RE CHINA EVERGRANDE GROUP (IN LIQUIDATION)

HCCW 220/2022

[2025] HKCFI 1638

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 220 OF 2022

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D E C I S I O N

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1.  This is an application[1] made by the liquidators (“Liquidators”) of China Evergrande Group (中國恒大集團) (in liquidation) (“Company”) for directions on appointment and composition of a committee of inspection (“COI”). The application raises a number of issues concerning the liquidation of the Company most of which are not controversial. The main issue dividing the parties is whether a person holding an economic interest (as opposed to a legal right) in a note or bond in the global form may be appointed as a member of COI when a regulating order is made against the company. I shall refer to this as “Eligibility Issue”.

2.  For the purpose of the application, the Liquidators came up with a term “Ultimate Holders” to capture the persons[2] falling within the same class, which is defined in §5 of the Summons as:

“persons holding an economic interest in any bond, note or similar instrument pursuant to which the Company is alleged to be liable, where such instrument is in global form and/or held through a trustee, common depository or in similar structure.”

3.  The Eligibility Issue is important in respect of the liquidation of the Company and generally for a number of reasons:

(1)  A very substantial amount of debts provable in the liquidation of the Company arose out of the “CEG Notes” (as defined in §7(1) below), all of which are registered in the name of the “Holder” and are administered by the “Trustee” (as defined in §7(3) below). The Holder and the Trustee, both of which are financial institutions, do have any economic interest in the CEG Notes, and the Trustee has indicated that it does not intend to take any active role even if appointed as a member of COI.

(2)  According to the Liquidators, there is an expectation in the market that the Ultimate Holders, who have hitherto been the most active community involved in the attempts to restructure the Company’s indebtedness and in the petition which led to the winding up of the Company, should be eligible for appointment as members of COI[3].

(3)  The Liquidators consider that the court’s decisions on (a) the question whether Ultimate Holders are “creditors” and have locus to present a winding up petition, and (b) the practice where Ultimate Holders are ordinarily permitted to vote in respect of schemes of arrangement as creditors difficult to reconcile.

(4)  The issue whether Ultimate Holders may be appointed as members of COI has never been considered or decided by the court and the legal position is far from clear. The Official Receiver (“OR”) considers that only creditors which hold the legal right of the CEG Notes may be appointed, whereas the Ultimate Holders consider that they are eligible for appointment. The Liquidators are neutral on the issue but consider that it is necessary to put forward the market expectation for the consideration of the court.

4.  Pursuant to the directions given by this Court on 15 October 2024, the Liquidators gave notice of the application and the original hearing date[4] to all known creditors (including the Ultimate Holders) of the Company and made announcements on the website of The Stock Exchange of Hong Kong Limited. The original hearing was adjourned at the request of the Liquidators to allow the OR and the Ultimate Holders to appear and argue on the application.  

5.  At the substantive hearing, this Court has had the benefit of the arguments advanced by:

(1)  The Liquidators, represented by Mr Robin Darton of Messrs. Tanner De Witt, who filed the 2^nd and 4^th affirmations of Edward Simon Middleton (“Middleton 2^nd” and “Middleton 4^th”) in support of the application;

(2)  The OR, represented by Mr William Wong SC and Ms Regina Yip; and

(3)  Burlington Loan Management DAC (“Burlington”), represented by Ms Sara Tong SC and Mr Jonathan Ng, filed an affidavit of Joseph Alexander Speakman which exhibits an expert opinion of Professor Stephen Lubben on New York law concerning the legal rights of Ultimate Holders under the “Indenture” (as defined in §7(2) below) (“Expert Opinion”). Burlington is an Ultimate Holder.

A.  Factual background

6.  On 29 January 2024, the Company was ordered to be wound up. On the same day, a regulating order was made (after a contested hearing) which provides inter alia that:

(1)  The winding up of the Company be regulated by the court pursuant to s.227A of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“CWUMPO”);

(2)  The summoning of the first meeting of creditors and contributories for considering inter alia the appointment of COI be dispensed with pursuant to s.227B of CWUMPO;

(3)  The Liquidators be appointed; and

(4)  The Liquidators shall as soon as reasonably practicable seek directions from the court under s.200(3) of CWUMPO on the appointment and composition of a COI.

7.  The facts relevant to the CEG Notes may be summarised as follows:

(1)  The Company issued 10 series of USD-denominated senior secured notes and one series of HKD convertible bonds (collectively “CEG Notes”), all of which (except 2022 Private Notes) were and still are listed on the Singapore Stock Exchange. The outstanding principal under the CEG Notes is US$14,233 million[5].

(2)  The CEG Notes were issued pursuant to various Indentures the terms of which are materially the same. For the purpose of this application, reference will be made to the Indenture of the 12% senior notes due 22 January 2024 (“Indenture”) [6]. The Indenture is governed by New York law.

(3)  The CEG Notes are held in global form by a single “Holder” as nominee of the Common Depository[7], Citivic Nominees Limited (“Holder”), in a clearing system, with a trustee, Citicorp International Limited (“Trustee”), to administer the rights and obligations of those interested in the CEG Notes in accordance with the terms of the Indenture[8]. The relationship between the relevant parties have been summarised in a diagram prepared by the Liquidators, which is reproduced in the Annexure to this Decision.

(4)  None of the Ultimate Holders have exercised their right to have the CEG Notes be transferred to and registered in their names.

(5)  According to the Liquidators, although the Indenture provides that Ultimate Holders may undertake the process of issuing definitive/certificated notes (“Definitive Notes”), in practice, it would be almost impossible to do so, in part because the CEG Notes have been widely traded. The structure of the CEG Notes is that even if a Definitive Note is issued, the difficulty in properly identifying a holder of a Definitive Note remains. This is because under the Indenture, it is the Trustee who has the right to prove and receive distribution in the liquidation of the Company[9].

(6)  As stated above, the Trustee has no intention to take any active role even if appointed as a member of COI. The Trustee’s position is that if it sits on COI, it will not express any opinion or vote on any proposed resolutions and will simply relate the same to the Ultimate Holders for them to decide. The Liquidators consider that this would be unworkable given that there are many matters which require consideration and decision by COI in a timely manner and the matters discussed at COI must be kept confidential[10].

(7)  On the other hand, at least one Ultimate Holder (Burlington) stated its intention to serve on a COI, and the Trustee will not object to the appointment of Ultimate Holders as members of COI[11].

B.  Eligibility Issue

8.  The principles of statutory construction are not in dispute. They have been stated in Chan Ka Lam v The Country and Marine Parks Authority (2020) 23 HKCFAR 414 at §§26-27, per Ma CJ and Cheung PJ (as he then was) in this way:

“26. The principles of statutory construction are well established. Words are construed in their context and purpose. They are given their natural and ordinary meaning with context and purpose to be considered alongside the express wording from the start, and not merely at some later stage when an ambiguity is thought to arise.

27. It is, however, important to emphasise that a purposive and contextual interpretation does not mean that one can disregard the actual words used in a statue. To the contrary, the court is to ascertain the intention of the legislature as expressed in the language of the statue. One cannot give a provision a meaning which the language of the statute, understood in the light of its context and purpose, cannot bear.”

9.  The purpose of a statutory provision may be evident from the provision itself. Where the legislation in question implements the recommendations of a report, such as a Law Commission report, the report may be referred to in order to identify the purpose of the legislation. The purpose of the legislation may also be ascertained from the explanatory memorandum to the bill or a statement made by the responsible official of the Government in relation to the bill in the Legislative Council (HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568 at §14, per Li CJ).

B1.  Relevant provisions

10.  The parties refer to ss.206 and 227A-227B of CWUMPO which they contend are relevant to the Eligibility Issue.

11.  Section 206(5) of the CWUMPO provides that:

“206. Meetings of creditors and contributories to consider appointment of committee of inspection; constitution of committee of inspection

(1) When a winding-up order has been made by the court, it shall be the business of the separate meetings of creditors and contributories summoned for the purpose of determining whether or not an application should be made to the court for appointing a liquidator in place of the provisional liquidator, to determine further the following -

(a) whether or not an application is to be made to the court for the appointment of a committee of inspection to act with the liquidator; and

(b) if a committee of inspection is appointed - subject to subsections (3) and (4), who are to be the members of the committee.

