RE DIFFER GROUP AUTO LTD

HCCW 266/2023

[2023] HKCFI 3144

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 266 OF 2023

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D E C I S I O N

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1.  I have a summons before me dated 6 November 2023 issued by the Company seeking a validation order in the following terms:

“1. Notwithstanding the presentation of the Petition herein dated 16 June 2023, any payment or application or disposition of the sum of HK$19,399,127 (being the net proceeds generated from the placement of the 363,620,000 new shares of the Company completed on 11 October 2023 and paid into bank account no. 039-73010341212 held with Chiyu Banking Corporation Limited):-

(a) Up to HK$8,000,000 in the ordinary course of business of the Company and its subsidiaries (including payment of office rental and employees’ salaries);

(b) Up to HK$11,399,127 for the purposes of facilitating the implementation of the debt restructuring plan of the Company (including the payment of its legal and professional costs and expenses);

shall not be void by virtue of section 182 of the Companies (Winding Up and Miscellaneous Provisions)”

2.  The proceeds of the placement are intended, as it is apparent from the language of the summons, to be used partly to finance the continuation of the group of companies of which the Company is the apex.

3.  The Petitioner expressed some concerns about the application, partly, as I understand it, because of reservations it has about the viability of a scheme of arrangement, the Company has introduced and which will first become before the court in January of next year.

4.  As the new money to which the validation order relates is entirely the product of a placement of new shares, it seems to me that it is difficult to identify any material prejudice to the creditors.  It seems to me that the right way to think about an application of this sought is to ask whether there is any reason to think that the creditors would be worse off than they would have been at the time that the Petition was presented, if the order granted. As the payments in respect to which the validation order are sought, are to be settled exclusively out of the new money raised by the post-petition placement, as part had the proposed restructuring, it seems to me that it is unlikely that the existing creditors could ever be prejudiced.  The investor has not become a creditor of the Company by virtue of injecting the new money.

5.  Mr Yan who appeared for the Petitioner suggested that as we do not know what if any conditions may have been imposed.  It is possible that the investor has some right to unravel the placement in the event that the restructuring proves unsuccessful.  It seems to me that this must be inherently unlikely as if the new money constitutes new capital of the Company, it could only be returned to the investor by reducing the Company’s capital, which I would have thought in practice, if the Company was in liquidation, would be impossible.

6.  I will, therefore, grant the order sought and include a paragraph which requires the Company to provide documents evidencing the payments covered by the validation order to the Petitioner seven days prior to payment.