Re Leading Holdings Group Ltd
Read the full judgment text of HCCW 343/2022 on BabelCite. This High Court CFI judgment was delivered on 18 July 2023.
1. This is the hearing of the Summons issued by the Company (“ Summons ”) seeking an order to strike out the winding-up petition (“ Petition ”) presented by the petitioner (“ P ”) together with the substantive hearing of the Petition.
Cited by 6 cases · Cites 10 cases
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HCCW 343/2022 [2023] HKCFI 1770 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING-UP) PROCEEDINGS NO 343 OF 2022 _____________________
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_______________ J U D G M E N T _______________ A. INTRODUCTION 1.This is the hearing of the Summons issued by the Company (“Summons”) seeking an order to strike out the winding-up petition (“Petition”) presented by the petitioner (“P”) together with the substantive hearing of the Petition. 2.By the Petition dated 27 September 2022, P asks that the Company be wound up on the ground that it is indebted to P in the sum of US$1.3 million plus interest at the rate of 12% per annum totalling US$1,397,500 (“Debt”), which arises out of the 12% Senior Notes Due 2022 (“Notes”) issued by the Company on 28 June 2021. 3.According to the Petition:- P is the beneficial/equitable holder/owner of the Notes in the sum of US$1.3 million; the Company acted in breach of the Indenture governing the Notes (“Indenture”) by failing to make payment of the principal sum and interest of the Notes on 22 June 2022; the Company is insolvent as it is unable to pay its debts; and further or alternatively, P is entitled to present the Petition as a contingent and prospective creditor of the Company. 4.By the Summons dated 19 October 2022, the Company has applied for an order that the Petition be struck out or dismissed for abuse of process as P had no standing to present the Petition. In particular, it is denied that P is a contingent or prospective creditor of the Company. 5.By an order dated 6 January 2023 made by Peter Ng J, the substantive hearing of the Petition was adjourned for substantive argument to be heard together with the Summons. 6.The central issue in this hearing therefore hinges on P’s locus to present the Petition against the Company, particularly the question whether P is a contingent or prospective creditor of the Company. In this regard, it is perhaps unfortunate that the Petition contains little particulars of the facts relied upon in support of the contention that P is a contingent and prospective creditor. Instead, these are set out in the legal submissions lodged on behalf of P. This would appear objectionable, and the Court may take the view that it is not open to P to rely on any fact or grounds not fairly stated in the Petition: see Re China Oceanwide Group Limited [2023] HKCFI 455, Linda Chan J, §§20-32. Nevertheless, since the Company has not taken any pleadings point, I proceed to deal with such contention by P. As it transpires, ultimately I do not find favour with P’s contention and in light of such findings, the deficiency in the pleadings in the Petition is thus immaterial, but I fully endorse Linda Chan J’s remark in Re China Oceanwide at §32 that the Court expects practitioners and parties to abide by the principles on pleading the material facts in a petition in future. B. BACKGROUND B1. The Company 7.The Company is a company with limited liability incorporated in Cayman Islands on 15 July 2019 and was registered in Hong Kong on 23 October 2019 under Part 16 of the Companies Ordinance (Cap. 622) as a registered non-Hong Kong company. The registered office of the Company is in Cayman Islands and the principal place of business of the Company is in Hong Kong. The shares of the Company are listed on the Hong Kong Stock Exchange under stock code 6999. B2. The Notes 8.On 28 June 2021, the Company issued the Notes. As submitted by Mr Ho on behalf of the Company (which is not seriously disputed by P), the pertinent legal structure and features of the Notes may be summarised as follows:
9.Further, the following provisions of the Indenture are of particular relevance (and hence quoted here for ease of reference):
10.Section 2.06 is of fundamental importance because it reflects the common features of the global note structure (which I will explain further below) under which only the holder (and the trustee) of the global note is recognized and can exercise any rights under the global note, whereas “holders” of book-entry interests will not be considered the owners or holders of the global note for any purpose. As such, participants (such as DBS Bank in the present case) must rely on the procedures of Euroclear and Clearstream and indirect participants (such as P in the present case) must rely on the procedures of the participants through which they own book-entry interests in order to transfer their interests in the global note or to exercise any rights of the holder under the same. 11.Echoing the above, the Indenture also contains provisions in Sections 6.06 and 6.07 which are commonly referred to as the “No Action Clause” and the “Right to Payment Clause” respectively. These provisions reinforce the position that only the holder of the global note (but not “holders” of book-entry interests) may institute any judicial proceedings, subject however to express limitations (although such limitations do not apply to an action to enforce payment). As a result, indirect participants such as P simply do not have any directly enforceable rights against the Company under the terms of the Indenture. B3. P’s beneficial interest in loan 12.On its pleaded case, P is the beneficial/equitable holder/owner of the Notes in the sum of US$1.3 Million. In particular, as pleaded by P:
13.In my view, there should be little dispute on the evidence that P is the indirect owner of sub-interest in US$1.3 Million of the Notes via the DBS Bank and, in turn, Euroclear and ultimately BNYM as the Holder of the Notes. On the other hand, it is also beyond dispute that P cannot directly enforce and sue the Company on the Debt, and hence the statutory demand does not really assist P. Rather, the real issue is whether P, as the indirect owner of such sub-interest, has locus to present the Petition as contingent creditor of the Company. C. ISSUES AND PARTIES’ POSITION C1. Key issue 14.The key issue is whether P has locus to present the Petition against the Company, and in particular: (i) whether P as owner of beneficial interest in the loan in question has standing to present the Petition; and (ii) whether P is a contingent creditor of the Company in that P would have a direct claim against the Company in the event of issuance of definitive notes. 15.Depending on the Court’s decision on standing, it may be necessary to consider further issues such as whether the Company is insolvent. C2. Petitioner’s case 16.P does not dispute that it has no directly enforceable right against the Company under the Indenture of the Note. Nevertheless, P argues that it has standing to present the Petition mainly on two grounds. 17.First, P contends that, as equitable/beneficial owner of the debt under the Note, P is entitled to present the Petition. P relies on cases on equitable assignees and in particular Harris J’s decision in Re China Cultural City Limited [2020] 4 HKLRD 1 for the proposition that a beneficiary of a trust of a debt is entitled to present a winding-up petition. 18.Second, P contends that it is a contingent creditor because under certain specified events, P may be entitled to request for the issuance of definitive notes whereupon P could directly enforce its claims against the Company. In this regard, P relies on a number of authorities in the context of schemes of arrangement where the Courts treat the beneficial owners of interests in loans of similar notes as contingent creditors. C3. Company’s case 19.The Company contends that P is not a creditor. 