First, P contends that, as equitable/beneficial owner of the debt under the Note, P is entitled to present the Petition. P relies on cases on equitable assignees and in particular Harris J’s decision in Re China Cultural City Limited [2020] 4 HKLRD 1 for the proposition that a beneficiary of a trust of a debt is entitled to present a winding-up petition.

18.  Second, P contends that it is a contingent creditor because under certain specified events, P may be entitled to request for the issuance of definitive notes whereupon P could directly enforce its claims against the Company. In this regard, P relies on a number of authorities in the context of schemes of arrangement where the Courts treat the beneficial owners of interests in loans of similar notes as contingent creditors.

C3. Company’s case

19.  The Company contends that P is not a creditor.

20.  First, whilst the Company accepts that an equitable assignee of a debt may petition for winding-up, it contends that the position of a beneficial owner of a trust of debt is different. The Company relies on a number of authorities in support. Further, the Company contends that Re China Cultural should not be followed as Harris J only relied on cases concerning equitable assignees, and it appears that cases on beneficiaries of a trust were not cited to him.

21.  Second, the Company contends that P is not a contingent or prospective creditor. In particular: (a) the Notes have already matured and the Company already owes money to the Holder of the Notes, and therefore any liability could not be said to be contingent or prospective; and (b) the cases relied upon by P are distinguishable as they were decided for the specific purpose and context of schemes of arrangement only. During oral submissions, Mr Ho further argues on behalf of the Company that P could not be a contingent or prospective creditor of the Company because no debtor-creditor relationship exists between them at present, and there is no existing obligation which may give rise to contingent liability. Indeed, this argument has been heavily relied upon by the Grand Court of the Cayman Islands in a decision which was handed down after the hearing.

D. SUPPLEMENTAL SUBMISSIONS

22.  After the hearing, the Company has lodged supplemental submissions on 2 May 2023 (“Company’s Supp Skel”) to bring to the attention of this Court a decision on point handed down by the Grand Court of the Cayman Islands, namely Re Shinsun Holdings (Group) Co., Ltd (21 April 2023). At §3 of the Company’s Supp Skel, the Company seeks this Court’s permission in doing so.

23.  As the Company has not sought leave from the Court before lodging the Company’s Supp Skel, I gave directions on 3 May 2023 for P to lodge supplemental submissions, to deal with the question whether leave should be given for the filing of the Company’s Supp Skel and also to set out substantive response to the same.

24.  On 17 May 2023, P has lodged supplemental submissions. P criticises the Company for failing to seek any prior leave from the Court or consent from P, contrary to the recommended practice in Wong Chun Kit v Cheng Kwong Fat [2020] 2 HKLRD 307, §§38-44. P further submits that no leave should be granted to the Company as Re Shinsun arose in a factual setting which is markedly different from the present case.

25.  Having considered the decision of Re Shinsun, I take the view that it is relevant to the key dispute in the present case, and I therefore grant retrospective leave to the Company to lodge the Company’s Supp Skel. In particular, David Doyle J sitting in the Grant Court of the Cayman Islands has conducted a helpful examination of the authorities on the meaning of contingent and prospective creditors as well as authorities explaining the context of similar global notes, and provided a well-reasoned analysis as to why a holder of an ultimate beneficial interest of such notes (as distinct from the holder of the notes), having no direct contractual relationship with the issuer of the notes, is not a creditor of the issuer (whether contingent or prospective) and hence has no standing to present a winding-up petition. I would have more to say on this in the analysis below.

26.  Nevertheless, I agree with P that, before lodging the Company’s Supp Skel, the Company should, as a matter of courtesy and proper practice, approach P first to see whether P agrees to the lodging of further submissions; and even if there is a consensus between the parties, they should apply for leave from the Court before such further submissions are lodged. For such reason and to mark the Court’s disapproval of the Company’s conduct (but giving credit to the fact that the decision of Re Shinsun is relevant), I order on a nisi basis that the Company do pay 50% of the costs of the supplemental submissions to P, to be taxed if not agreed.

E. APPLICABLE TEST FOR STRIKING OUT ON LOCUS

27.  P submits that, in a striking out application, it is assumed that the particulars and allegations in the petition and the supporting affidavits would be established and the conflicts resolved in favour of the petitioner, and the burden is on the applicant to show that it is plain and obvious that the winding-up petition would fail: Re Harsen (China) Limited [2022] HKCFI 3806, §16.

28.  On the other hand, the Company submits that since the striking out application hinges on P’s locus or standing, the applicable test is whether such standing is bona fide disputed on substantial grounds. By analogy, the Company relies on Re Jackin Total Fulfilment Services Ltd [2008] 3 HKLRD 475, §4 for the proposition that, if an alleged debt is bona fide disputed on substantial grounds by a company, the creditor does not have locus to present a winding-up petition – this should be a fortiori the case where the petitioner’s standing is disputed on substantial grounds.

29.  In my view, it is incumbent on P to demonstrate that it has standing to present the winding-up petition. This is a burden which P has to discharge up to the substantive hearing of the Petition. In Re Guy Kwok-Hung Lam [2022] HKCA 1297, G Lam JA said at §77:

“… although a principal question on a winding-up petition is the solvency of the company since a company may be wound up if it is unable to pay its debts, there is a separate question whether the petitioner is a creditor because “until the creditor is established as a creditor he is not entitled to present the petition and has no locus standi in the Companies Court” ...” [Emphasis added]

30.  Echoing the above, in Tallington Lakes Ltd v Ancasta International Boat Sales Ltd [2012] EWCA Civ 1712; [2014] BCC 327, the English Court of Appeal confirmed (at §§4-5) that the Court would strike out a winding-up petition if there was a bona fide dispute about the petitioner’s standing. One way of demonstrating such bona fide substantial dispute is to show that there is a bona fide substantial dispute about the petition debt. In principle, there is no reason why the same approach should not apply to the present case where there is a direct challenge of the petitioner’s standing as creditor.

31.  In the premises, I do not consider it right to say that the Petition should not be struck out unless it is plain and obvious that P has no locus, because this would be sidestepping the issue of locus which is an essential element of P’s case.

F. OVERVIEW

32.  This Judgment is of considerable length, as this is the first occasion where the Hong Kong Court has to decide the issue of the locus of an investor of a global note to present a winding-up petition as a contingent creditor. In view of the length of the Judgment, I consider it helpful to give an overview of my reasoning.

33.  As mentioned above, the Company’s arguments are that:- (1) beneficiaries of a trust or sub-trust has no standing to sue or petition for winding up; and (2) the debt has matured and hence cannot be contingent.

34.  On the first argument, Mr Ho seeks to draw a distinction between the position of a beneficiary of a trust and that of an equitable assignee of part of the debt. There are well-established authorities that the former cannot sue in general, whereas the latter may sue on the debt, albeit subject to the procedural requirement to join the equitable assignor when suing. More fundamentally, there are authorities that an equitable assignee of a debt may petition for winding-up without joining the equitable assignor, having regard to the nature of winding-up process as a collective remedy. As explained later, such authorities do not apply to the scenario of a beneficiary of a trust.

35.  As to the second argument, as I have pointed out to Mr Ho during the hearing, it does not really assist because (1) it begs the rhetorical question whether, had the debt not matured, P could then be a contingent creditor (hence having locus to petition for winding up) – if so it seems absurd to suggest that somehow because the debt has matured, P is in worse-off position by losing the locus to petition for winding up; and (2) it fails to engage directly with P’s central argument that P can sue the Company contingent on the issuance of definitive notes in P’s favour.

36.  During oral submissions, Mr Ho seeks to overcome the above by saying that there is no existing debtor-creditor relationship between the Company and P, even though he has not developed the argument fully. Subsequently, with the benefit of the Cayman decision in Re Shinsun, Mr Ho has adopted the reasoning there to pursue a more structured argument as to why P does not qualify as a contingent creditor. This is ultimately the analysis which I find favour with, as explained further below.

37.  Significantly, my conclusion is borne out by the context of the global note structure. There are numerous authorities which examine the features of such structure, including in particular that under such structure, only the trustee is entitled to take enforcement action against the issuer of the note, the purpose of the regime was to ensure that the class of bondholders all act through the trustee as the exclusive channel of enforcement, bondholders cannot proceed directly against the issuer unless the trustee fails to take action in accordance with the bond documentation, and should it be otherwise there was potential for multiplicity of actions.

38.  On the other hand, P’s main arguments are that:- (1) beneficiaries of a debt can petition for winding up; and (2) P is a contingent director as it can acquire direct right to sue the Company in the event definitive notes are issued to P. P also relies on cases on schemes of arrangement in support. Further, P argues that New York law (being the governing law of the Indenture) is irrelevant to the question of P’s locus under Hong Kong insolvency law.

39.  Since I accept the Company’s first argument, I also reject P’s first argument as explained further below. In gist, I am of the view that P’s position is different from that of an equitable assignee of debt.

40.  On the other hand, there is some superficial attraction in P’s second argument because (1) on the face of it one can say that P is a person who is owed a liability that will become due in future only on the happening of some future event which may or may not occur, namely the issuance of the definitive notes in P’s favour; and (2) there is some force in Mr Chen’s argument that P’s economic interest would be affected in a winding-up even though P cannot immediately enforce the debt.

41.  Upon closer analysis (as detailed further below), however, I am unable to accept such argument of P.

42.  First of all, there are authorities on the need for an existing obligation to qualify as a contingent creditor. This is the key reasoning in the Cayman decision of Re Shinsun. In the present case, and as a matter of construction of the Notes and the Indenture (whether under Hong Kong law or New York law), P has neither existing contractual relationship with, nor directly enforceable rights against, the Company. This is admitted by P. As such, not until definitive notes are issued, P is not yet a creditor of the Company (whether contingent or otherwise).

43.  Second, this is consistent with the framework of the global note structure which is premised on class action to be pursued by the trustee exclusively. Individual bondholders such as P cannot act on their own. If P cannot sue the Company to enforce the debt, it would appear anomalous if P can sidestep such constraint by petitioning for winding up instead.

44.  Third, should the position be otherwise, it would lead to duplicity of actions, in that both the Trustee/Holder and individual bondholders (such as P) could pursue winding up relief against the Company at the same time. In contrast, under my decision, there is no duplicity in actions. Prior to the issuance of the definitive notes, only the Trustee/Holder can sue and petition for winding up against the Company. Upon the issuance of the definitive notes in place of the global note, individual bondholders would have acquired direct rights to sue and petition for winding up against the Company. This is a seamless regime.

45.  Fourth, the policy objectives of including contingent and prospective creditors in the meaning of a creditor is to enable the Court to take into account a company’s contingent or prospective liabilities in future. Such policy objectives would not be frustrated if P is not recognised as a contingent creditor, because the same amount of debt would have been recognised as liability owed by P to the Holder/Trustee anyway.

