Re Powerlong Real Estate Holdings Ltd

HCMP 2405/2025

[2026] HKCFI 3836

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2405 OF 2025

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REASONS FOR DECISION

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Introduction

1.By a petition (the Petition) dated 3 June 2026 Powerlong Real Estate Holdings Limited (the Company) sought the Court’s sanction of a scheme of arrangement (the Scheme) between the Company and the Scheme Creditors[1] pursuant to sections 670, 673 and 674 of the Companies Ordinance (Cap 622) (Companies Ordinance).

2.On 17 March 2026 Madam Justice Linda Chan granted the Company leave (the Convening Order) to convene a meeting (the Scheme Meeting) of a single class of creditors (without determining the class issue). As I explain further below, the parties to the Scheme (the Scheme Creditors) are creditors under a number of different debt instruments (the Existing Debt Instruments) including holders of public notes (some of which were issued by the Company while others were guaranteed by the Company) and lenders under syndicated loans and other loan facilities (including lenders holding a guarantee).

3.At the Scheme Meeting held on 12 May 2026 a total of 451 Scheme Creditors were present in person or by proxy and voted, of whom 445 Scheme Creditors voted in favour of the Scheme (representing 89.7% in value of those voting) while 6 Scheme Creditors voted against (representing 10.3% in value of those voting). The Scheme therefore achieved the statutory majority of a majority in number representing at least 75% in value of Scheme Creditors present and voting (in person or by proxy). All of the holders of the public notes voted in favour of the Scheme while some of the bank lenders voted against.

4.On 17 June 2026 I heard the Company’s application for an order sanctioning the Scheme. At the hearing the Company was represented by Mr Jose Maurellet SC. No Scheme Creditors objected to and none appeared to oppose the Company’s sanction application. At the conclusion of the hearing, I informed Mr Jose Maurellet SC that, subject to reviewing and approving the form of an undertaking to be given by Mr Hoi Kin Hong and Mr Hoi Wa Fong (and Pengye Hong Kong) to enter into the waiver agreement referred to at [6.14(q)] of the ES and the form of the waiver agreement, I would sanction the Scheme. Shortly after the hearing I received and approved the undertaking and waiver agreement and the form of sanction order.

5.I now set out my reasons for sanctioning the Scheme.

Background

6.The Company was incorporated in the Cayman Islands, registered as a non-Hong Kong company, and is listed on the Main Board of the Stock Exchange of Hong Kong (HKEx) with stock code 1238.

7.The Company is the ultimate holding company of a large group of companies (the Company together with its subsidiaries, is referred to as the Group – a simplified group structure chart was attached to the ES at Appendix 7) and serves as one of the main offshore financing platforms for the Group. Its subsidiaries are incorporated in, inter alia, the PRC, the BVI, the Cayman Islands and Hong Kong.

8.The Group is a nationwide real estate enterprise and is principally engaged in property development, property investment, commercial operation and residential property management and other property development related businesses. The Group has a significant land bank in the Yangtze River Delta region.

The financial position of the Company and the Group

9.The financial position of the Company on a standalone basis was summarised in the Petition at [13] - [17] as follows:

(a)  as of 31 December 2025, the Company’s total assets were approximately RMB 33.68 billion and total liabilities were approximately RMB 34.70 billion. The Company’s current assets were only approximately RMB 1.49 million, while its current liabilities were approximately RMB 35.38 billion.

(b)  the Company’s main assets were investments in subsidiaries and amounts due from subsidiaries of approximately RMB 6.31 billion and RMB 28.39 billion respectively. Borrowings of approximately RMB 19.20 billion form its main liabilities.

10.The financial position of the Group on a consolidated basis was summarised in the Petition at [18] - [21] as follows:

(a)  as of 31 December 2025, the Group’s total assets were approximately RMB 168.53 billion and total liabilities were approximately RMB 128.38 billion. The Group’s current assets were approximately RMB 79.98 billion, while its current liabilities were approximately RMB 101.00 billion.

(b)  the Group’s significant assets include properties under development of approximately RMB 23.80 billion and completed properties held for sale of approximately RMB 19.06 billion.

11.The Group’s total cash outflow was expected to exceed the projected cash inflow for the next 12 months. Thus, it appears that the Group, including the Company, is cash flow insolvent (see [21] of the Petition).

The financial difficulties faced by the Company and the Group

12.Like many other real estate developers in the PRC, the Group’s financial position has been deteriorating since 2022. It incurred net losses of approximately RMB 2.58 billion and RMB 5.50 billion for the years ended 31 December 2023 and 31 December 2024 respectively: see the First Affirmation of Hoi Wa Fong (Hoi 1) at [70] - [71] Mr Hoi is an executive director and CEO of the Company.

13.The Group’s financial difficulties deepened in 2024. Revenue for the year ended 31 December 2024 decreased by about 12.46%, contracted sales decreased by about 53.54%, and the Group recorded a loss of approximately RMB 5,765 million, more than double the loss recorded in 2023 (see Hoi 1 at [73]).

14.For the six months ended 30 June 2025, the Group incurred a further net loss of approximately RMB 2,652 million. Total revenue decreased by 15.33% and contracted sales decreased by about 49.22% as compared with the corresponding period in 2024 (see Hoi 1 at [75]).

15.The Company has defaulted on the Existing Debt Instruments. It failed to make an interest payment of US$15.9 million under the April 2025 Notes by the due date on 30 October 2023; the Group has indebtedness with an aggregate amount of approximately RMB 22,843 million that are defaulted or cross-defaulted.

The Group’s financing arrangements

16.Mr Hoi described the position as follows in Hoi 1:

“22. The financing arrangements of the Company include (i) the Existing Public Notes issued by the Company; (ii) the Existing Syndicated Loans (with Company as borrower); (iii) the Northeast Gemini Notes (issued by Northeast Gemini and guaranteed by the Company), (iv) the Existing BOCOM Loan (with Company as borrower), and (v) the Existing BOC Loan (with Company as one of the co-guarantors) (collectively, the "In-Scope Debt"). The above indebtedness will become the In-Scope Debt under the Scheme. The aggregate principal amount of the In-Scope Debt is approximately US$ 2.87 billion.

23. In addition, the Company has other liabilities which include (vi) the Amended Out - of Scope Debts, (vii) the Pending Out-of-Scope Debts, and (viii) the Company's Other Current Liabilities.

24. As of 30 June 2025, the Company's aggregate principal amount of indebtedness was approximately US$ 5.89 ….

(i) Existing Public Notes

25. The "Existing Public Notes" consist of nine series of publicly issued US dollar denominated senior secured notes issued by the Company and guaranteed by the Existing Subsidiary Guarantors[2] and Existing JV Subsidiary Guarantors[3]. Each of the Existing Public Notes will be included as part of the In-Scope Debt of the Scheme.

