Re Kaisa Group Holdings Ltd

HCMP 1705/2024 and HCMP 1706/2024

[2025] HKCFI 2699

HCMP 1705/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1705 OF 2024

___________________

___________________

AND

HCMP 1706/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1706 OF 2024

___________________

___________________

(heard together)

__________________________________

REASONS FOR JUDGMENT

__________________________________

1.Upon hearing the petitions presented by Kaisa Group Holdings Ltd. (佳兆業集團控股有限公司) (“Kaisa”) and Rui Jing Investment Company Limited (瑞景投資有限公司) (“RJ”) for sanction of their respective scheme of arrangement to restructure and compromise their main offshore debts (respectively “Kaisa Scheme” and “RJ Scheme” and together “Schemes”), the court sanctioned the Schemes on 24 March 2025. These are the reasons for my judgment.

2.In addition to the Schemes, Kaisa and RJ also put forward 2 parallel schemes of arrangement in respect of the same debts which require sanction of the courts in the Cayman Islands and the BVI at the hearings on 26 March 2025 and 7 April 2025 respectively. As with other parallel schemes, the schemes are inter-conditional and will only become effective upon all schemes becoming effective.

3.The Schemes were approved by overwhelming majorities of the Creditors present and voting at the Scheme Meetings held on 28 February 2025 in that: (1) Kaisa Scheme was approved by 98.03% in number representing 97.14% in value; and (2) RJ Scheme was approved by 98.11% in number representing 97.68% in value.

4.In support of the petitions, Kaisa and RJ filed:

(1)  2 sets of affirmations of Tam Lai Ling in each proceedings (“Tam 1^st” and “Tam 2^nd”). Tam was the vice chairman and executive director of Kaisa from March 2010 to December 2014 and is a senior advisor of Kaisa and the Group;

(2)  Affirmations made by the Information Agent regarding dispatch and service of the Scheme Documents and notices of the Scheme Meetings; and

(3)  Reports issued by Deloitte Advisory (Hong Kong) Ltd (“Deloitte”) which contained analyses of (a) the estimated recovery rates in liquidation scenario (“Liquidation Analysis”); (b) the estimated recovery rates under the Schemes (“Scheme Recovery Analysis”); and (c) the updated estimated recovery rates for different sub-sets of Creditors under (i) the Schemes and (ii) AHG Work Fee (part of which is to be paid in the form of new shares to be issued by Kaisa), taking into account the changes in the trading price of Kaisa’s shares and the reduction in the rate of AHG Work Fee after the Convening Hearing (“Supplementary Analysis”)[1].

A.  BACKGROUND

5.Kaisa was incorporated in the Cayman Islands on 2 August 2007. It is an investment holding company and holds various subsidiaries and indirect subsidiaries (together “Group”) which carry on the business of property development, investment and management in the Mainland. The shares of Kaisa have since 9 December 2009 been listed on the Main Board of The Stock Exchange of Hong Kong Limited (“HKEx”) (stock code 1638).

6.RJ was incorporated in the BVI on 23 July 2007. It is a wholly owned subsidiary of Kaisa and holds a significant portion of the Group’s subsidiaries incorporated in the BVI and in Hong Kong which, in turn, hold the equity in companies established in the Mainland.

7.Kaisa, RJ and the Group are insolvent in that as at 30 June 2024:[2]

(1)  The Group had net deficit of RMB 8.59 billion as a result of the losses in the amounts of RMB 13.01 billion and RMB 19.7 billion sustained in the years ended 31 December 2022 and 2023 respectively;

(2)  The Group’s cash and bank balances fell to RMB 745.7 million, which fell far short of its current liabilities of RMB 213 billion;

(3)  Kaisa had net liabilities of RMB 55.23 billion; and

(4)  RJ had net deficit of RMB 373.5 million.

8.The Group’s business has since 2021 been severely impacted by COVID-19 pandemic and changes in the macroeconomic environment in property sector in the Mainland. In November 2021, Kaisa defaulted on some of the “Existing Notes” (defined in §11(1) below), which triggered cross-defaults of its offshore debts.

9.In July 2023, a winding-up petition was presented by a creditor against Kaisa in Hong Kong in HCCW 295/2023. The petitioning debt had been compromised and in March 2024, the Trustee of the US$750 million notes due 2023 was substituted as the petitioner. The petition was adjourned to 31 March 2025 to allow Kaisa to formulate a scheme of arrangement in respect of its offshore debts which, if implemented, would enable Kaisa and the Group to restore to solvency. Apart from the petition, there are other legal proceedings against Kaisa and the Group.[3] The Trustee acts on the instruction of an ad hoc group of beneficial holders of the Existing Notes (“AHG”).

10.On 20 August 2024, Kaisa, RJ and AHG entered into a Restructuring Support Agreement (“RSA”). The RSA was the result of extensive negotiations between the Group, AHG and their advisers.