20.First, whilst the Company accepts that an equitable assignee of a debt may petition for winding-up, it contends that the position of a beneficial owner of a trust of debt is different. The Company relies on a number of authorities in support. Further, the Company contends that Re China Cultural should not be followed as Harris J only relied on cases concerning equitable assignees, and it appears that cases on beneficiaries of a trust were not cited to him. 21.Second, the Company contends that P is not a contingent or prospective creditor. In particular: (a) the Notes have already matured and the Company already owes money to the Holder of the Notes, and therefore any liability could not be said to be contingent or prospective; and (b) the cases relied upon by P are distinguishable as they were decided for the specific purpose and context of schemes of arrangement only. During oral submissions, Mr Ho further argues on behalf of the Company that P could not be a contingent or prospective creditor of the Company because no debtor-creditor relationship exists between them at present, and there is no existing obligation which may give rise to contingent liability. Indeed, this argument has been heavily relied upon by the Grand Court of the Cayman Islands in a decision which was handed down after the hearing. D. SUPPLEMENTAL SUBMISSIONS 22.After the hearing, the Company has lodged supplemental submissions on 2 May 2023 (“Company’s Supp Skel”) to bring to the attention of this Court a decision on point handed down by the Grand Court of the Cayman Islands, namely Re Shinsun Holdings (Group) Co., Ltd (21 April 2023). At §3 of the Company’s Supp Skel, the Company seeks this Court’s permission in doing so. 23.As the Company has not sought leave from the Court before lodging the Company’s Supp Skel, I gave directions on 3 May 2023 for P to lodge supplemental submissions, to deal with the question whether leave should be given for the filing of the Company’s Supp Skel and also to set out substantive response to the same. 24.On 17 May 2023, P has lodged supplemental submissions. P criticises the Company for failing to seek any prior leave from the Court or consent from P, contrary to the recommended practice in Wong Chun Kit v Cheng Kwong Fat [2020] 2 HKLRD 307, §§38-44. P further submits that no leave should be granted to the Company as Re Shinsun arose in a factual setting which is markedly different from the present case. 25.Having considered the decision of Re Shinsun, I take the view that it is relevant to the key dispute in the present case, and I therefore grant retrospective leave to the Company to lodge the Company’s Supp Skel. In particular, David Doyle J sitting in the Grant Court of the Cayman Islands has conducted a helpful examination of the authorities on the meaning of contingent and prospective creditors as well as authorities explaining the context of similar global notes, and provided a well-reasoned analysis as to why a holder of an ultimate beneficial interest of such notes (as distinct from the holder of the notes), having no direct contractual relationship with the issuer of the notes, is not a creditor of the issuer (whether contingent or prospective) and hence has no standing to present a winding-up petition. I would have more to say on this in the analysis below. 26.Nevertheless, I agree with P that, before lodging the Company’s Supp Skel, the Company should, as a matter of courtesy and proper practice, approach P first to see whether P agrees to the lodging of further submissions; and even if there is a consensus between the parties, they should apply for leave from the Court before such further submissions are lodged. For such reason and to mark the Court’s disapproval of the Company’s conduct (but giving credit to the fact that the decision of Re Shinsun is relevant), I order on a nisi basis that the Company do pay 50% of the costs of the supplemental submissions to P, to be taxed if not agreed. E. APPLICABLE TEST FOR STRIKING OUT ON LOCUS 27.P submits that, in a striking out application, it is assumed that the particulars and allegations in the petition and the supporting affidavits would be established and the conflicts resolved in favour of the petitioner, and the burden is on the applicant to show that it is plain and obvious that the winding-up petition would fail: Re Harsen (China) Limited [2022] HKCFI 3806, §16. 28.On the other hand, the Company submits that since the striking out application hinges on P’s locus or standing, the applicable test is whether such standing is bona fide disputed on substantial grounds. By analogy, the Company relies on Re Jackin Total Fulfilment Services Ltd [2008] 3 HKLRD 475, §4 for the proposition that, if an alleged debt is bona fide disputed on substantial grounds by a company, the creditor does not have locus to present a winding-up petition – this should be a fortiori the case where the petitioner’s standing is disputed on substantial grounds. 29.In my view, it is incumbent on P to demonstrate that it has standing to present the winding-up petition. This is a burden which P has to discharge up to the substantive hearing of the Petition. In Re Guy Kwok-Hung Lam [2022] HKCA 1297, G Lam JA said at §77:
30.Echoing the above, in Tallington Lakes Ltd v Ancasta International Boat Sales Ltd [2012] EWCA Civ 1712; [2014] BCC 327, the English Court of Appeal confirmed (at §§4-5) that the Court would strike out a winding-up petition if there was a bona fide dispute about the petitioner’s standing. One way of demonstrating such bona fide substantial dispute is to show that there is a bona fide substantial dispute about the petition debt. In principle, there is no reason why the same approach should not apply to the present case where there is a direct challenge of the petitioner’s standing as creditor. 31.In the premises, I do not consider it right to say that the Petition should not be struck out unless it is plain and obvious that P has no locus, because this would be sidestepping the issue of locus which is an essential element of P’s case. F. OVERVIEW 32.This Judgment is of considerable length, as this is the first occasion where the Hong Kong Court has to decide the issue of the locus of an investor of a global note to present a winding-up petition as a contingent creditor. In view of the length of the Judgment, I consider it helpful to give an overview of my reasoning. 33.As mentioned above, the Company’s arguments are that:- (1) beneficiaries of a trust or sub-trust has no standing to sue or petition for winding up; and (2) the debt has matured and hence cannot be contingent. 34.On the first argument, Mr Ho seeks to draw a distinction between the position of a beneficiary of a trust and that of an equitable assignee of part of the debt. There are well-established authorities that the former cannot sue in general, whereas the latter may sue on the debt, albeit subject to the procedural requirement to join the equitable assignor when suing. More fundamentally, there are authorities that an equitable assignee of a debt may petition for winding-up without joining the equitable assignor, having regard to the nature of winding-up process as a collective remedy. As explained later, such authorities do not apply to the scenario of a beneficiary of a trust. 35.As to the second argument, as I have pointed out to Mr Ho during the hearing, it does not really assist because (1) it begs the rhetorical question whether, had the debt not matured, P could then be a contingent creditor (hence having locus to petition for winding up) – if so it seems absurd to suggest that somehow because the debt has matured, P is in worse-off position by losing the locus to petition for winding up; and (2) it fails to engage directly with P’s central argument that P can sue the Company contingent on the issuance of definitive notes in P’s favour. 36.During oral submissions, Mr Ho seeks to overcome the above by saying that there is no existing debtor-creditor relationship between the Company and P, even though he has not developed the argument fully. Subsequently, with the benefit of the Cayman decision in Re Shinsun, Mr Ho has adopted the reasoning there to pursue a more structured argument as to why P does not qualify as a contingent creditor. This is ultimately the analysis which I find favour with, as explained further below. 37.Significantly, my conclusion is borne out by the context of the global note structure. There are numerous authorities which examine the features of such structure, including in particular that under such structure, only the trustee is entitled to take enforcement action against the issuer of the note, the purpose of the regime was to ensure that the class of bondholders all act through the trustee as the exclusive channel of enforcement, bondholders cannot proceed directly against the issuer unless the trustee fails to take action in accordance with the bond documentation, and should it be otherwise there was potential for multiplicity of actions. 