Re Dreameast Group Ltd (Carrying on Business in Hong Kong As Dreameast Cultural Entertainment)
Read the full judgment text of HCCW 487/2023 on BabelCite. This High Court CFI judgment was delivered on 27 August 2025.
1. There are two applications before the Court:
Cited by 2 cases · Cites 4 cases
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HCCW 487/2023 & HCMP 580/2025 [2025] HKCFI 4800 HCCW 487/2023 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES WINDING-UP PROCEEDINGS NO 487 OF 2023 ____________________
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IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 580 OF 2025 ____________________
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_________________________________ REASONS FOR DECISION _________________________________ Introduction 1.There are two applications before the Court:
2.The Scheme was approved by 92.86% in number and 95.57% in value of the Scheme Creditors present and voting (in person or by proxy) at the Scheme Meeting held on 30 July 2025. 3.At the hearing, I sanctioned the Scheme and granted a permanent stay of the winding-up proceedings. These are the reasons for my decision. Background 4.The Company was incorporated in Bermuda on 8 June 1993 as an exempted company with limited liability. It has been listed on the Main Board of the Stock Exchange of Hong Kong (“SEHK”) since 27 July 1993 (stock code: 593). 5.The Company is an investment holding company. The Company and its subsidiaries (collectively “Group”) are principally engaged in property development and tourism park operations in the PRC. 6.The financial position and business performance of the Company and the Group had been deteriorating since 2020 due to, inter alia, (1) the disruption caused by the COVID-19 pandemic to the cultural and tourism industry, which was a core sector for the Group, and (2) the post-pandemic property market downturn in the PRC which exacerbated liquidity pressures. 7.By the end of 2022, the Company incurred a loss of HK$903.66 million and the Group had net liabilities of approximately HK$837.09 million. The Company had net current liabilities of HK$841.1 million and has been cash flow insolvent. This led to the Company’s default in debt obligations and the presentation of a winding-up petition by Forever Union Holdings Limited (i.e. the Petitioner) against the Company on 1 November 2023. 8.On 11 March 2024, the Company was wound up and the trading of its shares on SEHK has been suspended ever since. 9.On 14 August 2024, the JLs were appointed to the Company. 10.Should the liquidation continue, the estimated realisations from the Company’s assets in a liquidation scenario are expected to be far lower than their book values. Based on the Company and the Group’s unaudited management accounts as at 30 September 2024:
Principal Features of the Scheme Funding 11.The debt restructuring of the Company is funded by Honor Magic International Limited (“Investor”) which entered into a Funding Agreement with the Company and the JLs on 11 April 2025 and agreed to grant an interest-free credit facility of HK$12,000,000 to the Company to pay, inter alia, the costs for the preparation and execution of the Proposed Restructuring and the Resumption Proposal. To date, HK$3,000,000 has been drawn down. Capital Reorganisation 12.The Company currently has an authorised share capital of HK$300,000,000, comprising 3,000,000,000 ordinary shares of HK$0.10 each, of which 545,796,038 Shares have been issued and fully paid (representing share capital in the amount of HK$54,579,603.80)[3]. 13.As part of the Proposed Restructuring, the Company’s existing share capital will undergo the Capital Reorganisation, which comprises the following major steps[4]:
14.The implementation of the Capital Reorganisation is conditional upon the fulfilment of several conditions, such as compliance with the requirements of section 46(2) of the Companies Act 1981 of Bermuda and the Company obtaining all necessary approvals from the regulatory authorities[5]. The Subscription, Whitewash Waiver and Share Placing 15.The Cash Consideration to be distributed under the Scheme is derived from the following Subscription. In gist[6]:
Scheme Claims 16.Based on the latest information available to the JLs, it is estimated that the Scheme Claims amount to HK$883,550,638.40 and are mainly comprised of bondholders’ claims, as well as directors’ remunerations, loans and other professional fees[7]. The Excluded Claims[8]are envisaged to be settled in full outside the Scheme, primarily using the remainder of the net proceeds from the Subscription (i.e. about HK$20,000,000)[9]. Distribution of Entitlement to Scheme Creditors 17.All Scheme Creditors with Admitted Scheme Claims will be entitled to receive (1) Cash Consideration of HK$60,000,000, being part of the net proceeds to be received from the Subscription, on a pro rata basis; and (2) the proceeds, if any, from the realisation of the Excluded Companies[10] and the Transferred Claims[11]. 