Re China Oceanwide Group Ltd

HCCW 100/2022

[2023] HKCFI 455

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO 100 OF 2022

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J U D G M E N T

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1.There is before the court a winding up petition presented by New Merit Group Limited (“Petitioner”)  against China Oceanwide Group Ltd (中泛集團有限公司)  (“Company”)  on 13 April 2022 (as amended on 27 July 2022)  on the ground that the Company is insolvent and unable to pay its debts (“Petition”). 

2.In the Petition, the Petitioner pleaded 2 factual matters in support of its contention that the Company is insolvent:

(1)  The Company is indebted to the Petitioner in the sum of US$32,471,522.19 (“Debt”), “being the amount of payment under ‘Oceanwide Holdings International Development III Co. Ltd US$280,000,000 14.5% Guarantee Senior Notes Due 2021 inclusive of interest up to 23^rd March 2022”[1] (“Notes”); and

(2)  On 1 March 2022, a statutory demand (“SD”)  was served on the Company at its principal place of business, but the Company failed to pay the debt within the 3-week period for compliance with the SD[2].  There is no averment on whether the “debt” referred to in the SD was the Debt stated in the Petition[3]. 

3.The Company opposes the Petition on the following grounds:

(1)  The Petitioner is not a “Holder” of the Notes (as defined in the Indenture dated 23 May 2019 (“Indenture”)  and, therefore, is not entitled to seek payment from the Company directly;

(2)  Even if the Petitioner is a “Holder” of the Notes, it failed to satisfy the conditions precedent stipulated in the Indenture for presenting a winding up petition against the Company; and

(3)  In any event, in light of the undertaking given by its sole shareholder, Oceanwide Holdings Co., Ltd (泛海控股股份有限公司)  (“Holdings”), to provide financial support to the Company, the Company is solvent and should not be wound up.

4.As stated above, other than stating that the Debt is the amount due under the Notes, there is no particulars on the grounds for contending that the Debt is owed to the Petitioner or the facts relied upon by the Petitioner in support of such contention.   

5.Even after the parties filed extensive evidence to deal with the grounds raised by the Company, the Petitioner still does not apply for leave to amend the Petition to state any additional or alternative grounds for asking the court to make a winding up order against the Company or the facts it relies upon.  In particular, there is no plea in the Petition on:

(1)  whether it is alleged that the Petitioner is a “Holder” of the Notes and, if so, the provisions in the Indenture relied upon, the particulars of the Notes it holds and the facts in support of the allegation;

(2)  whether it is alleged that the Petitioner has any other interest in the Notes, the nature and particulars of the interest, the provisions in the Indenture relied upon, and the facts in support of the allegation;

(3)  whether it is alleged that the Petitioner has locus to present the Petition as contingent or prospective creditor, and the facts relied upon in support of the allegation; and

(4)  whether the Petitioner relies on any other facts in support of its allegation that the Company is insolvent.  

6.Nevertheless, in his written submissions, Mr Taylor LK Li[4], counsel for the Petitioner, argues that the Company should be wound up for the following reasons[5]:

(1)  The court held in Re Jinro (H.K.)  International Limited [2003] 4 HKC 637 that “downstream debenture purchasers (i.e. P), who purchased notes held in common depository, are creditors under s178(1)(a)  of [CWUO] and have locus to petition for winding up” (Downstream Purchaser point);

(2)  Further or alternatively, the Petitioner is an “equitable assignee and have [sic] locus to petition for winding up as creditors [sic] in equity pursuant to Re Jinro and sections 178(1)(c)  and 179(1)  of [CWUO]” (Equitable Assignee point);

(3)  Further or alternatively, the Petitioner is a “contingent and/or prospective creditors and have [sic] locus to petition for winding up as creditors [sic] in equity pursuant to section 179(1)  of [CWUO]” (Contingent Creditor point);

(4)  Notwithstanding Section 6.06 of the Indenture, Section 6.07 provides that the Petitioner may bring suit for enforcement of the Indenture after 23 May 2021 (Section 6.07 point);

(5)  The Company fails to demonstrate that there is a genuine dispute on the Debt (No bona fide Dispute point); and

(6)  In any event, the Company is unable to pay its debts, taking into account its contingent and prospective liabilities (Prospective Liabilities point).

