China City Construction (International) Co., Ltd v. Value Partners Hong Kong Ltd

HCCW 166/2018

[2018] HKCFI 2316

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) PROCEEDINGS NO 166 OF 2018

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REASONS FOR DECISION

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1.This was an application by China City Construction (International) Company Limited (“the Company”) by summons dated 28 August 2018 for a validation order pursuant to section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“the Ordinance”). At the conclusion of the hearing, the validation order was made. My reasons appear below.

2.The Company is an investment holding company and the issuer of certain bonds (“the bonds”).  It is currently the subject of a winding up petition presented on 19 June 2018 by Value Partners Hong Kong Limited (“the Petitioner”) based on sums due to it under the bonds.

3.The applicable principles for a validation are not controversial.  The court needs to be satisfied that the payments to be sanctioned will be beneficial and advantageous for the company.  In the present case, the proposed payments are to serve a twofold purpose: to facilitate a restructuring and to preserve the company’s assets.

Payments to facilitate restructuring

4.The Petitioner (the respondent to the present application) is a member of an ad hoc committee of the holders of the bonds (“the Committee”) whose members hold more than 25% of the bonds. 

5.Based on unaudited management accounts of the Company up to 31 August 2018, it is said that the Company is solvent on the balance sheet basis but insolvent on a cash flow basis as it is unable to pay sums due and payable under the terms of the bonds.  The Company, the Petitioner, and the Committee have held discussions concerning a possible restructuring of the Company’s debts with a view to offering a better return to all creditors than would be achieved upon a liquidation.

6.It is intended that KPMG be engaged to act as an independent financial adviser to review and report on the Company’s financial position, strategy and plans to satisfy its liabilities.  KPMG has indicated that its initial report could be produced within two weeks.  The report is intended to begin assisting the Committee in assessing whether a restructuring will benefit bondholders and creditors a whole and would be feasible.  KPMG’s fees (on account) are HK$850,000.

7.This is not a case where the company is hopelessly insolvent such that no further investigation into a potential restructuring could be warranted.  Where, as here, the Company is considered insolvent on a cash flow basis but solvent on a balance sheet basis, it would not be unreasonable to explore further the possibility of a restructuring.  The whole point of the exercise would be to seek to offer a better return to creditors.

8.To kick start the process, certain payments need to be made to other professional advisers that are engaged in connection with the winding up proceedings and the potential restructuring whose participation in the process is necessary.

9.In addition to the payment (on account) of HK$850,000 to KPMG, the following payments are also required:

(1) US$100,000 (on account) to Freshfields for advising the Company on the petition and potential restructuring, and to engage senior and junior counsel in the winding up proceedings.

(2) US$400,000 to Latham & Watkins for professional services rendered in connection with advising the Committee on the ongoing discussions and the potential restructuring.  Their scope of work is set out in the evidence.

(3) HK$150,000 to ONC Lawyers in connection with advising the Petitioner on the petition.

Payment to preserve and recover the Company’s assets

10.Shortly prior to the date of the petition, the Company filed an appeal in HCA 2913/2016 to set aside summary judgment granted against it in the sum of $540 million in favour of Amuse Peace Limited (“Amuse”).  In those proceedings, the Company is counter claiming for recovery of certain substantial shareholdings which the Company contends Amuse had misappropriated.

11.If the appeal is to proceed, the Company’s solicitors in those proceedings (C L Chow & Macksion Chan) will have to be paid and put in funds.  Accordingly, the application also seeks authorization for payment of HK$2 million in respect of their outstanding fees and continuing engagement in that dispute, including the appeal.

Conclusion

12.All interested parties involved support the application.

13.I am satisfied that both the facilitation of the potential restructuring and the preservation and recovery of the Company’s assets, the subject of its dispute with Amuse, would be beneficial and advantageous for the Company and in the interest of the creditors generally. It is relevant to note that the order does not in any way affect the usual taxation process in respect of professional fees paid out of pursuant to this order. Accordingly, the validation order was approved.

14.It should be mentioned that minutes before the hearing, leave to appear was granted to a creditor who, due to a communication error, had not been provided with the papers notwithstanding his several requests. In the event, no opposition was raised to liquidation order sought.

15.It should also be mentioned that at an earlier hearing on 7 September 2018 before A Chan J, costs of that hearing were reserved.  The judge was under the impression that the Official Receiver’s letter of 31 August 2018 had raised concerns that had not been addressed rendering the earlier hearing a wasted exercise.

16.The further evidence filed elaborated upon but did not alter thetwin objectives underpinning the application.  For the reasons explained above, the payments sought are necessary.  Accordingly, I do not consider that the costs incurred for the hearing on 7 September 2018 had been wasted.

Mr William Wong SC, instructed by Freshfields Bruckhaus Deringer, for the applicant

Mr Thomas Wong, instructed by ONC Lawyers, for the respondent

Mr Lam Sung Lai Michael, of Norton Rose Fulbright Hong Kong, for Champ Prestige International Limited