Re Cifi Holdings (Group) Co. Ltd

HCMP 2326/2024

[2025] HKCFI 3250

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2326 OF 2024

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REASONS FOR DECISION

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Introduction

1.By a petition presented on 13 June 2025, CIFI Holdings (Group)  Co. Ltd. (“Company”)  seeks the Court’s sanction under section 673 of the Companies Ordinance (Cap. 622)  of a scheme of arrangement (“Scheme”)  between the Company and the Scheme Creditors[1].

2.The Scheme was approved by an overwhelming majority of the Scheme Creditors present and voting at the Scheme Meeting held on 3 June 2025. Specifically, the Scheme was approved by 98.9% of Scheme Creditors in number, representing 92.66% in value.

3.At the hearing, I sanctioned the Scheme.  These are the reasons for my decision.  Of particular significance is the question of whether or not the fees and costs of the AHG (defined in [8])  split the class of Scheme Creditors who have met and approved the Scheme or in some other way impact on the Court’s approval of the Scheme.

Background

4.The Company was incorporated in the Cayman Islands and registered in Hong Kong as a non-Hong Kong company in 2011.  Its shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited (“SEHK”)  since November 2012 (Stock Code: 884).

5.The Company is the ultimate holding company of the Group, which is principally engaged in property development, property investment, and the provision of property management services, primarily in first-and second-tier and core cities in the PRC.

6.As at 31 December 2024, the Company (on a standalone basis)  had total assets of approximately RMB88.37 billion and total liabilities of approximately RMB59.26 billion.  The Group (on a consolidated basis)  had total assets of approximately RMB256.17 billion and total liabilities of approximately RMB204.25 billion.

7.Since mid-2021, the Group’s business has been severely impacted by the unprecedented downturn in the PRC real estate sector and COVID-19 pandemic. This has resulted in significant liquidity pressure and an inability to service all offshore debt obligations as they fall due.

8.To address these challenges, the Company engaged financial and legal advisers and has been in extensive negotiations with major offshore creditor groups, including an ad hoc group of holders of the Existing Notes (“AHG”)  and a co-ordination committee of lenders (“CoCom”)  since November 2022.

9.Following these negotiations, the Company entered into a Restructuring Support Agreement (“RSA”)  with the AHG on 27 September 2024, subsequently amended on 22 October 2024 and 11 April 2025.

The Scheme

Purpose and Scope of the Scheme

10.The Scheme, as part of the wider restructuring, seeks to restructure approximately US$6.8 billion[2] of the Company’s offshore indebtedness (“Existing Debt”)  in order to avoid a group-wide liquidation.

11.Based on a liquidation analysis prepared by Kroll (HK)  Limited on the Group’s unaudited management accounts as of 30 June 2024[3], the Scheme Creditors’ recovery under the Scheme is estimated to be about 14.6% to 36.6%, whereas in a liquidation the Scheme Creditors’ recovery is estimated to be about 4.1% to 9.9%.

12.The Restructuring takes place via the Scheme and two inter-conditional consent solicitations (“Consent Solicitations”)  to amend the governing law of the Existing Convertible Bonds and Existing Perpetual Securities from English law to Hong Kong law prior to the Restructuring Effective Date.  The relevant Scheme Creditors have approved the Consent Solicitations and the governing law change will take place one hour before the occurrence of the Restructuring Effective Date.

13.The Existing Debt subject to the Scheme comprises:

(1)  Existing Loans (approximately US$2.31 billion principal): 12 Hong Kong law facilities and one PRC law governed facility;

(2)  Existing Notes (approximately US$4.01 billion principal): 10 series of New York law governed notes;

(3)  Existing Convertible Bonds (approximately US$0.18 billion principal): two series of English law governed convertible bonds (to be changed to Hong Kong law via Consent Solicitation); and

(4)  Existing Perpetual Securities (approximately US$0.30 billion principal): one series of English law governed perpetual capital instruments (to be changed to Hong Kong law via Consent Solicitation).

14.The Company is the primary obligor (borrower/issuer)  of the Existing Debt.  Certain Existing Debt benefits from guarantees provided by offshore subsidiaries (“Subsidiary Guarantors”).

15.In respect of the Existing Notes, Existing Convertible Bonds, and Existing Perpetual Securities, the Scheme Creditors will be voting in their capacity as the beneficial owners of the instruments.  The beneficial owners of the Existing Notes, Existing Convertible Bonds and Existing Perpetual Securities may vote in their capacity as contingent creditors due to their ability to obtain definitive notes in certain circumstances.  The trustee and the common depositary under the Existing Notes, Existing Convertible Bonds and the Existing Perpetual Securities did not vote at the Scheme Meeting.