46.  Fifth, there could be potential of abuse on P’s case. Applying P’s logic, even before the Notes have matured, every individual bondholder (including P) is already a contingent creditor and can petition for winding up, despite (i) the fact that the debt under the Notes are not yet due and (ii) the lack of directly enforceable rights against the Company. It might lead to floodgates and defeat the purpose of the global note structure.

47.  Sixth, insofar as P says this renders the concept of contingent creditor meaningless, this is not the case. Before maturity of the Notes, the Holder can petition as contingent creditor. After maturity, the Holder can petition as actual creditor or, upon issuance of definitive notes, individual accounts holders can petition as actual creditor.

48.  Seventh, before P acquires directly enforceable rights, its economic interest is taken care of by the Holder, whether as actual creditor (if the debt is due) or contingent creditor (if the Notes have not matured).

49.  Last but not least, cases on schemes of arrangement are different. In any event they concern voting rights on schemes which may affect economic interests, as distinct from locus to present petition which is a more draconian right than a mere voting right for schemes.

50.  Having set out an overview of my reasoning, I would now go into the analysis in more details.

G. ANALYSIS

G1. Context of intermediated, dematerialised securities in the international capital markets

51.  Before addressing the relevant arguments, I consider it helpful to refer to authorities which examine the salient features of intermediated, dematerialised securities in the international capital markets. As elucidated by these authorities (mostly relied upon by the Company), international bond issuances often use the global note structure, coupled with intermediation and dematerialised securities. Under such structure, the investors have only an indirect beneficial interest in the bonds. This provides a crucial context in considering the status of P in the present case.

52.  On behalf of the Company, Mr Ho has cited a number of English authorities to illustrate the features of the global note structure. I would, however, start with some relevant Hong Kong authorities which have considered such features.

53.  In Re Jinro (HK) International Ltd (No 2) [2003] 4 HKC 637, the Court was concerned with a challenge of the locus of the petitioners who claimed to be holder of rights acquired through the Euroclear trading system of a global note called “Guaranteed Floating Rate Notes”. The facts are materially different because in that case, the definitive notes were due to be issued and there were contractual provisions providing that, if the definitive notes were not issued within 45 days as contractually required, the global note will become void such that individual account holders would acquire direct rights. There is little dispute that such individual account holders have standing to petition for winding-up as creditors, and the issue in Re Jinro concerned whether the petitioners were successors and assigns of account holders, or otherwise equitable assignees of the direct rights, such that they have locus to petition for winding-up. Such issue was answered in the affirmative by Kwan J (as she then was). Whilst the issue is not directly relevant to this case, Kwan J (as she then was) has provided a helpful summary of the global note structure at §§31-40:

“The Euroclear system

…

31. The Euroclear system is the world’s largest clearance and settlement system for internationally traded securities. It also provides a custodian service for securities and is an international central securities depositary (ICSD). The majority of participants in the system are banks, brokers, dealers, custodians, and other institutions professionally engaged in managing new issues of securities, market making, trading or holding the wide variety of securities accepted in the system. The participants trade in the system as principals, notwithstanding that they may trade on their own behalf or on behalf of an underlying investor. GSI was, at all relevant times, a participant in Euroclear and had operated three Euroclear securities clearance accounts. GSAF had its own Euroclear securities account since October 1999.

32. Prior to the acceptance of a new issue of securities for trading in the system, various criteria would have to be met. The important ones for present purpose, as set out in the ‘Guide to acceptance of securities in the Euroclear system’ (the User Guide), are as follows.

(1) Immobilization of securities

33. To be accepted for trading in the system, securities must be deposited with one of the Euroclear depositaries and a depositary is appointed by the Euroclear Operations Centre (‘EOC’) for each issue accepted in the system. Securities designed for the ICSD are generally issued in the form of a temporary global note which is subsequently exchanged for a permanent global note. Where securities are represented by a global note, these are lodged with a common depositary authorised by Euroclear. Where securities are represented by definitive notes or other certificates, these are lodged with a specialised depositary, generally located in the country in whose currency the notes or certificates are denominated, or where the issuer is located. In this way, the physical documents which represent the securities traded in the system are ‘immobilized’ in the Euroclear depositary network. The immobilization of securities enables a high volume settlement to take place without the movement of the underlying physical certificates. The settlement of transfers is done electronically, sales and purchases of such securities are recorded by book entries in the accounts of participants who are recognised as accountholders in respect of the securities. Payments due in respect of the securities are made by the issuer via the paying agents to the common depositary and thence into the Euroclear system. There is no registry maintained by or under the control of the issuer which records the legal ownership of the securities.

…

(2) Fungibility

35. For securities to be accepted in the system, it must be possible to hold them on a fungible basis. Amongst other things, this means that all securities of a same issue must be treated as equivalent. It is provided in cl 4(a) of the ‘Terms and conditions governing use of Euroclear’ (the Euroclear Terms) that no accountholder has entitlement to any specific securities but each will be entitled to transfer (by book entry), to deliver or to repossess from Euroclear an amount of securities of any issue equivalent to the amount credited to any securities clearance account in its name. It is further provided in the Euroclear Terms that a security ‘shall be deemed to be held in the Euroclear System’ if it is standing to the credit of a securities clearance account (cl 4(d)(i)(v)) and that a security held in the Euroclear system ‘shall be deemed to be held by the holder of the Securities Clearance Account’ to which it is standing to the credit (cl 4(d)(ii)(v)). Hence, accountholders have a co-ownership right in the notional pool of securities of each category held on their behalf by Euroclear and this intangible right is represented solely by a book-entry record in the securities clearance account of the participant, see ‘Operating procedures of the Euroclear System’ (the Euroclear Operating Procedures) cl 3.2.

(3) Transferability

36. Securities deposited in the system must be freely transferable between participants, without further reference to or communication with the issuer. Transfer restrictions are acceptable only if they require the standard certification procedures described in the User Guide. As a general rule, EOC handles certifications only in relation to the exchange of temporary global securities, the payment of income or redemption proceeds, or the exercise of certain custodian operations. Other restrictions on the transfer of beneficial ownership or registered title can only be enforced outside the Euroclear system and participants are solely responsible for complying with such restrictions. It is also provided in cl 10.3.1(c)(ii) of the Euroclear Operating Procedures that each participant is solely responsible ‘for informing itself of the characteristics of the securities it holds, or it intends to hold, or to be recorded on any Account through the Euroclear System including without limitation ... holding or transfer restrictions ...’.

(4) Disclosure

37. EOC does not accept securities of which the terms and conditions require EOC to disclose information about the participants’ holdings of the issue. EOC is generally prevented, without a participant’s authorization, from disclosing ownership of securities held in the system by applicable law. Moreover, EOC has no knowledge of the beneficial ownership of securities held by participants, which often hold securities of their own clients in the system.

…

(5) Enforcement of holders’ rights

39. Neither EOC nor its depositaries will enforce the terms of securities against an issuer or guarantor on behalf of persons holding such securities through the Euroclear system. The beneficial owners of the securities must be able to enforce their rights under the terms of the securities against the issuer and/or the guarantor and specific arrangements may be necessary to achieve this when the securities are represented by permanent global certificates. If there is no trustee for the issue (who will be responsible for enforcing beneficial owners’ rights against the issuer in the case of default) and the issue is evidenced by a global certificate, there should be a ‘clearly documented procedure’ in place whereby either: * Euroclear participants or the beneficial owners can appoint a trustee; or

* the issuer exchanges the global certificate into individual certificates that can be delivered out of the Euroclear system; or

* if the issuer cannot issue definitive certificates, a Deed of Covenant or similar provision included in the terms and conditions should state that the issuer will recognise statements of account, issued by EOC to participants, as evidence of beneficial ownership.

40. A full description of an event of default should also be included in the terms and conditions of the securities, for example a declaration of default on the request of a beneficial owner to a fiscal agent or other agent, or as to an automatic default. Euroclear requires that in a default situation the issuer must recognise the beneficial owner’s rights in the securities. It is expressly provided in the User Guide at p 27 that ‘securities in default’ can be held in the Euroclear system.”

54.  The above is a helpful summary of the global note structure, although it has not addressed specifically the position of an ultimate account holder (commonly referred to as the “UAH”) where there is a holder/trustee appointed under the note who will be enforcing beneficial owners’ rights on their behalf.

55.  More recently, in Re China Oceanwide, Linda Chan J held that even if the petitioner has book-entry interests in the specified amount of a global note, the petitioner is not a holder of the note and has no direct right against the bond issuer or guarantor (at §§38-42):

“38. The combined effect of Sections 2.04, 2.05 and 2.06 is that:

(1) Only the following persons are Holders of the Notes: (a) Citivic Nominees Limited as nominee of the Common Depositary for Euroclear and Clearstream (Section 2.04(c)); and (b) the Holder whose name and address have been recorded in the Register (Section 2.05(a)); and

(2) Until final acceptance and registration of the transfer by the Registrar in the Register, a transferee of the Note will not become and does not have the rights of a Holder (Section 2.05(c)).

39. There is no evidence whatsoever to show that the Petitioner’s name and address have been recorded in the Register. It follows that the Petitioner is not a Holder of the Notes.

40. No reliance can be placed by the Petitioner on Section 6.06 or Section 6.07 of the Indenture as both sections expressly provide that only a Holder has the right to institute proceedings with respect to the Indenture or the Notes or to bring suit for enforcement of payment …

42. For the above reasons, I hold that the Petitioner is not a Holder of the Notes and, therefore, does not have the right to commence proceedings with respect to the Indenture or the Notes or to bring suit for enforcement of payment under the Notes. The Petition must be dismissed for this reason alone.” [Emphasis added]

56.  Based on the construction of terms of the global note, Linda Chan J concluded that the petitioner in Re China Oceanwide is not a holder of the global note and does not have the right to commence proceedings with respect to the indenture or the notes. It may be noted that the indenture in that case also contains the “No Action Clause” and the “Right to Payment Clause” (also under Sections 6.06 and 6.07), but the Court pointed out that such provisions do not assist the petitioner as they expressly provide that only a holder has the right to institute proceedings with respect to the indenture or the notes or to bring suit for enforcement of payment. Moreover, whilst the petitioner in that case seeks to rely on the “Downstream Purchaser point” in Re Jinro, Linda Chan J explained (among others) at §50(5) that Re Jinro concerned situation where neither Euroclear nor its depositaries will enforce the terms of the securities whereas Re China Oceanwide concerned an indenture with provisions stipulating who have the right to enforce the indenture and the notes and how it should be done. Such analysis should apply equally to the position of P under the Notes and the Indenture (which similarly make provision that only the Holder has the right to enforce the Indenture and the Notes), although Linda Chan J did not go further to consider whether the petitioner may be regarded as a contingent or prospective creditor.