B.  PRINCIPAL FEATURES OF SCHEMES

B1.  Offshore debts to be compromised

11.Under Kaisa Scheme, Kaisa seeks to restructure and discharge its offshore debts in the amount of US$12.3 billion, which represent 80.3% of the outstanding principal of the offshore debts owed by Kaisa.[4] The debts fall into the following categories (collectively “Kaisa Debts” and their holders “Kaisa Creditors”):

(1)  Kaisa’s liabilities as issuer of 16 series of USD denominated senior secured notes (collectively “Existing Notes”);

(2)  Kaisa’s liabilities under one series of English law-governed perpetual securities (“Perpetual Securities”);

(3)  Kaisa’s liability as borrower of a loan facility extended by Deutsche Bank AG as original lender (“DB Loan”); and

(4)  Kaisa’s liabilities as guarantor for the debts owed by the subsidiaries within the Group[5], comprising:

(a)  the debt owed to Eosaurora Limited with TFI Securities and Futures Ltd as agent (“TFI Loan”) and Joyful Richness Holdings Ltd as borrower;

(b)  the notes issued by Flourish Century Holdings Ltd (“Flourish Notes”);

(c)  the notes issued by Brilliant Bridge Holdings Ltd (“Brilliant Bridge Notes”);

(d)  the notes issued by Ye Chang Investment Co Ltd (“Ye Chang Notes”); and

(e)  the term loan facility advanced by Shandong Hi-Speed Capital (HK) Ltd and borrowed by Grand Sail Developments Ltd (“Shandong Hi-Speed Facility”).

12.Amongst Kaisa’s Debts:

(1)  RJ is a guarantor of the liabilities under the Existing Notes, DB Loan and TFI Loan, which amount to US$11.71 billion or 95.2% of Kaisa’s Debts (collectively “RJ Debts” and their holders “RJ Creditors”).

(2)  RJ’s Debts are also guaranteed by 58 wholly-owned subsidiaries of Kaisa (collectively “Existing Subsidiary Obligors”).

(3)  The Existing Notes are secured by pledges over the shares of the Existing Subsidiary Obligors.[6]

13.RJ Creditors have structural priority in the sense that they have claims against both Kaisa and RJ, as well as claims against Existing Subsidiary Obligors, whereas the other Kaisa Creditors who are not RJ Creditors only have claims against Kaisa (i.e. those described in §11(2), (4)(b)-(e) above) (“Other Kaisa Creditors”).

B2.  Scheme Consideration

14.Under the Schemes, the Scheme Administrators will assess the claims of the Creditors by reference to the sum of (1) the outstanding principal of debt held at the Record Time (25 February 2025) and (2) 50% of all accrued interest (excluding default interest and other fees and charges) up to but excluding 31 December 2023 (“Claims”).

15.In consideration of the release of the Claims, the Creditors will receive Scheme Consideration in the following manner:

(1)  The Scheme Consideration comprises (a) 6 tranches of senior notes (“New Notes”) with maturity ranging from 2027-2032; and (b) 8 tranches of mandatory convertible bonds (“MCBs”) with maturity ranging from 2025-2032 which are convertible into Kaisa shares at specified periods, and will be mandatorily converted into Kaisa shares at maturity.

(2)  Each Creditor will be allocated 50% New Notes and 50% MCBs at face value in accordance with its Claim.

(3)  According to the Liquidation Analysis, Kaisa Creditors’ recovery rate is 1.24% whereas RJ Creditors is 3.24%. The 2.5 times higher recovery rate for RJ Creditors is reflected in the allocation of Scheme Consideration.

(4)  Each Creditor will receive a pro rata share of following allocations of New Notes and MCBs, calculated by reference to its Claim:

New Notes
Tranche	Principal allocated to Kaisa Scheme (US$)	Principal allocated to RJ Scheme (US$)	Year of maturity on 28/12	Interest rate in cash or PIK[7]
A	158 million (excl. Consent Fee)	242 million (excl. Consent Fee)	2027	Cash: 5.00% PIK: 6.00%
B	237 million	363 million	2028	Cash: 5.25% PIK: 6.25%
C	395 million	605 million	2029	Cash: 5.50% PIK: 6.50%
D	474 million	726 million	2030	Cash: 5.75% PIK: 6.75%
E	711 million	1,089 million	2031	Cash: 6.00% PIK: 7.00%
F	50% of Kaisa Claims x 38.3% minus 1,974 million	50% of RJ Claims x 61.7% minus 3,026 million	2032	Cash: 6.25% PIK: 7.25%
MCBs
Tranche	Principal allocated to Kaisa Scheme (US$)	Principal allocated to RJ Scheme (US$)	Year of maturity on 31/12	Conversion price (HK$ per share)
A	118 million	182 million	2025	4.75
B	158 million	242 million	2026	4.75
C	197 million	303 million	2027	4.75
D	316 million	484 million	2028	4.05
E	316 million	484 million	2029	4.05
F	395 million	605 million	2030	4.05
G	395 million	605 million	2031	4.05
H	50% of Kaisa Claims x 38.3% minus 1,895 million	50% of RJ Claims x 61.7% minus 2,905 million	2032	4.05

16.The key terms of the New Notes and MCBs may be summarised as follows:

(1)  They will be issued by Kaisa and guaranteed by Existing Subsidiary Obligors.

(2)  New Notes will benefit from new collateral over certain onshore and offshore assets. Kaisa may elect to extend the maturity date of Tranche A by one year upon paying an extension fee. Kaisa may elect to pay interest in cash or in-kind in 2025-2028, subject to minimum cash interest payments of 0.35% on 28 December 2025, and 0.625%-1.125% semi-annually from 2026-2028.

(3)  MCBs carry no interest. They are convertible 12 months prior to maturity (save Tranches B and C may be converted 6 months prior to maturity) and will be mandatorily converted into Kaisa shares on maturity. Kaisa has an option to redeem MCBs at a discounted price of 25%-50% at set time periods after issuance.