Other Liabilities Falling Outside the Scheme

16.Certain liabilities of the Group totalling approximately US$15.8 billion[4]are excluded from the Scheme.  These include primarily:

(1)  Two secured offshore project/asset-level loans (where collateral value is expected to provide full recovery, these are not in default);

(2)  Onshore bank loans/borrowings and corporate bonds (structurally senior, PRC law governed, subject to separate ongoing negotiations/restructurings);

(3)  Contract liabilities (pre-sales proceeds);

(4)  Trade payables (required for ongoing operations); and

(5)  Intercompany liabilities (arising from ordinary course treasury and/or internal cash flow management, resulting in a net creditor position for Company).

17.No Scheme Creditor has objected to these exclusions, and none of such other creditors have expressed any opposition to the Restructuring.

Scheme Consideration Entitlement

18.The Scheme provides for Scheme Creditors to choose from nine options (“Options”)  of Scheme Consideration Entitlements, which cater to different preferences and needs of Scheme Creditors.

19.The Options involve cash and instruments (notes or loans)  with varying maturity profiles (2 to 9 years), interest rates (0% to 2.75% base, with potential step-ups/adjustments), PIK/deferral features, and principal haircuts (ranging from 0% to 68%).

20.All the new instruments benefit from the same credit enhancement package, including guarantees, share charges, account charges, and charges over inter-company receivables.  In gist, the Options are as follows:

(1)  Option 1A: USD-denominated non-interest bearing senior notes in an aggregate principle amount equal to 32% of the Scheme Creditor Claims (68% haircut), with a maturity date 2 years from the earlier of 30 June 2025 and the Restructuring Effective Date (“Reference Date”)  (extendable to 3 years).  The aggregate amount of Scheme Creditor Claims receiving Option 1A is capped at US$650 million, subject to an adjustment mechanism.

(2)  Option 1B: Participation in a USD-denominated non-interest bearing loan facility in an aggregate principal amount equal to 32% of the Scheme Creditor Claims (68% haircut)  with a maturity date 2 years from the Reference Date (extendable to 3 years).  The aggregate amount of Scheme Creditor Claims receiving Option 1B is capped at US$350 million, subject to an adjustment mechanism.

(3)  Option 2A:

(a)  Pro rata share of cash payment from a cash pool worth at least US$35 million (“Option 2 Cash Pool”); and

(b)  USD-denominated non-interest bearing mandatory convertible bonds (“MCB”)  in an aggregate principal amount equal to 90% of the Scheme Creditor Claims (10% haircut), with a maturity of four years from the Reference Date.

(4)  Option 2B:

(a)  Pro rata share of Option 2 Cash Pool;

(b)  USD-denominated 2.75% p.a. interest senior notes in an aggregate principal amount equal to 30% of the Scheme Creditor Claims, with a maturity of 4.5 years from the Reference Date; and

(c)  MCB in an aggregate principal amount equal to 60% of the Scheme Creditor Claim.

(5)  Option 3:

(a)  Cash payment equal to 25% of pro rata share of US$5,000,000 (shared with Options 5A and 5B)  (“Option 3 Shared Amount”);

(b)  USD-denominated 1% p.a. interest senior notes in an aggregate principal amount equal to 100% of the Scheme Creditor Claims less 25% of Option 3 Shared Amount, with a maturity of 6 years from the Reference Date (extendable to 9 years); and

(c)  The aggregate amount of Scheme Creditor Claims receiving Option 3 is capped at US$300 million, subject to an adjustment mechanism.

(6)  Option 4A: USD-denominated 1.00% p.a. interest senior notes (NI4A), in an aggregate principal amount equal to 50% of the Scheme Creditor Claims (50% haircut), with a maturity of 4.5 years from the Reference Date (extendable to 5 years). The aggregate amount of Scheme Creditor Claims is capped at US$650 million, subject to an adjustment mechanism.

(7)  Option 4B: Participation in USD-denominated 1.00% p.a. interest loan facility (NI4B), in an aggregate principal amount equal to 50% of the Scheme Creditor Claims (50% haircut), with a maturity of 4.5 years from the Reference Date (extendable to 5 years).  The aggregate amount of Scheme Creditor Claims is capped at US$350 million, subject to an adjustment mechanism.

(8)  Option 5A:

(a)  Cash payment equal to one-sixth of pro-rata share of US$5,000,000 (shared with Options 3 and 5B)  (“Option 5A Shared Amount”); and

(b)  Participation in USD-denominated 1.00% p.a. interest tranche (NI5A)  of a loan facility, in an aggregate principal amount equal to 100% of the Scheme Creditor Claims less one-sixth of Option 5A Shared Amount, with a maturity of six years from the Reference Date (extendable to 9 years).

