RE CHINA CHANGBAISHAN INTERNATIONAL HOLDINGS LTD

HCMP 108/2026

[2026] HKCFI 5285

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 108 OF 2026

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REASONS FOR JUDGMENT

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1.  At the second hearing of the Petition presented by China Changbaishan International Holdings Limited[1] (中國長白山國際控股有限公司)(“Company”), I sanctioned the scheme of arrangement between the Company and its Scheme Creditors (defined in §5 below) pursuant to sections 673 and 674 of the Companies Ordinance (Cap. 622) (“Ordinance”). These are the reasons for my judgment.

A. BACKGROUND

2.  The Company was incorporated in Bermuda on 11 January 1994 and has since January 1995 been registered as an oversea company[2] and subsequently a registered non-Hong Kong company under the Ordinance. Its shares have since 20 October 1997 been listed on the Main Board of The Stock Exchange of Hong Kong Limited (“SEHK”) (stock code 989)[3].

3.  The Company is an investment holding company of a group of subsidiaries incorporated in Hong Kong, the British Virgin Islands, Samoa and Mainland China (together “Group”). The primary business of the Group is investment, development and management of real property in Mainland China. The Group has in recent years diversified into ginseng and mineral water business[4].

4.  Since 2022, the Group has encountered financial challenges including losses in its operations, higher finance costs, increased gearing and difficulties in obtaining re-financing[5]. The Company is both balance sheet insolvent and cash-flow insolvent in that:

(1) according to its latest audited financial statements, as at 31 March 2025, the Company had net current liabilities of RMB 182 million and net liabilities of RMB 30.7 million[6]; and

(2) according to its latest management accounts, as at 28 February 2026, the Company had net current liabilities of RMB 319.3 million and net liabilities of RMB 230.2 million and cash of RMB 27,000[7]. The substantial increase in deficiency was attributed to a RMB 124.9 million provision for impairment of the amounts due from subsidiaries which the Company considered was irrecoverable.

5.  The Company has identified 27 creditors and the total outstanding principal as at the Record Date amounted to HK$711.37 million (“Scheme Creditors”). The claims of the Scheme Creditors (“Scheme Claims”) fall into 3 categories[8]:

(1) Hong Kong law-governed, unsecured interest-bearing bonds with total claim of HK$65.7 million;

(2) loans with total claim of HK$133.2 million; and

(3) guarantees for payment obligations of its subsidiaries with total claim of HK$528.2 million.

6.  Amongst the Scheme Creditors, 2 of them with total claim of HK$403,720,228.1 are members of the Concert Party Group[9] each of which has given an undertaking to the court not to vote at the Scheme Meeting and to abide by the terms of the Scheme[10].

B. RESTRUCTURING

7.  The Scheme forms part of a restructuring undertaken by the Company for the purpose of compromising and converting its debts into equity and restoring its solvency. The restructuring comprises 3 parts (together “Restructuring”):

(1) “Subscription”: Ground Group HK (as defined in §9 below) advanced a HK$39 million loan to the Company which will be applied to pay the subscription price for 260 million new shares to be issued by the Company (“Subscription Shares”);

(2) the Scheme; and

(3) “Share Offer”: Ground Group HK will make a mandatory general offer to acquire all the shares held by the shareholders other than the Scheme Creditors.

8.  The Subscription, the Scheme and the Share Offer are inter-conditional and each of which shall become unconditional on or before the Long Stop Date, which was initially fixed on 31 December 2026 and subsequently changed to 31 October 2026 at the second sanction hearing.

B1. Subscription

9.  Ground Group (Hong Kong) Co., Ltd[11] (“Ground Group HK”) is beneficially owned by Mr Cui (a non-executive director and shareholder) as to 72.6% and Mr Cong (an executive director) as to 12%.  It is the single largest Scheme Creditor[12]. 

10.  By a funding agreement dated 12 January 2026, Ground Group HK (as lender) agreed to lend HK$39 million to the Company and Ka Yun Investments Ltd[13] (as co-borrowers) for the purposes of preparing and implementing the Restructuring (“Funding Agreement”)[14]. 

11.  On 15 July 2026, the parties entered into a supplemental funding agreement which provides that the Company may use the loan to finance the Group’s property development business and general working capital[15].

12.  On 15 July 2026, a Subscription Agreement was entered into whereby Ground Group HK agreed to subscribe 260 million shares in the Company at HK$0.15/share, and the subscription price in the amount of HK$39 million will be set-off against the loan advanced under the Funding Agreement[16].

B2. Scheme

13.  The details of the Restructuring are set out in a composite scheme document dated 14 May 2026 (“Scheme Document”) which contains, inter alia, an explanatory statement (“ES”), a notice of the meeting of the Scheme Creditors (“Notice”), return analyses under liquidation scenario and the Scheme. The Scheme Document has incorporated and reflected the comments of the Securities and Futures Commission, SEHK and those made by this Court at the convening hearing held on 24 February 2026 (discussed in Section C below).

14.  The Scheme seeks to compromise and discharge all the Scheme Claims in exchange for Scheme Consideration in the form of 4,742,453,691 new shares to be issued by the Company (“Scheme Shares”)[17].

15.  The Scheme does not apply to (1) Preferential Claims, (2) Secured Claims, (3) Scheme costs, and (4) any amount owed by the Company under the Funding Agreement as at the Scheme Effective Date (“Excluded Claims”)[18]. As at the date of the Petition, the Company does not have any Preferential Claims or Secured Claims[19].

