Re Helenbergh China Holdings Ltd
Read the full judgment text of HCMP 353/2024 on BabelCite. This High Court CFI judgment was delivered on 11 September 2024.
1. By petition presented on 29 July 2024 (“ Petition ”), Helenbergh China Holdings Limited (海倫堡中國控股有限公司) (“ Company ”) seeks sanction of a scheme of arrangement (“ Scheme ”) between the Company and the “Scheme Creditors” (as defined in §3 below) on the terms and subject to the conditions set out in the composite scheme document (“ Scheme Document ”). At the hearing, I sanctioned the Scheme. These are the reasons for my judgment.
Cited by 1 case · Cites 12 cases
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HCMP 353/2024 [2024] HKCFI 2628 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 353 OF 2024 ___________________
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_________________________________ REASONS FOR JUDGMENT _________________________________ 1.By petition presented on 29 July 2024 (“Petition”), Helenbergh China Holdings Limited (海倫堡中國控股有限公司) (“Company”) seeks sanction of a scheme of arrangement (“Scheme”) between the Company and the “Scheme Creditors” (as defined in §3 below) on the terms and subject to the conditions set out in the composite scheme document (“Scheme Document”). At the hearing, I sanctioned the Scheme. These are the reasons for my judgment. 2.The Scheme Document comprises the Letter from the Board, the Explanatory Statement (“ES”), the Scheme, and the Appendices which include the Liquidation Analysis and Recovery Analysis prepared by Kroll (HK) Limited (“Kroll”), the financial advisor to the Company. 3.The Company is insolvent. It puts forward the Scheme for the purpose of extending the maturity dates of the “Existing Notes” (as defined in §11 below) so as to restore its solvency. The Company believes that the Scheme will provide a better outcome for the “Scheme Creditors”, which comprise “Class A Creditors” and “Class B Creditors” (as defined in §15(1)-(2) below), than in a liquidation scenario. The Scheme Creditors are beneficial owners of the Existing Notes. 4.The Scheme was approved at the court-convened meetings held on 19 July 2024 (“Scheme Meetings”) by Class A Creditors as to 87.5% in number and 99.26% in value, and by Class B Creditors as to 95.24% in number and 86.83% in value. 5.The Petition is opposed by Ease Sail Holdings Ltd (“ESH”), which is one of the beneficial owners of the “March 2023 Notes” and “October 2023 A2 Notes” (as defined in §10 below) with total claims in excess of US$58 million. 6.There are 8 Scheme Creditors who have filed notices to appear in and support the Petition (“Supporting Creditors”). They are:
7.The parties have filed 14 affirmations in these proceedings:
A. FACTUAL BACKGROUND A1. Corporate background 8.The Company was incorporated in the Cayman Islands and is a registered non-Hong Kong company under Part 16 of the Companies Ordinance (Cap. 622) (“CO”). The Company is a private company and is the ultimate holding company of a group of companies which engage in real estate property business including development of residential property, commercial property and creative tech parks in the Mainland all of which are held through subsidiaries incorporated in the Mainland, the BVI and Hong Kong (“Group”). 9.Huang is the Chairman and the only director of the Company and the Chief Executive Officer of the Group. He is the beneficial owner of 98.99% shares in the Company[3]. 10.The Group’s business has been financed by a combination of onshore debts incurred in the Mainland and offshore debts incurred outside of the Mainland. The Company is the Group’s offshore financing vehicle and the issuer of the “March 2023 Notes” [4] and “October 2023 A2 Notes”[5] with maturity dates of 24 March 2023 and 8 October 2023 respectively. A portion of these notes were previously exchanged pursuant to exchange offers and became “November 2024 Notes”[6] and “October 2023 A1 Notes”[7]. ESH did not accept either of the exchange offers. 11.The 4 series of notes described in the preceding paragraph constitute 99.9% of the Company’s liabilities (collectively “Existing Notes”). For the purpose of the Scheme, they are classified as “Class A Notes” and “Class B Notes”, details as follows:
12.The payment obligations of the Company under the Existing Notes are guaranteed by the Subsidiary Guarantors[8]. 13.Since mid-2021, the Group has started to experience liquidity difficulty, followed by the Company’s default on the Existing Notes. With a view to restructure its liabilities under the Existing Notes, the Company entered into negotiations with an ad hoc group of creditors holding US$260 million in outstanding principal of Existing Notes (“AHG”). This led to the signing of the Restructuring Support Agreement on 1 December 2023 (“RSA”) with a term sheet setting out the commercial terms of the restructuring. A2. Scheme 14.The Scheme seeks to compromise the Company’s liabilities under the Existing Notes by cancelling the Existing Notes in exchange for the “New Notes” (as defined in §15(3) below) to be issued by the Company in accordance with the terms of the Scheme[9]. 15.Under the Scheme:
16.Under the Scheme, the Scheme Creditors will release the “Released Person(s)”[17] from any claims arising out, of, relating to or in respect of (1) the Existing Finance Documents, (2) the preparation, negotiation, sanction or implementation of the Scheme, the Restructuring Documents and/or the RSA; and (3) the execution of the Restructuring Documents and the carrying out of the steps and transactions contemplated in the Scheme in accordance with their terms[18]. A3. Convening Hearing 17.By originating summons filed on 29 February 2024, the Company applied for leave to convene 2 separate Scheme Meetings to be held for the purpose of considering and approving the Scheme. The Company filed Huang 1st in support of the application on 1 March 2024. 18.At the convening hearing on 8 March 2024, this Court raised the following issues arising from the draft Scheme Document, and indicated that the issues should be addressed or rectified in the Scheme Document or at the sanction hearing (if the Scheme is approved by the Scheme Creditors):
19.Upon the Company’s indication that it would revise the draft Scheme Documents to address the above issues, an order was made (“Convening Order”) directing (1) the Company to convene the Scheme Meetings, (2) to publish the notice of Scheme Meetings and the other documents at the transaction website (“Website”)[22], the website of the Company, (3) to dispatch the Scheme Document through the Euroclear Bank SA/NV and Clearing Banking S.A. (“Clearing Systems”) and (4) the sanction hearing to be heard on 6 August 2024. 20.On 29 April 2024, the Company issued a notice to convene the Scheme Meetings to be held on 20 May 2024 and uploaded the Scheme Document at the Website pursuant to the Convening Order[23]. The Scheme Meetings were subsequently postponed at the request of certain Scheme Creditors who had to sort out certain logistical issues with their custodian bank before they can vote at the Scheme Meetings[24]. 21.On 27 June 2024, the Company issued another notice to convene the adjourned Scheme Meetings to be held on 19 July 2024[25]. A revised version of the Scheme Document, which is also the final version of the Scheme Document, was uploaded to the Website on 27 June 2024[26]. 22.By letter dated 5 July 2024, Messrs. Ashurst Hong Kong (“Ashurst”) on behalf of ESH complained that the Scheme Creditors were not given sufficient information to decide on how to vote for the purposes of the Scheme and requested the Company to provide, inter alia, 15 categories of information and documents (“Ashurst Letter”) within the next 3 business days. 23.In response, the Company provided the documents filed in these proceedings to Ashurst on 9 July 2024. Further, the Company through Sidley’s letter of 12 July 2024 (“Sidley Letter”) explained why the Company considered that the Scheme Creditors had sufficient information for the purposes of the Scheme Meetings and answered each of the 15 requests raised by Ashurst. A4. Scheme Meetings 24.On 13 July 2024, the Company uploaded the Ashurst Letter and Sidley Letter to the Website and issued a supplemental notice of adjourned Scheme Meetings (“Supplemental Notice”) to inform the Scheme Creditors that:
25.The Supplemental Notice was uploaded to the Website and sent to the Scheme Creditors by the Information Agent through email and the Clearing Systems. 26.On 19 July 2024, the Scheme Meetings were held and the Scheme was approved by the requisite majorities of Class A Creditors and Class B Creditors present and voting at the respective Scheme Meetings.[27] A5. Opposition by ESH & adjournment of Petition 27.On 26 July 2024, Ashurst filed notice to appear in these proceedings, Wu 1st and Skeleton Submissions in opposition to the application for sanction. This was the first time this Court was notified that the Petition would be contested. 28.On 29 July 2024, the Petition was presented by the Company seeking sanction of the Scheme. 29.After close of business on 30 July 2024, Ashurst emailed a copy of Ren 1st to Sidley. 30.On 1 August 2024, the Company lodged its Skeleton Submissions and list of authorities and indicated that originally it intended to seek an adjournment so as to respond to the allegations belatedly raised in Ren 1st, but upon ESH’s confirmation by letter dated 31 July 2024 that it would not deploy Ren 1st in legal argument or otherwise rely on it at the sanction hearing, the Company was content to argue the matter on 6 August 2024. 31.This was unsatisfactory. The sanction hearing was fixed on the basis that this Court would consider the issues raised at the convening hearing, the results of the Scheme Meetings and the other matters which the Company needs to satisfy at the sanction stage. The hearing was not fixed to consider any arguments or allegations which had been raised by any Scheme Creditors as none had been identified or even foreshowed at the convening hearing. 32.By letter dated 2 August 2024, the parties were informed that the Petition would be re-fixed before a Recorder on 23 August 2024. However, Ashurst objected to the matter being heard before the Recorder on the ground of conflicts whereupon the matter was re-fixed before this Court on 11 September 2024. B. DISCUSSION 33.In considering whether a scheme should be sanctioned, the court considers the following factors namely, whether[28]:
34.In the present case, there is no dispute that the factors identified in §33(1)-(3), (5) and (7) are satisfied. 35.As regards permissible purpose, the purpose of the Scheme is to compromise and discharge the liabilities of the Company and the Subsidiary Guarantors under the Existing Notes. This is a permissible purpose (Re Moody Technology Holdings Limited [2022] HKCFI 1992, §15). 36.As for classification of Scheme Creditors, Mr Jose Maurellet SC (leading Mr Terence Tai), counsel for the Company, submits (and I agree) that applying Re UDL Holdings (2001) 4 HKCFAR 358, §27(2), there are clearly 2 classes of Scheme Creditors:
37.There has been compliance with court’s directions in that the notices of the adjourned Scheme Meetings and the adjourned Scheme Meetings were uploaded to the Website, the Company’s website and provided by the Information Agent to the Scheme Creditors by email and through the Clearing Systems, and advertisements substantially in the form of the notice were placed in accordance with the Convening Order. B1. Releases 38.Mr Maurellet submits that the releases contained in the Scheme are justified in the circumstances of this case:
39.I agree with the submissions primarily because the Company is a Cayman company. However, this cannot be taken as an indication that similar release and exemption of liability clauses would necessarily be acceptable if the company concerned is a Hong Kong company. This is because s.468 of the CO provides that any provision “contained in a company’s articles, or in a contract entered into by a company, or otherwise” which purports to exempt a director from any liability or indemnify the director against any liability in connection with any negligence, default, breach of duty or breach of trust in relation to the company or indemnity against any such liability is void. 40.The Scheme was approved by the statutory majorities of Scheme Creditors at the Scheme Meetings (see §4 above). 41.As regards international dimension and utility of the court exercising its jurisdiction to sanction the Scheme, there is sufficient connection between the Scheme and Hong Kong in that:
42.The only remaining issues are sufficiency of information and whether the Scheme is one a member of the class might reasonably approve to which I now turn. B2. ESH’s objections 43.ESH raises 3 grounds in opposition to the Petition:
B3. Ground 1 44.This ground concerns the adequacy of disclosure given in the Scheme Document. 45.The applicable principles are not in dispute. As submitted by Mr Chris Chain SC (leading Ms Jasmine Cheung), counsel for ESH:
46.Mr Maurellet submits, and I agree, that the following principles are also relevant when the court considers whether the company has provided adequate information for the scheme creditors to decide whether or not to vote for the scheme:
47.Mr Chain contends that the ES does not contain the information necessary to enable Scheme Creditors to form a reasonable, informed judgment on whether the Company could honour payment of the New Notes in 2-3 years’ time for the following reasons:
48.I do not think that the objection under Ground 1 is well founded. 49.First, the Scheme is a straight-forward one and the only substantive change is to extend the maturity dates of the Existing Notes by 2-3 years. The outstanding principal owed and the interest rates payable to the Scheme Creditors remain the same, and the New Notes will be guaranteed by the Subsidiary Guarantors. The decision which the Scheme Creditors had to make was whether to accept the issue of the New Notes or to insist on their rights under the Existing Notes which would lead to the Company being wound up by the court. This was a decision which the Scheme Creditors would be able to make on the basis of the information provided in the Scheme Document, in particular those set out in the ES and the Liquidation Analysis. 50.Second, the Scheme Creditors were informed in clear term that the Expectation was based on the Five Factors and there is a risk that the Company will not be able to perform the payment obligations under the New Notes. These include:
51.Third, the Scheme Creditors were also told, in no uncertain term, that the Liquidation Analysis was prepared based on the 2022 FS. Given the nature of the Group’s business, the returns to the Scheme Creditors in liquidation scenario would be even lower if more recent financial data were used by Kroll. 52.Fourth, the Scheme Creditors could assess the information contained in the Scheme Document including the limitations thereof and decide whether it would be in their interests to accept the Scheme or to have the Company be wound up. This is particularly so when the Scheme Creditors are sophisticated financial institutions or investors, and their attention was fairly drawn to the limitations in the financial information such that they would be able to form their own view as to whether what they had been given was adequate (cf. Re Sunbird (No. 2), §95). In this regard:
53.Lastly, it is difficult to see why the Company should provide the specific financial information or analysis on individual project in the Scheme Document or why such information would be relevant to the Scheme Creditors’ assessment of the Scheme. All that the Scheme seeks to achieve is to extend the maturity dates for payments of the debts owed to the Scheme Creditors. The Scheme does not seek to compromise any debts owed to the Scheme Holders by issuing any new shares to them (in such scenario, one may say that it would be necessary for the Scheme Creditors to assess and evaluate the projected financial position of the Company and its performance so as to decide whether it would be in their interests to accept the shares in exchange for the debts owed to them). B4. Ground 2 54.ESH contends that the Scheme Creditors have not been sufficiently informed or given any sufficient explanation as to the Scheme’s material departure from the pari passu principle, in that it enables holders of the New A Notes to be paid ahead of holders of the New B Notes, whereas in a liquidation, all unsecured creditors of the Company would be paid at the same time pro rata. 55.Mr Chain relies heavily on In re AGPS Bondco plc [2024] Bus LR 745, where the terms of the scheme retained the existing staggered maturity dates of 5 series of notes ranging from 2024 to 2029. Holders of notes maturing in 2029 opposed the scheme on, inter alia, the ground this was a departure from the principle of pari passu distribution that would apply in a formal insolvency.[34]Although the case concerned an application under Part 26A of the Companies Act 2006, which provides a cross-claim cram down and requires the court to consider whether there was equal treatment between all shareholders, the principles of fairness as discussed in the case are relevant to the question whether sufficient information has been provided (albeit not raised as an independent ground of appeal in AGPS (§224)).