(2) Subject to subsections (3) and (4), the court may make any appointment and order required to give effect to any such determination, and if there is a difference between the determinations of the meetings of the creditors and contributories in respect of the matters referred to in subsection (1) the court show decided difference and make such order thereon as the court may think fit.

…

(5) A committee of inspection appointed under this Ordinance must consist of creditors and contributories –

(a) in a proportion agreed on by the meetings of creditors and contributories; or

(b) in the event of a difference, in a proportion determined by the court.” (underlined added)

12.  The provisions governing the regulating order regime are ss.227A to 227E of CWUMPO. Amongst them, ss.227A and 227B provide as follows:

“227A. Court may make a regulating order

…

(2) Where a regulating order is made it shall be published in such manner as the court may direct, and sections 227B to 227E inclusive shall apply to the winding up.

…

(4) Where any order made under section 227B, 227C or 227D prescribes any procedure it shall be deemed to be in substitution for the procedure which would be required by this Ordinance but for the making of such order, and in particular where any such order prescribes a procedure for doing something which would otherwise be done at a meeting of creditors or contributories no such meeting shall be required to be held.” (underlined added)

“227B. Appointment of liquidator and committee of inspection

…

(1A) The court may, on the application of the liquidator, by order –

(a) appoint any qualified persons that the court thinks fit as a committee of inspection;

(b) remove any member of the committee; and

(c) fill any vacancy in the committee.

(2) Where under subsection (1) or (1A) the court makes any appointment of a liquidator or a committee of inspection, or where it removes any member of such committee of inspection or fills any vacancy therein, it shall not be necessary to ascertain the wishes of the creditors or contributories, and the provisions of section 194(1)(b) or 206(1) and (2) or 207(6), (7), (7A) and (7B), as the case may be, shall cease to apply and any action taken under such provisions in respect of any appointment of a liquidator or committee of inspection or any removal therefrom or any filling of any vacancy therein shall cease to have effect.” (underlined added)

13.  This Court notes that s.243 of CWUMPO, which applies to creditors’ voluntary winding up, also deals with COI and invites the parties to make further submissions, if they wish. Section 243 provides:

“Appointment of committee of inspection

(1) The creditors at the meeting to be held in pursuance of section 237A or 241 or at any subsequent meeting, may, if they think fit, appoint a committee of inspection consisting of not less than 3, and not more than 7 persons, and if such a committee is appointed the company may, either at the meeting at which the resolution for voluntary winding up is passed or at any time subsequently in general meeting, appoint one or more persons that they think fit to act as members of the committee, but the number of persons appointed by the creditors and the company must not in total exceed 7: Provided that the creditors may, if they think fit, resolve that all or any of the persons so appointed by the company ought not to be members of the committee of inspection, and, if the creditors so resolve, the persons mentioned in the resolution shall not, unless the court otherwise directs, be qualified to act as members of the committee, and, on any application to the court handle this provision the court may, if it thinks fit, appoint other persons to act as such members in place of the persons mentioned in the resolution.

…

(2) subject to the provisions of this section and to general rules, sections 206A, 207, 207A, 207B, 207C, 207D, 207E, 207F, 207G, 207H, 207I, 207J, 207K and 207L[12] apply with respect to a committee of inspection appointed under this section as they apply with respect to a committee of inspection appointed in a winding up by the court.

(3) A body corporate may be a member of the committee but cannot act as a member otherwise than by a representative authorised under section 207A[13].”

B2.  Summary of parties’ contentions

14.  The parties’ contentions on the Eligibility Issue may be summarised as follows:

(1)  The OR contends that (a) s.206(5) governs the eligibility of membership in all COIs appointed under CWUMPO, whether formed under a regulating order or not. Section 227B(1A) only prescribes an alternative procedure for appointment of COI by the court. Only creditors[14] are eligible for appointment as COI under s.206(5). Ultimate Holders are not creditors for the purpose of s.206(5) as there is no existing legal relationship or obligation between the Company and Ultimate Holders.

(2)  The Liquidators submit that once a regulating order is made, s.206(1)-(2) are disapplied as no meeting will take place and, therefore, s.206(5) is not engaged. Under s.227B(1A), the court may appoint any “qualified persons” as COI. The natural and ordinary meaning of “qualified persons” goes beyond creditors, and the court may determine who should be appointed as COI.

(3)  Burlington argues that where a regulating order is made, s.206(5) has no application, and the court may appoint any “qualified persons” as it thinks fit under s.227B(1A). Even if s.206(5) applies, Ultimate Holders are contingent creditors and thus fall within the meaning of “creditors” for the purpose of s.206(5).

B3.  Matters not in dispute

15.  Before considering the arguments advanced by the parties, I shall set out the matters which are not in dispute:

(1)  The regulating order regime (under ss.227A-227E) was added to CWUMPO[15] in 1965, in response to the collapse of small local banks.

(2)  The purpose of enacting ss.227A-227E of CWUMPO was to prescribe an alternative procedure in liquidation involving a large number of creditors where it would be difficult to follow the normal procedure. This can be seen from the Official Report of Proceedings of the Hong Kong Legislative Council regarding the Companies (Amendment) Bill 1965:

“The object of this Bill is to make special provisions for the winding up of a company which has a very large number of creditors. In such circumstances it would be difficult to follow the normal procedure for holding creditors’ meetings. Four of the five sections which the Bill seeks to introduce into the Companies Ordinance are intended to enable a court to make orders for alternative procedures.

… These orders include procedures for keeping creditors and contributories informed of the progress of the liquidation and for ascertaining their wishes without holding meetings (section 212C), the appointment of a liquidator and committee of inspection (section 212B), and the holding of a ballot for determining whether creditors wish to accept any scheme of arrangement put forward by the company (section 212D).” (underlined added)

(3)  The regulating order regime is unique to Hong Kong (Annotated Ordinances of Hong Kong at §227A.03; Law Reform Commission’s Report on the Winding-Up Provisions of the Companies Ordinance (1999) at §14.104).

(4)  Once a regulating order is made, the mandatory requirement (imposed by s.206(1)-(2)) to hold meetings of creditors and contributories for the purpose of considering whether an application to the court for appointment of COI and the constitution of such COI is dispensed with.

(5)  Section 227B(1A) is silent on the definition of “qualified persons”. There was no discussion in the legislative materials as to why the legislature chose that phrase.

(6)  A similar regulating order regime (under ss.100A-100H) was added to the Bankruptcy Ordinance (“BO”) in 1965. Section 100E(1) of the BO provides that the court may appoint such “qualified persons” as it thinks fit as a creditors’ committee. In Butterworths Hong Kong Bankruptcy Law Handbook, 8^th ed., §100E.02, the editor noted that s.100E(1) permits appointment of a qualified person to assist and advise the trustee on matters which require special knowledge and experience, although no authority is cited.

B4.  Whether s.206(5) applies to company subject to regulating order

16.  Mr Wong submits that s.227B only addresses the procedural aspect of appointment but not eligibility of its membership which is governed by s.206(5). The phrase “any qualified persons” in s.227B(1A) should be read in light of s.206(5). Such construction is consistent with:

(1)  the legislative purpose of ss.227A-227E, which is to prescribe an alternative procedure for liquidation of a company involving a substantial number of creditors;

(2)  s.227A(4), which states that where any order is made under s.227B, the “procedure” prescribed therein is deemed to be in substitution for the procedure which would be required by CWUMPO;

(3)  the fact that s.227B(2) does not expressly disapply s.206(5);

(4)  the heading[16] of the provisions of s.206 is “Meetings of creditors and contributories to consider appointment of committee of inspection; constitution of committee of inspection” while s.227B is simply titled “Appointment of liquidator and committee of inspection”. The indication is that while s.206(5) deals with both the normal procedure and constitution for appointment of COI, s.227B(1A) only deals with the alternative procedure for appointing COI by the court under a regulating order; and

(5)  the express wording in s.206(5) indicates that it applies to any COI appointed “under this Ordinance”. The natural and ordinary meaning of s.206(5) is that the eligibility requirement imposed therein applies whenever a COI is appointed under CWUMPO.