16.  Upon the Scheme becoming effective on the Restructuring Effective Date (“RED”):

(1) All the Scheme Claims against the Company will be released and discharged in full (clause 3.1);

(2) The Scheme Consideration will be distributed pro rata in proportion to the amounts of the admitted Scheme Claims (clause 3.3);[20]

(3) All Scheme Claims that are admitted by the Scheme Administrators or the Adjudicator[21] (“Admitted Scheme Claims”) will be eligible to receive their pro-rated Scheme Shares[22] (clauses 8.6, 10.1);

(4) The Scheme Shares will be held on trust by a newly-incorporated Hong Kong company controlled by the Scheme Administrators (“SchemeCo”) and will be transferred to the Scheme Cred[23]itors within 21 days after the later of (a) the RED, (b) final determination of the Scheme Claims, and (c) close of the Share Offer (clause 3.4); and

(5) The estimated pre and post Scheme Costs are HK$8.095 million and HK$1.45 million respectively, and will be borne by the Company and be paid outside the Scheme[24].

17.  The Scheme provides for releases of liability in favour of (1) the Company or its representatives, partners, staff, agents or advisers for actions taken or omitted to be taken in good faith in connection with the Scheme and the Restructuring; and (2) the Scheme Administrators in connection with implementation or for the purpose of the Scheme (clauses 13.1-13.2).

18.  The releases clauses have no application to (1) any matters unrelated to the Scheme, (2) any liability arising from a breach of the terms of the Scheme, and (3) any liability attributable to its or his own wilful default, fraud, gross negligence, wilful misconduct, dishonesty or wilful breach of duty or trust (clause 13.5). These releases clauses are confined to releasing any liability which the Scheme Creditors may have in connection with the preparation and implementation of the Scheme other than gross negligence or wilful breach of duty. They are necessary for implementation of the Scheme as it is not clear if the Company’s directors and officers insurance policies would cover the acts done by them in relation to the Restructuring,[25] and it would only increase the cost of the Scheme if the Company has to take out additional insurance against such liability. (Re Yuzhou Group Holdings Co Ltd [2025] 1 HKLRD 69 §39).

B3. Share Offer

19.  Upon completion of the Subscription and the Scheme, Ground Group HK will be obliged to make the Share Offer as required by the Takeovers Code[26]. For this purpose:

(1) Ground Group HK shall ensure that it has readily available funds to satisfy full acceptance of the Share Offer[27].

(2) If, upon completion of the Restructuring, the Company does not have sufficient public float (25%) as required by the Listing Rules, Ground Group HK will dispose of such number of shares to ensure that the minimum public float will be restored[28].

(3) The Scheme Creditors will not be allowed to participate in the Share Offer. An Irrevocable Undertaking will be given by the Scheme Administrators and SchemeCo not to accept the Share Offer or dispose of the Scheme Shares until the Share Offer is closed[29]. The exclusion of the Scheme Creditors is required by Ground Group HK as it has not agreed to provide a cash alternative to the Scheme Creditors.[30]

C. MATTERS RAISED AT CONVENING HEARING

20.  At the convening hearing held on 24 February 2026, this Court raised a number of concerns or queries on the draft Scheme Document including the terms of the Scheme.

21.  First, the Long Stop Date (“LSD”) had not been specified. This was undesirable. It would be a matter of grave concern if the LSD fall on a late date given that during the intervening period, the Scheme Creditors would not be able to take enforcement action against the Company and would not receive any Scheme Consideration. By the convening stage, the Company should be able to inform the court and the Scheme Creditors of the LSD, having regard to the progress of the Restructuring.

22.  Mr Michal Lok[31], counsel for the Company, explained that the LSD depended on when the Company would be able to complete the Share Offer which was an integral part of the Restructuring. Assuming the Scheme would be sanctioned by the court in late June, the Company should be able to dispatch the circular on the Share Offer in early July 2026 and the Share Offer would be completed by early August 2026.

23.  Subsequently, at the sanction hearing on 25 June 2026 (“1^st sanction hearing”), the Company informed the court that:

(1) The expected timing of the despatch and completion of the Share Offer had been delayed and the new time table reflected in the ES, Section 5.9 subject to a further minor slippage).

(2) The LSD was fixed on 31 December 2026 “or such later date as may be extended with the agreement of the Scheme Creditors holding not less than 75% in value of the aggregate Admitted Scheme Claims pursuant to Clause 14.3 of the Scheme”. This aligned with the court’s usual requirement that given the importance of the LSD, any extension thereof should only be made with the agreement of the same majority of Scheme Creditors required for approving the Scheme.

24.  Second, the treatment of interest. Mr Lok submitted that interest (including default interest (if any)) on any indebtedness “payable at a certain time or otherwise” should not be provable or admissible as part of the Scheme Claim unless the same arose out of a contract or judgment and for a period ending on or before the Scheme Effective Date (clause 8.9).

25.  It was not clear what was the rationale on the different treatment of interest on the debts owed to the Scheme Creditors and whether such difference could be justified. In any event, there was inconsistency between the definition of Scheme Claims and clause 8.9 of the Scheme regarding interest which needed to be rectified. At the 1^st sanction hearing, the Company amended the definition of “Scheme Claim” and “Claim” to ensure their consistency.