38.On the other hand, P’s main arguments are that:- (1) beneficiaries of a debt can petition for winding up; and (2) P is a contingent director as it can acquire direct right to sue the Company in the event definitive notes are issued to P. P also relies on cases on schemes of arrangement in support. Further, P argues that New York law (being the governing law of the Indenture) is irrelevant to the question of P’s locus under Hong Kong insolvency law. 39.Since I accept the Company’s first argument, I also reject P’s first argument as explained further below. In gist, I am of the view that P’s position is different from that of an equitable assignee of debt. 40.On the other hand, there is some superficial attraction in P’s second argument because (1) on the face of it one can say that P is a person who is owed a liability that will become due in future only on the happening of some future event which may or may not occur, namely the issuance of the definitive notes in P’s favour; and (2) there is some force in Mr Chen’s argument that P’s economic interest would be affected in a winding-up even though P cannot immediately enforce the debt. 41.Upon closer analysis (as detailed further below), however, I am unable to accept such argument of P. 42.First of all, there are authorities on the need for an existing obligation to qualify as a contingent creditor. This is the key reasoning in the Cayman decision of Re Shinsun. In the present case, and as a matter of construction of the Notes and the Indenture (whether under Hong Kong law or New York law), P has neither existing contractual relationship with, nor directly enforceable rights against, the Company. This is admitted by P. As such, not until definitive notes are issued, P is not yet a creditor of the Company (whether contingent or otherwise). 43.Second, this is consistent with the framework of the global note structure which is premised on class action to be pursued by the trustee exclusively. Individual bondholders such as P cannot act on their own. If P cannot sue the Company to enforce the debt, it would appear anomalous if P can sidestep such constraint by petitioning for winding up instead. 44.Third, should the position be otherwise, it would lead to duplicity of actions, in that both the Trustee/Holder and individual bondholders (such as P) could pursue winding up relief against the Company at the same time. In contrast, under my decision, there is no duplicity in actions. Prior to the issuance of the definitive notes, only the Trustee/Holder can sue and petition for winding up against the Company. Upon the issuance of the definitive notes in place of the global note, individual bondholders would have acquired direct rights to sue and petition for winding up against the Company. This is a seamless regime. 45.Fourth, the policy objectives of including contingent and prospective creditors in the meaning of a creditor is to enable the Court to take into account a company’s contingent or prospective liabilities in future. Such policy objectives would not be frustrated if P is not recognised as a contingent creditor, because the same amount of debt would have been recognised as liability owed by P to the Holder/Trustee anyway. 46.Fifth, there could be potential of abuse on P’s case. Applying P’s logic, even before the Notes have matured, every individual bondholder (including P) is already a contingent creditor and can petition for winding up, despite (i) the fact that the debt under the Notes are not yet due and (ii) the lack of directly enforceable rights against the Company. It might lead to floodgates and defeat the purpose of the global note structure. 47.Sixth, insofar as P says this renders the concept of contingent creditor meaningless, this is not the case. Before maturity of the Notes, the Holder can petition as contingent creditor. After maturity, the Holder can petition as actual creditor or, upon issuance of definitive notes, individual accounts holders can petition as actual creditor. 48.Seventh, before P acquires directly enforceable rights, its economic interest is taken care of by the Holder, whether as actual creditor (if the debt is due) or contingent creditor (if the Notes have not matured). 49.Last but not least, cases on schemes of arrangement are different. In any event they concern voting rights on schemes which may affect economic interests, as distinct from locus to present petition which is a more draconian right than a mere voting right for schemes. 50.Having set out an overview of my reasoning, I would now go into the analysis in more details. G. ANALYSIS G1. Context of intermediated, dematerialised securities in the international capital markets 51.Before addressing the relevant arguments, I consider it helpful to refer to authorities which examine the salient features of intermediated, dematerialised securities in the international capital markets. As elucidated by these authorities (mostly relied upon by the Company), international bond issuances often use the global note structure, coupled with intermediation and dematerialised securities. Under such structure, the investors have only an indirect beneficial interest in the bonds. This provides a crucial context in considering the status of P in the present case. 52.On behalf of the Company, Mr Ho has cited a number of English authorities to illustrate the features of the global note structure. I would, however, start with some relevant Hong Kong authorities which have considered such features. 53.In Re Jinro (HK) International Ltd (No 2) [2003] 4 HKC 637, the Court was concerned with a challenge of the locus of the petitioners who claimed to be holder of rights acquired through the Euroclear trading system of a global note called “Guaranteed Floating Rate Notes”. The facts are materially different because in that case, the definitive notes were due to be issued and there were contractual provisions providing that, if the definitive notes were not issued within 45 days as contractually required, the global note will become void such that individual account holders would acquire direct rights. There is little dispute that such individual account holders have standing to petition for winding-up as creditors, and the issue in Re Jinro concerned whether the petitioners were successors and assigns of account holders, or otherwise equitable assignees of the direct rights, such that they have locus to petition for winding-up. Such issue was answered in the affirmative by Kwan J (as she then was). Whilst the issue is not directly relevant to this case, Kwan J (as she then was) has provided a helpful summary of the global note structure at §§31-40:
54.The above is a helpful summary of the global note structure, although it has not addressed specifically the position of an ultimate account holder (commonly referred to as the “UAH”) where there is a holder/trustee appointed under the note who will be enforcing beneficial owners’ rights on their behalf. 55.More recently, in Re China Oceanwide, Linda Chan J held that even if the petitioner has book-entry interests in the specified amount of a global note, the petitioner is not a holder of the note and has no direct right against the bond issuer or guarantor (at §§38-42):
56.Based on the construction of terms of the global note, Linda Chan J concluded that the petitioner in Re China Oceanwide is not a holder of the global note and does not have the right to commence proceedings with respect to the indenture or the notes. It may be noted that the indenture in that case also contains the “No Action Clause” and the “Right to Payment Clause” (also under Sections 6.06 and 6.07), but the Court pointed out that such provisions do not assist the petitioner as they 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. Moreover, whilst the petitioner in that case seeks to rely on the “Downstream Purchaser point” in Re Jinro, Linda Chan J explained (among others) at §50(5) that Re Jinro concerned situation where neither Euroclear nor its depositaries will enforce the terms of the securities whereas Re China Oceanwide concerned an indenture with provisions stipulating who have the right to enforce the indenture and the notes and how it should be done. Such analysis should apply equally to the position of P under the Notes and the Indenture (which similarly make provision that only the Holder has the right to enforce the Indenture and the Notes), although Linda Chan J did not go further to consider whether the petitioner may be regarded as a contingent or prospective creditor. 57.Turning to the English authorities relied on by the Company, I would start with Elektrim SA v Vivendi Holdings 1 Corp [2008] EWCA Civ 1178; [2009] 2 All ER (Comm) 213, where the English Court of Appeal explained in a similar vein that only the holder of a note has the right to take enforcement action against the issuer, with particular reference to the “No Action Clause”, at §§1-3 and 91:
58.As explained in the above passages, in a typical structure of a global note with a “No Action Clause”, the trustee represents and protects the bondholders, who are treated as forming a class, and the bondholders rely on the trustee as the exclusive channel of enforcement because, in consenting to the “No Action Clause” by purchasing bonds, bondholders waive their rights to bring claims that are common to all bondholders, and thus can be prosecuted by the trustee. The purpose of the regime was to ensure that the class of bondholders all acted through the trustee, such that there was neither competition between the bondholders, nor the potential for multiplicity of actions or for duplication of actions brought by the trustee on the one hand and individual bondholders on the other. 59.That the bondholders have the right to sue only their own direct intermediaries (but not the issuer) has been confirmed by the English Court of Appeal in Secure Capital SA v Credit Suisse AG [2017] EWCA Civ 1486; [2018] 1 BCLC 325 (at §§9-11, 46-50, 52):
60.The above makes it clear that, before an account holder becomes entitled to a direct interest in the notes, the only party with a right to sue the issuer is the holder of the notes. The system operates on the basis of a ‘no look through’ principle, whereby each party has rights only against their own counterparty. As such, account holders must look solely to Clearstream or Euroclear (as the case may be) for their share of each payment and in relation to all other rights arising under the global note. 61.Against such backdrop, investors with “book-entry interests” have often been said to be holding the notes indirectly, or that they have only “sub-interests” in the notes. For instance, in Deutsche Trustee Company Ltd v Bangkok Land (Cayman Islands) Ltd [2019] EWHC 657 (Comm), Knowles J explained that the investors of such bond issuance have only “sub-interests” in the bonds (at §§8, 22, 44):
62.In Winterbrook Global Opportunities Fund v NB Finance Ltd [2019] EWHC 737 (Ch), Marcus Smith J explained that the claimant, being an investor of such bond issuance, had only an indirect beneficial interest in the bonds (at §8):
63.In Madison Pacific Trust Ltd v Shakoor Capital Ltd [2020] EWHC 610 (Ch), Zacaroli J explained that the underlying investors of such bond issuance are only beneficiaries under sub-trusts (at §§14-17):
64.In Galapagos Bidco SARL v Kebekus [2021] EWHC 68 (Ch), Zacaroli J explained that under the global note structure the underlying investors have only indirect beneficial interests in the note (at §§68-70):
65.In the premises, I accept Mr Ho’s submissions that, whilst the global note structure and intermediation increase liquidity and make investing and trading simpler for investors, they do not confer any direct right on them to sue the bond issuer for payment. I further accept that the enforcement mechanism under a global note is designed to achieve the collectivity of proceedings, so that bondholders as a class would all act through the trustee as the exclusive channel of enforcement. It seems plain to me that, having regard to the purpose and context of a global note (as reflected in the terms of the Notes and the Indenture set out in Section B2 above), it would be anomalous and contrary to commercial common sense to suggest that, whilst an ultimate account holder cannot exercise any direct rights under the Notes against the Company, such ultimate account holder can somehow petition for winding-up and thereby bypass the limitations otherwise imposed under the design of the global note structure. G2. Beneficial owner of a debt 66.The first argument relied upon by Mr Chen on behalf of P is that, as a beneficial owner of part of the underlying debt of the Note, P has standing to petition for winding up of the Company. 67.On behalf of the Company, Mr Ho contends that a bond investor such as P who is a mere trust beneficiary, qua beneficiary alone, has no standing to present a winding-up petition against the bond issuer. I agree. 68.Mr Ho has cited a few authorities in support. 69.In Re Uruguay Central and Hygueritas Railway Co of Monte Video (1879) 11 ChD 372, Jessel MR held at pp. 380-383 as follows:
70.Significantly, the bond structure in Re Uruguay resembled that of a global note in international capital markets practice, under which a bondholder typically could not sue the issuer of the bond directly and can only act through the trustee. In finding that a bondholder is not a creditor either at law or in equity, Jessel MR noted that bondholders do not have any independent right to sue the issuer, the bondholder cannot get a judgment in priority to other bondholders, and there should not be duplicity of actions by the trustee and bondholders. Such considerations resonate with the design of the global note structure examined above. The lack of a direct debt owed by the issuer to the bondholder is thus critical. 71.In this regard, Mr Chen for P seeks to rely on Harris J’s decision in Re China Cultural which I will address below. Mr Chen also argues that Re Uruguay was decided at a time when English law did not confer any standing on a contingent creditor to petition for winding-up. Nevertheless, this is beside the point because, for the purpose of P’s first argument, the focus is whether a beneficial owner of a debt under a trust (or sub-trust) has standing to present a winding-up petition as creditor. In any case, the reasoning of Re Uruguay would militate against P’s second argument on contingent creditor because it emphasizes the need for a direct debt (or direct debtor-creditor relationship) in order to qualify as a creditor. This is logically speaking a prior question to be decided before moving on to consider, if there is indeed a direct debt and hence the status of creditor is established, whether the debt is (i) immediately payable (i.e. actual liability), (ii) payable in future upon certain event (i.e. contingent liability), or (iii) definitely payable at certain time in future (i.e. prospective liability). As I will explain later, such approach is amply supported by authorities. For present purposes, it suffices to say that Re Uruguay is an authority in support of the proposition that a trust beneficiary is not a creditor and does not have standing to petition for winding-up. 72.In Re Dunderland Iron Ore Co Ltd [1909] 1 Ch 446, a conclusion similar to Re Uruguay was reached by Swinfen Eady J at pp. 452-453 as follows:
73.The emphasis of the Court is, again, on the lack of any direct contract or covenant between the debenture holder and the company, as a result of which the debenture holder is not entitled to (i) sue the company as direct creditor and (ii) present a winding-up petition as creditor. 74.More recently, in Roberts v Gill & Co [2010] UKSC 22; [2011] 1 AC 240, Lord Collins held at §§62-68 as follows:
75.The general position, therefore, is that the beneficiary of a trust property has no personal right to sue. This is echoed by cases like Re Canberra Babington Pty Ltd [2021] NSWSC 552, where Emmett AJA stated at §27 that, “Save in special or exceptional circumstances, a beneficiary under a trust has no cause of action against a third party in relation to injury to trust property”; and McEneaney v Stevens [2017] EWHC 993 (Ch), where Deputy Judge Edward Murray held at §17 that “The general rule is that since trustees administer the trust fund as principals and not as agent for the beneficiaries, the trustees are normally the proper claimants in proceedings against third parties in actions based on breach of contract or tort and other causes of action arising in the course of administration of the trust”. Of course, these cases are to be distinguished from cases where the bond documentation expressly confers a direct right of enforcement on the trust beneficiaries, such that the beneficiaries would have standing to present a winding-up petition: see e.g. Re Olathe Silver Mining Co (1884) 27 ChD 278, per Pearson J at p.283. 76.Significantly, as noted in Roberts v Gill & Co, the position of a beneficiary of a trust property is different from that of an equitable assignee of property. As explained by Emmett AJA, an equitable assignee is the true owner of the property and the assignor is a bare trustee, and hence the practice or requirement to join the assignor is a procedural one. Indeed, it is well-established that, unlike the position of a trust beneficiary, an equitable assignee of a debt is a creditor and has standing to present a winding-up petition: see e.g. Re Steel Wing Co Ltd [1921] 1 Ch 349, per P O Lawrence J at p. 357; Re Mitchell McFarlane & Partners Ltd [2002] EWHC 3203 (Ch), per N Strauss QC at §10; Kapoor v National Westminster Bank [2011] EWCA Civ 1083; [2012] 1 All ER 1201, per Etherton LJ at § 30. Such distinction is pertinent when it comes to the analysis of Re China Cultural. 