Re Shimao Group Holdings Ltd

HCMP 1946/2024

[2025] HKCFI 1751

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1946 OF 2024

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REASONS FOR JUDGMENT

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1.At the hearing of the petition presented by Shimao Group Holdings Limited (世茂集團控股有限公司) (“Company”), I sanctioned the Scheme proposed between the Company and the “Creditors” (as defined in §7 below). These are the reasons for my judgment.

A.  BACKGROUND

2.The Company was incorporated in the Cayman Islands and has been registered as a non-HK company under Part 16 of the Companies Ordinance (Cap. 622). The Company has a principal place of business in Hong Kong. Its shares have since 5 July 2006 been listed on the Main Board of The Stock Exchange of Hong Kong Ltd (“HKEx”).

3.The Company is an investment holding company with subsidiaries in the Cayman Islands, the British Virgin Islands, Hong Kong and the Mainland (together “Group”). The principal business of the Group is investment in real estate including residential and commercial property development, investment, and management property and hotel operation in the Mainland.

4.As of 30 June 2024, the Group had over 270 projects under development in the Mainland and operated more than 24 hotels under major international brands such as Hilton and InterContinental. The majority of the Group’s assets are located in the Mainland.

5.The Company is insolvent in that as at 30 June 2024, its total assets were RMB 95.63 billion (US$13.45 billion) while its total liabilities were RMB 92.83 billion (US$13.06 billion).

6.The Group faced liquidity pressure in servicing its offshore debt obligations. To address these challenges, the Company engaged financial adviser to assist in formulating a restructuring of its offshore debts including the “Shareholder Loans” (as defined in §8(3) below) (“Restructuring”), and actively engaged with a steering committee of the bank lenders (“CoCom”) and an ad hoc group of holders of the Existing Notes (“AHG”) and their respective advisers. After 2 years of negotiations with key creditor groups and their advisers, the Company launched a creditors support agreement (“CSA”) on 25 March 2024 setting out the commercial terms of the Restructuring to be implemented through the Scheme and the New Financing Documents to be executed on or before the Restructuring Effective Date (“RED”).

7.The Scheme seeks to compromise 37% of the debts owed by the Company which comprised outstanding principal of US$11.5 billion (as at 30 June 2024) and interest accrued thereon (“Claims”). The holders[1] of the Claims are “Creditors” under the Scheme. The Claims fall into 2 categories:

(1)  The Existing Notes[2] (representing 59.3% of the Claims) held by the Investors including financial institutions, which are governed by New York law; and

(2)  The Loans owed to the banks and liability under CPYM Guarantee (representing 40.7% of the Claims) (together “Bank Loans”), all of which are governed by Hong Kong law.

8.The Company has other liabilities of US$19.2 billion as of 30 June 2024 which fall into 3 categories:

(1)  Secured offshore loans: 5 discrete loan facilities with aggregate principal of US$2.0 billion for which the Company is the borrower or guarantor. These loans are secured by valuable assets and are subject to separate restructuring agreements.

(2)  Guaranteed onshore debts: The Company has guaranteed onshore debts with principal of over US$16 billion. These are loans advanced to the subsidiaries and secured by assets located in the Mainland. These creditors will receive higher recovery from their collaterals and hence do not wish to participate in the Scheme. Through bilateral negotiations, the Group has been able to extend, re-finance or repay the loans through orderly disposal of collaterals to these onshore creditors.

(3)  Shareholder Loans: These are loans advanced by the entities controlled by the former Chairman of the Company[3] with outstanding principal of HK$7,802 million and are interest free with no fixed term of repayment, of which HK$3,963 million was owed by the Company and the balance owed by the subsidiaries. The amount will be converted into long term notes with a tenor of 9.5 years with interest at 2%[4] up to US$600 million, and the balance (US$400.3 million) will be converted into MCBs (as defined in §9(2) below). The long terms notes will only be paid after the amount due under STIs and LTIs (as defined in §9(2) below) are repaid in full. The former chairman and entities controlled by him will give an undertaking that until LTIs are repaid in full, they will only elect to receive scrip dividend and will not reduce their shareholding in the Company to less than 20% unless the proceeds from the sale of shares are used to keep the Company’s listing status, to pay interest on STIs and LTIs or payment of costs of major litigation.