……

27. The Existing Public Notes are listed on the Singapore Exchange Securities Trading Limited ("SGX-ST").

28. Each of the Existing Public Notes is guaranteed by the same set of guarantees (i.e. the Existing Subsidiary Guarantors and the Existing JV Subsidiary Guarantors), and is secured by the same set of share pledges granted by the Company and the Existing Subsidiary Guarantor Pledgors. The Existing Subsidiary Guarantors, Existing Subsidiary Guarantors and Existing Subsidiary Guarantor Pledgors are either BVI or Hong Kong companies.

29. Interest is payable by the Company in relation to the Existing Public Notes pursuant to the terms of the indentures governing the Existing Public Notes ("Existing Public Notes Indentures"), each of which is governed by New York law.

(ii) Northeast Gemini Notes

30. The Company's offshore indebtedness also includes one series of US dollar denominate private notes issued by Northeast Gemini Limited ("Northeast Gemini"), a Cayman Islands-incorporated orphan special investment vehicle. The notes issued by Northeast Gemini are guaranteed solely by the Company ("Northeast Gemini Notes," together with the Existing Public Notes as the "Existing Notes"). The Northeast Gemini Notes is part of the In-Scope Debt under the Scheme.

31. The Gemini Notes have no other guarantee or security other than the guarantee provided by Company.

(iii) Existing Syndicated Loans

32. The Company is also the borrower of certain syndicated banking facility financing arrangements ("Existing Syndicated Loans"). They are all governed by Hong Kong law and are part of the In-Scope Debt under the Scheme.

33. The Existing Syndicated Loans are guaranteed by the same guarantors (i.e. the Existing Subsidiary Guarantors and the Existing JV Subsidiary Guarantors) and secured by the same share pledges granted by the Company and the Existing Subsidiary Guarantor Pledgors.

……

(iv) The Existing BOCOM Loan

35. The Company's borrowing liabilities include a Hong Kong law governed loan facility in the outstanding principal amount of approximately RM 89 million ("Existing BOCOM Loan") advanced by Bank of Communications (Hong Kong) Limited ("BOCOM HK"). This loan is secured by a PRC-law governed share charge over 10% of the shares of Shanghai Baolong Zhanfei Real Estate Development Limited ("Zhanfei") (granted by Shanghai Haoshang Investment Management Limited ("Shanghai Haoshang") in favour of BOCOM HK) ("BOCOM Share Charge"). The Existing BOCOM Loan is part of the In-Scope Debt under the Scheme.

36. The Scheme will only release the Company's obligations as borrower under the Existing BOCOM Loan. The BOCOM Share Charge will not be released under the Scheme.

(v) The Existing BOC Loan

37. The Company's guarantee liabilities include a Macau law governed loan facility in the outstanding amount of approximately RMB 522 million ("Existing BOC Loan") with Bank of China Limited Macao Branch ("BOC Macau") as the lender and Pengye Enterprise Management (Macau) Limited ("Pengye Macau") as the borrower. Pengye Enterprise Management (Hong Kong) Limited ("Pengye Hong Kong") owns 90. l % of the shares in Pengye Macau, while the remainder 9.9% shares in Pengye Macau is owned by Leong Ma Real Estate & Investment Limited ("Leong Ma"). Leong Ma is an independent third party that is not a subsidiary or affiliate of the Group.

38. The BOC Loan is guaranteed by (i) the Company under a Hong Kong law governed deed of guarantee, (ii) Pengye Hong Kong under a Hong Kong law governed deed of guarantee, and (ii) Leong Ma under a Macau law governed guarantee.

39. The Existing BOC Loan is secured by a Macau-law governed share charge over the shares of Pengye Macau (concerning 90.1 % of the shares of Pengye Macau owned by Pengye Hong Kong and 9.9% of the shares in Pengye Macau owned by Leong Ma) in favour of BOC Macau ("BOC Loan Share Charge").

40. The Existing BOC Loan is also guaranteed by Chairman Hoi and Mr Hoi Wa Fong under respective Hong Kong law governed deeds of guarantee. The Existing BOC Loan is part of the In-Scope Debt under the Scheme.

41. The Scheme will only release the co-guarantor liabilities of the Company and Pengye Hong Kong under the Existing BOC Loan. The liabilities of Pengye Macau (as borrower), Leong Ma (as guarantor) and the BOC Loan Share Charge will not be released under the Scheme…. The personal guarantees granted by Chairman Hoi and Mr Hoi Wa Fong will also not be released under the Scheme.

(vi) The Amended Out-of-Scope Debts and Pending Out-of-Scope Debts

42. The Company's guaranteed liabilities include the "Amended Out-of-Scope Debts" and the "Pending Out-of-Scope Debts", in which the Company had been conducting bilateral negotiations with the respective bank creditors on the amendment of each of the Amended Out-of-Scope Debts and the Pending Out-of-Scope Debts.

43. The "Amended Out-of-Scope Debts" consist of ten (10) Company-guaranteed liabilities from bank loans in the total principal amount of approximately RMB 5,58 1.74 million.

43. 1. Each of the Amended Out-of-Scope Debts has been amended and restructured bilaterally between the relevant borrowers and obligors of the Group and the relevant bank creditors.

43.2. The maturity dates of each Amended Out-of-Scope Debts has been extended, and the Company expects to service the subsequent principal and interest payments under these Amended Out-of-Scope Debts primarily from the cash flow generated from the mortgaged assets securing the respective Amended Out-of-Scope Debts.

44. The "Pending Out-of-Scope Debts" consist of three (3) Company-guaranteed liabilities from bank loans in the total principal amount of approximately RMB 658.44 million.

44.1. As of the date of this Petition, the Company is conducting negotiations with the relevant bank lenders on the amendment or restructuring of the respective Pending Out-of-Scope Debts.

44.2. The Company contemplates that the service of the subsequent principal and interest of each of the Pending Out-of-Scope Debts would be primarily from the cash flow generated from the respective underlying mortgaged assets of the Pending Out-of-Scope Debts. As of the date of this Petition, the Company is still in bilateral negotiations with the creditors under the Pending Out-of-Scope Debts.

44.3. Based on the Group management's estimation, each of the underlying mortgaged assets for the respective Pending Out-of-Scope Debts is expected to be sufficient to repay the respective Pending Out-of-Scope Debts in full or, at a minimum, to enable a substantial recovery of the outstanding principal and any accrued interest through realization of the relevant collateral or mortgaged assets.

44.4. In the circumstances, even if the Pending Out-of-Scope Debts are not repaid or restructured, the respective bank lenders may enforce their security. The underlying mortgaged assets are primarily commercial properties, plazas or shopping malls. The Company believes the enforcement of the underlying mortgaged assets is unlikely to affect the overall structure or operations of the Group.

