RE ZHONGLIANG HOLDINGS GROUP COMPANY LTD

HCMP 1631/2023

[2024] HKCFI 808

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1631 OF 2023

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REASONS FOR DECISION

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Application

1.  The Company has sought the Court’s sanction under section 673 of the Companies Ordinance (Cap. 622)  (“Ordinance”)  of a scheme of arrangement between the Company and the Scheme Creditors.  This I ordered at the hearing on 23 February 2024.  The conduct of the meeting does give rise to 2 novel and associated questions concerning whether a meeting consisting of 2 proxy holders, one of whom is the chairperson, constitutes a meeting for the purpose of sections 670 and 674 of the Ordinance.  I address them in [25]–[29].  In addition, in [41]–[44] I address an issue which, as far as I am aware, has not previously come before the court, namely, the use of short bar dates to expedite adjudication of certain types of claims.

2.  The Scheme’s objective is to restructure the Company’s indebtedness, thus averting a potential liquidation that would affect the entire group.  Were the Company to be liquidated, it is estimated that the Scheme Creditors would recover approximately 1.43% of their claims. However, under the proposed Scheme, the estimated recovery rate for the Scheme Creditors significantly increases, ranging between approximately 27.75% to 122.97%.

3.  The resolution of the Scheme Meeting was carried by an overwhelming majority in number of the Scheme Creditors present and voting, in person or by proxy (namely, 509 Scheme Creditors voting for the Scheme and 1 Scheme Creditor voting against), with those voting in favour holding approximately 99.12% in value by all Scheme Creditors present and voting at the Scheme Meeting (i.e. not including the abstention votes).

4.  In these submissions, unless otherwise defined I shall adopt the abbreviations and terminology employed in the Scheme appended to the Order sanctioning the Scheme.

Background to the Scheme

5.  The background of the Company and its need for the Scheme is in brief as follows.  On 22 March 2018, the Company was incorporated as an exempted company with limited liability in the Cayman Islands.  On 24 August 2018, the Company was registered as a non-Hong Kong company under Part 16 of the Companies Ordinance (Cap. 622).  The Company has been listed on the Main Board of The Stock Exchange of Hong Kong Limited with Stock Code 2772 since 2019.  The Company is an investment holding company whose operating subsidiaries are in the Mainland and Hong Kong (together, “Group”).  The Group is a nationwide real estate enterprise based in the Yangtze River Delta Economic Region and is principally engaged in real estate development in the Mainland.

The Company’s financial difficulties and restructuring efforts

6.  Largely due to the onset of the pandemic and dramatic changes in the macro environment in the Mainland property sector since the second half of 2021, the Company has endured a few years of financial difficulties.  Consequently, the Group incurred a net loss (attributable to owners of the parent)  of approximately RMB1,346.38 million (US$189.63 million)  for the year ended 31 December 2022, and had a net profit (attributable to owners of the parent)  of approximately RMB18.63 million (US$2.62 million)  for the six months ended 30 June 2023.

7.  As at 30 June 2023:

(1)  the Group had net current assets of approximately RMB10.38 billion (US$1.46 billion);

(2)  the Group’s current and non-current interest-bank and other borrowings amounted to RMB11.92 billion (US$1.68 billion)  and RMB4.49 billion (US$0.63 billion)  respectively.

8.  As of 31 December 2022, on a standalone basis:

(1)  the Company’s total assets were approximately RMB16.20 billion (US$2.28 billion);

(2)  the Company’s total liabilities were approximately RMB13.09 billion (US$1.84 billion);

(3)  the Company’s main assets were amounts due from subsidiaries of approximately RMB16 billion (US$2.25 billion);

(4)  the Company’s main liabilities were current liabilities relating to senior notes (issued by the Company)  of approximately RMB6.52 billion (US$0.92 billion)  and amounts due to subsidiaries of approximately RMB4.34 billion (US$0.61 billion).

9.  As of 31 December 2023, the Company’s total liabilities were approximately US$1.18 billion in principal.

10.  The Company’s offshore indebtedness arises from principally the following:

(1)  the Existing Notes which are unsecured, governed by New York law, and guaranteed by some of the Company’s subsidiaries (collectively, “Existing Notes Subsidiary Guarantors”);

(2)  the Existing Private Debts which are unsecured, governed by Hong Kong law, and guaranteed by the Existing Notes Subsidiary Guarantors; and

(3)  the Other Private Debt which is unsecured and governed by Hong Kong law, and guaranteed by the Existing Notes Subsidiary Guarantors and the Onshore Subsidiary Guarantors.

