Re Moody Technology Holdings Ltd

HCMP 1072/2021

[2024] HKCFI 452

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1072 OF 2021

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D E C I S I O N

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1.I have before me an unusual application. The Company seeks the modification of the scheme of arrangement sanctioned by me on 28 June 2022[1]. What makes the application unusual is the circumstances in which it has been necessary.

2.Mr Tang Chung Wah Alan and Mr Kan Lap Kee Terry were appointed in the scheme as the initial scheme administrators. It would appear that they did not understand their function and duties as set out in [31] of the scheme. In particular they seem to have thought that they should in some way monitor the implementation of the commercial transactions which formed part of the restructuring of which the scheme was part rather than simply call for submissions of claims by scheme creditors, determine them and then make the distribution of the scheme consideration which involved an equity for debt swap.

3.It appears to have come to their attention that an investment which formed part of the proposed restructuring of the debt described in the explanatory statement had not been and might not be completed. This seems to have caused them to think that they should inquire of the Company how the matter was being resolved and that it might in some way interfere with the implementation of the scheme, which given its terms, it did not. In the fullness of time this led to the Company agreeing with the initial scheme administrators and they should be replaced with individuals from Manivest.

4.Two particular problems arose in relation to the implementation of the scheme as a result of the dispute that arose between the Company and the initial scheme administrators and their replacement. The first was that the initial scheme administrators had calculated the number of scheme shares that needed to be issued by reference to the total value of the claims that had been submitted rather than calculating them after it had been determined what the total value of the admitted claims were. Secondly it appears that during the change of scheme administrator all these shares were allotted to scheme creditors, even though not all the claims had been assessed and admitted.

5.As a consequence the present application has been made first to change the identity of the scheme administrators, which it is proposed will be Mr Lai Wing Lun and Mr Osman Mohammed Arab and also to make changes which provided in clauses 7A and 8A as they will become, for the new scheme administrators when they have determined all scheme claims to confirm the scheme share entitlements of scheme creditors and, depending on the outcome of that process, to cancel any scheme shares which have already been issued in excess of that to which a scheme creditor is entitled.

6.The time periods for the assessment of scheme claims necessarily has to be adjusted from the periods specified in the original approved scheme.

7.As I have said this is an unusual application and counsel have not been able to find any authorities directly on point and I am not aware of the Hong Kong court ever having to deal with a similar situation. That having been said guidance can be found in various authorities as to how the court should assess an application for modification.

8.In relation to modifications made at the time of the scheme meeting I say this in Re Hong Kong Building and Loan Agency Limited[2].

“9. The decision does not contain much consideration of the way which the court should approach modifications made at a Scheme meeting. Once again, it seems to me to be largely a common sense matter. If the amendments are substantial, then it may be they would jeopardize the ability of the company to obtain sanction of the Scheme. If as in my view is the case in respect of the meeting that take took place on 28 June 2019, they are largely matters of detail which do not impact on a consideration of whether or not the Scheme should be approved, they will not.

10. It seems to me the relevant principal is to be found in decisions such as Re Mongolian Mining Corp [3], which explain that it is necessary for Creditors to be given sufficient information about the Scheme to enable them to make an informed decision whether or not to support it. If modifications are either sufficiently explained prior to a meeting, or if at the meeting they are sufficiently minor that they are not likely to infringe this principal, it seems to me that they would be unobjectionable.”

9.In relation to the modification of scheme of arrangement, the English court has held the following:

(1)  In Re Aon plc[4], the court sanctioned a scheme of arrangement and confirmed a reduction of capital after examining two modifications to the scheme made after it had been approved by shareholders. The court noted that the scheme was drafted in wide terms to allow modifications where the company and the other party gave consent and the court approved. It was also satisfied that what was contemplated “would not have caused any reasonable shareholder to take a different view in relation to the scheme had it been put before them”[5].

(2)  In Re Equitable Life Assurance Society[6], the court noted that the scheme itself allows for modifications or additions, and for conditions which the court may approve or impose. It found that “[t]he provision is salutary, because there may be some immaterial error or oversight, or change of circumstances, that needs to be corrected or covered. But it would be quite wrong to use the provision so as to foist on a class of creditors something substantially different to what has been approved at the relevant meetings”[7].

10.It seems to me to be clear that the court can properly modify a scheme after it has been approved if, first, the scheme provides for an application for an amendment to make the court. This is expressly provided for in clause 37.2 of the present scheme. Secondly, if the modifications are minor and not such as it might reasonably be thought would have caused a scheme creditor to have decided to vote against the scheme. The current proposed modifications are plainly intended simply to ensure that the scheme is administered as was originally intended and therefore satisfy this second criteria.

11.I will, therefore, make an order for the amendments to the scheme of arrangement sought by the Company.

Ms Rachel Lam SC and Ms Tinny Chan, instructed by Eric Chow & Co, for the Company