44.5. As the Pending Out-of-Scope Debts are still under ongoing bilateral negotiations, the Company has set out certain risk factors in the Explanatory Statement to warn the Scheme Creditors that the relevant bank lenders may take legal action against the Company if such bilateral negotiations are unsuccessful (such as presenting winding up petition against the Company in Hong Kong or the Cayman Islands) and thus it would affect the Company on a going concern and undermine the objectives of the Offshore Restructuring.

…….

46. As of 30 June 2025, the Company's current liabilities onshore and offshore include other payables and accruals of approximately RMB 4.04 billion (comprising, among other things, approximately RMB 2.3 billion owed to related parties and RMB I. 7 billion in accrued interested under the Company's debts) and amounts due to subsidiaries in the amount of approximately RMB 10.55 billion (collectively, the "Other Current Liabilities"). As the bulk of these liabilities are related party debts, the Company does not anticipate legal or enforcement action from these creditor entities, and the liquidation risk associated with these intra-Group creditor entities is low. The Other Current Liabilities will be out-of-scope under the Scheme.

……

47. The Group's major onshore subsidiaries have either issued certain debt instruments or acquired financing from PRC financial institutions. Shanghai Baolong Industrial Development (Group) Co., Ltd Shanghai Baolong Industrial") is the Group's key onshore operating subsidiaries and onshore financing platform……”

The 2024 Scheme

17.The Company previously put forward a scheme which was sanctioned on 17 December 2024 (the 2024 Scheme). The 2024 Scheme had a Longstop Date of 28 February 2025. One of the conditions precedent for the restructuring effective date of the 2024 Scheme was the making of certain required payments, which the Company had intended to fund from the sale proceeds of a carpark property for RMB 205 million. The proposed purchaser however encountered delays in obtaining funding approval from its financial backer and the timeline for completion could not be achieved before the Longstop Date (see Hoi 1 at [80] - [82]).

18.On 4 February 2025, the Company launched a consent solicitation to extend the Longstop Date to 31 May 2025, but the vote was inconclusive (50.77% in favour, 49.22% against). Around 90% of the votes against the modification came from an ad hoc group of creditors who held approximately 31% of the aggregate outstanding principal amount of the relevant debt (with whom the Company had negotiated the terms of the 2024 Scheme). The Company’s subsequent application to extend the Longstop Date was dismissed, and the 2024 Scheme lapsed (see Hoi 1 at [83] - [84]).

Proceedings against the Company and the Chairman of the board of directors

19.On 7 March 2025, certain members of that ad hoc group filed a winding up petition in the BVI Court against Powerlong Real Estate (BVI) Holdings Ltd. The parties subsequently conducted further negotiations on the terms of a further restructuring of the Company’s debt which culminated in a new restructuring support agreement. Subsequently, on 10 October 2025 the winding up petition was dismissed by consent (see Hoi 1 at [85] - [86]).

20.On 23 April 2025, Bank of China Macau Branch (BOC) filed a writ of summons (HCA 789/2025) against Mr Hoi Kin Hong (the Chairman of the Company’s board), Mr Hoi Wa Fong, Pengye Enterprise Management (Hong Kong) Limited (Pengye Hong Kong) and the Company over an outstanding amount of RMB 560,429,812.91 due and owing under the Existing BOC Loan. BOC obtained summary judgment against Pengye Hong Kong and the Company on 30 April 2026. The latest position is discussed in Mr Hoi’s Second Affirmation (Hoi 2) at [34] – [37]). Mr Hoi said that “notwithstanding the grant of summary judgment, I have been advised that and verily believe that the summary judgment would not affect the efficacy of the Scheme” because the liabilities covered by the summary judgment and any arbitral award are within the scope of the claims discharged by the Scheme (the Released Claims).

The Scheme

The core terms of the Scheme

21.The Company renewed its restructuring efforts after the lapse of the 2024 Scheme and on 10 October 2025 signed a restructuring support agreement (the RSA) with an ad hoc group (the Ad Hoc Group) of noteholders or investment managers or investment advisers of such noteholders (holding the Existing Public Notes or the Existing Northeast Gemini Notes).

22.The Scheme releases the Scheme Creditors’ claims against the Company under the Existing Debt Instruments together with certain claims against certain third parties (Released Claims against any Released Person are discharged by the Scheme). In exchange, the Scheme Creditors will be entitled to the “Scheme Consideration.”

23.The Scheme seeks to restructure the Company’s liabilities under the Existing Debt Instruments which have an aggregate principal amount of approximately US$2.90 billion (as of 30 June 2025). The Company’s liabilities to be compromised under the Scheme comprise the following:

(a)  liability under the Existing Public Notes: nine series of New York law-governed senior secured notes issued by the Company (guaranteed by the Existing Subsidiary Guarantors and JV Subsidiary Guarantors) with an aggregate outstanding principal of approximately US$2.15 billion.

(b)  guarantee liability under the Northeast Gemini Notes: one series of New York law-governed notes issued by Northeast Gemini Limited which is guaranteed by the Company, with an outstanding principal of approximately US$128.25 million.

(c)  liability under the Existing Syndicated Loans: five Hong Kong law-governed syndicated banking facilities with the Company as primary obligor, with an aggregate outstanding principal of approximately US$533.9 million.

(d)  liability under the Existing BOCOM Loan: a Hong Kong law governed loan facility advanced by Bank of Communications (Hong Kong) Limited to the Company as borrower, with an outstanding principal of approximately RMB 89 million (US$12.45 million).

(e).  guarantee liability under the Existing BOC Loan: a Macau law-governed loan facility with an outstanding principal of approximately RMB 552 million (US$72.42 million) which is guaranteed by the Company under a Hong Kong law governed guarantee.

24.The Scheme Consideration takes the form of five options, which Scheme Creditors may select either individually or in combination. The Scheme Creditors’ entitlement is calculated based on (a) the principal amount of their Existing Debt held at the Record Time, and (b) all accrued and unpaid interest (except for any default interest or other special interest or fees) up to and including 30 June 2024.

25.The five options are explained in the table in ES at [4.5] and [7.4] and may be summarised as follows:

(a)  Option 1: Cash payment equal to 12% of the claims apportioned to this option, subject to a maximum cap of US$40 million.

(b)  Option 2: shares in Powerlong Commercial Management Holding Ltd (HKEX: 9909) (the 9909 Shares) (held by the Company as of the Original Issue Date), exchangeable at HK$15 per share for the claims apportioned to this option, capped at 32.4% of the outstanding 9909 Shares held by the Company.

(c)  Option 3: Mandatory Convertible Bonds, equal to the claim apportioned to this option, convertible into shares in the Company at HK$2.3 per share on a date falling 18 months after the Original Issue Date, capped at US$1,200m.

(d)  Option 4: New Medium-Term Notes with a principal amount equal to 50% of the Scheme Creditors’ Distribution Claims apportioned to Option 4, a tenor of 5.5 years and interest of 2.0% p.a. (PIK-able for the first 3 years, in cash thereafter). Option 4 is the default option with no cap.