57.  Turning to the English authorities relied on by the Company, I would start with Elektrim SA v Vivendi Holdings 1 Corp [2008] EWCA Civ 1178; [2009] 2 All ER (Comm) 213, where the English Court of Appeal explained in a similar vein that only the holder of a note has the right to take enforcement action against the issuer, with particular reference to the “No Action Clause”, at §§1-3 and 91:

“[1] The principal question on this appeal relates to the construction of a ‘no-action’ clause in a bond issue, whereby only the trustee of the issue is entitled to take enforcement action against the issuer, and bondholders cannot proceed directly against the issuer unless the trustee fails to take action in accordance with the bond documentation. Such clauses have been common in bond issues governed by English law since the nineteenth century, and in bond issues in other common law countries.

[2] The use of a trustee is an effective way of centralising the administration and enforcement of bonds. Bondholders act through the trustee, and share pari passu in the fortunes of the investment, and do not compete with each other. The trustee represents and protects the bondholders, who are treated as forming a class, and who give instructions to the trustee through a specified percentage of bondholders. Such a scheme promotes liquidity. Individual bondholders rely on the trustee as the exclusive channel of enforcement and can be confident that on enforcement principal and interest will be distributed pari passu.

[3] No-action clauses are the subject of many decisions in the United States and Canada. They include the recent decision of the Ontario Court of Appeal in Casurina Ltd Partnership v Rio Algom Ltd (2004) 40 BLR (3d) 112, in which it upheld the lower court’s approval of the approach in the United States (citing Feldbaum v McCrory Corp 1992 Del Ch LEXIS 113) that in consenting to no-action clauses by purchasing bonds, bondholders waive their rights to bring claims that are common to all bondholders, and thus can be prosecuted by the trustee, unless they first comply with the procedures in the instrument constituting the bonds. As I said in Highberry Ltd v Colt Telecom Group plc [2002] EWHC 2503 (Ch) at [12], [2003] 1 BCLC 290 at [12], no-action clauses have even been the subject of discussion in the International Court of Justice (although not the subject of decision) in relation to insolvency proceedings brought directly by bondholders: see Re Barcelona Traction, Light and Power Co Ltd (Belgium v Spain) (second phase) [1970] ICJ Rep 3 at 104–105 per Judge Sir Gerald Fitzmaurice QC.

[91] The purpose of the regime was to ensure that the class of bondholders all acted through the Trustee. That ensured that they all shared equally in the fortunes of the investment and that there was no competition between the bondholders. If an individual bondholder were free to pursue a claim based on a loss caused to the bondholders as a class, then either there was the potential for multiplicity of actions or for duplication of actions brought by the Trustee on the one hand and individual bondholders on the other.” [Emphasis added]

58.  As explained in the above passages, in a typical structure of a global note with a “No Action Clause”, the trustee represents and protects the bondholders, who are treated as forming a class, and the bondholders rely on the trustee as the exclusive channel of enforcement because, in consenting to the “No Action Clause” by purchasing bonds, bondholders waive their rights to bring claims that are common to all bondholders, and thus can be prosecuted by the trustee. The purpose of the regime was to ensure that the class of bondholders all acted through the trustee, such that there was neither competition between the bondholders, nor the potential for multiplicity of actions or for duplication of actions brought by the trustee on the one hand and individual bondholders on the other.

59.  That the bondholders have the right to sue only their own direct intermediaries (but not the issuer) has been confirmed by the English Court of Appeal in Secure Capital SA v Credit Suisse AG [2017] EWCA Civ 1486; [2018] 1 BCLC 325 (at §§9-11, 46-50, 52):

“[9] Typically, as in this case, the securities are represented by a bearer note that is physically held on a permanent basis by a custodian. In this way, the note is said to be ‘immobilised’. It is not the bearer note, but interests in the note, that are traded through the Clearstream system. This is achieved through a descending succession of interests. The custodian holds the note for the Clearstream system. Clearstream maintains accounts for members (banks and others) which hold and deal in interests in securities as account holders. Each account holder’s interests in securities at any time are recorded by Clearstream. The interests are fungible and are traded between account holders through electronic book entries. Account holders may hold interests for themselves as principal or to the order of their customers (account owners).

[10] The system operates on the basis of a ‘no look through’ principle, whereby each party has rights only against their own counterparty. Payments of sums due on the securities are made by the issuer or other payer to Clearstream which then makes payment to the account holders in respect of their recorded interests. The account holders pass on the appropriate sums to their account owners.

[11] Typically, as in the present case, account holders will become entitled to a direct interest in notes only if there has been default in the payment of principal due on the notes or if Clearstream were closed permanently or for a continuous period of 14 days.

[46] The rights of parties to sue Credit Suisse on the contract constituted by the Notes and the relevant documents are clearly set out in those documents.

[47] The only party entitled to sue is the holder of the Notes represented by the PGS, ie BNYM, unless one of a limited number of specified events has occurred. The obligations of Credit Suisse are owed to the bearer for the time being of the PGS. The Programme Memorandum provides that the holder would ‘be deemed to be and may be treated as its absolute owner for all purposes’ (my emphasis). The persons shown in the records of Clearstream (ie the account holders, not account owners) must look solely to Clearstream ‘for his share of each payment made by the Bank and in relation to all other rights arising under the Global Securities’ (my emphasis). This is, as Secure Capital accepts, the ‘no look through’ provision which is fundamental to the workings of the settlement systems in interests in immobilised securities. Secure Capital’s submission that it is limited in its effect to payment obligations is incompatible with the emphasised words. This provision is concerned with the rights of an account holder, which in the present case was RBSL. It would be eccentric to suggest that account holders, who may hold interests on their own account, must look only to Clearstream or other settlement system but account owners, who are even more removed from the underlying Notes, are not so constrained.

[48] The general position, that only the holder of the Notes enjoys enforceable rights against Credit Suisse, is further made clear by the provisions that, in limited circumstances, enable parties to proceed directly against Credit Suisse.

[49] If principal in respect of any Notes was not paid when due, the PGS could be exchanged for definitive securities which could then be distributed among those with interests in the Notes, creating a direct relationship with Credit Suisse and enabling the holders to sue Credit Suisse directly.

[50] Additionally, cl 2.1 of the Deed of Covenant provided that, on the giving of notice in the event of default in the payment of principal, each account holder with interests in the Notes would ‘acquire against the Bank all rights (“Direct Rights”) that it would have had if, immediately before each such Acquisition Time, it had been the holder of the Original Securities’. This is expressed to include ‘without limitation’ the right to receive all payments due at any time on the Notes. The effect is again to create rights in favour of account holders (but not account owners) that are directly enforceable against Credit Suisse. This latter point is made expressly clear by cl 4.2 of the Deed which provides that each relevant account holder ‘is entitled to receive payment of the amount due in respect of each of its Entries and of all other sums referable to its Direct Rights to the exclusion of any other person’.

[52] The overall effect of these express provisions is clear. The only party with a right to sue Credit Suisse is BNYM as holder of the Notes, unless there is default in the payment of principal on the Notes, in which event account holders may acquire directly enforceable rights against Credit Suisse.” [Emphasis added]

60.  The above makes it clear that, before an account holder becomes entitled to a direct interest in the notes, the only party with a right to sue the issuer is the holder of the notes. The system operates on the basis of a ‘no look through’ principle, whereby each party has rights only against their own counterparty. As such, account holders must look solely to Clearstream or Euroclear (as the case may be) for their share of each payment and in relation to all other rights arising under the global note.

61.  Against such backdrop, investors with “book-entry interests” have often been said to be holding the notes indirectly, or that they have only “sub-interests” in the notes. For instance, in Deutsche Trustee Company Ltd v Bangkok Land (Cayman Islands) Ltd [2019] EWHC 657 (Comm), Knowles J explained that the investors of such bond issuance have only “sub-interests” in the bonds (at §§8, 22, 44):

“8. The Bonds were issued in global form. Tradeable interests in the Bonds are held by underlying investors (‘Persons with Sub-Interests’) through holders of accounts at clearing systems (‘Accountholders’). A global certificate (the ‘Global Certificate’) is registered in the name of The Bank of New York Depositary (Nominees) Limited (‘BNY Nominees’), as a nominee for a common depositary for the clearing systems ...

22. The Court finds as follows:

(1) The Bonds were issued in global form with the Global Certificate ... The Bonds are held in the name of BNY Nominees, as a nominee for a common depositary for the Clearing Systems.

(2) The Bonds were listed on the London Stock Exchange and were traded through the Clearing Systems, which provide electronic book entry trading systems for interests in securities and act as clearing houses for trades in those interests.

(3) The Clearing Systems maintain accounts for Accountholders, who hold interests in securities such as the Bonds on behalf of themselves or Persons with Sub-Interests ...

44. The Trustee argues, in the Court’s view correctly, that Persons with Sub-Interests have been trading not in the Bonds but in interests in the Bonds, which are held through Accountholders and the Clearing Systems …” [Emphasis added]

62.  In Winterbrook Global Opportunities Fund v NB Finance Ltd [2019] EWHC 737 (Ch), Marcus Smith J explained that the claimant, being an investor of such bond issuance, had only an indirect beneficial interest in the bonds (at §8):

“8. The Claimant … is the beneficial owner of some of the Notes. As is common in note issues such as these, the Notes were issued in global note form, and held by a common depositary on behalf of the relevant clearing systems, Euroclear and Clearstream. Under this structure, the securities are issued in global form and held by the depositary for the clearing system. Investors hold their interests through accounts at the clearing systems or indirectly through custodians who have accounts at the clearing systems. [The Claimant] holds its Notes indirectly.” [Emphasis added]

63.  In Madison Pacific Trust Ltd v Shakoor Capital Ltd [2020] EWHC 610 (Ch), Zacaroli J explained that the underlying investors of such bond issuance are only beneficiaries under sub-trusts (at §§14-17):

“14. In relation to the 2010 Notes only one Note has been issued, a permanent global note which is deposited with a common depositary who holds it on behalf of Euroclear and Clearstream (the ‘Clearing Systems’). The Clearing Systems facilitate trading in the Notes by crediting interests in the global note to account holders, or ‘participants’ in the Clearing Systems.

15. The participants hold such interests on behalf of persons in the market who wish to acquire beneficial interests in the global note, the ultimate account holders (‘UAHs’). The UAHs may hold their interest directly with a participant in the Clearing System or through one or more intermediaries. All dealings in interests in the notes take place by way of book entries, in the books either of the Clearing Systems, the participants or intermediaries.

