Re Powerlong Real Estate Holdings Ltd

HCMP 458/2024

[2025] HKCFI 271

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 458 OF 2024

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REASONS FOR JUDGMENT

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1.By petition presented on 9 December 2024 (“Petition”), Powerlong Real Estate Holdings Limited (寶龍地產控股有限公司)(“Company”)  seeks sanction of a scheme of arrangement (“Scheme”)  between the Company and the “Creditors” (as defined in §8 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.

A.  FACTUAL BACKGROUND

2.The Company was incorporated in the Cayman Islands on 18 July 2007.  It has since 12 June 2008 been registered as a non-Hong Kong company and has a principal place of business in Hong Kong.  Since 2009, the Company’s shares have been listed on the Main Board of the Stock Exchange of Hong Kong Limited (“SEHK”)  (stock code: 1238).

3.The Company is the ultimate holding company of a group of companies engaging in property development, property investment, commercial operation and residential property management business (together “Group”). The Company serves as the Group’s main financing platform and raised fund to support the subsidiaries’ operations.  As at 31 December 2023, the Group has land bank of 21.94 million square metres, of which 63% is located in Yangtze River Delta region.

4.The Group is insolvent and unable to pay its debts owing to the downturn of the market condition of the real estate property sector in the Mainland and reduction in the sources of available financing.  As at 31 December 2023, the Group’s current assets were US$16.45 billion (RMB 116.48 billion)  while its current liabilities were US$16.80 billion (RMB 119 billion).

5.To formulate and implement a restructuring proposal in respect of its debts, the Company has since 2023 engaged Haitong International Securities Group Limited as its financial advisor and Messrs. Sidley Austin as its legal advisor.

6.On 23 February 2024, the Company announced that it had entered into a restructuring support agreement (“RSA”)  with an ad hoc group of creditors holding 30.3% of the outstanding principal of the “Existing Debt Instruments” (as defined in §10 below)  (“AHG”).  The RSA contains a term sheet (“Term Sheet”)  which sets out the material times of the restructuring.

7.On 4 October 2024, the Company and the AHG entered into an agreement to amend the RSA and the Term Sheet taking into account the Group’s interim results previously announced on 28 August 2024.

B.  THE SCHEME

8.The Scheme is put forward by the Company for the purpose of restructuring and compromising all the claims held by Class A and Class B creditors (collectively “Creditors”)  against the Company (“Claims”), under the “Existing Debt Instruments” (as defined in §10 below), which account for about 80.7% of the offshore debts of the Company.[1] 

9.Under the Scheme, the Claims are claims against the Company as at the “Record Time”[2] which comprise the outstanding principal as at 31 December 2023 in the amount of approximately US$2.79 billion (“Principal”)  and interest (including default interest)  accrued thereon.

10.The Claims arose out of the following debt instruments (collectively “Existing Debt Instruments”):

(1)  “Existing Public Notes”, which comprise 9 series of publicly traded USD-denominated senior notes issued by the Company pursuant to various New York-law governed indentures with maturity dates ranging from 25 July 2022 to 28 August 2024. 

(2)  “Northeast Gemini Notes”, which comprise one series of USD-denominated senior notes issued by Northeast Gemini Limited (“Northeast Gemini”)[3] pursuant to New York-law governed indentures and guaranteed by the Company. 

(3)  “Existing Private Debts”, which comprise 5 Hong Kong law-governed syndicated facilities entered into by the Company as borrower with maturity dates ranging from 8 January 2023 to 9 February 2025.

11.Class A creditors (“Class A”)  are holders of Existing Public Notes and Existing Private Debts.  Class B creditors (“Class B”)  are holders of the Northeast Gemini Notes.

(1)  The Existing Public Notes and Existing Private Debts enjoy the same package of security which comprise the guarantees executed by the “Subsidiary Guarantors” and the “JV Subsidiary Guarantors” and the share pledges granted by the Company and the “Existing Subsidiary Guarantors Pledgors”.

(2)  Holders of Northeast Gemini Notes do not enjoy any security other than the guarantee provided by the Company.