B.  KEY FEATURES OF SCHEME [5]

9.Under the Scheme:

(1)  The Claims are calculated at the outstanding principal (U$11.5 billion) plus interest accrued up to 31 December 2023 (US$1 billion).

(2)  The Creditors will receive “Scheme Consideration” in the form of new debt instruments to be issued by the Company under 4 options, which are (a) short term loans/notes with maturity date of 3.5 to 6 years and interest at 5% or 6%[6] up to US$4 billions (“STIs”), (b) long terms loans/notes with maturity date of 7 to 9 years and interest at 2% to 3%[7] of up to US$4 billions (“LTIs”), (c) mandatory convertible bonds (“MCBs”) which will be converted into shares in the Company at HK$6 per share in 4 tranches once every 3 months, and (d) a fixed combination of 32% STIs, 32% LTIs and 36% MCBs of the above.

(3)  The mechanism for allocation gives priority to those who elect option 4, follow by option 3.

(4)  The STIs and LTIs are guaranteed by 31 offshore subsidiaries of the Company, and secured by collaterals including shares in Shimao Services Holdings Ltd (“Shimao Services”), a company listed on HKEx (stock code 0873) in which the Company holds 62.87% shareholding.

(5)  The STIs, LTIs and MCBs will be traded on the Singapore Exchange Securities Trading Ltd (“SGX”).

10.If the Creditors elect options 1 and 2 up to their maximum amount, the Company will issue new debt instruments (i.e. STIs and LTIs) of US$8 billion, and the remaining Scheme Consideration of US$4.5 billion will be paid by way of MCBs, will be converted into shares in the Company within 12 months of RED.

11.Upon the Scheme and the Restructuring become effective on RED:

(1)  The Company’s indebtedness owed to the Creditors will be reduced by US$4.5 billion;

(2)  The interest accrued on the Claims from 1 January 2024 to RED will be eliminated;

(3)  The Shareholder Loans will be reduced by US$400.3 million; and

(4)  The Company will be able to restore to solvency with net assets of US$5.36 billion (~RMB39.1 billion).

B1.  Consent Fee, Work Fees & Advisers Fees

12.The following fees are payable irrespective of whether the Scheme becomes effective:

(1)  Consent Fee: Creditors who acceded to the CSA (a) before 29 November 2024 are eligible to receive Early Consent Fee at 0.1% and 1% of the principal in cash and STIs respectively; or (b) before 10 December 2024 are eligible to receive Base Consent Fee at 0.1% and 0.5% of the principal in cash and STIs respectively. The total amount payable is US$9.2 million in cash and US$91.6 million in STIs.

(2)  Work Fees: The Company will pay US$19,029,687 to CoCom and US$29,956,215 to AHG by way of MCBs on the earlier of RED or 31 December 2027. The discounted value of the Work Fees is US$11,212,456, which represents an additional recovery of less than 0.36% to CoCom and AHG.

(3)  Advisers Fees: The Company will pay US$18,723,772 to CoCom and AHG as reimbursements of the professional fees, costs and expenses incurred by them for the purposes of negotiating with the Company in respect of the Restructuring, the Scheme and the Restructuring Documents.

B2.  Released Claims & third party releases

13.Upon the Scheme becomes effective, the “Released Claims” against the “Released Person” will be discharged. The releases in favour of third parties (who are not parties to the Scheme) are effected through a Deed of Release to be executed by the Company on behalf of the Creditors on or before RED. The Released Claims are the Claims, Ancillary Claims, or any past, present, and/or future claims arising out of or relating to:

(1)  the Claims;

(2)  the preparation, negotiation, sanction, or implementation of the Scheme, the Restructuring Documents, and/or the CSA; and

(3)  the execution of the Restructuring Documents and the carrying out of the steps and transactions contemplated in the Scheme and the Restructuring.