(9)  Option 5B:

(a)  Cash payment equal to one-sixth of pro-rata share of US$5,000,000 (shared with Options 3 and 5A)  (“Option 5B Shared Amount”); and

(b)  Participation in RMB-denominated 1.00% p.a. interest tranche (NI5B)  of loan facility, in an aggregate principal amount equal to 100% of the Scheme Creditor Claim less one-sixth of Option 5B Shared Amount, with a maturity of six years from the Reference Date (extendable to 9 years).

Consent Fees, Work Fees and Other Expenses

21.Scheme Creditors who acceded to the RSA (1)  before 27 October 2024 (“Early-Bird RSA Fee Deadline”)  are eligible to receive the Early-Bird RSA Fee at 0.15% of their eligible restricted debt; or (2)  after the Early-Bird RSA Fee Deadline, but by 27 November 2024 will receive 0.05% of their eligible restricted debt.

22.The AHG will receive the AHG Work Fee to compensate them for work, time, resources in negotiating the Restructuring, and risks associated with trading restrictions due to receiving material non-public information.  The AHG Work Fee is payable regardless of whether the Scheme is sanctioned and implemented, with the majority already paid.

23.The AHG Work Fee consists of (1)  a fixed portion of US$46 million, and (2)  any remaining escrow amount after payment of various costs and expenses.  The amount is estimated to be approximately US$62.85 million, which has been and will be paid by instalments.  The AHG Work Fee represents approximately 0.92% of the aggregate outstanding principal amount of the Existing Debt and approximately 2.94% of the AHG’s holdings in the principal amount of the Existing Notes.

24.The Company has also agreed to pay the professional fees, costs and expenses of advisers to the AHG, CoCom, and certain bank creditors (“Advisers Fees”), which represent in total 0.26% of the aggregate principal amount outstanding under the Existing Debt.

Releases imposed by the Scheme

25.The releases provided for under the Scheme includes:

(1)  Scheme Claims against the Company;

(2)  Claims against the other Existing Debt Obligors (i.e. the Subsidiary Guarantors or security providers); and

(3)  Claims against Restructuring Released Parties (including the Company, each member of the Group, Advisers, Directors, Agents, AHG etc.)  involved in the preparation, negotiation, sanction or implementation of the Scheme and the Restructuring, with appropriate carve-outs for fraud, willful misconduct and breach of duties.  As regards directors, the releases do not apply to “any claim or Liability or cause of action against any Directors for breach of director’s duties or malfeasance arising from or relating to actions, omissions or circumstances which are not under or in connection with the negotiation, preparation and/or consummation of the Scheme and/or the Restructuring”[5].

Restructuring Effective Date and Restructuring Conditions

26.The Scheme becomes binding on the Scheme Effective Date (upon the Scheme sanction order being filed).  The compromises under the Scheme take effect on the Restructuring Effective Date, upon satisfaction/waiver of Restructuring Conditions.

27.The current Longstop Date (deadline by which the Restructuring Effective Date must occur)  is 31 August 2025, extendable under specific conditions up to 30 December 2025 under Clause 2.2 of the Scheme.

Legal Principles

28.In considering whether to sanction a scheme, the Court applies some well-established principles which have recently been restated in my decision in Re Add Hero Holdings Ltd[6] at [58].  The Court will consider, in particular, the following factors:

(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 such 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 the necessary statutory majorities have been obtained;

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

(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)  In an international case, whether there is sufficient connection between the scheme and Hong Kong, and whether the scheme is effective in other relevant jurisdictions.

29.In my view each of the above factors are satisfied in the present case.

Permissible Purpose

30.The Scheme represents a legitimate effort at debt restructuring for a distressed company.  This is a permissible purpose: Re Hong Kong Petrochemical Company Limited[7] at [14].

31.The Scheme also provides for certain ancillary discharges of the Restructuring Released Parties under Clause 9 of the Scheme:

(1)  Each other Existing Debt Obligor will be discharged in connection with the relevant debt instruments.  This is to prevent Scheme Creditors from taking enforcement action against third parties (including placing them into liquidation).  Such liquidation could enable liquidators to pursue other Group members through intercompany claims, thereby undermining the Group’s post-restructuring viability.  Moreover, as a capital-intensive property developer, the Group requires substantial third-party financing for future projects.  I accept that exposure to potential Existing Debt claims would adversely impact the Group’s overall credit profile and impair its ability to raise financing; and

(2)  Various third parties, such as the Company’s directors, advisors, and other administrative parties under the Existing Debt, will be discharged in connection with the Restructuring.

32.The discharge of third-party guarantors and principal obligors is uncontroversial and permissible: Re Sunac China Holdings Ltd[8]at [19]; Re Unity Group Holdings International Ltd[9] at [20].  The ancillary discharge in favour of third parties in connection with the Company’s restructuring steps is also permissible: Re Sunac[10] at [19].