17.Assuming full conversion of all MCBs, the shareholding in Kaisa will be changed in that:

(1)  The Sponsors’[8] shareholding will be reduced from 39.3% (pre-Schemes) to 12.7% (post-Schemes);

(2)  Kaisa Creditors as a whole will be increased from 0% (pre-Schemes) to 58.1% shares (post-Schemes);

(3)  AHG (by receiving AHG Work Fee in the form of shares in Kaisa) will be increased from 0% (pre-Schemes) to 9.6% (post-Schemes); and

(4)  The other shareholders will be reduced from 60.7% (pre-Schemes) to 19.6% (post-Schemes).

The changes in the shareholding structure as a result of the conversion of MCBs, AHG Work Fee, potential designated rights issue and management incentive plan are disclosed in Kaisa ES.

B3.  Third party releases

18.The release of the obligations of Kaisa and RJ and the claims against third parties will be achieved by the Creditors authorising Kaisa and RJ to execute various deeds of release (“Deeds of Release”) on the Restructuring Effective Date (“RED”).[9]

19.The Deeds of Release insofar as they provide for release of third parties must be necessary for the implementation of the Schemes or can be justified in the circumstances (Re Yuzhou Group Holdings Company Limited [2025] 1 HKLRD 69, §§33-41). Under the Schemes, the third party releases are confined to the following claims:

(1)  RJ Scheme (not Kaisa Scheme) releases claims against Existing Subsidiary Obligors. The justification for releasing claims against these co-guarantors is that without the release, contribution claims may be brought against RJ which may undermine RJ Scheme (Re Yuzhou, §35).[10]

(2)  Claims against directors, officers and professionals involved in the preparation, negotiation, sanction or implementation of the Schemes and the Restructuring, with appropriate carve-outs for misrepresentations, breach of duties and Excluded Claims in line with the principle discussed in Re Yuzhou, §39.

(3)  As Kaisa is a Cayman company, directors and officers may seek indemnity against Kaisa for liability[11], which may give rise to ricochet claims that may undermine the Schemes (Re Powerlong, §§44-45). It is uncertain if the scope of the insurance policies for directors and officers are sufficiently wide to cover liability in relation to implementing the Restructuring.

B4.  Consent Fee, AHG Work Fee & other expenses

20.Creditors who acceded to the RSA before the deadline (12 September 2024) are entitled to receive a consent fee in the form of Tranche A New Notes at 0.10% of the principal amount (“Consent Fee”).

21.At the Convening Hearing before this Court on 19 December 2024, the draft Scheme Documents showed that AHG would receive AHG Work Fee in the nominal amount of US$ 66 million, which represented 1.5% of principal owed to AHG as of 19 August 2024 (US$ 4.4 billion).

(1)  The AHG Work Fee was said to compensate AHG for the substantial work, time and effort expended on the broader Restructuring, as well as the risks and opportunity costs associated with its inability to trade in the Existing Notes for an extended period.

(2)  This Court observed that a Work Fee at such magnitude, as compared to the return under the Schemes, could not be said to be immaterial and might give rise to a class issue. This was particularly so when AHG Work Fee Notes (as defined in §22 below) have maturity date of 30 November 2017 and rank senior to New Notes and MCBs, which means that they would be paid in priority to the New Notes.

22.The issue was addressed by the parties entering into a revised work fee letter dated 11 March 2025 with the result that the nominal amount of Work Fee was reduced by 38% from US$66 million to US$ 41 million, to be paid as follows:

Consideration	Nominal Amount (US$)
Cash paid into escrow account on 20/8/2024 to be released on the earlier of: (i) RED; (ii) sanction of all Schemes; or (iii) Longstop Date	5 million
Cash to be paid on RED	3 million
2.1 billion shares in Kaisa to be issued on RED (“AHG Work Fee Shares”)	26,884,818 (based on HK$ 0.1 per share)
Senior notes to be issued on RED (“AHG Work Fee Notes”)	6,159,537 (previously: 31,159,537)
Total nominal amount	41,044,355 (previously: 66,044,355)

23.In addition, Kaisa has to pay:

(1)  the professional fees, costs and expenses of AHG’s financial and legal advisers (“AHG Advisers Fees”) at US$ 16 million; and

(2)  the costs and expenses arising from the preparation and implementation of the Restructuring including the Schemes amounting to US$ 14.1 million.

B5.  Restructuring Conditions

24.The Schemes will take effect on RED which, in turn, will only occur when all the conditions precedent to the Restructuring stipulated in cl.7 of the Schemes have been satisfied or waived (“Restructuring Conditions”). The Company has provided extensive details on progress of compliance which show that most of the Restructuring Conditions have been complied with or will shortly be complied with upon obtaining sanction from the courts in respect of the Schemes[12]. The only significant ones which remain outstanding as at the date of the sanction hearing are:

(1)  Application for approval from the National Development and Reform Commission (“NDRC”) for issuance of New Notes and MCBs[13]. Kaisa will file the application upon receipt of the sanction orders of the Schemes and expects to receive approval in early June 2025[14].

(2)  A legal memorandum confirming that all the conditions for issuance of MCBs and AHG Work Fee Shares are satisfied, as Kaisa is required to file a post-issuance notification with CSRC in accordance with the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (境內企業境外發行證券和上市管理試行辦法)[15].