17.  In support of his arguments, Mr Wong makes 3 further observations:

(1)  First, if s.227B(1A) is a free-standing section which governs all aspects of a COI formed under a regulating order, the court would have to interpret the phrase “qualified persons” without any guidance when it appoints a COI. Such arbitrary, unworkable and/or impractical exercise could not have been intended by the legislature and falls foul of the presumption against absurdity (Bennion, Bailey and Norbury on Statutory Interpretation, 8^th ed., at §13.1). No such absurdity would ensue if the persons who would be “qualified” for appointment is to be determined in accordance with s.206(5), which states that a COI “appointed in pursuance of this Ordinance shall consist of creditors and contributories”.

(2)  Second, the word “qualified” in s.227B(1A) can be contrasted with s.227B(1) which states that the court may “appoint one or more persons that the court thinks fit as a liquidator or liquidators”. By using “qualified persons” (instead of “persons” as in s.277B(1A)), the legislature must have intended that there be further guidance in the legislative regime regarding the qualifications required.

(3)  Third, s.227B and s.206(5) are not dealing with identical subject matters and should be read together. The mischief that ss.227A-227E were enacted to address was the procedural difficulties in holding creditors’ meeting. In curing such mischief, it was not necessary for the legislature to depart from or remove the eligibility requirement stipulated in s.206(5), especially when doing so would lead to absurdity as set out in sub-§(1) above. This leaves no room for the presumption that “where, in the same statute and in relation to the same subject matter, different words are used, there is a presumption that the alteration has been made intentionally” as suggested by the Liquidators[17].

18.  On the other hand, Ms Tong and Mr Darton contend that once a regulating order is made, s.206(5) has no application. The court may appoint any “qualified persons” as it thinks fit as members of COI, which go beyond creditors. Such contention is consistent with and supported by the following matters:

(1)  Section 227A(2), which provides that where a regulating order is made, ss.227B to 227E shall apply to the winding up;

(2)  Section 227B(2), which provides that once a regulating order is made, the provisions of “section … 206(1) and (2) or 207(6), (7), (7A) and (7B) … shall cease to apply …”. Those subsections all relate to the procedure of forming a COI;

(3)  Section 227A(4), which provides that any procedure prescribed in any order made pursuant to s.227B it “shall be deemed to be in substitution for the procedure which would be required by this Ordinance but for the making of such order”. Therefore, the clear legislative intent is for s.227B to override s.206, rather than requiring s.227B to be read together with s.206 as contended by the OR.

(4)  It is clear from s.206, read as a whole, that:

(a)  s.206(5) only applies where no regulating order is made, and meetings of creditors/contributories are held under s.206(1) to determine the composition of COI;

(b)  s.206(5) is not a universal “eligibility requirement” of a COI in all situations. Rather, it merely prescribes the proportion of creditors and contributories forming a COI where meetings of creditors/contributories have been held under s.206(1) to determine the composition of a COI; and

(c)  where a regulating order is made under s.227A, no meetings of creditors would be held, s.206(5) can have no application at all.

(5)  It is not necessary to expressly disapply s.206(5) because once s.206(1)-(2) are disapplied, there would be no meetings of creditors or contributories and neither scenario envisaged in s.206(5) viz, the “proportion [of creditors and contributories] agreed upon by the meetings” or “in the event of a difference” in the determination of such meetings, will arise.

(6)  Where in the same statute and in relation to the same subject matter different words are used, there is a presumption that the alteration has been made intentionally (Halsbury’s Laws of Hong Kong, §365.051). The deliberate use of the expression “any qualified persons the court thinks fit” in s.227B(1A) as opposed to “creditors” demonstrates the clear legislative intent to empower the court a wide discretion to appoint the most suitable persons to COI where the interest of the creditors so requires.

(7)  The expression “any qualified persons that the court thinks fit” in s.227B(1A) should be given a broad meaning to include persons other than a creditor or contributory. This accords with the natural and ordinary meaning of the expression. Coupled with the use of “any” (which is a word of wide import) and “as the court thinks fit” (giving the court a wide discretion), there is prima facie no legislative intent to limit “any qualified persons” to only creditors and contributories. The word “qualified” simply means possessing qualities or qualifications fitting or necessary for a certain office, function, or purpose (Shorter Oxford English Dictionary, 6^th ed., Vol. 2, p.2426).

19.  The arguments advanced by the parties are based on the current version of s.206(5), which was only added by the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance 2016 (14 of 2016) (“2016 Ordinance”). I do not think that this is the right approach.

20.  In my view, in ascertaining the intention of the legislature in enacting the regulating order regime, one should look at the provisions governing the appointment and constitution of a COI at the time when ss.227A to 227E were enacted. For present purpose, it is sufficient to refer to the provisions before the 2016 Ordinance came into effect (“Pre-2016 Ordinance”)[18] which were materially the same as the provisions under the 1964 Ed.

21.  Under the Pre-2016 Ordinance, ss.206-207 and 227A-227B provided as follows:

“206. Meetings of creditors and contributories to determine whether committee of inspection shall be appointed

(1) When a winding-up order has been made by the court, it shall be the business of the separate meetings of creditors and contributories summoned for the purpose of determining whether or not an application should be made to the court for appointing a liquidator in place of the [provisional liquidator] [19], to determine further whether or not an application is to be made to the court for the appointment of a committee of inspection to act with the liquidator and who are to be members of the committee if appointed. (Amended 3 of 1997 s. 42)

(2) The court may make any appointment and order required to give effect to any such determination, and if there is a difference between the determinations of the meetings of the creditors and contributories in respect of the matters aforesaid the court shall decide the difference and make such order thereon as the court may think fit. [cf. 1929 c. 23 s. 198 U.K.]

207. Constitution and proceedings of committee of inspection

(1) A committee of inspection appointed in pursuance of this Ordinance shall consist of creditors and contributories of the company or persons holding general powers of attorney from creditors or contributories in such proportions as may be agreed on by the meetings of creditors and contributories, or as, in case of difference, may be determined by the court.

(2) The committee shall meet at such times as they from time to time appoint, and, failing such appointment, at least once a month, and the liquidator or any member of the committee may also call a meeting of the committee as and when he thinks necessary.

(3) The committee may act by a majority of their members present at a meeting, but shall not act unless a majority of the committee are present.

(4) A member of the committee may resign by notice in writing signed by him and delivered to the liquidator.

(5) If a member of the committee becomes bankrupt, or compounds or arranges with his creditors, or is absent from 5 consecutive meetings of the committee without the leave of those members who together with himself represent the creditors or contributories, as the case may be, his office shall thereupon become vacant.

(6) A member of the committee may be removed by an ordinary resolution at a meeting of creditors, if he represents creditors, or of contributories, if he represents contributories, of which 7 days’ notice has been given, stating the object of the meeting.

(7) On a vacancy occurring in the committee the liquidator shall forthwith summon a meeting of creditors or of contributories, as the case may require, to fill the vacancy, and the meeting may, by resolution, re-appoint the same or appoint another creditor or contributory to fill the vacancy: (Amended 6 of 1984 s. 145)

[Provided that if the liquidator, having regard to the position in the winding up, is of the opinion that it is unnecessary for the vacancy to be filled he may apply to the court and the court may make an order that the vacancy shall not be filled, or shall not be filled except in such circumstances as may be specified in the order][20]. (Added 6 of 1984 s. 145)

(8) The continuing members of the committee, if not less than 2, may act notwithstanding any vacancy in the committee. [cf. 1929 c. 23 s. 199 U.K.]”

227A. Court may make a regulating order

(1) Where it appears to the court on application being made by the Official Receiver, liquidator or by any creditor at any time after the presentation of a winding up petition that by reason of the large number of creditors or contributories or for any other reason the interest of the creditors so requires, it may, on or after the making of a winding-up order, order that the winding up of the company by the court shall be regulated specially by the court, and such order shall be known as a regulating order. (Amended 6 of 1984 s. 159)

(2) Where a regulating order is made it shall be published in such manner as the court may direct, and sections 227B to 227E inclusive shall apply to the winding up.

(3) Where a regulating order is made the Companies (Winding-up) Rules (Cap. 32 sub. leg.H) shall apply mutatis mutandis to the Official Receiver, liquidator and committee of inspection appointed or acting after the making of a regulating order, and to the conduct of any ballot or other proceedings ordered by the court under section 227C or 227D.