Class Composition

33.In considering whether creditors are properly classified, the relevant principles are summarised in Re Sunac[11]:

“20. In considering whether creditors are properly classified, the test is whether creditors who are called on to vote as a single class have sufficiently similar legal rights that they could consult together with a view to their common interest at a single meeting. The relevant principles may be summarised thus:

(1)  The overarching question is whether the pre and post-scheme rights of those proposed to be included in a single class are so dissimilar as to make it impossible for them to consult with a view to their common interest. If that is the case, separate meetings must be summoned.

(2)  The second principle is that it is the rights of creditors, not their separate commercial or other interests, which determine whether they form a single class or separate classes. Conflicting interests will normally only ever arise at the sanction stage as a question for consideration.

(3)  The third principle is that 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, such that the test for classes becomes an instrument of oppression by a minority. The court should be careful to avoid unnecessary proliferation of classes because by ordering separate meetings the court might give a veto to a minority group.

(4)  The fourth principle is that the court has to consider, on the one hand, the rights of the creditors in the absence of the scheme and, on the other hand, any new rights to which the creditors become entitled under the scheme. If, having carried out that exercise, there is a material difference between the rights of the different groups of creditors, they may, but not necessarily will, constitute different classes. Whether they do so depends on a judgment as to whether such a difference makes it impossible for the different groups to consult together with a view to their common interest.

(5)  In applying the above test, the starting point is to identify the appropriate comparator: that is, what would be the alternative if the scheme does not proceed.

See Re China Oil Gangran Energy Group Holdings Ltd[12]; Re Nasmyth Group Ltd[13].

21. As regards the identification of the appropriate comparator, the established practice is as follows:

‘In the context of a scheme of arrangement the Court must identify the comparator so that it can properly consider both class composition and also whether it produces a result for all scheme creditors which is better than or, at least no worse than, the result which would be achieved in the absence of the scheme’ (Re Lamo Holding BV [2023] EWHC 1558 (Ch)  at [76] (Leech J)).

‘In identifying the relevant alternative, the directors of the Company, being advised by their professional advisers, are normally in the best position to identify what will happen if a Scheme or Plan fails’ (Re Fitness First Clubs Ltd [2023] EWHC 1699 (Ch)  at [63] (Michael Green J)).

22. In brief, in assessing the Scheme Creditors’ rights, the Court considers what are often referred to as ‘rights in’ and ‘rights out’:

‘[T]he court needs to consider: (i)  The rights of the Plan Creditors in the absence of the Plan, sometimes called the rights in; and (ii)  Any new rights to which the Plan Creditors become entitled under the Plan or rights out.

If there is a material difference between the rights of the different groups under (i)  or (ii), they may, but not necessarily will, constitute different classes’ (Re Yunneng Wind Power Co Ltd [2023] EWHC 2111 (Ch)  at [40] (Michael Green J)).”

34.In terms of “rights in”, 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, such as those acquired in a restructuring of an associated company, will be relevant at the discretionary 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”: Re Add Hero[14] at [73].

35.I have already referred to the existence of the AHG, which is a common feature of restructurings such as the present one.  It is normal for the AHG to be paid a fee and have its advisers costs reimbursed by the debtor.  This invites consideration of whether the AHG acquires additional rights, which take its members outside the general class of unsecured creditors.

36.In the present case, the AHG is made up of two groups of investors, namely 1)  institutional investors that are representative of the wider noteholder constituency, and 2)  investors that acquired the debt instruments following the Company’s defaults, such as hedge funds and distressed investors. It might be argued that these two groups of investors are not in the same position.  In Re Inmarsat Plc[15], Norris J observed that the objectors to the scheme therein, though not speculators, were clearly in the business of exploiting opportunities.  They bought shares in the company shortly before Bidco’s bid to takeover the company and sought to delay the sanction of the scheme to elicit an increased offer from Bidco.  Norris J did not find this to be a class-fracturing feature and sanctioned the scheme[16], yet he observed that when it comes to costs, justice may require that an established investor or creditor caught up in the cross-fire of a takeover or a restructuring should be treated differently from a speculator or “opportunity investor” who deliberately chooses to put himself in the firing line by acquiring equity in an anticipated or actual bid situation or debt in a company in distress, though the Court must be cautious in drawing such distinctions[17]. The relevance of this distinction is that it is arguably harder to justify a member of the AHG receiving additional payments to compensate it for the work and costs it has incurred in contributing to the development of a restructuring scheme if it acquired debt after the company defaulted and with a view to profiting from an anticipated improvement in the value of the debt as a result of a restructuring.