16. As a matter of English law, there is a chain of contractual and proprietary relationships between the Issuer and each UAH, as follows (see, for example, Gullifer and Payne, Corporate Finance Law (2nd ed) at 389-390). The common depositary has contractual rights (set out in the global note, which incorporates the terms of the Trust Deed). The Clearing System has contractual rights against the common depositary; the participants have contractual rights against the Clearing Systems; and where there are no further intermediaries the UAH has contractual rights against the participant. If there are further intermediaries between the participant and the UAH, then each intermediary has contractual rights against the entity next above it (i.e. closer to the Issuer) in the chain.

17. In addition, the contractual rights of each entity against the entity next above it in the chain are typically held on trust for the entity next below it in the chain. For example, a participant’s contractual rights against the Clearing System are held by it for the benefit of the intermediary next below it in the chain. The common depositary’s contractual rights under the global note against the Issuer are thus held via a trust and series of sub-trusts for each UAH.” [Emphasis added]

64.  In Galapagos Bidco SARL v Kebekus [2021] EWHC 68 (Ch), Zacaroli J explained that under the global note structure the underlying investors have only indirect beneficial interests in the note (at §§68-70):

“68. … the [high-yield notes (‘HYN’)] were held in global form, so that the only Holder was the Common Depository. Beneficial interests in the HYN were held through a series of sub-participations: the Holder held its interest for the benefit of the clearing systems, who held for the benefit of account holders, who in turn held for the benefit of the ultimate beneficial holders, either directly or through one or more intermediaries ... Under English law, this is analysed as a series of sub-trusts ...

69. The HYN Trustee is appointed under the Indenture as trustee for the benefit of the Holders of the HYN ...

70. Since ... the only direct beneficiary of the trust constituted by the Indenture was the Common Depository (as the only ‘Holder’ of HYN ...), all those who held beneficial interests in the HYN were indirect beneficiaries as a result of the sub-participation arrangement described above.” [Emphasis added]

65.  In the premises, I accept Mr Ho’s submissions that, whilst the global note structure and intermediation increase liquidity and make investing and trading simpler for investors, they do not confer any direct right on them to sue the bond issuer for payment. I further accept that the enforcement mechanism under a global note is designed to achieve the collectivity of proceedings, so that bondholders as a class would all act through the trustee as the exclusive channel of enforcement. It seems plain to me that, having regard to the purpose and context of a global note (as reflected in the terms of the Notes and the Indenture set out in Section B2 above), it would be anomalous and contrary to commercial common sense to suggest that, whilst an ultimate account holder cannot exercise any direct rights under the Notes against the Company, such ultimate account holder can somehow petition for winding-up and thereby bypass the limitations otherwise imposed under the design of the global note structure.

G2. Beneficial owner of a debt

66.  The first argument relied upon by Mr Chen on behalf of P is that, as a beneficial owner of part of the underlying debt of the Note, P has standing to petition for winding up of the Company.

67.  On behalf of the Company, Mr Ho contends that a bond investor such as P who is a mere trust beneficiary, qua beneficiary alone, has no standing to present a winding-up petition against the bond issuer. I agree.

68.  Mr Ho has cited a few authorities in support.

69.  In Re Uruguay Central and Hygueritas Railway Co of Monte Video (1879) 11 ChD 372, Jessel MR held at pp. 380-383 as follows:

“There can be no question that upon that deed the holders of the bonds are not creditors: they are merely cestuis que trust of a charge, having a right, no doubt, to put their trustees in motion to compel payment under the covenant, but not having any independent right to sue the company either at law or in equity.

… it was not intended to be a bond enforceable by any one for his own benefit; because, if one of the bondholders could sue, he could only get judgment on behalf of all. They are pari passu bonds. Of course, it never could have been meant that one should be able to get judgment for himself. Even in cases where it has been held that debts are created by these instruments, one bondholder cannot, by getting a judgment, get paid in priority to the other bondholders.

… When you look at the provisions of the deed, the mode of payment is, for the company to pay to the trustees who are to pay to the bearers of the coupons. So that it is not a covenant to pay to the bearers direct, but to pay through the trustees under the provisions of the deed. Now, I cannot imagine that this document can give either the bearer of the coupons as regards interest, or the bearer of the bond as regards principal, an immediate right of action for money lent or for money due. It is not the meaning of the transaction. The whole transaction means this, that both the share and the bond are issued as a mode of securing to the person advancing the money for making the line certain benefits, and he takes the benefits as they are given to him. That does not appear to me, as I said before, to create any direct debt from the company. In fact it is hardly possible it can be so, because the company is liable to pay the trustees under the deed, and they cannot be sued twice over. Are they to have two actions brought, one by the trustees, and the other by the holder of the coupon; and are they to be liable to every person who cuts a coupon off a bond to an action, simply because he is the holder of a coupon? It does not appear to me that was the intention of the parties, which, after all, is the governing rule in deciding questions of equitable debt, to create a debt for which the holder of the coupon could sue directly. I think, therefore, that the holder of the coupon, who claims now for interest unpaid, is not a creditor either at law or in equity

within the meaning of the Companies Acts.” [Emphasis added]

70.  Significantly, the bond structure in Re Uruguay resembled that of a global note in international capital markets practice, under which a bondholder typically could not sue the issuer of the bond directly and can only act through the trustee. In finding that a bondholder is not a creditor either at law or in equity, Jessel MR noted that bondholders do not have any independent right to sue the issuer, the bondholder cannot get a judgment in priority to other bondholders, and there should not be duplicity of actions by the trustee and bondholders. Such considerations resonate with the design of the global note structure examined above. The lack of a direct debt owed by the issuer to the bondholder is thus critical.

71.  In this regard, Mr Chen for P seeks to rely on Harris J’s decision in Re China Cultural which I will address below. Mr Chen also argues that Re Uruguay was decided at a time when English law did not confer any standing on a contingent creditor to petition for winding-up. Nevertheless, this is beside the point because, for the purpose of P’s first argument, the focus is whether a beneficial owner of a debt under a trust (or sub-trust) has standing to present a winding-up petition as creditor. In any case, the reasoning of Re Uruguay would militate against P’s second argument on contingent creditor because it emphasizes the need for a direct debt (or direct debtor-creditor relationship) in order to qualify as a creditor. This is logically speaking a prior question to be decided before moving on to consider, if there is indeed a direct debt and hence the status of creditor is established, whether the debt is (i) immediately payable (i.e. actual liability), (ii) payable in future upon certain event (i.e. contingent liability), or (iii) definitely payable at certain time in future (i.e. prospective liability). As I will explain later, such approach is amply supported by authorities. For present purposes, it suffices to say that Re Uruguay is an authority in support of the proposition that a trust beneficiary is not a creditor and does not have standing to petition for winding-up.

72.  In Re Dunderland Iron Ore Co Ltd [1909] 1 Ch 446, a conclusion similar to Re Uruguay was reached by Swinfen Eady J at pp. 452-453 as follows:

“In these circumstances are the petitioners, the debenture stockholders, creditors? There is no covenant by the company with them. The covenant in the trust deed is between the company and the trustees. There is no covenant in the stock certificate, and there is no statement therein beyond a copy of the conditions contained in schedule 1 of the trust deed. In my opinion the true legal position is that the debenture stockholders, although cestuis que trust, are not creditors of the company. They have not any direct contract with the company. The contract is between the company and the trustees, and in these circumstances I am of opinion that the petitioners are not creditors entitled to present a winding-up petition. It is not a case in which there is any negotiable security or any coupons issued. The petitioners are merely the registered holders of debenture stock, and the only covenant to pay the principal and interest to the stockholders is a covenant made between the company and the trustees.

On that state of facts, the stockholders as such are not creditors of the company. The fact that there is a covenant between the company and the trustees that the company will pay the principal and interest to the stockholders does not entitle them to sue the company as direct creditors and does not make them creditors entitled to present a winding-up petition ... I therefore determine that the petitioners are not in respect of their holdings of stock creditors of the company.” [Emphasis added]

73.  The emphasis of the Court is, again, on the lack of any direct contract or covenant between the debenture holder and the company, as a result of which the debenture holder is not entitled to (i) sue the company as direct creditor and (ii) present a winding-up petition as creditor.

74.  More recently, in Roberts v Gill & Co [2010] UKSC 22; [2011] 1 AC 240, Lord Collins held at §§62-68 as follows:

“62 Consequently it has been the consistent practice … for almost 300 years that, where a beneficiary brings an action in his own name to recover trust property, the trustees should be joined as defendants. … The purpose of joinder has been said to ensure that they are bound by any judgment and to avoid the risk of multiplicity of actions: Lewin on Trusts, 18^th ed (2008), para 43-05. But joinder also has a substantive basis, since the beneficiary has no personal right to sue, and is suing on behalf of the estate, or more accurately, the trustee.

63 The conclusion that in a beneficiary’s derivative action the trustee must be a party is not undermined by those cases in which it has been held, or assumed, that an action by an equitable assignee of property (such as a debt, or intellectual property) can proceed, or is properly constituted, without the joinder of the assignor at the outset of proceedings.

64 The starting point is that if an equitable assignee sues a third party, the assignor must be joined as a defendant …

65 But it is not an invariable rule …

67 In more modern times it has been held that, although the practice was to join the assignor, the requirement is a procedural one, the absence of which can be cured. The assignor must be joined before a final judgment can be obtained by the assignee, but the action is validly constituted without joinder, so that if the assignee sues without joining the assignor, the action is in time for the purposes of limitation: …

68 What distinguishes these cases from the present one is that in the case of an equitable assignment the assignee is the true owner and the assignor is a bare trustee. I agree with Lord Walker of Gestingthorpe JSC that there is no real analogy between an equitable assignee and a beneficiary interested in an unadministered estate.” [Emphasis added]

75.  The general position, therefore, is that the beneficiary of a trust property has no personal right to sue. This is echoed by cases like Re Canberra Babington Pty Ltd [2021] NSWSC 552, where Emmett AJA stated at §27 that, “Save in special or exceptional circumstances, a beneficiary under a trust has no cause of action against a third party in relation to injury to trust property”; and McEneaney v Stevens [2017] EWHC 993 (Ch), where Deputy Judge Edward Murray held at §17 that “The general rule is that since trustees administer the trust fund as principals and not as agent for the beneficiaries, the trustees are normally the proper claimants in proceedings against third parties in actions based on breach of contract or tort and other causes of action arising in the course of administration of the trust”. Of course, these cases are to be distinguished from cases where the bond documentation expressly confers a direct right of enforcement on the trust beneficiaries, such that the beneficiaries would have standing to present a winding-up petition: see e.g. Re Olathe Silver Mining Co (1884) 27 ChD 278, per Pearson J at p.283.