12.The Claims do not include the following liabilities:

(1)  “Other Offshore Debts” which are 8 offshore bank loans in the aggregate amount of US$668.95 million (RMB 4,737.96 million)  with the Company as borrower or guarantor.  The Company has already restructured 6 of them and expects to be able to restructure the remaining 2 (totaling US$84.62 million)  by the “Restructuring Effective Date” (“RED”);

(2)  “Company’s Guaranteed Onshore Debts”, which are 9 onshore financing arrangements with the subsidiaries as borrowers and guaranteed by the Company.  These Debts are fully secured by onshore assets and the total principal amount due as at 31 December 2023 was US$203.22 million (RMB 1,439.32 million); and

(3)  “Other Current Liabilities”, which are other payables and accruals in the amount of US$375.56 million (RMB 2.66 billion)  and amounts due to subsidiaries in the amount of US$1.55 billion (RMB 10.95 billion), all of which are owed to related parties. 

13.In return for releasing their Claims against the Company, the Creditors will receive the “Scheme Consideration” under one or more of the following options:

(1)  Option 1: Creditors will receive a fixed combination of cash, ordinary shares in the Company (“9909 Shares”)  and “Mandatory Convertible Bonds” as follows:

(a)  4.5% of such entitlement shall be settled in cash in US dollars through 4 instalments over 2.5 years.

(b)  95.5% of 11/60 of such entitlement shall be exchanged into 9909 Shares at HK$12 per share, subject to a lock-up which will be lifted in stages over 4 years.

(c)  95.5% of 49/60 of such entitlement shall be exchanged into Mandatory Convertible Bonds whereby (1)  6.25% of the principal amount of the Mandatory Convertible Bonds will be converted into the Company’s shares (at HK$3.35 per share)  once every 3 months in the first year after the original issue date, and (2)  25% will be converted into the Company’s shares (at HK$3.35 per share)  annually at the end of each of the 2^nd, 3^rd, and 4^th year.

(2)  Option 2: Creditors will receive USD-denominated senior medium-term notes (“MTN”)  with a tenor of 5 years and interest varying between 2.75% and 3.5% per annum, to be mandatorily redeemed in 5 instalments.  Each instalment is a prescribed fraction of the 100% principal amount redeemed plus any accrued and unpaid interest thereon.

(3)  Option 3: Creditors will receive USD-denominated senior long-term notes (“LTN”)  with a tenor of 7.5 years and interest varying between 2% and 2.75% per annum, to be mandatorily redeemed in 10 instalments.  The redemption price under each instalment is the entire principal amount redeemed plus any accrued and unpaid interest thereon.

(4)  Option 4: Creditors will receive a new 7.5-year loan (“New Loan”)  to be repaid over 15 instalments.

14.If Option 1, 3 and/or 4 is oversubscribed, the remaining amount will be allocated to the Creditors on a pro-rata basis, and the balance of the unallocated amount under Option 1, 3 and/or 4 will be re-allocated to Option 2.

15.In addition to the Scheme Consideration, the following fees are payable to some of the Creditors:

(1)  “Consent Fee”: Creditors who acceded to the RSA by 26 April 2024 will receive a fee at 0.2% of the aggregate principal of their eligible participating debt, with 50% to be paid on or prior to the RED and the other 50% to be paid one year after the RED.

(2)  “AHG Work Fee”: AHG will receive US$11,295,940 as their work fee.

(3)  “AHG Advisor Fees” / “Bank Group’s Advisor Fees”:  AHG’s advisor (Messrs. Latham & Watkins)  and the Bank Group’s[4] advisors (Messrs. Linklaters and FTI Consulting)  will receive US$905,000 and US$558,000 respectively.

16.In consideration of the Scheme Consideration, the Creditors agree to release any “Released Person”[5] from any “Released Claim”, which cover any “Scheme Claim”,[6] “Ancillary Claim”[7] or any past, present and/or future “Claim” arising out of, relating to or in respect of: (1)  the Existing Debt Instruments; (2)  the preparation, negotiation, sanction or implementation of the Scheme, the Restructuring Documents and/or the RSA; and/or (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 but not any Claims relating to the New Finance Documents to be executed under the Restructuring.

17.The Scheme will take effect on the “Scheme Effective Date”, which is the date when the “Scheme Conditions” stipulated in clause 15 of the Scheme are met.  The Scheme Conditions are:

(1)  The approval of the Scheme by the requisite majorities of the Creditors present and voting at each Scheme Meetings;

(2)  The sanction of the Scheme by the court;

(3)  The filing of a sealed copy of the Sanction Order with the Registrar of Companies; and

(4)  The relevant parties having duly executed the Deed of Undertaking.

