Re Fantasia Holdings Group Co., Ltd

HCMP 1763/2025

[2026] HKCFI 3449

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1763 OF 2025

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REASONS FOR JUDGMENT

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1.At the hearing of the Petition presented on 2 March 2026 by Fantasia Holdings Group Co., Limited (花樣年控股集團有限公司) (“Company”), this Court sanctioned the scheme between the Company and the “Creditors” (as defined below). These are the reasons for my judgment.

A. Background

2.The Company was incorporated in the Cayman Islands on 17 October 2007 and has since 25 September 2009 been registered as a non-Hong Kong company. Its shares have since 25 November 2009 been listed on the Main Board of The Stock Exchange of Hong Kong Limited (“SEHK”) (stock code 1777)[1].

3.The Company is an investment holding company and holds various subsidiaries incorporated in Hong Kong, Mainland China, the Cayman Islands, the British Virgin Islands, Japan, Malaysia, the United Kingdom, the United States and other places. The Company together with its subsidiaries (together “Group”) is principally engaged in property development and related property services in the Mainland[2].

4.As at January 2026, 57.41% of the Company’s issued shares are beneficially owned by Ms Zeng Jie Baby, a non-executive director of the Company (“Controlling Shareholder”), and the remaining 42.59% are held by other persons[3].

5.The Group has been adversely affected by downturn in the real estate market in the Mainland and substantial reduction in available fundings from both onshore and offshore sources[4]. As a result of the substantial provisions made for the diminution in value of the investments and assets held, the Company became insolvent in that as at 30 June 2025[5]:

(1) its total assets were RMB22,248 million while its total liabilities were RMB49,220 million; and

(2) the consolidated assets of the Group were RMB71,933 million and its total liabilities were RMB86,265 million.

A1. Negotiations on restructuring & RSA

6.To address these financial challenges, the Company engaged Alvarez & Marsal Corporate Finance Limited as financial adviser, Linklaters as international legal adviser and Appleby as Cayman legal adviser. Since November 2021, the Company has been actively negotiating with an ad hoc group of beneficial holders of the “Existing Notes” (defined below) (“AHG”) which hold 34.9% of the aggregate outstanding principal under the Existing Notes, and their advisers. There have been 2 previous attempts to restructure the indebtedness of the Group with restructuring agreements dated 13 January 2023 and 29 April 2024 signed, but those attempts were not successful[6].

7.In late December 2024, the Company resumed negotiations with AHG. After no less than 8 months of negotiations during which 12 rounds of different proposals were negotiated and formulated, the Company entered into a restructuring support agreement dated 1 August 2025 with all members of AHG (“RSA”). The RSA incorporated a term sheet setting out the basic terms of the Restructuring (“Term Sheet”)[7].

8.By 10 October 2025, Creditors holding 87.38% of the outstanding principal under the Existing Notes (defined below) acceded to the RSA, while 65.83% of the outstanding principal under the “Existing Additional Debt Instruments” (defined below) acceded to the RSA[8].

9.If the Restructuring (of which the Scheme forms an integral part) cannot be implemented, the Company would likely be placed into liquidation, which would result in a significantly lower recovery to the Creditors in that[9]:

(1) Under the Restructuring, the estimated recovery for Creditors ranges from 5.95% to 15.80% depending on the Option elected.

(2) In liquidation scenario, the recoveries are estimated to be 0.44% to 1.57% for Existing Notes, and 0.27% to 11.04% for Existing Additional Debt Instruments (excluding any recovery from Onshore Credit Support).

A2. Purpose and scope of Scheme

10.The purpose of the Restructuring, of which the Scheme forms part, is to[10]:

(1) reduce its offshore debts by USD4,236 million through waiver of interest and issuance of New Instruments and New Shares (defined below);

(2) alleviate the Group’s liquidity pressures by aligning debt servicing with prevailing financial condition of the Group, and reducing interest rates of 6.95% to 15.00% per annum under the Existing Notes to 3% per annum (under New Instruments) or no interest (under MCBs);

(3) extend the maturity dates from immediately due and payable to maturity dates of 31 December 2031 (for Short Term Notes) and 31 December 2034 (for Long Term Notes);

(4) establish a more stable platform for the Group to operate and service all of its debts as they fall due; and

(5) maximise value for all stakeholders while ensuring their rights are adequately protected and they are treated equitably.

11.The Scheme compromises 2 categories of debts which amounted to USD6,762,066,954 as at 31 December 2025 (“Existing Debts”):[11]

(1) The “Existing Notes” comprise 13 different issuances of publicly traded notes constituted by various New York law governed indentures, with outstanding principal of USD4,018 million[12].

(2) The “Existing Additional Debt Instruments” comprise 13 separate loans, notes, instruments, agreements and obligations made with the Company, with outstanding principal of USD637 million[13]. These Instruments are governed by New York law, English law, Hong Kong law or PRC law[14].

A3. Excluded Debts

12.The Scheme does not compromise debts in the total amount of USD240,831,589 which represent 2.58% of the total liabilities of the Company as at 30 June 2025 (“Excluded Debts”)[15]. The Excluded Debts comprise:

(1) TFI Dispute (USD123,298,329): This debt arose out of a settlement reached between the Company and TFI Securities and Futures Limited in the form of a Restructuring Deed dated 2 January 2026. This bilateral settlement will be implemented in parallel with the Restructuring[16]. As at the date of the Petition, the circular for convening an extraordinary general meeting of the Company to be held on 11 March 2026 for the purpose of approving the settlement of the TFI Dispute has been cleared by SEHK.

