RE SUNAC CHINA HOLDINGS LTD

HCMP 729/2025

[2026] HKCFI 68

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 729 OF 2025

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REASONS FOR DECISION

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Introduction

1.  By a petition presented on 23 October 2025, Sunac China Holdings Limited (“Company”)  seeks the Court’s sanction under section 673 of the Companies Ordinance (Cap. 622)  (“Ordinance”)  of a scheme of arrangement (“Scheme”)  between the Company and the Scheme Creditors[1].  At the Scheme Meeting held on 14 October 2025, the Scheme was approved by an overwhelming majority of Scheme Creditors present and voting (in person or by proxy), namely, 98.46% in number and 94.48% by value.  At the hearing, I sanctioned the Scheme.  These are my reasons.  I would note that it is the Company’s current intention to seek recognition of the Scheme in the Mainland.  As I understand it, this would be the first such application.  It gives rise to some interesting and important issues, which I address in [50] to [55].

Background

2.  The Company was incorporated as an exempted company with limited liability in the Cayman Islands in 2007.  It was registered in Hong Kong as a non-Hong Kong company under Part XI of the predecessor Companies Ordinance (Cap. 32)  in 2009.  Since 2010, the Company has been listed on the Main Board of the Stock Exchange of Hong Kong Limited (“SEHK”)  with Stock Code 1918.

3.  The Company serves as the investment holding company of a property development group (“Group”)  founded by Mr Sun Hongbin (“Chairman”).  The Group is principally involved in (1)  property development and investment, (2)  cultural and tourism city construction and operation, and (3)  property management services.

4.  The majority of the Group’s assets are located in the Mainland, which is also where its operations are primarily based.  As of 30 June 2025, the Group together with its associates and joint ventures oversaw 690 property development projects across more than 120 cities and 5 major urban circles in the Mainland, namely the Yangtze River Delta, the Bohai Rim, Southern PRC, Core Western PRC and Core Central Mainland.  The land bank of these property development projects totalled approximately 124 million square metres, of which around 92 million square metres remained unsold.

5.  The scale of the Group’s operations is substantial.  As of 31 December 2024, the Group employed over 36,000 employees.  In addition, the Group has a subsidiary, Sunac Services Holdings Limited, which is also listed on the SEHK with Stock Code 1516 and in which the Company indirectly holds approximately 35.68% equity interest.  This subsidiary is engaged in property management and operational services.

6.  The property market in the Mainland has plummeted in recent years.  On 5 October 2023, this Court sanctioned a scheme (“2023 Scheme”)  to restructure the Company’s indebtedness in HCMP 382/2023.  Unfortunately, the Company’s financial position continued to deteriorate despite the implementation of the 2023 Scheme in November 2023.  By March 2025, the Company’s financial distress resulted in payment defaults under the securities issued pursuant to the 2023 Scheme.

7.  On 9 January 2025, a winding-up petition was presented against the Company by China Cinda (HK)  Asset Management Company Limited (“Cinda”)  in HCCW 16/2025 which is supported by Dawnbright Limited (“Dawnbright”).  This petition is adjourned to 5 January 2026.

8.  Since April 2025, the Company has been engaging in extensive negotiations with major offshore creditor groups, such as Initial Consenting Creditors (“ICC”).  On 17 April 2025, the Company entered into a Restructuring Support Agreement (“RSA”)  with the ICC.

9.  As of 30 June 2025, the Company (on a standalone basis)  had total assets of approximately USD11.92 billion and total liabilities of approximately USD6.49 billion; the Group (on a consolidated basis)  had total assets of approximately USD116.55 billion and total liabilities of approximately USD110.40 billion; and the Group also carried net current liabilities of approximately USD12.89 billion.

10.  If the Scheme is not successfully implemented, the likely alternative is an insolvent liquidation of the Company and of the Group.

Overall Purpose of the Scheme

11.  The central purpose of the Scheme is to implement a comprehensive debt-for-equity swap which will permanently extinguish approximately USD8.81 billion of the Company’s offshore indebtedness (“In-Scope Debt”)  through the issuance of mandatory convertible bonds (“MCB”).  This will avert an immediate insolvent liquidation.  Further, the Scheme seeks to facilitate the Group’s compliance with its remaining predominantly onshore obligations and to reduce the Group’s overall indebtedness so as to achieve a more stable capital structure.  Accordingly, the Scheme allows the Group to continue as a going concern and increases the prospects of generating long-term value for Scheme Creditors and other stakeholders.

12.  According to the estimations provided by AlixPartners Hong Kong Limited in the Recovery Analysis Report dated 2 September 2025, Scheme Creditors will recover from the Company only 2.78% to 5.00% in case of liquidation.  By contrast, where the Scheme is successfully implemented through the Scheme Consideration, the estimated rate of recovery rises significantly to the region of 14.41% to 24.67%.