56.Mr Chain contends that the same, if not greater, risk applies here to in respect of Class B Notes, as New B Notes mature in 2027, after New A Notes mature in 2026, and there is great uncertainty as to the Company’s ability to honour the payment of the New Notes. 57.As regards the adequacy of the ES, Mr Chain submits that the inadequacies in the ES on a number of critical aspects identified in AGPS are also present in the ES. These include:
58.I do not think that the ES is inadequate in drawing to the attention of the Scheme Creditors the difference in rights between the New A Notes and New B Notes or the risk associated with such different maturity dates. 59.While one cannot rule out the risk that Class A Creditors will receive payment but not Class B Creditors owing to the difference in maturity date, this is a risk which the Scheme Creditors decided to take. It is not for the court to override their decision when the risk was sufficiently drawn to their attention and highlighted. 60.In any event, as submitted by Mr Maurellet, the risk that Class A Creditors will receive payment in full but Class B Creditors will not receive any payment is very remote given that if Class A Creditors receive payment in full, it means that the financial position of the Company has improved in line with the Expectation and in such scenario, Class B Creditors will also be paid in full. Conversely, if the Company’s financial performance does not improve and remains insolvent by the time New A Notes fall due, the director will be under a duty not to pay the amount due so as to preserve the assets for distribution to the creditors in liquidation. In either scenario, there will not be a departure from the pari passu principle. B5. Ground 3 61.ESH complains that there is insufficient information on the details of other indebtedness of the Group and how they are proposed to be dealt with:
62.I do not think that the objection is well-founded. While it is correct that when the Scheme becomes effective, the liability of the Subsidiary Guarantors under the Existing Notes will be released, it does not mean that details of the Group’s other indebtedness is relevant or necessary for the Scheme Creditors’ consideration of whether to approve the Scheme. This is particularly so when the release does not affect the substantive right of the Scheme Creditors as their claims under the New Notes will be guaranteed by the Subsidiary Guarantors. B6. Other arguments 63.In his supplemental submissions, Mr Chain raises 2 further points in opposition to the Petition:
64.As regards the Creditors’ Support Point:
65.As for the Contribution Arrangements Point, it is wholly without basis:
66.For all the above reasons, this Court sanctioned the Scheme and directs the Company to deliver an office copy of the order to the Registrar of Companies within 7 days of the order as the Scheme will only become effective upon registration of the order. 67.As for costs, I make a costs order nisi that:
68.It seems to me that although ESH fails in its opposition to the Petition, except the Contribution Arrangements Ground, the grounds raised by ESH are legitimate grounds which ESH is entitled to raise at the sanction hearing, and the Company should pay the costs of and occasioned by ESH for such purpose. However, the same cannot be said of the Contribution Arrangements Ground which I consider to be wholly without basis. Much costs have been incurred by the Company in responding to the allegations raised by ESH in Wu 2nd, Ren 1st and Ren 2nd. ESH should be required to pay the costs of and occasioned by the Contribution Arrangements Ground. As both sides have to pay costs incurred by the other, a fair order would be that there should be no order as to costs. 69.As for the Supporting Creditors, they should be entitled to recover their costs for supporting the Petition, which shall be borne by the Company and ESH as to 50% each. This reflects the fact that a substantial part of the 5 affirmations filed by the Supporting Creditors are directed to dealing with the allegations in relation to the Contribution Arrangements Point, and ESH should be liable to pay 50% of the costs incurred by the Supporting Creditors in these proceedings.