76.  Significantly, as noted in Roberts v Gill & Co, the position of a beneficiary of a trust property is different from that of an equitable assignee of property. As explained by Emmett AJA, an equitable assignee is the true owner of the property and the assignor is a bare trustee, and hence the practice or requirement to join the assignor is a procedural one. Indeed, it is well-established that, unlike the position of a trust beneficiary, an equitable assignee of a debt is a creditor and has standing to present a winding-up petition: see e.g. Re Steel Wing Co Ltd [1921] 1 Ch 349, per P O Lawrence J at p. 357; Re Mitchell McFarlane & Partners Ltd [2002] EWHC 3203 (Ch), per N Strauss QC at §10; Kapoor v National Westminster Bank [2011] EWCA Civ 1083; [2012] 1 All ER 1201, per Etherton LJ at § 30. Such distinction is pertinent when it comes to the analysis of Re China Cultural.

77.  As mentioned above, Mr Chen relies heavily on Re China Cultural because, on the facts of that case, the petitioner’s interests in the debt arose by way of both equitable assignment and a declaration of trust: see the third issue set out at §8 of the decision (referring to both equitable assignment and a declaration of trust), and also §20 of the decision where Harris J said the issue is whether it is necessary for a beneficiary under a trust to join the trustee as a party to a petition to wind up a company (without differentiating between the position of a trust beneficiary and an equitable assignee). With due respect, it would appear that Harris J has conflated the position of a beneficiary of trust with an equitable assignee of debt, probably because his attention was not drawn to authorities on the position of a trust beneficiary. Instead, Harris J relied on authorities on equitable assignment of debts such as Re Steel Wing to arrive at his conclusion at §§24-28.

78.  Specifically, in §§25-26 of Re China Cultural, Harris J relied on the reasoning in Re Steel Wing and the Privy Council’s decision approving the same in Parmalat Capital Finance Ltd v Food Holding Ltd [2008] BCC 371, [2009] 1 BCLC 274, §§6-8. In gist, as held by those decisions, an assignee of part of a debt is required to join all parties interested in the debt in an action to recover the part assigned to him because the Court cannot adjudicate completely and finally without having such persons before it; but this does not apply to a winding-up petition which only puts into effect a process of collective execution for the benefit of all creditors and in the course of that process, the rights of creditors may have to be determined but such determination is not necessary at the stage of making winding-up order, and thus an equitable assignor (or assignee) has a sufficient interest to present a winding-up petition without joining the other. In my view, such reasoning does not apply equally to a trust beneficiary because (i) whilst a trust beneficiary cannot petition for winding-up, a trustee (who can represent all beneficiaries) can petition for winding-up alone, and (ii) unlike the case of equitable assignee, the joinder of the trustee is a substantive as opposed to mere procedural requirement.

79.  Therefore, I do not accept Mr Chen’s argument that one could rely on Re China Cultural and thereby ignore well-established authorities that, unlike an equitable assignee, a trust beneficiary is not entitled to present a winding-up petition. It follows that I reject P’s first argument.

G3. “Contingent” and “prospective” creditor

G3.1 Introduction

80.  On behalf of P, Mr Chen argues in the alternative that P is a contingent or prospective creditor of the Company under section 179(1) of the Ordinance. In short, Mr Chen argues that, since P may be entitled to request for issuance of definitive notes in certain specified circumstances whereupon P can directly enforce its rights against the Company, P is a contingent creditor as the Company’s liability is contingent on the event of the issuance of definitive notes.

81.  In response, Mr Ho on behalf of the Company initially argues that because the Notes have already matured and the underlying debt is already due, the same debt cannot at the same time be owing and contingent. During oral submissions and in the Company’s Supp Skel in reliance of the Cayman decision of Re Shinsun, Mr Ho’s further argument is that, since there is no existing obligation or debtor-creditor relationship between P and the Company, P does not qualify as a contingent creditor.

82.  As mentioned above, Mr Ho’s initial argument on contingent debt does not address the point because (1) it begs the rhetorical question whether, had the debt not matured (and hence could at best be contingent), P could then be a contingent creditor (hence having locus to petition for winding up) – if so it seems absurd to suggest that somehow because the debt has matured, P is in worse-off position; and (2) it fails to engage directly with the argument of P that it can sue the Company contingent on the event of issuance of definitive notes in its favour. Moreover, it may be conceptually open to P to argue that the debt is not contingent for the Holder but it may still be contingent for P who has no immediate right to payment. Hence, one still has to go back to the question whether the event of issuance of definitive notes renders P a contingent creditor. That said, Mr Ho’s initial argument does highlight a problem of P’s case, namely that there will be more than 1 creditor of the same debt which results in duplicity and is one of the reasons relied on by the Cayman Court in rejecting the petitioner’s argument (see Re Shinsun at §155).

G3.2 Meaning of “contingent creditor” and “prospective creditor”

83.  Before dealing with the parties’ arguments, I accept Mr Ho’s submissions that, as section 179(1) of the Ordinance is derived from English insolvency legislation, the meaning of “contingent creditor” and “prospective creditor” in equivalent English legislation is also pertinent.

84.  In Mr Ho’s written submissions, he has included a helpful Appendix which traces the evolution of English insolvency legislation concerning “contingent creditor” and “prospective creditor”. For present purposes, I do not think it is necessary to go into such evolution in details, although it would be illuminating to highlight some key developments and relevant case law.

85.  The winding-up regime under the Companies Act 1862 did not have the concept of “contingent creditor” and “prospective creditor”.

86.  In 1870, the winding-up regime in respect of insurance companies introduced the concept of “contingent creditor” and “prospective creditor”. Section 21 of the Life Assurance Companies Act 1870 provided as follows:

“The Court may order the winding up of any company, in accordance with The Companies Act, 1862, on the application of one or more policy holders or shareholders, upon its being proved to the satisfaction of the Court that the company is insolvent, and in determining whether or not the company is insolvent the Court shall take into account its contingent or prospective liability under policies and annuity and other existing contracts; but the Court shall not give a hearing to the petition until security for costs for such amount as the judge shall think reasonable shall be given, and until a prima facie case shall also be established to the satisfaction of the judge ...” [Emphasis added]

87.  It is noteworthy that at this stage, the English legislation only made an extension to cover contingent or prospective liability under policies and annuity and other existing contracts with insurance companies, and there should be no question that there was existing contract or legal relationship between the policy holders and the insurance companies. As can be seen, this in fact tallies with the meaning of contingent creditor under English case law which requires an “existing obligation”.

88.  In 1907, the 1870 winding-up regime in respect of insurance companies was extended to all companies. As provided in Section 28 of the Companies Act 1907:

“In determining whether a company is unable to pay its debts within the meaning of section eighty of the Companies Act, 1862, the court shall take into account the contingent and prospective liabilities of the company, and any contingent or prospective creditor shall be a creditor entitled to present a petition for winding up the company under section eighty-two of that Act:

Provided that the court shall not give a hearing to a petition for winding up the company by such a creditor, until such security for costs has been given as, the court thinks reasonable, and until a prima facie case for winding up has been established to the satisfaction of the court.” [Emphasis added]

89.  As submitted by Mr Ho, the rationale for extending the regime for insurance companies to all companies and thus allowing contingent and prospective creditors to petition for a winding-up is explained in the Report of the Company Law Amendment Committee (1906) (Cd 3052) at §43:-

“Greater facilities are also wanted, we think, for winding up insolvent companies at the instance of creditors whose debts are not immediately payable. As things stand, a creditor must, in order to obtain a winding-up order, be in a position to prove that there is a debt presently payable to him from the company. If his debt is due on a current bill, bond or debenture, the time for the payment of which has not yet arrived, he has no remedy by a winding-up petition, and this although the company may be notoriously insolvent. In the meanwhile the company may be disposing of its assets to his prejudice or contracting new liabilities, and when at last his debt matures and he obtains a winding-up order, he may find that the interim transactions, having been completed three months before the winding-up, cannot be impeached. In the case of life assurance companies the Life Assurance Companies Act, 1870, enables the Court to order a winding-up on the application of any one or more policy holders, upon giving proof to the satisfaction of the Court that the company is insolvent; and, in determining whether or not the company is insolvent the Court is to take into account the company’s contingent or prospective liability under policies and annuity and other existing contracts. We think that the principle of this section should be extended to the case of other companies, and that a creditor, whose debt is not yet payable, should be at liberty to present a petition for winding-up, and the Court be empowered to make an order, where insolvency is proved, taking into account the debts due and to become due ... These amendments if adopted would, we think; make it possible to put an end by winding-up proceedings to many objectionable companies.” [Emphasis added]

90.  The mischief sought to be redressed by the legislative amendment is the potential lacuna and abuse whereby a company may be able to dispose of its assets or contract new liabilities even though the company is plainly insolvent upon taking into account not only its current but also contingent or prospective liabilities, and on such basis a contingent or prospective creditor should be afforded standing to present a winding-up petition to protect such creditor’s interests. This is particularly the case where, without such standing, no person would be in a position to present a winding-up petition on account of such contingent or prospective liability.

91.  Pausing here, whilst there is some superficial attraction in Mr Chen’s argument that the economic interests of ultimate account holders of the Notes (such as P) would be affected in a winding-up and hence they should similarly be afforded standing to present winding-up petition, their position is in fact different. It must be borne in mind that the purpose of the regime of the global note structure is to ensure that the class of bondholders would all act through the trustee as an exclusive channel. Therefore, it does not accord with such design to allow individual bondholders to be at liberty to petition for winding-up when it is accepted that they could not bring any action to directly enforce their debt. More importantly, the position of such bondholders is already safeguarded under the global note structure. Indeed, even in the event where the Notes have not yet matured, their position would be safeguarded by the holder/trustee who may present a winding up petition (whether as actual or contingent creditor) on their behalf. Thus it does not follow from the rationale of the aforesaid Report that bondholders such as P must be afforded standing to present a winding-up petition.

92.  After 1907, there were further amendments to the English insolvency legislation in 1908, 1929, 1948, 1985 and 1986, but the position on contingent and prospective creditors has remained more or less the same for all practical purposes.

93.  Insofar as the position in Hong Kong is concerned, the Ordinance was enacted in 1933 and modelled on the Companies Act 1929. Specifically, section 179 of the Ordinance is taken from section 170 of the Companies Act 1929. It is common ground that the English and Hong Kong statutes do not provide a definition of “contingent creditor” and “prospective creditors”. It is therefore necessary to consider English and Hong Kong case law as to the meaning of the same.

94.  In Re William Hockley Ltd [1962] 1 WLR 555, Pennycuick J held at p. 558 as follows:

“Section 224 (1) of the Act of 1948, provides, that a winding-up petition may be presented either by the company or by any creditor, including any contingent or prospective creditor or contributory. The list of persons who may present a petition appears to be exhaustive ... Indeed, it is difficult to imagine circumstances in which a stranger to the company could have any locus standi to present a petition in any capacity other than that of a creditor, nor does Mr. Bickford Smith suggest the contrary. His contention is that on February 7, 1962, the petitioning creditor was a contingent creditor of the company.

