RE YUZHOU GROUP HOLDINGS COMPANY LTD

HCMP 1068/2024

[2024] HKCFI 3098

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1068 OF 2024

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REASONS FOR JUDGMENT

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1.  At the hearing of the petition dated 19 September 2024 (“Petition”), this Court sanctioned a scheme of arrangement between Yuzhou Group Holdings Company Limited (禹洲集團控股有限公司)  (“Company”)  and the Creditors (as defined in §7 below). These are the reasons for my judgment.

A.  BACKGROUND FACTS

2.  The Company was incorporated in the Cayman Islands on 23 April 2008.  It has since 5 August 2008 been registered as a non-Hong Kong company under Part XI of the former Companies Ordinance (Cap. 32)  and has a principal place of business in Hong Kong.  Since 2 November 2009, the Company’s shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited (“SEHK”)  (stock code 1628).

3.  The Company is the ultimate holding company of a group of companies which engage in the business of property investment and development, property management and hotel operations in Mainland China and Hong Kong (together “Group”).  By the year ended 2023, the Group has over 163 property development projects located in 38 cities in the Mainland and another 41 ongoing property investment projects.

4.  The Group is insolvent and unable to pay its debts owing to the downturn of the market condition of the real estate property sector and the reduction in the sources of financing available to the Group.  As at 31 December 2023, the Group’s total assets were RMB108,751 million (US$15,363 million)  while its total liabilities were RMB103,691 million (US$14,648 million).   

5.  For the purpose of formulating and implementing a restructuring proposal in respect of its debts, the Company has since June 2022 engaged Alvarez & Marsal Corporate Finance Limited, BOCI Asia Limited and Haitong International Securities Company Limited as its financial advisers and Messrs. Linklaters and Harney Westwood & Riegels as its legal advisers.

6.  On 8 February 2024, the Company announced that it had entered into a restructuring support agreement (“RSA”)  with an ad hoc group of creditors who hold around 30% of the outstanding principal of the “Existing Public Notes” (as defined in §12(1)  below)  (“AHG”).  Under the term sheet appended to the RSA, the Company intended to compromise the  claims of Class A creditors (as described in §12 below).  The RSA was subsequently amended on 10 July 2024 to cover the claims of Class B creditors (as described in §13 below)  and they were provided with the opportunity to receive the RSA Fee at the same rate as the other creditors.  

B.  SCHEME

7.  The Scheme is put forward by the Company for the purpose of restructuring and compromising all the claims held by Class A and Class B creditors (collectively “Creditors”)  against the Company (“Claims”), which are “offshore debts” incurred by the Company or its subsidiaries outside of Mainland China under various debt instruments.

8.  The Claims do not include:

(1)  Onshore debts owed by the Company to the lenders in the Mainland;

(2)  “Other Offshore Loans” which are secured by mortgages over certain properties of the Group such that the lenders are expected to receive substantial recoveries by enforcing the mortgages;

(3)  Debts owed to trade creditors which the Company requires their continued support in order to maintain the operation of the Group; and

(4)  Inter-company receivables owed between the companies within the Group, which were created in the ordinary course of business as part of the internal cashflow management and need to be preserved post-Restructuring to avoid any disruptions to the business going forward. 

9.  There is a parallel scheme put forward by the Company in the Cayman Islands (“Cayman Scheme”), which is inter-conditional with the Scheme, and sanction of that Scheme has be sought from the Cayman court.

10.  The key features of the Scheme may be summarised as follows.

11.  Under the Scheme, the Claims comprise the claims of the Creditors as at the Record Date including any interest (including default interest)  accrued thereon.  The outstanding principal owed to the Creditors as at 31 December 2023 is referred to as “Principal”.