11.  The Company’s financial difficulties caused the Company to default on its offshore borrowings. As a result, the Existing Notes are presently in default, and all amounts that are due and payable remain outstanding.

12.  On 21 November 2022, China Construction Bank (Asia)  Corporation Limited, in its capacity as trustee for the holders of one of the Existing Notes, presented a winding-up petition against the Company (HCCW 430/2022)  (“Petition”).  The hearing of the Petition has been adjourned to 4 March 2024.

13.  As part of its efforts to avoid a liquidation and restore its status as a solvent going concern, the Company has actively pursued debt restructuring, culminating in the development of the Scheme.  The Scheme compromises only the Existing Indebtedness, being the Existing Notes and the Existing Private Debts, representing approximately 97% of the Company’s total indebtedness.  The Company intends to manage the remaining Other Private Debt through bilateral negotiations.

Principal features of the Scheme

14.  The Scheme will seek to discharge the Existing Indebtedness, being the Existing Notes and the Existing Private Debts outlined above.  In return, the Scheme Creditors will be entitled to the following Restructuring Consideration:

(1)  for those Scheme Creditors who have acceded to the RSA by the RSA Fee Deadline, the RSA Fee of an amount equal to 0.25% of the aggregate principal amount of Eligible Restricted Debt;

(2)  an upfront cash payment equivalent to 1% of the outstanding principal amount of the Existing Indebtedness;

(3)  at the election of the Scheme Creditors, a combination of new senior notes (“New Senior Notes”)  and new convertible bonds (“New Convertible Bonds”)  (collectively, “New Instruments”)  in an aggregate amount equal to 99% of the outstanding principal amount of the Existing Indebtedness as of the Record Time, plus all accrued and unpaid interest on such Existing Indebtedness up to the Reference Date (the aggregate amount is the “Selection Consideration Calculated Amount”).  The Scheme Creditors may elect any proportion of the New Senior Notes and the New Convertible Bonds to be received as their respective Restructuring Consideration; and

(4)  additional New Senior Notes equal to 6.0% of the principal amount of the New Senior Notes to be issued by the Company.

Principles governing the sanction of a scheme

15.  In considering whether to sanction a scheme, the Court applies well-established principles, which were recently restated in Re China Singyes Solar Technologies Holdings Ltd[1]. The Court will consider in particular the following:

(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 on 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.

Should the Court exercise its discretion to sanction the Scheme?

16.  As in Singyes, the Scheme represents a legitimate effort at debt restructuring for a company facing financial distress.  Additionally, the Scheme provides for certain ancillary discharge of claims against the Released Person, comprising mainly:

(1)  claims against third parties (notably the Existing Notes Subsidiary Guarantors)  in connection with the Scheme Claims; and

(2)  claims against third parties concerning the preparation, negotiation, sanction or implementation of the Scheme, the Restructuring Documents and/or the RSA.

17.  The discharge of third-party guarantors is uncontroversial: Re Sunac China Holdings Ltd[2]; Re Unity Group Holdings International Ltd[3].  Likewise, the ancillary discharge in favour of third parties concerning the Company’s restructuring steps is also permissible: Re Sunac China Holdings Ltd[4].

18.  In considering whether creditors are properly classified, the test is whether creditors who are called on to vote as a single class have sufficiently similar legal rights that they could consult together with a view to their common interest at a single meeting. The relevant principles may be summarised thus:

(1)  The overarching question is whether the pre and post-scheme rights of those proposed to be included in a single class are so dissimilar as to make it impossible for them to consult with a view to their common interest. If that is the case, separate meetings must be summoned.

(2)  The second principle is that it is the rights of creditors, not their separate commercial or other interests, which determine whether they form a single class or separate classes. Conflicting interests will normally only ever arise at the sanction stage as a question for consideration.

(3)  The third principle is that the court should take a broad approach to the composition of classes, so as to avoid giving unjustified veto rights to a minority group of creditors, such that the test for classes becomes an instrument of oppression by a minority.  The court should be careful to avoid unnecessary proliferation of classes because by ordering separate meetings the court might give a veto to a minority group.