Background

7.The Company is incorporated in Hong Kong and is an investment holding company.  It is wholly owned by Holdings, a company established in the Mainland. 

8.The Company is at the apex of a group of companies known as “Oceanwide Group”, which engages in real estate, financial service and energy business.  According to the corporate structure chart prepared by the Company (reproduced at the end of this Judgment):

(1)  The Company owns a number of wholly owned subsidiaries incorporated in the BVI and Hong Kong.  The subsidiaries in turn hold equity interests in companies incorporated in Bermuda, the United States and Hungary.

(2)  Oceanwide Holdings International Development III Co., Ltd (泛海控股國際發展第三有限公司)  (“Issuer”)  is a wholly owned subsidiary of the Company.  It is incorporated in the BVI.  Apart from issuing the Notes, the Issuer does not have any other business or asset. 

(3)  Amongst the sub-sub subsidiaries, there are 2 companies whose shares are listed on The Stock Exchange of Hong Kong Limited.  They are China Oceanwide Holdings Limited (中泛控股有限公司)  (stock code 715)  (“COH”)  and China Tonghai International Financial Limited (中國通海國際金融有限公司)  (stock code 952)  in which the Company (through its subsidiaries)  holds 70.28% and 72.51% shareholding respectively. 

9.The Notes were issued by the Issuer pursuant to the Indenture.  The Indenture was executed by the Issuer (as Issuer of the Notes), Holdings (as PRC Parent Guarantor), the Company (as Hong Kong Parent Guarantor), Oceanwide Real Estate International Company Ltd (泛海建設國際有限公司)  (as Subsidiary Guarantor)  and Citicorp International Limited (as Trustee).

10.The Notes fell due on 23 May 2021.  Neither the principal nor the interest accrued on the Notes were paid to the Petitioner. 

11.In the “Announcement on Inside Information” made by COH on 28 May 2021 (“1^st Announcement”), it was stated that on 24 May 2021, the Issuer repurchased part of the Notes in the aggregate principal amount of US$146,045,000 through the issuance of privately placed US$146,045,000 notes due 2024.  The aggregate principal amount of the Notes which remained outstanding was US$133,955,000. 

12.On 1 March 2022, the Petitioner served the SD on the Company.  The Company did not comply with the SD or pay any part of the amount demanded by the Petitioner. 

13.On 13 April 2022, the Petitioner presented the Petition.

14.On 29 April 2022, COH made an announcement disclosing the SD and the Petition presented by the Petitioner against the Company (“2^nd Announcement”).  In the 2^nd Announcement, it was stated that the Company “intends to oppose the Petition vigorously”, and will continue to explore an amicable settlement with the Petitioner.

15.The Notes are secured by the “Parent Guarantee” executed by each of Holdings and the Company. 

Applicable principles

16.A creditor seeking to wind up a company is required to present a petition in compliance with the requirements of the Companies (Winding up and Miscellaneous Provisions)  Ordinance (Cap. 32)  (“CWUO”), the Companies (Winding-Up)  Rules (Cap. 32H)  (“CWUR”)  and the Forms contained in the Appendix to the CWUR where applicable.

17.In so far as the CWUO is concerned, s.177 provides that the court may make a winding up order against the company on the grounds set out in sub-section (1)(a)-(f).  Section 179(1)  stipulates the persons who have locus to apply for a winding up order in this way:

“An application to the court for the winding up of a company shall be by petition, presented subject to the provisions of this section either by the company, or by any creditor or creditors (including any contingent or prospective creditor or creditors), contributory or contributories or the trustee in bankruptcy or the personal representative of a contributory, or by all or any of those parties, together or separately…”

18.Where a creditor seeks to wind up a company on the ground that it is insolvent, it bears the burden of proving that the company is unable to pay its debts (s.177(1)(d)).  For this purpose, s.178(1)(a), (b)  and (c)  of the CWUO set out 3 different bases for a creditor to prove that the company is “unable to pay debts” as follows:

“A company shall be deemed to be unable to pay its debts –

(a)  if –

(i)  a creditor, by assignment or otherwise, to whom the company is indebted in a sum then due that equals or exceeds the specified amount, has served on the company a written demand –

(A)  in the prescribed form requiring the company to pay the sum so due; and

(B)  by leaving it at the registered office of the company; and

(ii)  The company has, for 3 weeks after the service of the demand, neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor,

(b)  if execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c)  if it is proved to the satisfaction of the court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.” (underlined added)

19.The form and contents of a petition are governed by the CWUR. The following Rules and Forms apply to a petition presented by a creditor on insolvency ground:

(1)  Rule 1(1)  provides that the CWUR “shall apply to the proceedings in every winding up under the [CWUO] of a company”. 