(2) Shenzhen Anbo Loan (USD33,333,333): This loan is guaranteed by the Company and is secured by pledges over income derived from certain real property and other receivables owed to onshore subsidiaries. The loan is substantially secured by onshore collateral and, therefore, it is unlikely that the lender will participate in the Scheme or take enforcement action against the Company[17].

(3) Chiyu Bank Loan (USD6,324,997): This facility is secured by a pledge over an onshore deposit certificate granted by an onshore subsidiary and it is unlikely that the bank will participate in the Scheme. There has been ongoing settlement negotiations between the bank and the Company[18].

(4) Unpaid professional fees (USD14,374,929): These fees are excluded as the Company considers it necessary to retain the service of the relevant professionals in preparing and implementing the Restructuring[19].

(5) Term Loan (3) (USD63,500,000): This part of Term Loan (3) is compromised by a settlement deed and will be discharged upon completion of enforcement of the security held by the lender (“Lender”), which will not be completed until after Restructuring Effective Date (“RED”)[20].

A4. Controlling Shareholder’s support

13.As part of the Restructuring, the Controlling Shareholder[21] agreed to provide financial support to the Company by:

(1) injecting new money by way of a shareholder loan of up to USD6 million (“New Shareholder Loan”) which will be used to pay part of the fees and expenses associated with the implementation of the Restructuring. The New Shareholder Loan (a) is unsecured, with no fixed repayment date or accelerated repayment mechanism, (b) is subordinated to the Short Term Notes, Long Term Notes and MCBs, and (c) bears interest at 8% per annum, which is only payable in cash if the Company has first paid, in cash, all interest due and payable under the Short Term Notes and Long Term Notes[22];

(2) converting existing loans advanced by the Controlling Shareholder to the Company with outstanding principal of RMB1,210 million (“Shareholder Loans”) into newly issued ordinary shares of the Company at HKD0.30 per share (“Controlling Shareholder Shares”); and

(3) waiving and discharging all accrued but unpaid interest under the Shareholder Loans upon the Scheme becomes effective on RED[23].

A5. RSA Fees, Work Fees & Advisers’ Fees

14.As part of the Restructuring, under the RSA:

(1) Creditors who acceded to the RSA by Early Consent Fee Deadline (3 October 2025) will receive Early Consent Fee equal to 0.1% of the outstanding principal payable to them, and may elect payment in the form of New Shares (issued at HKD0.1 per share) or Short Term Notes.

(2) Creditors who acceded by the General Consent Fee Deadline (10 October 2025) will receive General Consent Fee in the form of Short Term Notes equal to 0.1% of the outstanding principal payable to them[24].

15.The Company agreed to pay Work Fee to AHG in the amount of up to USD21,779,968, which is said to be:

(1) compensatory for the time and efforts spent by AHG in negotiating the terms of the Restructuring and the risks associated with the formulation and implementation of the Restructuring over a prolonged period during which they could not trade their Notes;

(2) payable independently of the Scheme and regardless of whether the Scheme is sanctioned. However, it seems to me that this statement cannot be accepted as its face value given that if the Scheme is not sanctioned and the Company is put into liquidation, the Work Fee cannot be paid by the Company. At the highest (assuming Work Fee constitutes a claim provable in liquidation), AHG can only file a proof of debt for the Work Fee;

(3) representing 1.55% of outstanding principal of the Claims held by AHG (or 0.47% of outstanding principal of the Existing Debts) and will be paid in the form of 1,279,200,000 New Shares, additional New Shares and Short Term Notes in accordance with the terms of the RSA; and

(4) proportionate and consistent with the work fees paid by companies in recent major restructuring transactions[25].

16.The Company also agreed to pay USD12.9 million for the professional fees, costs and expenses of the legal and financial advisers of AHG for their works throughout the years (“Advisers Fees”), of which USD7.2 million had already been paid before the date of Zhou 1^st. These costs and fees are said to be the costs necessarily incurred by the advisers in undertaking their respective roles and represent 0.28% of the outstanding principal under the Existing Debts as at 30 June 2025[26].

B. Principal features of Scheme

17.The Scheme seeks to compromise all Claims (save for the Excluded Debts) which the Creditors have against the Company and certain third parties in return for the right to receive Scheme Consideration Entitlement[27]. The Scheme Consideration Entitlement is determined by reference to the Creditors’ Claims[28], which is defined as the outstanding principal under the Existing Notes and Existing Additional Debt Instruments as at the Record Time (expected to be 12 or 13 February 2026).

18.At the convening hearing held on 16 January 2026, Mr William Wong SC drew to the Court’s attention that under the Scheme, any interest accrued on the Existing Debts will be waived and the difference between the amount of Claims held by the Creditors and the amount of Claims used to calculate Scheme Consideration Entitlement is interest.

19.However, it seems to me that the explanation in the ES on the amount of interest to be waived under the Scheme (over USD 2.1 billion) and that the explanation on the interplay between the Claims (i.e. principal and interest) and the calculation of Scheme Consideration Entitlement (principal only) is not clear. A succinct and clear explanation in the ES is necessary as the Company has several thousands of Creditors, the majority of which are beneficial holders of Existing Notes (sometimes referred to as “retail noteholders”).

20.To address this Court’s concern, the Company revised the draft Scheme Document so as to:

(1) distinguish between “Scheme Creditors’ Claims (Principal)” (being outstanding principal as at the Record Time) and “Scheme Creditors’ Claims” (being any other claim or liability including any accrued interest held by the Creditors);

(2) make clear that the Scheme Consideration Entitlement is determined by reference to outstanding principal only, while any accrued and unpaid interest owed to the Creditors will be waived and discharged upon RED[29]; and

(3) set out in a table the amount of interest owed under each type of Existing Debts which will be waived upon RED.

