RE IMPERIAL PACIFIC INTERNATIONAL HOLDINGS LTD

HCCW 408/2023

[2024] HKCFI 1102

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 408 OF 2023

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REASONS FOR JUDGMENT

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1.  At the hearing of the petition presented by Guan Chubin, the petitioner (“Petitioner”) on 14 September 2023 (as amended on 5 January 2024) (“Petition”) seeking to wind up Imperial Pacific International Holdings Limited[1] (“Company”) on insolvency ground, I made the usual winding-up order against the Company. These are the reasons for my judgment.

2.  The Company was incorporated on 27 July 2001 in Bermuda as an exempted company. It was registered as an oversea company on 7 November 2001[2] and subsequently registered as a non-Hong Kong company under the Companies Ordinance (Cap. 622). The Company has a principal place of business at On Hong Commercial Building, Wanchai, Hong Kong.

3.  The Company has issued 10,649,240,383 shares and its paid-up capital is HK$106,492,403.83.

4.  The shares of the Company were listed on the Main Board of The Stock Exchange of Hong Kong Limited (“HKEx”).

(1) On 1 April 2022, trading of the shares was suspended due to the Company’s delay in publishing its financial results for the years ended 31 December 2020 and 2021.

(2) On 13 October 2023, the Company was informed that the Listing Committee of HKEx had rejected the Company’s request to extend the remedial period for fulfilment of the resumption guidance and proceeded with cancellation of its listing.

(3) On 25 October 2023, the Company applied for review of the decision of the Listing Committee, which was heard on 19 January 2024, and dismissed on 7 February 2024.

(4) The cancellation of the listing status took effect on 22 February 2024.

5.  The Company is an investment holding company and carries on business through its subsidiaries (together “Group”). The Group engages in gaming and resort business in the Island of Saipan:

(1) In August 2014, Imperial Pacific International (CNMI), LLC (“IPI”), an indirect wholly owned subsidiary of the Company, and the Commonwealth of the Northern Mariana Islands (“CNMI”) entered into a licence agreement (as amended) (“Licence Agreement”) in respect of the exclusive casino resort developer licence for the Island of Saipan pursuant to which the Casino Resort Developer Licence (“Licence”) was granted to IPI.

(2) On 6 July 2017, the casino part of Imperial Palace – Saipan, which has capacity of up to 193 tables and 365 slot machines (“Casino”), commenced operation.

(3) As at 30 June 2022, an aggregate amount of US$914 million has been invested in the construction of Imperial Palace – Saipan (including the Casino) which will have 10 restaurants, 329 hotel rooms and 15 villas upon completion.

6.  On 17 March 2020, the Casino was closed due to COVID-19 and has not resumed due to the suspension of the Licence:

(1) On 23 April 2021, IPI received the order made by the Commonwealth Casino Commission in Saipan (“CCC”) suspending the Licence until IPI pays the annual licence fee of US$15.5 million p.a., the casino regulatory fee of US$3.1 million p.a. and penalties of US$6.6 million.

(2) IPI applied for a review of the decision of CCC on the ground that COVID-19 constituted a natural disaster or force majeure under the Licence Agreement such that the annual fee should not be payable.

7.  The Petitioner is a holder of bonds issued by the Company. Following the Company’s default in payment, the Petitioner commenced HCA 1416/2021 to claim the principal amount of HK$19,500,000 together with interest. On 27 March 2023, the Petitioner obtained a final judgment against the Company for HK$20,832,277.39 (inclusive of interest up to 18 April 2021) together with interest and costs.

8.  By a statutory demand served on 17 August 2023 the Company was required to pay HK$22,051,045.63 within 21 days thereof (“SD”). In fact, on the date the SD was served, the amount owed by the Company (inclusive of interest but excluding costs) was HK$23,988,516.94 (“Debt”).

9.  It is indisputable that the Company is insolvent and unable to pay its debts:

(1) The Company failed to comply with the SD and was deemed insolvent by virtue of s.178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“CWUMPO”).

(2) According to the Company’s annual report for the year ended 31 December 2021 (“2021 AR”), being the latest annual report published by the Company, as at 31 December 2021, the Company had net current liabilities of HK$11,000,351,000 and net liabilities of HK$8,352,144,000.