(2)  Rule 3(1)  provides that “the forms in the Appendix, where applicable, and where they are not applicable forms of the like character, with such variations as circumstances may require, shall be used…”.

(3)  Rule 3B sets out the requirements of the form and the content of statutory demand in this way:

“(1)  A statutory demand –

(a)  must be in Form 1A;

(b)  must state –

(i)  the amount of the debt; and

(ii)  the consideration for the debt, or if there is no such consideration, the way in which the debt arises;

(c)  must be dated; and

(d)  …

(2)  …

(3)  Subject to paragraph (4), if the amount of the debt claimed in a statutory demand includes –

(a)  any charge by way of interest not previously notified to the company as a liability of the company; or

(b)  any other charge accruing from time to time,

the charge (whether expressed in an amount or by reference to a rate)  must be separately identified, and the grounds on which the charge is claimed must be stated, in the demand.

(4)  The amount of the debt claimed must be limited to that which has accrued due as at the date of the demand.” (underlined added)

(4)  Rule 3C prescribes the other information to be given in the statutory demand.

(5)  Rule 22 provides that “Every petition shall be in the Form 2 or 3 with such variations as circumstances may require”. 

(6)  Form 1A is the prescribed form of statutory demand.  It requires, inter alia, the creditor to state:

(a)  when was the debt incurred.  Note 1 thereof states that “[i]f the creditor is entitled to the debt by way of assignment, then, in addition to the date of incurrence of the debt, details of the original creditor and any intermediary assignees should be given in Part B, including the date of each assignment to each of the assignees”;

(b)  the description of the debt.  Note 2, 3 and 5 thereof mirror the requirements stipulated in Rule 3B(1)(b)(i)-(ii), Rule 3B(3)(a)  and Rule 3B(3)(b)  respectively; and

(c)  the amount due as at the date of the statutory demand.  Note 4 thereof requires the amount of interest to be shown separately.   

(7)  Form 2 is the prescribed form of petition.  Amongst others, it requires the petitioner to “set out in paragraphs the facts on which the petitioner relies”.

(8)  Form 7 and Form 8 are affidavits verifying petition. Each requires the petitioner to verify the truthfulness of “the statements in the petition” as relate to the acts and deeds of the affirmant or of any other persons to be true.

20.As is clear from the above Rules and Forms, which apply to every petition presented against a company, a petitioner is required to state not just the debt remains unpaid, but also “the facts on which the petitioner relies”.  Consistent with this, Form 7 and Form 8 only require the petitioner to verify the truthfulness of “the statements in the petition” as relate to the acts and deeds of the affirmant or of any other persons to be true.  Such verification is generally sufficient given that the facts on which the petitioner relies have already been stated in the petition.

21.In my view, it is not open to a petitioner to rely on any facts or grounds not fairly stated in the petition and asks the court to make a winding up order against the company on the bases of any unpleaded facts or grounds.

22.First, winding up petition is the originating process for a petitioner to set out its case and the relief sought against the company.  It is the document which sets in motion the jurisdiction of the court to wind up a company under s.177(1)  of the CWUO[6].  If a petitioner wishes to expand or change its case against the company, it must first amend the petition. 

23.Second, the jurisdiction to make a winding up order against a company is derived from the CWUO.  The court would be concerned to see that the requirements prescribed by the CWUO and the CWUR for invoking the statutory remedy are complied with.  It would be inconsistent with the requirements of the CWUO and the CWUR to allow a petitioner to rely on any facts or grounds not fairly stated in the petition.

24.Where a creditor relies on the company’s failure to comply with a statutory demand as the basis for contending that the company is insolvent, the court would consider whether the demand is made in conformity with the requirements of Rule 3B and 3C and Form 1A.  This includes whether the creditor has stated, correctly, (1)  the amount of the debt; (2)  the way in which the debt arises; (3)  the amount of interest not previously notified to the company as a liability of the company (if any); (4)  any other charge accruing from time to time and the grounds on which the charge is claimed (if any); and (5)  the amount accrued due as at the date of the demand. 