(4) Where any order made under section 227B, 227C or 227D prescribes any procedure it shall be deemed to be in substitution for the procedure which would be required by this Ordinance but for the making of such order, and in particular where any such order prescribes a procedure for doing something which would otherwise be done at a meeting of creditors or contributories no such meeting shall be required to be held. (Added 22 of 1965 s. 2)

227B. Appointment of liquidator and committee of inspection

(1) The court may on the application of the Official Receiver by order—

(a) dispense with the summoning of first meetings of creditors and contributories as required under sections 194 and 206 for the purpose of considering the appointment of a liquidator and a committee of inspection;

(b) appoint the Official Receiver or such other person or persons recommended by him as liquidator or liquidators; and

(c) appoint such qualified persons as it thinks fit as a committee of inspection, and may remove any member thereof and fill any vacancy therein.

(2) Where under subsection (1) the court makes any appointment of a liquidator or a committee of inspection, or where it removes any member of such committee of inspection or fills any vacancy therein, it shall not be necessary to ascertain the wishes of the creditors or contributories, and the provisions of section 194(b) or 206(1) and (2) or 207(6) and (7), as the case may be, shall cease to apply and any action taken under such provisions in respect of any appointment of a liquidator or committee of inspection or any removal therefrom or any filling of any vacancy therein shall cease to have effect. (Added 22 of 1965 s. 2)” (underlined added)

22.  The above provisions show that under the Pre-2016 Ordinance:

(1)  The procedural requirement of holding first meetings of creditors and contributories for the purpose of considering whether to make an application to the court for appointment of COI is set out in s.206, which only contains s.206(1)-(2).

(2)  The constitution of COI appointed under the Pre-2016 Ordinance is prescribed by s.207. In particular:

(a)  s.207(1) mandates that a COI “appointed in pursuance of this Ordinance shall consist of creditors and contributories of the company” or persons holdings powers of attorney from them;

(b)  s.207(6) provides that a member of COI who represents the creditors may only be removed by a resolution at a meeting of creditors, and the same applies to a member represents the contributories; and

(c)  s.207(7) further provides that only creditor or contributory may be appointed or re-appointed to fill a vacancy in the COI.  

(3)  Where a regulating order is made under s.227A, ss.227B to 227E shall apply to the winding up of that company (s.227A(2)).

(4)  Where any order made under s.227B prescribes any procedure, such procedure shall be deemed to be in substitution of the procedure which would be required by the Pre-2016 Ordinance (s.227A(4)).

(5)  Under s.227B(1)(a), the court may by order dispense with the summoning of first meetings of creditors and contributories as required under s.206.

(6)  Under s.227B(1)(c), the court may “appoint such qualified persons as it thinks fit as a [COI] and may remove any member thereof and fill any vacancy therein”.

23.  It is clear from the above provisions concerning the appointment of COI that when enacting the regulating order regime:

(1)  The legislature did not intend to modify or disapply the requirement under s.207 that COI shall only consist of creditors and contributories (or persons holding general power of attorney from them). This is reinforced by the wording of s.207(1), which expressly provides that the requirement applies to all COI appointed under the Pre-2016 Ordinance. It is also consistent with the legislative materials described in §15(2) above.

(2)  The only provisions which may be displaced by an order made under s.227B are the procedural requirements of holding first meetings of creditors and contributories (under s.206(1)-(2)) and holding subsequent meetings for the purpose of removing or appointing member to fill any vacancy in COI (under s.207(6)-(7)).  

24.  I do not think that by using the phrase “any qualified persons” in s.227B(1)(c), the legislature intended to displace the eligibility requirement stipulated in s.207. In the context of s.227B(1)(c), the reference to “any qualified persons” must be a reference to any persons who meet the qualification stipulated in s.207, that is, the persons shall be creditors or contributories of the company.

25.  Although ss.206, 207, 227A and 227B were amended by the 2016 Ordinance, the amendments do not concern the meaning of “creditor” or “qualified persons” under those provisions.  

26.  It is unnecessary to deal with the other arguments advanced by the parties as they are premised on the assumption that when ss.227A to 227E were enacted, the wordings of s.206 were the same as the current version of s.206, which is incorrect.

27.  For completeness, for company under creditors’ voluntary winding up, the eligibility requirement stipulated in s.207(1) of the Pre-2016 Ordinance is expressly excluded in this way:

“243. Appointment of committee of inspection

(1) The creditors at the meeting to be held in pursuance of section 241 or at any subsequent meeting, may, if they think fit, appoint a committee of inspection consisting of not more than 5 persons, and if such a committee is appointed the company may, either at the meeting at which the resolution for voluntary winding up is passed or at any time subsequently in general meeting, appoint such number of persons as they think fit to act as members of the committee not exceeding 5 in number:

Provided that the creditors may, if they think fit, resolve that all or any of the persons so appointed by the company ought not to be members of the committee of inspection, and, if the creditors so resolve, the persons mentioned in the resolution shall not, unless the court otherwise directs, be qualified to act as members of the committee, and on any application to the court under this provision the court may, if it thinks fit, appoint other persons to act as such members in place of the persons mentioned in the resolution.

(2) Subject to the provisions of this section and to general rules, section 207 (except subsection (1)) shall apply with respect to a committee of inspection appointed under this section as they apply with respect to a committee of inspection appointed in a winding up by the court. [cf. 1929 c. 23 s. 240 U.K.]”

28.  Although s.243(1) refers to “persons” who may be appointed as members of COI, s.243(2) provides that while s.207 shall apply with respect to a COI, the eligibility requirement under s.207(1) is expressly excluded. In other words, unlike company in compulsory liquidation, a company in creditors’ voluntary winding up is not subject to the eligibility requirement stipulated in s.207(1) under the Pre-2016 Ordinance.

29.  For the above reasons set out in §§20 to 28 above, I hold that the eligibility requirement of COI for a company under compulsory liquidation, whether or not a regulating order is made, is prescribed by s.207(1) of the Pre-2016 Ordinance, which has since the 2016 Ordinance become s.206(5) of CWUMPO. Under s.206(5) of CWUMPO, only creditor and contributory are eligible for appointment as members of COI.

B5.  Whether Ultimate Holder is “creditor” under s.206(5)

30.  In support of their respective contentions, many authorities have been cited by Mr Wong, Ms Tong and Mr Darton on the meaning of “creditor” in 4 different contexts:

(1)  First, whether an Ultimate Holder is a “contingent creditor” and thus has locus to present a winding-up petition under s.179(1) of CWUMPO (Re Leading Holdings Group Limited [2023] HKCFI 1770, per DHCJ Jenkin Suen SC). The same issue was considered and decided by courts in the BVI and Cayman Islands under the equivalent provisions of our s.179(1) (Cithara Global Multi-Strategy SPC v Haimen Zhongnan Investment Development (International) Co., Ltd, BVIHC(Com) 2022/0183, 19 July 2023, per Mangatal J (BVI); and in Re Shinsun Holdings (Group) Co. Ltd., FSD 192 of 2022; 21 April 2023, per Doyle J (Cayman)).

(2)  Second, whether an Ultimate Holder is a “creditor” for the purpose of a scheme which may be sanctioned by the court under s.670 of the Companies Ordinance (Cap. 622) (“CO”) (Re Mongolian Mining Corp [2018] 5 HKLRD 48 §§9-10, per Harris J; Re Enice Holding Co Ltd [2018] 4 HKLRD 736 §33, per Harris J) and under s.425 of the Companies Act 1985 (Re Castle Holdco 4 Limited [2009] EWHC 3919 (Ch) §§22-24, per Norris J; Re T&N Limited [2006] 1 WLR 1728, per David Richards J).

(3)  Third, whether an Ultimate Holder is entitled to lodge a proof of debt for the purpose of voting as a “creditor” under rule 125 of the Companies (Winding-up) Rules (Cap. 32H) (“CWUR”) (Re Jiayuan International Group Limited [2024] HKCFI 1113, per DHCJ Reyes SC).

(4)  Fourth, whether the meaning of “provable debt” under rule 13.12(1)(b) of the UK Insolvency Rules 1986 requires a person having an existing legal right against the company as opposed to an obligation incurred before the commencement of liquidation (Re Nortel GmbH [2014] AC 209, §§81, 89, 136, as applied in Lo Shing Kin v Sy Chin Mong Stephen (2014) 17 HKCFAR 903 §§5-10, per Tang PJ).