(e)  Option 5: New Long-Term Notes or New Loan (8-year tenor) equal to the claim allocated to this option; they have a tenor of 8 years and interest of 1.5% p.a. (partially PIK-able for the first 5 years). The maximum aggregate amount for Option 5 is US$500,000,000.

26.If elections exceed the cap for any option, excess allocations cascade pro rata into the next option: Option 1 overflows into Option 2 (or Option 4), Option 2 into Option 3 (or Option 4), and Options 3 and 5 into Option 4 (see the ES, section 7.4(b)-(c)). Scheme Creditors must submit their Election Form before the Record Time. Elections may be revised up to 2 Business Days after the Scheme Meeting. Those who fails to submit an Election Form by the Selection Consideration Nomination Deadline will be deemed to have selected Option 4.

The payment of certain fees

27.The Company has agreed to pay the Consent Fee and Work Fees and Advisor Fes to certain creditors:

(a)   Consent Fee: Scheme Creditors who acceded to the RSA by the Extended Consent Fee Deadline (19 December 2025) are entitled to a Consent Fee of 0.15% of the aggregate principal amount of their Eligible Participating Debt (see the ES, [5.7(k)]).

(b)  Ad Hoc Group Work Fee: the Ad Hoc Group receives a sum of US$14 million, which represents approximately 1.51% of the aggregate outstanding principal amount of their holdings. This compensates them for negotiating over a long period of time, conducting due diligence, reviewing documentation and for trading restrictions due to receipt of material non-public information (see the ES, [5.8(b)-(e)]).

(c)  Advisor Fees: the Company will also pay AHG Advisor Fees of US$2.15 million (which represents approximately 0.24% of the Ad Hoc Group’s holdings) and Bank Group’s Advisor Fees of around US$2.228 million (which represents approximately 0.36% of the aggregate outstanding principal of the Existing Loans). These fees compensate the costs incurred by those creditor groups in retaining advisors in connection with the restructuring (see the ES, [5.8(b)-(d)]).

Third party releases

28.The Scheme will release not only the Company’s own obligations but will also release and discharge, by way of Deeds of Release, the obligations of certain third parties who are not parties to the Scheme. The Deeds of Release are governed by the laws of New York and Hong Kong and are executed by the Company as the attorney and agent for the Scheme Creditors.

29.First, the Scheme will release the Subsidiary Guarantors, JV Subsidiary Guarantors and Existing Subsidiary Guarantor Pledgors (i.e. guarantors/security providers in respect of the Company’s liabilities under the Existing Public Notes and Existing Syndicated Loans) and Pengye Hong Kong (in its capacity as co-guarantor of the Existing BOC Loan): see the ES at [[6.14(d)(i) and (h)(ii)].

30.The Company submits that these releases can be justified on the basis that they would prevent ricochet and contribution claims against the Company which may defeat the Scheme (see Yuzhou Group Holdings Company Ltd [2025] 1 HKLRD 69 at [35]).

31.Secondly, the Scheme will release Northeast Gemini, the principal obligor of the Gemini Notes which are guaranteed by the Company (see the ES at [6.14(g)]). The Company submits that releasing the liability of a principal obligor which liability has been guaranteed by the Company, where the guarantee liability is discharged by the Scheme, is permissible under a scheme (see Re Unity Group Holdings Ltd [2022] HKCFI 3419 at [16] - [17]).

32.Thirdly, the Scheme provides for the qualified release of “Released Persons”[4] from any liability arising out of, relating to, or in respect of the preparation, negotiation, sanction or implementation of the Scheme, the Restructuring Documents and/or the RSA; and/or the execution of the Restructuring Documents and the carrying out of the steps and transactions contemplated in the Scheme in accordance with their terms (see the definition in the Scheme of a “Released Claim”).

33.The Company submits that the above releases are in accordance with earlier judicial guidance, in particular that set out in the judgment of Madam Justice Linda Chan in Re Shimao Group Holdings Ltd [2025] HKCFI 1751 at [15]. Importantly, the releases exclude (and therefore do not cover) any Claim or Liability or cause of action which does not arise directly or indirectly pursuant to, under or in connection with the Existing Finance Documents, the Scheme, or the Restructuring (see the definition of a “Released Claim”). The Company says that the releases are subject to well-established carve-outs, notably:

(a)   they do not apply to claims arising from fraud, wilful default, gross negligence or wilful misconduct (see clause 2.5(c) of the Deed of Release.

(b)  they do not apply to claims arising from any failure to comply with the terms of the Scheme, the Restructuring Documents or the New Finance Documents: (see clause 2.5(a)(ii) see Deed of Release Clause).

(c)  They do not apply to any liability of any adviser arising under a duty of care to its client: see clause 2.5(d) of the Deed of Release.

(d)  they do not “exempt a Director from any liability that would otherwise attach to such Director in connection with any breach of that Director’s general legal or statutory duties, any fraud, gross negligence, wilful default or wilful misconduct in relation to (in each case) the Scheme, the Existing Finance Documents and the New Finance Documents”: see clause 2.5(c) of the Deed of Release.

Some liabilities owed to and security held by Scheme Creditors will not be discharged

34.The liabilities owed to certain parties designated as “Excluded Liability Parties” will not be released despite the existence of the third-party releases under the Scheme. The Company’s position can be summarised as follows:

(a)  the BOCOM Share Charge: the PRC law-governed share charge over 10% of the shares of Zhanfei, granted by Shanghai Haoshang, will not be released because the Scheme cannot reliably effect a release of a PRC law governed share charge. In any case, the value of the BOCOM Share Charge is negligible, as evidenced by a failed auction the charged property in late 2024 to mid-2025 in which no bids were received.

(b)  Excluded Parties under the Existing BOC Loan: Pengye Macau (as borrower), Leong Ma (as guarantor and security provider), Hoi Kin Hong and the Hoi Wa Fong (as guarantors), and the Pengye Hong Kong (as security provider) will not be released as it is uncertain whether the Scheme could effect a release of Macau law-governed liabilities and the individuals concerned are separate legal persons and not subsidiaries within the Group (see Section 6.14(o)-(r) of the ES).

35.However, as noted above, Pengye Hong Kong, Hoi Kin Hong and Hoi Wa Fong have given undertakings to execute, and the Company confirmed (at Section 6.14(n) of the ES) that Shanghai Haoshang, will also execute, a waiver of all claims against the Company so as to mitigate the risk of any ricochet claims arising from the non-release of the claims against them (see Section 6.14(n) and (q) of the ES).

The Scheme Effective Date, the Restructuring Effective Date and the Longstop Date

36.The Scheme becomes effective on the Scheme Effective Date after sanction and the filing of the Sanction Order with the Companies Registry. When the Scheme becomes effective:

(a).  subject to certain carve outs, no Scheme Creditor can commence or continue any proceedings against any “Released Person” in respect of any “Released Claim.”