(4)  The fourth principle is that the court has to consider, on the one hand, the rights of the creditors in the absence of the scheme and, on the other hand, any new rights to which the creditors become entitled under the scheme.  If, having carried out that exercise, there is a material difference between the rights of the different groups of creditors, they may, but not necessarily will, constitute different classes.  Whether they do so depends on a judgment as to whether such a difference makes it impossible for the different groups to consult together with a view to their common interest.

(5)  In applying the above test, the starting point is to identify the appropriate comparator: that is, what would be the alternative if the scheme does not proceed.

See Re Sunac China Holdings Ltd[5].

19.  As regards the identification of the appropriate comparator, the established practice is this: The directors of the scheme company, being advised by their professional advisers, are normally in the best position to identify what will happen if a scheme fails: Re Sunac China Holdings Ltd[6].  In assessing the scheme creditors’ rights, the Court considers what are often referred to as “rights in” (i.e. the scheme creditors’ rights as against the scheme company absent the scheme)  and “rights out” (i.e. any new rights conferred on the scheme creditors by the scheme):

“A consideration of the rights of the members of the proposed class involves an analysis of the rights as against the scheme company which are to be released or varied under the scheme, and of the new rights which the scheme gives by way of compromise or arrangement to those whose rights are to be released or varied… The focus is upon ‘rights’ not ‘commercial interests’. The consideration requires those rights to be analysed not as a matter of theory but in context, an exercise which generally requires an analysis of what those rights would be if the scheme did not proceed.”[7]

See also Re Sunac China Holdings Ltd[8].

20.  The classification principles involve a two-stage test (Re EFW 21 Renewable Energy Ltd[9]):

(1)  At the first stage, the Court considers the rights in and rights out.

(2)  If there is no material difference between the legal rights of the relevant creditors (namely, in respect of both rights in and rights out), they will form a single class, and there is no need to proceed to the second stage of the test.

(3)  If there are material differences between the legal rights of the relevant creditors, at the second stage the Court needs to assess the relevance of those differences.  In brief, a difference is only sufficient to mandate the creation of a separate class if it is sufficiently great to make consultation with a view to the class members’ common interest impossible.  This judgment involves, among other things, assessing the materiality of the difference in rights.  Differences can be material without leading to separate classes.  The court takes a robust approach[10] in determining whether the difference is sufficient to call into serious question whether the class members’ interests are so divergent that they are unlikely to be able to form a collective view which fairly represents the class.

21.  Applying the above principles, the Scheme justifiably categorises the Scheme Creditors into a single class for the following reasons:

(1)  The appropriate comparator is the Company’s liquidation because should the Scheme fail, the Company is likely to go into liquidation.

(2)  In the event of the Company’s liquidation, the Scheme Creditors would have identical “rights in” because the Scheme Claims are the Company’s general unsecured debts.

(3)  The Scheme Creditors have the identical “rights out” because the Scheme treats them equally (i.e. the right to receive the Restructuring Consideration that is proportionate to their respective Scheme Claim).

(4)  The fact that the Scheme additionally effects an ancillary discharge of the Released Person would not fracture the class (e.g. Re Sunac China Holdings Ltd[11]).

(5)  It is well-established that a modest consent fee available to all scheme creditors would not fracture the class composition: Re Sunac China Holdings Ltd[12]. Here, all of the Scheme Creditors were given an equal opportunity to accede to the RSA by the RSA Fee Deadline and thereby become entitled to receive an RSA Fee.

(6)  Similarly, the practice of a scheme company covering work fees and other professional expenses incurred by creditors (in this case, the Ad Hoc Group Advisor Fees)  is recognised as not introducing a class issue: Re Sunac China Holdings Ltd[13]; Re PlusHolding GmbH[14].

22.  The Convening Order has been complied with.  This appears from the 2^nd Affirmation of Yau Sze Ka dated 16 February 2024, confirming the circulation and publication of the Notice of the Scheme Meeting, Explanatory Statement and Scheme to the Scheme Creditors at least 21 days before the Scheme Meeting.  The English and Chinese advertisement of the Notice of the Scheme Meeting was duly placed in The Standard and Sing Tao Daily on 16 January 2024.