21.The Scheme gives each Creditor the right to choose among 3 Options said to have been designed to balance Creditor’ preferences while preserving the Company’s sustainability post-Restructuring. The 3 Options are subject to specific caps and re-allocation mechanisms:

(1) Option 1 – Short Term Notes and MCBs: for each USD1 of Claims, Creditors will receive Short Term Notes in the principal amount of USD0.25 and MCBs in the principal amount of USD0.2[30].

(2) Option 2 – Long Term Notes and equity: for each USD1 of Claims, Creditors will receive Long Term Notes in the principal amount of USD0.6 and USD0.15 in New Shares (converted at USD1 to HKD7.8 divided by HKD1.52)[31].

(3) Option 3 – 100% equity: Creditors will receive New Shares in the amount of USD1 for each USD1 of Claims divided by HKD1.52[32].

22.The allocation mechanism is subject to the limits prescribed in the table below. Each Creditor will receive a pro rata amount if an Option reaches its limit and the excess amount will be re-allocated to other available Options up to the applicable limit. Any Creditor who fails to make a valid election will be allocated to Option 3[33]:

Option	Scheme Consideration Limit
Option 1	USD2,600 million x Scaling Factor (equal to total Claims divided by USD4,830 million)
Option 2	USD1,400 million multiplied by Scaling Factor
Option 3	USD830 million multiplied by Scaling Factor

B1. Terms of Short & Long Term Notes and MCBs

23.The Short Term Notes are denominated in USD, governed by New York law, with maturity date on 31 December 2031 (but with mandatory redemption of 20% on 31 December 2029, 50% on 31 December 2030, and 100% on maturity date) and bear interest at 3% per annum payable semi-annually in arrears. The Company may elect to pay part or all of interest in-kind in accordance with a specified schedule[34].

24.The Long Term Notes are also denominated in USD, governed by New York law, with maturity date on 31 December 2034 (but with mandatory redemption of 25% on 31 December 2032, 50% on 31 December 2033, and 100% on maturity date) and bear interest at 3% per annum payable semi-annually in arrears. The Company may pay part or all of interest in-kind for the first 72 months after RED or 31 December 2025 (whichever is earlier), with mandatory cash payments thereafter[35].

25.The MCBs are governed by Hong Kong law, with maturity date of 31 December 2027 and are non-interest bearing. Holders may elect voluntary conversion into ordinary shares of the Company from the date of issue up to their maturity date. However, mandatory conversion of 50% of MCBs are required on RED, 75% on 31 December 2026 (less any voluntary conversion prior to 31 December 2026), and 100% at maturity[36].

26.After the convening hearing, the Company issued a Supplement to the ES to clarify that, whilst the first mandatory conversion in respect of 50% of MCBs will commence on RED, in practice, there will be a short period before the New Shares can be issued and delivered to each MCB Holder through the Clearing Systems[37].

B2. Security for Short & Long Term Notes

27.The Short Term Notes and Long Term Notes are secured by a common security package, which includes first ranking security over: (1) the issued share capital of 4 Subsidiary Guarantors; (2) 2 cash sweep accounts (i.e. Specified Assets Secured Account and the Onshore Secured Account); and (3) guarantees given by the Subsidiary Guarantors[38].

28.In accordance with the Specified Asset Cash Sweep Undertakings, the Company is required to sell and dispose of each Specified Asset (comprising 46 investment properties and urban renewal projects) as soon as commercially practicable and, upon disposal, deposit 40% of the net consideration into the Onshore Secured Account, which must be remitted to the Specified Assets Secured Account, subject to satisfaction of applicable remittance conditions[39].

29.The Short Term Notes also benefit from first ranking security over: (1) the net proceeds of any cash sweep generated from dividends declared and received from the Project Moonlight Project Companies (comprising 6 health care facilities in the State of Iowa, United States); (2) the net proceeds of the disposal of 76.5% of the issued share capital of Atlantis Fantasy by Fantasy Pearl; and (3) the 76.5% issued shares of Atlantis Fantasy owned by Fantasy Pearl[40].

30.Any shares in Colour Life Services Group Co., Limited that remain beneficially owned by the Company are to be deposited into an offshore independent escrow account. All dividends or distributions and any net consideration from disposal shall be applied towards repayment of all Short Term Notes in full and, thereafter, the Long Term Notes, in each case subject to certain deductions[41].

B3. Third Party releases

31.The Scheme contemplates irrevocable release and discharge of all Claims against the Company and all liabilities owed to “Existing Debt Obligors” (including Subsidiary Guarantors) in respect of the Existing Debts, save for any Excluded Credit Support (discussed below)[42]. The latter constitute third party releases as the Existing Debt Obligors are not parties to the Scheme, and the releases will be effected by the Creditors authorising the Company to execute the relevant agreements to release the claims vis-à-vis these third parties, which is one of the Restructuring Conditions.

32.As regards the releases of the claims held by the Creditors against third party Obligors/Guarantors, the Company contends that if the Scheme only deals with liabilities of the Company, it would be “ineffective” as Creditors most likely benefit from guarantees which have structural seniority over the New Instruments[43]. I do not see why the Scheme would be “ineffective”, let alone for the reason stated. That said, I do not consider the presence of releases of claims against third party Obligors/Guarantors objectionable as they are necessary to ensure the effectiveness of the Scheme. Without these releases, the Creditors would be able to pursue their claims against the Obligors/Guarantors which, in turn, would seek contribution from the Company. This would undermine the very purpose of the Scheme which is to compromise and discharge the Creditors’ Claims against the Company.