25.If there is any error or omission in the information stated in the statutory demand, the court would expect the creditor to issue a fresh demand (if a petition has not been presented)  or apply for leave to amend the petition to rectify the error or omission in the statutory demand, and state the correct amount and particulars of the debt upon which it relies (if a petition has already been presented).  This requirement accords with the importance of a statutory demand, which is the means created by the CWUO and the CWUR to allow a creditor to prove insolvency of the company, as non-compliance with a statutory demand per se is sufficient for the court to conclude that the company is insolvent. 

26.Third, it is no answer for a petitioner to say that the relevant facts and grounds upon which it relies have been stated in the affirmations filed in the proceedings, or that there is no unfairness for a petitioner to rely on such unpleaded facts and grounds.  There is no provision under the CWUO or the CWUR which allows a petitioner to change or supplement its case against a company by way of affirmations. 

27.Nor is it the practice of the Companies court to allow a petitioner to expand its case by way of affirmations. There is a long line of authorities, where the court emphasised the requirement that a petition must set out the facts and matters relied upon by a petitioner in justifying a winding up order, and any defects or omissions cannot be cured by supporting affidavits (see, in the context of “just and equitable” petition: In re Fildes Bros. Ltd [1970] 1 WLR 592, at 597G-598C; Re Tourmaline Ltd [2000] 4 HKC 348, at 354B-D; and the cases cited in Butterworths Hong Kong, Company Law (Winding Up and Miscellaneous Provisions)  Handbook, 5^th ed., p.191).  The same approach has been adopted by the Companies court when dealing with a petition presented by a creditor (see for eg., Re Pioneer Iron and Steel Group Co Ltd, HCCW 322/2010, 6 March 2013, §31, per Harris J).

28.It seems to me that the requirement discussed in In re Fildes Bros. Ltd apply equally, if not with greater force, to a petition presented by a creditor on insolvency ground.  Unlike a “just and equitable” petition which is determined after a trial with the benefit of pleadings, list of documents and witness statements filed by the parties, a petition presented by a creditor is almost invariably determined by the court summarily, without any pleadings, discovery or witness statements.  It is all the more important for the court to insist that a petitioner must set out its case and the facts relied upon in the petition so that the company would know what case it has to meet at the hearing.  Indeed, it is necessary for the court to insist on such requirement as otherwise the company and the court would have to trawl through the affirmations and the exhibits filed by the parties, which are often voluminous as the affirmants (and those advising the parties)  seems to think that they can raise any facts and exhibit any documents in support even though such facts have not been pleaded in the petition.   

29.I note that in the UK, the same approach has been adopted by the Companies court when dealing with a petition presented by a creditor seeking to wind up a company on insolvency ground. 

(1)  This includes (a)  the requirement that a petitioner’s case, including details of the basis on which it is contended that the company is insolvent and sufficient particulars of the debt, must be stated in the petition; (b)  at the hearing, the petitioner will be limited to the grounds stated in the petition; and (c)  the court will not travel outside the allegations in the petition (French, Applications to Wind Up Companies, 4^th ed., §§2.218-2.220; 5.53).

(2)  Where there are mistakes, misstatements or omissions in the petition, the petition will have to be amended with the leave of the court, unless the court can be persuaded that the mistake is trivial and that the defect in the petition ought to be waived.  Errors in the description of the debt and that that debt arose are more fundamental mistakes which require amendment (Boyle & Marshall, Practice and Procedure of the Companies Court, §9.26). 

30.The above principles are well-established and should be familiar with practitioners.  However, it has become increasingly common for a petitioner to present a winding up petition against a company which only contains an averment that the company failed to satisfy the statutory demand served upon it as the basis for contending that the company is insolvent and unable to pay its debts. The present case is a paradigm example. The Petition is a 3-page document but the hearing bundles contain over 1,626 pages. It is of course unobjectionable for the petitioner to take this course if at the time it presented the petition, it was not aware of any bona fide dispute on substantial grounds in respect of the debt and the company had not challenged the statutory demand.  