(3)  Kaisa needs to pay US$24 million in cash for AHG Work Fee, AHG Advisers Fees and other fees and expenses. Kaisa’s subsidiaries have cash in the amount of US$35 million in their offshore bank accounts to make these payments[16].

25.Under the Schemes, RED must occur before the longstop date of 30 June 2025 (“Longstop Date”). The Longstop Date may only be extended with the agreement of the Majority Kaisa Creditors or Majority RJ Creditors. Kaisa is not aware of any impediment that would prevent compliance with the Restructuring Conditions by the Longstop Date such that the Schemes can become effective within a reasonably short period of time following sanction of the Schemes (Re E-House (China) Enterprise Holdings Limited [2023] HKCFI 3117, §68).

B6.  Debts not compromised under Kaisa Scheme

26.As of 30 June 2024, the outstanding principal of the debts owed by Kaisa which will not be compromised by Kaisa Scheme amounted to RMB 21,441.4 million (US$3 billion) representing 19.7% of Kaisa’s total debts. These debts arose out of the guarantees given by Kaisa and fall into 2 categories:

(1)  The term loan facility (~US$57.63 million in principal) in respect of the Group’s property at The Center is fully secured by the property, and will be dealt with bilaterally.

(2)  11 Onshore debts (~US$3 billion in principal) owed by Kaisa’s subsidiaries or associates in the Mainland which are governed by PRC law (“Kaisa Onshore Debts”). These are onshore banks and government regulated institutions which do not wish to participate in the Schemes. The discharge of Kaisa’s obligations under Kaisa Scheme are unlikely to be effective under the rule in Gibbs[17].

(3)  Amongst Kaisa Onshore Debts, 6 (RMB 20.1 billion) are secured by onshore collaterals and creditors are expected to recover 37% to 100% in liquidation. One has been consensually restructured (RMB 0.3 billion) and the other 4 are asset-backed publicly issued securities whose ultimate beneficial holders are widely dispersed and difficult to contact.

(4)  As of 30 June 2024, 77.77% of the above debts have been restructured and are no longer in default. The Group is not aware of any enforcement action against Kaisa.

B7.  Amendments to Scheme Documents

27.Since the Convening Hearing, Kaisa and RJ have made further amendments to the Scheme Documents to address the concerns raised by this Court and provide an update on the latest development in respect of the Schemes. These include[18]:

(1)  Reduced AHG Work Fee: The reduced AHG Work Fee and its impact has been updated in the explanatory statement (“ES”). A Supplementary Analysis has been provided to Creditors[19].

(2)  MCB conversion price: In light of the Court’s query as to whether the conversion price of MCBs is by reference to the market price or the estimated value of Kaisa shares, Kaisa gave additional disclosure in the ES. In brief, the conversion price is used to calculate the number of shares to be issued to Creditors on conversion of MCBs, and the price does not represent the actual trading price or the estimated value of Kaisa shares. The conversion price was agreed after extensive negotiations with AHG and had taken into account the need to: (a) ensure a sufficient amount of debts would be converted into equity, but (b) avoid setting a conversion price too low that would require Kaisa to issue too many shares that will depress the share price[20].

(3)  Pro-forma balance sheet of Kaisa: The pro forma balance sheet of Kaisa was provided in the ES which show that upon implementation of Kaisa Scheme, the financial position of Kaisa would be substantially improved from having a net deficit of RMB 55.2 billion to net equity of RMB 35.3 billion[21].

(4)  Creditors’ Monitoring Council: Following further discussions between AHG and the Group, the Group agreed that Kaisa will appoint a council of Creditors to perform monitoring functions relating to Kaisa’s business[22].

(5)  New Restructuring Condition in relation to AHG Work Fee Shares: AHG and Kaisa agreed to specify as one of the Restructuring Conditions that AHG Work Fee Shares be issued in paper form rather than scripless form[23].

C.  DISCUSSION

28.In considering whether to sanction a scheme of arrangement the court consider the following issues[24]:

(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;

(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.

C1.  Permissible purpose, compliance with court’s directions & approval by statutory majorities

29.The Schemes seek to restructure Kaisa Claims and RJ Claims by extending their maturity dates, reducing their interest rates and capitalising part of the Claims in exchange for shares in Kaisa. The net effect of the Schemes is to reduce Kaisa Claims from US$ 15 billion[25] to US$ 2.3 billion on a fair value basis,[26] which in turn restore Kaisa and RJ to solvency, avoid their liquidation and produce a better return to Creditors. This is a permissible purpose of scheme.

30.The directions for convening the Scheme Meetings have been complied with.

(1)  The Notices of Scheme Meetings (with a link to access the Transaction Portal where the Scheme Documents, the documents filed in these proceedings and skeleton submissions used at the Convening Hearing) were sent to Creditors no less than 21 days before the Meetings by advertisements, announcements at HKEx news and Kaisa’s website; and by emails to Creditors and distribution to holders of Existing Notes through the Clearing Systems.

(2)  The very high percentage of instructions to vote at the Scheme Meetings, being 96.25% of Kaisa Claims and 96.22% of RJ Claims, show that the distribution of the Notices and Scheme Documents was effective.