26.  Third, the Scheme would only compromise the claims vis-à-vis the Company but not the subsidiaries. As the Scheme Creditors would be able to enforce their claims against the subsidiaries concerned, it was necessary for the Company to address the financial position of the Group and demonstrate that post-Restructuring, the Group would be able to restore to solvency. This was particularly important as the Scheme Creditors would only receive Scheme Shares the value of which depend on the financial viability and value of the Group.

27.  Fourth, as regards the return under the Scheme, Mr Lok highlighted the explanation on how the Company came up with the value in ES §8.2:

(1) In assessing the estimated recovery rate under the Scheme, the Company adopted the theoretical ex-rights price analysis (“TEP”) and came up with a recovery rate of 38% (as opposed to the pro forma net asset value (“NAV”) analysis which resulted in the much lower recovery rate of 1.84%).

(2) Under TEP, the theoretical price per Scheme Share was HK$0.057, which was calculated by (i) adding the total market capitalisation of HK$266,534,635.60 (closing price of HK$0.74*360,181,940 existing shares) with the additional funds to be raised (HK$39m) and (ii) dividing the said product (ie HK$266.535m+HK$39m = HK$305.535m) by the total number of shares post-Restructuring (5,362,635,631 shares).

(3) The number of Scheme Shares to be issued would be 4,742,453,691 shares, being (i) the total Claims of HK$711,368,054 divided by (ii) the Subscription Price of HK$0.15/share (based on the total claims of HK$711,368,054 and assuming 100% conversion thereof).

(4) Dividing the theoretical price by the Subscription Price resulted in a recovery rate of 38% (HK$0.057/HK$0.15).

28.  Mr Lok drew to the attention of the court that if one deducted the Scheme Costs of around HK$9 million from the market capitalisation, the theoretical price would become HK$0.055/share (being HK$296.64m/5,362,635,631), and the recovery rate would be reduced to 36.7% (HK$0.055/HK$0.15).

29.  Mr Lok submitted that the TEP analysis was more appropriate for assessing the estimated value of the Scheme Shares although the Company also included the NAV analysis in the ES for comparison purpose:

(1) The TEP analysis reflected the post‑Restructuring capital structure of the Company, including the substantial enlargement of the issued share capital and the dilutive effect of issuing the Scheme Shares and the Subscription Shares. It would provide a more meaningful indication on the value of Scheme Shares.

(2) By contrast, the NAV analysis was based on historical records and did not capture any market‑based pricing factors. Historic book values of NAV had limited correlation to the prices at which the shares in the Company would trade in the market.

30.  I agreed that it was more appropriate to assess the return under the Scheme using the TEP analysis, which took into account and reflected the current trading price of the shares, the number of new shares to be issued under the Subscription and the Scheme and their dilutive effect on the price.

31.  Fifth, at the convening stage, there were various references to “Remaining Scheme Creditors” which led to this Court asking whether such Creditors have the same rights vis-à-vis the Company both before and under the Scheme as compared to the Scheme Creditors.

32.  Mr Lok explained that under the Scheme, there is only one class of Scheme Creditors. The so-called “Remaining Scheme Creditors” are Ground Group HK and Ka Yik, who fall within the meaning of the Concert Party Group. To address the concern, the references to “Remaining Scheme Creditors” were removed.

33.  Mr Lok confirmed that each of the Concert Group Party would give an undertaking to the court (1) not to attend the Scheme Meeting, (2) not to vote at the Scheme Meeting, and (3) to abide by the terms of the Scheme.

34.  Sixth, the list of known Scheme Creditors in Appendix 7 contained 29 Scheme Creditors but 3 of them appeared in different categories more than once, and the list did not distinguish between those who are the Concert Party Group (who would not attend or vote at the Scheme Meeting) and the non-Concert Party Group. At the 1^st sanction hearing, the Company has rectified the list which shows that there were 27 Scheme Creditors, 2 of which are Concert Party Group (i.e. Ground Group HK and Ka Yik).

35.  This Court indicated that there seems to be little utility in requiring the Company to give notice of the Scheme Meeting by placing advertisements in Hong Kong having regard to (1) the small number of Scheme Creditors, (2) the Company being the issuer of corporate bonds or the guarantor of the debts, should have the contact details of the Scheme Creditors, (3) majority of the Scheme Creditors are based in the Mainland, and (4) notice of Scheme Meeting (together with the Scheme Document) would be sent to each Scheme Creditor by prepaid post, airmail or prepaid courier service and published on SEHK’s news website and the Company’s website.

36.  However, Mr Lok informed the court that while the Company had the contact details of the Scheme Creditors, not all of them have responded to the Company’s correspondence. For that reason, the Company preferred to retain advertisements as the means of giving notice of the Scheme Meeting. Solely because of the Company’s preference, directions given requiring the Company to give notice of the Scheme Meeting through advertisements.

D. MATTERS REQUIRING RECTIFICATIONS AT 1^ST SANCTION HEARING

37.  At the 1^st sanction hearing, while the Company endeavoured to deal with the above requirements, there were 4 matters which required to be addressed and rectified before the court could sanction the Scheme.

D1. Scheme Effective Date v Restructuring Effective Date

38.  In the ES and the Scheme, it was stated that the Scheme would “become binding and effective on the Company and the Scheme Creditors under Hong Kong law. However, the completion of the Scheme will only take place upon satisfaction of all the conditions stated above”[32].