(3) According to the unaudited Interim Results, as at 30 June 2022, the Group had net current liabilities of HK$11,455,543,000 and net liabilities of HK$8,819,310,000, but it only had cash and bank balance of HK$2,082,000. Provisions for impairment of trade receivables due from the Group’s largest and 10 largest customers amounted to HK$1,082 million and HK$2,763 million respectively based on the expected credit losses.

10.  It is not in dispute that the 3 core or threshold requirements for the court to exercise its discretionary jurisdiction to wind up the Company are met:

(1) The Company has sufficient connection with Hong Kong: (a) Its principal place of business has been in Hong Kong and it is a registered non-Hong Kong company; (b) the shares of the Company had been listed on HKEx until its listing status was cancelled; (c) the company secretary and some of the directors are Hong Kong residents; (d) the principal banker of the Company is DBS Bank (Hong Kong) Ltd; (e) the bonds subscribed by the Petitioner were placed through agents in Hong Kong; and (f) the judgment was obtained by the Petitioner in Hong Kong.

(2) There is a reasonable possibility that a winding up order against the Company would benefit the creditors including the Petitioner and the supporting creditors. According to the 2021 AR, the Company holds assets in Hong Kong which include (a) investments in a listed company, (b) a wholly owned subsidiary incorporated in Hong Kong, (c) receivables due from debtors in Hong Kong, and (d) substantial costs paid by the Company after presentation of the petition in seeking resumption of listing, which are recoverable by the Company unless sanctioned by the court under s.182 of CWUMPO.

(3) Apart from the Petitioner, 2 creditors (DC Digital Communications Ltd and Luk Chi Shing) have filed notices of intention to support the petition, and one creditor (Wang Yi) has presented another petition in HCCW 438/2023 against the Company relying on a debt of HK$5.3 million[3]. There are other holders of Hong Kong dollars denominated bonds in the principal amount of HK$42,058,000 issued by the Company.

11.  At the first callover hearing of the Petition on 11 March 2024, the Company confirmed that it did not dispute the Debt or the fact that it is insolvent. The only ground advanced by the Company in support of its application for an adjournment of the Petition was that it would pursue a proposed restructuring which would involve:

(1) a subscription of the Company’s shares by an independent investor, Kyosei-Bank Co., Ltd (“Investor”), for HK$852 million, and the proceeds would be applied solely as working capital of the Company and for the purposes of implementing a scheme of arrangement in respect of its indebtedness (“Proposed Subscription”). For this purpose, a framework agreement dated 18 January 2024 was entered into between the Company and the Investor (“Framework Agreement”); and

(2) a scheme of arrangement between the Company and its creditors to compromise and discharge all the debts owed to the creditors (“Proposed Scheme”).

12.  However, as pointed out by Ms Sally Wong, counsel for the Petitioner, the Framework Agreement is subject to compliance or waiver of a number of conditions precedent[4] (“C/Ps”) which include:

(1) no material adverse events have occurred as at the date of the Framework Agreement until the Closing Date (cl. 4.2(c));

(2) confirmation from HKEx that the issues causing suspension in trading have been remedied, and HKEx has provided in-principle approval to resumption of trading of shares (cl. 4.2(f)-(g));

(3) the Investor has completed to its satisfaction a due diligence on the Company and each of the company within the Group (cl. 4.2(h)); and

(4) the proposed restructuring has been approved by all relevant regulators and shareholders, and all relevant agreements have become unconditional (cl. 4.2(o)).

13.  Ms Wong submitted that having regard to the Listing Committee’s decision to cancel the listing status of the Company and the fact that the Company did not have funds to pay the substantial amount due and payable to CCC, there was no prospect of the Company being able to comply with the C/Ps such that the Proposed Subscription would not be completed.

14.  Mr Him Ho, counsel for the Company at the hearing on 11 March 2024, submitted that the Petition should be adjourned for 4 months so that the Company could continue to pursue the Proposed Subscription which, if successful, would enable the Company to raise HK$852 million. There was a reasonable prospect of the Company being able to comply with the C/Ps given that:

(1) The Investor had indicated that it was prepared to consider waiving the C/Ps pertaining to resumption of listing. A letter dated 7 March 2024 was produced by the Company;

(2) The Company had applied for a review to reverse the decision of the Listing Committee, which was heard on 19 January 2024. Although the Listing Review Committee notified the Company on 7 February 2024 that the decision was upheld, the Company would apply for leave to commence judicial review against the decision of the Listing Review Committee; and

(3) The Company had been actively negotiating with CCC in relation to the payment of the amount due which, if successful, would allow IPI to resume operation of the Casino. Some emails exchanged with CCC were produced by the Company in support of its assertion.

