RE THE HONG KONG BUILDING AND LOAN AGENCY LTD

HCMP 2268/2018

[2019] HKCFI 2088

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2268 OF 2018

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D E C I S I O N

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1.  I have before me the petition of The Hong Kong Building and Loan Agency Limited (the “Company”) for an order sanctioning a Scheme of Arrangement between it and some of its Creditors. The Company is incorporated in Hong Kong and listed on the Main Board of the Hong Kong Stock Exchange.

2.  On 14 May 2019, I made an order for convening of a meeting in order for the relevant Creditors to consider the Scheme. The Scheme is a straight forward debt-for-equity swap.  It affects seven Creditors (Scheme Creditors), all of whom hold convertible bonds and one of which also holds a promissory note.  The Scheme meeting took place on 28 June 2019, it was attended by five Scheme Creditors.  One abstained from voting.  Of the four who voted, three voted in favour of the Scheme, which was passed by a substantial majority—93.33% in value of the debt voted—thus achieving the necessary statutory majority.  

3.  The principals by references to which the court considers whether a scheme should be sanctioned, are well established, and explained by me in my decision in Re Mongolian Mining Corp [1]. 

“12.  In considering whether to sanction a scheme, the Court applies some well-established principles which were recently restated in Re Mongolian Mining Corp [2] as follows:

‘The function of the court at the hearing of a petition to sanction scheme is to consider—

(a)  whether the scheme is for a permissible purpose;

(b)  whether creditors who were called on to vote as a single class had sufficiently similar legal rights that they could consult together with a view to their common interest at a single meeting;

(c)  whether the meeting was duly convened in accordance with the court’s directions;

(d)  whether creditors have been given sufficient information about the scheme to enable them to make an informed decision whether or not to support it;

(e)  whether the necessary statutory majorities have been obtained; and

(f)  whether the court is satisfied in the exercise of its discretion that an intelligent and honest man acting in accordance with his interests as a member of the class within which he voted might reasonably approve the scheme.’”

4.  I am satisfied that those criteria are met in the present case, and that the Scheme should be sanctioned.  The only matter which I consider requires further comment, largely because it appears that there is no Hong Kong decision considering the subject, concerns modifications to the Scheme and the Scheme document made after the Scheme document was distributed to the Scheme Creditors. 

5.  Amendments were made at two stages, the first was before the meeting took place.  One would expect that such modifications would on occasions to be necessary and would be unlikely in any way to jeopardize the Scheme, as long as the amendments are brought to the attention of the Scheme Creditors sufficiently before the meeting in order for them to take them into an account.  This happened in Re Peninsula and Oriental Steam Navigation Company [3] and Peninsula and Oriental Steam Navigation Company v Eller and Co [4].

6.  The decisions do not contain a discussion of the relevant principal, it seems to be assumed, quite understandably, that there could be nothing in principal objectionable to a Scheme document being amended after it has been circulated, as long as those who would be called upon to vote on it are giving adequate notice of the changes.  Indeed, it is normal in my experience for the orders convening the meeting to expressly envisage this.  The order in the present case made by me on 14 May 2019, is an illustration.  It provides.  

“2. The Company be at liberty to convene a single meeting to be held in Hong Kong of the Creditors (as defined in the Scheme of Arrangement mentioned below) (the “Scheme Meeting”) for the purpose of considering and, if thought fit, approving (with or without modification) a scheme of arrangement proposed to be made between the Company and the Creditors (the “Scheme of Arrangement”).”

7.  Further amendments were also made during the meeting itself.  It is convenient to explain what they were by quoting from paragraph 30 of the third affirmation of Chong Kok Leong, in which he describes the modifications.

“30. Meanwhile, the Company also opined that certain parts of the Final Document ought to be further modified in light of the issues listed hereunder:

(a)  the need to ascertain the actual amount of interest accrued and to be accrued on the outstanding principal amount of the Convertible Bonds, because while interest at the coupon rate of 3% per annum began to accrue on the outstanding principal amount of the Convertible Bonds since 13^th June 2017, which I had deposed to in my 1^st Affirmation, the Company took 1^st July 2017 as the date on which such interest began to accrue in its computation of the amount of interest due and owing by the Company to the respective Creditors (as holders of the Convertible Bonds) in the Final Document (and different versions of the Scheme Document before that);

(b)  the need to specify the date on which interest on the outstanding principal amount of the Convertible Bonds began to accrue, as no such date had been specified in the Final Document (and different versions of the Scheme Document before that);

(c)  the need to specify that the illustrative Effective Date had to be put off to 30^th August 2019, and to revise the tentative time-table of the Scheme accordingly;

(d)  the need to spell out the increase in number of Settlement Shares and the number of Scheme Shares to be issued to the Creditors for purposes of the Scheme in light of the increase in amount of interest and the putting off the illustrative Effective Date on 30^th August 2019;

(e)  the need to unify and rectify certain modes and manners previously adopted in the computation of interest as set out in the Final Document (and different versions of the Scheme Document before that);

(f)  the need to substitute CECEP with Carbon Reserve for the reasons explained above; and

(g)  the need to set out such modifications to the Final Document as having been previously specified in the Modification Letter.”

8.  As I have already indicated, there are no decisions in Hong Kong which deal with the question of amendment after the distribution of the Scheme document.  The diligence of counsel has identified one decision in the United Kingdom, Re APB Holding Ltd [5].

9.  The decision does not contain much consideration of the way which the court should approach modifications made at a Scheme meeting.  Once again, it seems to me to be largely a common sense matter.  If the amendments are substantial, then it may be they would jeopardize the ability of the company to obtain sanction of the Scheme.  If as in my view is the case in respect of the meeting that take took place on 28 June 2019, they are largely matters of detail which do not impact on a consideration of whether or not the Scheme should be approved, they will not. 

10.  It seems to me the relevant principal is to be found in decisions such as Re Mongolian Mining Corp [6], which explain that it is necessary for Creditors to be given sufficient information about the Scheme to enable them to make an informed decision whether or not to support it.  If modifications are either sufficiently explained prior to a meeting, or if at the meeting they are sufficiently minor that they are not likely to infringe this principal, it seems to me that they would be unobjectionable. 

11.  I will sanction the Scheme in the terms of the draft order before me.