Mr Jose-Antonio Maurellet SC leading Mr Terrence Tai, instructed by Sidley Austin, for the Company Mr Christopher Chain SC leading Ms Jasmine Cheung, instructed by Sidley Austin, for the Opposing Creditor Mr Charlie Liu, instructed by King & Wood Mallesons, for the Supporting Creditors [1] xhibited to an affirmation made by ESH’s solicitors, and subsequently filed on 2 August 2024 [2] Being (i) Affirmation of Chen Dong on behalf of Right Time; (ii) Affirmation of Zhang Fan on behalf of Oakwise; (iii)-(iv) Affirmation of Tang Ping Sum and affirmation of Zhuang Leiming on behalf of Yonxi; (v) Affidavit of Wan Hong Yin Edmund (“Wan 1st”) on behalf of Pentamount, Orient and Everbright [3] S §§11.4, 11.5(b) [4] Means New York law-governed 11.0% senior notes due March 2023 (ISIN: XS2297841962, Common Code: 229784196) issued by the Company and guaranteed by the Subsidiary Guarantors [5] Means the New York law-governed 11.0% senior notes due October 2023 (ISIN: XS2376908344, Common Code: 237690834) issued by the Company and guaranteed by the Subsidiary Guarantors [6] Means New York law-governed 8.0% senior notes due November 2024 (ISIN: XS2551272250, Common Code: 255127225) issued by the Company and guaranteed by the Subsidiary Guarantors [7] Means the New York law-governed 10.33% senior notes due October 2023 (ISIN: XS2553046587, Common Code: 255304658) issued by the Company and guaranteed by the Subsidiary Guarantors [8] That is, Noble Pursuant Holdings Ltd, Leap Elite Holdings Ltd, Key Advantage Global Ltd, and Broad Pleasant Ltd. [9] S §4.5 [10] Means 5% senior notes due October 2026 to be issued by the Company on the Restructuring Effective Date [11] Being the sum of (i) the outstanding principal of Class A Notes at the Record Time, and (ii) deemed unpaid interest thereon at 5% p.a. interest from 11 November 2022 (issue date of October 2023 A1 Notes) up to (but excluding) Restructuring Effective Date. [12] Means 5% senior notes due November 2027 to be issued by the Company on the Restructuring Effective Date [13] Being the sum of (i) the outstanding principal of Class B Notes at the Record Time, and (ii) deemed unpaid interest thereon at 5% p.a. interest from 7 November 2022 (issue date of November 2024 Notes) up to (but excluding) Restructuring Effective Date. [14] ES §8.2 [15] “Consent Fee Deadline”. [16] “Consent Fee”. [17] Being (a) the Company, its subsidiaries, its affiliates, their personnel, its director and advisors, (b) agents/entities in connection with Existing Notes, and (c) agents appointed under the Scheme (including the Holding Period Trustee, Information Agent, and Scheme Administrators) [18] “Released Claim”; Scheme, Cl. 11.2. [19] Means the first date at which all of the Scheme Conditions specified in cl.15 of the Scheme have been satisfied, which are (i) approval of the Scheme at the Scheme Meeting, (ii) the court’s sanction, (iii) registration of the sanction order, and (iv) the parties to the Deed of Undertaking having executed the Deed [20] Means the date when the Company confirms in writing to the Scheme Creditors that all the conditions precedent to the Restructuring have been satisfied or waived (as the case may be) [21] Means 30 September 2024 or such other date as may be agreed between the Company and AHG in writing provided that the Long Stop Date shall not be extended beyond 31 March 2025 [22] https://www.dfkingltd.com/Helenbergh [23] Huang 3rd §§10-13 [24] Huang 3rd §§15-21 [25] Huang 3rd §§22-23 [26] Huang 3rd §24 [27] Chairperson’s Report (Class A) §42; Chairperson’s Report (Class B) §43. [28] Re Mongolian MiningCorp [2018] 5 HKLRD 48§13; North Mining Shares Company Limited [2023] HKCFI 2439, §§33-37 [29] Section 668(1) of the CO provides that the court has jurisdiction to sanction a scheme over a foreign company if it is a “a company liable to be wound up under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32)”. See Re LDK Solar Co., Ltd [2015]1 HKLRD 458, §§43-55 (per Godfrey Lam J, as he then was) [30] The court would consider whether the scheme is effective in other foreign jurisdictions as the court would not act in vain and would not exercise its powers to sanction a scheme which does not serve any useful purpose (E-House (China) Enterprise Holdings Ltd [2023] HKCFI 3117, §§65-66). However, the utility and international effectiveness of a scheme concerning a foreign company whose shares are listed in Hong Kong is not normally a matter of real concern as there would be sufficient creditors who are subject to the in personam jurisdiction of the court, or their debts are governed by Hong Kong law or that the creditors have elected to participate in the scheme to be sanctioned by the Hong Kong court (North Mining Shares Company Ltd [2023] HKCFI 2439, §36-37) [31] Scheme, Cl 9.3. [32] As discussed in Anthony Gibbs & Sons v Societe Industrielle et Commerciale des Metaux(1890) 25 QBD 399. That is, a debt can only be compromised in accordance with the law of the jurisdiction which governed the agreement giving rise to the debt [33] Chairperson’s Report (Class A) §18 and Chairperson’s Report (Class B) §18 [34] AGPS concerned a cross-class cram down under Part 26A of the English Companies Act 2006 (which does not have a statutory equivalent in Hong Kong), such that the court was specifically concerned with whether there was equal treatment between all creditors. [35] AGPS §217 cf. ES §6.16(e) [36] AGPS §218 [37] AGPS §§219-222 cf ES 6.3(b)(iii) [38] Scheme Clause 1.1; Statement Appendix 2 (p.A2-14) [39] Wu 1st at §26 |
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