31.The Scheme Meetings were held on 28 February 2025 and the Schemes were approved by the requisite majorities of Creditors as follows:

Kaisa Scheme	Number of Creditors present and voting	Value of Claims present and voting
For	2,843 (98.03%)	14,825,085,867 (97.14%)
Against	57 (1.97%)	436,063,050 (2.86%)
Total	2,900 (100%)	15,261,148,917 (100%)

RJ Scheme	Number of Creditors present and voting	Value of Claims present and voting
For	2,799 (98.11%)	14,383,492,609 (97.68%)
Against	54 (1.89%)	341,851,962 (2.32%)
Total	2,853 (100%)	14,725,344,571 (100%)

C2.  Sufficient information about Schemes

32.In addition to the information discussed in Sections B1 – B6 above, the Scheme Documents also provide:

(1)  The terms and effect of the Scheme[27] and the risk factors[28];

(2)  The material interests of directors under the Schemes[29], as required by s.671(3) of the Companies Ordinance;

(3)  The Liquidation Analysis, Scheme Recovery Analysis and Supplementary Analysis. They run to 88 pages and contain analyses, statements of the sources, assumptions and limitations;

(4)  Information on the economic effect of Kaisa Scheme including the pro forma balance sheet of Kaisa post-Scheme; and

(5)  Changes to the shareholding structure of Kaisa upon conversion of all MCBs[30].

33.The information provided in the Scheme Documents was sufficient to enable Kaisa Creditors and RJ Creditors to decide whether or not to vote for the Schemes.

C3.  Classification of Creditors

34.The applicable principles are well-established. As submitted by Mr Victor Dawes SC[31]:

(1)  A “class” is confined to those persons whose rights are “not so dissimilar as to make it impossible for them to consult together with a view to their common interest” (UDL Argos Engineering v Li (2001) 4 HKCFAR 358, §18, per Lord Millett NPJ). The test is based on the similarity or dissimilarity of “legal rights against the [scheme] company”, not on the similarity or dissimilarity of “private interests not derived from their legal rights against the [scheme] company” (§27(3)). The question “is whether the rights which are to be released or varied under the Scheme or the new rights which the Scheme gives in their place are so different” that the scheme must be treated as a compromise or arrangement with more than one class (§27(4)).

(2)  The relevant rights are 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” and do not justify the constitution of a separate class (Re Link Fund Solutions [2023] EWHC 2641 (Ch), §36, per Bacon J, following UDL).

(3)  Courts are keen to avoid giving undue veto rights to minorities and instead take a broad and common-sense approach. Differences may be material without leading to separate classes (Re aCommerce Group [2024] 6 HKC 296, §§41-42).

(4)  The court considers the rights of creditors in the absence of the scheme (i.e. liquidation scenario if company is insolvent) and the new rights under the scheme (Re Sunac China [2023] 5 HKLRD 765, §§21-22 per Harris J).

35.In the present case, it is appropriate to put Kaisa Creditors in the same class given that:

(1)  The rights of Kaisa Creditors against Kaisa in liquidation are the same. They are entitled to prove their claims in liquidation as unsecured creditors and their claims rank pari passu as between themselves.

(2)  Their rights under Kaisa Scheme are the same. They are entitled to receive Scheme Consideration in proportion to their Claims.

(3)  Although RJ Creditors also hold rights over the share pledges, given that the Group is insolvent, the share pledges are unlikely to have any value in liquidation.

36.Mr Dawes submits that a restructuring involving a set of schemes of arrangement by the parent company and a second inter-conditional set of schemes by a subsidiary is “relatively novel”[32]. Recently, a set of inter-conditional schemes of the same structure as the Schemes was sanctioned by Harris J in Re Add Hero, §§32-33, 65.

37.I do not think that a restructuring involving schemes of arrangement in respect of a parent company and a subsidiary with the schemes being made inter-conditional can be said to be relatively novel. Nor do I think it has any relevance to the class issue:

(1)  The conventional way to restructure and compromise the debts of the parent company and the subsidiaries has been to put forward a scheme of arrangement in respect of each of the parent company and the subsidiaries concerned.

(2)  Indeed, that was how the restructuring involving UDL and its subsidiaries was done. 25 schemes in identical terms which formed part of a global scheme were put forward, and the schemes were inter-conditional such that they stood or fall together (UDL §§5-8).

(3)  It is not uncommon for a parent company and one or more of its subsidiaries to put forward separate schemes of arrangement, and with the schemes being made inter-conditional so that they would only be proceeded with if all schemes could be proceeded with. See for eg., Re China Evergrande Group, HCMP 1091/2023 & Re Tianji Holding Limited, HCMP 1090/2023[33] and Re Sino-Ocean Land (Hong Kong) Limited [2025] HKCFI 1270 §§2, 9-13.

(4)  It seems to me that much depends on whether the company proposing the scheme considers that it is sufficient to bind the creditors who have claims against both the parent company the subsidiaries by entering into a single scheme in respect of the parent company which contains a condition precedent requiring the parent company to execute a deed of release (on behalf of the creditors to the scheme) for the purpose of releasing the liabilities of the subsidiaries (which are third parties to the scheme). If a deed of release can be deployed to achieve an effective release of the liabilities of the subsidiaries, there would be no need for the subsidiaries concerned to put forward separate schemes to compromise their liabilities.

(5)  By contrast, if and insofar as the parent company and the subsidiaries consider that it is necessary to put forward a separate scheme of arrangement in respect of each company, and that such schemes should fall or stand together, the way to go about achieving it would be to make the schemes inter-conditional so as to avoid a situation where only one but not all the schemes would take effect.