33.The Scheme also provides for qualified releases of various third parties who are said to have been instrumental in facilitating the Restructuring. This includes Advisers, Directors, Information Agent, Chairperson, Blocked Scheme Creditor Tabulation Agent, Existing Debt Administrative Parties and their predecessors, New Notes Administrative Parties, MCB Administrative Parties, Holding Period Trustee, Blocked Escrow Agent, Colour Life Escrow Agent, Existing Debt Obligors (except in relation to Excluded Credit Support[44]), and AHG and each of their respective Personnel and Affiliates (collectively “Restructuring Released Parties”)[45]. The qualified releases are justified in that:

(1) They are confined to releasing the liability of the Restructuring Release Parties arising out of the preparation of the Restructuring including the Scheme. Although the Company does maintain Directors and Officers’ liability insurance, it is not clear whether such insurance covers any liability incurred in relation to the Restructuring. It would only add to the cost of the Restructuring if the Company has to take out additional insurance against such liability.

(2) The releases are subject to various “carve-outs” which preserve the rights in respect of (a) Excluded Credit Support; (b) post-Scheme rights arising under the Scheme or any Restructuring Document; (c) payment of contractual fees and costs in accordance with the terms of the Scheme and any Restructuring Document; (d) any breach of duties on the part of any director, manager or officer outside the context of the Restructuring; (e) any adviser’s duties of care; (f) any claims arising from fraud, gross negligence, wilful default or wilful misconduct; and (g) the rights of Existing Debt Administrative Parties.[46]

(3) In particular, the releases are subject to carve-outs to ensure that “any Claim or other Liability or cause of action against any Directors for breach of director’s duties or malfeasance arising from or relating to any action, omission or other circumstance which are not under or in connection with the negotiation, preparation and/or consummation of the Scheme and/or the Restructuring” are preserved and will not be released[47]. This carve-out is consistent with the carve-out approved in Re Yuzhou Group Holdings Co Ltd [2025] 1 HKLRD 69 §17.

B4. Restructuring Conditions & RED

34.All the Restructuring Conditions stipulated in the Scheme have to be satisfied or waived for RED to occur. These include[48]:

(1) The Scheme has been sanctioned by Hong Kong court and the parallel scheme (in the same terms as the Scheme) has been sanctioned by the Grand Court of Cayman Islands, and both Schemes become effective;

(2) Receipt of New Money by the Company to fund the Consent Fees, Work Fee and Advisers Fees;

(3) Delivery of corporate authorisations by relevant members of the Group in respect of the Restructuring and entry into the Restructuring Documents to which they are a party;

(4) Filing and obtaining of each relevant regulatory approval or consent which are necessary to implement the Restructuring, including: (a) successful registration at NDRC of the application made by the Company in respect of the New Instruments; (b) delivery of the court orders sanctioning the Scheme in both jurisdictions; (c) shareholders’ approval in relation to issue of MCBs and New Shares; and (d) SEHK’s approvals for listing of and permission to deal in the New Shares;

(5) Delivery of a legal memorandum by the Company’s PRC legal adviser to AHG and the trustee and agents of MCBs confirming eligibility to issue MCBs and New Shares;

(6) Settlement in full of all the fees and expenses associated with the Restructuring including the Work Fee and Advisers Fees;

(7) Appointment of an independent non-executive director as chairperson of the audit committee of the Company;

(8) Receipt of approval in principle for listing of the Short Term Notes, Long Term Notes and MCBs including on SGX-ST;

(9) Receipt of approval-in-principle and completion of all issuance, registration and related procedures for issuance of New Shares;

(10) Establishment of the Offshore Secured Accounts and Onshore Secured Account;

(11) Deposit of relevant amounts into the Project Moonlight Secured Account;

(12) Deposit of relevant amounts into the Onshore Secured Account;

(13) Each Restructuring Document being in agreed form;

(14) Compliance by the Company with the terms of the Term Sheet in all material respects; and

(15) Satisfaction of all (or waiver, if any, of) conditions precedent in the Restructuring Documents.

35.As with other schemes sanctioned by the court, the Company has to demonstrate that RED will occur within a reasonable period after the court sanctions the Scheme. This is to ensure that the period during which the Creditors will be bound by the Scheme[49] (and cannot take any enforcement action against the Company) but will not receive any Scheme Consideration Entitlement (which will only happen on RED) will not be uncertain or unduly long.

36.In the present case, the Longstop Date for RED to occur is 31 May 2026, extendable with the consent of AHG holding the “Minimum AHG Threshold” (being no less than 25% of outstanding principal amount of Existing Notes held by AHG) or, if AHG does not hold that threshold, the “Super Majority Participating Creditors” (being Participating Creditors who hold an aggregate outstanding principal amount of at least 66⅔% of the outstanding principal of the Existing Debts held by all Participating Creditors at that time)[50].

37.At the convening hearing, this Court observes that the right to extend the Long Stop Date should not be given to the so-called “Minimum AHG Threshold” or “Super Majority Participating Creditors”, as it is an important right which affects the rights of all Creditors. The right should be given to and can only be exercised if the Company is able to obtain 75% in value of the Creditors present and voting at the meeting convened and held for the purpose of obtaining the Creditors’ approval for such extension.

38.At the sanction hearing, the Company has modified the relevant terms so that the Longstop Date can only be extended with the consent of 75% in value of the Creditors’ Claims (Principal) or an order of the court[51]. The Company has reported the progress on the satisfaction of the Restructuring Conditions, which show that the Company will shortly be able to satisfy all the Restructuring Conditions before the Longstop Date[52].

