RE FOUNDER INFORMATION (HONG KONG) LTD

HCCW 350/2020

[2021] HKCFI 1749

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 350 OF 2020

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D E C I S I O N

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1.  On 1 February 2021, I made an order winding up the Company [1]. The Company’s ultimate parent is Peking University Founder Group Company Limited (“PUFG”) which is in Mainland reorganisation proceedings. I understand that those proceedings are at an advanced stage. On 1 March 2021, I made a regulating order appointing the liquidators.

2.  The Company’s creditors include The Bank of New York Mellon, which serves as trustee in connection with a series of floating rate bonds issued by Kunzhi Limited and guaranteed by the Company.  One of the Company’s largest current assets is an approximately 60% shareholding in PKU Resources, which is incorporated in Bermuda and listed on the Main Board of the Stock Exchange of Hong Kong.

3.  PKU Resources is an investment holding company with operating subsidiaries in the Mainland (together, “PKU Resources Group”). The PKU Resources Group’s business is principally in the distribution of information products, property development and property investment.  PKU Resources’ shares have been suspended from trading since 26 April 2021.  This is due to PKU Resources’ inability to publish on time its annual report for the year ended 31 December 2020.

4.  PKU Resources’ management have refused to cooperate with the liquidators in their attempts to conduct an independent investigation in order to ascertain the value of PKU Resources and the interest that the Company holds in it.  It would, however, appear that PKU Resources is itself facing financial difficulties.  The liquidators’ investigations suggested to them that a number of PKU Resources developments in the Mainland have been halted due to lack of funding.  The liquidators are concerned that in order to address PKU Resources’ financial problems, it is necessary for PKU Resources to identify an investor which is willing to provide them with the necessary finance.

5.  It would also appear that PKU Resources’ subsidiaries in the Mainland are subject to pending litigation and creditor enforcement action.  Those proceedings are currently stayed because of PUFG’s administration proceedings in Beijing.  The liquidators have also established from the information available to them that trading in PKU Resources’ shares has been extremely thin.

6.  In the circumstances, the liquidators consider that it is prudent to explore the prospects of a sale of the Company’s 60% shareholding in PKU Resources.  They have taken a number of steps in order to do so. They have obtained a valuation of the shareholding from Greater China Appraisal Limited.  The valuer has assessed the market value of the shares as at 17 May 2021 at HK$343.8 million.

7.  The liquidators have also commenced a tender process. This required submissions of offers, the terms of which included the provision of a 10% deposit, also by 17 May of this year.  This has resulted in three compliant offers.  The average compliant offer price is HK$394.3 million, this is approximately 10% more than the valuation.  In the circumstances, the liquidators’ view is that it would be prudent to dispose of the shareholding.

8.  There are, however, two interested groups who have voiced objections to the liquidators’ proposed course of action.  The first is, certain of the ultimate beneficial owners of the bonds.  They have suggested that what is proposed amounts to a fire sale and that the liquidators should delay the sale pending obtaining a more informed assessment of the likely value of the Company’s interest in PKU Resources.  They have not, however, been able to provide any information which supports their concern.

9.  The second group are the Onshore Investors Consortium which is currently involve in the administration of PUFG in Beijing.  The Consortium consists of Zhuhai Huafa Group Co, Ltd (on behalf of the Zhuhai State-owned Assets), Ping An Insurance (Group) Company of China Ltd and Shenzhen SDG Group Co Ltd.  They have not, however, indicated a willingness themselves to buy the Company’s stake in PKU Resources. However, their representatives have indicated that if the sale were to proceed, they will take certain steps, in the nature of enforcement, to interfere with the underlying assets owned by the subsidiaries of PKU Resources.  I have a difficulty seeing as apparently do the liquidators, how this threat in practice operates as other than an incentive to sell.  Be that as it may, it is a matter which has led the liquidators to take the view that it is appropriate and prudent for them to seek an order from the court confirming the propriety of the proposed sale.

10.  There is no dispute that the liquidators, have the power to direct the sale of the shares pursuant to section 199(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32.  It is, therefore, not necessary for them to get the court’s approval to sell.  What they seek by their application is a direction under section 200(3) of the Ordinance that their proposed course of action falls within the range of decisions that a liquidator in possession of the information available to the liquidators might decide to take.

11.  The principles which guide the court in deciding whether or not it is appropriate to make directions are as follows:

(1)  An application by a liquidator for directions is not the occasion for the making of order affecting the rights of outsiders. Its effect is merely to sanction a course of conduct on the part of the liquidator so that he may adopt that course free from the risk of personal liability for breach of duty.

(2)  The Court may give directions where it will be of advantage in the liquidation. The Court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion.

(3)  The Court will not generally give a direction where the matter relates to the making or implementation of a business or commercial decision or when no legal issue is raised or there is no attack on the propriety or reasonableness of the liquidator's decision, but may do so where such an attack is in prospect.

See Re Longmeade [2]; Re BBY [3]; Warner (liquidator), in the matter of Sakr Bros [4]; Re Patrick Cowley [5].

12.  Mr Ho on behalf of the liquidators argued that this is an appropriate case for the court to provide assistance to the liquidators given the significance of the transaction and the objections that they have received. He referred me to the decision at Mr Justice Snowden in Re Longmeade [6] in which at [71] he says in an analogous situation.

“As regards the decision to commence litigation, although it is not for the court to take that decision for the Liquidators, the circumstances of this case are highly unusual and I think that some reassurance for the Liquidators is appropriate. In my view, if there remain one or more creditors, even for comparatively small amounts, who would lose the opportunity for a materially increased distribution if the Claim were not to be pursued, then on the basis of counsel’s advice and the other material placed before me which demonstrates that the majority of creditors are pursuing their own agendas, I think that a decision by the Liquidators that Longmeade should pursue the Claim at no financial risk with the assistance of funding from Manolete would be within the range of decisions that a reasonable liquidator could properly take.”

13.  In my own decision in Re X [7], I describe the approach that the court takes faced with applications for confirmation of the reasonableness of a proposed contentious course of action as follows.

“8. It seems to me that case of this sort, the correct approach is for the court be satisfied, as I am, that it is desirable that the business is sold quickly and that in the circumstances the way in which the provisional liquidators have proceeded and the offer that they propose to accept are within the range of reasonable procedures and price.”

14.  I am satisfied that this is an appropriate case for the court to provide a direction which gives the liquidators’ reassurance that the court agrees that on the basis of the evidence before the court, the liquidators’ proposed course of action is within the range of reasonable decisions available to them.  The summons formulated the order sought as follows:

“the Applicant be at liberty to sell in full or in part, by way of private tender, the 3,850,134,407 shares held by the Company in the capital of Peking University Resources (Holdings) Company Limited (stock code 618), in accordance with the bid process letters issued by the Applicant on 7 May 2021.”

15.  I suggested to Mr Ho at the outset of the hearing that this language might not be appropriate as it tended to suggest that the court was making an order, which it might reasonably be assumed by the reader was necessary, giving the liquidators’ liberty to sell.  This in fact is not what the court would be ordering.  Mr Ho agreed.

16.  I propose that the order should commence with the following language which in my view is more apposite: “it would be a proper exercise of the applicant’s powers of sale under section 199(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 for the Company to sell in full or in part…”.  I invited Mr Ho to give further thought to whether that language was the best, but subject to any further submissions that I receive after the hearing that is the order that I propose to make along with an order that the costs of and incidental to this application be paid out the assets of the Company.