31.The position would be very different if the company is able to demonstrate that the statutory demand is defective (by reason of errors or omissions in describing the debt or how the debt arose)  and the petitioner has not rectified the defect by issuing a fresh demand or amending the petition (as the case may be).  In such scenario, it may be said that the statutory requirements for triggering the deemed insolvency provision (s.178(1)(a)  of the CWUO)  have not been met, and there is no proper basis for the court to conclude that the company is insolvent. 

32.In future, the court expect the practitioners and the parties to comply with the requirements of the CWUO and the CWUR and abide by the principles discussed above.  Save in exceptional circumstances or where it is impracticable for the petitioner to apply for leave to amend the petition, the court would not allow a petitioner to rely on any grounds or factual matters not fairly covered in the petition even if such grounds or matters have been stated in the affirmations filed in the proceedings. 

Discussion

33.At the highest, the Downstream Purchaser point (§6(1)  above), the Clause 6.07 point (§6(4)  above)  and the No bona fide dispute point (§6(5)  above)  may be said to be arguments in response to the grounds raised by the Company in opposition to the Petition, such that they do no need to be pleaded in the Petition. 

34.However, the same cannot be said of the Equitable Assignee point (§6(2)  above), the Contingent Creditor point (§6(3)  above)  and the Prospective Liabilities point (§6(6)  above).  They are new grounds which ought to but have not been pleaded in the Petition.  When the question of lack of pleading is raised by this court, Mr Li submits that the court may give leave to the Petitioner to amend the Petition. However, no such application is made at the hearing, presumably because the Petitioner does not want to pay the costs occasioned by the adjournment of the Petition. I am unable to see why the court should consider these unpleaded points in circumstances where the Petitioner decided not to raise them in the Petition and not to apply for leave to amend the Petition to include the points. 

35.I turn to the points which I consider may be relied upon by the Petitioner.   

Whether the Petitioner is a “Holder” of the Notes

36.As stated above, it is not the Petitioner’s pleaded case that it is the Holder of the Notes.  This is reinforced by §11 of Mr Li’s submissions where he summarises the Petitioner’s position on locus standi.  Nevertheless, Mr Li advances the Section 6.07 point in response to the Company’s argument that the procedure for commencing legal proceedings stipulated in Section 6.06 has not been complied with. 

37.As the Petitioner has not made clear whether the Notes it relies on are in the form of Global Notes, I will consider all the relevant Sections in the Indenture which govern the registration of the Notes.  These include:

(1)  Article 1 contains definitions: “Holder” is defined as “means the Person[7] in whose name a Note is registered in the Register[8]”.  “Global Notes” is defined as “has the meaning assigned to such term in Section 2.04”.

(2)  Article 2 Section 2.04 deals with “Form, Denomination and Date of Notes: Payments”.  Sub-section (c)  provides that:

“On the Original Issue Date, an Authorized Officer of the Issuer will execute and deliver to the Trustee one global note representing the Notes (together with any other global notes issued after the Original Issue Date, the “Global Notes”), with the Guarantees and the JV Subsidiary Guarantees (if any)  endorsed thereon … which shall be deposited with, and registered in name of the nominee of the common depositary for Euroclear and Clearstream (the “Common Depositary”), which shall initially be Citivic Nominees Limited …” (underlined added)

(3)  Section 2.05 deals with “Registration, Transfer and Exchange” of the Notes and provides as follows:

“(a)  The Notes are issuable only in registered form. The Issuer will keep at the office or agency to be maintained for the purpose as provided in Section 4.02 (the “Registrar”), a register (the “Register”)  in which, subject to such reasonable regulations as it may prescribe, it will register, and will register the transfer of, the Notes as provided in this Article. The name and address of the Holder of each Note and the amount of each Note, and all transfers and exchanges related thereto, will be recorded in the Register. Such Register shall be in written form in the English language or in any other form capable of being converted into such form within a reasonable time. Such Register shall be open for inspection by or on behalf of the Trustee during normal business hours upon prior written request.

(b)  Upon due presentation for registration of transfer of any Note, the Issuer shall execute and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Note or Notes in the authorized denominations for a like aggregate principal amount.