B5. Modification clause & indemnification

39.Clause 13.1.1 of Scheme provides that the Company can consent to modifications, additions, or additional terms of the Scheme at any sanction hearing on behalf of all Creditors. The modification clause is necessary for the purpose of implementing the Restructuring and should not have any material adverse effect on the interests of any Creditors as the modification is required by the court at the sanction hearing (see, for example, Re Cine-UK Ltd [2024] Bus LR 1944 §55).

40.To protect the interests of Creditors, although the Company may seek to modify the terms of the Scheme post-sanction, Clause 13.2 of Scheme provides that no waiver proposed by the Company, including waiver of any Restructuring Conditions, shall be effective unless (a) it has the prior written consent of 75% in value of Scheme Creditors’ Claims (Principal); and (b) to the extent that the beneficiary of the provision being waived is not a Creditor, it has the prior written consent of that person.

41.To ensure that the Scheme will not be adversely affected by any sanctioned person, Clause 13.1.2 of Document provides that if any Creditor is or becomes a sanctioned person, the Company is empowered to amend the Scheme and the Restructuring / New Instrument Documents as reasonably necessary so that the sanctioned Creditor is treated fairly in relation to its Scheme Consideration Entitlement, and the Scheme and related documents remain fully compliant with applicable sanctions, with the administrative parties being authorised to implement those amendments on the Company’s written notice.

42.In line with the approach sanctioned by this Court in Re Country Garden Holdings Company Limited [2026] HKCFI 1619, Clause 10.7 of Scheme relating to indemnification of certain administrative parties has been amended to include a qualification “(to the extent that any such indemnification is otherwise enforceable as a matter of applicable law)” to clarify that sanction of the Scheme does not render an otherwise invalid or unenforceable indemnity valid or enforceable[53].

C. Convening hearing issues & responses

43.At the convening hearing, this Court identified several matters which required the Company to consider and, if necessary, revise the draft Scheme Document[54] or adopt measures to address the concerns. The Company has responded to and addressed the concerns as follows:

(1) Disclosure of interest waived: This Court considered that the disclosure on the amount of interest waived inadequate and required the Company to make further disclosure on the amount of interest waived by the Creditors under the Scheme. In response, the Company amended section 2.7 of ES and included a new Appendix 15 (Interest Accrued for each Existing Debt Instrument) which provides a detailed breakdown of the amount of interest waived under each of the Existing Notes and Existing Additional Debt Instruments[55].

(2) Directors’ liability releases : Clause 9.5.4 of the Scheme Document needs to be revised to make clear that the releases are only limited to those which related to preparation and implementation of the Restructuring. The Company has revised Clause 9.5.4 to read: “apply to any Claim, Liability or cause of action against any Director for any breach of duty or misfeasance howsoever arising which are wholly unrelated to the negotiation, preparation and/or consummation of the Scheme and/or the Restructuring.” A corresponding revision has been made to the Cayman Scheme Document[56]. This language is consistent with the language approved in Re Yuzhou Group Holdings Co Ltd [2025] 1 HKLRD 69 §17.

(3) Longstop Date extension mechanism: The Court observed that any extension of the Longstop Date ought to be a matter for determination by all Creditors rather than solely by members of AHG, and the consent threshold should be no less than 75% in value of the Creditors’ Claims. The Company amended Clause 2.2.2 of Scheme to provide that: (a) prior to the Scheme Effective Date, the Company may extend the Longstop Date with prior approval of 75% in value of Scheme Creditors’ Claims (Principal)[57]); and (b) following the Scheme Effective Date but before expiry of the Longstop Date or termination of the Scheme, if the requisite majority is not obtained, the Company may seek a court order to extend on such terms as the Court thinks fit[58].

(4) Information Agent affidavit: The Court was concerned about the number of retail noteholders and required evidence to show that all of them have received the Scheme Document in good time. In response, on 27 February 2026, the Company filed an affidavit of Enriquez, Edmund Johann Hayag, the Information Agent, sworn on the same date (“Enriquez 1st”), which explains the steps taken by him to distribute Scheme Document to the Creditors[59].

D. Discussion

44.The principles are well-established[60]. At the sanction hearing, the court will consider:

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

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

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

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

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

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

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

D1. Permissible purpose, court directions and statutory majorities

45.The purpose of the Scheme is to restructure the offshore debts owed by the Group so as to (1) reduce the amount owed by USD4,236 million; (2) reduce the debt servicing cost from 6.95%–15.00% per annum to 3.00% per annum or non-interest bearing; and (3) extend the maturity dates of the offshore debts to payable immediately to 2031–2034 under the New Instruments. This is a permission purpose of the Scheme.

46.The Company has complied with the directions made at the convening hearing[61]. In particular (1) the Notice of Scheme Meeting was distributed to each Creditor on 29 January 2026, being no less than 21 days before the date of the Scheme Meeting; (2) a link to the Transaction Website was provided to every Creditor in the Notice of Scheme Meeting.

47.The Scheme was approved by the requisite majorities in that at the Scheme Meeting, 1,397 Creditors in number representing USD6,077,157,678 (99.67%) in value voted in favour of the Scheme, and only 15 Creditors representing USD20,078,297 (0.33%) in value voted against the Scheme[62].

D2. Class composition

48.In considering the issue of class, the question is whether the rights (as opposed to their commercial or other interests) of the Creditors before and after the Scheme are so dissimilar that they cannot form a single class. The court would adopt a broad approach and avoid giving unjustified veto rights to minority creditors (Times China §35).

49.In the present case, the rights of the Creditors are sufficiently similar such that it is appropriate to put them into the same class for the following reasons:

(1) The Creditors are essentially unsecured creditors of the Company. Although some Creditors benefit from some security interests granted by the Company, given that the Company is insolvent, the security interests are valueless (Re Hong Kong Airlines Ltd [2022] HKCLC 1343 §15). This is reinforced by the recovery analysis, which shows that in liquidation scenario, the Creditors have similar rates of recovery, which fall in the range of 0.30% to 1.08%.