14.The third parties to be released are:

(1)  The Existing Subsidiary Obligors to the Bank Loans, which are either (a) the borrowers of the loans guaranteed by the Company, (b) the guarantors of loans borrowed by the Company or (c) where such subsidiary and the Company are co-guarantors of a loan borrowed by a subsidiary. The release of the Existing Subsidiary Obligors is necessary in order to give effect to the Scheme, which seeks to create a sustainable offshore capital structure for the Group. In the case of the primary obligations of PropCo and InvestCo that are guaranteed by the Company, PropCo and InvestCo are key holding companies which in turn indirectly hold valuable offshore assets and onshore subsidiaries.

(2)  Any claims against the directors, professional advisers and administrative parties arising from the preparation and implementation of the Scheme, and execution of Restructuring Documents. This release is necessary because, among other things, the Company needs the cooperation of such parties to sign various documents, including deeds of undertaking and powers of attorney, in order for the Scheme to be implemented. In respect of directors and officers, the release is necessary as it is unclear whether the scope and limits in standard directors’ and officers’ insurance policy would cover acts done by directors and officers relating to the implementation of the Scheme.

15.The third party releases do not apply to the following claims:

(1)  claims arising from fraud, wilful default, gross negligence or wilful misconduct of a Released Person;

(2)  failure by the Company or any party to comply with the terms of the Scheme or any Restructuring Documents;

(3)  claims arising from the New Finance Documents;

(4)  liability of any adviser arising under a duty of care to its client; and

(5)  liability of a director of the Company in connection with any breach of duty, gross negligence, wilful default, or wilful misconduct in relation to the Company.

16.The scope of and justifications for the third-party releases above are consistent with the practice sanctioned by the court in Re Powerlong Real Estate Holdings Ltd [2025] HKCFI 271 §§37-47 and Re Yuzhou Group Holdings Co Ltd [2025] 1 HKLRD 69 at §17.

B3.  Restructuring Conditions

17.The RED will only take effect upon satisfaction or waiver of all the Restructuring Conditions by the Longstop Date of 29 August 2025, which may be extended with the consent of the Creditors holding more than 50% of the Claims, which the Company agrees at the hearing to change to 75% in value of the Claims (see §49 below).. The Scheme will lapse if RED does not occur on or before the Longstop Date or the Company determines that there is no reasonable prospect of successfully completing the Restructuring.

18.As at the date of the sanction hearing, the Company has substantially complied with the Restructuring Conditions[8] and does not anticipate any obstacle in complying with the remaining Conditions on or before RED. These include:

(1)  The board passed all resolutions required to consummate the Restructuring and the Scheme on 9 January 2025 and the Company will sign all the New Finance Documents for the purpose of implementing the Restructuring and the Scheme.

(2)  At the EGM of the Company held on 15 January 2025, resolutions were passed to approve the issue of new shares as part of the MCBs and the transactions contemplated. This was followed by the conditional listing approval given by HKEx on 21 January 2025.

(3)  The Company will file application with SGX for in-principle approval for listing of the STIs, LTIs and MCBs after obtaining sanction of the Scheme.

(4)  The Company is required to pay US$37 million in cash for payment of Consent Fee, Advisers Fees and costs and expenses of the Scheme on or before RED. The amount will be funded by the US$22 million cash deposits in the bank accounts held by the Group and the proceeds from sale of some of the shares in Shimao Services, which traded at HK$0.88 as of 26 February 2025.

(5)  The MCBs and LTIs will be issued to the shareholder on RED and the Shareholder Loans will be discharged.