23.  During the Scheme Meeting convened on 9 February 2024, the Scheme Creditors voted in favour of the Scheme.  As I noted in paragraph 2, the Scheme satisfies the requirements under section 674(1)(b) of the Ordinance, having been approved by a majority in number representing at least 75% in value of the Scheme Creditors present and voting, either in person or by proxy.

24.  To affirm the integrity of the voting process to the Court, two specific considerations merit attention.  First, the Existing Notes were issued in global registered form and held by the Existing Notes Trustee.  In line with standard practice, the Existing Notes Trustee abstained from voting.  Instead, in respect of the Existing Notes, the Scheme Creditors are the Existing Noteholders, namely, people “with a beneficial interest as principal in the Existing Notes held in global form or global restricted form through the Clearing Systems as at the Record Time, each of whom have a right, upon satisfaction of certain conditions, to be issued definitive registered notes in accordance with the terms of the Existing Notes and the Existing Notes Indentures”.  This method of allowing the underlying beneficial holders of a global note to vote is well-established:

“As I have already mentioned, the existing 2025 notes, the new money 2025 notes, the new junior lien notes and the 2026 notes are all held in global form through clearing systems. Each of the relevant Plan Creditors under those notes are entitled in certain circumstances to receive definitive notes registered in their names. As such, I am satisfied that they are contingent creditors of the Plan Companies for the purposes of the Companies Act 2006.”[15]

See also Re Century Sunshine Group Holdings Ltd[16].

Can proxies alone constitute a meeting?

25.  The attendees of the Scheme Meeting included 509 Scheme Creditors who appointed the Chairperson as their proxy and one Scheme Creditor who appointed their legal advisor as their proxy.  I understand from Mr Ho that at one point it was thought by the Company that all creditors who participated in the vote would do so by making the Chairperson their proxy. This would have given rise to the issue of whether one person holding 2 or more proxies can constitute a meeting for the purposes of sections 670 and 674 of the Ordinance.  The facts of this case do, however, invite consideration of the more subtle question of whether the chairperson counts, by virtue of his office, as a creditor for the purposes of section 674(1)(b) and, if I were to conclude the chairperson does not, the previous question would be engaged.

26.  David Richards J (as he then was)  explains the general common law principle as to what constitutes a meeting in Re Altitude Scaffolding Ltd “The conventional legal meaning of meeting in the context of creditors and shareholders of companies is an assembly or the coming together of two or more such persons”[17]. The same view is expensed in the judgment of Cheung JA in Re China Star Enterprise Hong Kong Ltd[18]: “The general principle that a meeting necessarily involves two persons can be abrogated by legislation”[19].  In the context of schemes of arrangement, the English position is that a scheme meeting could not be held with only one creditor present in person or by proxy (unless the class in question comprises only one member)[20].

27.  In my view “meeting” in section 670 of the Ordinance is to be understood in the same way, consequently the Scheme Meeting in the present case qualifies as a “meeting” if a meeting attended by the Chairperson (being the proxy for 509 Scheme Creditors)  and another proxy for another Scheme Creditor constituted “a meeting of creditors” (section 674(1)(a)).  In my view the attendance of 2 proxy holders one of whom is the Chairperson satisfies the criteria for a meeting.  An instructive decision in this regard is Re Shergold; ex parte McInnes (Federal Court of Australia, 3 September 1986)[21].  I quote first that part of the judgment addressing whether one person present holding 2 proxies constitutes “a meeting of creditors”.

“[T]he English and Scottish cases to which I have referred and some others are collected. Amongst other things the current editors say that the fact that the one person present is both himself a member and also a proxy for another member will not enable him to constitute a meeting even when ‘the quorum is two members present in person or by proxy’…

In times in which outlooks have undergone some change since the last century, some may think that, if the words in question arose for consideration unaffected by the history of the way in which courts have construed similar words in earlier bankruptcy Acts and in the articles of companies, there would be something to be said for construing the words to mean that, although a shareholder, creditor or other person attending on their behalf attended alone, his attending as a proxy for more than one person made that which he attended a meeting, notwithstanding that he alone was present. Such a construction could have practical benefit in some cases. In this case the amount of the estate to be distributed is small; yet the debtors reside in Dubbo, the Controlling Trustee in Wagga, where the meeting was called, the petitioning creditors in another country town and some of the creditors in Sydney. The use of proxies by the creditors was the only sensible course. In order to make the meeting lawful, all that needed to be done was to ensure that at least one proxy was given to a person other than Mr. Gagie. Mr. Gagie’s clerk or secretary may have done; if not, some other resident of Wagga could have been appointed proxy by one of the creditors. A meeting constituted in this way would be no less a pantomime than a meeting attended by only one person, although in different capacities.” (Emphasis added).