(2) While certain Creditors have the benefit of additional third-party credit support (Onshore Credit Support and/or Term Loan (3) Credit Support), these differences do not fracture the class as the focus of class composition is on the rights of Creditors against the Company itself (Re Yuzhou Group Holdings Co Ltd [2025] 1 HKLRD 69 §26).

(3) Under the Scheme, all Creditors are given the same rights – they are entitled to elect any of the Options and receive Scheme Consideration in accordance with their chosen Options, and their elections are subject to the same reallocation mechanism.

D2.1 Agreed Shortfall for Term Loan (3)

50.Mr Wong submits that the exclusion of Term Loan (3) is appropriate and does not require a separate class for the Lender to the extent of the shortfall for the following reasons:

(1) This Term Loan (3), both onshore and offshore, has already been re-arranged and compromised upon execution of Term Loan (3) Settlement Deed dated 13 July 2023[63].

(2) The majority of Term Loan (3) is granted by third party obligors which are members of the Group. These third party security interests are not relevant to class composition as the rights are not against the Company but are against third parties (Re Yuzhou Group Holdings Co Ltd [2025] 1 HKLRD 69 §26).

(3) As for “Term Loan (3) Receivable Assignment” given by the Company, the revised liquidation analysis estimates that the recovery from the relevant receivable would be minimal (0.13% to 0.41%) while Term Loan (3) Lender’s estimated recovery against the Company (including the Receivable Assignment) is 0.46% to 1.31%. These estimated recoveries are not materially different from the estimated recovery of Creditors in liquidation (0.30% to 1.08%[64]).

51.It is not immediately apparent why the exclusion of Term Loan (3) is addressed by the Company as a class issue. Upon further probing by this Court, it transpires that the Company has agreed with the Lender that the shortfall between the value of the security provided by the Company (i.e. Term Loan (3) Credit Support, estimated at USD 63.5 million) and the outstanding indebtedness (USD 205,198,814), which amounts to USD141,698,814, will form part of the Claims under the Scheme (“Agreed Shortfall”). The Lender has participated at the Scheme Meeting to the extent of the Agreed Shortfall. I do not think that putting the Lender in the same class as other Creditors would fracture the class as the Agreed Shortfall is an unsecured claim against the Company, just like any Claims held by other Creditors. Indeed, it is a common feature of a scheme to allow a creditor to agree with the company on the value of the security held by it and participate in the scheme to the extent of the unsecured portion of the debt.

52.Mr Wong submits that from a practical perspective, even if the Lender ought to have constituted a separate class, the outcome would have remained the same:

(1) As at 3 March 2026, 87.92% in value of Creditors had acceded to the RSA, providing more than sufficient support for the “other” larger class;

(2) The Lender is contractually bound by the RSA to vote in favour; and

(3) The actual voting result demonstrates that nearly 100% of Creditors attended and voted at the Scheme Meeting voted for the Scheme[65].

53.As I do not consider that the inclusion of the Lender to the extent of the Agreed Shortfall creates a class issue, it is unnecessary to consider Mr Wong’s alternative submission regarding the outcome of the Scheme Meeting. That said, I do not think that it is right to take into account the Lender’s contractual obligation to vote for the Scheme (if existed). If the RSA did have such effect, it might be said that it would fracture the class. It is worth repeating the principles governing lock-up agreement and consent fee, which have been explained by Snowden J (as he then was) in Re ColourOz Investment 2 LLC [2020] EWHC 1864 (Ch) [2020] BCC 926, §§93-98, and may be summarized as follows:

(1) Entry into a lock-up agreement does not, of itself, fracture a class. It is appropriate for a lock-up agreement to include a provision which allows a signatory to terminate the agreement and cease to support the scheme in the event of a material change to the company’s financial position. This is to ensure that no signatory is irrevocably bound in all circumstances to vote for the scheme and the locked-up votes “belong” to the company (§§93-94).

(2) The consent fee is designed to provide a material inducement to creditors to engage with the proposal at an early stage and provide a commitment as to their voting intentions before the company begins the court process (§97).

(3) In principle, a consent fee will not fracture a class provided that it is made available to all creditors and it does not induce creditors to commit to vote in favour of a scheme which they may otherwise reject (§98-100, 106).

D2.2 Consent Fee

54.Applying the above principles, I do not think that the RSA and which entitle the Creditors to receive Consent Fee would fracture the class, as all Creditors were given the same opportunity to accede to the RSA and the Consent Fee at 0.1% of outstanding principal is immaterial as compared to the estimated return under the Scheme, which is 5.95% to 15.8%[66] (Times China §42).

D3. Work Fee

55.As for Work Fee, Mr Wong submits that it is compensatory for extensive work over many months, payable regardless of Scheme sanction, at 1.55% of the AHG’s holdings (or 0.47% of outstanding principal amount of the Existing Debts) which is consistent with comparable restructurings. The Work Fee would not influence voting as they are immaterial compared to overall recovery positions[67]. I am unable to agree with the submissions.

56.The relevant comparator is not AHG’s holdings (which I assume is a reference to the outstanding principal owed to AHG) or the outstanding principal of the Existing Debts. The court has repeatedly explained, by reference to the leading cases on the issue in Re Noble Group Ltd [2019] BCC 349, §§131-132, 141, 149-150 (per Snowden J), that the relevant comparator is the returns under the scheme and in liquidation. The principles which have recently been summarised in Re Kaisa Group Holdings Ltd [2025] HKCFI 2699, §41, 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).