12.  Class A creditors (“Class A”)  are:

(1)  “Existing Public Notes” with US$5,469,784,800 in Principal.  These comprise 15 series of publicly traded US dollar denominated senior notes issued by the Company pursuant to various New York-law governed indentures.  The Notes are guaranteed by 42 direct and indirect subsidiaries of the Company (“Existing Subsidiary Guarantors”), and are secured by a first priority lien over the capital stock of all of the Existing Subsidiary Guarantors.

(2)  “Existing Syndicated Loan” with US$140,456,141 in Principal.  This is a syndicated loan advanced to the Company pursuant to a facility agreement dated 23 February 2021 governed by Hong Kong law, with China CITIC Bank International Limited as agent.  The loan is secured by the same guarantees and security as the Existing Public Notes.

(3)  “Existing Bilateral Loan” with US$10,719,170 in Principal.  This Loan was advanced to the Company by Nanyang Commercial Bank Limited pursuant to a facility letter dated 25 May 2020 (as amended by a letter dated 27 July 2021)  and is governed by Hong Kong law.  The Loan is guaranteed by the same guarantors as the Existing Public Notes.  In addition, they have the benefit of 2 guarantees provided by Keen Choice Limited and Ultra Smooth Limited, which are non-Group entities.

13.  Class B creditors (“Class B”)  are:  

(1)  “Existing Private Notes”[1] with US$667,000,000 in Principal.  These comprises 4 series of privately traded US dollar denominated notes issued by special purpose vehicles and guaranteed by the Company.  3 series of these Notes are secured by the shares over the respective Issuers.

(2)  “Existing Perpetual Securities” with US$300,000,000 in Principal.  These are US$300,000,000 senior perpetual securities issued by the Company pursuant to an indenture dated 29 September 2017.  The indenture is governed by New York law with Deutsche Bank Trust Company Americas as trustee. 

(3)  “Existing Excluded Notes” with US$90,000,000 in Principal.  These are privately traded notes governed by Hong Kong law.  They are issued by Noble Sea Investments Limited (a non-Group company)  and guaranteed by the Company.  The Notes have the benefit of the “Sponsor-related Credit Support” which comprises certain security and credit support granted by non-Group entities or persons related to the Sponsors.

14.  In return for releasing their Claims against the Company, the Creditors will receive the “Scheme Consideration Entitlements” under one or more of the following options:

(1)  Option 1: Creditors will receive cash payment in proportion to their Claims. US$23,500,000 will be set aside for Class A and US$1,240,000 for Class B (“Cash Consideration Entitlement”).  The Claims will be converted into short-term maturity notes (“STN”)  at 30% of the Principal (for Class A)  or 10% (for Class B)  less the Cash Consideration Entitlement.  Option 1 is subject to cap of US$356,500,000 for Class A and US$18,760,000 for Class B, and the excess amount will be allocated to Option 2.

(2)  Option 2: Creditors will receive a combination of (a)  medium-term maturity notes (“MTN”)  at 72% of the Principal (for Class A)  or 36% (for Class B), to be allocated pro rata as Tranche A, Tranche B, Tranche C and Tranche D[2]; (b)  the remaining Claims (i.e. 28% for Class A and 64% for Class B)  will be paid by issuing new shares in the Company which represent 36.6% to 40.1% of the enlarged issued share capital after the “Restructuring Effective Date” (“New Equity”); and (c)  long-term maturity notes (“LTN”)  equivalent to 50% of the outstanding accrued interest[3] as at 30 June 2024.

(3)  Option 3: Creditors will receive LTN at 100% of the Principal.

15.  Amongst the Scheme Consideration Entitlements:

(1)  STN has maturity date of 30 June 2027, with bi-annual amortisation from 30 December 2025 and interest is payable in cash at 6% p.a. 

(2)  The STN is secured by guarantees from and security over the shares of 42 offshore entities of the Group (“New Notes Guarantors”); and a first priority lien over (a)  the shares of 16 project companies in the Mainland (“Credit Enhancement Package”), (b)  10% shares in the Company, and (c)  a Hong Kong bank account to which 70% of the net sale proceeds from the sale of 33 investment properties and 5 wholly foreign-owned enterprise project companies will be kept (“Allocation Account”).