28.  The Court also considered whether a proxy given to a chairperson before the chairperson has been appointed, is to be taken into account in determining whether a meeting has taken place.

“The facts are that proxies were received from three creditors. These were proxies from Newstart 115 Pty Limited, which appointed the chairman of the meeting to be its proxy, Michael Bovee & Co. who also appointed the chairman of the meeting to be their proxy, and a firm Messrs. Nelson, Keane & Hemingway, who, by one of its partners, Mr. A.J. Lovat, appointed Mr. Gaigie to be its proxy…

Mr. Gaigie perceived the need for there to be two persons at the meeting. Accordingly, he spoke to a Mr. Murphy, who is an employee of M.L.C. Insurance Limited and who has an office across the hall from Mr. Gaigie’s office. Mr. Gaigie said to Mr. Murphy, ‘Do you mind coming in and chairing a meeting of the creditors of Paul and Judy Shergold.’ Mr. Murphy said, ‘No, I do not mind’. Mr. Gaigie purported to exercise his proxy to appoint Mr. Murphy as chairman of the meeting the meeting then proceeded.

Mr. Murphy, being the chairman and exercising the powers conferred by the proxies given by Newstart and Boyee & Company and Mr. Gaigie exercising the powers given by the proxy from Mr. Lovat, the question is whether the facts as they are now known make any difference to the outcome. The difficulty which confronts the judgment debtors. and which has been drawn to my attention by the solicitor for them, is found in s. 196 of the Act which provides that the majority in number of the creditors present at the meeting in person, by attorney or by proxy shall elect a chairman to preside at the meeting. Mr. Murphy had absolutely no connection with the matter at all until he was appointed chairman. For him to be appointed chairman there needed to be a meeting of the kind provided for in s. 196. There could be no such meeting unless there were two persons present who had authority to act, that is to say they needed to be either creditors or attorneys or proxies of creditors. So the same problem that arises in relation to s. 202, with which I dealt in the judgment previously delivered, applies in relation to s. 196. Mr. Murphy could not lawfully become entitled to exercise the proxies until he was appointed chairman. He could not be appointed chairman except at a meeting. The resolution to appoint him was invalid because at that time there was no chairman and proxies given to the chairman could have no place in the proceedings. The only relevant proxy was held by Mr. Gaigie who, until the chairman was appointed, was at the meeting alone. There was therefore, within the meaning of the section, no meeting and no valid appointment of the chairman.”

29.  The present case avoids the logical circularity issue identified in Re Shergold[22], as the Chairperson was appointed by the Court rather than through the Scheme Meeting by the Scheme Creditors.  The Chairperson thus lawfully exercised his proxy, and the Scheme Meeting was a coming together of two or more Scheme Creditors.

Explanatory Statement

30.  To satisfy the requirements of section 671(3) of the Ordinance, an explanatory statement must be sufficiently informative:

“A company is under a duty to include in the explanatory statement all the information necessary to enable the creditors to form a reasonable judgement on whether the scheme is in their best interests or not, and hence how to vote. The extent of the information required to be provided will, of course, depend on the facts of the particular case. Necessarily, the duty extends to the company providing up to date information, or an adequate explanation of why it has not done so, that will allow a creditor to contrast what is to be anticipated if the scheme is approved, and the outcome if it is not. A company is required to provide specific financial information to support its predicted outcomes, and I would normally expect it to have its views independently verified by an insolvency practitioner or other suitable professionals”[23].

See also Re Sunac China Holdings Ltd[24].

31.  The Explanatory Statement satisfies the requirements of section 671(3) because:

(1)  It unequivocally presents the Scheme as an alternative to the liquidation of the Company, outlining the strategic considerations behind this choice.

(2)  It furnishes detailed projections of the potential outcomes for Scheme Creditors in the event of a liquidation compared to the anticipated returns under the Scheme, thereby providing a basis for informed decision-making.