31.  Mr Wong submits that the meaning of “creditors” under s.179(1) as decided in Leading Holdings) applies equally when construing s.206(5), both as a matter of law and as a matter of practical reality.

32.  As a matter of law, Mr Wong submits that it is desirable that the definition of “creditors” be consistent throughout the compulsory winding-up regime for the following reasons:

(1)  Generally speaking, where the same word is used in different parts of the same piece of legislation, it should be given the same meaning unless the context otherwise clearly indicates a different meaning is intended (HKSAR v Wan Thomas (2018) 21 HKCFAR 214 at §27). There is no reason why the meaning of “creditors” in s.179(1) and s.206(5), both within Part V of CWUMPO, should be different.

(2)  The reasoning in Re Leading Holdings was applied in Re Jiayuan where it was held that holders of the notes in that case were not “creditors” for the purpose of submitting proofs of debts for voting at the first creditors’ meeting. In this regard, in the English insolvency regime, the eligibility of membership of creditors’ or liquidation committee is dependent on proofs of debt (including whether one’s proof has been disallowed for voting purposes) (rule 17.4 of the Insolvency (England and Wales) Rules 2016). This equally lends support to the OR’s position that the eligibility of membership of COI should be consistent with an individual’s entitlement in other aspects under the same regime.

(3)  A consistent definition of “creditors” is sensible considering the role of COI. It is well-established that (a) a COI is “more than just a consultative body for the liquidators”. Its function is “to assist the court in its supervisory role over the liquidators”[21]; (b) COI members are in a “fiduciary position” in relation to the company’s estate[22]; (c) it would be appropriate “to ensure that a proper investigation of the affairs of the Company is not only undertaken, but seen to be undertaken”[23]; and (d) there should be “balanced representation of the creditors on the committee so that it would be fairly representative of the general body of creditors”[24].

(4)  If Ultimate Holders are treated as creditors for the purpose of appointment of COI, questions arise as to the extent and contents of COI members’ fiduciary duty and the proper assessment of a “balanced representation of the creditors”, bearing in mind that Ultimate Holders are not creditors for the purposes of presenting a winding-up petition (Re Leading Holdings) nor filing proof of debt for voting in the first creditors’ meeting (Re Jiayuan). It would no doubt cause confusion if the definition of creditors vary at different stages of the compulsory winding-up regime.

(5)  If one adopts an expanded meaning of “creditors” for the purpose of s.206(5) to include Ultimate Holders, question arises as to its limit and proper formulation. The Company is subject to a wide range of debts and liabilities[25], if membership of COI is open to Ultimate Holders, should it be open to other “creditors” of the Company who similarly has an “economic interest” in the liquidation but would not be qualified as creditors applying the test in Re Leading Holdings.

33.  As a matter of practical reality, Mr Wong contends that:

(1)  The limit of Ultimate Holders’ power or role in compulsory winding-up regime is the necessary corollary of the design of the CEG Notes, which they chose to participate (Re Leading Holdings §108). The global note structure was designed to ensure that all Ultimate Holders have to act through the Holder or the Trustee, and any enforcement action is to be pursued by the Trustee exclusively[26].

(2)  The matters identified by the Liquidators viz., (a) active participation by Ultimate Holders in the restructurings and the winding-up petition, (b) the market expectation, and (c) no Definitive Note has been or will likely be issued, are not reasons for expanding the meaning of creditors in s.206(5) of CWUMPO. The legal basis for suggesting that Ultimate Holders must be fairly represented at COI is unclear. Even if the court considers that Ultimate Holders’ interests should be represented at COI, the appropriate party to be appointed is the Trustee (or the Holder) even though it is unlikely that either of them is willing to act as COI member[27].

34.  On the other hand, Ms Tong argues that Ultimate Holder is a “creditor” for the purpose of s.206(5) of CWUMPO for the following reasons:

(1)  First, the word “creditors” in s.206(5) should be construed to encompass a contingent creditor. The test for whether a company has incurred a contingent liability or obligation is whether the company has taken steps that may make it liable to the creditor, subject to a contingency, regardless of whether there is an existing legal obligation owed by the company to such creditor.

(2)  The aforesaid interpretation is supported by the UK Supreme Court’s decision in Re Nortel GmbH [2014] AC 209, which concerned rule 13.12(1)(b) of the Insolvency Rules 1986 under which a provable debt included “any debt or liability to which the company may become subject after [the date on which the company went into liquidation] by reason of any obligation incurred before that date”. Lord Neuberger held that:

(a)  There can be no doubt that an arrangement other than a contractual one can give rise to an “obligation” for the purpose of Rule 13.12(1)(b) (§76);

(b)  In determining whether a contingent obligation had been incurred by the company, the pertinent question is whether what the debtor company had done was sufficient to have committed itself to a contingent liability (§81).

(c)  By becoming a party to legal proceedings, a person is brought within a system governed by rules of court, which carry with them the potential for being rendered legally liable for costs. Therefore, an order for costs made in proceedings begun before the judgment debtor went into liquidation is provable as a contingent liability (§89)[28].

(d)  Nortel was followed in Lo Shing Kin v Sy Chin Mong Stephen (2014) 17 HKCFAR 903 §§5-10, where Tang PJ held that a contingent obligation to pay costs in a litigation commenced before bankruptcy is a “provable debt”.

(e)  Similarly, in Cithara, Mangatal J cited Nortel (§§153-158) and held (§179) that a contractual relationship is not necessary for a contingent obligation to arise. The debtor must simply take steps that may make it liable to a creditor, subject to a contingency.

(3)  Second, the Indenture provides that an Ultimate Holder is legally entitled to be issued a Definitive Note after the CEG Notes have become due and payable. Once a Definitive Note is issued, an Ultimate Holder is entitled to enforce a claim against the Company for the sum due under that Note. As held in Cithara §179, the global bond structure can be equated with and is analogous to the steps taken by a debtor that make it liable to a creditor, subject to a contingency. On this basis, an Ultimate Holder should be regarded as a contingent creditor of the Company.

(4)  Contrary to the Liquidators’ suggestion[29], it is possible for Definitive Notes to be issued on a “one for one” basis with regard to those noteholders that demand conversion under the terms of the Indenture, although such process would be cumbersome and challenging, and may create difficulties in managing the trading of the Definitive Notes.[30]

(5)  This is fortified by the scheme of arrangement cases where the courts in Hong Kong and the UK consistently held that Ultimate Holders are creditors of the company and are entitled to vote at the scheme meetings.

(6)  Further or alternatively, even without the issuance of a Definitive Note, an Ultimate Holder could have direct enforcement rights against the Company as clearinghouses would commonly delegate their enforcement authority to Ultimate Holders. See rule 5.3.1.3 of the Euroclear rules which have been incorporated into the Indenture[31] and Cithara §§144-152, 193(2).

(7)  Third, construing “creditors” broadly to encompass Ultimate Holders is consistent with the purpose of s.206(5) of CWUMPO, which is to appoint a COI to assist and supervise the liquidator and avoid the time and costs involved in making applications for sanction from the court; there should be a balanced representation on COI (Wah Nam §§16, 21) and the fact that Ultimate Holders make up a large portion of the debts owed by the Company, and their voice cannot be adequately represented by the Holder or the Trustee for the reasons stated by the Liquidators. There would not be any abuse as it is open to the court, the Liquidators or the creditors (as the case may be) to decide whether any of Ultimate Holders should be appointed in the circumstances of the case. It would be inconsistent with the legislative intent and commercially absurd to foreclose the possibility of appointing Ultimate Holders to COI.

(8)  Fourth, Leading Holdings, Jiayuan and rule 17.4 of Insolvency (England and Wales) Rules 2016 do not assist the OR’s position and are in any event distinguishable. As the courts in both Leading Holdings (§133) and Shinsun (§147) recognised, the expression “creditor” or “contingent creditor” can have different interpretations in different contexts. Leading Holdings and Jiayuan are not concerned with interpreting the definition of “creditor” in the present context of determining whether Ultimate Holders are eligible to be members of COI. Further, rule 17.4 concerns a differently worded provision in the English insolvency regime and cannot possibly assist in the interpretation of s.206(5).

(9)  The scheme cases (Mongolian Mining, Enice, Re Castle Holdco and Re T&N), as compared to Leading Holdings, provides a much closer analogy for present purposes.