18.However, the Scheme will only take effect if all the “Restructuring Conditions” stipulated in clause 16.1 of the Scheme are met or waived by 28 February 2025 (“Long Stop Date”), failing which the Scheme will lapse.

C.  DISCUSSION

19.The principles are well established.  In considering whether a scheme should be sanctioned, the court considers the following factors (as summarised in Re Yuzhou Group Holdings Co Ltd [2024] HKCFI 3098 at §20 and Re Helenbergh China Holdings Ltd [2024] HKCFI 2628 at §33):

(1)  whether the scheme is for a permissible purpose;

(2)  whether creditors who were called on to vote as a single class had sufficiently similar legal rights that they could consult together with a view to their common interest at a single meeting;

(3)  whether the meeting was duly convened in accordance with the court’s directions;

(4)  whether creditors have been given sufficient information about the scheme to enable them to make an informed decision whether or not to support it;

(5)  whether the necessary statutory majorities have been obtained;

(6)  whether the court is satisfied in the exercise of its discretion that an intelligent and honest man acting in accordance with his interests as a member of the class within which he voted might reasonably approve the scheme; and

(7)  if the company which puts forward the scheme is a foreign company, whether there is sufficient connection between the scheme and Hong Kong, and the utility of the court sanctioning the scheme.

20.Each of the above factor is satisfied.   

C1.  Permission purpose, compliance with directions and statutory majorities

21.As regards permissible purpose, compliance with the court’s directions and approval by statutory majorities:

(1)  The Scheme is put forward for the purpose of restructuring the Claims so as to allow the Company to restore its solvency, which is a permissible purpose.

(2)  The Company has amended the Scheme Document to address the comments and concerns raised by this Court at the convening hearing on 18 July 2024.   

(3)  The directions given at the convening hearing have been complied with.  Separate meetings were convened and held on 29 November 2024 for Class A and Class B to consider and approve the Scheme (“Scheme Meetings”).   

22.Mr Terrence Tai, counsel for the Company, draws to the court’s attention that the Notice of Scheme Meeting and Explanatory Statement were only made available at the Company’s principal place of business from 11 November 2024 onwards (instead of 8 November 2024)  due to an inadvertent omission.

23.I agree with Mr Tai that this is a case where the court should exercise its power to waive the non-compliance with the convening order:

(1)  The purpose of the court directing multiple means of service is to give notice of the Scheme Meetings and provide Creditors with sufficient information about the Scheme. Such information has been given by courier and through the notices published at the relevant websites.

(2)  The Notice of Scheme Meeting and Explanatory Statement were available at the Company’s principal place of business only one working day late.  No Creditor has requested inspection of the documents at that location. 

(3)  The very high attendance rate at the Scheme Meetings shows that most, if not all, the Creditors were duly notified of the Scheme Meetings.

24.At the Scheme Meetings held on 29 November 2024, the Scheme was approved by the requisite majorities of the Creditors in that:

(1)  Class A Meeting: 510 Creditors attended, of which 485 (94.14% in value)  voted for the Scheme and 12 voted (5.86% in value)  against it.

(2)  Class B Meeting: 8 Creditors attended all of which voted for the Scheme.

C2.  Class issue

25.In considering the issue of class, it is the rights of creditors (both before and under the scheme), rather than their separate commercial or other interests, which determine whether they form a single class or separate classes.  The court should take a broad approach to the composition of classes so as to avoid giving unjustified veto rights to a minority group of creditors (UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin (2001)  4 HKCFAR 358 at §27; Re Yuzhou at§24).

26.In the present case, the rights of Class A, both before and under the Scheme, are materially different from those of Class B.  The former enjoys the benefit of a package of security, while the latter does not enjoy any security other than the guarantee executed by the Company.

27.The rights of the Creditors under the 2 types of debt instruments within Class A as against the Company are materially identical:

(1)  The Existing Public Notes and the Existing Private Debts have different interest rates (ranging between 3.25% and 7.125%)  and different maturity dates.  The difference in interest rates does not fracture the class as the Claims include the Principal and interest accrued up to the Record Time. 