Scope of the Scheme

13.  As of 30 June 2025, the In-Scope Debt totalled approximately USD8.81 billion in principal amount.  It comprises two categories of debt:

(1)  First, 2023 Securities (totalling USD6.36 billion and representing 72.17% of the In-Scope Debt)  which are instruments issued by the Company as part of the 2023 Scheme, consisting:

(i)  USD6.00 billion of six series of senior notes due between 2025 and 2030 with interest rates ranging from 5.00% to 6.25% per annum, as governed by New York law and listed on the Singapore Exchange;

(ii)  USD96.63 billion of zero-coupon MCB due on 30 September 2028, as governed by Hong Kong law;

(iii)  USD245.62 million of 1.00% convertible bonds due on 30 September 2032, as governed by Hong Kong law;

(iv)  USD15.81 million of zero-coupon MCB due on 30 September 2028, as governed by Hong Kong law and issued to Sunac International; and

(2)  Second, Private Debts (totalling USD2.45 billion and representing 27.83% of the In-Scope Debt)  which consist of 18 private financing arrangements with onshore and offshore financial institutions and investment firms.  Notably:

   (i)   They are primarily syndicated or bilateral loan facilities governed by Hong Kong law or PRC law.  Their maturities fall between 2026 and 2030, with interest rates ranging from 3.795% + CNH HIBOR to 12.41% per annum;

   (ii)   They are secured by assets owned by the Group’s subsidiaries, including shares of the PRC entities, land and development projects in the PRC and/or cashflow from onshore projects; and

   (iii)   Their estimated recovery rates vary considerably in case of the Company’s liquidation, namely, nil to 3.28% for the S1 and the S2 Debts, 42.31% to 100% for the S3 Debts, and 20% to 50% for the S4 Debts.

14.  The Company assumed different roles across the In-Scope Debt portfolio.  It is the direct issuer of all 2023 Securities, the borrower of three Private Debts facilities (Private Debts A, B and C totalling USD212.36 million), and the guarantor of the remaining 15 Private Debts facilities (totalling USD2.24 billion).  Some of these Private Debts facilities also benefit from security or guarantees provided by 22 wholly owned subsidiaries of the Group incorporated in the Mainland, Hong Kong, or the British Virgin Islands (“Existing Subsidiary Obligors”).

15.  Lastly, one secured offshore loan borrowed by the Company from a commercial bank with a principal amount of approximately USD110.00 million (representing 1.23% of the Company’s total debt)  is excluded from the Scheme.  This loan will be restructured bilaterally. According to the restructuring agreement, which the parties are in the process of finalising, the lender will retain existing onshore security, waive past default interest and convert the existing loan into a combination of equity in the Company and a 10-year debt of approximately USD38.50 million.

Scheme Consideration Structure

16.  Each Scheme Creditor will receive Scheme Consideration pro rata to its Distribution Scheme Claim, which is the sum of (1)  the outstanding principal amount of its In-Scope Debt held at the Record Time, i.e. three business days before the Scheme Meeting, and (2)  accrued and unpaid interest (excluding default interest)  up to, but excluding, 30 June 2025.  It is expected that the aggregate Distribution Scheme Claims will total approximately USD9.60 billion.

17.  The Scheme Consideration will consist entirely of New MCBs.  That said, Scheme Creditors may elect either one, or a combination, of two series, namely, New MCB 1 and New MCB 2.

(1)  New MCB 1 converts at a fixed price of HKD6.80 per share.  It will be issued on the Restructuring Effective Date. Scheme Creditors may convert voluntarily from that date until 20 business days before maturity.  All outstanding New MCB 1 will be mandatorily converted 6 months from the Restructuring Effective Date, although the Company may trigger earlier conversion if the outstanding principal falls below USD500.00 million;

(2)  New MCB 2 converts at a fixed price of HKD3.85 per share. It will be issued on the Restructuring Effective Date.  Scheme Creditors may convert voluntarily from the earlier of 18 months after 31 December 2025 or 18 months after the Restructuring Effective Date, with the Company having discretion to open an earlier conversion window.  All outstanding New MCB 2 will be mandatorily converted 30 months from the earlier of 31 December 2025 or the Restructuring Effective Date, although the Company may trigger earlier conversion if the outstanding principal falls below USD250.00 million.  The aggregate principal of New MCB 2 is capped at 25% of the Distribution Scheme Claims, which is approximately USD2.40 billion.

18.  In terms of election, Scheme Creditors must indicate non-binding elections by the Record Time, i.e. three business days before the Scheme Meeting, and binding elections by the Scheme Consideration Election Deadline, i.e. five business days after the Scheme Meeting.  Those who fail to make elections will automatically receive New MCB 1.  Where the aggregate elections for New MCB 2 exceed the cap of USD2.40 billion, New MCB 2 will be allocated pro rata, with the balance being fulfilled by New MCB 1.

19.  The New MCBs will be guaranteed by Guarantor Group 1 and secured by share charges over Guarantor Group 1 in substantially the same manner as the Existing Notes, Existing MCB and Existing CB.

