RE CHINA SAITE GROUP CO LTD

HCMP 48/2022 & HCCW 346/2020
(HEARD TOGETHER)

[2022] HKCFI 1128

HCMP 48/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 48 OF 2022

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 346 OF 2020

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(HEARD TOGETHER)

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R E A S O N S   F O R   D E C I S I O N

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1.  I have before me a petition to sanction a scheme of arrangement between the Company and its general unsecured creditors. In addition there is an associated application to vary a validation order. I deal with the petition first.

2.  The petition is very straight forward. It provides a compromise between the Company’s unsecured creditor and the Company which will be funded by an injection of funds by investors. The Company is currently listed but the Listing Division of the Hong Kong Stock Exchange has recommended that its listing be cancelled. That, however, has no bearing on the viability of the Scheme.

3.  The criteria by reference to which the court determines whether or not to sanction a scheme is explained by me in Re China Singyes Solar Technologies Holdings Ltd[1]:

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

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

(3)  whether the meeting was duly convened in accordance with the Court’s directions;

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

(5)  whether the necessary statutory majorities have been obtained;

(6)  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; and

(7)  in an international case, whether there is sufficient connection between the scheme and Hong Kong, and whether the scheme is effective in other relevant jurisdictions.

4.  I am satisfied that the criteria are met in the present case. The only components of the Scheme that require comment are first, its international effectiveness and secondly, a post-creditor meeting modification to the Scheme.

5.  94.3% of the claims are governed by Hong Kong law. The remainder are governed by the law of the Mainland. There is no absolute requirement that a scheme must be effective in all jurisdictions. The requirement is a practical one, namely, that it will substantially achieve its intended result. In practice that means that it is likely to be effective in the jurisdictions in which the Company has its assets. No Mainland creditor has objected to the Scheme. Accordingly there is no reason to think that a mainland creditor might take action in the Mainland. I am satisfied the prospect of a creditor taking action in the Mainland is sufficiently unlikely that it does not constitute an impediment to approving the Scheme.

6.  The other component to the Scheme which requires comment is the modification to the Scheme terms. The Company seeks to modify the Scheme terms slightly in order to pay interest to the scheme creditors in the following circumstances:

(1)  the resumption occurs;

(2)  some creditors do not submit their claims to the Scheme Administrators, thereby resulting in some surplus assets under the Enhanced Repayment Obligation; and

(3)  in light of some creditors’ queries about the possibility of receiving interest, the Company has decided to pay the possible surplus assets under the Enhanced Repayment Obligation to the scheme creditors as interest up to the effective date.

7.  The Company therefore seeks the court’s permission to modify the Scheme terms to cater for the above possibility of interest payment. In this connection, the Company relies on clause 10.1 of the Scheme:

“The Company may, at any hearing to sanction this Scheme, consent on behalf of all Creditors to any modification of this Scheme or any terms or conditions which the High Court may think fit to approve or impose and which would not directly or indirectly have a material adverse effect on the interests of any Creditor under this Scheme.”

8.  In my view it would be proper to permit the post-scheme meeting modifications because:

(1)  The proposed modifications seek only to improve the scheme creditors’ recovery and thus by definition would not prejudice any scheme creditors.

(2)  Had the proposed modifications been before the scheme meeting, they would not have made any difference to the outcome of the Scheme meeting. There is no question of the Court, by approving these modifications, “foisting” on the scheme creditors anything other than what they voted on at the scheme meeting.

(3)  Therefore, allowing the proposed modifications would be fully consistent with the authorities: Re Samson Paper Holdings Ltd[2]; Re STERIS Plc[3]; Re PGS ASA[4].

9.  I am satisfied that it is appropriate to sanction the Scheme and make an order accordingly. So far as the application to vary an existing validation order is concerned, this is simply to permit the payment of monies currently in the Company’s Hong Kong bank account into the Scheme Administrator’s accounts in order that the money is available to distribute as part of the Scheme assets. I will make the order that is sought.