38.Mr Dawes submits (and I agree) that a single class is appropriate in the present case for the following reasons:

(1)  The implementation of separate Schemes in relation to the obligations of the parent (Kaisa) and subsidiary (RJ) reflects the fact that RJ Creditors enjoy structural priority and a much higher recovery in liquidation (2.5 times) from relevant entities in the Group as compared to Other Kaisa Creditors. As Parker J held in Re Ocean Rig UDW [2017] (2) CILR 495, §§72-73, interlocking schemes can properly give effect to the structural priority of creditors whose debts are additionally owed by a subsidiary.

(2)  In terms of “rights in”, both RJ Creditors and Other Kaisa Creditors have the same unsecured, or effectively unsecured, rights against Kaisa (or in the case of RJ Scheme, against RJ). While RJ Creditors have rights against RJ and Existing Subsidiary Obligors while Other Kaisa Creditors do not, this is not relevant to class composition for each scheme (§34 above).[34] Consistent with this:

(a)  in Re Add Hero, Harris J held (§73) that the language of §27(4) in UDL suggests that it is only the rights compromised “by the scheme or granted by it” that are relevant to the question of class composition. Other rights or interests, e.g. those acquired in a restructuring of an associated company will be relevant at the discretion stage, when the court considers whether the meeting fairly reflected the views of creditors and whether to discount votes of creditors with a “special interest”.

(b)  Harris J held that English decisions such as Re Sunbird Business Services [2020] EWHC 2860 (Ch) and Re Codere Finance 2 (UK) Ltd [2021] 2 BCLC 396, which suggest that regard should be to the rights outside the scheme in a broader restructuring, were inconsistent with UDL and thus Hong Kong law (Re Add Hero, §74).

(3)  Even under English law, it is established that “cross-holdings” do not give rise to different rights and “do not require separate class meetings”. This is a matter to be considered at sanction, when it can be ascertained whether majorities in one class have been obtained as a result of cross-holding creditors voting to promote their interests in another class (Re ColourOz Investment [2020] BCC 926, §88 per Snowden J (as he then was); Re CFG Investments [2021] EWHC 2780 (Ch), §18 per Sir Alastair Norris (especially §18(vii)).[35]

(4)  Here, the cross-holdings held by RJ Creditors under Kaisa Scheme and RJ Scheme do not fracture the class. RJ Scheme Consideration is provided in exchange for the release of RJ Claims against RJ and Existing Subsidiary Obligors, and does not form part of the Scheme Consideration for the compromise effected by the Kaisa Scheme.

(5)  Re Sunbird is distinguishable. In that case, a scheme creditor had a separate debt claim against the scheme company’s subsidiary (§11). The subsidiary novated that debt to the scheme company on the condition of the scheme being effective and, in exchange, by an arrangement outside the scheme, the novated debt was converted into shares issued by the scheme company to that creditor (§12). This was held to give rise to a difference in rights for class purposes (§25). No novation of debt is involved in either Schemes. Nor do the Schemes artificially grant any new rights to be released in exchange for additional Scheme Consideration under RJ Scheme.

(6)  In any event, even if there is a difference in rights, the court would still need to consider whether “that difference in rights makes it impossible” for creditors to consult together (Re Sunbird, §26). On the facts, Snowden J held that it did not.[36] In the present case, while RJ Creditors will receive RJ Scheme Consideration under RJ Scheme and Other Kaisa Creditors will not, it is not impossible for them to consult together with a view to their common interest.

(7)  To require 2 separate classes for Kaisa Scheme would give undue veto rights to the minorities. RJ Creditors hold RJ Claims of US$ 11.7 billion (over 95% of Kaisa Debts), while Other Kaisa Creditors hold less than 5% of Kaisa Debts. If they were put into 2 classes, that would in effect be giving the right of veto to Other Kaisa Creditors.

39.In any event, the issue whether RJ Creditors and Other Kaisa Creditors should have been put into separate classes is academic. The voting instructions received for Kaisa Scheme Meeting shows that 81.33% in value of Other Kaisa Creditors voted in favour of Kaisa Scheme (excluding abstentions). Thus, even if Other Kaisa Creditors had been put into a separate class, that class would still have voted in favour of Kaisa Scheme.

40.Lastly, the issue of AHG Work Fee which features in almost every scheme where an ad hoc group of creditors have been heavily involved in negotiating with the company concerned in devising, revising and finalising the terms of the restructuring of the company and the group’s indebtedness including the scheme of arrangement throughout the restructuring process.

41.The principles may be summarised as follows:

(1)  Generally, where the payment of a work fee by a company to some creditors independently of the scheme, it would not give rise to a class issue (Re Noble Group [2019] BCC 349, §§131-132, 141; Re Yuzhou, §§29-30).

(2)  However, if the work fee is dependent on the scheme taking effect, the court will need to form a view about the materiality of the fee when assessing whether the rights of the creditors who will not be paid the fees are “sufficiently dissimilar that they cannot consult together”. If the fees are immaterial to their decision, then they can consult together (Re Noble Group, §149).

(3)  In considering the materiality of the work fee, the relevant comparator is the returns under the scheme and in liquidation, rather than the debts to be compromised under the scheme or the debts owed to some of the scheme creditors (Re Noble Group, §150; Re Yuzhou §§29-30).

(4)  For example, in Re Codere Finance 2, Falk J considered the materiality of the ad hoc committee work fees were “not so material to fracture the class” in the overall assessment (§§66-67, 94, 97, 110).