The expression ‘contingent creditor’ is not defined in the Companies Act, but must, I think, denote a person towards whom under an existing obligation, the company may or will become subject to a present liability upon the happening of some future event or at some future date. … It is necessary, therefore, to consider the nature of the petitioning creditor’s rights as they stood at February 7, 1962 [i.e. the date on which the petitioner presented the petition]” [Emphasis added]

95.  What is important is that, under such formulation, a contingent creditor denotes a person towards whom under an existing obligation, the company may become subject to a present liability upon the happening of some future event. Such formulation requires an existing obligation, even though the liability to pay may only be triggered upon the happening of some future event.

96.  In Stonegate Securities Ltd v Gregory [1980] Ch 576, Buckley LJ held at p. 579 as follows:

“In that context [of section 224(1) of the Companies Act 1948] ... the expression ‘contingent creditor’ means a creditor in respect of a debt which will only become due in an event which may or may not occur; and a ‘prospective creditor’ is a creditor in respect of a debt which will certainly become due in the future, either on some date which has been already determined or on some date determinable by reference to future events.”

97.  Therefore, the key difference between a contingent creditor and a prospective creditor is that the debt of the former will only become due in an event which may or may not occur, whereas the debt of the latter will certainly become due in future. It is true though that Buckley LJ did not focus on the need for an existing obligation, although arguably this may be implied as he was considering a debt owed by the company (presumably under existing obligation) which has not yet become due.

98.  Turning to the authorities in Hong Kong, in Re Universal Dockyard Ltd [2004] 1 HKLRD 935, Kwan J (as she then was) held at §25 that:

“… As for a contingent claim, a “contingent creditor” in s.124(1) of the Insolvency Act 1986 (equivalent to s.179(1) of Cap.32 and provides that a contingent or prospective creditor may petition to wind up a company) has been held to denote “a person towards whom, under an existing obligation, the company may or will become subject to a present liability on the happening of some future event or at some future date” (Re Williams Hockley Ltd [1962] 1 WLR 555 at p.558). So the expression of a contingent claim is of equally wide import.”

99.  It is significant that Kwan J (as she then was) adopted the formulation of Pennycuick J in Re Williams Hockley which requires an existing obligation in order for a person to qualify as a contingent creditor (even though she regarded the expression as being of wide import).

100.  In Re Jackin Total Fulfilment Services Ltd [2008] 3 HKLRD 475, DHCJ Harris SC (as he then was) held at §22 as follows:

“It is clear that a person to whom a company has a liability to pay a debt contingent on the occurrence of a future event has locus to issue a winding-up petition: section 179(1). This is because although he is not entitled to immediate payment he will still be affected if the company is insolvent. He cannot, however, serve a statutory demand. …”

101.  The formulation in Re Jackin Total is wider, as it is not predicated upon an existing obligation, and on the face of it P’s argument can fit into such formulation. Further, Mr Chen also emphasises that although P is not entitled to immediate payment, P will still be affected if the Company is insolvent. Whilst there is attraction in such argument, it appears to me that the matter ultimately turns on whether, as a matter of law, P does qualify as a contingent creditor. In this regard, it would appear that in Re Jackin Total, the point concerning the need for an existing obligation was not argued and, on the facts, there was plainly an existing contractual relationship and obligation between JSM and the company question, even though the precise amount which will be payable would only be known upon the event of completion of taxation.

102.  Based on the relevant authorities including in particular Re Williams Hockley and Re Universal Dockyard, I am of the view that, on balance, there has to be an existing legal relationship or obligation between a person and a company before such person may qualify as a creditor of the company. In the case where a liability may become due in future under such existing relationship or obligation, then the person would be a contingent creditor of the company. Under such formulation, P would not qualify as a contingent creditor because there is, at present, no existing contractual relationship and obligation as between P and the Company.

G3.3 Cayman decision of Re Shinsun

103.  My analysis is borne out by the recent Cayman decision of Re Shinsun. In that case, issues as to standing and authority have arisen, and the petitioner says that it is a contingent creditor with standing and is otherwise authorised to proceed with winding-up (at §2). David Doyle J, sitting in the Grand Court of the Cayman Islands, found against the petitioner on both issues (at §3). The position of the petitioner is analogous to P, in that the petitioner (i) was not a party to the indenture, (ii) was not the holder of the note, and (iii) was an indirect investor through the Hong Kong Monetary Authority as a participant with Euroclear (at §4). The indenture in that case also contains various provisions similar to those of the Indenture here (at §5).

104.  Although the facts in that case are different, the issue on standing is plainly on point and relevant to the present case. Like the present case, the petitioner there has no direct rights against the company in question and, at best, it has a contingent right to receive Certificated Notes if a Holder makes a demand on the company pursuant to section 2.04(e) of the indenture therein. This is analogous to P’s position here.

105.  Like English and Hong Kong statutes, the Cayman insolvency legislation does not provide a definition of a “contingent creditor” and therefore it is necessary to resort to relevant case law (at §62). At §64, David Boyle J cited the dicta of Pennycuick J in Re William Hockley at p. 555. He went on to consider that it remains good law, at §§65-68:

“65. Re William Hockley Ltd, a first instance English decision, was applied by the High Court of Australia (Barwick CJ, Kitto, Taylor, Windeyer and Owen JJ with Taylor J dying before the delivery of the judgment) in Community Development Pty Ltd v Engwirda Construction (1969) 120 CLR 455. Kitto J quoted the well-known extract above, noted that it was perhaps a definition of “a contingent or prospective creditor” and stressed:

‘The importance of these words for present purposes lie in their assistance that there must be an existing obligation and that out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event, whether it be an event that must happen or only an event that may happen.’ (my underlining)

66. Owen J reviewed various cases and concluded:

‘In the present case the appellant was, at all material times, under a contractual obligation to pay to the respondent the amount, if any, which might be found by an arbitrator to be due to it under the building contract. Whether or not that obligation would ultimately result in a debt becoming payable by the appellant to the respondent was dependent on a contingency, namely the making of an award in the respondent’s favour by an arbitrator acting under cl 26 of the building contract. In these circumstances I am of the opinion that the respondent was, at the date of the presentation of the petition, a contingent creditor for the appellant.’ (my underlining).

67. I accept Mr Lowe’s submission that Re William Hockley remains good law. I give just two recent examples. First, it was referred to by Norris J in Green v SCL Group Ltd [2019] 2 BCLC 664 at paragraph [89]:

‘A contingent creditor is a person towards whom, under an existing obligation, a company may or will become subject to a present liability upon the happening of some future event.’ (my underlining)

68. Second, Segal J in Perry v Lopag Trust (FSD; unreported judgment 23 February 2023) referred to Re William Hockley Ltd and the reference to the need for ‘an existing obligation’.”

106.  At §§70-76, David Boyle J went on to consider a number of other English authorities which support the above analysis. In particular:

(1) In Re SBA Properties Ltd [1967] 1 WLR 799, on the hearing of a winding-up petition, a bank claimed to be entitled to be heard as a contingent creditor in respect of the costs of an action brought by the Board of Trade in the name of the company if that action was adopted by the liquidator. It was held by Pennycuick J that the question whether a person was a contingent creditor depended on the circumstances existing at the date of the hearing, and as at that date nothing had been done by the company in the action so as to raise any contingent liability for costs, then notwithstanding the future possibility of ratification by the liquidator, the bank was not a contingent creditor and had no standing in the matter. This reinforces the analysis above that there must be an existing obligation as at the date of the hearing.

(2) In In Re Sutherland, deceased [1963] AC 235, Lord Reid said at pp. 247-248 as follows:

“It is said that where there is a contract there is an existing obligation even if you must await events to see if anything ever becomes payable, but that there is no comparable obligation in a case like the present. But there appears to me to be a close similarity. To take the first stage, if I see a watch in a shop window and think of buying it, I am not under a contingent liability to pay the price: similarly, if an Act says I must pay tax if I trade and make a profit, I am not before I begin trading under a contingent liability to pay tax in the event of my starting trading. In neither case have I committed myself to anything. But if I agree by contract to accept allowances on the footing that I will pay a sum if I later sell something above a certain price I have committed myself and I come under a contingent liability to pay in that event.” [Emphasis added]

Pausing here, whilst it may be said that P has committed to certain obligations, those are obligations existing as between P and DBS Bank, not the Company, unless and until definitive notes are issued.

(3) In Re Nortel GmbH [2014] AC 209, the critical question was what constituted an “obligation incurred” for the purposes of rule 13.12 (1) (b) of the Insolvency Rules 1986 (paragraph 130). Lord Neuberger adopted the reasoning of Lord Reid in In Re Sutherland and held that there has to be an obligation from which a contingent liability may arise (at §81):

“81 … It was suggested that the reasoning of Lord Reid should not, therefore, be relied on here. I do not agree. Lord Reid gave a characteristically illuminating and authoritative analysis of an issue of principle. It appears to me that the issue of (i) what is a contingent liability and (ii) what is an obligation by reason of which a contingent liability arises, are closely related. In In re Sutherland the House had to decide whether what a company had done was sufficient, in Lord Reid’s words, to have “committed [it]self” to a contingent liability. As I see it, that is much the same thing as having incurred an obligation from which a contingent liability may arise, for the purposes of rule 13.12 (1) (b).” [Emphasis added]

(4) In a similar vein, Lord Sumption emphasized the need for an existing legal relationship, and said at §131 as follows:

“131 The paradigm case of an “obligation” within the sub-paragraph is a contract which was already in existence before the company went into liquidation. … Yet when one asks what it is about a contract that qualifies it as a relevant source of obligation, the answer must be that where a subsisting contract gives rise to a contingent debt or liability, a legal relationship between the company and the creditor exists from the moment that the contract is made and before the contingency occurs. The judgment of Lord Reid in In re Sutherland, deed [1963] AC 235 was concerned with a very different statutory scheme, but his analysis is nevertheless illuminating because it makes precisely this point at pp. 247-248 …” [Emphasis added]

(5) David Boyle J also considered Re Dunderland which are among the authorities examined above on the lack of standing by a trust beneficiary to commence winding-up proceedings.