57.In the present case, the Work Fee cannot be said to be independent of the Scheme as payment in full is one of the Restructuring Conditions. It is therefore necessary for the court to consider whether the Work Fee is material, as compared to the return under the Scheme, such that it would affect the Creditors’ decision as to whether to approve the Scheme (Re Kaisa, §42).

58.The Work Fee represents 1.55% of the outstanding principal owed to AHG. This rate is material when compared to the recovery under the Scheme (5.95% to 15.8%) and even more material when compared to the return in liquidation (0.44% to 1.57%). It seems to me that this is a case where the court may come to the view that the Work Fee is so material, as compared to the returns under the Scheme and in liquidation, that it would affect the Creditors’ decision as to whether to approve the Scheme and, therefore, would fracture the class.

59.However, the Company had fully disclosed the Work Fee and the returns under the Scheme and in liquidation in the ES, and no Creditor has raised any objection to the payment, whether on the ground of composition of class or any other ground. Moreover, the high level of participation at the Scheme Meeting (1,397 Creditors voted) and the overwhelming support of the Scheme (99.67% in value of Creditors’ Claims) show that even if AHG were put into a separate class, the Scheme would still have been approved by the requisite majorities of the Creditors. For these reasons, despite my view on the materiality of the Work Fee, I do not consider that it is a case which the court should withhold sanction on the basis that AHG should have been put into a separate class. This, however, should not be taken as the court’s acceptance that a work fee which the court consider to be material would not fracture the class. Had any Creditor come forth to take the issue or that the level of support of the Scheme were lower, the result would have been different.

D2.4 Waiver of interest

60.I turn to the issue of waiver of accrued interest. Pursuant to this Court’s directions, the Company disclosed the amount of interest waived for each instrument in detail in the ES[68]. It can be seen that the percentage of interest waived varies between different instruments - from 0.00% for certain Existing Additional Debt Instruments to 68.04% for the Existing Second December 2021 Notes[69].

61.Mr Wong submits that waiver of interest does not fracture the class for the following reasons:

(1) All the Creditors are unsecured creditors. The variation in interest waived is a commercial variation in the quantum of each individual claim, not a legal variation in the nature of the rights against the Company.

(2) In the context of the Liquidation Analysis, which estimates recoveries of 0.44% to 1.55% for holders of the Existing Notes, and 0.25% to 1.55% for holders of the Existing Additional Debt Instruments[70], the differences arising from the varying percentages of accrued interest waived across instruments — ranging from 0.00% to 68.04% of outstanding principal[71] — are insufficient to fracture the class. These variations are far outweighed by the substantial common benefit conferred by the Restructuring upon all Creditors, each of whom would otherwise face near-total loss in a liquidation scenario. In other words, all Creditors remain general unsecured creditors faced with the same practical alternative: a near-valueless liquidation on the one hand, or participation in a Restructuring designed to produce a materially better outcome on the other. In those circumstances, there is ample community of interest for consultation and voting as a single class. The actual voting results bear this out: even the holders of the Existing Second December 2021 Notes — the instrument requiring the greatest proportionate waiver of accrued interest at 68.04% of outstanding principal — voted 90.53% in favour of the Scheme[72], confirming that those creditors regarded the benefits of the Restructuring as far exceeding any disadvantage attributable to the waiver of accrued interest.

(3) Current judicial trends strongly resist the “unnecessary proliferation of classes”. As the English authorities observe, “practical considerations” are relevant, and “the court should not get ‘too picky’ about potential different classes, or ‘one could end up with virtually as many classes as there are members of a particular group’” (Re SWS Holdings Ltd [2025] EWHC 2318 (Ch) §46). Here, there is far more that unites the Creditors namely, the shared objective of avoiding a disastrous liquidation scenario.

(4) The exclusion of accrued interest for the purpose of calculating Scheme Consideration Entitlement is a pragmatic necessity to ensure the sustainability of the Group post-Restructuring. Given the high degree of creditor support already obtained, it is evident that the Creditors regard their common interest in the “rights out” package as transcending any differences in their “rights in”. As the English court observed in Re SWS Holdings Ltd [2025] EWHC 2318 (Ch), §47:

“part of [the court’s] task is to compare the rights that creditors currently have (that operate in a world in which there is no scheme) and the rights that they would have if the scheme becomes effective. That necessarily invites some consideration of what would happen if either of the Schemes is not implemented. Moreover, when [the court is] considering the practicalities and likelihood of sensible discussion between holders of rights affected by the Schemes, it is relevant to consider what would happen if the relevant Scheme does not take effect, because that is one of the matters that the holders would need to be discussing between themselves with a view to their common interest.”

(5) The present case is thus quite distinct from Re Shimao Group Holdings Ltd [2025] HKCFI 1751 which concerned the waiver of default interest of only certain creditors.

62.In my judgment, the waiver of interest does not create a class issue as the same treatment applies to all the debts owed to the Creditors notwithstanding the difference in the rates of interest under different instruments. This is not a case where waiver of default interest only applies to some but not creditors (cf. Re Shimao Group; Re aCommerce Group Ltd [2024] HKCFI 2216). Moreover, the Creditors have been provided with information regarding their current entitlements to interest and the amounts to be waived when the Scheme. It is a matter for the Creditors to decide whether it is in their commercial interest to support the Scheme.

D3. Information provided to Creditors

63.The ES (as supplemented by the Supplement) has provided comprehensive and sufficient information about the Restructuring and the Scheme, including the background to the Company and the Restructuring, an explanation of the terms of the Scheme, risk factors, the Liquidation Analysis and the Recovery Analysis[73].

