Re China Evergrande Group
Read the full judgment text of HCCW 220/2022 on BabelCite. This High Court CFI judgment was delivered on 29 January 2024.
1. At the sixth hearing of the petition presented by Top Shine Global Limited (“ Petitioner ”) on 24 June 2022 (as amended on 17 August 2022) (“ Petition ”), I made a usual winding up order against China Evergrande Group (“ Company ”). These are the reasons for my judgment.
Cited by 4 cases · Cites 8 cases
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HCCW 220/2022 [2024] HKCFI 363 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING-UP) PROCEEDINGS NO 220 OF 2022 __________________
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_________________________ REASONS FOR JUDGMENT _________________________ 1.At the sixth hearing of the petition presented by Top Shine Global Limited (“Petitioner”) on 24 June 2022 (as amended on 17 August 2022) (“Petition”), I made a usual winding up order against China Evergrande Group (“Company”). These are the reasons for my judgment. Background 2.The Company was incorporated on 26 June 2006 in the Cayman Islands. It has since 19 December 2006 been registered as an oversea company[1] and a registered non-Hong Kong company[2]. As at 30 September 2023, the Company has issued share capital of US$132,043,009 divided into 13,204,300,900 ordinary shares[3]. 3.The shares of the Company are listed on the Main Board of The Stock Exchange of Hong Kong Limited (“SEHK”) (stock code 3333). Trading of the shares were suspended on 28 September 2023 and resumed on 3 October 2023. The principal place of business of the Company is at 23/F China Evergrande Centre, Wanchai, Hong Kong. 4.The Company is an investment holding company and the ultimate investment holding company of a group of companies known as Evergrande Real Estate Group (“Group”), which was founded by Mr Hui Ka Yan (“Mr Hui”) in 1996 with its headquarters in Guangzhou. The Company is one of the main offshore financing platforms for the Group which raised capital offshore (i.e. outside the Mainland) to support the subsidiaries’ business in the form of capital investment and shareholder’s loans. 5.The Group engages in property development business with over 90% of its assets located in the Mainland. The majority of the Group’s operations are conducted through the Company’s indirect onshore subsidiaries (i.e. subsidiaries established in the Mainland). In addition, the Company has direct and indirect subsidiaries incorporated in Hong Kong, the Cayman Islands, the British Virgin Islands and Bermuda[4]. Main assets of the Company and of the Group 6.The key subsidiaries in the Group are:
7.Apart from the interests in Evergrande PSG and Evergrande NEV, the Group’s key offshore assets include:
8.All the key subsidiaries and key assets described above are held indirectly by the Company. The material assets held directly by the Company were:
Offshore liabilities 9.The Company has 3 main types of offshore liabilities and the liabilities as at 30 June 2022 were: CEG Notes (US$15.4 billion), SJ Notes (US$5.859) and Private Debts (US$4.099 billion). 10.The Company has issued 10 series of USD denominate senior secured notes and one series of HKD convertible bonds (together “CEG Notes”), all of which (except 2022 Privates Notes) are listed on the Singapore Stock Exchange (“SGX”). Details of CEG Notes are as follows[17]:
11.The payment obligations under each series of CEG Notes are guaranteed by various subsidiaries of the Company incorporated in the Cayman Islands, the BVI or Hong Kong (collectively “CEG Notes Guarantors”), and the shares in CEG Notes Guarantors are pledged as security for the benefit of the holders of the CEG Notes. As at 30 June 2022, the total outstanding principal of the CEG Notes was US$14.23 billion and unpaid interest was US$1.17 billion, all of which are due and payable following event of default[18]. 12.In addition, the Company through an indirect subsidiary, Scenery Journey Ltd (“SJ”), a company incorporated in the BVI, issued 4 series of USD denominated senior notes (collectively “SJ Notes”), all of which are listed on the SGX. Details of SJ Notes are as follows[19]:
13.The payment obligations under the SJ Notes are guaranteed by Tianji and its 103 subsidiaries incorporated in the BVI or Hong Kong (collectively “SJ Notes Guarantors”). In addition, Hengda entered into a keepwell and equity interest purchase agreement in respect of each of the SJ Notes whereby Hengda undertook to, inter alia, cause SJ and each of the SJ Notes Guarantors to remain solvent and to purchase their equity interests upon event of default. As at 30 June 2022, the total outstanding principal of the SJ Notes was US$5.23 billion and unpaid interest was US$629 million[20]. 14.The Company and various entities within the Group have entered into the following offshore private financing arrangements with total outstanding principal of US$4.099 billion[21] (for §§(1), (2) and (3) below) as at 30 June 2022[22]:
Onshore liabilities 15.The Group has 2 main types of liabilities: CEG Guaranteed Onshore Debts (US$8.96 billion) and Hengda Bonds (US$7.973 billion). 16.The CEG Guaranteed Onshore Debts were incurred by the Company’s subsidiaries, joint ventures or associates and other third parties in the Mainland. As at 30 June 2022, the outstanding principal was US$8.96 billion (RMB 60 billion)[23]. As these onshore debts were borrowed or guaranteed by the Company’s subsidiaries in the Mainland and/or are secured against the assets located in the Mainland, the onshore creditors have priority over the claims of the offshore creditors[24]. 17.Hengda has issued 9 series of RMB denominated unsecured onshore corporate bonds (collectively “Hengda Bonds”) with outstanding principal of RMB 53,500 (US$7.973 billion). Details as follows[25]:
Insolvency of the Company and of the Group 18.The Company does not dispute that it is liable to pay the sum of HK$862,500,000 (“Debt”) to the Petitioner which became due on 18 April 2022[26]. Nor does the Company dispute that it failed to comply with the statutory demand served upon it on 2 June 2022[27]. By virtue of s.178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“CWUMPO”), the Company is deemed insolvent. 19.It is indisputable that the Company is grossly insolvent and is unable to pay its debts. According to the 2023 Interim Report published by the Company on 26 September 2023, as at 30 June 2023, the Company had total assets of RMB 1,743,997 million (comprising non-current assets of RMB 165,533 million and current assets of RMB1,578,464 million including cash/cash equivalents of RMB4,047 million) while its total liabilities were RMB2,388,200 million[28]. The Company is balance sheet insolvent. 20.Although the Company is incorporated in the Cayman Islands, there is no dispute that the 3 core requirements for the court to exercise its discretionary over the Company are satisfied:
Proposed restructuring 21.The Petition was presented on 24 June 2022. At the hearings on 5 September 2022, 28 November 2022 and 20 March 2023, the Company opposed the Petition on the ground that it would put forward a comprehensive restructuring in respect of its offshore debts which, if implemented, would restore the solvency of the Company.
22.After the hearing, further progress was made by the Company in progressing the proposed restructuring in that:
23.The Schemes had the support of (1) creditors holding 77% of the outstanding principal of Class A debts (who signed Class A RSA), (2) creditors holding 30% of the outstanding principal of Class C debts (who signed Class C RSA), (3) creditors holding 91% of the outstanding principal of Class B debts (who signed SJ RSA), and (4) creditors holding more than 64% of the outstanding principal of Class D debts (who signed TJ RSA)[42]. 24.At the convening hearings on 24 July 2023, this Court made comments on the draft CEG Scheme and the TJ Scheme and gave directions for the Company to convene Scheme meetings to be held on 23 August 2023. 25.By consent summons filed on 26 July 2023, all parties agreed to vacate the hearing scheduled for 31 July 2023 and to have the Petition be adjourned to 30 October 2023. The hearing on 31 July 2023 was vacated given that if the Schemes were approved by the creditors and sanctioned by the Court, the Petition would be dismissed. Conversely, if the Schemes fell through, the Company by reason of its insolvency would likely be wound up. Inability to issue new shares or new instruments 26.However, the Company adjourned the Scheme meetings scheduled for 23 August 2023 and eventually cancelled them:
27.As it was clear that the Company would not be able to proceed with the Schemes, this Court dismissed the proceedings in respect of the CEG Scheme and the TJ Scheme. Hearing on 30 October 2023 28.At the hearing on 30 October 2023, the Company confirmed that:
29.On the other hand, certain Class C creditors, viz., Bank of Hainan Co., Ltd, Everbright Xinglong Trust, Xi’an Zishi Equity Investment Management Co., Ltd and Xi’an Tourism Development Fund Partnership (Limited Partnership) (collectively “Opposing Creditors”), which held guarantees executed by the Company in the aggregate principal amount of US$511.92 million[50], appeared at the hearing to oppose the Petition and support the Company’s efforts to negotiate a revised restructuring proposal. It was not clear what revised restructuring proposal the Opposing Creditors intended to support as none had been put forward by the Company. 30.Nevertheless, as the Company stated that it would work with the AHG in good faith and use best endevaours to negotiate “a revised achievable plan in 3 months” in compliance with the laws and regulations which would not involve issuance of new shares or new debts and could involve provision of shares in Evergrande PSG and Evergrande EPV,[51] and the majority of the creditors appearing in the Petition (AHG and the Opposing Creditors) supported giving the Company a further opportunity to come up with a revised restructuring proposal, this Court adjourned the Petition to 4 December 2023. The Company was told in clear term that it had to work with the creditors and come up with a restructuring proposal which complies with the laws and has the support of the requisite majorities of creditors. If the Company failed to come up with a fully formulated restructuring proposal before the next hearing, it was very likely that the court would make a winding up order against the Company. Hearing on 4 December 2023 31.Shortly before the hearing, on 29 November 2023, the Company filed Siu 2 to provide an update the court which fell far short of a fully formulated restructuring proposal. The Company claimed that it had been continuing to discuss with the creditors in respect of the “broad framework for the restructuring proposal” which included offering to the scheme creditors the following consideration:
32.The Company said that it did not foresee the same regulatory hurdles with the CSRC and NDRC since the revised proposal does not involve issuance of new shares or new debt instruments[55]. The board considered the revised proposal would yield a better recovery to the scheme creditors and required time to update the recovery analysis. Other than saying that the revised proposal was shared with the AHG’s advisers and the Petitioner on 26 November 2023,[56] no explanation was provided by the Company as to why the revised proposal was not provided to the AHG and the Petitioner much earlier. Nor did the Company provide any analysis, still less by legal and financial advisers, on the viability and the estimated return on the revised proposal. 33.The Petitioner was not satisfied with the so-called revised proposal. In his skeleton arguments dated 30 November 2023, Mr Leo Remedios[57], counsel for the Petitioner, submitted that the revised proposal was “clearly unfeasible” and did not justify any further adjournment of the Petition for the following reasons:
34.Mr Jose Maurellet SC[60], counsel for the Company, did not have any satisfactory answer to the points made by Mr Remedios other than submitting that the revised proposal was “concrete with the philosophy behind the plan being explained and set out”, reiterating the assertions made by the Company in Siu 2 and contending that a liquidation “means a loss of the Company’s listing status and the current synergies within the Group which may attract potential strategic investors”. The Company sought a further adjournment of 3 months to adapt the Schemes to the revised proposal, allow the creditors “to properly reflect their views at a vote”, further revise the proposal if necessary and “put forward a workable scheme which can gather further and sufficient support”. 35.Mr John Scott SC[61] indicated in his skeleton that the AHG did not support the adjournment by the Company and would not oppose the court making a winding up order against the Company. 36.However, without any prior notice to the parties or the court, at the hearing, the Petitioner changed its stance. Mr Remedios informed the court that the Petitioner would not seek an immediate winding up order against the Company and would not oppose the adjournment sought by the Company. 