RE GREATER BEIJING FIRST EXPRESSWAYS LTD.

HCCW338/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.338 OF 2000

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R E A S O N S

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1. This is a creditor's petition presented under section 327 of the Companies Ordinance. Greater Beijing First Expressways Limited ("the Company") is a BVI company. The petitioner is Chase Manhattan Bank, trustee for Noteholders under two series of Notes totalling US$288 million. The petitioner represents the interests of all the Noteholders pursuant to the terms of the Indenture governing the Notes.

2. The petition was opposed by the Company. At the hearing, a winding-up order was made. The reasons appear below.

3. As noted above, this is a creditors' petition. It would appear from the evidence filed in opposition that the debt is not disputed. Further, the Company is not in a position to repay the debt. It has put forward a proposal for refinancing the debt and for that purpose, a three-month adjournment was sought. The evidence filed also sought to respond to the allegations of misconduct which had led the court to appoint provisional liquidators on 13 April 2000, the date the petition was presented. According to the preliminary report filed by the provisional liquidators, the Company is insolvent both on a cash-flow as well as on a balance sheet basis. At the hearing, when it became evident that the petitioner was pressing for a winding-up order, leading counsel for the Company sought a much shorter adjournment, namely, a period of 21 days within which to file evidence relating to the law and procedure of the BVI.

4. Before turning to the reasons proffered for seeking that adjournment, I would briefly outline the refinancing proposal. The Company has obtained a commitment letter from CITIC Industrial Bank of Tianjin to lend the Company RMB1.5 billion (equivalent approximately to US$180 million), but the terms of the loan require negotiation which, it was anticipated, would take at least two months to complete. There are also exchange control issues which need to be resolved. Although the loan was the major component of the refinancing proposal, the other components, namely, the release of US$33 million of dividends which have been declared but withheld and a further US$63 million or so of future income from the toll roads would depend on the co-operation of the Hebei Provincial Government.

5. Having considered the refinancing proposal which was set out in considerable detail in the affirmation filed on behalf of the Company, the petitioner decided that it was not prepared to wait for three months and opposed the application for an adjournment on the grounds, inter alia, that -

(1) the proposal is highly contingent;

(2) there is no assurance that the matter would be finalized within three-months;

(3) there is no offer of undertaking, suitably fortified, to protect the interests of the Noteholders in the event of their interests being prejudiced as a result of the adjournment;

(4) the refinancing proposal has come very late and no effort has been made to discuss it with the petitioner or the committee; and

(5) the committee does not trust the Company's management and has no confidence that the proposal could be implemented in three months or that matters would be further advanced after three-months.

Possessing as it does a blocking vote for any restructuring of the Company under section 166 of the Companies Ordinance, the petitioner's rejection of the refinancing proposal meant that it was doomed : it is acknowledged by the Company that a restructuring cannot get off the ground without the petitioner's co-operation.

6. Faced with that difficulty, the Company changed tack and raised a number of new matters (set out below) not dealt with in the affirmations filed in opposition to the petition in support of his application for three weeks within which to adduce evidence on the law and procedure in the BVI.

BVI proceedings

7. It was submitted that as there are parallel winding-up proceedings in the BVI commenced by the petitioner and as BVI is the country of incorporation, the Hong Kong court should defer to the BVI court. The BVI petition was heard on 8 June 2000 and has been adjourned for a month. It was submitted that a Hong Kong liquidation would not have extraterritorial effect and therefore its effect would be circumscribed. Moreover, the bulk of the Company's assets within Hong Kong, namely, US$12.9 million out of US$16 million odd, is already under the control of the provisional liquidators. Leading counsel for the Company stated :

"Hong Kong is a minor theatre in this war. The major battle is in the BVI."

But those submissions were directly contrary to what the Company's stance was on 19 May 2000 when its solicitors wrote to the petitioner's solicitors in the following terms :

"There are, of course, also the parallel proceedings to wind up the Company in the BVI. We understand that the hearing of the petition in the BVI has now been listed for 6th June, 2000, whilst the petition in Hong Kong is listed for 12th June, 2000. It seems to be common ground between all the parties (not least from the affidavit of Mr Grippo) that the substantive proceedings are those in Hong Kong. This is where the significant issues are being determined and the BVI is, in reality, no more than the Company's place of incorporation. Indeed, the petitioner itself appears to have decided that Hong Kong is the appropriate forum for determining the substantive issues in dispute. In light of this, it would be sensible if agreement could be reached between us for an application by consent to adjourn the hearing of the BVI petition until the first available and convenient date for the parties after the determination of the Hong Kong petition.