(c)  A Holder may register the transfer of a Note only by written application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of the Indenture. No such registration of transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar in the Register. Prior to the registration of any transfer by a Holder as provided herein, the Issuer, the Trustee and any agent of them shall treat the Person in whose name the Note is registered as the owner thereof for all purposes whether or not the Note shall be overdue, and neither the Issuer, the Trustee, nor any such agent shall be affected by any notice to the contrary. Furthermore, any Holder of a Global Note shall, by acceptance of such Global Note, agree that the transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by Euroclear and Clearstream (or their respective agents)  and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry. At the option of the Holder, Notes may be exchanged for other Notes of any authorized denomination and of a like aggregate principal amount, upon surrender of the Notes to be exchanged to the Registrar. When Notes are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes of other authorized denominations for such transactions set forth herein are met. To permit such registrations of transfers and exchanges, the Issuer and the Guarantors and each JV Subsidiary Guarantor (if any)  shall execute and the Trustee shall authenticate Notes at the Registrar’s request.

…

(g)  So long as the Global Notes remain outstanding and are held by or on behalf of the Common Depositary, transfers of beneficial interests in the Global Notes may be made only in accordance with the rules of Euroclear or Clearstream.

…

(k)  …” (underlined added)

(4)  Section 2.06 “Book-Entry Provisions for Global Notes” provides as follows:

“Ownership of beneficial interests in the Global Notes (the “book-entry interests”)  will be limited to persons that have accounts with Euroclear and/or Clearstream or persons that may hold interests through such participants.  Book-entry interests will be shown on, and transfers thereof will be effected only through, records maintained in book-entry form by Euroclear and Clearstream and their participants.

…

So long as the Notes are in global form, the Common Depositary (or its nominee)  will be considered the sole holder of the Global Notes for all purposes under this Indenture and “holders” of book-entry interests will not be considered the owners or “holders” of Notes for any purpose.  As such, participants must rely on the procedures of Euroclear and Clearstream and indirect participants must rely on the procedures of the participants through which they own book-entry interests in order to transfer their interests in the Notes or to exercise any rights of Holders under this Indenture.

None of the Issuer, the Guarantors, the JV Subsidiary Guarantors (if any), the Trustee or any of the Agents will have any responsibility or be liable for any aspect of the records relating to the book-entry interests.  The Notes are not issuable in bearer form.” (underlined added)

38.The combined effect of Sections 2.04, 2.05 and 2.06 is that:

(1)  Only the following persons are Holders of the Notes: (a)  Citivic Nominees Limited as nominee of the Common Depositary for Euroclear and Clearstream (Section 2.04(c)); and (b)  the Holder whose name and address have been recorded in the Register (Section 2.05(a)); and

(2)  Until final acceptance and registration of the transfer by the Registrar in the Register, a transferee of the Note will not become and does not have the rights of a Holder (Section 2.05(c)).

39.There is no evidence whatsoever to show that the Petitioner’s name and address have been recorded in the Register.  It follows that the Petitioner is not a Holder of the Notes. 

Section 6.07 point

40.No reliance can be placed by the Petitioner on Section 6.06 or Section 6.07 of the Indenture as both sections expressly provide that only a Holder has the right to institute proceedings with respect to the Indenture or the Notes or to bring suit for enforcement of payment:

(1)  Section 6.06 Limitation on Suits

“A Holder of Notes may not institute any proceeding, judicial or otherwise, with respect to this Indenture or the Notes, or for the appointment of a receiver or trustee or for any other remedy under this Indenture of the Notes, unless [the requirements stipulated in (a), (b), (c)  and (d)]” (underlined added)

(2)  Section 6.07 Rights of Holders to Receive Payment

“Notwithstanding anything to the contrary, the right of any Holder to receive payment of the principal of, premium, if any, or interest on, such Note, or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, shall not be impaired or affected without the consent of the Holder.” (underlined added)

41.Mr Li argues that “the very fact that the Company and its solicitors have considered that [Section 6.06] applies to [the Petitioner]” somehow can be taken as the Company’s acceptance that the Petitioner is a Holder of the Notes.  The argument must be rejected.  The question as to whether the Petitioner is a Holder of the Notes is a question of fact and must be established by evidence. 

42.For the above reasons, I hold that the Petitioner is not a Holder of the Notes and, therefore, does not have the right to commence proceedings with respect to the Indenture or the Notes or to bring suit for enforcement of payment under the Notes.  The Petition must be dismissed for this reason alone. 

Parent Guarantee

43.Although counsel have in their written submissions referred the court to the terms of the Parent Guarantee, neither Mr Li nor Mr Danny Chan[9] has referred to the terms of the Parent Guarantee. 