42.In the present case, AHG Work Fee cannot be said to be independent of the Schemes as payment of the first trance is one of the Restructuring Conditions while the remaining tranches would only be paid upon the Schemes taking effect. It is therefore necessary for the court to consider whether AHG Work Fee is so material, as compared to the returns under the Schemes, such that it would affect the Creditors’ decision as to whether to approve the Schemes.

43.Mr Dawes submits that payment of AHG Work Fee does not fracture the class for the following reasons:

(1)  AHG Work Fee represents in broad terms a portion of the true value and commercial reward for the work, time and effort expended by AHG in assisting the Group in relation to the Restructuring. By mid-2025, AHG would have been negotiating the Restructuring with the Group for over 28 months. There were extensive negotiations, including over 10 rounds of proposals on key terms as well as on complex long-form documentation that exceeds 5,000 pages. This process also involved AHG’s extensive due diligence on hundreds of entities in the Group. It is unlikely that Kaisa would have been able to put together a Restructuring that commands such a high degree of support in the absence of AHG’s work,[37] as a result of which all Creditors can benefit from materially better economic terms from the Restructuring than in a liquidation scenario[38].

(2)  AHG Work Fee compensates AHG, which comprise funds and financial institutions, for the opportunity costs and risks of not being able to trade on their US$ 4.4 billion holdings for extended periods due to being in receipt of material non-public information.[39]

(3)  AHG and Kaisa agreed to reduce AHG Work Fee to address the court’s concerns raised at the Convening Hearing. This results in a 38% reduction of the nominal value of AHG Work Fee, from USD 66 million to USD 41 million.

(4)  In the Supplementary Analysis, Deloitte analysed the impact of the agreed reduction of AHG Work Fee and the impact of changes in the trading price of Kaisa shares[40] on the recoveries of different sub-sets of Creditors, using a discounted net present value approach. Deloitte adopted the assumed exit price of HK$ 0.193, instead of the previous assumed price of HK$ 0.255 which had been triggered by macroeconomic factors and did not sustain after the spike. The price of HK$0.1 (i.e. AHG Work Fee’s nominal value) has been included for comparison[41]. The comparisons of estimated realizations of AHG Work Fee against the size of the debts are as follows:

	Assumed exit price at HK$0.1	Assumed exit price at HK$ 0.193
As percentage of AHG’s claims as at 30 June 2024	0.61%	1.00%
As percentage of Kaisa Claims as at 30 June 2024)	0.22%	0.36%

(5)  The additional realisation to AHG in the form of AHG Work Fee (1.00%), when compared to (a) the return of AHG from the Schemes of 14.45%; and (b) the return of non-AHG Creditors from the Schemes of 14.13%, represents an additional realisation of ~6.91%[42].

(6)  In assessing the level of AHG’s additional realisation from AHG Work Fee (1%), the court may take into account the estimated recoveries (a) in a liquidation scenario and (b) of various sub-sets of creditors under the Schemes, which are as follows:

	Recovery under Kaisa Scheme	Recovery under RJ Scheme	Recovery under liquidation	% of Kaisa Claims
RJ Creditors excluding AHG	5.59%	9.01%	3.24%[43]	60.2%
Other Kaisa Creditors excluding AHG	4.99%	--	1.24%	4.1%
AHG	5.61%	8.84%	1.24% to 3.24%	35.7%

44.I accept that Kaisa/RJ have in the Liquidation Analysis and the Supplementary Analysis fairly disclosed and presented to the Creditors (1) the additional realisation which AHG (but not non-AHG Creditors) are entitled to receive in the form of AHG Work Fee and (2) the relevant comparisons to their returns under the Schemes and in liquidation scenarios. It seems to me that the level of AHG Work Fee, after the 38% reduction, as compared to the returns of non-AHG Creditors under the Schemes and in liquidation, is not so material as to render AHG to be unable to consult together with non-AHG Creditors. It follows that the payment of AHG Work Fee does not fracture the class.

C4.  Intelligent and honest men might reasonably approve Schemes

45.The court will normally be slow to differ from the majority of creditors’ views as it normally acts on the basis that businessmen are much better judges of what is in their commercial interest than the court, and will only override such views in rare circumstances (Re Add Hero, §85 per Harris J; Re E-House, §64).

46.In the present case, I do not think that there is any reason for the court to override the view of the majorities of Creditors. In particular:

(1)  Despite the relatively low return to Other Kaisa Creditors (excluding AHG) under Kaisa Scheme (4.99%), such return exceeds the return in liquidation (1.24%) by about 3 times. 74.27% in value (or 81.33% in value including AHG) voted for Kaisa Scheme.

(2)  Although AHG enjoys higher “return”, that is not a reason for the court to withhold sanction given that (a) the difference (0.62%) is attributed to their right to receive AHG Work Fee, which represents compensation for the time spent in negotiations and the loss of opportunity in trading in Existing Notes during the period of negotiations; (b) the amount has been substantially reduced in response to the Court’s concern on its level; (c) the amount and how it is to be paid had been fully disclosed in the Scheme Documents, and the majority of Kaisa Creditors voted for Kaisa Scheme.

(3)  No Creditor appears at the sanction hearing to oppose Kaisa Scheme or raises any concern regarding the level of AHG Work Fee. The court may regard Kaisa Creditors have in effect rendered their own commercial judgment as to what is in their best interests (Re Noble Group, §69).