(3)  MTN comprises 4 tranches with maturity dates of 30 June 2028, 2029, 2030 to 2031 and interest at 4%, 4.5%, 5% and 5.5% per annum respectively. 

(4)  The MTN is secured by the same guarantees and security over the New Notes Guarantors and a second priority lien over the Credit Enhancement Package and the Allocation Account.

(5)  LTN has maturity date of 30 June 2034 with interest at 1% p.a.  payable in cash or in kind.   

(6)  The LTN is security by same guarantees and security over the New Notes Guarantors.

16.  In addition to the Scheme Entitlements Consideration, the following fees are payable to some of the Creditors:

(1)  RSA Fees: Creditors who signed or acceded to the RSA by 21 March 2024 will receive a fee at 0.2% of the Principal, whereas Creditors signing or acceding to the RSA by 28 March 2024 will receive a fee equal at 0.1% of the Principal.

(2)  Work Fee:  AHG will receive US$9 million to US$13.5 million as Work Fee, which represents 0.15% - 0.22% of the Principal, which the Company says is similar to or less than the work fees paid by companies with similar restructuring proposals[4].

17.  In consideration of the Scheme Entitlements Consideration, the Creditors agree to the following releases upon the Scheme becoming effective (collectively “Releases”):

(1)  all Claims against the Company;

(2)  all other “Existing Debt Obligors” including those third parties which have provided security for the existing notes and loans (i.e. Claims);

(3)  “Restructuring Released Parties” which comprise the Company, member of the Group; Existing Debt Obligors, their administrative parties (“Administrative Parties”)  and directors; member of AHG, Creditors, professional advisers, legal counsel, agents, trustees, registrars and other administrative parties in connection with claims (a)  relating to the negotiation, preparation, implementation of the Scheme and the Restructuring, and (b)  in relation to any breaches or defaults under the Existing Debt Finance Documents against the Administrative Parties;

(4)  Excluded from the releases are (a)  any claim against directors or officers of any company in the Group for breach of duties or malfeasance pertaining to matters unrelated to the negotiation, preparation or implementation of the Scheme or Restructuring; (b)  any claim relating to fraud, wilful default or wilful misconduct of any “Restructuring Released Party”, (c)  any claim against the Restructuring Released Party which does not arise in connection with the Existing Debt Finance Documents, the Scheme or Restructuring; and (d) any claims of the Administrative Parties’ rights to compensation and reimbursement under the Existing Debt Finance Documents (collectively “Exclusions”).

18.  The Scheme will take effect on the “Restructuring Effective Date”, which is the date when all the “Restructuring Conditions” are met or waived provided that such date is no later than 28 February 2025 (“Long Stop Date”). 

19.  According to the comparative analyses prepared by FTI Consulting (Hong Kong)  Limited:

(1)  If the Company is put into liquidation, the estimated recoveries to the Creditors are 2.45% to 7.63% for Class A and 0.78% to 4.15% for Class B[5]. 

(2)  Under the Scheme, the estimated returns under the 3 Options are: (a)  Option 1: 24.3% for Class A and 8.1% for Class B; (b) Option 2: 45.6% for Class A and 25.9% for Class B; and (c)  Option 3: 25.9% for Class A and Class B.

C.  DISCUSSION

20.  In considering whether a scheme should be sanctioned, the court considers the following factors[6]:

(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 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 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)  if the company which puts forward the scheme is a foreign company, whether there is sufficient connection between the scheme and Hong Kong[7], and the utility of the court sanctioning the scheme[8].

21.  Each of the above factors is satisfied. 

C1.  Permission purpose, compliance with directions and statutory  majorities

22.  As regards permissible purpose, compliance with court’s directions and approval by statutory majorities:

(1)  The Scheme is put forward for the purpose of restructuring and compromising the Claims so as to allow the Company to restore its solvency, which is a permissible purpose.