(b).  the Scheme Creditors will authorise the Company and other third parties to take action which are necessary or reasonably appropriate to give effect to the Scheme.

(c).  each Scheme Creditor will also give the releases in the Deeds of Release and authorise the Company to execute all documents to give effect to those releases (which shall come into effect on the Restructuring Effective Date).

37.The Restructuring Effective Date is the date on which the Scheme Consideration is distributed, and the relevant Released Claims are discharged. This is subject to the satisfaction of conditions (the Restructuring Conditions) under Clause 16 of the Scheme. If these conditions are not met by the Longstop Date (30 September 2026) the Scheme will lapse, unless the Majority Scheme Creditors[5] agree to extend the Longstop Date (Clause 5.6 of the Scheme).

The Restructuring Conditions

38.Clause 16.1 of the Scheme states as follows:

“The Restructuring Effective Date shall only occur within ten (10) Business Days following the satisfaction, or waiver by the (i) Company on the one hand, and (ii) (x) the Majority Ad Hoc Group or (y) the Majority Participating Creditors on the other, of each of the following conditions (save that, the conditions set out in Clauses 16.1(a) and 16.1(i) below shall not be waivable by the Company and the Majority Ad Hoc Group or the Majority Participating Creditors, as applicable):

(a) the satisfaction of each of the Scheme Conditions and the occurrence of the Scheme Effective Date;

(b) the obtaining of all relevant authorisations, approvals (regulatory or otherwise) or other consents as are necessary for the Restructuring to take effect;

(c) the settlement in full by the Company of the Consent Fee;

(d) each Major Restructuring Document (as defined in the Term Sheet) being in Agreed Form (as defined in the Term Sheet);

(e) compliance by the Company with the terms of the Term Sheet in all material aspects;

(f) the Company having established the Designated Account and the Share Allocation Account (each as defined in the New Notes Indentures and the New Facility Agreement) and having appointed the Monitoring Agent (as defined in the New Notes Indentures and the New Facility Agreement);

(g) the Company having announced the expected Restructuring Effective Date;

(h) the shares of the Company and the 9909 Shares remain listed on the Main Board of the SEHK; and

(i) the settlement in full by the Company of the AHG Work Fee (in accordance with the arrangement as set forth in the AHG Work Fee Letter), the AHG Advisor Fees (as agreed between the Company and the AHG Advisor), the Bank Group’s Advisor Fees (as agreed between the Company and the Bank Group’s Advisors) and all the fees, costs and expenses of all of the Advisors, the Information Agent, the Holding Period Trustee and its counsel, the Blocked Scheme Creditor Tabulation Agent and its counsel, the Successor Escrow Agent and its counsel, the Existing Notes Trustees and their respective counsels, the Existing Notes Paying and Transfer Agents and Registrars and their respective counsels, the Existing Agents and their respective counsels, the Existing Common Depositaries and their respective counsels, the New Trustees and their respective counsels, the New Agents and their respective counsels, the Chairperson and the Scheme Administrators pursuant to the terms of the Existing Notes Indentures or as agreed between the Company and the relevant party, provided that any such party referenced in this Clause 16.1(i), except for the Company, may, in its complete discretion and without prejudice to the Company’s obligation to pay any fees, costs and expenses due to any other party referenced in this Clause 16.1(i), waive the Company’s obligation to settle its fees, costs and expenses in full as a Restructuring Condition.”

39.There is a gap between the Scheme Effective Date and the Restructuring Effective date as time is needed for (a) the determination of Scheme Claims and the allocation of Options, and (b) a series of post-sanction steps to be taken to implement the Scheme, such as the issuance and listing of those new instruments that form a part of the Scheme Consideration.

40.The status of each of the Restructuring Conditions was reviewed in Mr Hoi’s Second Affirmation (Hoi 2) at [41]. Mr Hoi there concluded that “… the Company [was] not aware of any impediments that would prevent the Restructuring Effective Date from occurring.” At [42] he said that “The Company does not see any obstacle to fulfilment of all Restructuring Conditions and anticipates that the Restructuring Effective Date will take place on or before 30 September 2026.”

41.The Company noted in particular that:

(a)  clause 16.1(b) requires the Company to obtain all relevant regulatory or shareholder approvals or necessary consents for the Restructuring to take effect. The Company said that:

(i)  it will submit a listing application in respect of the New Notes to the SGX-ST after the Sanction Hearing and did not expect any difficulties in this regard.

(ii)  the Company’s shareholders had met on 12 June 2026 and passed resolutions granting a specific mandate for the issuance of the MCBs, the New Notes and the New Loan, and for the transactions contemplated under the Restructuring.

(iii)  on 16 April 2026, the Company applied for approval from the National Development and Reform Commission (NDRC) in relation to the issuance of the Scheme Consideration. The NDRC had provided preliminary feedback, and the Company will submit supplemental materials to the NDRC after the sanction of the Scheme. Mr Hoi said that the Company “[did] not expect any insurmountable difficulties in terms of obtaining authorizations from the relevant governmental bodies” and that “[save for the above-mentioned consents, there [were] no other authorization, approval or consent necessary for the Restructuring to take effect.”

(b)  Clause 16.1(c) and (i) require the Company to settle the Consent Fee, the AHG Work Fee, the AHG Advisors Fees and the Bank Group’s Advisor Fees and the fees, costs, and expenses incurred in relation to the Restructuring. The Company said that:

(i)  the actual cash payments required to be made to satisfy these conditions are the Consent Fee (US$3.69 million) and the remaining outstanding fee and expenses of approximately (US$7.72 million).

(ii)  the Company will fund the payment of the Consent Fee (and cash payments under Option 1) using the proceeds of the disposal of 160,725,000 9909 Shares to Prime Capital Investment Ltd for HK$360,827,625. The disposal had been approved at the Company’s EGM on 18 March 2026, and a contract had been signed and entered into which committed Prime Capital to pay the sale consideration. Prime Capital had already paid the first tranche of the consideration of approximately HK$72.2 million, or US$9.3 million in April 2026. A further HK$50 million, or US$6.4 million was paid in May 2026, and Prime Capital was obliged to pay the remainder on or before 31 August 2026.

(iii)  the Company will fund the payment of the outstanding fees and expenses of the restructuring using 10% of the proceeds from the disposal of its equity in Hangzhou Huazhan Real Estate Development Co., Ltd. (with estimated net proceeds of approximately RMB 997 million). The transaction was approved by the Company’s shareholders on 29 January 2026. The first three payment tranches totaling RMB 766 million (approximately US$107.9 million) had already been received by the Group, and the Company “has been liaising with its onshore banks and the personnel of the State Administration of Foreign Exchange on the potential remittance of the onshore funds to offshore to pay the required fees and expenses.”