64.As stated above, following the convening hearing, the Company had revised the draft Scheme Document before it was despatched to the Creditors on 29 January 2026. The key amendments include[74]:

(1) Amendments to Colour Life Escrow provisions, requiring deposit of relevant Colour Life Shares within 10 business days of completion of the Restructuring Deed with TFI;

(2) Updated information relating to the Controlling Shareholder’s support, including clarification that the aggregate amount of Shareholder Loans to be converted was RMB1,211,949,289;

(3) Amendments to AHG director nomination mechanism;

(4) Amendments to the Restructuring Conditions to reflect the evolving regulatory requirements, including clarification of NDRC condition and a new condition requiring appointment of an independent non-executive director as audit committee chairman;

(5) A new definition of “Scheme Creditors’ Claims (Principal)” to draw a clear distinction between principal (which determines Scheme Consideration Entitlement) and interest (which is proposed to be written off entirely);

(6) The incorporation of new provisions and disclosures concerning the Term Loan (3) Settlement Deed, the Excluded Credit Support, and the preservation of Term Loan (3) Credit Support; and

(7) Revised Liquidation and Recovery Analyses to exclude recoveries from the Excluded Credit Support. The estimated recovery rate under the Scheme remains unchanged (5.95% to 15.80%).

65.The Supplement was despatched to the Creditors on 13 February 2026 which contains additional information on (1) the precise mechanics of the first mandatory conversion of MCBs; (2) the progress of the TFI Settlement; (3) the need to replace the Existing Notes Trustee and Existing Collateral Agent; and (4) the ongoing negotiations with Houlihan Lokey regarding their fees and proceedings against Colour Life.

66.The Supplement was sent to the Creditors 7 days before the Scheme Meeting held on 20 February 2026, and should be sufficient for the Creditors to consider the new information before deciding whether to vote for the Scheme. No Creditor has raised any objection to the timing of the despatch of the Supplement.

D4. Discretion

D4.1 International dimension & utility

67.As the Company is a non-Hong Kong company, it is necessary to consider whether the Company has sufficient connection with Hong Kong for scheme purposes (Times China, 46). This is plainly satisfied. As submitted by Mr Wong:

(1) The Company has been registered in Hong Kong as a non-Hong Kong company since 25 September 2009.

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

(3) The Company’s shares have been listed on SEHK since 25 November 2009.

(4) A material portion of the Existing Debts is governed by Hong Kong law.

(5) The Scheme has been negotiated primarily in Hong Kong with Hong Kong-based advisers.

68.The very high level of participation of the Creditors at the Scheme Meeting, including the holders of the Existing Notes which are governed by New York law, means that those Creditors will be bound by the Scheme once it becomes effective. In addition, the Creditors who are subject to the in personam jurisdiction of the court and those Creditors whose debts are governed by Hong Kong law will also be bound by the Scheme. There is therefore utility in the court sanctioning the Scheme.

69.Mr Wong highlights that the Company’s indebtedness governed by PRC law accounts for no more than 2.68% of the outstanding principal of the Existing Debts, and submits that any enforcement action in respect of that indebtedness is unlikely to materially impact the Restructuring[75].

70.He further submits that by reason of the preservation of the Excluded Credit Support, there remains a theoretical possibility of ricochet claims by third party security providers. The Company has addressed this risk comprehensively[76]:

(1) Term Loan (3) Settlement Deed releases: The terms of the Term Loan (3) Settlement Deed provide for absolute release of all claims by An Chuang and Advance Era against the Company and its subsidiaries (within the Group) on RED. Subordination Agreements are therefore unnecessary for those entities.

(2) Subordination Agreements: Except for 5 onshore obligors no longer controlled by the Company, all other Term Loan (3) Obligors and relevant onshore subsidiaries providing Onshore Credit Support have executed Subordination Agreements to defer present and future ricochet claims to the prior interests of the Creditors under the New Instruments.

(3) Entities no longer under the Company’s control: 5 onshore obligors are no longer controlled by the Company and are unlikely to execute Subordination Agreements. The Company has been advised by its legal advisers that as a matter of PRC law, a guarantor or security provider can only pursue a contribution claim against other guarantors if they have previously agreed to apportionment of joint and several liability, or are parties to the same contract. The documentation constituting the Onshore Credit Support neither provides for apportionment of guarantee liabilities or joint and several liability, nor are the Company and the relevant onshore obligors parties to the same contract. The PRC courts would therefore unlikely to enforce any such ricochet claim. The risk is, in reality, remote.

71.It is unnecessary for this Court to express any view on the risk of any claim for contribution which may be made by the 5 obligors who have not signed the Subordination Agreement given that the amount of such claim is not one which would undermine the Scheme.

72.As matter now stands, the Company does not intend to apply for recognition of the Scheme under Chapter 15 of the US Bankruptcy Code as it does not have any assets in the US.

73.The Company has put forward a parallel and inter-conditional scheme in the Cayman Islands. The Cayman Court granted a convening order on 23 January 2026 and the Cayman Scheme meeting was held in conjunction with the Scheme Meeting on 20 February 2026, and the Cayman Scheme sanction hearing is also fixed for 12 March 2026[77].

D4.2 Intelligent and honest man test

74.The court would be slow to differ from the majorities’ view as businessmen are much better placed than the court in assessing what is commercially advantageous to them (Times China, §44).

75.The Scheme is one which an intelligent and honest man might approve. This is borne out by the overwhelming support at the Scheme Meeting. The near-unanimous approval demonstrates that the Creditors have concluded that the Scheme (and hence the Restructuring) is overwhelmingly preferable to the alternative scenario of liquidation. The Scheme is one which the court should in the exercise of its discretion sanction.

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