(2)  The Company has made amendments to the Scheme Document to address the comments and concerns raised by this Court at the convening hearing on 16 August 2024. 

(3)  The directions given at the convening hearing have been complied with.  Separate meetings were convened for Class A and Class B to consider the Scheme to be held on 12 September 2024 and subsequently adjourned to 16 September 2024 (“Meetings”)  to allow the Creditors sufficient time to consider a Supplement to the Explanatory Statement which had been circulated on 9 September 2024. 

23.  At the Meetings held on 16 September 2024, the Scheme was approved by the requisite majorities of the Creditors in that:

(1)  Class A Meeting: 1,648 Creditors attended of which 1,645 representing 99.28% of in value voted for the Scheme and 3 voted against.

(2)  Class B Meeting: 191 Creditors attended all of which voted for the Scheme. 

C2.  Class issue

24.  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 should take a broad approach to the composition of classes so as to avoid giving unjustified veto rights to a minority group of creditors[9].

25.  In the present case, the rights of Class A, both before and under the Scheme, are materially different from those of Class B in that the former have the benefit of more security including those provided by the Existing Subsidiary Guarantors and the returns under the Scheme are also higher than those of Class B.  It is appropriate to put the Creditors into 2 classes. 

26.  As regards the 3 types of debt instruments within Class A, it is appropriate to put them in the same class as their rights against the Company are materially identical:

(1)  The Existing Public Notes and Existing Syndicated Loan benefit from the same suite of security, which includes the security given by the Company over its entire shareholding in Yuzhou International Holdings Company Limited (“Yuzhou International”)  and a guarantee given by Yuzhou International.

(2)  Although the Existing Bilateral Loan is not secured by the shares over Yuzhou International, there is no material difference in the rights given that Yuzhou International has executed a guarantee in favour of the debts under Class A.  The security over Yuzhou International has no value as can be seen in the Liquidation Scenario. 

(3)  Although the Existing Bilateral Loan has the benefit of the additional guarantees provided by 2 non-Group entities, the difference does not fracture the class as it is the rights against the Company (not the rights against any third parties)  which is the relevant comparator.

(4)  Under the Scheme, Class A has the same rights to elect any  Option and receive Scheme Consideration Entitlements in proportion to the value of their Claims.

27.  As for Class B, their existing rights as against the Company, both before and under the Scheme, are materially the same:

(1)  They are unsecured creditors of the Company, either qua issuer of the Notes or guarantor of the relevant Securities and Notes.

(2)  Although the Existing Private Notes have additional rights against the Issuer while the Existing Excluded Notes have additional rights against the relevant Issuer and the Sponsor-related Credit Support, such rights are not rights against the Company and hence do not fracture the class.

28.  The existence of the RSA and payment of the RSA Fees to some Creditors would not fracture the class[10] given that all Creditors had been given an equal opportunity to accede to the RSA, and the level of the Fees (up to 0.2% of the Principal)  were not material as compared to the returns to the Creditors under the Liquidation Scenario and the Scheme.

29.  As for the Work Fee and its relevance to the class issue, the relevant principle has been stated by Snowden J (as he then was)  in Re Noble Group Ltd [2019] Bus LR 947 §§131-132:

“131 As regards the class question, subject to an important caveat, I accept in general terms the proposition that payments made by a company to some creditors independently of a proposed scheme and its associated restructuring agreements, which are not dependent upon the scheme taking effect, ought not to come into the equation for class purposes. The simple reason is that they would not be part of the scheme proposal which all scheme creditors have to consider at the relevant meetings. This was, I think, what David Richards J was alluding to when considering the effect of payments in connection with voting (“lock up”)  agreements in In re Telewest Communications plc (No 1) [2004] BCC 342, para 54:

‘A serious issue would arise if in consideration of its agreement to vote in favour of the scheme, or collaterally to it, the bondholder received benefits not available to the other bondholders. In effect, the result would be unequal treatment under the scheme and the bondholder could not, I think, be included in the class. As I was informed, that is not the case with the voting agreement in this case. The voting obligations are conditional on prior payment of fees and costs incurred by the bondholder committee in the course of the past two years but Telewest had already, independently of the voting agreements, undertaken to pay these costs and fees. Telewest will also pay their costs of entering into the voting agreements but I consider that to be immaterial.’ (My emphasis.)