Shareholding Structure Stability Arrangement

20.  To maintain investor confidence in the “Sunac” brand, which is still closely associated with the Chairman, a Shareholding Structure Stability Arrangement is put in place to make sure that the Chairman retains a significant equity stake after the Restructuring.  Such lock-up share price performance incentivises the Chairman to drive the Group’s recovery, by ensuring that his interests are aligned with those of the shareholders, including the Scheme Creditors who will become equity holders.

21.  Under the Shareholding Structure Stability Arrangement, Scheme Creditors will receive 77% of their entitled New MCBs, while the remaining 23% will be attributed to the Chairman or his designated persons (“Chairman MCBs”).  Accordingly, for every USD100.00 of New MCBs a Scheme Creditor would otherwise receive, approximately USD23.00 will instead be issued to the Chairman.  Upon receipt, the Chairman may not sell, transfer, pledge or otherwise dispose of the Chairman MCBs before conversion, or the resulting shares after conversion, until six years after the Restructuring Effective Date, except where the Company’s share price closes at HKD7.40 or more for 30 consecutive trading days, which is a 362.5% increase on the closing price of HKD1.60 as of 1 September 2025.  The Chairman, however, retains all voting and dividend rights.

22.  The effect of the Shareholding Structure Stability Arrangement is that the Chairman’s shareholding in the Company will not be substantially diluted before and after the Restructuring.  As of the Latest Practicable Date, the Chairman is beneficially interested in approximately 23.90% of the issued share capital of the Company.  Under this Arrangement, the Chairman’s shareholding in the Company following the Restructuring will remain at approximately 23.42%.

23.  In real terms, the Chairman will receive up to USD2,219,500,000.00 in principal amount of Relevant New MCBs under the Shareholding Structure Stability Arrangement.  Assuming full conversion and an allocation between New MCB 1 and New MCB 2 in the proportion of 75% and 25%, these Chairman MCBs will convert to approximately 3,033,585,131 Relevant Conversion Shares.

Consent Fees and Professional Costs

24.  To incentivise early confirmation of support from Scheme Creditors, the RSA provides for Consent Fees payable in MCBs identical to New MCB 1.  There will be an Early Consent Fee of 1% of principal for accession by 23 May 2025, and a Base Consent Fee of 0.5% of principal for accession by 20 June 2025.

25.  The aggregate Consent Fees total approximately USD60.67 million (representing 0.69% of the In-Scope Debt).  This amounts to an additional recovery of only 0.10% to 0.20%.  Consent Fees do not, therefore, in my view operate as disguised consideration.

26.  In terms of professional costs, the Company has agreed to pay up to USD900,000.00 to the ICC Advisor for legal fees and expenses.  Apart from this, the ICC will not receive any work fees or additional benefits not available to other Scheme Creditors.

Releases, Excluded Liabilities Parties and Contribution Waivers

27.  The Scheme provides for three categories of releases, which will be effective from the Restructuring Effective Date.

(1)  The 1^st category concerns primary releases of the Company’s obligations in connection with the In-Scope Debt.  Each Scheme Creditor will discharge and release the Company from all Scheme Claims, i.e. all obligations and liabilities under or in connection with the In-Scope Debt, whether arising before, at or after the Record Time;

(2)  The 2^nd category concerns ancillary releases of Existing Subsidiary Obligors in connection with the S1 Debts and the S2 Debts.  Each Scheme Creditor will discharge and release the 22 Existing Subsidiary Obligors from Ancillary Claims.  These releases prevent ricochet claims through indemnity or contribution rights against the Company (in its capacity as an issuer, a borrower or a co-guarantor)  which could risk undermining the Restructuring;

(3)  The 3^rd category concerns restructuring activity releases.  Each Scheme Creditor will waive claims against Released Persons (including the Group, directors, advisers and administrative parties)  in relation to the preparation, negotiation, sanction or implementation of the Scheme and the Restructuring.  These releases are essential to securing the cooperation of such parties in executing the documentation required for the implementation of the Scheme and the Restructuring.

28.  The abovementioned releases are subject to carve-outs which preserve remedies for serious misconduct. Notably, these releases do not prejudice the creditors’ rights arising from fraud, wilful default, gross negligence or wilful misconduct.  There is no general release for directors, officers or advisers for matters unconnected with the Scheme, the In-Scope Debt or the Restructuring. In respect of the directors, these releases do not “exempt a Director from any liability that would otherwise attach to such Director in connection with any breach of that Director’s general legal or statutory duties, any fraud, gross negligence, wilful default or wilful misconduct in relation to (in each case)  the Scheme, the Existing Finance Documents and the New Finance Documents” (Clause 2.4(b)  of the Deed of Release).

29.  There is also no release for the obligors as regards the S3 Debts and the S4 Debts, namely borrowers, security providers and guarantors other than the Company (“Excluded Liabilities Parties”), given the security provided to the Scheme Creditors in respect of those debts.  The rights of the relevant Scheme Creditors against the Excluded Liabilities Parties are preserved by the Restructuring, while the Company will be protected because all of the Excluded Liabilities Parties will expressly waive all potential ricochet claims against the Company on the Restructuring Effective Date.