(6)  On 30 December 2024, the Company filed application with the National Development and Reform Commission (“NDRC”) for approval to issue the Scheme Consideration.

19.According to the advice obtained by the Company from its legal advisers in the Mainland, although the Restructuring only seeks to compromise the offshore debts (i.e. the Claims and the Shareholder Loans) owed by the Company (a Cayman company), it is necessary to seek approval from the NDRC for the issuance of the Scheme Consideration because the business and operations of the Group are based in the Mainland and the Group will use the revenue generated in the Mainland to pay the amounts payable under the STIs and LTIs.

20.Given the issue of seeking approval from the NDRC for issuance of new debt instruments and new shares is a common feature in most of the schemes proposed by the companies whose primary business and operations are based in the Mainland, it would be useful to set out the reasons for seeking approval from the NDRC, as explained by the Company’s legal advisers in the Mainland:

(1)  The NDRC formulates policies for conducting overseas investment and monitors, inter alia, the indebtedness of companies based in the Mainland and raised funds through offshore financing.

(2)  Pursuant to the Administrative Measures for the Review and Registration of Medium and Long-Term Foreign Debts of Enterprises (企業中長期外債審核登记管理辦法 (中華人民共和國國家發展和改革委員會令 (第56號)) (“Administrative Measures”) issued by the NDRC[9], the NDRC’s approval is required for the issuance of interest-bearing debt instrument: (a) with a maturity period of more than one year, and (b) borrowed from offshore by onshore enterprises or by offshore enterprises or branches controlled by the onshore enterprises[10]. “Control” in this context is widely defined to include control over the operation, finance, personnel, technology, and other major matters of an enterprise[11].

(3)  Article 33 provides that the Administrative Measures apply to indirect offshore financing by onshore enterprises[12]. This refers to onshore enterprises with main business operations onshore that use an offshore entity to issue debt instruments based on equity, assets, receivables or similar interest located onshore.

(4)  The precise steps and the process for obtaining approval from the NDRC, including the timing and documents required, may vary from case to case. The Company has been advised to take steps to obtain approval from the NDRC before issuing the STIs, LTIs and MCBs.

(5)  The Company does not have any substantive operation and the Group's main business operations are all conducted by the Group's onshore subsidiaries. The Group and its legal advisers held discussions with representatives of the NDRC on 9 January 2025 and 10 February 2025, and submitted further documents to the NDRC on 17 February 2025.

(6)  The NDRC's feedback has been broadly positive, and the Company does not expect any insurmountable difficulties in terms of obtaining authorizations from the relevant Government bodies. In this connection, the Company intends to submit the sealed sanction order to the NDRC, which is said to be the usual practise for dealing with application of this nature.

B4.  Modification clauses

21.The Scheme contains modification clauses which fall into 4 parts:

(1)  The first part deals with the sanction stage. It permits the Company to consent to any modifications, additions, or additional terms that the court may think fit to approve or impose, which are necessary for the purpose of implementing the Restructuring and which would not have any material adverse effect on the interests of any Creditors.

(2)  The other parts deal with modifications after RED. It provides that (a) the Company or the Scheme Administrator may apply to the court to modify the terms and conditions of the Scheme, provided that such modification would not have any material adverse effect on the interests of any Creditors; (b) the Company may make modifications to the extent necessary to ensure that the Scheme and the Restructuring Documents are not contrary to applicable sanctions, provided that such modifications or amendments must not be adverse or prejudicial to the interests of the Creditors who are not subject to the sanction; and (c) modifications which are of a formal, minor or technical nature or to correct manifest error.

C.  DISCUSSION

22.The function of the court at the hearing of a petition to sanction a scheme is to consider:

(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 (Re Powerlong Real Estate Holdings Ltd [2025] HKCFI 271, §19).

C1.  Permissible purpose, compliance with directions & statutory majorities

23.The Scheme is put forward by the Company for the purpose of restructuring and reducing its indebtedness, which is a permissible purpose.