15.  On the basis of the Company’s representations set forth above, this Court was prepared to adjourn the Petition for 5 weeks to see if the Company would in fact be able to come to any agreement with CCC in respect of payment of the amount due, which was the only way to remove the suspension order and allow the Casino to resume operation. It was not in dispute that if and for so long as the Casino’s operation remained suspended, the Proposed Subscription would not proceed to completion.

16.  At the second hearing of the Petition on 15 April 2024, Ms Wong points to the following material adverse events, which render completion of the Proposed Subscription not viable:

(1) The Listing Review Committee upheld the decision of the Listing Committee to cancel the listing status of the Company.

(2) The Company and the Investor have entered into a supplemental framework agreement, which provides that the C/Ps pertaining to resumption of listing status[5] shall automatically be waived “provided that the gaming and resort business of the Company in Saipan has been resumed and the casino gaming licence held by the Subsidiaries remains valid at all times”[6].

(3) On 9 April 2024, CCC announced that the negotiations between IPI and CCC had broken down. It was reported in the news that CCC had said that no more settlement talks would take place.

(4) According to the draft Stipulated Agreement produced by the Company, after negotiations with CCC, the amount of fees payable by IPI to CCC is US$154 million (equivalent to HK$1,200 million) and the same must be paid in 4 tranches by 1 October 2024, of which US$7.35 million must be paid by 22 April 2024. There is no evidence to suggest that the Company or IPI has the means to make the first payment, still less the entire sum of US$154 million.

(5) It is also clear that even if the Proposed Subscription proceeds to completion, the amount raised (HK$852 million) is not sufficient to pay the fees payable to the CCC under the Stipulated Agreement.

17.  In his skeleton, Mr Tony Ko, counsel for the Company at the hearing on 15 April 2024, refers to cases where the court adjourned the winding up petition to enable the company to pursue a scheme of arrangement, particularly where there were creditors opposing an immediate winding up of the company (Re Advanced Wireless Group Limited, HCCW 441/2006, 24 April 2007; Re Lamtex Holdings Ltd [2021] 2 HKLRD 177, §§37-38; Re APP (HK) Ltd [2005] 1 HKLRD 272, §§34, 37; Re RNA Holdings, HCCW 388/2004, 13 July 2005, §45). The submission misses the point. The court will only adjourn a winding up petition if the company is able to show that there is a useful purpose for adjourning the petition. Where the proposed adjournment is for the company to pursue a restructuring, it is incumbent upon the company to show that there is at least a reasonable prospect that the restructuring will proceed to completion so as to displace the petitioner’s right to seek an immediate winding up order against the company.

18.  Mr Ko submits that the court should further adjourn the Petition for 3 months to allow the Company to put the Proposed Scheme into effect, having regard to the following matters:

(1) an immediate winding up order would yield very little, if any, benefit to the creditors;

(2) the Company has put forward the Proposed Subscription which, if completed, will enable the Company to raise HK$852 million;

(3) the Company has put forward the Proposed Scheme which will provide the creditors with a 10% return over a period of 2 years[7], to be paid out of the proceeds of the Proposed Subscription. The Proposed Scheme is “a viable option” as it has in-principle support of over 60% of creditors in value; and

(4) the CCC has agreed to extend the time for IPI to pay the outstanding fees, to lift the suspension of the Licence and to file a motion to voluntarily dismiss the licence revocation proceedings against IPI[8].

19.  I do not think that any of the matters relied on by Mr Ko constitute a valid ground in opposition to the Petition.

(1) Clause 7(a) of the Stipulated Agreement states that the Licence “shall remain suspended indefinitely” unless and until IPI pays (a) the Casino Regulatory Fee due on 1 October 2020, 2021, 2022 and 2023 in the total amount of US$12.6 million[9], and (b) the Annual Licence Fee due on 12 August 2020, 2021, 2022 and 2023 in the total amount of US$62 million.

(2) There is no evidence to suggest that the Company or IPI has the means to pay the various amounts payable to CCC as stated in the draft Stipulated Agreement. This means that there is no prospect of IPI being able to remove the suspension order and resume operation of the Casino, which are the main C/Ps for completion of the Proposed Subscription.

(3) Without the Proposed Subscription, there is no basis for the Company to suggest that the Proposed Scheme will proceed or that it is in the interests of the Company to obtain return under such Scheme.