37.At an intuitive level there is perhaps something immediately troubling about compensating a distressed debt investor for the costs it incurs in conducting what given the nature of its business is an ordinary cost, namely, managing its high risk investment.  Paying an existing investor who bought at close to the face value of the debt its costs of trying to assist in achieving a restructuring is intuitively more palatable.  However, I accept that distressed debt investors may well contribute by virtue of their expertise to the achievement of a successful restructuring that might otherwise prove illusive.  There may be cases in which this is challenged, but I accept that absent challenge the court can properly proceed on the basis that payment of fees to a member of the AHG is permissible and does not split the class even if a member acquired the debt as an investment, i.e, as a distressed debt investor, after the company’s financial difficulties become known and its debt (commonly bonds)  dropped significantly in value.  However, although the payment of a fee or the reimbursement of professional costs may be justified, some regard must be had to the amount paid and an excessive payment may alter the analysis and the conclusion.

AHG Work Fee and Advisers Fees

38.The principles concerning the payment of work fees to members of the AHG and their professional fees may be summarised as follows:

(1)  Generally, 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, would not give rise to a class issue: Re Sunac[18] at [23(6)]; Re Noble Group Ltd[19] at [131].

(2)  Payment of work fees and other professional expenses is to meet certain expenses of the AHG, which is a common feature of restructurings.  Formulating and negotiating a restructuring plan involves time and effort that deserves to be and is expected to be remunerated.  Such fees are not a form of bounty or disguised consideration, but only to make sure the AHG is not out of pocket: Re Petrofac[20] at [74]; Re Sunac[21] at [23(6)]; Re Noble Group[22]at [132].

(3)  Where the fees are offered to some but not all scheme creditors, the Court will need to form a view about the materiality of the fees when judging whether the rights of the creditors who will not be paid the fees are sufficiently dissimilar that they cannot consult together with a view to their common interest.  In other words, if the fees are immaterial to the decision, then creditors can consult together: Re Noble Group[23] at [149].

(4)  In evaluating the materiality of the fees, the Court would have regard to the fees in question by comparing the size of the fee to the predicted returns under the scheme, rather than simply comparing the percentage which the fee bears to the face value of the debt: Re Noble Group[24] at [150]-[151].

(5)  A court needs to be quite cautious in evaluating whether fees paid to AHG are so high as to fracture of a class: Re Petrofac[25] at [158].

39.The final AHG Work Fee is estimated to be around US$62.85 million, clearly a significant sum.  This might have a bearing on the adequacy of the Explanatory Statement in so far as it deals with the justification for the payment of this sum, which I shall explain later, but for the purpose of class composition, I agree with Mr Jat Sew-Tong SC[26], counsel for the AHG, that the AHG Work Fee does not fracture the class:

(1)  First, the purpose of the AHG Work Fee is to compensate the AHG for the work, time and effort expended on the Scheme and broader Restructuring for over a period of 35 months[27]. This process also involved AHG’s extensive due diligence on hundreds of entities in the Group across multiple jurisdictions and engaging with the Company and its advisers.

(2)  Second, the AHG Work Fee compensates the AHG for the risks and opportunity costs arising out of trading restrictions imposed on their holdings of approximately US$2 billion for more than 10 months by reason of their receipt of material non-public information from the Company.  I would note that this seems to me a less material consideration in the case of the distressed debt investors as when acquiring the debt they must have been aware that they would come under this restriction and consciously decided to invest regardless.

(3)  Third, the AHG Work Fee represents approximately 0.92% of the aggregate outstanding principal amount of the Existing Debt and approximately 2.94% of the AHG’s holdings in the principal amount of the Existing Notes, Existing Convertible Bonds and Existing Perpetual Securities, which is not significant compared to the estimated return under the Scheme (14.6% to 36.6%). Such additional realisation is not at such a level that would be so material as to make it impossible for the AHG to consult with other Scheme Creditors: Re Codere Finance 2 (UK)  Ltd (No.1)[28] at [95].

40.As regards the Advisers Fees, generally such payments also do not fracture the class: Re Nostrum Oil & Gas Plc[29] at [35] (Meade J).  However, it should not be taken as a rule or norm that such fees would be unobjectionable regardless of the amount: Re Shimao Group Holdings Ltd[30] at [33] (Linda Chan J).

41.I am of the view that the payment of Advisers Fees would not fracture the class.  They are reimbursements for the actual costs incurred by AHG, CoCom and certain bank creditors for engaging their own advisers for the purposes of negotiating the Restructuring and should not be regarded as conferring an additional benefit to them.  The Advisers Fees represent 0.26% of the aggregate principal amount outstanding under the Existing Debt and have been fully disclosed in the Explanatory Statement[31].  They are not so material as would fracture the class.

42.Given the strength of the voting support of the Scheme, even if the AHG were to be put in a separate class, the voting outcome would remain the same and, therefore, although a significant consideration in the context of this case it is academic.  This was also the case in Re Petrofac[32].