Blocked Scheme Creditors

42.The Company says that while special arrangements were put in place for Blocked Scheme Creditors, the Company is not aware of any Scheme Creditors who fall under that category (see Hoi 1 at [155]) and that the Information Agent did not identify any Blocked Scheme Creditors during the Scheme Process.

Modification Clauses

43.In addition to the Longstop Date extension mechanism, the Scheme may be modified under Clause 27. The Company’s position is that:

(a)  Clause 27.1 is a conventional modification clause that allows the Company to consent to modifications, additions, or additional terms at the Sanction Hearing. Such changes must be necessary for implementing the Restructuring and not have a material adverse effect on the interests of any Scheme Creditor (see Re Cine-UK Ltd [2024] Bus LR 1944 at [55]).

(b)  Clause 27.2 allows the Company/Scheme Administrators, with the consent of the Majority Scheme Creditors, to apply to the Court to amend the Scheme after sanction, provided that such modification would not directly or indirectly have any material adverse effect on the Scheme Creditors: (see as an example of such a provision Re Times China Holdings Ltd [2025] HKCFI 3937 at [25] and [28]).

(c)  Clause 27.3 allows the Company to modify the Scheme if it is at risk of being contrary to the Applicable Sanctions provided that such modifications do not prejudice the interest of any Scheme Creditors who is not a Sanctioned Scheme Creditor. This ensures that the Scheme would comply with all Applicable Sanctions and could not be objectionable on this ground.

Liabilities not covered by the Scheme - Out of Scope Liabilities

44.As noted above, in addition to the Existing Debt Instruments, the Company is an obligor under three other categories of liabilities. These other liabilities will not be compromised under the Scheme. These other liabilities are explained in the ES at [5.9] and consist of the following:

(a)  Amended Out-of-Scope Debts: The Company is guarantor of ten tranches of Amended Out-of-Scope Debts with an aggregate principal amount of approximately US$786.16 million. Each debt has been bilaterally restructured. Maturity dates have been extended, with principal and interest payments to be serviced primarily from cash generated by the respective mortgaged assets which are anticipated to be sufficient to repay the debts substantially or in full (see Hoi 1 at [55], [56] and [58]).

(b)  Pending Out-of-Scope Debts: The Company is guarantor under three tranches of Pending Out-of-Scope Debts with an aggregate principal amount of approximately US$92.74 million. These guarantees are governed by PRC law. The Company is in ongoing negotiations with the banks to restructure these debts. Subsequent principal and interest payments are expected to be serviced primarily from cash flows generated by the respective mortgaged assets, which are anticipated to be sufficient to repay the debts substantially or in full (see Hoi at [55], [56] and [58]).

(c)  Other Current Liabilities: The Company’s Other Current Liabilities, including certain payables and accruals and amounts due to subsidiaries, which amounted to approximately US$2.11 billion. These consist primarily of related party debts. The Company does not anticipate legal or enforcement action from these creditors and considers liquidation risk from these intra-Group entities to be unlikely (see Hoi 1 at [59] and [67]).

The Company’s submissions as to why the Scheme should be sanctioned

45.The Company noted that it is well established that in considering whether a scheme should be sanctioned, the Court considers the following factors:

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

(b)  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;

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

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

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

(f)  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

(g)  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.

46.The Company submitted that each of the above factors was satisfied in the present case.

Permissible purpose

47.The Scheme seeks to restructure the debts of the Company and this was a permissible purpose of a scheme.

Class composition - the test: rights in the comparator case and under the Scheme

48.Unlike the practice adopted in some other jurisdictions, in this jurisdiction the issue of class composition is determined at the sanction hearing (see UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin (2001) 4 HKCFAR 358 at [12]-[14]).

49.In considering the class issue, the question was whether the rights (as opposed to the interests) of the Scheme Creditors before and after the Scheme were so dissimilar that they cannot form a single class. The Court adopts a broad approach and avoids giving unjustified veto rights to minority creditors (see Re Times China at [35]).

Class composition - the Company’s case as to why one class is justified

50.In the present case the Company’s justification for constituting a single class of Scheme Creditors was explained in Section 6.3 of the ES. The following points were highlighted:

(a)  the likely alternative to a restructuring is the liquidation of the Company. Whilst there are differences in the type of debt instruments, their interest rates, their default interest rates and maturity dates, these differences do not fracture the class when the relevant comparator is that of an insolvent liquidation: see Re Haya Holdco 2 Plc [2022] EWHC 1079 at [72(1)]. In a liquidation, the Scheme Creditors would rank pari passu as between themselves and all of them are expected to recover between 0.75% to 4.79% from the Company (see Section 6.3(c)-(d) of the ES).

(b)  if the Scheme becomes effective, all Scheme Creditors have the same right to receive the same Scheme Consideration. They are all entitled to choose from the same types of and the options to receive the Scheme Consideration, and the basis for determining the Scheme Creditors’ Distribution Claims is applied equally as long as such Scheme Creditors file the relevant forms by the Record Time (see Section 6.3(f) of the ES).

(c)  while certain Scheme Creditors also benefit from additional rights against third-parties (e.g. guarantees or security granted by third party obligors), these are not rights against the Company (but only represent interests of the Scheme Creditors) and are not relevant to the classification of creditors: see for example Re Shimao at [35] although the differences in interests may be relevant to the Court’s assessment of the fairness of the Scheme.

(d)  for the same reason, while there will be certain third-party releases under the Scheme, these go to interest rather than rights against the Company and should not affect the class analysis. However, once again, the question and impact of third-party releases and any difference in treatment resulting from such releases to the In-Scope Debt will go to fairness (see Section 6.3(e) and (l) of the ES).

(e)  default interest is excluded when calculating the Scheme Creditor’s entitlement under the Scheme. This affects the lenders of the Existing Loans since the other Scheme Creditors are not entitled to default interest. The Company argued that this would not fracture the class (see Section 6.3(g) of the ES). The Company’s position on this issue is as follows:

(i)  the applicable default interest rates range from 2.00% to 4.25% per annum in addition to the original interest rate. Aggregate default interest accrued to 30 June 2024 across all Existing Loans is approximately US$3.33 million, representing only around 0.50% of the Existing Loan Lenders’ total estimated Scheme Claims of US$669.67 million.

(ii)  on a lender-by-lender basis, default interest represents approximately 0.25% to 1.23% of each relevant lender’s total claim. If default interest were included in the Scheme Consideration calculation, the estimated recovery for affected creditors would increase by only 0.04% to 0.16%.

(iii)  here, the difference arising from the exclusion of default interest it is not so stark that it is impossible for creditors to consult together with a view to their common interest and does cause the fracturing of the class (see Re Sunac at [41(7)(i)] and [47(7)(ii)(c)]).