39.  The conditions precedent for the Scheme to become binding and effective were (1) the Scheme having been approved by the requisite majorities of the Scheme Creditors; (2) registration of the order sanctioning the Scheme at the Companies Registry; (3) the Subscription Agreement having become unconditional in all respects in accordance with the terms set out therein; (4) the grant of Specific Mandate for the issue of the Scheme Shares and the Special Deal; and (5) the Company having obtained approval from the Listing Committee of SEHK for the listing of the Scheme Shares.

40.  The stipulations to the effect that the Scheme will only become binding and effective after compliance with the conditions set out in §39(3)-(5) above is inconsistent with s.673(5)-(6) of the Ordinance, which provides that:

“(5) An arrangement or compromise sanctioned by the Court under subsection (2) is binding –

(a) …

(b) on the creditors or the class of creditors, or the members or the class of members, or both, with whom the arrangement or compromised is proposed to be entered into.

(6) An order Made by the Court under subsection (2) has no effect until an office copy of the order is registered by the Registrar under Part 2.”

41.  It would not be a proper exercise of jurisdiction for the court to sanction the Scheme when an important term such as its effective date was inconsistent with s.673(5)-(6) of the Ordinance.

42.  Mr Lok pointed to the terms of the scheme discussed in Re China Beidahuang Industry Group Holdings Ltd [2023] HKCFI 3232 and contended that it was permissible for a scheme to contain terms which provided that it would only become binding and effective upon compliance with all the conditions stipulated therein. I disagreed.

43.  As this Court pointed out at the 1^st sanction hearing, the scheme in Re China Beidahuang, like many other schemes considered by this Court, contained 2 distinct definitions:

(1) The “scheme effective date”, which is the date upon registration of the court order sanctioning the scheme. This reflects the fact that once the sanction order is registered, the scheme binds the creditors and they cannot take enforcement action against the company.

(2) By contrast, the “restructuring effective date” is the date upon compliance with (or waiver of) all the restructuring conditions stated in the scheme, which must take place before the long stop date. This is the date when the restructuring becomes unconditional and the company is obliged to pay the scheme consideration to the creditors. If the restructuring effective date does not occur before the long stop date, the scheme will lapse.

44.  It was precisely because there was a time gap between the “scheme effective date” and the “restructuring effective date” that this Court consistently required the company not to leave the long stop date on a late date as it would not be fair to bind the creditors for a prolonged period during which they would not receive any scheme consideration.

45.  As the Scheme did not distinguish the conditions for the Scheme to become binding and effective and the conditions for completion of the Restructuring, and the same definition “Scheme Effective Date” was used throughout the Scheme Document, it was necessary for the Company (1) to rectify the Scheme Document and the terms of the Scheme at the adjourned sanction hearing (“2^nd sanction hearing”) and (2) to demonstrate that the amendments would not have a material effect on the Scheme Creditors’ decision as to whether to vote for the Scheme.

46.  At the 2^nd sanction hearing, Mr Lok takes the court through the amendments made to the Scheme which split the original conditions precedent into 2 groups:

(1) Conditions for Scheme:

(a) The conditions for (i) the Scheme to have been approved at the Scheme Meeting, (ii) the court to sanction the Scheme, and (iii) registration of the order sanctioning the Scheme by the Registrar of Companies, have been moved to the newly-inserted Clause 4A.1 (Conditions Precedent to the Scheme).

(b) The definition “Scheme Effective Date” has been amended to the date on which all such conditions under Clause 4A.1 have been fulfilled.

(2) Conditions for Restructuring:

(a) The other conditions remain under Clause 5.1, together with a newly added condition for the occurrence of the Scheme Effective Date.

(b) A new term “Restructuring Effective Date” (i.e. RED) has been introduced, being the date on which all the conditions precedent under Clause 5.1 have been fulfilled.

47.  Mr Lok submits that the amendments have no or minimal substantive effect on the rights or obligations of the Scheme Creditors for the following reasons:

(1) RED will have the same effect as the original “Scheme Effective Date”, as both require the fulfilment of all conditions precedent (whether for the Scheme or the Restructuring). Most references to the “Scheme Effective Date” have been changed to “RED”. Amendments have also been made to make clear that the Scheme Claims will only be released and discharged on RED (Clause 3), which is consistent with Clause 5.2. The Scheme Claims are accordingly compromised on the same date and upon the fulfilment of the same conditions notwithstanding the proposed amendments.

(2) The matters that continue to happen on the “Scheme Effective Date” will be brought forward. These include the date on which the Scheme Administrators are appointed (Clause 2.1), and the date from which the Company can extend the LSD with the agreement of the Scheme Creditors holding not less than 75% in value of the aggregate Admitted Scheme Claims (Clause 14.3), with a new fallback that, if the determination and/or adjudication of Scheme Claims has not been completed, the Voting Claims shall be considered (similar to Clause 14.2). These are administrative in nature, as they allow the extension mechanism to operate upon the Scheme itself becoming effective.

48.  The LSD has been brought forward from 31 December 2026 to 31 October 2026.

49.  Clause 8.4 has also been amended to avoid confusion as to whether interest will be calculated up to the RED. This is consistent with the original Clause 8.9 approved by the Scheme Creditors.