(10)  Limited assistance can be derived from Re Jiayuan as the applicants did not contend that they are contingent creditors (§§3-5). Under rule 125 of CWUR, contingent creditors are not entitled to vote at a creditors’ meeting. The court did not have to grapple with the issue of whether Ultimate Holder was a contingent creditor for the purpose of voting at the first creditors’ meeting.

(11)  Lastly, the reasoning in Leading Holdings that “there has to be an existing legal relationship or obligation between a person and a company before such person may qualify as a creditor of the company” and a person cannot qualify as a contingent creditor absent an “existing contractual relationship and obligation” is doubtful as it is directly contradicted by Nortel and Lo Shing Kin.

35.  I do not agree with Mr Wong that the meaning of “creditor” should be the same or consistent throughout the compulsory winding-up regime for the following reasons:

(1)  There is no definition of “creditor” or “debt” in CWUMPO. The meaning of “creditor” or “debt” in different contexts, whether within CWUMPO or the compulsory winding-up regime, may not be the same.   

(2)  Indeed, the position in Hong Kong is the same as the position in the UK before the Insolvency Rules 1986 were enacted, which is described in Derek French, Applications to Wind Up Companies, 4^th ed., §7.299:

“Before IR 1986 there was no definition of ‘creditor’, ‘debt’, ‘debtor’ or ‘liability’ in the insolvency legislation and it was suggested that these terms could mean different things in different parts of the legislation[32]. Courts were also likely to restrict the meaning of ‘debt’ to a monetary claim which could have been recovered in an action for debt in the days when it was necessary to take proceedings in a specific ‘form of action’. This resulted in cases in which persons who had claims for which they could prove in a winding up were held not to be creditors with standing to petition for winding up. As it was put by Santow J in Re Wilson Market Research Pty Ltd:

There is no compelling logic in making the class of those who can prove in a liquidation identical with those who can trigger it. There is a procedure in the winding up itself for proof of debts and claims. This allows for the testing and ultimate quantification of, for example, an unliquidated claim. This is absent at the initial point where application for winding up is first made.” (underlined added)

36.  Nor do I think that it is helpful or appropriate to draw on the meaning of “creditor” in the context of s.670 of CO or “provable debt” as contended by Ms Tong and Mr Darton.

37.  As regards s.670 of the CO:

(1)  The meaning of “creditor” must be construed in the context and for the purpose of the statutory regime governing scheme of arrangement, which is a different regime than the statutory regime of winding up.

(2)  The fact that Ultimate Holders have been allowed to vote on some schemes does not mean that they are creditors for the purpose of s.206(5). There are 2 mains reasons for this:

(a)  There is no legal requirement to define creditor in a scheme by reference to the meaning of creditor under any provision of CWUMPO. In practice, the definition of creditor is devised by the company and is usually crafted in the widest possible term to capture all the debts and liabilities, present or future, so as to ensure that all such debts and liabilities will be compromised by the scheme.

(b)  As a matter of fact, where Ultimate Holders were entitled to vote on the schemes, that was because the relevant indentures pursuant to which the global notes had been issued expressly reserved the right to vote on schemes to Ultimate Holders.

38.  As regards the meaning of “provable debt” in the UK insolvency regime:

(1)  Under the UK Insolvency Rules, what constitutes a provable debt is governed by rule 12.3. The meaning of “Debt” is defined in rule 13.12[33], which states:

“(1) ‘Debt’ in relation to the winding up of a company, means … any of the following – (a) any debt or liability to which the company is subject … at the date on which the company went into liquidation; (b) any debt or liability to which the company may become subject after that day by reason of any obligation incurred before that date; …

(2) For the purposes of any provision of the Act or the Rules about winding up, any liability in tort is a debt provable in the winding up, if either – (a) the cause of action has accrued … at the date on which the company went into liquidation; … or (b) all the elements necessary to establish the cause of action exist at that date except for actionable damage.

(3) For the purposes of references in any provision of the Act or the Rules about winding up to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent, or whether its amount is fixed or liquidated, or is capable of being a sustained by fixed rules or as a matter of opinion …

(4) … except insofar as the context otherwise requires, ‘liability’ means (subject to paragraph (3) above) a liability to pay money or money’s worth, including any liability under an enactment, any liability for breach of trust, any liability in contract, tort or bailment, and any liability arising out of an obligation to make restitution.

(5) … ”

(2)  In Hong Kong, the proof and ranking of claims against a solvent company are governed by s.264 of CWUMPO[34]. By virtue of s.264 of CWUMPO, the bankruptcy rules governing the rights of secured and unsecured creditors, the debts provable against the insolvent and the valuation of annuities and future and contingent liabilities are incorporated and made applicable to the winding up of a company.

(3)  The relevant provisions under the law of bankruptcy which apply to an insolvent company are ss.12, 34-36 and 71 of  BO. Whether a debt or liability is a “provable debt” is to be determined in accordance with these provisions. No submission has been advanced by Ms Tong as to why or how these provisions or any of them, apply in the context of appointment of COI.

(4)  In any event, even if the definition of “Debt” in the UK insolvency regime applies, it is clear from the wordings of rule 13.12(1)(a) that the debt or liability in question must be one “to which the company is subject” at the commencement of winding up or may become subject “by reason of any obligation incurred before that date”. These wordings are directed to the legal obligation as between the company and the creditor concerned. It does not support Ms Tong’s argument that an Ultimate Holder who does not hold any legal right vis-à-vis the Company, is entitled to prove its debt against the Company.

39.  Similarly, I have reservation as to whether the meaning of “creditor” under s.179(1) of CWUMPO applies in the context of appointment of COI:

(1)  Section 179(1) prescribes the class of persons who have locus to present a winding up petition. The word “creditor” has been expressly expanded to include “any contingent or prospective creditor” meaning. No such expanded meaning can be found in s.206(5).

(2)  The context and purpose of s.179(1) is different from that of s.206(5):

(a)  Section 179 prescribes the class of creditor who may commence winding up proceedings at the stage when the company may or may not be wound up. The purpose of allowing contingent and prospective creditors to petition for winding up, as explained in the Report of the Company Law Amendment Committee (1906) (Cd 3052) at §34, is to address the potential lacuna and abuse whereby a company may be able to dispose of its assets or incur new liabilities where it is insolvent (Re Leading Holdings, §§83-93).

(b)  The treatment of contingent/prospective creditor is different from that of a creditor whose debt is due and payable in that the former has to establish a prima facie case for winding up and the petition shall not be heard until such security for costs as the court thinks reasonable has been given (s.179(1)(c)), but the latter is not subject to such a requirement.

(c)  Section 206(5) only comes into play after a company has been wound up.

“Creditor” under s.206(5) refers to person with legal right against company

40.  In my view, the word “creditor” in s.206(5) is a reference to a person holding a legal right over a debt or liability owed by the company as at the date of the commencement of winding up[35]. The legal right may arise out of a contract, arrangement or an obligation which is binding upon the company and the person holding the legal right. A person holding a beneficial or economic interest in a debt/obligation cannot take any action against the company and can only do so through the person holding the legal right in that debt/obligation. The reason for this is obvious:

(1)  A person holding a beneficial or economic interest in a debt/obligation is not privy to the contract, arrangement or obligation and, therefore, cannot assert any right under such contract, arrangement or obligation as against the company.

(2)  This accords with the general principle of insolvency law that it operates on the basis of legal right, rather than beneficial or economic interest in the debt owed by the company in liquidation.

(3)  A person holding a beneficial or economic interest in a debt would not be without recourse. It may direct the person holding the legal right to take action in respect of the debt or require the debt to be assigned or transferred to it in accordance with the terms governing their relationship.  

(4)  On the other hand, if a person holding a beneficial or economic interest in a debt/obligation were allowed to take action against the company in its own right, there would be problems associated with identification and verification of the person who claims to have beneficial or economic interest in the debt/obligation; the possibility of the company being vexed twice in respect of the same debt/obligation; and imbalance of rights and obligations in that while the company and the person holding the legal right is bound by the terms of the contract, arrangement or obligation to which it is privy, a person holding the beneficial or economic interest is not so bound.

Contingent creditor not “creditor” under s.206(5)

41.  The next question is whether a contingent creditor who holds a legal right against the company is a “creditor” under s.206(5) of CWUMPO.