43.In my view, the Scheme correctly placed the Scheme Creditors in one class.  The appropriate comparator is the Company’s liquidation because should the Scheme fail, the Company is likely to go into liquidation: Re CA Cultural Technology Group Limited[33] at [22(1)].  In the event of the Company’s liquidation, the Scheme Creditors would have identical “rights in” because all Scheme Creditors’ claims against the Company are unsecured and would rank pari passu in a liquidation of the Company.  The Scheme Creditors also have the identical “rights out” because the Scheme treats them equally.

Third-Party Guarantees and Releases

44.As regards third-party guarantees, the fact that some of the Existing Debts benefit from guarantees granted by third parties would not fracture the class.  It is well-established that rights of the creditors against third parties (for example against guarantors for the company’s debts)  will generally constitute interests as opposed to rights; differences in interests may be relevant to the discretion to sanction the scheme: Re Petrofac Ltd[34]at [131]; Re Unity Group[35]at [20].

45.The Scheme effects an ancillary discharge in the following manner which is consistent with contemporary scheme practice:

(1)  The discharge of the Existing Debt Obligors in relation to Existing Debt Finance Documents is necessary and conventional.  Such necessity may arise where a “ricochet” claim arising by contribution or subrogation exists: Re Madagascar Oil Ltd[36]at [87]-[88] (Mellor J).

(2)  The discharge of Restructuring Released Parties in relation to the negotiation, preparation, execution and/or implementation of the Scheme and/or the Restructuring is to prevent Scheme Creditors from undermining the Scheme by suing the officers and advisers responsible for implementing it.  No roadblock is created by these releases: Re Madagascar Oil[37]at [90]-[91].

(3)  The Scheme also provides for a release of Restructuring Released Parties in relation to the actions or omissions occurring on or prior to the Restructuring Effective Date with respect to the Existing Debt.  Mr William Wong SC[38], counsel for the Company, submitted that there appeared to be no scheme authority approving this specific formulation of release, but releases of a similar scope have been sanctioned by the Court in the past.  For instance:

(a)  In Re Petrofac[39], Marcus Smith J approved “release of group companies, their directors and employees of claims arising out of or in connection with the claims which were the focus of the scheme”.

(b)  In Re Powerlong Real Estate Holdings Ltd[40], Linda Chan J approved the release of “a Claim (except for fraud, wilful default and wilful misconduct)  held by a Creditor against a Released Person (other than the Company)  arising directly or indirectly out of, in relation to and/or in connection with the Existing Finance Documents”.

46.I accept that the discharges are justified in the present case.

Consent Fees

47.It is well-established that a modest consent fee available to all scheme creditors will not fracture the class composition.  In assessing the materiality of the fee, the Court considers the size of the fee as compared to the projected returns under the scheme and in liquidation: Re Sino-Ocean Land (Hong Kong)  Limited[41] at [31] (Linda Chan J); Re ColourOz Investment 2 LLC[42] at [102]-[103] (Snowden J).

48.In the present case, the level of consent fees is relatively modest[43] as compared to the estimated returns under the Scheme (14.6% to 36.6%)  and the liquidation scenario (4.1% to 9.9%). The consent fees, therefore, do not fracture the class.

Compliance with the Convening Order

49.I am satisfied that the Convening Order has been complied with.  This appears from the 3^rd Affirmation of Zhu Gaoming dated 13 June 2025, confirming the circulation and publication of the Notice of the Scheme Meeting, Explanatory Statement, and Scheme to the Scheme Creditors at least 14 days before the Scheme Meeting.  The English and Chinese advertisement of the Notice of the Scheme Meeting was duly placed in The Standard and Sing Tao Daily on 12 May 2025.

Statutory Majorities

50.The Scheme was approved by the statutory majorities of Scheme Creditors at the Scheme Meeting: see [2] above.

Information provided to Scheme Creditors

51.The principles that govern the sufficiency of explanatory statements are well established:

(1)  The objective of an explanatory statement is to provide sophisticated creditors with sufficient information to assess the scheme and identify further information they consider necessary to decide whether or not to support it, but be intelligible to an average creditor: Re Add Hero[44] at [83].

(2)  Creditors are assumed to be intelligent and can be expected to read the explanatory statement as a whole.  This is particularly so when the majority of the scheme creditors are sophisticated institutional investors: Re Winsway Enterprises Holdings Ltd[45] at [21].

(3)  Where scheme creditors are sophisticated, provided that their attention is fairly drawn to the limitations in the financial information, those creditors may well be able to form their own view on whether what they have been given is adequate: Re Helenbergh China Holdings Limited[46] at [46(2)] (Linda Chan J).

(4)  A company is under a duty to include in the explanatory statement all the information necessary for creditors to decide whether the scheme is in their best interests or not.  The extent of the information required will depend on the facts of the case: Re Add Hero[47] at [80].