44.It seems to me that if one construe the terms of the Parent Guarantee and Section 11.01 of the Indenture, it is clear that the Company is only liable to the Holder of the Notes and the Trustee. 

45.The Parent Guarantee provides inter alia as follows:

“Each of the “Parent Guarantors” … hereby jointly and severally guarantees as principal obligor to each Holder of a Note authenticated by the Trustee and to the Trustee and its successors and assigns the due and punctual payment of the principal of, premium, if any, and interest on, and all other amounts payable under, the Notes and the Indenture …

The obligations of the Parent Guarantors to the Holder of this Note and to the Trustee pursuant to this Parent Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture, and reference is hereby made to such Article and Indenture for the precise terms of the Parent Guarantee”.  (underlined added)

46.Article 11, Section 11.01 Parent Guarantees provides that:

“Subject to the provisions of this Article 10, each of the Parent Guarantors hereby jointly and severally Guarantees as principal obligor to each Holder of a Note authenticated by the Trustee and to the Trustee and its successors and assigns the due and punctual payment of the principal of, premium, if any, and interest on, and all other amounts payable under, the Notes and this Indenture.” (underlined added)

47.Even if, contrary to my view, the Petitioner (not being a Holder of the Notes)  has the right to commence these proceedings with respect to the Notes or to enforce payment thereunder, there is no basis to suggest that the Company is liable to the Petitioner. 

Downstream Purchaser point

48.In light of my view on the Parent Guarantee, it is unnecessary to consider the Downstream Purchaser point.  In case this matter goes further, I will explain why I do not consider that there is merit in the point. 

49.Again, in the absence of any pleading, one can only ascertain the Petitioner’s case by reference to Mr Li’s submissions.  His arguments may be summarised as follows:

(1)  In Jinro, the court held that a person who purchased a note from an accountholder with Euroclear is a “creditor”.  The structure of the notes in Jinro mirrors the structure of the Notes in this case[10]. The court should follow the approach in Jinro and consider the provisions and effect of the Indenture “in the context of the practice and procedure of Euroclear system and in the context of the understanding of those who participate in the system”.[11]

(2)  The Petitioner “at very least, holds the book-entry interest and the beneficial interest of the Notes” through its account at Haitong International Securities Company Limited (“Haitong”).  Section 2.06 of the Indenture “envisages that retail investors, such as [the Petitioner], could hold interests through participants with Euroclear such as Haitong”.[12]

(3)  There is “ample amount of evidence establishing [the Petitioner’s] beneficial interests” which includes:[13]

(a)  a statement from Haitong, an accountholder or participant in the common depository at Euroclear;

(b)  according to the Company, Haitong was one of the “Initial Purchasers” of the Additional Notes, and “the Notes that the Petitioner ‘owns’ should have been purchased through Haitong”[14];

(c)  in the 2^nd Announcement, COH “acknowledges [the Petitioner] as ‘holder’ of the debenture and creditor of the Company”;

(d)  the Trustee sent a “NOTICE TO HOLDERS” dated 13 May 2022 which contains “important information that is of interest to the beneficial owners of the subject securities” to the Petitioner. The Notice referred to the 2^nd Announcement and extracts of the Indenture; and

(e)  Haitong sent a “NOTICE TO HOLDER” issued by Euroclear which described the balance of security “XS1995111736 Oceanwide Holding Regs 14.5 23/05/21” as at 13 May 2022.

(4)  Relying on the documents set forth in sub-paragraph (3), Mr Li contends that “the Trustee/Common Depository Citibank Euro Plc, the Clearing System Euroclear, the Accountholder Haitong and even [COH] (and its legal advisor)  all acknowledged [the Petitioner’s] ownership of the debenture. This is a reflection of the context of the understanding of the participants in relation to the Notes”.

50.In my view, Jinro is a very different case and does not assist the Petitioner for the following reasons:

(1)  In Jinro, the company was the issuer of the “2001 Notes” and was liable to pay the amount due upon their maturity (§9). Here, the Company is not the issuer of the Notes and its liability has to be determined by construing the terms of the Parent Guarantee and the Indenture (to which the Company is a party).

