TECHFULL PROPERTIES CORP. AND OTHERS v. OFFICIAL RECEIVER AND PROVISIONAL LIQUIDATOR OF JIAYUAN INTERNATIONAL GROUP LIMITED (IN LIQUIDATION)

HCCW 317/2022

[2024] HKCFI 1113

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING UP) PROCEEDINGS NO. 317 OF 2022

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DECISION

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1.  Techfull, Greatime, and Sunrich (collectively, the Applicants) appeal against the rejection of their proofs of debt by the Official Receiver (ORPL) acting as Jiayuan’s Provisional Liquidator. The proofs of debt were lodged for the purposes of the Applicants voting at the first meeting of Jiayuan’s creditors. The Applicants appeal under Rule 128 of the Companies (Winding-Up) Rules (Cap 32H). That provides:

“ The chairman [in this case, the ORPL] shall have power to admit or reject a proof for the purpose of voting, but his decision shall be subject to appeal to the court. If he is in doubt whether a proof should be admitted or rejected he shall mark it as objected to and allow the creditor to vote subject to the vote being declared invalid in the event of the objection being sustained.”

2.  The Applicants are holders of Notes issued by Jiayuan.  The Notes are subject to Indentures which Jiayuan executed with Subsidiary Guarantors, Trustees, Paying and Transfer Agents, and Registrars.  The Indentures are substantially in the same terms and include a non-action clause.  Thus, clause 6.06 of the Indentures provides:

“ 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 25.0% 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 or prefunding satisfactory to the Trustee against any costs, liability or expense to be incurred in compliance with such request; (d) the Trustee does not comply with the request within 60 days after receipt of the written request and the offer of indemnity and/or security; 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 direction that is inconsistent with the request.”

3.  The question before me is essentially whether the Applicants are present creditors of Jiayuan.  The Applicants do not contend that they are contingent or prospective creditors. 

4.  The ORPL’s case is that the proofs of debt were rightly rejected because the Applicants are not creditors of Jiayuan.  Citing Re Leading Holdings Group Limited [2023] 4 HKLRD 71, the ORPL submits that the Applicants as Noteholders are akin to beneficiaries under a trust. The Applicants are therefore creditors of the Trustee appointed under the Indenture governing a relevant Note.  The Trustee (but not the Applicants) are in turn Jiayuan’s creditor.

5.  I accept the reasoning in Re Leading Holdings.  It seems to me that, to the extent that they were merely submitting proofs of debt as holders of Notes, the Applicants were not creditors of Jiayuan.  Mr Toby Brown (appearing for the Applicants) submits that Re Leasing Holdings is distinguishable because here the Applicants hold guarantees from a third party for unpaid amounts under the Notes.  Mr Brown argues that the Applicants are consequently in a different position from the rest of the Noteholder pool under an Indenture.  It was only proper (Mr. Brown says) that the ORPL should be made aware of the Applicants’ position and take account of the third-party guarantees held by them.  However, Mr Brown’s submission begs the point.  As Noteholders, the Applicants cannot be regarded as creditors of Jiayuan.  Whether or not the Applicants have secured guarantees from third parties for unpaid amounts under the Notes held by them, does not change that reality.

6.  But the Applicants did not merely submit proofs of debt as holders of Notes.  They also claimed smaller sums which could be enforced by Techfull and Greatime against Jiayuan directly, pursuant to Cancellation Agreements executed with Jiayuan.  Mr Jenkin Suen SC (appearing for the ORPL) acknowledges that the ORPL should have accepted the Applicants’ proofs of debt for voting purposes to the extent of those smaller sums.  But Mr Suen points out (and I accept) that admitting the proofs of debt to such extent would not have affected the outcome of the first creditors’ meeting.  The sums were proportionately too small to affect the outcome.  In those premises, the erroneous rejection of the proof of debt as far as the smaller sums were concerned, would not be a basis for invalidating the outcome of the first creditors’ meeting.

7.  For the foregoing reasons, the appeal is dismissed.  I will now hear the parties on costs and consequential orders.