(2)  The Record Time is the appropriate date for the purpose of adjudicating the Claims, as it is the rights of the Creditors on winding up which is the appropriate comparator(Pilkington on Schemes, 3^rd edn. §§6-023-6-029).  Without the Scheme, the Company would be put into liquidation, and each Creditor would be entitled to file a proof of debt for its claim up to the date of the commencement of liquidation (McPherson & Keay’s Law of Company Liquidation, 5^th Ed., §§12-007 to 009). 

(3)  For the same reason, the difference in maturity dates does not fracture the class especially where, as here, all the instruments are in default (Re Telewest [2004] BCC 342 at §23).

28.As regards the RSA and the Consent Fee, generally a lock-up agreement and the payment of a consent fee do not fracture a class provided that it was made available to all scheme creditors and the amount, looked objectively, would not have the effect of persuading a creditor to vote in favour of a scheme which it considered to be against its interest or which it might otherwise reject.  In assessing the materiality of the fee, it is the size of the fee as compared to the projected returns under the scheme and in liquidation which is the appropriate comparator.[8]

29.In the present case, the RSA and the Consent Fee do not fracture the class given that:

(1)  All Creditors were given the same opportunity to accede to the RSA; and

(2)  The level of the Consent Fee (~0.2% of the Principal)  is relatively modest as compared to the estimated returns under the Scheme (17.19% to 32.84%)  and the liquidation scenario (1.79% to 7.37%).  Viewed objectively, the size of the Consent Fee is such that it would not have a material influence on the voting intention of the Creditors.

30.As regards the AHG Work Fee, the relevant principles are as follows:

(1)  In general terms, payments made by a company to some creditors independently of a proposed scheme and its associated restructuring agreements which are not dependent upon the scheme taking effect, ought not to come into the equation for class purposes.  However, where any such prior payment was made to some, but not all, creditors, it must have been made for legitimate reasons and be genuinely independent of the scheme and restructuring.  It should not amount to a disguised part of the consideration offered (Re Noble Group Ltd [2019] BCC 349 at §§131-132, per Snowden J (as he then was); Re Yuzhou at §29).

(2)  The court has to consider the following non-exhaustive list of factors: (a)  whether the work fee is small in comparison to the benefits of the scheme; (b)  whether the work is paid in consideration of the work carried out by the ad hoc group, which requires significant time to be spent by senior management at the relevant creditor entities, and in consideration of their inability to trade the relevant instrument during the period when the scheme was being negotiated (Re Haya Holdco 2 Plc [2022] EWHC 1079 at §72(6)). 

31.I am satisfied that the AHG Work Fee is independent of the Scheme and is payable for the work carried out by the AHG which has enabled the Restructuring and the Scheme to be negotiated and implemented:

(1)  The AHG Work Fee is payable regardless of whether the Scheme is approved, albeit in a liquidation scenario, the relevant Creditors would need to prove as unsecured creditors in respect of the AHG Work Fee whereas if the Scheme is implemented, it will be paid in cash.

(2)  The AHG Work Fee, together with the AHG Advisor Fees, represent 0.4% of the Principal under the Existing Public Notes and Northeast Gemini Notes.  The size is not so substantial as to give rise to a class issue when compared to the return under the Scheme (17.19% to 32.84% (without consent fee), and 17.37% to 33.02% (with consent fee)).  No Creditor has indicated any objection to the payment of such a fee.

(3)  The AHG Work Fee represents the compensation for the time and effort expended by the AHG in negotiating and assisting the Creditors in the formulation of the Scheme and accepting the risks associated with the restructuring negotiations, including having to restrict themselves from trading during the restructuring negotiations as they received material price sensitive non-public information from the Company.

32.As regards the AHG Advisor Fees and the Bank Group’s Advisor Fees, they are to defray the legal expenses and disbursements incurred by AHG and the Bank Group in preparing and reviewing the restructuring documents.  The Bank Group’s Advisor Fees represents approximately 0.1% of the aggregate Principal amount of the Existing Private Debt.  They would not fracture the class.

C3.  Information to Creditors

33.An explanatory statement should be sufficient to enable the Creditors to exercise reasonable judgment on whether the Scheme is in their interest, and to reach a sensible decision as to its benefits.  The Creditors are assumed to be intelligent and can be expected to read the explanatory statement as a whole.  The information in the explanatory statement needs to be up to date (Re Yuzhou at §31).

