RE SMI HOLDINGS GROUP LTD (formerly known as SMI Corporation Limited)

HCCW 108/2019

[2020] HKCFI 824

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 108 OF 2019

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D E C I S I O N

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1.  On the 11 April 2019, HSBC issued a winding-up petition against the Company, SMI Holdings Group Limited (“Company”). In August 2019, Television Broadcasts Limited (“TVB”) was substituted for HSBC. The debt relied on by TVB arises under a series of bonds. As at July 2019, TVB was owed in excess of US$110 million. The debt is not disputed. It seems clear even from the Company’s own evidence that the Company is insolvent.

2.  The Company is listed on the main board of The Stock Exchange of Hong Kong Limited.  As is common in the case of a listed company, it is incorporated in an offshore jurisdiction; in the present case Bermuda. I am satisfied that there is sufficient connection between the Company and Hong Kong to justify the Court exercising the power that it is not disputed the Companies Court has to wind up the Company.

3.  The Company is a holding company holding indirect interests in a substantial group of cinemas and theatres and associated businesses in the Mainland.  It would appear from the rather limited evidence that has been filed by the Company that it is attempting to restructure the debt of the businesses in the Mainland.  Presumably as part of this process it managed to reach an agreement with HSBC to restructure the debt owed to the bank and more recently an agreement with another creditor, Haitong International Finance Products Limited (“Hai Tong”), which also held bonds issued by the Company.

4.  As I have mentioned, the Company has filed limited evidence about it and its subsidiaries, financial position.  I have before me the 3^rd affirmation of Kenneth Jack Shang which was made at the end of November 2019.  Mr Shang explains that the group operates 336 cinemas in the Mainland out of which, presumably in November 2019, 201 were in operation.  Mr Shang then proceeds to describe in very general terms negotiations in which the Company, it would appear through its subsidiaries, is involved to restructure its debt and certain of what is suggested are valuable assets.  What Mr Shang does not do is to make any attempt to explain what the group’s financial position currently is.  There are no audited financial statements available for 2018 and 2019, and I have not been provided with anything resembling comprehensive management accounts.

5.  It would appear from, for example, the fact that Hai Tong’s debt was only compromised at the end of April (Hai Tong were until the end of last month supporting the petition and ready to take over as a substituted Petitioner), that the Company is attempting to settle on a piecemeal basis with some of its creditors, but is not able to put before the Court a comprehensive plan for debt restructuring and corporate rehabilitation.

6.  It seems to me that, in the circumstances, there is no sensible reason for the Court not to wind up the Company.  As I explain in my recent decision in Re Chase on Development Limited [1], an important consideration when the court is faced with an application by an insolvent company to adjourn a petition based on an undisputed debt is the views of the creditors, their reasons for supporting or opposing the petition and the feasibility of the proposed restructuring.  Necessarily this will require evidence to be put before the court that allows the court to make an informed decision whether or not to agree an adjournment of a petition to allow a company to restructure debt.  The evidence will need to be all the more compelling if a company is unable to find a creditor to oppose an immediate winding-up.

7.  My impression is that those managing the business group of which the Company is the apex, and this seems to be an increasing feature of distressed Mainland listed companies, have proceeded on the basis that they can attempt to restructure in the Mainland the group’s business and debt without involving the listed company.  However, it is unrealistic and unhelpful for Mainland business groups that have chosen to list in Hong Kong to treat the holding company and its listed status purely as a tool of financial convenience, which facilitates access to capital when it is required, and not recognise that the listed company and the supervisory powers of the Hong Kong Companies Court need to be engaged properly if it becomes necessary to restructure group debt.  Proceeding on the basis that it is sufficient just to tell in very general terms the court and Hong Kong creditors that constructive things are taking place in the Mainland and assume that a petition will be adjourned is misconceived.  I envisage that this will become an increasing problem in the course of the next year or two as a result of the economic fallout caused, in particular, by Covid-19.  Companies and their advisors who find themselves in positions similar to the Company need to think through carefully how to formulate comprehensive restructuring proposals which involve both Hong Kong and the Mainland.  If they do not, they are likely to suffer the same consequences as this Company, which I order to be wound up. I will also make an order that one set of costs be paid to supporting creditors.