24.The comments and concerns raised by this Court on the draft Scheme Document at the convening hearing on 16 January 2025 have been taken into account by the Company and amendments have been made to address most of the comments and concerns. These included:

(1)  The Company should provide sufficient information in the Explanatory Statement on (a) how the debts which fall outside the scope of the Restructuring are being dealt with and the reasons for excluding them from the Scheme and the Restructuring; (b) the terms of restructuring in respect of the Shareholder Loans; (c) the financial position of the Company post-Scheme in the form of a pro-forma balance sheet; and (d) the changes in shareholding in the Company upon full conversion of the MCBs into shares.

(2)  The difference in the rights of the Creditors under the Existing Notes and the Bank Loans in that (a) pre-Scheme, the Company is liable to pay default interest on the Bank Loans but not under the Existing Notes; and (b) under the Scheme, for the purpose of calculating the Creditors’ entitlement to Scheme Consideration, interest is only calculated up to 31 December 2023. Consequently, it may not be appropriate to put all Creditors under the same class.

(3)  Although the Work Fees are said to be payable irrespective of whether the Scheme will be implemented, full payment of the Work Fees is included as one of the Restructuring Conditions. The Company should address the concern whether by including such a condition precedent, it would give rise to a concern that the Work Fees are not independent of the Scheme.

(4)  Any concern which may be raised by Agricultural Bank of China, Macao Branch (“ABC”), who appeared by counsel[13] at the convening hearing but did not raise any specific concern other than “drawing a faint marker” on a potential class issue.

25.At the convening hearing, Mr Jose Maurellet SC[14], counsel for the Company, informed the court that there are over 2,000 Investors of the Existing Notes, all of which are registered in the name of the Common Depository. The Investors are entitled to vote at the Scheme Meeting and they will give their voting instructions through Euroclear and Clearstream. The Company has complied with the directions given by the court to ensure that notice of the Scheme Meeting would reach all the Creditors including the Investors through the clearing systems and they can attend the Scheme Meeting through videoconferencing facility.

26.The Scheme has been approved by the requisite majorities of Creditors at the Scheme Meeting held on 14 February 2025 in that 2,053 out of 2,079 Creditors (holding US$11,040,409,187.47 of the Claims) voted in favour of the Scheme, which represent 95.39% in value and 98.75% in number of the Creditors present and voting.

C2.  Class composition

27.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 (Powerlong §25).

28.Mr Maurellet submits that it is appropriate to place the Creditors in one class given that:

(1)  they are all unsecured creditors of the Company;

(2)  under the Scheme, all Creditors have the same right to receive the Scheme Consideration in proportion to their Claims;

(3)  although the lenders of the Bank Loans (but not the Investors) are entitled to default interest (ranging from 2% to 8% p.a.) and default interest is excluded from calculating the entitlement to Scheme Consideration, these differences in rights before and under the Scheme do not fracture the class as (a) all lenders with default interest of 3% or above have acceded to the CSA and agreed to vote in favour of the Scheme; and (b) the difference in default interest rates, maturity and base interest rates do not materially impact any of the Creditors. The recovery rate of the lenders of the Bank Loans under the Scheme is 19.1%-30.8%, which is comparable to the recovery rate of the Investors at 23.3%-31.2%.

29.It seems to me that the rights of the lenders of the Bank Loans and those of the Investors are not sufficiently similar such that they could confer together in respect of their common interest at the same Meeting. This is reinforced by the difference in the recovery rate under the Scheme between the lenders of the Bank Loans and that of the Investors. This gives rise to a real concern as to whether the court should decline to sanction the Scheme. On balance, I consider that it would not be in the interests of the Creditors to do so having regard to the following matters:

(1)  The difference in rights between the lenders and the Investors had been identified by this Court at the convening hearing and specifically highlighted and explained by the Company in the Explanatory Statement. The lenders, which are sophisticated financial institutions, must have been aware of the difference in rights before they voted at the Scheme Meeting.