Restructuring Effective Date and Restructuring Conditions

30.  The Scheme becomes binding on the Scheme Effective Date, or once the order which sanctions the Scheme is filed.  Upon satisfaction of the Restructuring Conditions, the compromises under the Scheme will take effect on the Restructuring Effective Date.

31.  The Company is on track to satisfy all Restructuring Conditions prior to the Restructuring Effective Date. The target date for the Restructuring Effective Date is 31 December 2025, with a longstop date of 31 March 2026 under the RSA.

32.  Approval from the National Development and Reform Commission (“NDRC”)  is required in accordance with the Administrative Measures for the Review and Registration of Medium- and Long-Term Foreign Debts of Enterprises.  This is because the Company intends to issue, under the Scheme, New MCB 2s which will remain as bonds until the mandatory conversion window after 30 months from the Restructuring Effective Date or 31 December 2025, whichever is earlier.  Following the Convening Hearing, the Group submitted its application to the NDRC for approval.  I am told that the NDRC’s feedback has been broadly positive and that the Company intends to submit the sealed Sanction Order to the NDRC once approval has been obtained.

Creditors’ Stances

33.  On 12 September 2025, Cinda wrote to the Company to convey its concerns regarding (1)  the class composition of the Scheme Meeting and (2)  the fairness or commercial desirability of releasing Cinda’s rights over security granted by third parties in respect of its debt.  On 21 September 2025, Cinda expressed support for the Opposing Creditors’ objection to the sanctioning of the Scheme. Following the filing of the 2^nd Affirmation of Gao Xi, Cinda confirmed in its letter to the Company dated 27 October 2025 that it is satisfied that its concerns had been addressed satisfactorily and that it would withdraw its opposition to the Scheme.

34.  On 17 October 2025, three of the Scheme Creditors, namely Dawnbright Limited, Sunview Limited and Luso International Banking Limited (“Opposing Creditors”), filed written submissions to convey their concerns as to, inter alia, the nature of Private Debt P and the Company’s transactions with a PRC company named Guotou Zhongdian (Xianyang)  Science Park Company Limited.  At the hearing, it was confirmed by Mr Lam on behalf of the Opposing Creditors that they now adopt a neutral stance to the sanctioning of the Scheme in light of the 2^nd Affirmation of Gao Xi.

Legal Principles

35.  By the time of the hearing, there was no objection by the Scheme Creditors.  Accordingly, I sanctioned the Scheme after applying the usual test as set out in Re CIFI Holdings (Group)  Co Ltd[2], namely:

(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 the necessary statutory majorities have been obtained;

(5)  Whether creditors have been given sufficient information about the scheme to enable them to make an informed decision on whether to support it;

(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.

36.  I am satisfied that all of the above factors have been met in this Scheme.

Permissible Purpose

37.  The Scheme represents a legitimate effort at debt restructuring for a financially distressed company.  This is a permissible purpose (e.g. Re CIFI Holdings (Group)  Co Ltd[3]).

38.  The Scheme also provides for ancillary releases in favour of the Existing Subsidiary Obligors in connection with the S1 Debts and the S2 Debts, and other Released Persons in relation to the preparation, negotiation, sanction or implementation of the Scheme and the Restructuring. Such releases serve a permissible purpose (e.g. Re CIFI Holdings (Group)  Co Ltd[4]).

39.  The applicable principles in considering whether creditors are properly classified are not controversial[5].  One helpful summary is that by Smith J in Re Madagascar Oil Ltd[6]:

“[A] class must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest …, a test requiring an exercise of judgment on the facts of each case … A broad approach is taken, with the differences in rights being material – certainly more than de minimis – without leading to separate classes …

[T]he dissimilarity of rights test is to be applied based upon an analysis of (i)  the rights to be released or varied under the scheme and (ii)  the new rights (if any)  which the scheme gives by way of compromise or arrangement to those whose rights are to be released or varied. Where a scheme of arrangement is proposed as an alternative to a formal insolvency process, the application of the first limb of the similarity of rights test requires the court to identify the rights that the creditors would have in that insolvency process, rather than those that they would have if the company were to carry on business in the ordinary course.”

40.  The appropriate comparator is the Company’s liquidation because the Company is likely to go into liquidation should the Scheme fail.  The Scheme properly classifies the Scheme Creditors into a single class.  This is because all Scheme Creditors have the same rights to select their preferred Scheme Consideration and also Scheme Creditors’ claims against the Company would rank pari passu in case of the Company’s liquidation.

41.  The following features of the Scheme do not in my view fracture the class composition.

(1)  The fact that some of the In-Scope Debt benefits from security granted by the Company itself does not fracture the class.  This is because the security is independently assessed to be valueless (e.g. Re Hong Kong Airlines Ltd[7]).