We have confirmed with our lawyers in the BVI that this is an appropriate procedure, which in all the circumstances is likely to meet with the approval of the Court. This course of action will also avoid significant additional costs by the parties, as well as the prospect of having inconsistent or contradictory decisions in two jurisdictions."

This apart, it is not the case that the Company's business was being conducted in the BVI. Other than being its place of incorporation and the place of incorporation of its subsidiaries, there is little connection with the BVI.

8. The Company acknowledges that the Hong Kong court does have jurisdiction to make a winding-up order. In exercising the court's discretion, it is necessary to put the Company's current stance in its proper context, namely, its previous stance as reflected in the letter of 19 May 2000 and the evidence that has so far been filed in opposition to the winding-up. It is nothing more than a ploy to gain further time in light of the petitioner's rejection of the refinancing proposal. The suggestion that the Hong Kong courts should be a spectator of the developments in the BVI winding-up proceedings and not to be seen as acting 'out-of-step' with the BVI court as it was put has no valid basis.

Evidence on BVI law

9. The ostensible purpose of the adjournment sought was to adduce evidence of the law and procedure of the BVI. To what end would such evidence serve? If no case has been made out for deferring to the BVI court, in what way can evidence of its law and procedure be relevant? That remained unexplained.

Evidence on New York law

10. It was then suggested that the petitioner has no locus to present the petition. It was submitted that New York law was the governing law of the Indenture from which the petitioner derives its authority and that an adjournment was necessary to put evidence of New York law before the court. That may be so, but quite what question of construction could arise from the Indenture was not shown.

11. Voluminous evidence has been filed in opposition to the petition. Yet, there is not the slightest hint that the petitioner's locus was a problem. Leading counsel for the Company appeared to suggest that the point first arose at the hearing in the BVI on 8 June 2000 and that further time was required to develop it. However, leading counsel for the petitioner referred the court to the affirmation of Alan Tak Chak Lau filed in the BVI proceedings on 5 June 2000 where, in paragraph 4, he dealt with the locus standi point. That affirmation is in substance similar to the affirmation filed by Mr Lau on 6 June 2000 in these proceedings. It is significant that the locus point was omitted from his later affirmation. In the circumstances, the omission could not have been an oversight : it must have been deliberate. This suggests that the locus point was not one of any substance but was conveniently resurrected in order to gain further time.

12. Be that as it may, whether or not the petitioner has locus is a question of Hong Kong law. The relevance of New York law on this issue is obscure. But the point is so fundamental that if it had any substance, it would have been raised long before now and been the basis of an application to strike out the petition which has not happened.

Further evidence in relation to the refinancing proposal

13. Mr Lau's affirmation goes into considerable detail over the refinancing proposal. The matters remaining to be resolved (e.g. negotiation of the loan terms, exchange control etc.) have been referred to above. What has not been suggested is the need to adduce further evidence within 21 days to supplement any particular aspect of this refinancing proposal. I therefore reject this as a reason for the adjournment now being sought.

A winding-up order will not serve any useful purpose

14. The point made here was that the bulk of the Hong Kong assets is already in the hands of the provisional liquidators. A winding-up order would accordingly not achieve a great deal more. Reference was made to In re The Standard Contract and Debenture Corporation (1891-2) 8 TLR 485 where the Court of Appeal upheld the decision of Kekewich J in refusing to make a winding-up order in England of a company incorporated in the Isle of Man where liquidators had already been appointed. The assets in England were so small that a double winding-up with two sets of liquidators would only result in a waste of money and for that reason, the court declined to make the order. I do not see how that decision assists the Company.

15. As leading counsel for the petitioner pointed out, in the present case, apart from the US16 million that is within the jurisdiction, the directors have executed an undertaking in favour of the Company acting by the provisional liquidators. As part of that undertaking, mandates have already been signed by the directors which the provisional liquidators can complete to effect a change of directorships of the BVI companies. Personam jurisdiction against the directors rests with this court. In the circumstances, the submission that a winding-up order would not serve any useful purpose is misconceived.

CONCLUSION

16. To sum up, no valid reasons have been advanced to support an adjournment. Little purpose would be served in granting an adjournment for the filing of evidence, the relevance of which was obscure. In all the circumstances, the only appropriate exercise of my discretion was to refuse the application and, instead, to wind up the Company.