77.As mentioned above, Mr Chen relies heavily on Re China Cultural because, on the facts of that case, the petitioner’s interests in the debt arose by way of both equitable assignment and a declaration of trust: see the third issue set out at §8 of the decision (referring to both equitable assignment and a declaration of trust), and also §20 of the decision where Harris J said the issue is whether it is necessary for a beneficiary under a trust to join the trustee as a party to a petition to wind up a company (without differentiating between the position of a trust beneficiary and an equitable assignee). With due respect, it would appear that Harris J has conflated the position of a beneficiary of trust with an equitable assignee of debt, probably because his attention was not drawn to authorities on the position of a trust beneficiary. Instead, Harris J relied on authorities on equitable assignment of debts such as Re Steel Wing to arrive at his conclusion at §§24-28. 78.Specifically, in §§25-26 of Re China Cultural, Harris J relied on the reasoning in Re Steel Wing and the Privy Council’s decision approving the same in Parmalat Capital Finance Ltd v Food Holding Ltd [2008] BCC 371, [2009] 1 BCLC 274, §§6-8. In gist, as held by those decisions, an assignee of part of a debt is required to join all parties interested in the debt in an action to recover the part assigned to him because the Court cannot adjudicate completely and finally without having such persons before it; but this does not apply to a winding-up petition which only puts into effect a process of collective execution for the benefit of all creditors and in the course of that process, the rights of creditors may have to be determined but such determination is not necessary at the stage of making winding-up order, and thus an equitable assignor (or assignee) has a sufficient interest to present a winding-up petition without joining the other. In my view, such reasoning does not apply equally to a trust beneficiary because (i) whilst a trust beneficiary cannot petition for winding-up, a trustee (who can represent all beneficiaries) can petition for winding-up alone, and (ii) unlike the case of equitable assignee, the joinder of the trustee is a substantive as opposed to mere procedural requirement. 79.Therefore, I do not accept Mr Chen’s argument that one could rely on Re China Cultural and thereby ignore well-established authorities that, unlike an equitable assignee, a trust beneficiary is not entitled to present a winding-up petition. It follows that I reject P’s first argument. G3. “Contingent” and “prospective” creditor G3.1 Introduction 80.On behalf of P, Mr Chen argues in the alternative that P is a contingent or prospective creditor of the Company under section 179(1) of the Ordinance. In short, Mr Chen argues that, since P may be entitled to request for issuance of definitive notes in certain specified circumstances whereupon P can directly enforce its rights against the Company, P is a contingent creditor as the Company’s liability is contingent on the event of the issuance of definitive notes. 81.In response, Mr Ho on behalf of the Company initially argues that because the Notes have already matured and the underlying debt is already due, the same debt cannot at the same time be owing and contingent. During oral submissions and in the Company’s Supp Skel in reliance of the Cayman decision of Re Shinsun, Mr Ho’s further argument is that, since there is no existing obligation or debtor-creditor relationship between P and the Company, P does not qualify as a contingent creditor. 82.As mentioned above, Mr Ho’s initial argument on contingent debt does not address the point because (1) it begs the rhetorical question whether, had the debt not matured (and hence could at best be contingent), P could then be a contingent creditor (hence having locus to petition for winding up) – if so it seems absurd to suggest that somehow because the debt has matured, P is in worse-off position; and (2) it fails to engage directly with the argument of P that it can sue the Company contingent on the event of issuance of definitive notes in its favour. Moreover, it may be conceptually open to P to argue that the debt is not contingent for the Holder but it may still be contingent for P who has no immediate right to payment. Hence, one still has to go back to the question whether the event of issuance of definitive notes renders P a contingent creditor. That said, Mr Ho’s initial argument does highlight a problem of P’s case, namely that there will be more than 1 creditor of the same debt which results in duplicity and is one of the reasons relied on by the Cayman Court in rejecting the petitioner’s argument (see Re Shinsun at §155). G3.2 Meaning of “contingent creditor” and “prospective creditor” 83.Before dealing with the parties’ arguments, I accept Mr Ho’s submissions that, as section 179(1) of the Ordinance is derived from English insolvency legislation, the meaning of “contingent creditor” and “prospective creditor” in equivalent English legislation is also pertinent. 84.In Mr Ho’s written submissions, he has included a helpful Appendix which traces the evolution of English insolvency legislation concerning “contingent creditor” and “prospective creditor”. For present purposes, I do not think it is necessary to go into such evolution in details, although it would be illuminating to highlight some key developments and relevant case law. 85.The winding-up regime under the Companies Act 1862 did not have the concept of “contingent creditor” and “prospective creditor”. 86.In 1870, the winding-up regime in respect of insurance companies introduced the concept of “contingent creditor” and “prospective creditor”. Section 21 of the Life Assurance Companies Act 1870 provided as follows:
87.It is noteworthy that at this stage, the English legislation only made an extension to cover contingent or prospective liability under policies and annuity and other existing contracts with insurance companies, and there should be no question that there was existing contract or legal relationship between the policy holders and the insurance companies. As can be seen, this in fact tallies with the meaning of contingent creditor under English case law which requires an “existing obligation”. 88.In 1907, the 1870 winding-up regime in respect of insurance companies was extended to all companies. As provided in Section 28 of the Companies Act 1907:
89.As submitted by Mr Ho, the rationale for extending the regime for insurance companies to all companies and thus allowing contingent and prospective creditors to petition for a winding-up is explained in the Report of the Company Law Amendment Committee (1906) (Cd 3052) at §43:-
90.The mischief sought to be redressed by the legislative amendment is the potential lacuna and abuse whereby a company may be able to dispose of its assets or contract new liabilities even though the company is plainly insolvent upon taking into account not only its current but also contingent or prospective liabilities, and on such basis a contingent or prospective creditor should be afforded standing to present a winding-up petition to protect such creditor’s interests. This is particularly the case where, without such standing, no person would be in a position to present a winding-up petition on account of such contingent or prospective liability. 91.Pausing here, whilst there is some superficial attraction in Mr Chen’s argument that the economic interests of ultimate account holders of the Notes (such as P) would be affected in a winding-up and hence they should similarly be afforded standing to present winding-up petition, their position is in fact different. It must be borne in mind that the purpose of the regime of the global note structure is to ensure that the class of bondholders would all act through the trustee as an exclusive channel. Therefore, it does not accord with such design to allow individual bondholders to be at liberty to petition for winding-up when it is accepted that they could not bring any action to directly enforce their debt. More importantly, the position of such bondholders is already safeguarded under the global note structure. Indeed, even in the event where the Notes have not yet matured, their position would be safeguarded by the holder/trustee who may present a winding up petition (whether as actual or contingent creditor) on their behalf. Thus it does not follow from the rationale of the aforesaid Report that bondholders such as P must be afforded standing to present a winding-up petition. 92.After 1907, there were further amendments to the English insolvency legislation in 1908, 1929, 1948, 1985 and 1986, but the position on contingent and prospective creditors has remained more or less the same for all practical purposes. 93.Insofar as the position in Hong Kong is concerned, the Ordinance was enacted in 1933 and modelled on the Companies Act 1929. Specifically, section 179 of the Ordinance is taken from section 170 of the Companies Act 1929. It is common ground that the English and Hong Kong statutes do not provide a definition of “contingent creditor” and “prospective creditors”. It is therefore necessary to consider English and Hong Kong case law as to the meaning of the same. 94.In Re William Hockley Ltd [1962] 1 WLR 555, Pennycuick J held at p. 558 as follows:
95.What is important is that, under such formulation, a contingent creditor denotes a person towards whom under an existing obligation, the company may become subject to a present liability upon the happening of some future event. Such formulation requires an existing obligation, even though the liability to pay may only be triggered upon the happening of some future event. 96.In Stonegate Securities Ltd v Gregory [1980] Ch 576, Buckley LJ held at p. 579 as follows:
97.Therefore, the key difference between a contingent creditor and a prospective creditor is that the debt of the former will only become due in an event which may or may not occur, whereas the debt of the latter will certainly become due in future. It is true though that Buckley LJ did not focus on the need for an existing obligation, although arguably this may be implied as he was considering a debt owed by the company (presumably under existing obligation) which has not yet become due. 98.Turning to the authorities in Hong Kong, in Re Universal Dockyard Ltd [2004] 1 HKLRD 935, Kwan J (as she then was) held at §25 that:
99.It is significant that Kwan J (as she then was) adopted the formulation of Pennycuick J in Re Williams Hockley which requires an existing obligation in order for a person to qualify as a contingent creditor (even though she regarded the expression as being of wide import). 100.In Re Jackin Total Fulfilment Services Ltd [2008] 3 HKLRD 475, DHCJ Harris SC (as he then was) held at §22 as follows:
101.The formulation in Re Jackin Total is wider, as it is not predicated upon an existing obligation, and on the face of it P’s argument can fit into such formulation. Further, Mr Chen also emphasises that although P is not entitled to immediate payment, P will still be affected if the Company is insolvent. Whilst there is attraction in such argument, it appears to me that the matter ultimately turns on whether, as a matter of law, P does qualify as a contingent creditor. In this regard, it would appear that in Re Jackin Total, the point concerning the need for an existing obligation was not argued and, on the facts, there was plainly an existing contractual relationship and obligation between JSM and the company question, even though the precise amount which will be payable would only be known upon the event of completion of taxation. 102.Based on the relevant authorities including in particular Re Williams Hockley and Re Universal Dockyard, I am of the view that, on balance, there has to be an existing legal relationship or obligation between a person and a company before such person may qualify as a creditor of the company. In the case where a liability may become due in future under such existing relationship or obligation, then the person would be a contingent creditor of the company. Under such formulation, P would not qualify as a contingent creditor because there is, at present, no existing contractual relationship and obligation as between P and the Company. G3.3 Cayman decision of Re Shinsun 103.My analysis is borne out by the recent Cayman decision of Re Shinsun. In that case, issues as to standing and authority have arisen, and the petitioner says that it is a contingent creditor with standing and is otherwise authorised to proceed with winding-up (at §2). David Doyle J, sitting in the Grand Court of the Cayman Islands, found against the petitioner on both issues (at §3). The position of the petitioner is analogous to P, in that the petitioner (i) was not a party to the indenture, (ii) was not the holder of the note, and (iii) was an indirect investor through the Hong Kong Monetary Authority as a participant with Euroclear (at §4). The indenture in that case also contains various provisions similar to those of the Indenture here (at §5). 104.Although the facts in that case are different, the issue on standing is plainly on point and relevant to the present case. Like the present case, the petitioner there has no direct rights against the company in question and, at best, it has a contingent right to receive Certificated Notes if a Holder makes a demand on the company pursuant to section 2.04(e) of the indenture therein. This is analogous to P’s position here. 105.Like English and Hong Kong statutes, the Cayman insolvency legislation does not provide a definition of a “contingent creditor” and therefore it is necessary to resort to relevant case law (at §62). At §64, David Boyle J cited the dicta of Pennycuick J in Re William Hockley at p. 555. He went on to consider that it remains good law, at §§65-68:
106.At §§70-76, David Boyle J went on to consider a number of other English authorities which support the above analysis. In particular:
107.At §§78-82, David Boyle J further referred to the decision of Puisne Judge Geoffrey R Bell (as he then was) in Bio-Treat Technology Limited v Highbridge Asia Opportunities Master Fund LP [2009] SC (Bda) 26 Civ (28 May 2009). In that case, Bell J similarly rejected the argument of the petitioner that it has status as a contingent or prospective creditor from the premise that, consequent upon the company’s default, the petitioner is entitled to require the Holder to exchange the global bond for definitive bonds and to transfer such number of definitive bonds as representing its beneficial interest. Bell J’s reasoning is that the petitioner cannot establish itself as a contingent creditor in the absence of an existing obligation. As he had explained at §§47-50, after referring to the English case of Re William Hockley and the Australian case of Community Development Pty Ltd v Engwirda Construction (1969) 120 CLR 455:
108.I agree with the above analysis, which is amply supported by case law. In particular, as explained by the High Court of Australia in Community Development, there must be an existing obligation and that out of that obligation a liability on the part of the company to pay a sum of money will arise in a future event, whether it be an event that must happen (i.e. prospective liability) or only an event that may happen (i.e. contingent liability). In my view, this makes perfect legal sense because the existing obligation would provide a legal nexus between a person and a company, such that any liability which will or may arise in a future event under such legal nexus could be taken into account as prospective or contingent liability. Without the requirement of a legal nexus, the matter would be at large. The test would become unduly wide and far-fetched. For instance, if a company is negotiating a loan with a bank and if there is no need for an existing obligation, it would be open to the bank to claim that it is a contingent creditor in the event of the bank agreeing to advance a loan and the company failing to repay, even though there is at present no legal nexus between the two. That simply cannot be right. 109.Moreover, I agree with the analysis by David Boyle J, after surveying the relevant authorities, that the petitioning bondholder is not a contingent creditor. As held by him in §§90-91, 143-144, 151-155:
110.On behalf of P, Mr Chen seeks to distinguish Re Shinsun on the facts. However, whilst the facts are different, the reasoning on standing applies equally to the present case as analysed above. Further, it is not entirely correct or accurate for Mr Chen to suggest that the Cayman Court recognized in Re Shinsun at §151 that the situation would be different if there was an event of default. Rather, the situation referred to there is where there was an event of default and Certificated Notes were delivered or transferred to the petitioner such that the petition had an enforceable debt against the company. This could not assist P in the present case because, as admitted by P, no definitive notes have been issued to P and there is, at present, no direct contractual relationship and enforceable rights by P against the Company. 111.Mr Chen also seeks to attack the rationale of Re Shinsun. However, he has not dealt with the authorities relied on by David Boyle J in arriving at his conclusion. As I have sought to demonstrate above, the conclusion of David Boyle J is amply supported by case law. 112.Instead, Mr Chen merely argues that, if the Cayman Court was right, it would render the “definition” of contingent creditor or prospective creditor superfluous because, if the Certificated Notes had been obtained, the petitioner could petition as a “creditor” rather than a “contingent creditor”. With respect, this is misconceived. In the event that the Certificated Notes are issued, whether the debt is immediately payable would turn on the terms of the Certificated Notes. If those terms provide that the debt is payable at a future date or future event, then the debt would be a contingent one. If the terms provide that the debt is immediately payable, then the petitioner would be an actual creditor. It does not follow that simply because the terms in a particular case provide for immediate payment that the concept of contingent creditor is rendered superfluous. 113.Mr Chen further argues that the extension of the statute to cover not only actual creditors but also contingent or prospective creditors represents the legislature’s intention to cast the net wide to cover a petitioner who does not (at the time of the petition) have a direct contractual relationship with the company, but still had an economic interest in the solvency of the company. With respect, Mr Chen has provided no authority on point in support of such proposition. It would also appear from the history of the legislative amendments in England that the law was first amended in 1870 to cover contingent or prospective liabilities of insurance companies to policy holders, for which there were existing contractual obligations and relationships. 114.Moreover, whilst Mr Chen prays in aid the dicta of DHCJ Harris SC (as he then was) in Re Jackin Total and emphasises that beneficial owners of the debt will be affected if the Company is insolvent, I do not think that this can override the case law examined above. It would also be too far-fetched to confer on any person who does not have any existing legal relationship with the company a standing to present a winding-up petition, on the premise of a mere contingency that a legal relationship may exist between such person and the company in future. In any event, the rationale of Re Jackin Total is very much watered down here because, even if individual account holders may be affected, they can (and should) act through the trustee, all the more so if the debt has not matured (bearing in mind that on P’s case, P could petition as contingent creditor even if the debt has not matured. Equally, even where the debt has matured (which is the case here), there are defined contractual circumstances for issuance of definitive notes and there is no reason why P should not resort to that to be able to sue individually. 115.Mr Chen further relies on cases concerning schemes of arrangement. In my view and as explained further below, they are decided in different context and do not assist P. 116.For all these reasons, Re Shinsun is directly on point and its reasoning is sound. In the present case, and as a matter of construction of the Notes and the Indenture (whether under Hong Kong law or New York law), P plainly has no existing contractual relationship with the Company, and it has no directly enforceable rights against the same. Unless or until P obtains definitive notes in its name, it cannot establish that it is a creditor, either actual or contingent, because there is no existing contractual relationship and obligation between P and the Company. It follows that P does not have standing to commence the Petition against the Company. G3.4 Further considerations 117.My conclusion above is supported by further considerations. 118.First and foremost, my view is borne out by the context of the global note structure, which I have examined in details under Section G1 above. It is plain from both Hong Kong and English jurisprudence examined above that the very design of the global note structure is to ensure that the class of bondholders all act through the holder or the trustee of the note as the exclusive channel of enforcement. The regime operates on the basis of a ‘no look through’ principle, whereby each party has rights only against their own immediate counterparty. For instance, in the present case, P only has rights against DBS Bank; DBS Bank only has rights against Euroclear; so on and so forth. In line with the practice and purpose of such regime, typical notes and indentures would contain terms (including the “No Action Clause”) to the effect that only the holder/trustee can take enforcement action against the issuer of the notes, and that bondholders cannot proceed directly against the issuer unless the trustee fails to take action in accordance with the bond documentation. In other words, the framework of the global note structure is premised on class action to be pursued by the trustee exclusively. As such, given that ultimate account holders cannot sue the company to enforce the debt, it would appear anomalous (if not repugnant to the design of the global note structure) to allow them to bypass such constraint by petitioning for winding up instead. 119.Second, it is of paramount importance under the global note structure that ultimate account holders such as P could not enforce its rights against the Company directly. Should the position be otherwise, it would lead to competition with other account holders, and also duplicity of actions in that both the Trustee/Holder and individual account holders (such as P) could pursue winding up relief against the Company at the same time. Apart from duplicity of actions, as observed by David Boyle J in Re Shinsun at §155, it would be difficult conceptually to have two creditors in respect of the same debt. That would happen in the present case if the Debt owed to P is recognized as contingent liability owed by the Company, because the Company would at the same time be owing such debt to the Trustee/Holder. This is not to mention the potential of double counting if both the Debt owed to P and the same amount of debt owed to the Holder/Trustee are to be taken into account in considering the solvency or otherwise of the Company. 120.In contrast, if P is not a contingent creditor, there will be no duplicity in actions. Prior to the issuance of the definitive notes, only the Trustee/Holder can sue and petition for winding up against the Company. Depending on whether the Notes have matured, the Trustee/Holder would be actual or contingent creditor. On the other hand, upon the issuance of the definitive notes in place of global notes, individual bondholders (such as P) would have acquired direct rights to sue and petition for winding up against the Company and insofar as the definitive notes provide for immediate payment, they would be actual creditors. 121.Of course, if the definitive notes only provide for payment after certain timeframe, then after acquiring definitive notes P will become a true contingent creditor in that sense. There will also be no duplicity of debts or actions given that definitive notes are issued in place of the global note. Either way, this is a seamless regime without any lacuna or gap. 122.Third, the policy objectives of including contingent and prospective creditors in the meaning of a creditor is to enable the Court to take into account a company’s contingent or prospective liabilities in future in deciding whether the company is insolvent and liable to be wound up. However, even if the debt owed to an ultimate account holder of a global note is not taken into account as contingent liability, this would not frustrate the policy objectives or result in any unfairness or lacuna because the debt in the same amount owed by the issuer to the holder/trustee could still be taken into account. Moreover, in this way, there would not be two creditors for the same debt; nor would there be duplicity of debts. 