18.In respect of the latter, the JLs do not expect any realisation proceeds therefrom given the severe insolvency of or lack of control over the Excluded Companies, and the lack of any specific Transferred Claims identified at the moment. Rather, the exclusion of the Excluded Companies is intended to streamline the operation, improve the financial position of the Retained Group and consolidate resources for more focused development of the businesses of the Retained Group, whilst the claims or cause of action against the Excluded Companies could be carved out and handled under the Scheme Company by the Scheme Administrators[12]. 19.In other words, it is likely that the Cash Consideration will be the only Scheme consideration received by the Scheme Creditors, and the returns comparison was also conducted on this basis. 20.As soon as reasonably practicable after the Scheme Effective Date[13], the Scheme Administrators will:
21.The Group will also transfer its shareholding in the Excluded Companies and the Company will transfer the Transferred Claims (essentially all its choses in action) to the Scheme Company at a nominal value[17]. Scheme Costs 22.All Restructuring Costs (including the Scheme Costs), which are currently estimated at HK$10.5 million, will be borne by the Company outside the Scheme and paid in full under the Funding Agreement[18]. Legal Principles 23.In considering whether to sanction the Scheme, the Court applies some well-established principles which have recently been restated in my decision in Re CIFI Holdings (Group) Co Ltd[19] at [28]:
Permissible Purpose 24.It is well-established that debt restructuring is a permissible purpose of a scheme of arrangement: Re CIFI Holdings[20] at [30]. Class Composition 25.In considering the issue of class composition, 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. Essentially:
See: Re CIFI Holdings[21] at [33]-[34]. 26.In the present case, I am satisfied that all Scheme Creditors, except Mr Li Mengchao (“Mr Li”), constitute the same class. Their “rights in” are materially identical as they hold unsecured claims against the Company in a liquidation. They also have identical “rights out” as the Scheme treats them equally. They are entitled to receive the Scheme Consideration that is proportionate to their Scheme Claims. 27.However, Mr Li stands in a different position. As the legal and beneficial owner of the Investor, he will become the 90% shareholder of the Company pursuant to the Proposed Restructuring and the Scheme. Given the different treatment that Mr Li receives under the Scheme, it would plainly not be possible for Mr Li to have a discussion with the other Scheme Creditors as to their common interest. 28.Mr Li had undertaken not to vote at the Scheme Meeting and to abide by the terms of the Scheme. Although it is possible to convene a class meeting of one creditor where that is the sum total of members of the class, it is more normal for the creditor concerned if supportive of the scheme (as is Mr Li) simply to undertake to the court to be bound by the terms of the scheme: Re Noble Group Ltd[22] at [94] (Snowden J) (as he then was). 29.As regards the Preferential Creditors or Secured Creditors, they may participate in the Scheme only to the extent of the unsecured, non-preferential portion of their claims (Re Century Sun International Ltd[23] at [9]). In any event, the JLs have not received any Preferential Claims or Secured Claims so far. Compliance with the Court’s Directions 30.There has been compliance with the Convening Order. This appears from the 3rd Affirmation of Osman Mohammed Arab dated 18 August 2025 confirming the circulation and publication of the Notice of the Scheme Meeting, the Explanatory Statement and Scheme to the Scheme Creditors at least 21 days before the Scheme Meeting. The English and Chinese advertisement of the Notice of Scheme Meeting was also duly placed in The Standard and Hong Kong Commercial Daily on 7 July 2025. 31.For Scheme Creditors having their last known addresses in the Mainland, the Convening Order requires the composite scheme document to be delivered by prepaid courier express service to such addresses[24]. Due to an inadvertent error, the documents were delivered by prepaid surface mail instead. Nevertheless, all 6 Scheme Creditors having their last known addresses in the Mainland have provided valid email addresses to the Company and the documents were also circulated to them by email. All of them ultimately attended the Scheme Meeting or, in the case of Mr Li, gave an undertaking to abide by the Scheme. Statutory Majorities 32.The Scheme was approved by the statutory majorities of Scheme Creditors at the Scheme Meeting: see [2] above. Information provided to Scheme Creditors 33.An explanatory statement should be sufficient to enable creditors to form a reasonable judgment on whether the Scheme is in their best interests and to reach a sensible decision as to its benefits. The information should be up to date. Creditors are assumed to be intelligent and can be expected to read the explanatory statement as a whole: Re CIFI Holdings[25] at [51]. 