D2. Should amendments be allowed without further Scheme Meeting

50.  The principles governing modification to a sanctioned scheme has been summarised by this Court in Re Powerlong Real Estate Holdings Ltd [2025] 3 HKC 662 at §22 where the company applied for permission to modify the terms of a scheme previously sanctioned by the court. In short, it is only if the proposed modification is one which is permitted by the scheme that the court would begin to consider the application. The court would be slow to allow the modification unless it falls within one or more of the following non-exhaustive scenarios:

(1) The modification is to correct the manifest errors or mistakes in the scheme;

(2) The modification is one which has no or minimal substantive effect on the rights or obligations of the parties under the scheme, such that it cannot be said to be an attempt by one or more parties to re-write the contractual bargain;

(3) The modification is one which, although it has substantive effect on the rights or obligations of the parties under the scheme, it has been agreed to by the company (if the modification is sought by the creditors) or the requisite majorities of the creditors (if the modification is sought by the company), and the variation would not have caused any reasonable creditor to take a different view in relation to the scheme had it been put before them; or

(4) The modification is necessitated by a change of circumstances beyond the control of the parties and the modification is essential to the implementation of the scheme.

51.  The court has in the past exercised the power to approve modifications to a scheme in a number of cases where the scheme contained a modification clause. See for example, Re China Saite Group Co Ltd [2022] HKCFI 1128 at §§7-8; Re Samson Paper Holdings Ltd [2021] 5 HKLRD 286 at §§16-18 and Re Rare Earth Magnesium Technology Group Holdings Ltd [2022] 3 HKLRD 252 §§38-40.

52.  In my view, although the present application arises at the sanction stage, the same principles governing an application for modifications post-sanction should apply. This is because whether the application is pre or post sanction, the creditors have already approved the scheme in its original terms. The court would be concerned to see whether the modifications have any substantive effect on the rights and obligations of the parties, and if so, whether such variations would have caused any reasonable creditor to take a different view on the scheme.

53.  I accept that this is a case where the court should allow the amendments to the Scheme without requiring the Company to convene and hold a further Scheme Meeting for the Scheme Creditors to consider and approve the amendments.

54.  Clause 14.1 of the Scheme provides that the Company may consent on behalf of all Scheme Creditors to “modifications of, or additions to, the Scheme or any condition which the Court may see fit to approve or impose and which would not directly or indirectly have a material adverse effect on the interests of any Scheme Creditor under this Scheme”.

55.  The amendments fall within the scope of Clause 14.1 as they do not have any material adverse effect on the rights of the Scheme Creditors under the original terms of the Scheme as compared to their rights if the proposed modification is allowed (Powerlong §26). In particular, the LSD has been moved earlier (in response to this Court’s concern) benefits the Scheme Creditors, as it means that they do not have to wait a longer period to see if the restructuring conditions in Clause 5.1 will be met (cf. in Powerlong §27, where the company sought to extend the longstop date).

56.  Further, the amendments are necessary to ensure that the terms of the Scheme are consistent with the provisions under s.673(5)-(6) of the Ordinance, and are one which can be approved by the court.

D3. Corporate Guarantee Scheme Claims

57.  Another issue identified at the 1^st sanction hearing which had not been fully addressed by the Company was whether the Scheme, when implemented, would have the effect of restoring the solvency of the Group. There was a real concern given that the Scheme would only release the liability under the guarantees provided by the Company, but not the debts owed by the borrowers, which were subsidiaries of the Company (“Subsidiaries’ Debts”)[33].

58.  At the 2^nd sanction hearing, the Company addresses the issue in this way:

(1) Upon Completion of the Restructuring, the Group’s pro forma net assets will become HK$219.3 million. This is more than the Subsidiaries’ Debts other than those held by Ground Group HK (HK$223.1 million) less the estimated recovery by these Scheme Creditors under the Scheme (HK$73.8 million), that is, HK$149.3 million[34].

(2) Ground Group HK holds HK$498.2 million Subsidiaries’ Debts.[35] It has executed 2 irrevocable undertakings, one governed by Hong Kong law and the other governed by PRC law, to confirm that it will not pursue claims against the subsidiaries concerned[36].

(3) In addition, as at 21 July 2026, 9 Scheme Creditors holding HK$84.2 million Subsidiaries’ Debts have executed similar undertakings and releases against the subsidiaries[37]. Only 12 Scheme Creditors holding HK$138.9 million Subsidiaries’ Debts have not executed irrevocable undertakings and releases[38].

(4) Further, in respect of the Subsidiaries’ Debts governed by PRC law (HK$201.5 million), the Company’s legal advisers confirmed that under PRC law, a primary obligor (i.e. subsidiary) does not have a right of contribution, indemnity or reimbursement against the guarantor (the Company), unless the parties have expressly agreed otherwise. The guarantees and the underlying agreements do not contain any such special agreement[39].

(5) The advice is consistent with the position under Hong Kong law. In Re Powerlong Real Estate Holdings Ltd [2026] HKCFI 3836 at §91, DHCJ Segal considered that one issue that may require consideration in future cases was whether a release of the principal obligor (Northeast Gemini) was needed to avoid ricochet claims against the Company (qua guarantor) as principal debtors do not, in the absence of an express agreement, acquire rights of indemnity against guarantors, since the principal debtors are the party with the primary responsibility to discharge the relevant liability.

59.  I accept that with the undertakings given by the Scheme Creditors (including Ground Group HK) not to enforce their Subsidiaries’ Debts against the subsidiaries, the concern about the solvency of the Group post-Restructuring has been properly addressed.

D4. LSD and compliance with conditions

60.  Another concern identified at the convening hearing and the 1^st sanction hearing was the LSD being fixed on 31 December 2026 and the uncertainties created by the fact that the key commercial agreements such as the Subscription Agreement and the Restructuring Framework Agreement, which were pivotal to the Restructuring, had not been executed. The circular for convening a general meeting to approve the Share Offer remained in abeyance.