123.It should be noted that this is not only relevant to the issue of standing. In winding-up petitions presented by other creditors, the Court has to consider whether a company is insolvent by taking into account the company’s contingent or prospective liabilities, and the liability owed to P would have already been taken into account by reference to the same amount of debt owed by the Company to the Holder of the Notes. In contrast, on P’s argument, there is a risk of double counting because one has to take into account the debt owed by the Company to the Holder as actual creditor, as well as the “contingent” debt owed by the Company to P, which duplicate with each other. This reinforces my decision that P is not a contingent creditor, and P could only become a creditor when definitive notes are issued in its favour. 124.Fourth, there could be potential of abuse on P’s case. Applying P’s logic, even before the Notes have matured, every individual bondholder (including P) is already a contingent creditor and can petition for winding up, despite the fact that (1) the debt under the Notes are not yet due and (2) individual bondholders (such as P) do not have any directly enforceable rights against the Company. On P’s argument, this could lead to floodgates because, in theory, every individual account holder may petition for winding-up against the Company. Such outcome would defeat the rationale and design of the global note structure, under which an individual account holder is not supposed to act and take enforcement action on his own. Instead, any action has to be pursued through the collective decision of the holder or the trustee of the global note. 125.If, as contended by P, a beneficial owner of a book-entry debt can petition for winding-up, such beneficial owner can in effect bypass the collective enforcement regime. Indeed, the threat of winding-up petition may pressurise the issuer to pay off an individual beneficial owner of the debt, thereby defeating the very purpose of the structure of such debentures. In this regard, whilst it is true that winding-up petitions are different from ordinary actions in that they seek a class remedy, and winding-up petitions are not proceedings to enforce a debt per se, in most cases they are nevertheless proceedings by which a petitioner seeks to recover his debt because the petitioner regards it to be the most efficacious method of obtaining payment: Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449, §§12, 25; Re Guy Kwok-Hung Lam [2022] HKCA 1297, §§75-76. As such, it would be anomalous if P were unable to bring an ordinary action in Hong Kong (or indeed any other jurisdiction) against the Company for the recovery of the Debt, but able to resort to the more draconian measure of presenting a winding-up petition in Hong Kong on the basis of the Debt and expecting the Hong Kong Court to treat it as a contingent creditor of the Company such that P can, in effect, seek to recover its debt. Similar consideration was relied upon by G Lam JA in Re Guy Kwok-Hung Lam at §84 in support of his view that the approach in ordinary actions in granting a stay where there is an exclusive jurisdiction clause in favour of foreign Court should be applied to insolvency petitions. 126.Fifth, insofar as P says that my conclusion renders the concept of contingent creditor meaningless or superfluous, this is not the case. Before maturity of the Notes, the Holder can petition as contingent creditor. After maturity, the Holder can petition as actual creditor or, upon issuance of definitive notes, individual accounts holders can petition as actual creditor. Of course, if the terms of the definitive notes are such that account holders can only be entitled to payment upon a future date or future event, then the account holders would become true contingent creditors upon being issued such definitive notes. 127.Sixth, before P acquires directly enforceable rights, its economic interest is taken care of by the Holder or the Trustee, whether as actual creditor (if the debt is due) or contingent creditor (if the Notes have not matured). This is again in line with the design of the global note structure, under which the trustee represents and protects the bondholders, who are treated as forming a class, and who give instructions to the trustee through a specified percentage of bondholders. 128.At the end of the day, one may say that P knowingly traded in interests, not in the underlying securities, and hence should be taken to know and accept the consequence of the global bond structure as a result. As David Richards LJ put it in Secure Capital at §§55 and 57:
G3.5 Schemes of arrangement cases 129.On behalf of P, Mr Chen has relied on various authorities which recognise a bondholder of a global note as “contingent creditor” for the purpose of voting in schemes of arrangement, such as Re Mongolian Mining Corp [2018] 5 HKLRD 48, Enice Holding Co [2018] 4 HKLRD 736, Re Castle Holdco 4 Ltd [2009] EWHC 3919 (Ch) and Re Haya HoldCo 2 plc [2022] EWHC 1079 (Ch). 130.In my view, these cases are decided in different context and cannot assist P. In particular, I agree with the observations made by Mr Ho in response. 131.First and foremost, the Courts in those cases recognise that the matter is context-specific, and they emphasise that their decisions are made in the context of the meaning of “creditor” in the scheme legislation, rather than “contingent creditor” in the winding-up legislation. For instance, in Re Haya Holdco at §30, Marcus Smith J noted that “[i]t has been held in numerous cases that a beneficial owner who may obtain definitive notes is a contingent creditor for the purposes of the CA 2006” (see similarly Re Magyar Telecom BV [2013] EWHC 3800 (Ch); [2015] 1 BCLC 418 at §5; Re KCA Deutag UK Finance Plc [2020] EWHC 2779 (Ch) at §53). 132.Indeed, there are authorities suggesting that the word “creditor” in the scheme legislation has a wider meaning than in the winding-up legislation: see Re T & N Ltd [2005] EWHC 2870 (Ch); [2006] 1 WLR 1728 at §40. 133.In this regard, I accept Mr Ho’s submissions that the expression “contingent creditor” can have different interpretations in different contexts, as alluded to by Arden LJ (as she then was) in R (Steele) v Birmingham City Council [2005] EWCA Civ 1824; [2006] 1 WLR 2380 at §21. 134.Second, in Re Castle Holdco at §23, Norris J took the view that, when the Scheme of arrangement comes to be considered, it ought obviously to be considered by those who have an economic interest in the debt, that is to say, by the ultimate beneficial owner or principal (see also Re GW Pharmaceuticals Plc [2021] EWHC 716 (Ch); [2021] BCC 696 at §§24-26). As Mr Ho put it, the above authorities reflect a mischief targeted by the English Court to enfranchise economic owners of intermediated securities to vote at scheme meetings. In contrast, there is no authority to the effect that a person with economic interest in a debt is thereby entitled to present a winding-up petition. 135.At the end of the day, it has often been said that context is everything in the exercise of legal interpretation. In this regard, I note that a similar view was taken by David Boyle J in Re Shinsun. Upon examining various authorities in the context of schemes of arrangement at §§92-97, he registered a word of caution at §98 as follows:
136.At the end of the day, cases on schemes of arrangement are a far cry from the present case. In those cases, what is at stake concerns voting rights on schemes which may affect economic interests, as distinct from locus to present winding-up petition which is a more draconian right than a mere voting right for schemes. It is therefore, in my view, inappropriate to attach any undue weight to such authorities decided in a rather different context. H. OTHER MATTERS 137.Given my view on P’s lack of locus standi to present the winding-up Petition herein, I do not consider it necessary to consider other issues such as the solvency of the Company and the need for an adjournment (had I found in favour of P on the issue of locus standi). I. DISPOSITION 138.In the premises, I accede to the Company’s application for striking out of the Petition against P. 139.I further order on a nisi basis that, subject to paragraph 26 above, the costs of the Petition including the Summons be paid by P to the Company, to be taxed if not agreed. 140.It remains for this Court to thank Mr Chen for P and Mr Ho for the Company for their helpful submissions and assistance rendered to the Court.
Mr Vincent Chen, instructed by Stevenson, Wong & Co, for the Petitioner Mr Look Chan Ho, instructed by Sidley Austin, for the Company |
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