(5)  The duty extends to the Company providing up to date information, or an adequate explanation of why it has not done so: Re Hong Kong Petrochemical[48] at [24].

(6)  Generally, a company will be required to provide information to support its predicted outcomes.  The Court normally expects such views to have been independently verified by an insolvency practitioner or other suitable professionals: Re Hong Kong Petrochemical[49] at [24].

(7)  Even if there is a defect in the scheme, the Court has a discretion whether to sanction it provided that the defect does not go to the jurisdiction of the Court to sanction the scheme.  In exercising that discretion, the Court will naturally have regard to the materiality of the inaccuracy or omission: Re Helenbergh[50] at [46(3)].

52.As I have already explained in the present case, the AHG Work Fee is estimated to be US$62.85 million.  A work fee of such magnitude might attract objections from creditors who do not stand to receive these additional payments.  Mr Jat also referred me to Re Noble Group Ltd & Anor (No.2)[51] in which Snowden J held at [69] that the fact that significant numbers of non-AHG scheme creditors who do not receive the same level of fees as the AHG voted in favour of the scheme shows that these creditors have in effect rendered their own commercial judgment as to what is in their best interests.  Mr Jat submits that no creditor has objected or raised any query in relation to the AHG Work Fee.  The Scheme was eventually passed by an overwhelming majority, and even amongst the non-AHG Scheme Creditors, 87.86% (by value)  approved the Scheme.

53.The Court is normally slow to differ from the majority of creditors’ view as it acts on the basis that businessmen are much better judges of what is in their commercial interest than the Court (Re Add Hero[52] at [85]).  However, the extent to which the Court will give deference to the views of the creditors must also depend on the nature of creditors and their ability to understand what is being proposed: Re ALL Scheme Ltd[53] at [102(x)] (Miles J). As I have already explained the AHG consists of sophisticated financial actors, including distressed debt investors.  As I said in Re Add Hero[54], creditors possess varying levels of commercial and financial sophistication, and the effort they may expend in understanding the information with which they are presented will differ accordingly.  If an explanatory statement is not sufficiently full or accurate, the Court is unlikely to be able to place any reliance on, or give effect to, the affirmative vote at the scheme meeting: Re ALL Scheme[55] at [138].  In the case of a significant work fee such as has been incurred in the present case, the explanatory statement must fairly and adequately explain the justification for the level of fees.

54.In the present case, details of the AHG Work Fee have been disclosed in the Explanatory Statement[56], including particulars of the AHG’s work and the payment schedule.  There are comparisons between the AHG Work Fee to the principal amount of the Existing Debt and work fees paid by companies in similar restructuring matters.  The Explanatory Statement also explains the Company’s business rationale for the Scheme[57] and makes clear that the Scheme is an alternative to the Company’s liquidation[58].  It provides estimates of the likely returns for Scheme Creditors in a liquidation and under the Scheme[59], as well as the risk factors[60].  I am satisfied that the information provided in the Explanatory Statement is sufficient to enable the more financially sophisticated Scheme Creditors to decide whether or not to vote for the Scheme, but should be comprehensible to less sophisticated Scheme Creditors.

Intelligent and Honest Man Test

55.I have recently summarised the established principles in Re Add Hero[61] at [85]-[86]:

“85. The Court is normally 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[62]…Opinions may differ on which course is likely to be most beneficial, but as the language in which the ‘intelligent and honest man’ test is framed indicates the Court will only override the views of the majority if their view seems sufficiently odd that it suggests it was arrived at as a consequence of either a failure properly to assess the terms of the compromise or considerations other than its merits. It is rare for the Court to interfere on this ground…

86.  In practice an argument that the compromise is so unattractive it is not one a hypothetical intelligent and reasonable creditor would approve is likely to be unnecessary, because if it is satisfied it is likely to be because either creditors have not had the scheme properly explained to them (in which case it is likely that the explanatory statement will have been shown to be defective and sanction refused for that reason)  or there is evidence to suggest that a statutory majority was only obtained because creditors with some collateral reason for supporting the scheme did so in which case it is likely that they would have had a special interest and their votes discounted. These are more straightforward issues to determine than the commercial merits of a scheme…”

56.In my view, the Scheme is one which an intelligent and honest man might approve.  The primary objective of the Scheme is that, upon the Scheme becoming effective, the Scheme Claims will be discharged and, in return, then Scheme Creditors will be entitled to the relevant Scheme Consideration Entitlement, which gives the Scheme Creditors a much better return than in an insolvent liquidation of the Company.  This is reflected by the fact that an overwhelming majority of the Scheme Creditors, many being sophisticated financial parties, have voted in favour of the Scheme.  The level of support obtained provides evidence that a reasonable creditor would have approved the Scheme.