(2)  The petitioners in Jinro had amended the petition and specifically alleged that “as a result of the petitioners’ purchase of the 2001 Notes, they are ‘successors and/or assigns [of the Accountholders] and/or equitable assignees of the rights under the Deed of Covenant’” (§19).  As stated above, there is no plea in the Petition to the effect that the Petitioner is a downstream purchaser of the Notes or that it has acquired any beneficial interest in the Notes or that it is a successor or assignee of Haitong. 

(3)  In Jinro, the court had to consider the issue as to what “rights” in the 2001 Notes, if any, were acquired by the petitioners when they purchased the 2001 Notes by way of trading in the Euroclear system.  This was because the acquisition was made by the petitioners after (a)  events of default under the 2001 Notes had taken place, and (b)  the PGN[15] had become void (§§13-18).  No such complication arose in this case. 

(4)  In Jinro, the 2001 Notes acquired by the petitioners were shown by an entry in their respective securities clearance account of the petitioners at Euroclear.  Euroclear provided a certification by letter dated 5 March 2022 that the petitioners were holding the 2001 Notes in their respective accounts at Euroclear in the amounts stated in the statutory demand (§34).  No such evidence is present in this case.

(5)  In Jinro, neither EOC[16] nor its depositaries will enforce the terms of the securities against an issuer or guarantor on behalf of persons holding such securities through the Euroclear system.  It is against this fact that the court held that “The beneficial owners of the securities must be able to enforce their rights under the terms of the securities against the issuer and/or the guarantor and specific arrangements may be necessary to achieve this when the securities are represented by permanent global certificates” (§39).  In the present case, the Indenture contains provisions stipulating who have the right to enforce the Indenture and the Notes and how it should be done. 

51.As regards the Petitioner’s reliance on Section 2.06, Mr Chan takes issue with Mr Li’s contentions that (1)  Haitong is a participant of Euroclear system; (2)  the statement issued by Haitong may be regarded as a book-entry by a participant for the purpose of Section 2.06 of the Indenture.   

52.It is unnecessary to decide the point. This is because even if the Petitioner has book-entry interests in the specified amount of the Notes (as described in Haitong’s statement), it is still incumbent upon the Petitioner to satisfy the court that it has the right to commence proceedings in respect of the Indenture or to enforce payment under the Notes and the Company is liable to the Petitioner under the Parent Guarantee.  

53.As the Petitioner is not a creditor of the Company, it has no locus to present the Petition.

54.Where, as here, the petitioner does not have locus to present a winding up petition, it cannot ask the court to consider the evidence filed and decide whether or not the company is insolvent (Re Hyundai Engineering & Construction Co Ltd (No 2) [2002] 2 HKLRD 354 §29; Re H12 (HK)  Ltd [2021] HKCFI 1836 at §§19-20).  It is therefore unnecessary to consider whether or not the Company is insolvent.

Conclusion

55.For the reasons set out above, the Petition is liable to be struck out. 

56.In §9 of his submissions, Mr Li refer to a notice of intention to appear on petition filed on 9 August 2022 by Mr Cheung Shun Ching as supporting creditor.  It is not clear whether the supporting creditor intends to apply for substitution as petitioner and, if so, whether the Company disputes the amount claimed by him. 

57.I therefore adjourn the Petition to be heard on 27 February 2023 at 9:30am.  If any party wishes to make any application in these proceedings, it must file a summons together with supporting affirmation by 22 February 2023 so that the application can be dealt with at the hearing on 27 February 2023. 

58.If no application for substitution is made within the above time limit, this Court will make an order striking out the Petition and dismissing the proceedings at the hearing on 27 February 2023.  For this purpose, the attendance of the legal representatives be excused.

59.As for costs, I make a costs order nisi that:

(1)  the costs of and occasioned by the Petition be paid by the Petitioner to the Company, to be taxed if not agreed and with certificate for one counsel; and

(2)  the costs of the Official Receiver be paid by the Petitioner and be deducted out of the deposit. The amount to be assessed by way of gross sum assessment if not agreed. 

Mr Taylor L.K. Li and Mr Fergus K.F. Chan, instructed by Au Yeung, Chan & Ho, for the Petitioner

Mr Danny Chan, Mr Ronald Pang and Ms Linda Cho, instructed by Deacons, for the Company

White & Case, for the supporting creditor (Cheung Shun Ching), is absent

The Official Receiver is excused