(f)  30 June 2024 (as opposed to a more recent date) is used to calculate the Restructuring Entitlement for each Scheme Creditor. The Company says that this will not fracture the class. The commercial terms in the Term Sheet were negotiated on the basis of claims as of that date, the cut-off applies equally to all Scheme Creditors, and each creditor’s proportionate share of the total Scheme Consideration does not vary materially whether 30 June 2024 or a later date such as 30 June 2025 is used (see section 6.3(h) of the ES).

(g)  the Company also submits that the Consent Fee, Work Fees and Advisor Fees are conventional and do not fracture the class (see by way of example Re Shimao at [12] and [30]-[32]). In particular:

(i)  all Scheme Creditors were given the equal opportunity to accede to the RSA so as to avail themselves of the entitlement to receive the Consent Fee, and the amount of 0.15% of their holdings is relatively modest (see section 6.3(i) of the ES and Hoi 1 at [160]).

(ii)  the AHG Work Fees is to compensate the Ad Hoc Group spent for the time and effort they spent in assisting the Company throughout the restructuring process, and the amount of 1.51% of their holdings is again relatively modest (see section 5.8(b) &(e) and 6.3(j) of the ES).

(iii)  the Advisor Fees are reimbursement for the actual costs incurred by the Ad Hoc Group and the Bank Group and are not to be regarded as conferring a benefit on them. The AHG Advisor Fees and the Bank Group’s Advisor Fees represent approximately 0.24% of the Ad Hoc Group’s holdings and 0.36% of the aggregate outstanding principal of the Existing Loans and have been fully disclosed in the ES (see section 5.8(b)-(e) of the ES).

(h)  the Ad Hoc Group performs certain roles through the Restructuring and in the Scheme, including formulating Scheme terms, negotiating Restructuring Documents, and exercising certain monitoring functions such as consenting to upward adjustments to Option caps and agreeing the form of the offshore account control agreement. These roles are primarily directed at implementing and monitoring the Scheme rather than conferring any differential economic benefit on the Ad Hoc Group, and the Company does not consider that they affect the class composition analysis (see section 6.3(m) of the ES). The Company submits that the position is analogous to (and indeed stronger than) the position of the creditors given rights to nominate board members in Re Stemcor Trade Finance Ltd [2016] BCC 194 at [23]. In his judgment in that case Snowden J (as he then was) held that board nomination rights were “not sufficiently different so as to require the putative holders of those rights to be placed into a different class,” given that such rights of participation in management were limited and “not accompanied by any prospect of financial reward.” The Company argued that the functions performed by the Ad Hoc Group here were closely analogous. They were essentially participatory and administrative in nature, directed at implementing the Scheme rather than conferring any differential economic benefit. [Stemcor - a usual incident of majority shareholder status]

(i)  the Company noted that two classes had been constituted in connection with the 2024 Scheme to reflect the fact that holders of Northeast Gemini Notes lacked security beyond the Company’s guarantee. However, on further reflection, the Company concluded that all Scheme Creditors may properly be constituted as a single class. In a liquidation, all Scheme Creditors hold unsecured or effectively unsecured claims against the Company, their rights as against the Company are materially similar, and there is no difference in treatment on a "rights-out" basis (see section 5.8(k) of the ES).

Compliance with the Convening Order

51.At the convening hearing, Madam Justice Linda Chan made a number of comments in relation to the ES. Following that hearing, as was confirmed by Mr Hoi in Hoi 2, the ES was amended to respond to and deal with these comments and also to provide further clarifications to enable the Scheme Creditors to understand better the Scheme (see Hoi 2 at [9]-[16]). Mr Hoi identified the principal revisions that had been made.

Adequate or sufficient information

52.The Company submitted that a clear and sufficient explanation had been given in the ES and noted the following:

(a)  Section 4 (Letter from the Directors to the Scheme Creditors) provides a brief overview of the Scheme, summarises the debts to the compromised and the key features of the Scheme.

(b)  Section 5 (Background to the Group and the Restructuring) explains the debt composition of the Company and its subsidiaries and the circumstances leading up to the Scheme.

(c)  Section 6 (Explanation of the Scheme) explains how the steps Scheme Creditors should take to vote as well as the provisions of the Scheme in detail (including details of restructuring costs and expenses).

(d)  Section 7 (Selection and Distribution of the Restructuring Consideration) explains the Scheme Consideration and the Options which may be selected by the Scheme Creditors.

(e)  Section 8 (Summary of the New Debt Instruments) sets out the terms of the New Debt Instruments to be issued under the Scheme.

(f)  Section 10 (Scheme Creditor and Actions to be Taken) explains who the Scheme Creditors are and the actions they are advised to take in connection with the Scheme.

(g)  Section 12 (Risk Factors) highlights the key risks associated with the Scheme.

(h)  Appendix 3 (Recovery Analysis) contains a detailed analysis on the returns to the Scheme Creditors in a liquidation scenario and the scheme scenario.

(i)  Appendix 6 (Solicitation Packet) contains detailed instructions on what Scheme Creditors have to do to vote and to receive the Scheme Consideration and the key dates before which they have to take such action.

(j)  Appendix 15 (Pro-Forma Balance Sheet) shows the financial position of the Group and the Company before and after the implementation of the Scheme.

Achievement of the statutory majorities

53.As I have already noted, the statutory majorities have been met in this case (and see Hoi 2 at [27]).

Discretion - rationality and fairness

The Court’s approach

54.The Company noted that the Court was normally slow to differ from the view of the majority as it normally acts on the principle that businessmen/businesswomen are much better judges of what is to their commercial advantage than the Court could be (see Re Sunac at [48]). Given that the average estimated returns under the Scheme (approximately 12.00% - 17.50%) are higher than that under a liquidation scenario (approximately 0.75% - 4.79%), the Company submitted that the Scheme was one which an intelligent and honest man might approve.

The Restructuring Conditions

55.The Company, as discussed above, also noted that the occurrence of the Restructuring Effective Date was subject to various conditions precedent and that the status of each condition had been addressed in Hoi 2. The evidence is that the Company believes that the conditions will be satisfied before the Restructuring Effective Date. There was therefore, the Company submitted, no material uncertainty as to whether the Restructuring Effective Date can and will be achieved which would justify a refusal to sanction the Scheme.

Third-party releases

56.As regards the third-party releases, while these affected and might be said to prejudice the holders of the Existing Public Notes and the Northeast Gemini Notes Company, the Company argued that these did not give rise to unfairness that justified a refusal to sanction the Scheme. The differences in the third-party releases had been fully disclosed in the ES (see section 6.14(h)-(r)) and approximately 94.5% of those holders (i.e. those creditors who may potentially be negatively affected) still voted in favour of the Scheme.