34.The Explanatory Statement has been revised to address several issues raised by the court at the convening hearing by, inter alia, (1)  providing an illustration table summarising the 4 options of the Scheme Consideration so that the Creditors can better understand their differences; and (2)  setting out in full the amounts of the AHG Work Fee and AHG Advisors Fees.

35.The Explanatory Statement met the requirements discussed in §33 above.  It sets out the details in relation to the restructuring and the reasons for implementing the Scheme, which include:

(1)  Section 4: Letter from the Directors to Scheme Creditors, which provides a brief overview of the Scheme.

(2)  Section 5: Background to the Group and the restructuring, which sets out the debt composition of the Group and the circumstances leading up to the Scheme.

(3)  Sections 6-7: Explanation of the key features of the Scheme. 

(4)  Section 8: Summary of the terms of the New Debt Instruments to be issued.

(5)  Section 10: Information on the actions to be taken by the Creditors.

(6)  Section 11: Details regarding the Company, directors and senior managers.

(7)  Section 12: Risk factors in relation to the Scheme.

(8)  Appendix 3: Analysis of the returns under the Scheme and in a liquidation scenario. 

36.Further, the Creditors are of some sophistication in that 86.94% and 80.27% of the Creditors who voted in favour of the Scheme are institutional and professional investors respectively.  They can form their own view on whether what they have been given is adequate (Re Helenbergh at §§46(1)-(2)).

C4.  Discretionary factors

C4.1   Third-party releases

37.The approach of the court in considering third-party releases has been summarised in Re Yuzhou §§33-38.  The Company has properly disclosed the following types of third-party releases.

38.First, a release of the Subsidiary Guarantors, the JV Subsidiary Guarantors and the Existing Subsidiary Guarantor Pledgors is necessary because the Claims will be compromised and extinguished upon the Scheme taking effect.  Without the release, they may bring a contribution claim against the Company (Re Yuzhou at §36).

39.Second, a release of Northeast Gemini, the principal obligor of Northeast Gemini Notes is also necessary. Without the release, the Creditors can still claim against Northeast Gemini.  This would result in either the liquidation of Northeast Gemini (if the amount is not paid)  or would hamper the ability of the Group to pay the debts under the MTN, LTN and the New Loan (if the Company decides to pay the debt). 

40.The release of the obligations of the other Group companies under the Existing Debt Instruments (which are third parties to the Scheme)  would be achieved by the Deed of Release to be executed by the relevant parties[9], which is one of the Restructuring Conditions for RED to take place.  The Deed of Release provides, inter alia, that on RED, each Creditor irrevocably and completely waives, discharges and releases the Released Persons from their respective obligations and liabilities under or in connection with the Existing Debt Instruments.[10]

41.Mr Tai submits that although the English cases have developed a technique where a scheme company would execute a deed of assumption to trigger a ricochet claim, but the Hong Kong and Singapore cases suggest that executing a deed of assumption is unnecessary (Re Unity Group Holdings International Ltd [2022] HKCFI 3419 at §§16-17). 

42.In the present case, the point does not arise as the obligations of the relevant subsidiaries under the Existing Debt Instruments would be released once the Deed of Release is executed by the parties.  As stated in footnote 9 above, the Deed of Release is going to be executed by the Company on behalf of the Creditors. 

43.In any event, it seems to me that the issue considered by the Singapore Court of Appeal in Path Finder Strategic Credit LP v Empire Capital Resources [2019] 2 SLR 77 at §§20(b), 77, 79-82 was not whether it is necessary for a deed of assumption to be executed for the purpose of releasing the obligations of the third parties.  Rather, the issue was whether the court has jurisdiction under s.210(1)  of the Companies Act (which is materially similar to s.670 of the Companies Ordinance (Cap. 622))  to summons a meeting for the creditors to consider a scheme proposed between a company and its creditors when the scheme has the effect of releasing not just the liability of the company concerned, but also the liability of the third party companies within the same group.  It was held that (1)  a primary obligor’s obligations may be released in a scheme proposed by the guarantor of the same debt if there is a sufficient nexus between the release of the third party and the relationship between the company and the scheme creditors; and (2)  a release of the third party debt owed by the primary obligor to the scheme creditors would satisfy the necessity test, since otherwise liability and enforcement risks would merely be shifted between members of the group and the overall restructuring objective would be entirely unmet. 