34.The Explanatory Statement satisfies the above requirements. It contains, inter alia, the reasons for the Scheme[26], a summary of the key terms of the Scheme[27], the implementation and effect of the Scheme[28], the estimated returns to the Scheme Creditors under the Scheme and in a liquidation[29], the conditions precedent[30], and the risk factors[31]. Intelligent and Honest Man Test 35.I am satisfied that the Scheme is one which an intelligent and honest man might approve. The Scheme would give the Scheme Creditors a higher recovery rate (6.79%) than that in the liquidation (0.10% to 2.06%)[32]. An overwhelming majority of Scheme Creditors also voted in favour of the Scheme. The Court is normally slow to differ from the majority of creditors’ views in these circumstances as it acts on the basis that businessmen are much better judges of what is in their commercial interest than the Court: Re CIFI Holdings[33] at [55]. International Dimension 36.The Company was incorporated in Bermuda. To justify the Court exercising its jurisdiction to sanction a scheme in respect of a foreign company, 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 CIFI Holdings at [57]. 37.I am satisfied that the Scheme has sufficient connection with Hong Kong. First, the Company’s shares are listed on SEHK. Second, it has been registered as a non-Hong Kong company since 1993. Third, the Company maintains a principal place of business in Hong Kong. Fourth, to the best of the JL’s knowledge, the vast majority of the Scheme Creditors are located in Hong Kong. 38.As regards the utility issue, the Scheme will achieve a substantial effect because based on the proofs of debts received thus far, all liabilities are due in Hong Kong or governed by Hong Kong law. Application for Permanent Stay 39.The principles which govern the Court’s power to grant a permanent stay of winding-up proceedings under section 209 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) are set out in Re Hong Kong Petrochemical Co Ltd[34]at [5]:
40.Normally, where unsecured debts have been compromised pursuant to a scheme of arrangement, these conditions are readily satisfied: Re Hong Kong Petrochemical[35] at [6]. 41.Granting a permanent stay in conjunction with sanctioning a scheme of arrangement, conditional upon the scheme’s effectiveness, is an established practice: Re Hong Kong Petrochemical[36] at [2]. 42.In my view, a permanent stay should be granted:
Conclusion 43.For the above reasons, I granted orders in terms of the drafts produced to this Court subject to the amendments discussed with counsel at the hearing.
Ms Tinny Chan, instructed by CLKW Lawyers LLP, for the Joint and Several Liquidators (in both actions) Attendance of King & Wood Mallesons, for the Petitioner, was excused (in HCCW 487/2023) Attendance of the Official Receiver was excused (in HCCW 487/2023) [1] Unless otherwise stated, I shall adopt the abbreviations and terminology employed in the Scheme Document despatched to the Scheme Creditors in accordance with my Order on the Originating Summons dated 24 June 2025 (“Convening Order”) [2] Explanatory Statement at [11.3]; Scheme at Appendix 6. [3] Explanatory Statement at [6.1]. [4] Explanatory Statement at [6.1]. [5] Explanatory Statement at [6.1]. [6] Explanatory Statement at [6.2] and [6.4]. [7] Explanatory Statement at [1]. [8] Defined as “(i) Preferential Claims, (ii) Secured Claims, (iii) Petition Costs, Restructuring Costs and Scheme Costs, and (iv) the liabilities due from the Company to the Investor under the Funding Agreement” in the Scheme. [9] Explanatory Statement at [1] and [7.1(iv)]. [10] Comprises the Deconsolidated Subsidiaries (i.e. 8 indirect wholly-owned PRC subsidiaries which were deconsolidated from the Group), Hong Kong International Cultural Development Limited and China Successful Limited: see Explanatory Statement at [5.2] and [6.3]. [11] Explanatory Statement at [6.3] and [7.1(ii)]. [12] Explanatory Statement at [6.3]. [13] The date on which the Scheme becomes effective, being the date when the condition precedents in Clause 4.1 of the Scheme are satisfied. [14] Scheme at [3.2]-[3.3]. [15] Scheme at [3.3]. [16] Scheme at [7]-[8]. [17] Explanatory Statement at [6.3]; Scheme at [3.8]. [18] Explanatory Statement at [20]. [20] Supra. [21] Supra. [22] [2018] EWHC 2911 (Ch). [24] Convening Order at [4(3)]. [25] Supra. [26] Explanatory Statement at [5.1]-[5.6]. [27] Explanatory Statement at [7.1]. [28] Explanatory Statement at [6.1]-[6.4]. [29] Explanatory Statement at [11.2]-[11.3]; Scheme at Appendix 6. [30] Explanatory Statement at [8]. [31] Explanatory Statement at [7.6]. [32] Explanatory Statement at [11.2]-[11.3]. [33] Supra. [35] Supra. [36] Supra. [37] Explanatory Statement at [11.2]-[11.3]. [38] Supra. [39] Unreported, HCCW 1325/2001, 14 November 2003. |
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