(2)  Whilst the Scheme Claims against the Company are unsecured, the mere existence of security provided by the Existing Subsidiary Obligors or the Excluded Liabilities Parties to the Scheme Creditors would not fracture the class (e.g. Re CIFI Holdings (Group)  Co Ltd[8]).

(3)  The inclusion of Sunac International would not fracture the class.  Sunac International, as an affiliate of the Chairman, holds a subordinated MCB and is expected to receive nil in case of the Company’s liquidation.  Sunac International did not vote at the Scheme Meeting and, indeed, was never intended to vote.  It did not sign the RSA and did not receive any Consent Fee as a result.  Nevertheless, I accept that it is proper to place Sunac International in the same class as the other Scheme Creditors for the following reasons.

(i)  Sunac International’s rights in case of the Company’s liquidation, namely nil recovery, are substantially similar to the rights of other Scheme Creditors who would face a pari passu distribution from a deficient estate with an estimated recovery rate of approximately 2.78% to 5.00%.[9]

(ii)  As Sunac International abstained from voting, its inclusion could not have affected the outcome or the consultation process.

(iii)  Since Sunac International has already agreed to be bound by the Scheme, it would be pointless to place Sunac International in a separate class.  Whilst it is possible to convene a one-member class meeting where that is the sum total of members of that class, it is more normal for the creditor concerned if supportive of the Scheme (as is Sunac International)  simply to undertake to the Court to be bound by the terms of the Scheme (e.g. Re Dreameast Group[10]).

(iv)  In these circumstances, placing Sunac International in a separate class would lead to an unnecessary proliferation of classes, which the Court tries to avoid (e.g. Re Chandlers Building Supplies Holdings Ltd[11]).

(4)  The ancillary discharge of Released Persons, in addition to the Company, would not fracture the class (e.g. Re CIFI Holdings (Group)  Co Ltd[12]). I accept that such ancillary discharge is consistent with contemporary scheme practice.

(i)  The discharge of the Existing Subsidiary Obligors to guard against risks of ricochet claims (Clause 2.1 of the Deed of Release)  is necessary and conventional.

(ii)  The discharge of Released Persons in relation to the Restructuring Claims, i.e. “(a)  the preparation, negotiation, execution, sanction or implementation of the Restructuring, the Scheme, the RSA and/or the Restructuring Documents; and/or (b)  the execution of the Restructuring Documents and the carrying out of the steps and transactions contemplated therein in accordance with their terms” (Clause 2.1 of the Deed of Release)  is also necessary and conventional.

(5)  A modest consent fee available to all Scheme Creditors would not fracture the class (e.g. Re CIFI Holdings (Group)  Co Ltd[13]).

(6)  The Company’s agreement to pay for the legal expenses incurred by the ICC constitutes reimbursement for costs rather than disguised consideration to creditors. The class classification would not be fractured as a result (e.g. Re CIFI Holdings (Group)  Co Ltd[14]).

(7)  Exclusion of default interest would not fracture the class.  As explained above, Scheme Creditors’ entitlement to Scheme Consideration is based on its Distribution Scheme Claim, which includes all accrued and unpaid interest but excludes default interest.  Only lenders under the Private Debts are contractually entitled to a default interest of 2% to 6% per annum.  Nevertheless:

(i)  Differences in interest rates do not fracture the similarity of “rights in” where the comparator is an insolvent winding-up (e.g. Re Kaisa Group Holdings Ltd[15]).

(ii)  I am of the view that the difference to Scheme Creditors on a “rights out” basis arising from the exclusion of default interest is immaterial and would not require creditors of the Private Debts to vote as a separate class.

(a)  As a percentage of each of the lenders’ estimated Scheme Claim accrued up to 30 June 2025, the accrued default interest excluded from the Distribution Scheme Claim calculation is approximately 0.22% to 4.89%.

(b)  According to the Recovery Analysis Report, if default interest is to be included when determining entitlement to the Distribution Scheme Claim, the additional value attributable to the lenders is estimated to be approximately USD 10,000.00 to USD 1.29 million in recovery of the New MCBs. As such, the difference in the Scheme recovery rate arising from the exclusion of default interest is approximately 0.02% to 0.84% only.

(c)  I have borne in mind that the risk of insolvency cannot be used as a solvent for all class differences. “Otherwise, creditors who might be assumed to be clearly in separate classes, for example with different priority rights on a liquidation, could still be treated as a single class if they will all be materially better off if a scheme proceeds, even if the levels of return available under the scheme (and therefore the degree of compromise)  differ significantly.”[16] Nevertheless, I am satisfied in this case that the difference to Scheme Creditors on a “rights out” basis arising from the exclusion of default interest is not so stark that it is impossible for them to consult together with a view to their common interest.

(d)  A material difference in legal rights does not necessarily fracture the class[17], let alone a minor difference.

Compliance with the Convening Order

42.  The Convening Order has been complied with.  The 2^nd Affirmation of Gao Xi dated 23 October 2025 confirms 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.