44.Third, a release of the other Released Persons which are not obligors under the Existing Debt Instruments.  Relying on the factors considered in Re Helenbergh at §§38(1)-(4), 39, Mr Tai submits that this category is justified in the context of a Cayman company:

(1)  These releases prevent contribution claims against the Company.  For instance, if a disgruntled creditor decides not to take action against the Company but sues its director and advisors instead.  The latter may file a contribution claim against the Company, which is a ricochet claim that may undermine the Scheme.

(2)  Such releases fall within the concept of a compromise and can be upheld as part of an arrangement between the Company and its Creditors.  Ultimately, these are matters which the Creditors can approve, and are not objectionable if they are properly disclosed. 

(3)  The presence of these releases reduces the risk (and, therefore, the costs)  associated with the restructuring.  It is not difficult to see the importance of these releases in restructuring with multiple parties and entities and why these clauses have become a regular feature in schemes.

(4)  The releases are based on the provisions approved in Re Noble Group Ltd at §§20-30 but are narrower.  The carve-outs are not limited to “fraud” but extend to wilful default, gross negligence or wilful misconduct and any “liability of any Advisor arising under a duty of care to its client” which limits the releases to what is reasonably necessary.

45.My observations in Re Helenbergh at §39 are equally apposite here.  I agree with the above submissions primarily because the Company is a Cayman company, which permits a director or officer from seeking indemnity against the company for liability incurred in its role as such director or officer. 

46.Mr Tai further submits that the Company does not have insurance coverage for its directors against any liability associated with the preparation of the Scheme (Re Yuzhou at §39).  Even if the Company has insurance, the releases are still reasonably necessary in view of the insurer’s right of subrogation and the implied obligations on the assured to take proceedings against wrongdoing third party to diminish his loss (Colinvaux’s Law of Insurance (13^th Ed.)  at §§12-001, 12-004, 12-005). 

47.I have some reservations as to the correctness of the latter point.  The purpose of directors and officers insurance is to protect the Company and the relevant persons from liability for negligence.  The liability to reimburse the insurer only arises if the Company (which has the cause of action to sue the directors/officers concerned)  succeeds in claiming against the persons concerned.  If a successful claim is brought against the relevant persons, there will be recoveries by the Company, which can then be applied to discharge any liability to pay contribution (even if the Company is so liable). 

C4.2  Restructuring Conditions

48.Where some of the Restructuring Conditions remain unsatisfied as at the date of the sanction hearing, if the evidence before the court shows that the conditions will be satisfied within a reasonably short period of time, the uncertainty in compliance by the Long Stop Date is not such as to constitute a reason for the court to withhold sanction (Re Yuzhou at §43; Re E-House at §68). 

49.The RED only occurs following the satisfaction or waiver by (1)  the Company and (2)  a 50% majority of the AHG (“Majority AHG”)  of the Restructuring Conditions (as set out in Clause 16.1 of the Scheme), two of which require discussion.

50.Clause 16.1(b)  provides for “the obtaining of all relevant authorisations, approvals or other consents as are necessary for the Restructuring to take effect”.  This condition is drafted widely and makes no reference to any specific event.  Although the broad language was presumably chosen to cover all eventualities, it creates uncertainties as one cannot assess whether this condition precedent has been or will be complied with. 

51.To address the court’s concern, Mr Tai confirms that only the following 2 matters require approvals but have not been obtained, and the Company is confident that they will be met by the Long Stop Date:

(1)  On 23 February 2024, the Company applied for approval from the National Development and Reform Commission (“NDRC”)  in relation to the issuance of the Scheme Consideration, but was advised by the NDRC that the application was premature, and the application should be submitted around 3 months before the expected RED.  There was no opposition from the NDRC on the Company’s previous application, and the Company expects to submit its new application to the NDRC in mid-December 2024.

(2)  The Company will initiate the application for ISIN numbers for the issuance of MTN and LTN in mid-January 2025, and will take necessary steps to list them following the sanction of the Scheme.

