Read the full judgment text of HCMP 503/2021 on BabelCite. This Court of First Instance judgment was delivered on 4 June 2021 before Harris J.
Companies – scheme of arrangement – sanction under section 673 of the Companies Ordinance (Cap 622) – post-meeting modification to correct drafting error – Hong Kong-listed Cayman incorporated company in soft-touch provisional liquidation – three business segments: power and data cords, refined oil and chemicals trading, and commodities trading – share trading suspended since 2 July 2019 – winding-up petition presented 24 April 2019 – soft-touch provisional liquidators appointed by Cayman Court 5 November 2019 and recognised by Hong Kong Court 5 May 2020 – parallel scheme introduced in Cayman Islands and sanctioned 14 May 2021 – Scheme seeks to discharge approximately HK$136 million of general unsecured debts – Scheme Consideration of approximately HK$17.6 million cash plus Creditors' shares – Subscribers to acquire about 75% of Company's shares – estimated 12.9% recovery for Scheme Creditors versus 0.5%–0.9% in liquidation – 91.58% by value of Scheme Creditors voting in favour at Scheme Meeting on 18 May 2021 – whether the Court may permit post-meeting modification of scheme to correct clear drafting error – held modification permitted where it would not cause a hypothetical reasonable creditor to take a different view and would not foist on scheme creditors something substantially different to what was approved – whether the scheme should be sanctioned – Court applied seven well-established principles from Re China Singyes Solar Technologies Holdings Ltd – permissible purpose (rescuing listing status), single class (unsecured creditors with same legal rights and the appropriate comparator being insolvent liquidation), duly convened meeting, sufficient information in Explanatory Statement, statutory majorities under s.674(1)(b), intelligent and honest person test (Scheme gives better return than liquidation), sufficient connection with Hong Kong (Company listed, registered, and managed in Hong Kong) – all seven principles satisfied – international effectiveness of scheme – whether parallel Cayman scheme was necessary – Court held unnecessary where debt almost entirely governed by Hong Kong law – the Rule in Gibbs being good law in the Cayman Islands meant only a Hong Kong scheme would compromise Hong Kong law debt – Court criticised advice from Harneys as internally inconsistent – Court sanctioned scheme under s.673 – amendment to Clause 69 to delete erroneous reference to Clause 67 approved – Court warned that future parallel schemes would need to be justified – Court commented on the indiscriminate use of letter-box jurisdictions by Hong Kong listed companies and the danger of this prejudicing the interests of Hong Kong and Mainland creditors – Court observed the absence of debtor-in-possession legislation in Hong Kong and the creditor-driven nature of soft-touch provisional liquidation – Court noted that where a listed company's existing business ceases to be viable, the interests of unsecured creditors become paramount and directors or provisional liquidators must act to maximise value for those creditors.
Legal issues: Post-meeting modification of scheme to correct drafting error · Sanction of scheme of arrangement under s.673 Companies Ordinance · Justification for parallel Cayman Islands scheme
Outcome: Scheme of arrangement between the Company and its Scheme Creditors sanctioned under section 673 of the Companies Ordinance (Cap 622); post-meeting amendment to Clause 69 of the Scheme to correct a drafting error approved; the Court strongly criticised the unnecessary parallel Cayman Islands scheme and warned that future parallel schemes would need to be justified
Cited by 17 cases · Cites 3 cases