61.  At the 2^nd sanction hearing, Mr Lok provides an update on compliance with each condition under Clauses 4A.1 and 5.1[40]:

(1) The SEHK confirmed on 26 June 2026 that exceptional circumstances under Rule 7.27B of the Listing Rules have been demonstrated and that the Company may proceed with the Subscription and the Scheme[41].

(2) The Subscription Agreement was entered into between Ground Group HK and the Company on 15 July 2026[42].

(3) The Restructuring Framework Agreement was entered into by the parties on 15 July 2026[43].

(4) The Supplemental Funding Agreement was entered into by the parties on 15 July 2026[44].

(5) The updated draft Joint Announcement was approved and published on 15 July 2026[45].

(6) The Circular and the Composite Document in respect of the Special Deal will be submitted to the SEHK and/or the SFC respectively by 17 July 2026 and 24 July 2026. Once cleared by the regulators, will be despatched by mid-August 2026 and mid-September 2026[46].

62.  The remaining conditions, including approval for listing of the Subscription Shares and the Scheme Shares, and the Executive’s consent to the Special Deal, are tied to the ongoing regulatory process[47].

63.  The Company acknowledges that there is a slippage from the timetable in that the despatch of the Share Offer Composite Document is now expected to take place after the Executive’s consent to the Special Deal is granted by the end of August 2026 (as opposed to early July 2026).

64.  With the substantial progress made by the Company during the adjournment of the Petition, the Company is confident that the Restructuring will be completed on or before 31 October 2026 and has revised the LSD to that date[48].

E. DISCUSSION

65.  The approach of the court in considering whether to sanction a scheme is well-established. The Company needs to satisfy the court that the following requirements[49] are met:

(1) whether the scheme is for a permissible purpose;

(2) whether creditors who were called on to vote as a single class had sufficiently similar legal rights such that they could consult together with a view to their common interest at a single meeting;

(3) whether the meeting was duly convened in accordance with the Court’s directions;

(4) whether creditors have been given sufficient information about the scheme to enable them to make an informed decision on whether or not to support it;

(5) whether the necessary statutory majorities have been obtained;

(6) whether the Court is satisfied in the exercise of its discretion that an intelligent and honest man acting in accordance with his interests as a member of the class within which he voted might reasonably approve the scheme; and

(7) in an international case, whether there is sufficient connection between the scheme and Hong Kong, and whether the scheme is effective in other relevant jurisdictions.

E1. Permissible purpose & compliance with court directions

66.  The Scheme seeks to compromise and discharge the Company’s indebtedness and restore it to solvency. This is a permissible purpose for the use of a scheme.

67.  The Company has substantially complied with the directions given by the court at the convening hearing in that:

(1) On 14 May 2026 (more than 21 clear days before the Scheme Meeting), the Notice of the Scheme Meeting was advertised in English and in Chinese[50].

(2) The Notice of Scheme Meeting, the Scheme Document were sent to the Scheme Creditors by prepaid post or prepaid express courier[51].

(3) The Notice of Scheme Meeting was published on SEHK’s news website and the Company’s website[52].

(4) The accuracy of the Chinese translations is confirmed by the Company’s solicitor[53].

68.  Mr Lok draws to the Court’s attention that there were the following instances of non-compliance with the directions given at the convening hearing:

(1) The Scheme Document were sent to 3 Scheme Creditors with last known addresses in Hong Kong by prepaid express courier rather than “by hand or prepaid post” as required under §3 of the Convening Order, as was the case in Pa Shun International Holdings Ltd [2023] HKCFI 3037 §26(1). Despite this, all 3 of them were aware of and voted at the Scheme Meeting, and filed Notices of Claim on time[54].

(2) §2 of the Convening Order referred to Lee Garden Two as the location at which the Scheme Document could be obtained. Prior to despatch, the address had been changed and the Scheme Document was made available at that new address. No Scheme Creditor was prejudiced as the former address only appeared in the Convening Order but not the Scheme Document, all of which referred to the new address[55].

(3) The Scheme Document was not directly downloadable from SEHK’s news website and the Company’s website[56]. Instead, it was made available on a password-protected page with credentials provided on request, as it contained offer-related material subject to pre-vetting under Rule 12.1 of the Takeovers Code which had not yet been cleared by the SFC[57]. Save for Kingston Securities Limited (which was provided with the Scheme Document), no Scheme Creditor has sought access[58].

(4) The courier packages sent to 2 Scheme Creditors (Jilin Wanding and Mr Jiang Jinbo) were returned. The Company had no other effective means of contacting them, they did not approach the Company and did not attend or vote at the Scheme Meeting[59].

69.  I am satisfied that the aforementioned non-compliances are technical breaches and should be waived by the court. The Scheme Creditors have not been prejudiced as they had been provided with sufficient notice of the Scheme Meeting and access to the Scheme Document and would be able to attend and vote at the Scheme Meeting should they wish to do so.

E2. Approval by statutory majorities

70.  The Scheme Meeting was held (in hybrid form) on 8 August 2026 and was attended by 23 Scheme Creditors (through proxies) holding total Scheme Claims of HK$258,068.73. Amongst them[60]:

(1) One Scheme Creditor holding HK$48,876,164.38 abstained from voting.