42.  In construing the meaning of “creditor” under s.206(5), it is necessary to consider the provisions under CWUMPO together with the rules under CWUR which govern creditors’ meetings at which decisions on appointment of COI are made.

43.  So far as the provisions under CWUMPO (as discussed in §§21 -22 above) are concerned, none of them sheds any light as to whether the meaning of “creditor” under s.206(5) extends to contingent creditor.  

44.  As for CWUR, the following rules govern the creditors’ entitlement to attend and vote at creditors’ meetings (both compulsory and creditors’ voluntary winding up) (collectively “Relevant Rules”) [36]:

(1)  Rule 114(1) provides that notice of meetings of creditors shall be given to “every person appearing by the company’s books to be a creditor of the company”;

(2)  Rule 114(2) states that notice to creditor shall be sent to the address given in the “proof”;

(3)  Rule 124(1) states that at the first meeting of creditors, a person shall not be entitled to vote as a creditor unless he has duly lodged with the liquidator within the time stated in the notice “a proof of debt which he claims to be due to him from the company” unless a direction has been given that they are not required to prove their debts (rule 124(2));

(4)  Rule 125 provides that “[a] creditor shall not vote in respect of any unliquidated or contingent debt, or any debt the value of which is not ascertained, nor shall a creditor vote in respect of any debt on or secured” unless he is willing to deduct the value of the security from his proof (underlined added);

(5)  Rule 126 provides that a secured creditor shall be entitled to vote only in respect of the balance due to him after deducting the value of the security held by him; and

(6)  Rule 128 states that the chairman shall have power to admit or reject a proof for the purpose of voting, and if in doubt, the proof shall be marked as objected to and allow the creditor to vote subject to the vote being declared invalid.

45.  The wordings of rule 125 are materially the same as rule 140 of the UK Companies (Winding-up) Rules 1949. The effect of this rule has been explained in Buckley on the Companies Acts, 14^th ed., Vol. 2, p.1707, in this way:

“‘A contingent debt’ refers to a case where there is a doubt if there will be any debt at all; a ‘debt the value of which is not ascertained’ means that a debt the amount of which cannot be estimated until the happening of some future event; and ‘an unliquidated debt’ includes, not only all cases of damages to be ascertained by a jury, but, beyond that, extends to any debt where the creditors fairly admits that he cannot state the amount. Hence if a creditor for untaxed costs or for work done is prepared to swear that at least a particular sum is due to him, he should be admitted as a creditor for the sum named.”

46.  Under the Relevant Rules, the only creditors who are entitled to attend and vote at creditors’ meetings are creditors who have lodged their proofs of debt within the time stipulated and the debts in question are quantified, ascertained and not subject to contingency or are unsecured portion of the debts. For ease of reference, I refer to these creditors as “Non-Contingent Creditors”.

47.  The intention of the legislature is to restrict the right to vote at creditors meetings to Non-Contingent Creditors. This reflects the fact that at the early stage of the liquidation, the liquidators would not have sufficient information to undertake a detailed adjudication of all the claims lodged by the creditors (as compared to a later stage when the company is in a position to declare a dividend to the creditors); and the adjudication of proofs for voting purpose would have to be undertaken on a readily identifiable and clear basis namely, only the debts owed to Non-Contingent Creditors would be admitted for voting purpose.

48.  In my view, the meaning of “creditor” under s.206(5) should be construed consistently with the Relevant Rules and should be limited to Non-Contingent Creditors for the following reasons:

(1)  The CWUR form part of the statutory scheme of winding up, and they apply to every winding up proceedings under CWUMPO[37].

(2)  Except where a regulating order is made, the decision as to who should be appointed as members of COI is made at creditors’ meeting. The intention of the legislature is to allow only Non-Contingent Creditors the right to vote on the appointment of COI. There was no reason why the legislature would have intended to prescribe a wider class of “creditor” under s.206(5) beyond Non-Contingent Creditors who have the right to vote on the appointment of COI.

(3)  If the class of “creditor” under s.206(5) is wider than Non-Contingent Creditors, it would also lead to an absurd result that a contingent creditor who has no right to vote on appointment of COI would be eligible for appointment as members of the same COI.

49.  For the above reasons, I hold that the meaning of “creditor” under s.206(5) is confined to Non-Contingent Creditor. Contingent creditor whose debt has not been ascertained or has not become payable as at the date of the creditors’ meeting or when the court considers the appointment of COI, is not “creditor” within the meaning of s.206(5).

If “creditor” under s.206(5) includes contingent creditor

50.  If, contrary to my view, the meaning of “creditor” under s.206(5) includes contingent creditor, I am in respectful agreement with the reasoning of DHCJ Suen SC in Re Leading Holdings, §§42-48 and §§93-116, and that of Doyle J in Re Shinsun, §§64-82, 90-91, 143-144, 151-155, and their conclusion that Ultimate Holders are not contingent creditors of the company.

51.  Ms Tong relies heavily on Re Cithara where Mangatal J held that for the 2 reasons summarised in §193, Cithara (an Ultimate Holder) is a contingent creditor and has standing to present a winding up petition against the company under s.162(2)(b) of the BVI Insolvency Act. She submits that the reasoning applies with equal force to the present case:

(1)  First, the Company has subjected itself to the global note regime, which puts the Company under a legal duty to issue a Definitive Note to Ultimate Holder in the event of default (under section 2.04(c) of the Indenture), resulting in it being vulnerable to direct enforcement by Ultimate Holder. To regard the Company as having incurred a contingent liability is consistent with the contractual regime to which the Company has subscribed.

(2)  Second, according to the Expert Opinion, even without a Definitive Note having been issued, under section 6.07 of the Indenture, an Ultimate Holder has a direct right to enforce the debt under the CEG Notes and, therefore, should be regarded as a contingent creditor.

52.  I am unable to agree with the argument.

53.  As regards the first reason:

(1)  It is clear from the authorities where the courts explained what constitutes a contingent creditor for the purpose of s.179(1), a contingent creditor is where the company is already subject to an existing obligation vis-à-vis that creditor to pay the debt, albeit that the debt will only become payable upon the happening of an event which may or may not occur (Re Leading Holdings §§94-98).

(2)  The contingency is not directed at a situation where an Ultimate Holder has the right which it may exercise as against a third party, and for that third party to make a request for the company to issue a Definitive Note to an Ultimate Holder.

(3)  Indeed, this is precisely what section 2.04(c) of the Indenture provides. In each of the 3 scenarios set out in section 2.04(c), it is the Common Depository or Holder which is required to give notice to the Company to issue a Definitive Note. This is reinforced by section 2.04(d), which states that:

“Upon receipt of notice from the Common Depository in accordance with Section 2.04(c), Euroclear, Clearstream or the Trustee, as the case may be, the Company will use its best efforts to make arrangements with the Common Depository for the exchange of interests in the Global Notes for Certificated Notes and cause the requested Certificated Notes to be executed and delivered to the Registrar in sufficient quantities and authenticated by the Trustee or an Authenticating Agent for delivery to Holders. Holders exchanging interests in the Global Notes for Certificated Notes will be required to provide to the Registrar, through the relevant clearing system, written instructions and other information required by the Company and the Registrar to complete, execute and deliver such Certificated Notes. Certificated Notes delivered in exchange for the Global Notes or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by the relevant clearing system.” (underlined added)

(4)  It is clear from section 2.04(c)-(d) of the Indenture that unless and until the Common Depository or Holder gives the requisite notice to the Company, there is no obligation on the part of the Company to issue any Definitive Note to an Ultimate Holder.

54.  The second reason is based on the Expert Opinion, and the court does not have the benefit of any other opinion or any adversarial arguments advanced by the other parties. In any event, I do not think that the Expert Opinion assists Burlington’s argument:

(1)  The opinion that “section 6.07 provides each Holder, including the Holder of a Certificated Note, with the right to bring its own, direct action for payment, without regard to the Indenture’s no-action clause” is based on the assumption that an Ultimate Holder has exercised the right to require a Definitive Note be issued to it, and the Definitive Note is registered in the name of such Ultimate Holder (pages 21-23 of Expert Opinion).