Statutory Majorities

43.  The requirements under section 674(1)(b) of the Ordinance have been satisfied.  At the Scheme Meeting held on 14 October 2025, an overwhelming majority of the Scheme Creditors—namely, 98.46% of Scheme Creditors in number or 94.48% of Scheme Creditors by value—voted in favour of the Scheme.

Sufficient Information Provided to the Creditors

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

“[A] company is under a duty to include in the explanatory statement all the information necessary for creditors to assess whether the scheme is in their best interests or not. The extent of the information required will depend on the facts of the case. Generally, a company will be required to provide specific information to support its predicted outcomes.”[18]

45.  The question is not whether further information could have been provided by the Company; the key question is whether what was provided by the Company was sufficient to enable an informed decision on the question in hand to be made[19].  That said, information overload should be avoided.

“The Explanatory Statement had to tread a difficult course between including lots of detail, which would run the risk of obscuring the key issues on which Scheme Creditors had to decide, and undue brevity which might not provide Scheme Creditors with the information reasonably necessary to enable them to make an informed decision.”[20]

46.  The Explanatory Statement satisfies the requirements under section 671(3) of the Ordinance for the following reasons.

(1)  It outlines the Company’s operations and worsening financial conditions[21]. It also explains the commercial rationale of the Scheme and the expected benefits of the Restructuring on the Company’s financial conditions[22].

(2)  It makes clear that there is a material risk that certain existing creditors will take enforcement actions against the Company in respect of its outstanding obligations, and that the Company may have to be liquidated as a result.  The Scheme is, therefore, presented as an alternative to the Company’s liquidation[23].

(3)  It contains a compendious summary of the Restructuring, namely the steps to be taken to implement the Scheme, the class composition of the Scheme Meeting[24], as well as the available options and allocation for Scheme Consideration[25].

(4)  It provides detailed estimates from an independent party of the likely returns for the Scheme Creditors in case of the Company’s liquidation and under the Scheme, thereby providing a basis for informed decision-making.[26]

(5)  It contains a detailed disclosure of risk factors, including the risks relating to the implementation and the non-implementation of the Scheme as well as the risks relating to the New MCBs. Specifically, it sheds light on the Group’s business prospects, ongoing litigation and other onshore financing arrangements.[27]

47.  Following the Convening Hearing, further information was provided by the Company in the Explanatory Statement on certain aspects of the Scheme. On the whole, I am now satisfied that the Explanatory Statement is sufficiently informative.

(1)  First, there is more information on the purpose of the Shareholding Structure Stability Arrangement, which is to make sure that the Chairman has a continued shareholding interest in the Company at around 23.90% as of the Latest Practicable Date.  There is also more information on the practical implications of this Arrangement, namely, the Chairman’s shareholding interest in the Company will remain at approximately 23.42% after the Restructuring as compared to 11.17% in the absence of such Arrangement[28].

(2)  Second, there is a further illustration which allows the Scheme Creditors to consider the amount of Consent Fees receivable in real terms.  It helpfully specifies the amount of Consent Fees receivable in case of the Company’s liquidation, and in scenarios where the Scheme Creditor is an Early Eligible Consenting Creditor or a Base Eligible Consenting Creditor.[29]

(3)  Third, the Company considered, in more detail, whether the exclusion of default interest for the purpose of calculating the Distribution Scheme Claim would fracture the class composition.  According to the latest calculation, the difference in recovery represented only 0.02% to 0.84% of the relevant lenders’ total claims.  The Company submitted, which I accept, that such difference is immaterial and that such exclusion would not require those entitled and those not entitled to default interest to vote as a separate class[30].

“Intelligent and Honest Man” Test

48.  I have recently restated the relevant principles in Re Add Hero Holdings Ltd[31]:

“85. The Court is normally slow to differ from the majority of creditors’ views, as it normally acts on the basis that businessmen are much better judges of what is in their commercial interest than the Court. Whether a compromise of the sort contained in the Holdings’ Scheme is financially preferable to a compulsory winding up is a matter of commercial judgment. Opinions may differ on which course is likely to be most beneficial, but as the language in which the ‘intelligent and honest man’ test is framed indicates the Court will only override the views of the majority if their view seems sufficiently odd that it suggests it was arrived at as a consequence of either a failure properly to assess the terms of the compromise or considerations other than its merits. It is rare for the Court to interfere on this ground and I am only aware of one case in Hong Kong in which a judge considered this to be a ground (although only one amongst others)  for declining to sanction a scheme; a privatisation for which the judge considered the offer price was too low. The company’s share price in subsequent years illustrates the danger of the Court straying into the area of commercial judgment.

86.  In practice an argument that the compromise is so unattractive it is not one a hypothetical intelligent and reasonable creditor would approve is likely to be unnecessary, because if it is satisfied it is likely to be because either creditors have not had the scheme properly explained to them (in which case it is likely that the explanatory statement will have been shown to be defective and sanction refused for that reason)  or there is evidence to suggest that a statutory majority was only obtained because creditors with some collateral reason for supporting the scheme did so in which case it is likely that they would have had a special interest and their votes discounted. These are more straightforward issues to determine than the commercial merits of a scheme ...”