37.The Court was taken by taken by surprise in the sudden change of stance on the part of the Petitioner and reluctantly adjourned the Petition for a further 8 weeks, and indicated that at the next hearing, the court expected to see the Company had provided (1) a refinement of the revised proposal which the Company said needed more “ironing”; (2) support from the requisite majorities of creditors on the revised proposal; (3) an independent legal opinion on the regulatory issues which were said to have prevented the Company’s ability to implement the Schemes or any scheme which requires the issuance of new shares or new debt instruments; and (4) full transparency and updates on the restructuring efforts and steps taken by the Company. The Company was required to provide an update to the court and the parties by filing an affirmation no less than 7 days before the next hearing, and the Petitioner was directed to give notice to the other parties as to whether it intended to seek a winding up order against the Company by the same time limit. Hearing on 29 January 2024 38.Despite the 8-weeks’ adjournment, the Company did not provide any further revised proposal or the type of disclosures directed by the Court. Nor did it file any affirmation to update the court and the parties on the restructuring effort and any further revised restructuring proposal within the time limit imposed by the Court. 39.In view of the Petitioner’s stance that it “is prepared not to push for a winding-up order” and would not oppose the Company’s intended application for a short adjournment, and the letter dated 23 January 2024 from the Court informing the parties that any creditor who wishes to be substituted as petitioner may issue a summons[62] for the purpose and the application will be heard at the coming hearing, on 23 January 2024, solicitors for Treasure Glory Global Ltd (“TG”) wrote to solicitors for the Petitioner and the Company, enclosing drafts of a consent summons for substitution and a Re-Amended Petition, and invited their agreement to the proposed substitution. On 24 January 2024, solicitors for the Petitioner informed solicitors for TG that the Petitioner does not oppose the application. As the Company did not respond, TG issued a summons on 25 January 2024 for substitution as petitioner on the draft Re-Amended Petition supported by the affidavit of Joshua Paul Weisser dated 23 January 2024 (“Weisser 1”). 40.Mr Scott submits that it is indisputable that TG is a creditor of the Company in respect of an On-Lent Loan in the amount of US$100 million advanced by the Lenders to TG and the Company (each defined as a Borrower) under the Loan Agreement dated 19 July 2021. The Company has accepted and recognised the existence and validity of the On-Lent Loan and its liability[63] and there cannot be any doubt that the Company is, as it has also accepted, hopelessly insolvent.[64] TG is indisputably a creditor of the Company and has standing to petition to wind up the Company. 41.Further, Mr Scott submits that the court should make an immediate winding up order against the Company, having regard to the following facts and matters:
42.I agree with Mr Scott’s submissions. Neither the Company nor the Opposing Creditors have been able to address the points made by Mr Scott, which I consider to be well founded. 43.It was only until 4pm on 26 January 2024 that the Company belatedly filed a summons for extension of time to file Siu 3 out of time together with the skeleton arguments. In short, the Company asks for a further adjournment of 3 months “to push forward the Company’s newly revised restructuring plan exhibited to Siu 3, which was only provided to the AHG on 25 January 2024. There is no explanation for the delay and the failure to provide the so-called “new restructuring plan”, other than a general assertion that the Company needs time to “balance a host of factors to formulate a plan that would garner creditor support, taking into account various creditors’ concerns including the AHG’s reasons for rejecting the previous plan. The current revised plan has sought to accommodate the commercial wishes expressed by the AHG as well as other creditors”[67]. There is simply nothing before the Court to explain or justify the delay and the lack of any progress in putting forward a restructuring proposal on the part of the Company. 44.Indeed, the “new restructuring plan” (set out in a 10-page document) is not even a restructuring proposal, much less a fully formulated proposal. All that it is said is that[68]:
45.It is clear that far from ironing out the details of the revised proposal put forward before the last hearing, the Company now seeks to put forward yet another “new restructuring plan” which is nothing but some general ideas about what it may or may not be able to put forward in the form of a restructuring proposal. I say this because there is no detail or analysis on (1) the returns to the creditors under the Revised CEG Scheme or the Anji Scheme; (2) whether the Company is still able to use all the shares in Evergrande PSG and Evergrande NEV for the purpose of the new schemes, which is a real concern in light of the fact that the Security Agent has liquidated 300 million shares in Evergrande PSG and realised net proceeds of US$100 million[69]; (3) whether in light of the difference between the rights of the Class A creditors and the Class C creditors, there is a proper basis to treat all the creditors in the same class; and (4) whether the Revised CEG Scheme or the Anji Scheme will address the regulatory hurdles said to have faced by the Company, supported by legal opinion. 46.Mr Maurellet opposes the summons for substitution and submits that the court should adjourn the application for substantive arguments as the Company has not had the opportunity to file evidence in opposition. 47.In his written submissions, Mr Victor Dawes SC[70] on behalf of the Opposing Creditors opposes the summons for substitution on the grounds that (1) the Opposing Creditors only received summons and Weisser 1 after 5pm on 25 January 2024, (2) the status of TG as a creditor appears to be disputable; and (3) in any event, the court should follow the “usual practice” in England and gives directions on the application for substitution and determine any dispute raised by the debtor company (Liberty Commodities v Citibank [2023] EWHC 2020 (Ch), §§26, 43-51). Alternatively, the court should determine the application after the parties have had the opportunity to file evidence in respect of the debt relied upon by the creditor seeking to be substituted (Re Hon Seng Engineering Ltd [2001] 2 HKLRD 295, at 297H-I). Further and in any event, the Opposing Creditors support the Company’s effort in formulating a restructuring proposal and asks the court to adjourn the Petition for argument at another Monday morning hearing. 48.It seems to this Court that in view of the stance taken by the Company and the Opposing Creditors, rather than allowing TG to be substituted as a creditor or to adjourn the application for substantive arguments, which would only result in further delay in the determination of the Petition, the better (and certainly more expedient course) would be for the court to determine whether there is a proper basis for the court to exercise its discretion to grant a further adjournment of the Petition. This is because the Petitioner has not asked for leave to withdraw the Petition, which remains extant. All that the Petitioner says is that it does not oppose the application for substitution and does not object to a short adjournment of the Petition in the event that the Company applies for one[71]. This is confirmed by Mr Remedios at the hearing. Indeed, even if all parties to the petition agreed to have the petition be dismissed, the court still has discretion to order the company to be wound up if circumstances warrant (Re Shop Clothing Ltd (t/a Theme) [1999] 2 HKLRD 280). 49.I do not see any proper ground for the court to grant a further adjournment of the Petition, which has been ongoing for over 19 months. The Company has not demonstrated that there is any useful purpose for the court to adjourn the Petition - there is no restructuring proposal, let alone a viable proposal which has the support of the requisite majorities of the creditors. To the contrary, it seems to me that the interests of the creditors will be better protected if the Company is wound up by the court, so that independent liquidators can take control over the Company, secure and preserve its assets and review and formulate a restructuring proposal if they consider that such course is appropriate. It is not uncommon for a company to put forward and implement a scheme of arrangement after it is wound up by the court. Indeed, in respect of the Company, this has the additional advantage of putting the Company out of the control of Mr Hui, which had hitherto been one of the regulatory hurdles preventing the Company from issuing new debt instruments or new shares.