(3)  It articulates the Company’s strategic reasoning for seeking to avoid liquidation, including the underlying business logic, which underpins the Board’s endorsement of the Scheme as the preferred course of action.

32.  The Court is slow to differ from the majority’s views, as it normally acts on the principle that businessmen are much better judges of what is to their commercial advantage than the Court could be: Re Allied Properties (HK)  Ltd[25].  It is not within the Court’s purview to assess whether the scheme is the only fair scheme or even the “best” scheme: Re AGPS Bondco Plc[26].

33.  The primary object of the Scheme is that, upon the Scheme becoming effective, the Scheme Claims will be discharged and in exchange the Scheme Creditors will be entitled to the relevant Restructuring Consideration.  The Restructuring Consideration affords the Scheme Creditors a substantially more favourable outcome than they would receive in the event of the Company’s liquidation.  The substantial majority vote in favour of the Scheme attests to the Scheme’s value.  This level of support provides evidence that a reasonable creditor would have approved the Scheme.  In my view the Scheme is clearly one that an intelligent and honest person acting in accordance with his interests as a member of the class within which he voted might reasonably approve.

International Dimension

34.  The international aspect of this case involves two considerations.  The first concerns the Court’s jurisdiction over a scheme promoted by a foreign company.  The requirement is to show a sufficient connection between the scheme and Hong Kong, without needing to fulfil the criteria applicable to the winding-up of foreign companies: Re China Oil Gangran Energy Group Holdings Ltd[27]; Re Petropavlovsk Plc[28]; Re Tele Columbus AG[29].

35.  There is sufficient connection between the Scheme and Hong Kong, mirroring the scenario in Re China Oil Gangran Energy Group Holdings Ltd[30]:

“The Scheme clearly has strong and sufficient connection with Hong Kong, in particular, because the Company is listed in Hong Kong and a principal purpose of the Scheme is to protect that listing, it is a registered non-Hong Kong company, and managed from Hong Kong. Further, essentially all of the Scheme Claims are governed by Hong Kong law.”

36.  Additionally, a significant portion in value of Scheme Claims (i.e. each of the Existing Private Debts)  are governed by Hong Kong law.  They reinforce the sufficient connection with Hong Kong: Re Sunac China Holdings Ltd[31]; Re PlusHolding GmbH[32].

37.  Secondly, in an international case, the Court considers whether the scheme is effective in other foreign jurisdictions of practical importance, because it would not be a proper exercise of discretion to sanction a scheme that serves no purpose.  In practice whether or not a jurisdiction is of practical importance to the efficacy of a scheme sanctioned in Hong Kong will commonly be determined by the following considerations:

(1)  Is a material amount of debt to be compromised by the scheme governed by the law of a jurisdiction other than Hong Kong?

(2)  Even if there is some doubt as to whether or not a scheme will compromise a proportion of the debt, is there any reason to think that the creditors will take action in a jurisdiction which will not recognise a scheme as compromising the debt?

(3)  The amount of the debt involved.  If, for example, the amount of debt that is not governed by Hong Kong law is less than the cost of introducing a parallel scheme it makes more sense to exclude that debt from the scheme and settle it separately if it is ever pursued.

See China Oil at [21]–[23].

38.  For Scheme Claims governed by Hong Kong law to be discharged under the Scheme, dissent from any Scheme Creditors should not impede the Scheme’s effectiveness (e.g. Re Sunac China Holdings Ltd[33]).

39.  While the Scheme Claims arising under the Existing Notes are governed by New York law, the Company does not currently plan to seek a Chapter 15 recognition of the Scheme due to the Scheme Creditors’ overwhelming support for the Scheme.  This support underscores the Scheme’s international effectiveness despite the absence of a formal Chapter 15 recognition, it being well-established that “in the context of the international recognition of a scheme of arrangement the court does not need to decide whether the scheme of arrangement is certain to be given effect in every relevant jurisdiction” (Re Tele Columbus AG[34]). The court is concerned with practical utility and Re China Singyes Solar Technologies Holdings Ltd[35] demonstrates that overwhelming creditor support can negate the need for formal foreign recognition.  Given these circumstances, the Company has also seen no need for a concurrent scheme in the Cayman Islands.