International Dimension

57.The Company was incorporated in the Cayman Islands.  In transnational restructuring, there are two inter-related considerations.  The Court has to consider (1)  whether there is sufficient connection between the scheme and Hong Kong for the Court to exercise its jurisdiction over a scheme promoted by a foreign company, and (2)  whether the scheme is effective in other foreign jurisdictions of practical importance: Re CA Cultural[63] at [30] and [32].

58.In seeking a sufficient connection, the purpose is to ensure that the Court does not exercise a prima facie exorbitant jurisdiction save where it is appropriate to do so: Re Winsway Enterprises[64] at [26].

59.It is clear that the Scheme has a sufficient connection with Hong Kong.  First, the Company was registered in Hong Kong as a non-Hong Kong company in 2011.  Its shares have been listed on the SEHK since November 2012[65].  Second, the fact that a significant portion of the Scheme Claims (namely Scheme Claims under 12 Existing Loan facilities)  are governed by Hong Kong law establishes a sufficient connection with Hong Kong: Re Century Sunshine Group Holdings Ltd[66] at [50].

60.As regards the efficacy of a scheme, the relevant principles are as follows:

(1)  The guiding principle is that the Court should not act in vain or sanction a scheme that serves no purpose.  It is not necessary for the company to show worldwide effectiveness or worldwide certainty.  The Court will sanction the scheme provided it is satisfied that the scheme would achieve a substantial effect and will be effective in the key jurisdictions in which the company has assets or operates: Re Add Hero[67]at[95]; Re China Singyes Solar Technologies Holdings Limited[68] at [18(3)(iv)].

(2)  In practice, whether or not a jurisdiction is of practical importance to the efficacy of a scheme sanctioned in Hong Kong will commonly be determined by the following considerations:

(a)  Is a material amount of debt to be compromised by a scheme governed by the law of a jurisdiction other than Hong Kong?

(b)  Even if there is some doubt as to whether or not a scheme will compromise a proportion of the debt, is there any reason to think that the creditors will take action in a jurisdiction which will not recognize a scheme as compromising the debt?

(c)  The amount of the debt involved.  If, for example, the amount of debt that is not governed by Hong Kong law is less than the cost of introducing a parallel scheme, it makes more sense to exclude the debt from the scheme and settle it separately if it is ever pursued.

See: Re CA Cultural[69] at [32].

(3)  The utility and international effectiveness of a scheme concerning a foreign company whose shares are listed on SEHK will not normally be of real concern to the Court if as is commonly the case (a)  a large proportion of creditors are subject to the in personam jurisdiction of the Court, (b)  their debts are governed by Hong Kong law, or that (c)  the creditors have elected to participate in the scheme by the Hong Kong Court: Re Powerlong[70] at [57] (Linda Chan J).

61.For Scheme Claims governed by Hong Kong law to be discharged under the Scheme, any dissenting creditors’ opposition should not hamper the effectiveness of the Scheme: Re Sunac[71] at [35].

62.At present, the Company does not intend to seek recognition of the Scheme under Chapter 15 of the US Bankruptcy Code due to ahigh level of support shown by Scheme Creditors holding Scheme Claims governed by New York law in the Scheme Meeting.  In particular, the voting turnout rate of the Scheme Creditors was 97.51%, out of which 99.13% of the voting Scheme Claims voted for the Scheme.  The substantial support underscores the Scheme’s international effectiveness despite the absence of a formal Chapter 15 recognition.  Overwhelming creditors’ support of the Scheme can negate the need for formal foreign recognition as the risk of adverse enforcement by a dissenting Scheme Creditor in the United States is remote: Re Zhongliang Holdings Group Company Limited[72] at [39]; Re China Singyes[73] at [18(3)(v)].

No “blot” or Roadblocks

63.As a final cross-check, the Court will also consider whether there is any blot or defect in the scheme which may hinder its operational effectiveness: Re China Bozza Development Holdings Ltd[74]at [29].

64.It is a recognised practice in complex restructurings that schemes sanctioned by the Court would become effective only after a series of post-sanction steps occur.  The Scheme is similar because the Restructuring Effective Date is conditional on a series of post-sanction steps to implement the Scheme, such as steps to issue and list the various debt instruments forming part of the Scheme Consideration.  I am satisfied that the Company is likely to be able to satisfy these Restructuring Effective Date conditions.  The present case is similar to Re Sunac[75], and the Court would not be acting in vain in sanctioning the Scheme.

Conclusion

65.For the above reasons, I sanctioned the Scheme and granted orders in the terms of the draft produced to this Court.

Mr William Wong SC and Mr Look Chan Ho, instructed by Linklaters, for the Company

Mr Jat Sew-Tong SC and Ms Jasmine Cheung, instructed by Kirkland & Ellis, for the Ad Hoc Group of Creditors