Mr Leo Remedios and Mr Xizhen Wang, instructed by K.B. Chau & Co., for the Petitioner Mr Jose Maurellet SC leading Mr Look Chan Ho, instructed by Sidley Austin, for the Company Ms Victor Dawes SC leading Mr Jason Yu, instructed by Karas So LLP, for the opposing creditors (Bank of Hainan Co., Ltd, Everbright Xinglong Trust, Xi’an Zishi and Xi’an Tourism) Mr John Scott SC instructed by Kirkland & Ellis, leading Mr Fergus Saurin, solicitor advocate, for the supporting creditor and AHG Mr Christopher Chain SC leading Mr Lim Han Sheng, instructed by the Official Receiver’s Office for the Official Receiver [1] Under Part XI of the former Companies Ordinance (Cap. 32) [2] Under Part 16 of the Companies Ordinance (Cap. 622) [3] Petition §5; OR’s Report §§4-5 [4] Hui 1 §§18-20, 25, 55 [5] Hui 1 §24.1 [6] Hui 1 §28.1 [7] Hui 1 §24.2 [8] Hui 1 §28.2 [9] Hui 1 §24.3 [10] Hui 1 §24.4 [11] Hui 1 §27 [12] Hui 1 §28.3 [13] Formerly known as HengTen Networks Group Ltd, a listed company [14] Hui 1 §28.4 [15] Hui 1 §28.5 [16] Hui 1 §29 [17] Hui 1 §§31-32 [18] Hui 1 §§34-36. An event of default if a winding up petition filed against the Company is not dismissed or stayed within 60 days. [19] Hui 1 §§37-39 [20] Hui 1 §§41-43 [21] For liabilities described in §§(1)-(3). The liability under the guarantee (§(4)) and put option (§(5) is included in onshore liabilities [22] Hui 1 §§45, 48, 50, 52 [23] Hui 1 §52 [24] Hui 1 §47 [25] Hui 1 §48 [26] Petition §§17-18; Hui 1 §§11, 67 [27] Petition §§19-22; Hui 1 §70 [28] OR’s Report §§7-8 [29] Being (a) Plum Blossom Master, LLC, (b) Saba Capital Master Fund, Ltd, (c) Ashmore SICAV Emerging Markets Asian High Yield Debt Fund, who filed notices of intention to appear in the Petition on 30 August 2022 and (d) other funds represented by Messrs Kirkland & Ellis (“Kirkland”) [30] McDonald 1 §5 [31] McDonald 1 §5 [32] Which involved parallel schemes of arrangements in the Cayman Islands and in Hong Kong [33] Scheme in Hong Kong [34] Scheme in the BVI [35] Hui 5 §6.1 [36] Hui 5 §11 [37] Hui 5 §28 [38] Hui 5 §§13-15 [39] Hui 5 §§25-26 [40] Hui 5 §21 [41] Hui 5 §27 [42] Hui 5 §29 [43] Siu 1 §8.1 [44] Siu 1 §8.2 [45] Siu 1 §8.3 [46] Siu 1 §9 [47] Sub-section 3, Article 9 of NDRC Order No. 56 provides that the borrowing of foreign debts by an enterprise, including issuing new offshore notes, shall meet the requirement that “the enterprise, its controlling shareholders and actual controllers have not been investigated by law for suspected crimes or major violations of laws and regulations in the latest three years” [48] Siu 1 §§10-12 [49] Siu 1 §15 [50] Siu 1 §16 [51] Siu 1 §§17-18 [52] Held by Xin Xin (BVI) Ltd [53] Siu 2 §7.1 [54] Siu 2 §8.2 [55] Siu 2 §8 [56] Siu 2 §§9-10 [57] Appearing with Mr Xizhen Wang [58] Which comprised equity interest in Greater Bay Area Homeland Development Fund LP and 5 other entities or funds, certain receivables held by Solution Key Holdings Ltd, receivable held by the Company owed by Shengyu (BVI) Ltd and Evergrande NEV, and equity interests in 5 other entities [59] Class A creditors to receive 76.3% while Class C creditors to receive 23.7% of the shares in Evergrande PSG [B9/180/2198]. [60] Leading Mr Look Chan Ho [61] Leading Mr Fergus Saurin, solicitor advocate [62] Under rule 33 of the Companies (Winding up) Rules [63] Re-Amended Petition §25; Weisser 1 §35 [64] Re-Amended Petition §26 [65] McDonald 5 §12(a), substantially more than the US$2 billion of the CEG Notes previously represented by the AHG [66] [2021] 1 HKLRD 255 at §§50 to 51 [67] The Company’s Skeleton §5 [68] Siu 3 §7 [69] Weisser 1 §27 [70] Leading Mr Jason Yu [71] Petitioner’s Skeleton §5 |
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