40.  As a final cross-check, the Court will evaluate whether there is any blot or defect in the scheme which may hinder its operational effectiveness (Re China Bozza Development Holdings Ltd[36]).  Two matters were brought to my attention.  First, it is a recognised practice in complex restructurings that schemes sanctioned by the Court typically take effect following a series of post-sanction steps.  The present Scheme is similar because the Restructuring Effective Date is conditional on a series of post-sanction steps to implement the Scheme, such as the issuance and listing of debt instruments that form part of the Restructuring Consideration.  I am satisfied that the Company is likely to be able to satisfy these Restructuring Effective Date conditions.  The present case is thus similar to Re Sunac China Holdings Ltd[37], and the Court would not be acting in vain in sanctioning the Scheme.

41.  Secondly, the Scheme provides for a short bar date (“Election Deadline”)  and an expedited adjudication procedure for Scheme Creditors opting for the New Convertible Bonds:

(1)  Any Scheme Creditor who would like to select the New Convertible Bonds as part of their Restructuring Consideration would need to submit their Scheme Claim before the Election Deadline, being seven calendar days after the Scheme Effective Date (Clause 13.1 of the Scheme).

42.  In cases of disputes involving Scheme Creditors’ claims for the New Convertible Bonds, the Scheme specifies an expedited adjudication procedure (Clause 17.1 of the Scheme).  This is to ensure the timely distribution of the New Convertible Bonds on the Restructuring Effective Date.

43.  The rationale behind the Election Deadline and the expedited adjudication process is justified by the Company on the following grounds:

(1)  The Election Deadline reflects the preferences expressed by the Scheme Creditors.

(2)  The Election Deadline has been extensively highlighted to the Scheme Creditors through various channels, including the distribution of the Notice of Scheme Meeting.

(3)  Considering the straightforward nature of the Scheme Claims arising under the Existing Notes and Existing Private Debts, the Company does not anticipate any dispute.

(4)  There are precedents endorsing the use of short bar dates and expedited adjudication procedures where the circumstances justify it:

(a)  In relation to adjudication procedures, “the Court’s function is to determine whether this adjudication process is a blot on the Scheme putting it beyond the pale of fairness” (Re Lehman Brothers International (Europe)  (No 10)[38]).

(b)  In determining the acceptability of bar dates and adjudication procedures, the Court takes into account the likelihood of disputes (Re Noble Group Ltd[39]).

(c)  In Re Lehman Brothers International (Europe)  (No 10)[40]Hildyard J explains why the circumstances in which the scheme was introduced justify short bar dates:

“To that end, and conventionally, the Scheme imposes a bar date for the submission of claims (the ‘Bar Date’)…

Less conventionally, the Bar Date is fixed as the date when the Scheme becomes effective (the Effective Date). It would be more conventional to provide a longer period before the bar. The unusually short period is presented as justified in the context of the fact that the administration has been ongoing for a nearly a decade, and that the Administrators first invited creditors to prove their claims in December 2009. Further, creditors were notified of the intention to impose a Bar Date on 22 December 2017, and the Bar Date is clearly signalled in the First Practice Statement Letter (paragraph 6.1.4)  dated 18 April 2018 and sent to Scheme Creditors in accordance with the usual practice.”

(d)  A similar view was taken by Richards J in Re Telewest Communications plc (No 1)[41]:

“There is provision requiring all ancillary claims under the scheme to be submitted by a bar date, which will be one day after the effective date, and for an expeditious adjudication process in respect of any ancillary claims which are submitted…

A fourth matter is the bar date for ancillary claims and the adjudication process for them under the schemes. There has been an extensive advertising programme to give notice of the bar date and its timing implications. Together with the general publicity surrounding the problems and restructuring proposals for Telewest, current and former bondholders or others interested in bonds will have had ample opportunity to submit claims. I do not consider that such differences as there may be between the provisions of the schemes and the procedure in a liquidation could found an argument that persons with ancillary claims should form a separate class.”

44.  In my view the use of short bar dates in justified in the circumstances of this Scheme.

Conclusion

45.  The Scheme is a legitimate debt restructuring scheme which has complied with all the statutory requirements and has received the requisite Scheme Creditors’ support.  I, therefore, sanctioned the Scheme on 23 February 2024.