(2)  According to the voting results, even if the lenders and the Investors had been put into 2 classes, the Scheme would still have been approved by the requisite majorities at separate meetings in that:

(a)  of the 28 lenders who voted at the Scheme Meeting, 26 of them representing 88.98% in value voted for the Scheme, while only 2 of them representing 11.02% in value voted against the Scheme; and

(b)  of the 2,051 Investors who voted at the Scheme Meeting, 2,027 representing 99.21% voted for the Scheme, and 24 of them representing 0.79% voted against the Scheme.

30.As regards the CSA and the Consent Fee, as submitted by Mr Maurellet, the mere existence of the CSA would not fracture the class, as all Creditors were given an equal opportunity to acceded to the CSA so as to avail themselves the entitlement to receive the Consent Fee, and the amount is relatively modest (Re E-House (China) Enterprise Holdings Ltd [2023] HKCLC 877, §§51-53).

31.The payment of the CoCom Work Fee and AHG Work Fee would not fracture the class:

(1)  The purpose of the Work Fees is to compensate CoCom and AHG for the time and effort spent in assisting the Company to formulate the Restructuring. In this regard, CoCom and AHG performed due diligence into the affairs of the Group for the purposes of negotiating the Restructuring. The negotiation period up to the publication of the Explanatory Statement lasted for more than 2 years, and may continue up to RED.

(2)  The work carried out by CoCom and AHG ultimately benefits all the Creditors by helping them to design a restructuring framework that provides higher recovery rate than the liquidation scenario which is estimated to be 0.8%-2.3%.

(3)  AHG Work Fee also compensates AHG for restricting their right to trade the Existing Notes during the entire period of negotiations as they had received “material non-public information” including price sensitive information.

(4)  Although the nominal value attributed to the Work Fees are significant (US$48.99 million in total), they will not be paid in cash. Instead, the entire amount will be paid in MCBs and their discounted present value is much less (estimated at US$11.2-11.7 million) which may or may not materialise, depending on the trading price of the shares of the Company at the time the shares are sold.

(5)  The incremental benefit of the Work Fees to the members of CoCom and AHG is not significant as compared to the return under the Scheme in that the recovery rate under the Scheme is between 19.1% and 31.2% and the Work Fees only increase the recovery rate for CoCom and AHG by less than 0.36%.

(6)  The payment of Work Fees is not conditional on the occurrence of RED.

32.Similarly, the payment of Adviser Fees would not fracture the class:

(1)  They are reimbursements for the actual costs incurred by CoCom and AHG for engaging their own advisers for the purposes of negotiating the Restructuring and should not be regarded as conferring a benefit to them.

(2)  The Adviser Fees though significant in amount, was the result of the complexity of the affairs of the Group and the period of negotiations. The amount represents 0.57% of the outstanding principal of the Bank Loans and the Existing Notes held by CoCom and AHG as at 30 June 2024, and are not so material as would fracture the class.

(3)  The amount of Advisers Fees was fully disclosed in the Explanatory Statement and the overwhelming majority of the Creditors voted in favour of the Scheme. No Creditor has raised any objection to the payment of Advisers Fees.

33.Mr Maurellet refers to the judgment of the English court in Re Hilding Anders International AB [2024] 2 BCLC 119 §29 and Re Haya Holdco 2 plc [2023] 2 BCLC 82 §72, and submits that the payment of advisers fees “are not uncommon in similar debt restructuring transactions”. While the reimbursements of the costs incurred by the creditors who had been actively involved in the negotiations of the restructuring featured in some of the schemes considered by the courts, it should not be taken as the rule or the norm that such fees would be unobjectionable. Much depends on the period of negotiations, the amount of fee involved, whether it is to be paid in cash or by debt instruments, whether the payment has been fully disclosed in the explanatory statement and whether any creditors have raised any objection to the proposed payment. Each of these matters has to be considered on the basis of the evidence before the court.