52.Clause 16.1(g), which is not waivable by the Majority AHG, requires:

“the settlement in full by the Company of the AHG Work Fee (in accordance with the arrangement as set forth in the AHG Work Fee Letter), the AHG Advisor Fees (as agreed between the Company and the AHG Advisor), the Bank Group’s Advisor Fees (as agreed between the Company and the Bank Group’s Advisors)  and all the fees, costs and expenses of all of the Advisors, the Information Agent, the Holding Period Trustee and its counsel, the Blocked Scheme Creditor Tabulation Agent and its counsel, the Existing Notes Trustees and their respective counsels, the Existing Notes Paying and Transfer Agents and Registrars and their respective counsels, the Existing Agents and their respective counsels, the Existing Common Depositaries and their respective counsels, the New Trustees and their respective counsels, the New Agents and their respective counsels, the Chairperson and the Scheme Administrators pursuant to the terms of the Existing Notes Indentures or as agreed between the Company and the relevant party, provided that this obligation to settle in full (subject to any agreed caps (including under the RSA))  all fees, costs and expenses as a Restructuring Condition shall override any payment terms in such arrangements, and provided further that any such party referenced in this Clause 16.1(g), except for the Company, may, in its complete discretion and without prejudice to the Company’s obligation to pay any fees, costs and expenses due to any other party referenced in this Clause 16.1(g), waive the Company’s obligation to settle its fees, costs and expenses in full as a Restructuring Condition.” (emphasis added)

53.Clause 16.1(g)  is drafted in such a way that, on one interpretation, it is a Restructuring Condition that the AHG Work Fee, the AHG Advisor Fees, and the Bank Group’s Advisor Fees must be “settled in full”. The Company has since agreed with the AHG to pay the AHG Work Fee by 5 instalments over 2.5 years after the RED but the condition in Clause 16.1(g)  has not been revised to reflect the subsequent agreement of the parties.  As the agreement binds the Company and AHG, neither of them would be able to insist on full payment in compliance with this condition.  The change in payment has been explained in the Explanatory Statement, which states that as a condition precedent to the RED, the Company shall pay:

(1)  A portion of the AHG Work Fee in accordance with the terms set out in the RSA and the AHG Work Fee Letter (as amended); and

(2)  The AHG Advisor Fees and the Bank Group’s Advisor Fees as agreed between the Company and the AHG’s advisor and the Bank Group’s advisors, respectively.

54.Further, the Company has taken steps to comply with the following Restructuring Conditions:

(1)  At the EGM held on 27 November 2024, the shareholders approved and ratified the ordinary resolution on the issuance of the Mandatory Convertible Bonds and the transaction contemplated thereunder.

(2)  The Company will fund the payments to be made on the RED by disposing of some of its assets through tender.  In this regard, the Group has accepted a tender for the sale of certain onshore commercial assets in the amount of approximately RMB 140 million.  A term sheet has been signed and the transaction is expected to be completed before the Long Stop Date.

C5.  International dimension

55.The Company is incorporated in the Cayman Islands.  To justify the court exercising its jurisdiction to sanction a scheme in respect of a foreign company, it is necessary to demonstrate a sufficient connection between the Scheme and Hong Kong (Re Mongolian Mining Corp [2018] 5 HKLRD 48 at §11). 

56.Here, the jurisdictional requirement is satisfied:

(1)  The Company’s shares are listed on SEHK.  It has been registered as a non-Hong Kong company since 12 June 2008.

(2)  The Company has maintained a principal place of business in Hong Kong.

(3)  A substantial part of the Claims to be compromised under the Scheme. The Existing Private Debts, are governed by Hong Kong law, and majority of the Creditors under the Existing Public Notes and Northeast Gemini Notes have elected to participate in the Scheme by voting at the Scheme Meetings. 

57.The court would also consider the effectiveness of the Scheme in other foreign jurisdictions.  However, the utility and international effectiveness of a scheme concerning a foreign company whose shares are listed on SEHK is not normally a matter of real concern in our court as (1) there would be sufficient creditors who are either subject to the in personam jurisdiction of the court, or (2)  their debts are governed by Hong Kong law or that (3)  the creditors have elected to participate in the scheme to be sanctioned by the Hong Kong court (Re Yuzhou §45).

58.In the present case, the Company does not intend to apply for Chapter 15 recognition of the Scheme, the Scheme will achieve a substantial effect because a substantial portion of the Claims are governed by Hong Kong law and an overwhelming majority of the Creditors have participated in the Scheme by voting at the Scheme Meetings (95.2% and 100% in value of Class A and Class B Creditors respectively). 

Mr Terrence Tai, instructed by Sidley Austin, for the Company