132  The important caveat is that any such prior payment which is made to some, but not all, creditors must have been made for legitimate reasons and be genuinely independent of the scheme and restructuring.  In other words, it should not amount to a disguised part of the consideration offered under the scheme and restructuring.  I alluded to such a requirement when questioning the legitimacy of the ‘work fees’ paid in In re Global Garden Products Italy SpA[2017] BCC 637, paras 15 and 53.  On the facts of that case I was able to take the view that the payments had been made available to all creditors, and that they were of a relatively low amount (an order of magnitude different to the fees in this case), so that they did not give rise to a class issue.” (underlined added)

30.  In the present case, the payment of the Work Fee is made for a legitimate reason and is independent of the Scheme:

(1)  The Work Fee is payable to AHG (ranging from US$9 million to US$13.5 million)  and “Existing Lenders” (ranging from US$755,900 to US$1,026,700)  regardless of whether the Scheme is approved albeit that in a liquidation scenario, the relevant Creditors would need to prove as unsecured creditors in respect of the Work Fee whereas if the Scheme is implemented, the Work Fee will be paid in cash. 

(2)  As the payment of the Work Fee does not form part of the Scheme, it would not form part of the proposal which the Creditors would have to consider at the Meetings. 

(3)  Although the Work Fee is payable only to AHG and Existing Lenders, this was the result of their involvement in the negotiations of the Scheme Document and the other agreements necessary for the implementation of the Restructuring and the Scheme and had during the process provided substantive inputs and comments on the Restructuring and the Scheme.  

(4)  The payment of the Work Fee is to meet the expenses of AHG and Existing Lenders, rather than to confer any additional benefit to them (Re Hilding Anders International AB [2023] EWHC 1513 (Ch)  §29).  The Work Fee to AHG represents about 0.15% to 0.22% of the Principal, which is not substantial as compared to the return under the Scheme (which ranges from 24.3% to 45.6% for Class A).  It does not seems to me that the magnitude of the Work Fee is one which would give rise to a class issue, and no Creditor has indicated its objection to the Company paying such Fee. 

C3.  Information to Creditors

31.  An explanatory statement should be sufficient to enable the Creditors to exercise reasonable judgment on whether the Scheme is in their interests, and to reach a sensible decision as to its benefits.  The Creditors are assumed to be intelligent and can be expected to read the explanatory statement as a whole (Re E-House (China)  Enterprise Holdings Ltd §60).  The information in the explanatory statement needs to be up to date (Re China Beidahuang Industry Group Holdings Ltd [2023] HKCFI 3232 §23).

32.  The Explanatory Statement satisfies the above requirements in that:

(1)  It sets out the details of the Restructuring and the reasons for implementing the Scheme.  These include the background to the Company and the Restructuring, explanation of the Scheme terms, risk factors and the recovery analyses in  Liquidation Scenario and under the Scheme.  It also identifies the specific matters which the Court required the Company to disclose, explain or address[11].

(2)  To provide the Creditors with the most up to date information, a Supplement to the ES was provided to the Creditors on 9 September 2024. 

C4.  Discretionary factors

33.  Third parties releases (i.e. releases of liabilities other than those of the Company)  are often described as a common feature of recent schemes.  It seems that there is a tendency for those involved in the preparation of the schemes to think that so long as the company asserts that “the ancillary discharge of various third parties would not fracture the class”[12], “the release is to effect the overall purpose of the Scheme”[13] or that the releases “form part of the commercial arrangement and compromise between the [Creditors] and the Company”[14], that would be sufficient.  I do not think that this is the right approach. 