(2)  The alternative reason that an Ultimate Holder may exercise the rights under section 6.7 of the Indenture without first obtaining a Definitive Note registered in its name is based on the definition of “creditor” under the US Bankruptcy Code (pages 23-26 of Expert Opinion). I am unable to see how the definition of “creditor” under the US insolvency regime can assist the determination of the issue as to whether an Ultimate Holder is a creditor under s.206(5) of CWUMPO.

(3)  Further, if, as the BVI court held in §193(2) of Re Cithara, an Ultimate Holder of a global note structure “is the person entitled to enforce the claim against the issuer”, it is not clear why on that reasoning, an Ultimate Holder “can be considered a contingent creditor”, as opposed to a creditor to whom a debt is due and payable. Other than accepting that there appears to be an anomaly, Ms Tong is not able to explain the apparent anomaly.

C.  Directions on formation of COI

55.  In §§1-3 of the Summons, the Liquidators seek directions to confirm that no meeting of creditors shall be convened for the purpose of appointment of COI; a COI shall consist of no less than 3 and no more than 7 members; and the shareholders be excluded from COI.

56.  The first 2 directions are not controversial and should be granted.

57.  As regards the exclusion of shareholders, it is amply justified. The Company is grossly insolvent and, therefore, the only persons who have any real interests in the liquidation are the creditors of the Company. There is no reason why the shareholders (or any of them) who have no real interests in the liquidation should be allowed to take part in supervising and assisting the Liquidators in the performance of their functions.

58.  The Liquidators provide a number of reasons as to why the shareholders should be excluded from COI[38]:

(1)  The publicly available information indicates that the majority of shares are held by the Chairman of the Group and/or his spouse (or former spouse). Given that the investigations of the Liquidators to-date indicate serious misconduct on the part of the Chairman and those associated with him, the Liquidators consider that those parties should not be permitted to join any COI.

(2)  There are substantial difficulties in identifying other unconnected shareholders.

(3)  The Company is insolvent to such a degree that there is no realistic possibility of any distribution to the shareholders.

59.  The reasons given by the Liquidators reinforce my view that only creditors should be appointed as members of COI.

60.  As regards notification and identification of creditors:

(1)  Mr Darton submits that the Liquidators have encountered difficulties in identifying creditors[39]. They propose to require the creditors to lodge their proof of debt so as to assist the Liquidators to identify those creditors who have a genuine claim against the Company.

(2)  For this purpose, §9 of the Summons seeks a direction that the time limit stated in rule 104 of the CWUR be extended to a time when the Liquidators are required to give notice of declaration of any dividend. This is in accordance with normal practice (where Liquidators do not commit resources to formally adjudicating proofs until it is clear that a distribution can be made). In the context of this liquidation, given the wide range of potentially interested parties, it is considered prudent that a specific direction be given in this regard.

61.  I do not think that the time limit stipulated in rule 104 applies to adjudication of proofs for voting purpose. If one reads rules 103 and 104 together, it is clear that the time limit for adjudicating proofs of debt is directed at adjudication for dividend purpose. The rules dealing with lodgement and admission of proofs for voting purpose are rules 112 to 130 of CWUR.

62.  In light of my conclusion that the meaning of “creditor” under s.206(5) is limited to Non-Contingent Creditor, the task of identifying creditors eligible for appointment as COI may not be as difficult or extensive as the Liquidators believe to be the case.

63.  Subject to these 2 points, the Liquidators’ proposal on notification and identification of creditors is eminently sensible in light of the extent of indebtedness owed by the Company and the potentially vast number of persons who have or may come forth and claim that they are creditors of the Company.

64.  As regards the mechanism for seeking expression of interest from creditors who wish to serve as a member of COI, Mr Darton submits that:

(1)  Many of the issues the Liquidators need to deal with in this liquidation are of considerable sensitivity – depending on who wishes to be a member of COI this may result in the Liquidators considering no workable COI can be formed[40].

(2)  In the petition proceedings leading to the winding-up of the Company, there was considerable friction between certain groups of creditors. If expressions of interest are received from only one such group, or could lead to an imbalance between such groups, the Liquidators may consider that no COI should be appointed or that the Liquidators may propose membership not proportionate to the expressions of interest received from each such group[41].

(3)  The Liquidators therefore propose that they do report to the court on the results of the exercise seeking expressions of interest and, depending on the expressions of interest received, either recommend that no COI be formed or, if the Liquidators believe that a representative COI can be formed, to propose who they consider should be nominated for membership thereof.

(4)  Thereafter, to fix a further hearing so that the Liquidators’ recommendations can be considered by the court. Notice of such hearing will be given in the same manner as the initial notification exercise contemplated in the Summons.

65.  The proposed mechanism provides a fair opportunity for the creditors to indicate their interest in acting as members of COI, while preserving the flexibility for the court to appoint those creditors who have genuine or indisputable claims as members of COI. If the matter is not controversial, it may well be that upon considering the report made by the Liquidators, the court will be able to make the appointment without requiring the Liquidators or any parties to appear at a further hearing.

66.  I make the following directions on the Summons:

(1)  Any COI to be formed in this liquidation shall consist of no less than 3 and no more than 7 members.

(2)  The Liquidators be permitted to exclude the shareholders of the Company from the composition of any COI.

(3)  In order to determine whether a representative and functional COI can be formed, the Liquidators shall give notice to persons claiming to be creditors of the Company substantially in the form set out in Schedule 1 to the order (“Notice”), to call for proofs of debt for the purpose of identifying creditors eligible for appointment as COI and giving those creditors the opportunity to express an interest in becoming a member of COI that may be formed.

(4)  The “Latest Notification Date” as provided in the Notice shall be 28 days after the date of publication of the Notice.

(5)  The Liquidators shall circulate the Notice within 21 days from the date of this order, by:

(i)  sending the same by email to each person whom the Liquidators believe may be a creditor of the Company according to its books and records or who has claimed to be a creditor, where the Liquidators have a valid email address of such person;

(ii)  sending the same by email to any solicitors who appeared on the petition in these proceedings as a creditor of the Company;

(iii)  publishing an announcement through The Stock Exchange of Hong Kong Limited;

(iv)  publishing an announcement through the Singapore Stock Exchange;

(v)  notification to Euroclear and Clearstream; and

(vi)  publication on the information website of the Company’s liquidation (https://evergrandeliquidation.com/).

(6)  The Liquidators shall within 21 days from the date of this order, place advertisements substantially in the form set out in Schedule 2 to the order in the following publications:

(i)  each of the Financial Times and the Wall Street Journal;

(ii)  any one or more of the following Chinese language newspapers in Mainland China: Securities Times (证券时报), China Securities Journal (中国证券报), 21^st Century Business Herald (21世纪经济报道), Cailian Press (财联社) or National Business Daily (每日经济新闻) subject to such newspapers accepting the advertisement for publication;

(iii)  an English language newspaper in Hong Kong, namely The Standard (英文虎報);

(iv)  a Chinese language newspaper in Hong Kong, namely Sing Tao Daily (星島日報); and

(v)  the Gazette of the Government of Hong Kong.

(7)  Within 42 days of the Latest Notification Date, the Liquidators shall apply for further directions as to whether a COI should be formed and, if so, the composition of the COI, to be supported by a report to the court by way of affidavit.

(8)  When considering who should be proposed as members of COI, the Liquidators shall be at liberty to determine the basis upon which such proposed members are nominated, provided that such basis and the reasons for nominations are set out in the report to be submitted to the Court pursuant to §(7) above.

(9)  The application for directions shall be made to this Court. The Liquidators shall give notice of the hearing of such application within 14 days of the filing of the application in the same manner as the Notice was circulated and advertised.

(10)  There be liberty to apply.

67.  As for costs, the parties agree that the costs of and occasioned by the Summons including the costs of the OR, Burlington and the Liquidators be paid out of the estate of the Company, to be taxed if not agreed, with a certificate for 2 counsel.

68.  I should make clear that in general, an application made by the liquidators for directions under s.200 of CWUMPO, it is not necessary for a creditor or an interested party to file evidence or appear by its own counsel as the liquidators, who are officers of the court, are expected to advance all the points and concerns which have been raised by the creditors or interested parties, such that it is unnecessary for the creditors to be separately represented. The only reason this Court allows Burlington to recover its costs is because of the novelty of the Eligibility Issue, such that the court would be assisted by the adversarial arguments advanced by the parties.

Annexure