107.  At §§78-82, David Boyle J further referred to the decision of Puisne Judge Geoffrey R Bell (as he then was) in Bio-Treat Technology Limited v Highbridge Asia Opportunities Master Fund LP [2009] SC (Bda) 26 Civ (28 May 2009). In that case, Bell J similarly rejected the argument of the petitioner that it has status as a contingent or prospective creditor from the premise that, consequent upon the company’s default, the petitioner is entitled to require the Holder to exchange the global bond for definitive bonds and to transfer such number of definitive bonds as representing its beneficial interest. Bell J’s reasoning is that the petitioner cannot establish itself as a contingent creditor in the absence of an existing obligation. As he had explained at §§47-50, after referring to the English case of Re William Hockley and the Australian case of Community Development Pty Ltd v Engwirda Construction (1969) 120 CLR 455:

“47. The critical words are of course ‘under an existing obligation.’ I indicated when dealing with the primary issue that in relation to those other rights which Highbridge might have against the Company, those were not issues for me to decide. However, in relation to the argument that Highbridge is a contingent or prospective creditor, the starting point is whether there is an existing obligation, with particular reference to its entitlement to definitive bonds. …

48. I have referred to the pertinent provisions of the exchange provisions. … there is nothing in the relevant wording which suggest that an end investor such as Highbridge would have a direct right as against the Company in relation to the issue of definitive bonds. So the position does seem to me to be that until definitive bonds are issued in favour of Highbridge, there is no existing obligation owed by the Company to Highbridge. …

50. I do therefore accept that Mr Hargun’s contentions on behalf of the Company, and find that, prior to the issue of definitive bonds, Highbridge cannot be said to have the requisite contractual relationship with the Company, as is necessary to found the status of contingent or prospective creditor. I therefore find that pending the issue of the definitive bonds to Highbridge, it is neither a contingent nor a prospective creditor of the Company, and hence does not have locus on this ground to present a winding-up petition.” [Emphasis added]

108.  I agree with the above analysis, which is amply supported by case law. In particular, as explained by the High Court of Australia in Community Development, there must be an existing obligation and that out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event, whether it be an event that must happen (i.e. prospective liability) or only an event that may happen (i.e. contingent liability). In my view, this makes perfect legal sense because the existing obligation would provide a legal nexus between a person and a company, such that any liability which will or may arise in a future event under such legal nexus could be taken into account as prospective or contingent liability. Without the requirement of a legal nexus, the matter would be at large. The test would become unduly wide and far-fetched. For instance, if a company is negotiating a loan with a bank and if there is no need for an existing obligation, it would be open to the bank to claim that it is a contingent creditor in the event of the bank agreeing to advance a loan and the company failing to repay, even though there is at present no legal nexus between the two. That simply cannot be right.

109.  Moreover, I agree with the analysis by David Boyle J, after surveying the relevant authorities, that the petitioning bondholder is not a contingent creditor. As held by him in §§90-91, 143-144, 151-155:

“90. The Petitioner says it is a contingent creditor because it has a present right due to the operation of the Clearing Systems to instruct the Participant to request delivery of Certificated Notes, which, if exercised, would make it a “Holder” of the Notes.

91. The Company says that it is the Petitioner’s standing which is contingent, in the first place, upon it succeeding in bringing itself into a direct contractual relationship with the Company; and that is regardless of whether the debt is also properly to be treated as contingent. The Company adds that, in other words, the Petitioner presently has no standing at all, and will not unless or until the “contingency” which would give it standing actually happens.

143. I set out below my brief reasons for determining that the Petitioner does not have standing as a contingent creditor. Applying the agreed principles in respect of the construction of the Indenture, there is no contractual relationship between the Petitioner and the Company. The Petitioner is not a party to the Indenture. The principle of privity of contract and what English judges, lawyers and academics would describe as the “no look through” principle are in play. The evidence before me establishes no obligation, whether existing or otherwise, upon the Company to the Petitioner whether in contract, tort, equity or otherwise. In such circumstances and put simply the Petitioner is not a contingent creditor of the Company. The Petitioner appears to have fundamentally misunderstood the legal position in respect of its investment and the terms of the Indenture.

144. In my judgment the Petitioner is not a creditor or a contingent creditor of the Company and consequently it has no legal standing to progress the winding up petition.

151. … The highwater mark of the Petitioner’s submissions on legal standing was that it was a contingent creditor because it had a present right, under the terms of the Indenture, to require the delivery of Certificated Notes, via an instruction to HKMA and then HKMA could instruct Euroclear, which would eventually (provided all parts of the chain proceeded smoothly) make the Petitioner a Holder of the Notes under the terms of the Indenture. In my judgment, however, this submission confuses and conflates the concept of contingent creditor with contingent standing. The Petitioner has to prove actual standing as a contingent creditor at least at the date of the hearing. It has been unable to do that. Its standing is not actual but contingent. Contingent standing is insufficient. A legal entity either has standing or it does not. Moreover, the Petitioner has no relevant existing legal relationship with the Company. There is no existing obligation owed by the Company to the Petitioner. Put simply, the Petitioner does not have the necessary existing relationship with the Company to found the status of contingent creditor and hence it does not have the requisite legal standing to progress the winding up petition.

152. … It is not sufficient for the Petitioner to establish, on a balance of probabilities, that it has “contingent standing”. The Petitioner must prove, on a balance of probabilities, that it is a “contingent creditor”. To do that it must show that there is an existing obligation owed by the Company to the Petitioner which may or will result in a liability. The Petitioner has failed to do that. I agree with the Company that it is wholly inadequate for a party to plead, in effect, that its standing is itself contingent upon the happening of some future event at some future date.

153. … The Petitioner has not received the Certificated Notes and does not appear to have taken any proper steps to obtain them and to obtain legal standing. I agree with the Company that unless or until the Petitioner obtains Certificated Notes in its name it cannot establish that it is a creditor, either actual or contingent. It is its standing which is contingent, in the first place, upon it succeeding in bringing itself into a direct contractual relationship with the Company and this is regardless of whether the debt is also properly to be treated as contingent. It is insufficient in law to have “contingent standing” in respect of winding up petitions in this context.

154. To have legal standing to progress a winding up petition a petitioner must have actual standing on the date of the determination of the petition. You cannot “back date” standing. The requisite legal standing has to exist as at the date of the hearing of the petition. Standing cannot be dependent on a contingency.

155. Moreover it would be difficult conceptually to have two creditors in respect of the same debt. In the case presently before the court, the right to sue the Company under the relevant documentation is not vested in the Petitioner.” [Emphasis added]

110.  On behalf of P, Mr Chen seeks to distinguish Re Shinsun on the facts. However, whilst the facts are different, the reasoning on standing applies equally to the present case as analysed above. Further, it is not entirely correct or accurate for Mr Chen to suggest that the Cayman Court recognized in Re Shinsun at §151 that the situation would be different if there was an event of default. Rather, the situation referred to there is where there was an event of default and Certificated Notes were delivered or transferred to the petitioner such that the petition had an enforceable debt against the company. This could not assist P in the present case because, as admitted by P, no definitive notes have been issued to P and there is, at present, no direct contractual relationship and enforceable rights by P against the Company.

111.  Mr Chen also seeks to attack the rationale of Re Shinsun. However, he has not dealt with the authorities relied on by David Boyle J in arriving at his conclusion. As I have sought to demonstrate above, the conclusion of David Boyle J is amply supported by case law.

112.  Instead, Mr Chen merely argues that, if the Cayman Court was right, it would render the “definition” of contingent creditor or prospective creditor superfluous because, if the Certificated Notes had been obtained, the petitioner could petition as a “creditor” rather than a “contingent creditor”. With respect, this is misconceived. In the event that the Certificated Notes are issued, whether the debt is immediately payable would turn on the terms of the Certificated Notes. If those terms provide that the debt is payable at a future date or future event, then the debt would be a contingent one. If the terms provide that the debt is immediately payable, then the petitioner would be an actual creditor. It does not follow that simply because the terms in a particular case provide for immediate payment that the concept of contingent creditor is rendered superfluous.

113.  Mr Chen further argues that the extension of the statute to cover not only actual creditors but also contingent or prospective creditors represents the legislature’s intention to cast the net wide to cover a petitioner who does not (at the time of the petition) have a direct contractual relationship with the company, but still had an economic interest in the solvency of the company. With respect, Mr Chen has provided no authority on point in support of such proposition. It would also appear from the history of the legislative amendments in England that the law was first amended in 1870 to cover contingent or prospective liabilities of insurance companies to policy holders, for which there were existing contractual obligations and relationships.

114.  Moreover, whilst Mr Chen prays in aid the dicta of DHCJ Harris SC (as he then was) in Re Jackin Total and emphasises that beneficial owners of the debt will be affected if the Company is insolvent, I do not think that this can override the case law examined above. It would also be too far-fetched to confer on any person who does not have any existing legal relationship with the company a standing to present a winding-up petition, on the premise of a mere contingency that a legal relationship may exist between such person and the company in future. In any event, the rationale of Re Jackin Total is very much watered down here because, even if individual account holders may be affected, they can (and should) act through the trustee, all the more so if the debt has not matured (bearing in mind that on P’s case, P could petition as contingent creditor even if the debt has not matured. Equally, even where the debt has matured (which is the case here), there are defined contractual circumstances for issuance of definitive notes and there is no reason why P should not resort to that to be able to sue individually.

115.  Mr Chen further relies on cases concerning schemes of arrangement. In my view and as explained further below, they are decided in different context and do not assist P.

116.  For all these reasons, Re Shinsun is directly on point and its reasoning is sound. In the present case, and as a matter of construction of the Notes and the Indenture (whether under Hong Kong law or New York law), P plainly has no existing contractual relationship with the Company, and it has no directly enforceable rights against the same. Unless or until P obtains definitive notes in its name, it cannot establish that it is a creditor, either actual or contingent, because there is no existing contractual relationship and obligation between P and the Company. It follows that P does not have standing to commence the Petition against the Company.

G3.4 Further considerations

117.  My conclusion above is supported by further considerations.

118.  First and foremost, my view is borne out by the context of the global note structure, which I have examined in details under Section G1 above. It is plain from both Hong Kong and English jurisprudence examined above that the very design of the global note structure is to ensure that the class of bondholders all act through the holder or the trustee of the note as the exclusive channel of enforcement. The regime operates on the basis of a ‘no look through’ principle, whereby each party has rights only against their own immediate counterparty. For instance, in the present case, P only has rights against DBS Bank; DBS Bank only has rights against Euroclear; so on and so forth. In line with the practice and purpose of such regime, typical notes and indentures would contain terms (including the “No Action Clause”) to the effect that only the holder/trustee can take enforcement action against the issuer of the notes, and that bondholders cannot proceed directly against the issuer unless the trustee fails to take action in accordance with the bond documentation. In other words, the framework of the global note structure is premised on class action to be pursued by the trustee exclusively. As such, given that ultimate account holders cannot sue the company to enforce the debt, it would appear anomalous (if not repugnant to the design of the global note structure) to allow them to bypass such constraint by petitioning for winding up instead.