(2) 22 Scheme Creditors holding HK$210,056,904.35 voted for the Scheme.

71.  The 4 Scheme Creditors who did not attend the Scheme Meeting were:

(1) Ground Group HK and Ka Yik, both Concert Party Group, who had given an undertaking not to attend or vote at the Scheme Meeting[61]; and

(2) Jilin Wanding and Jiang Jinbo, in respect of whom courier packages containing copies of the Scheme Document were returned[62]. They held around 11.78% and 6.44% of the Scheme Claims eligible to vote (i.e. excluding the Claims held by the Concert Party Group) respectively.

72.  Mr Lok submits that the Scheme was approved by 100% in number and 100% in value given that the Scheme Creditor who abstained should be treated as not having attended and voted at the Scheme Meeting[63]. For the reasons explained below, I agree with his submissions.

73.  Section 674(1)(a) of the Ordinance provides:

“the creditors agree to the arrangement or compromise if, at a meeting of the creditors summoned under section 670, a majority in number representing at least 75% in value of the creditors present and voting, in person or by proxy, agree to the arrangement or compromise” (underlined added)

74.  Mr Lok has helpfully traced through the legislative history of s.674, which shows that the words “and voting” were added by the English legislature in 1928 for the purpose of excluding those creditors who were present but did not vote when calculating the majorities of the creditors agreeing to the scheme.

75.  As observed by the learned editors of Payne, Schemes of Arrangement: Theory, Structure and Operation, 2^nd ed, at pp.8-9, the first “readily recognisable predecessor” of s.899(1) of the Companies Act 2006 and s.206 of the Companies Act 1948 can be found in s.120 of the Companies (Consolidation) Act 1908 (“1908 Act”), which provided that:

“(2) If a majority in number representing three-fourths in value of the creditors or class of creditors, or members or class of members, as the case may be, present either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding....” (underlined added)

76.  Section 20(2) of the 1908 Act was amended by s.53(3) of the Companies Act 1928 [64] (“1928 Act”) by inserting the words “and voting” after the word “present”.

77.  Section 53(3) of the 1928 Act was replaced by s.153(2) of the Companies Act 1929, which carried forward the requirement for creditors or members (as the case may be) to have been “present and voting”.

78.  The position prior to, and the effect of, the amendment was not to treat an abstention as a vote against the scheme.

(1) In In re Savoy Hotel Ltd [1981] Ch 351 359B-C, Nourse J (as he then was) observed:

“In the following year the Companies (Consolidation) Act 1908 was passed and in section 120 there appeared for the first time a readily recognisable predecessor of section 206 (1) and (2), the only difference being that the words ‘and voting’ did not at that stage appear in subsection (2) after the word ‘present.’ In other words, as I understand it, at that stage an abstention was still effectively a vote against. However, that and other amendments were made by section 53 of the Companies Act 1928.” (emphasis added)

(2) Similarly, in Schemes of Arrangement: Theory, Structure and Operation, 2^nd ed., p.9, the learned editor stated that in consequence of the amendment, “an abstention at the meeting was no longer treated as a vote against the arrangement, effectively lowering the approval threshold”.

(3) In Shackleton on the Law and Practice of Meetings, 16^th ed, §18-07; illustration (b) states:

“The member holding 3,000 shares is persuaded to abstain from voting; when the votes are counted 500 members holding 5,300 shares are found to have voted in favour and 499 members holding 1,700 shares to have voted against. The resolution is carried”.

79.  Section 153 was subsequently adopted, in substantially identical terms as s.166(2) of the former Companies Ordinance (Cap. 32). The section was repealed and replaced by s.674 of the Ordinance and the formulation “present and voting” has been retained.

80.  Legislative history apart, Mr Lok submits that as a matter of statutory interpretation, the words “present and voting” in s.674 of the Ordinance are conjunctive. A creditor who attends the meeting but abstains is “present” but not “voting”. A contrary interpretation would render the words “and voting” otiose. I agree.

81.  In the present case, a total of 25 Notices of Claims for voting purpose and 23 proxies were lodged by the Scheme Creditors. Excluding the Concert Party Group, 23 Scheme Creditors with total Claims of HK$258,933,068.73, being the full amount of their Scheme Claims, were admitted for voting purposes[65].

82.  The Scheme was approved by the requisite majorities of the Scheme Creditors at the Scheme Meeting in that:

(1) 22 (out of 23) Scheme Creditors present and voting (excluding abstention) voted for the Scheme. This represents 100% in number and 100% in value of Scheme Creditors present and voting[66].

(2) One Scheme Creditor (holding HK$48,876,164.38 or 18.88% of the Claims admitted for voting) abstained from voting.[67] The abstention is highlighted in discharge of the Company’s duty to reflect what transpired at the Scheme Meeting accurately and to present a full picture to the court (Re Sunac China Holdings Ltd [2023] 5 HKLRD 765 §24).

E3. Class issue

83.  In considering the issue of class, it is the rights of creditors (both before and under the scheme), not their separate commercial or other interests, which determine whether they form a single class or separate classes. The court take a broad approach to the composition of classes so as to avoid giving unjustified veto rights to a minority group of creditors (UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin (2001) 4 HKCFAR 358, per Lord Millett NPJ).

84.  No class issue arises in relation to those Scheme Creditors who can continue to seek repayment from the primary obligors (subsidiaries of the Company), as it is the rights against the Company which is the relevant comparator, not the rights against any third parties (Re Yuzhou Group Holdings Co Ltd [2025] 1 HKLRD 69 §26).