34.  In my view, the starting point is to consider what types of third parties releases are involved in the restructuring, and whether such releases can be justified.  In general, there are the following types of third parties releases and the justifications for their inclusions in the scheme are different.

35.  First, a release which is necessary for the implementation of the scheme. This includes where a third party (including a subsidiary of the company)  has provided guarantee or security in favour of the creditor’s claim to be compromised under the scheme.  The justification for releasing the third party is that without the release, the third party may bring contribution claim against the company. This would undermine the scheme as it means that the company would remain liable for the claim even though the purpose of the scheme is to compromise that very claim[15].

36.  Second, a release which forms part of the scheme between the company and the creditors, and the scheme has been approved by the creditors.  Such release, if properly disclosed to the creditors, is unobjectionable as it is a matter which the creditors can consider and approve[16]. The court would be slow to differ from the majority’s views, as this is essentially a matter of commercial judgement which businessmen are better placed in deciding whether it is in their interests or to their commercial advantage to accept the arrangement under the scheme[17].

37.  Third, a release of the liability of the directors, officers, professional advisers and any other third parties.  Such release, particularly when it is expressed in general or unqualified terms, cannot be said to be necessary for the implementation of the scheme.  Nor is it justifiable.  There is no reason why the directors, officers, professional advisers or third parties should be released from liability for any breach of duties or any cause of action which the company has or may have against them.

38.  It has sometimes been said that the directors, officers and professional advisers are entitled to an indemnity against the company for any amount which they may be liable to pay to the company for any breach of duty, either under the articles of association or the contracts made between the company with such persons.  However, such statement cannot be accepted at its face value for the following reasons:

(1)  Very often, the company has already taken out insurance against any liability which the directors, officers and advisers may incur in the performance of their duties.  As such, it is  the insurer (rather than the company)  which has to bear any liability to compensate the company for any loss suffered. 

(2)  Where the indemnity is only found in the articles of association of the company, such indemnity does not avail a third party as the articles of association is a statutory contract only as between the company and its members and the members inter se[18]. 

(3)  Even if the indemnity formed part of the contract made between the company and the relevant officers/advisers, whether it is valid or enforceable depends on the law which applies to the company concerned.  For example, while the provision of such indemnity may be permissible for companies incorporated in offshore jurisdictions like Cayman Islands, Bermuda and BVI, the same cannot be said of a company incorporation in Hong Kong[19].

39.  Fourth, a release of directors, officers and professional advisers from liability associated with the negotiations, preparation, and implementation of the scheme.  Subject to carving out of any liability arising from fraud, wilful default, gross negligence or wilful misconduct (which cannot be justified), such release may be said to be reasonably necessary for the implementation of the scheme if the relevant person needs to take out additional insurance against any liability associated with the preparation of the scheme.  In such scenario, it may be said that the release reduces the risk and costs associated with the preparation of the scheme.

40.  Fifth, a release of third parties for liability unrelated to the creditors’ claims.  This type of release is not permissible as it is not necessary for implementation of the scheme, and is no more than an attempt by the third parties to escape unrelated liabilities[20].

41.  In the present case, the third parties releases have been properly disclosed in the Scheme Document.  They comprise:

(1)  A release of the Existing Subsidiary Guarantors.  This is necessary for implementation of the Scheme as the Claims will be compromised and extinguished upon the Scheme becoming effective, and be replaced by the STN, MTN and LTN issued to the Creditors, which will benefit from the new guarantees to be executed by the New Notes Guarantors. 

(2)  A release of the Existing Private Notes Issuers (non-Group special purpose vehicles)  which is also necessary for implementation of the Scheme.  These Issuers have rights over certain intercompany receivables owed by the Company and/or the Group. If they are not released, the Creditors would be able to bring claims against the relevant Issuers, which would then seek contribution against the Company.  This would  undermine the Scheme.