49.  I am satisfied that the Scheme is one that an intelligent and honest man, as a member of the class concerned and acting in respect of his interest as a member, might reasonably approve.  The Scheme offers a genuine prospect of a significantly greater future return (14.41% to 24.67%)  to the relevant Scheme Creditors than could be obtained in the alternative which is the Company’s liquidation (2.78% to 5.00%)[32].  Above all, its commercial advantage is attested by the Scheme Creditors’ overwhelming support for the Scheme.

International Dimension

50.  The Scheme is international in scope. There are two aspects of this that need to be considered.  The first concerns the Court’s jurisdiction over a scheme promoted by a foreign company.  Where a scheme is promoted by a foreign company, it is well-established that the Court has to consider whether there is sufficient connection between the scheme and Hong Kong (e.g. Re Sunac China Holdings Ltd[33]).  There is clearly sufficient connection in the present case.

51.  Second, the Court has to consider whether the scheme is effective in other jurisdictions of practical importance.  This is because it would not be a proper exercise of discretion to sanction a scheme that serves no purpose.  In practice, whether a jurisdiction is of practical importance to the efficacy of a scheme sanctioned in Hong Kong will commonly be determined by the following considerations[34].

(1)  Is a material amount of the 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 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 the scheme as compromising the debt?

(3)  The amount of debt involved.  If, for example, the amount of the 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.

52.  The considerations relating to Scheme Claims governed by different systems of law in the present case are as follows:

(1)  Where Scheme Claims are governed by Hong Kong law, any dissenting creditors’ opposition should not hamper the effectiveness of the Scheme.

(2)  The Scheme Creditor holding the Mainland law-governed Scheme Claim (i.e. CQT)  voted in favour of the Scheme.

(3)  As regards the ancillary releases in favour of the Existing Subsidiary Obligors whose obligations are governed by Mainland law, the Company has obtained expert evidence from Professor Shi Jingxia confirming a credible pathway to recognition and effectiveness of the Scheme in the Mainland.  In brief, this may be achieved through the 2021 Mainland–Hong Kong cooperation mechanism (“Cooperation Mechanism”), or alternatively via recognition of the deeds of release to be executed by the Company under a power of attorney created by Clause 11.2 of the Scheme, applying conventional Mainland conflict-of-laws rules.

53.  Two matters arising from Professor Shi’s opinion are of particular significance. First, Professor Shi fairly acknowledges that there is some uncertainty around the use of the Cooperation Mechanism in this case, not least because the present Scheme is not promoted by a liquidator or provisional liquidator.  Nevertheless, Professor Shi opines that the Scheme will be effective in the Mainland.  When assessing international effectiveness, the Court does not require absolute certainty. The established test has been expressed thus:

“The English court does not need certainty as to the position under foreign law, but it does require some credible evidence that it will not be acting in vain….

Such credible evidence must show that the scheme is likely, or at least will have a real prospect, of having substantial effect or at least a reasonable prospect that the scheme will be recognised and given effect” (Re Reliance National Insurance Co (Europe)  Ltd [2025] EWHC 789 (Ch)  at [99] (Richards J)” (internal quotations omitted).

The intention of the Company is to apply for recognition of the Scheme in Shanghai.  Given Professor Shi’s evidence it seems to me that I can properly proceed on the basis that there is a reasonable prospect of the Scheme being recognised and this provides a basis for accepting that the Scheme will be effective in the Mainland to compromise Scheme Debts.  That having been said it seems to me that on another occasion this view may need more detailed investigation for the following reason.  The Cooperation Mechanism regulates recognition of insolvency processes and extends to schemes introduced by a provisional liquidator or liquidator.  The present Scheme is introduced by the Company and the Company is not in any form of Hong Kong insolvency process.  At the hearing I raised this matter with Mr. Ho, who very helpfully provided me with English authorities addressing the question of whether or not a scheme of arrangement introduced by a financially distressed company to restructure its debt is properly characterised as an insolvency process. The answer may change depending on the jurisdiction in which the question is asked.  That having been said it may be useful to make brief reference to the position as it is explained in relevant English authorities.

54.  In Re Gategroup Guarantee Ltd (No. 1)[35] , Zacaroli J held that the concept of “judicial arrangements, compositions and analogous proceedings” in the Lugano Convention covers an English restructuring plan under Part 26A of the Companies Act 2006 and he notes a similar position in relation to the Cape Town Convention. Zacaroli J reasoned that a scheme is designed to enable a company in financial difficulties to reach a composition or arrangement with its creditors and is similar in purpose and character to processes found in legislation, which is specifically formulated to regulate corporate insolvency.  That being the case a scheme can be properly treated as falling within a category of process, which although not described as a scheme of arrangement has similar characteristics. In other words, the precise descriptive language used is not determinative. Mr. Ho argued that similarly a scheme of arrangement introduced by a financially distressed company to restructure its debt and return to the company to solvency, falls within the description in the Cooperation Mechanism. Ultimately, this (in the present context)  is a matter of Mainland Law as that is where recognition would be sought.  Professor Shi has expressed the opinion that this is how a Mainland Court would view this position.  As I said earlier that view, which is clearly credible, is sufficient for present purposes.