34.While the treatment of the CPYM Guarantee in the Scheme is different from the Claims (as CPYM’s claims against third parties are excluded from the scope of releases), this difference does not create class issues for the following reasons:

(1)  The CPYM Guarantee claim against the Company is unsecured and rank pari passu with other Creditors in a liquidation scenario.

(2)  The CPYM Guarantee is a guarantee claim, which is the same as 10 Bank Loans where the Company is a guarantor.

(3)  The CPYM Guarantee will be discharged in exchange for the Scheme Consideration and calculated on the same basis as all other Claims.

(4)  CPYM’s claims against the third parties are onshore entities and are governed by PRC law.

35.Lastly, I do not consider that the arguments advanced by ABC (through solicitors’ letters) that there is a class issue as the lenders hold securities (in the form of certain corporate guarantees) while the Investors do not to be correct:

(1)  As the Court of Final Appeal held in UDL Argos Engineering & Heavy Industries Co Ltd (2001) 4 HKCFAR 358, the test is based on similarity or dissimilarity of legal rights against the company, not on similarity or dissimilarity of interests not derived from such legal rights.

(2)  Similarly, in Re Yunneng Wind Power Co Ltd [2023] EWHC 2111 (Ch) §42, the English court held that “It is important to emphasise that this is the legal rights of creditors not their separate commercial or other interests or rights against third parties, such as guarantors, which determine the appropriate constitution of the class …”.

(3)  In Re Link Fund Solutions Ltd [2023] EWHC 2641 (Ch) §§34 & 36, the English court held “An important distinction is drawn, in this regard, between the legal rights of creditors against the company, and their commercial or other interests not derived from those legal rights” and for these purposes, “the relevant rights are the rights of creditors ‘against the company’ and the way those rights are affected by the Scheme. Rights against third parties, such as guarantors, are generally regarded as interests rather than rights …”.

C3.  Information provided to Creditors

36.An explanatory statement is required to 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 (Powerlong §35).

37.As stated above, the Explanatory Statement has been amended to address the concerns and comments raised by the court at the convening hearing. It provides considerable details on the Restructuring and the Scheme, the background to the Company and the Restructuring, an explanation of the Scheme terms, risk factors and the recovery analysis in a liquidation scenario and under the Scheme.

38.ABC through its solicitors complains that “the Explanatory Statement contains insufficient information” in respect of (1) the valuation of security and collaterals, (2) cashflow forecast and trading performance review and (3) progress of restructuring of debts not subject to the Restructuring. Mr Maurellet submits that the complaint about insufficient information is disingenuous given ABC’s extended participation in CoCom for over 2 years, during which the Company provided extensive due diligence materials, including detailed financial information about the Group’s assets such that it had ample opportunity to review and question them but they did not do so.

39.I do not think that ABC’s complaints in respect of the 3 matters are well-founded.

40.As regards valuation of security and collaterals, this has been sufficiently addressed by the Company[15] in the Explanatory Statement and the Recovery Analysis Report prepared by Acclime, which included:

(1)  A detailed explanation on the valuation of key offshore assets that form part of the security package for the Scheme Consideration namely, Tai Wo Ping Project and Tung Chung Hotels, including reference to specific valuations.

(2)  The latest valuation report prepared by Knight Frank and CBRE as at 28 June 2024, which assessed the value for sale under repossession of the property of Tung Chung Hotels at HK$5.6 billion.

(3)  A valuation on the Shimao Services shares and the assumptions adopted in arriving at such valuation.

(4)  The risk factors associated with realising the security, which meets the market standard for comparable restructurings.

(5)  Valuation of the key offshore assets to be provided as security for the Scheme Consideration conducted by Knight Frank and CBRE as at June 2024.