C5.  International dimensions

47.As Kaisa and RJ were incorporated in the Cayman Islands and the BVI respectively, it is necessary for them to demonstrate a sufficient connection with Hong Kong for the court to exercise its jurisdiction over the companies under ss.670, 673-674 of the CO (Re Mongolian Mining [2018] 5 HKLRD 48, §11).

48.Kaisa Scheme has a sufficient connection with Hong Kong in that[44]:

(1)  Kaisa is a registered non-Hong Kong company and its shares have since 9 December 2009 been listed on the HKEx;

(2)  The DB Loan, TFI Loan, Brilliant Bridge Notes, Ye Chang Notes and Shandong Hi-Speed Facility are governed by Hong Kong law;

(3)  30 out of 59 of the Existing Subsidiary Obligors, which are Kaisa’s indirect wholly-owned subsidiaries, are incorporated in Hong Kong; and

(4)  Kaisa has directly held assets in Hong Kong, which include shares in another company listed on the HKEx and a bank account in Hong Kong.

49.While RJ is a BVI company and the vast majority of RJ Claims are not governed by Hong Kong law, the RJ Scheme has sufficient connection with Hong Kong[45]:

(1)  30 of the 58 other Existing Subsidiary Obligors, whose debts are sought to be released by the RJ Schemes, are Hong Kong companies;

(2)  The DB Loan and the TFI Loan are governed by Hong Kong law;

(3)  The RJ Scheme forms part of the larger Restructuring involving Kaisa which has sufficient connection with Hong Kong; and

(4)  RJ has entered into the Deed of Contribution which is governed by Hong Kong law. In England, such a deed has been considered useful for the purpose of ensuring that the scheme would have the necessary jurisdictional connection for English courts to sanction (Re Codere Finance (UK) Ltd [2015] EWHC 3778 (Ch) at §§16-18 per Newey J).

(5)  The RSA is governed by Hong Kong law and includes a Hong Kong exclusive jurisdiction clause

50.As regards the “utility” issue:

(1)  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. However, the utility and international effectiveness of a scheme concerning a foreign company whose shares are listed on HKEx is not normally a matter of real concern to the court (Re Yuzhou, §45; Re North Mining Shares, §§36-37).

(2)  In Re Van Gansewinkel Groep [2016] BCC 172, Snowden J held that the issue is normally whether the scheme will be recognized as preventing dissenting creditors from seeking to attach assets of the scheme companies in other countries. The court does not need “certainty” of the position under foreign law (§71), and would be “pragmatic” and assess whether the chances of action by a dissentient creditor, or the practical consequences thereof, are likely “sufficient to negate the effect” of the schemes (§76).

(3)  Similarly, in Re Add Hero (§95), Harris J held that it is not necessary to establish that the scheme will be effective in every other jurisdiction in the world provided that it is likely to be effective in the key jurisdictions in which it has assets or operates.

51.In the present case, the utility issue is satisfied as the Schemes will be effective in compromising and discharging a very substantial part of Kaisa Claims and RJ Claims in that:

(1)  A substantial part of Kaisa Claims and RJ Claims are governed by Hong Kong law (see §48(2) and §49(2) above).

(2)  Although the Perpetual Securities are governed by English law, the beneficial holders who have interest in 93.63% of the Perpetual Securities voted in favour of Kaisa Scheme. Of those that submitted voting instructions to vote, over 99.79% voted in favour of Kaisa Scheme. The remaining Perpetual Securities beneficial holders who voted against, abstained or did not submit voting instructions only account for 6.37% of the Perpetual Securities or US$ 19.19 million in value. None of them has come forward to object to the Schemes or indicated that they intend to commence proceedings against the Group in any jurisdiction.

(3)  Kaisa does not hold any assets in England, such that the judgment creditor would still need to enforce in other jurisdictions in which Kaisa has assets. As of 30 June 2024, Kaisa does not have any assets in Hong Kong, the Mainland or offshore other than (a) its shares in offshore subsidiaries; and (b) the cash in bank accounts in Hong Kong.[46]

(4)  The 11 Kaisa’s Guaranteed Onshore Debts are governed by PRC law fall outside the Kaisa Scheme. The Group has taken steps to restructure these debts. As matter now stands, there is a low risk that the creditors of these debts may take enforcement action against Kaisa. In Re Hong Kong Airlines, Harris J was persuaded on the utility issue on the basis that no PRC law-governed debt holder came forward to oppose the scheme and the company had no meaningful directly held assets in the Mainland (at §31). The present case is analogous.

(5)  Finally, as to the New York law-governed debts (i.e. Existing Notes and Flourish Notes), Kaisa/RJ intend to seek recognition under Chapter 15 of the US Bankruptcy Code so as to bind those beneficial holders who did not participate at the Scheme Meetings or the Schemes.

52.In any event, as stated above, Kaisa and RJ have been seeking sanction of the parallel schemes from the courts in the Cayman Islands and the BVI as they consider that there is a risk that the holders/lenders of the same may enforce their debts in Kaisa’s or RJ’s respective places of incorporation even after the Schemes become effective.

Mr Victor Dawes SC leading Mr Jason Yu and Mr Danny Tang, instructed by Sidley Austin, for the Companies

Ms Rachel Lam SC leading Ms Jasmine Cheung, instructed by Kirkland & Ellis, for the AHG