55.  The second matter of significance is the use of a power of attorney in the way contemplated in the Scheme.  It has become common practice in structuring schemes to appoint the company as the agent and attorney on behalf of each of the scheme creditors to enter contractual documents including releases[36]. However, achieving international effectiveness by way of foreign recognition of a power of attorney granted under the Hong Kong scheme is a novel development in Hong Kong. A similar rationale has recently been accepted by the English court in Re Smile Telecoms Holdings Ltd[37]:

“The second issue going to the exercise of discretion is the question of whether it is appropriate for the English court to sanction a Plan that will lead to the alteration of the constitution and share capital of an overseas company incorporated in Mauritius….

The novel issue that arises in the instant case is that there is no parallel scheme or plan for the Company in Mauritius. The question is whether that fact ought, as a matter of principle, cause me to decline to exercise the jurisdiction to sanction the Plan. I do not think that it should. The essential reason is that … the use of a parallel scheme or plan is an aspect of ensuring the international effectiveness of the English restructuring proceedings, rather than a strict legal requirement under the Act. Accordingly, if the court can be satisfied on evidence that the necessary alterations to the constitution and share capital of an overseas company can be satisfactorily achieved in the overseas jurisdiction by an alternative process that is compliant with local laws and acceptable to the local courts without any need for a parallel scheme or plan, then the absence of such a parallel proceeding should not deter the English court from sanctioning the plan….

That brings me to the third point: how can the Plan be given effect in Mauritius? Ms. Toube submitted that this would be … because those aspects of the Plan requiring changes to the Company’s constitution and share capital could validly be implemented in Mauritius by the Company itself, using the power of attorney conferred under the Plan to act on behalf of the Plan Members….

The real question, therefore, is whether I can be sufficiently satisfied that the procedure envisaged under the Plan for altering the constitution and share capital of the Company using the power of attorney conferred under the Plan, will be acceptable and effective in Mauritius. This is essentially a matter for expert evidence as to the law of Mauritius….

I see no reason (and none is offered)  as to why the question of whether that authority to act on behalf of Plan Members would be effective in Mauritius would also be a matter to be determined in accordance with English law rather than Mauritius law, as the law of the place where the relevant use of the power of attorney is to occur (the lex loci actus)  in relation to the internal affairs of a Mauritius company…(Emphasis added).

Professor Shi opines that a power of attorney created by Clause 11.2 of the Scheme, will be recognised in the Mainland by a court applying conventional Mainland conflict-of-laws rules. This provides another route leading to the conclusion that there is a realistic prospect of the Scheme being effective to compromise the Mainland Scheme Debts. I would note an important corollary of this conclusion. If this analysis is correct it circumvents the Rule in Gibbs[38]. Generally, the Hong Kong court will proceed on the basis that a debt can only be compromised in accordance with the law, which governs the debt. The technique I have described involves the Mainland law governed Scheme Debt being compromised by the execution by the Company pursuant to a power of attorney of a release by a Scheme Creditor of the debt owed to it. I have some reservations about whether even if Professor Shi is correct given this apparent inconsistency with the Rule in Gibbs the Court should proceed on the basis that this technique results in the Scheme compromising the Mainland law governed debt. However, given that an alternative route is available for reaching the same conclusion I do not think this is an impediment to sanctioning this Scheme. This is an interesting issue, which may require more detailed consideration in the future.

56.  Given the high level of accession to the RSA by Scheme Creditors holding foreign law debt, the Company does not require a parallel scheme in the Cayman Islands or Chapter 15 recognition, particularly as the Company holds no assets in the US and no creditor has indicated any intention to commence proceedings.

No Blot or Roadblock

57.  Lastly, the Court will consider whether there is any blot on the Scheme which may hinder its operational effectiveness (e.g. Re China Bozza Development Holdings Ltd[39]).

58.  It is a recognised practice in complex restructurings that schemes sanctioned by the Court typically take effect following a series of post-sanction steps.  This Scheme is similar because the Restructuring Effective Date is conditional on a series of post-sanction steps to implement the Scheme.  I accept that the Company is on track to satisfy the Restructuring Conditions, and that there is no blot on the Scheme.

59.  Accordingly, I am satisfied that the Scheme is one that the Court can and should sanction in the exercise of its discretion.

Conclusion

60.  The Scheme is a legitimate debt restructuring scheme which has satisfied all relevant statutory requirements.  It has also received the requisite support from the Scheme Creditors, each exercising independent commercial judgment.

61.  Therefore, I sanctioned the Scheme and made an order in terms of the draft submitted to this Court.