119.  Second, it is of paramount importance under the global note structure that ultimate account holders such as P could not enforce its rights against the Company directly. Should the position be otherwise, it would lead to competition with other account holders, and also duplicity of actions in that both the Trustee/Holder and individual account holders (such as P) could pursue winding up relief against the Company at the same time. Apart from duplicity of actions, as observed by David Boyle J in Re Shinsun at §155, it would be difficult conceptually to have two creditors in respect of the same debt. That would happen in the present case if the Debt owed to P is recognized as contingent liability owed by the Company, because the Company would at the same time be owing such debt to the Trustee/Holder. This is not to mention the potential of double counting if both the Debt owed to P and the same amount of debt owed to the Holder/Trustee are to be taken into account in considering the solvency or otherwise of the Company.

120.  In contrast, if P is not a contingent creditor, there will be no duplicity in actions. Prior to the issuance of the definitive notes, only the Trustee/Holder can sue and petition for winding up against the Company. Depending on whether the Notes have matured, the Trustee/Holder would be actual or contingent creditor. On the other hand, upon the issuance of the definitive notes in place of global notes, individual bondholders (such as P) would have acquired direct rights to sue and petition for winding up against the Company and insofar as the definitive notes provide for immediate payment, they would be actual creditors.

121.  Of course, if the definitive notes only provide for payment after certain timeframe, then after acquiring definitive notes P will become a true contingent creditor in that sense. There will also be no duplicity of debts or actions given that definitive notes are issued in place of the global note. Either way, this is a seamless regime without any lacuna or gap.

122.  Third, the policy objectives of including contingent and prospective creditors in the meaning of a creditor is to enable the Court to take into account a company’s contingent or prospective liabilities in future in deciding whether the company is insolvent and liable to be wound up. However, even if the debt owed to an ultimate account holder of a global note is not taken into account as contingent liability, this would not frustrate the policy objectives or result in any unfairness or lacuna because the debt in the same amount owed by the issuer to the holder/trustee could still be taken into account. Moreover, in this way, there would not be two creditors for the same debt; nor would there be duplicity of debts.

123.  It should be noted that this is not only relevant to the issue of standing. In winding-up petitions presented by other creditors, the Court has to consider whether a company is insolvent by taking into account the company’s contingent or prospective liabilities, and the liability owed to P would have already been taken into account by reference to the same amount of debt owed by the Company to the Holder of the Notes. In contrast, on P’s argument, there is a risk of double counting because one has to take into account the debt owed by the Company to the Holder as actual creditor, as well as the “contingent” debt owed by the Company to P, which duplicate with each other. This reinforces my decision that P is not a contingent creditor, and P could only become a creditor when definitive notes are issued in its favour.

124.  Fourth, there could be potential of abuse on P’s case. Applying P’s logic, even before the Notes have matured, every individual bondholder (including P) is already a contingent creditor and can petition for winding up, despite the fact that (1) the debt under the Notes are not yet due and (2) individual bondholders (such as P) do not have any directly enforceable rights against the Company. On P’s argument, this could lead to floodgates because, in theory, every individual account holder may petition for winding-up against the Company. Such outcome would defeat the rationale and design of the global note structure, under which an individual account holder is not supposed to act and take enforcement action on his own. Instead, any action has to be pursued through the collective decision of the holder or the trustee of the global note.

125.  If, as contended by P, a beneficial owner of a book-entry debt can petition for winding-up, such beneficial owner can in effect bypass the collective enforcement regime. Indeed, the threat of winding-up petition may pressurise the issuer to pay off an individual beneficial owner of the debt, thereby defeating the very purpose of the structure of such debentures. In this regard, whilst it is true that winding-up petitions are different from ordinary actions in that they seek a class remedy, and winding-up petitions are not proceedings to enforce a debt per se, in most cases they are nevertheless proceedings by which a petitioner seeks to recover his debt because the petitioner regards it to be the most efficacious method of obtaining payment: Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449, §§12, 25; Re Guy Kwok-Hung Lam [2022] HKCA 1297, §§75-76. As such, it would be anomalous if P were unable to bring an ordinary action in Hong Kong (or indeed any other jurisdiction) against the Company for the recovery of the Debt, but able to resort to the more draconian measure of presenting a winding-up petition in Hong Kong on the basis of the Debt and expecting the Hong Kong Court to treat it as a contingent creditor of the Company such that P can, in effect, seek to recover its debt. Similar consideration was relied upon by G Lam JA in Re Guy Kwok-Hung Lam at §84 in support of his view that the approach in ordinary actions in granting a stay where there is an exclusive jurisdiction clause in favour of foreign Court should be applied to insolvency petitions.

126.  Fifth, insofar as P says that my conclusion renders the concept of contingent creditor meaningless or superfluous, this is not the case. Before maturity of the Notes, the Holder can petition as contingent creditor. After maturity, the Holder can petition as actual creditor or, upon issuance of definitive notes, individual accounts holders can petition as actual creditor. Of course, if the terms of the definitive notes are such that account holders can only be entitled to payment upon a future date or future event, then the account holders would become true contingent creditors upon being issued such definitive notes.

127.  Sixth, before P acquires directly enforceable rights, its economic interest is taken care of by the Holder or the Trustee, whether as actual creditor (if the debt is due) or contingent creditor (if the Notes have not matured). This is again in line with the design of the global note structure, under which the trustee represents and protects the bondholders, who are treated as forming a class, and who give instructions to the trustee through a specified percentage of bondholders.

128.  At the end of the day, one may say that P knowingly traded in interests, not in the underlying securities, and hence should be taken to know and accept the consequence of the global bond structure as a result. As David Richards LJ put it in Secure Capital at §§55 and 57:

“[55] I have struggled, unsuccessfully, to understand the principle that could justify this approach. In the case of immobilised securities, Clearstream and other settlement systems exist to facilitate efficient trading in interests in securities, not in the securities themselves. The fact that security issues are organised in this way so as to facilitate such trading is nothing to the point. Participants in the market know that they are trading in interests, not in the underlying securities. They are interests in contractual arrangements constituted by the Notes and ancillary documents. The documents expressly provide for English law to be the proper law and expressly identify the parties who may either generally or in limited circumstances sue for breach of the terms of the Notes. Those provisions are as much part of the package of rights as the payment terms and any other terms of the Notes. Market participants trade in interests in that total package of rights.

[57] A lacuna cannot in any relevant sense be said to exist if it is precisely the consequence of the express terms of the Notes and ancillary documents. There is no reason to suppose that this was an unintended consequence and, indeed, the clear and detailed provisions make clear that this consequence was intended. If it had been intended that account holders or account owners or others with even more remote interests should be entitled to sue Credit Suisse in contract for breach of the misleading statements term, the documents could and would surely have so provided. It was a matter for Secure Capital whether it traded in interests in securities having these features.” [Emphasis added]

G3.5 Schemes of arrangement cases

129.  On behalf of P, Mr Chen has relied on various authorities which recognise a bondholder of a global note as “contingent creditor” for the purpose of voting in schemes of arrangement, such as Re Mongolian Mining Corp [2018] 5 HKLRD 48, Enice Holding Co [2018] 4 HKLRD 736, Re Castle Holdco 4 Ltd [2009] EWHC 3919 (Ch) and Re Haya HoldCo 2 plc [2022] EWHC 1079 (Ch).

130.  In my view, these cases are decided in different context and cannot assist P. In particular, I agree with the observations made by Mr Ho in response.

131.  First and foremost, the Courts in those cases recognise that the matter is context-specific, and they emphasise that their decisions are made in the context of the meaning of “creditor” in the scheme legislation, rather than “contingent creditor” in the winding-up legislation. For instance, in Re Haya Holdco at §30, Marcus Smith J noted that “[i]t has been held in numerous cases that a beneficial owner who may obtain definitive notes is a contingent creditor for the purposes of the CA 2006” (see similarly Re Magyar Telecom BV [2013] EWHC 3800 (Ch); [2015] 1 BCLC 418 at §5; Re KCA Deutag UK Finance Plc [2020] EWHC 2779 (Ch) at §53).

132.  Indeed, there are authorities suggesting that the word “creditor” in the scheme legislation has a wider meaning than in the winding-up legislation: see Re T & N Ltd [2005] EWHC 2870 (Ch); [2006] 1 WLR 1728 at §40.

133.  In this regard, I accept Mr Ho’s submissions that the expression “contingent creditor” can have different interpretations in different contexts, as alluded to by Arden LJ (as she then was) in R (Steele) v Birmingham City Council [2005] EWCA Civ 1824; [2006] 1 WLR 2380 at §21.

134.  Second, in Re Castle Holdco at §23, Norris J took the view that, when the Scheme of arrangement comes to be considered, it ought obviously to be considered by those who have an economic interest in the debt, that is to say, by the ultimate beneficial owner or principal (see also Re GW Pharmaceuticals Plc [2021] EWHC 716 (Ch); [2021] BCC 696 at §§24-26). As Mr Ho put it, the above authorities reflect a mischief targeted by the English Court to enfranchise economic owners of intermediated securities to vote at scheme meetings. In contrast, there is no authority to the effect that a person with economic interest in a debt is thereby entitled to present a winding-up petition.

135.  At the end of the day, it has often been said that context is everything in the exercise of legal interpretation. In this regard, I note that a similar view was taken by David Boyle J in Re Shinsun. Upon examining various authorities in the context of schemes of arrangement at §§92-97, he registered a word of caution at §98 as follows:

“98. These commercially pragmatic judicial decisions at first instance on voting rights and schemes need, I would respectfully suggest, to be treated with caution and confined to their context. As Lord Steyn in R (Daly) v Secretary of State for the Home Department [2001] UKHL 26 at paragraph 28 and many others have stressed in law context is everything. In these schemes of arrangement cases all parties wished the beneficial owners to be counted and their standing was not contested. I do not think it safe to apply them in the present context before the court.” [Emphasis added]

136.  At the end of the day, cases on schemes of arrangement are a far cry from the present case. In those cases, what is at stake concerns voting rights on schemes which may affect economic interests, as distinct from locus to present winding-up petition which is a more draconian right than a mere voting right for schemes. It is therefore, in my view, inappropriate to attach any undue weight to such authorities decided in a rather different context.

H. OTHER MATTERS

137.  Given my view on P’s lack of locus standi to present the winding-up Petition herein, I do not consider it necessary to consider other issues such as the solvency of the Company and the need for an adjournment (had I found in favour of P on the issue of locus standi).

I. DISPOSITION

138.  In the premises, I accede to the Company’s application for striking out of the Petition against P.

139.  I further order on a nisi basis that, subject to paragraph 26 above, the costs of the Petition including the Summons be paid by P to the Company, to be taxed if not agreed.

140.  It remains for this Court to thank Mr Chen for P and Mr Ho for the Company for their helpful submissions and assistance rendered to the Court.