(3)  The release of the Restructuring Released Parties shall not apply to the Exclusions.   

42.  The Restructuring Effective Date is subject to the satisfaction of the Restructuring Conditions which include (1)  sanction of the Cayman Scheme; (2)  recognition of the Schemes under Chapter 15 of the US Bankruptcy Code; (3)  the Company having obtained all relevant corporate authorisations, regulatory approvals and other applicable consents in respect of the Restructuring; (4)  approval by SGX-ST for listing of the New Notes; and (5)  payment of the RSA Fee, Work Fee and professional fees associated with the Restructuring.  In this regard, the Company has already taken steps to comply with the relevant conditions and is confident that they will be met by the Long Stop Date.  These include:

(1)  On 21 June 2024, the Company applied to the Cayman court for sanction of the Cayman Scheme, which is scheduled to be heard on 30 September 2024.

(2)  On 27 August 2024, the Company made an application to the US Bankruptcy Court for the Southern District of New York for recognition of the Schemes, which is fixed to be heard on 2 October 2024.

(3)  On 31 July 2024, the Company submitted an application to National Development and Reform Commission of the People’s Republic of China (“NDRC”)  for registration of the “New Notes” (i.e. STN, MTN and LTN).  As at the date of the hearing, NDRC has not indicated any objection to the registration.  The relevant condition will be complied with if no objection is received from NDRC by early November 2024.

(4)  The Company will convene an EGM to be held in mid-November 2024 for the purpose of obtaining approval from the shareholders on issuing the New Equity under the Scheme.  It is expected that the relevant resolution will be passed as the Sponsors who hold more than 50% shareholding in the Company will vote for the resolution. 

(5)  The Company will apply to SGX-ST for approval for listing and quotation of the New Notes.

(6)  The RSA Fee, Work Fee and expenses associated with the Restructuring will partly be funded by the cash reserves of the Group and party from the funds to be raised by way of Rights Issue.  In respect of the Rights Issue, the Sponsors have underwritten to pay no less than US$8 million to subscribe for new shares in the Company.  The Company intends to obtain sanction from the Cayman court for issuing new shares at a discount prior to implementation of the Rights Issue but such sanction is not one of the Restructuring Conditions.   

43.  Although some of the Conditions remain unsatisfied as at the date of the sanction hearing, the evidence before the court shows that the Conditions will be satisfied within a reasonably short period of time.  The uncertainty in compliance with the Conditions by the Long Stop Date is not such as to constitute a reason for the court to withhold sanction (cf. Re E-House (China)  Enterprise Holdings Ltd §68).

C5.  International dimension

44.  The Company is incorporated in the Cayman Islands.  To justify the court exercising its jurisdiction to sanction a scheme in respect of a foreign company, it is necessary to demonstrate a sufficient connection between the Scheme and Hong Kong, i.e. the “jurisdiction issue”.  This requirement is plainly met given that:

(1)  The Company is listed in Hong Kong, has  a principal place of business in Hong Kong and has been registered as a non-Hong Kong company for over 16 years. 

(2)  A substantial part of the Claims to be compromised under the Scheme are governed by Hong Kong law.

(3)  Most, if not all, of the negotiations and preparation of the documents for the Restructuring and the Scheme in the past 26 months have been carried out in Hong Kong. 

45.  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 (E-House (China)  Enterprise Holdings Ltd, §§65-66).  However, the utility and international effectiveness of a scheme concerning a foreign company whose shares are listed on HKEX is not normally a matter of real concern in our court as there would be sufficient creditors who are either subject to the in personam jurisdiction of the court, or their debts are governed by Hong Kong law or that the creditors have elected to participate in the scheme to be sanctioned by the Hong Kong court (North Mining Shares Company Ltd, §36-37).

46.  The utility issue is also satisfied given that a substantial part of the Claims are governed by Hong Kong law and almost all the Creditors have participated in the Scheme by voting at the Scheme Meeting.