85.  Here, the Scheme Creditors were properly placed in a single class given that they are all unsecured creditors and their rights against the Company are the same. Under the Scheme, the Claims held by the Scheme Creditors will be compromised and discharged in consideration of the same right to receive Scheme Shares in proportion to their Claims.

E4. Sufficient information

86.  The Company is under a duty to provide “sufficient information on the effect of the Scheme” and the ES is “perfectly fair and, as far as possible, give all the information reasonably necessary to enable the recipients to determine how to vote and the information needs to be up to date” (North Mining Shares §23).

87.  The ES explains the background to and the reasons for the Scheme, its effect and terms, the rights of Ground Group HK and the Concert Party Group, class composition, releases, risk factors, and advantages and disadvantages of the Scheme[68]. The relevant comparators (and the analyses) being the return under the Scheme and in liquidation have been set out in the ES[69].

88.  As the Scheme Consideration consists entirely of the Scheme Shares, the Company has disclosed and addressed various matters which would affect the value of the Scheme Shares including:

(1) The fact that no cash distribution or payment is contemplated[70].

(2) The changes in the liabilities and equity of the Company before and after the Restructuring in accordance with the court’s observations in Re Sino Oil and Gas Holdings Ltd [2024] 2 HKLRD 1084 §28. These include:

(a) The effect of the Scheme, the Subscription and the Share Offer on the shareholding structure of the Company[71].

(b) The liabilities that will remain upon completion of the Restructuring (consisting of Excluded Claims, operational liabilities arising in the ordinary course of business after the Scheme Effective Date)[72]. The Company does not expect the Excluded Claims to have a material adverse impact on its post-Scheme solvency or going concern status[73].

(3) The risks relating to the business prospects of the Group and the value of Scheme Shares[74].

(4) The dilutive effect of the issue of the Scheme Shares and Subscription Shares, which represent 88.4% and 4.8% of the enlarged issued share capital of the Company upon completion[75]. As stated above, the dilution has been taken into account in the recovery rate analysis (cf. Sino Oil §39(2)).

89.  Further, in line with Re Helenbergh China Holdings Ltd [2024] HKCFI 2628 §52, the Company has identified the limitations in the liquidation analysis including that (1) it is prepared based on financial information as of 28 February 2026[76], (2) the estimates and assumptions used are inherently uncertain and may not materialise[77], and (3) the estimated asset values reflect realisable values under a hypothetical forced-sale scenario, which are inherently lower than the values achievable on a going-concern basis[78].

D5. Intelligent and honest man might reasonably approve

90.  The court should be slow to differ from the view of the statutory majority, who are “better judges of whether it is in their interests to approve the Scheme”, unless there is “something glaring wrong” (North Mining Shares §27).

91.  The Scheme is one which a Scheme Creditor might reasonably approve. This is evident from a comparison of recovery rates[79]:

(1) If the Scheme is not implemented, it is the Board’s view that the Company and all its subsidiaries will enter into liquidation[80] given that the Company is both cashflow and balance sheet insolvent and unable to pay its debts.

(2) On the basis of the financial information as of 28 February 2026, as assessed by independent financial advisers, in liquidation scenario, the recovery rate to the Scheme Creditors would only be 1.26% to 3.31%.

(3) By contrast, if the Scheme is implemented, the estimated return to the Scheme Creditors is 33.06%. The Scheme also offers a quicker and cheaper adjudication of claims than in liquidation.

E6. International dimensions

92.  As regards the “jurisdiction issue”, there is sufficient connection between the Company and Hong Kong so as to justify the Court exercising its jurisdiction to sanction the Scheme in respect of the Company (being a Bermudian company) (Yuzhou §44):

(1) The Company’s shares are listed on SEHK. It has a principal place of business in Hong Kong, has been registered as an oversea/non-Hong Kong company for more than 30 years and holds directly assets in Hong Kong[81].

(2) A substantial part of the Scheme Claims (about 29.97% of Scheme Claims excluding those held by the Concert Party Group) is governed by Hong Kong law[82].

93.  As regards the “utility issue”, the court would consider whether the Scheme is effective in other foreign jurisdictions, as the court would not act in vain and would not exercise its powers to sanction a scheme which does not serve any useful purpose. The utility and international effectiveness of a scheme concerning a foreign company whose shares are listed on SEHK is “not normally a matter of real concern in our court” as (1) there would be sufficient creditors who are either subject to the in personam jurisdiction of the court, or (2) their debts are governed by Hong Kong law, or (3) that the creditors have elected to participate in the scheme to be sanctioned by the Hong Kong court (Yuzhou §45).

94.  Of the Scheme Claims excluding the Concert Party Group, about 70.03% are governed by PRC law[83]. Applying the Gibbs rule, the Scheme would not bind these Scheme Creditors unless they submit to the jurisdiction of this Court by inter alia voting at the Scheme Meeting or participating in the Scheme (Re China Beidahuang §11(8) and fn 14). Here, the Scheme received strong support from Scheme Creditors whose claims are governed by PRC law. 17 out of 18 of such Scheme Creditors (holding 83.57% in value) voted in favour of the Scheme[84]. The Company accordingly considers the Scheme substantially effective and does not intend to seek recognition in from the Mainland courts[85].

95.  As the Company does not have any assets in Bermuda, it does not intend to advance any parallel scheme in Bermuda[86].