41.As for the cashflow forecast and trading performance review and hence the Company’s ability to meet the scheduled indebtedness under the Restructuring and the Scheme:

(1)  The Company provided a detailed pro forma balance sheet both for the Company and the Group in Appendix 14 of the Explanatory Statement which show that post-Restructuring, there will be a significant reduction in current liabilities of the Group from RMB 398.5 billion to RMB 303.6 billion.

(2)  Section 6.9 of the Explanatory Statement explained that the Restructuring is expected to reduce the Company’s liabilities by US$5.1 billion.

(3)  The Recovery Analysis Report considered the risk that the Company might not be able to honour its obligations under the new instruments by applying appropriate discount rates to future cash flows.

(4)  The Explanatory Statement addressed potential risks to the Company’s business performance and future cash flow in the Letter from the Board of Directors.

(5)  The risk factors section contains extensive disclosures about market conditions affecting the Company’s ability to generate cash.

(6)  These disclosures, taken together, provide the Creditors with sufficient information to assess the Company’s ability to meet its debts under the Restructuring.

42.Lastly, the Company has provided extensive information on the progress of the negotiations in respect of the debts not covered by the Restructuring in Sections 5.7, 5.8 and 6.5 of the Explanatory Statement.

C4.  International dimension and effectiveness

43.The Company has sufficient connection with Hong Kong for scheme purposes (Re E-House §65) in that:

(1)  The Company has been registered as a non-Hong Kong company and has a principal place of business in Hong Kong;

(2)  The Company’s shares have since 2006 been listed on HKEx;

(3)  A substantial portion of the Claims are governed by Hong Kong law;

(4)  The Scheme is largely the product of restructuring activities carried out in Hong Kong, with the assistance and involvement of the management of the Company and the professional advisers of the Company and the Creditors based in Hong Kong.

44.The Scheme once sanctioned will bind all the lenders of the Bank Loans which are governed by Hong Kong law as well those Investors who voted at the Scheme Meeting even though the Existing Notes are governed by New York law. A total of 2,051 Investors voted at the Scheme Meeting, representing US$7,244,135,272.39 in value. By voting at the Scheme Meeting, these Investors have submitted to the jurisdiction of the court.

45.The Company presently does not intend to seek recognition of the Scheme under Chapter 15 of the US Bankruptcy Code as (1) it does not have any assets in the United States; (2) none of the Investors have taken or threatened to take any hostile action against the Company during the Restructuring process; and (3) the additional costs which may be incurred in making the application can be saved.

46.The Company has made good progress in satisfying the Restructuring Conditions. The evidence before the court shows that the remaining Conditions will be satisfied before the Longstop Date of 29 August 2025. There is therefore no uncertainty in compliance with the Conditions such as to constitute a reason for the court to withhold sanction (Powerlong §48).

C5.  Intelligent and honest man test

47.The court should be slow to differ from the majority’s views, as it normally acts on the principle that businessmen are much better judges of what is to their commercial advantage than the court could be (Yuzhou §36).

48.In the present case, the Scheme is one which an intelligent and honest man might approve. Although ABC raises some objection in respect of the commercial terms of the Scheme, in particular the maturity periods of STIs and LTIs and the security package for the LTIs. These are matters of commercial judgment for the Creditors to decide. The overwhelming majority of the Creditors considered the terms acceptable to them, evidenced by the votes cast in favour of the Scheme at the Scheme Meeting.

49.Lastly, I do not think that the provision in the Scheme which permits an extension of the Longstop date by a simple majority of the Creditors in value to be justified. The Company offers to amend the definition of the “Majority Scheme Creditors” in the Scheme from a simple majority in value of the Claims to at least 75% in value of the Claims present and voting to address the concern.

50.The Scheme as amended is sanctioned by the Court. The Company shall deliver an office copy of the order to the Registrar of Companies within 7 days of the order.

Mr Jose Maurellet SC leading Mr Look Chan Ho, instructed by Sidley Austin, for the Company