International elements - jurisdiction and effectiveness

57.The Company submitted that it had a sufficient connection with Hong Kong for scheme purposes because, as stated in the Petition at [170], (a) it is listed in Hong Kong, (b) it is registered in Hong Kong as a non-Hong Kong company, (c) it maintains a principal place of business in Hong Kong and (d) the Existing Syndicated Loans and the Existing BOCOM Loan are governed by Hong Kong law (see Re Times China at [46]).

58.The Company said that while the Existing Public Notes and Northeast Gemini Notes are governed by New York law, approximately 94.5% of the holders of the Existing Public Notes and the Northeast Gemini Notes had voted in favour of the Scheme. The other indebtedness to be released was governed by Hong Kong law. In these circumstances the Company considered that there was no real risk of non-assenting creditors taking any action against the Company or the Group that could interfere with the effectiveness or implementation of the Scheme so that the Court could properly conclude that was likely to achieve a substantial effect without the need for recognition and relief un the US under Chapter 15 of the US Bankruptcy Code (the Company did not intend to apply for Chapter 15 recognition (see Hoi 1 at [171]-[172]).

Discussion and reasons for my decision to sanction the Scheme

Overall conclusions

59.I found the Company’s submissions generally persuasive and accept that the statutory preconditions to sanction have been satisfied in this case and that it is appropriate, in the exercise of the Court’s general residual discretion, to sanction the Scheme.

60.For the reasons given by the Company and summarised above I am satisfied that:

(a)  the Scheme is a genuine debt restructuring and has been promoted for a proper purpose.

(b)  it was appropriate to convene a meeting of Scheme Creditors, and to provide for Scheme Creditors to vote, as a single class.

(c)  the Convening Order has been complied with.

(d)  the statutory majorities were achieved.

(e)  Scheme Creditors were provided with adequate information to enable them to make a fully informed decision as to how to vote at the Scheme Meeting.

(f)  the Scheme is one that an intelligent and honest person acting in accordance with his interests as a member of the class of Scheme Creditors might reasonably approve.

(g)  there is no blot on the Scheme or other unfairness that precludes the Court from exercising its power to sanction the Scheme. In particular, I am satisfied that the Scheme is likely to be effective in other foreign jurisdictions of practical importance, without relief being granted under Chapter 15 of the US Bankruptcy Code in respect of the New York law governed Released Claims.

61.There are, however, a few matters which merit further comment.

Default interest issue

62.The impact of not allowing scheme creditors with contractual rights to default interest to include the amount of such interest owed at the relevant date in their scheme claim has been considered by a number of authorities. I shall refer to three of these. Two were cited by the Company (Re Shimao and Re Sunac China Holdings Ltd [2026] HKCFI 68) and one was not (Re aCommerce Group Limited [2024] HKCFI 2216).

63.In Re aCommerce Group Limited Madam Justice Linda Chan refused to sanction a scheme because of the treatment of scheme creditors with contractual rights to default interest (where one such creditor appeared and opposed sanction at the sanction hearing). This was in large part because of the company’s failure to make clear in the explanatory statement the Scheme Creditors’ entitlement to default interest. Linda Chan J held that in the absence of any disclosure or evidence on CN Holders’ entitlement to default interest, it was not open to the company to contend that the rights of CN Holders before or after the scheme were sufficiently similar so that they could consult together with a view to their common interest at the scheme meeting.

64.But the impact of a requirement in a scheme that creditors entitled to be paid default interest waive that entitlement when claiming to participate in the scheme was also discussed. It was noted in the parties’ submissions that the waiver of default interest meant that the distribution to the Scheme Creditors was not on a pro rata basis because in a winding up creditors with an entitlement to default interest were entitled to prove pari passu for all interest due up to the time of winding up (In re Humber Ironworks (1868-69) LR 4 Ch App 643). There was a difference of rights in (because default interest creditors had an additional right) and a difference in rights out (because such creditors were required to give up a claim for accrued [default] interest which would be provable at the winding up date whereas creditors with other rights to interest were entitled to include their claim to accrued interest up to that date). It was also noted that, as Mr Justice Harris had pointed out in Re Kaisa Group Holdings Ltd [2017] 1 HKLRD 18 at [19], differences in rights, such as differences in rates of interest, as they relate to the post-liquidation period are not relevant where the comparator is an insolvent liquidation since no creditors have any entitlement to interest accruing after commencement of liquidation. So, removing the right of default interest creditors to a higher rate of default interest post the sanction of the scheme does not give rise to a relevant difference of rights. But requiring default interest creditors to give up part of their claim for accrued interest when other creditors with rights to accrued interest are not so required does give rise to a relevant difference.

65.In Re Shimao Madam Justice Linda Chan said as follows (my underlining):

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

……

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

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

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

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

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

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

66.In Re Sunac Mr Justice Harris said as follows at [47] (my underlining):

(7)   Exclusion of default interest would not fracture the class. As explained above, Scheme Creditors’ entitlement to Scheme Consideration is based on its Distribution Scheme Claim, includes all accrued and unpaid interest but excludes default interest. Only lenders under the Private Debts are contractually entitled to a default interest of 2% to 6% per annum. Nevertheless:

(i)   Differences in interest rates do not fracture the similarity of “rights in” where the comparator is an insolvent winding-up (e.g. Re Kaisa Group Holdings Ltd).

(ii).  I am of the view that the difference to Scheme Creditors on a “rights out” basis arising from the exclusion of default interest is immaterial and would not require creditors of the Private Debts to vote as a separate class:

(a)   As a percentage of each of the lenders’ estimated Scheme Claim accrued up to 30 June 2025, the accrued default interest excluded from the Distribution Scheme Claim calculation is approximately 0.22% to 4.89%.

(b)   According to the Recovery Analysis Report, if default interest is to be included when determining entitlement to the Distribution Scheme Claim, the additional value attributable to the lenders is estimated to be approximately USD 10,000.00 to USD 1.29 million in recovery of the New MCBs. As such, the difference in the Scheme recovery rate arising from the exclusion of default interest is approximately 0.02% to 0.84% only.

(c)   I have borne in mind that the risk of insolvency cannot be used as a solvent for all class differences. “Otherwise, creditors who might be assumed to be clearly in separate classes, for example with different priority rights on a liquidation, could still be treated as a single class if they will all be materially better off if a scheme proceeds, even if the levels of return available under the scheme (and therefore the degree of compromise) differ significantly.” Nevertheless, I am satisfied in this case that the difference to Scheme Creditors on a “rights out” basis arising from the exclusion of default interest is not so stark that it is impossible for them to consult together with a view to their common interest.

(d).  A material difference in legal rights does not necessarily fracture the class (citing Re Haya Holdco 2 plc [2022] EWHC 1079 (Ch); [2023] 2 BCLC 82 at [67]-[69], let alone a minor difference.”

67.In the present case, default interest is excluded when calculating the Scheme Creditor’s entitlement under the Scheme. The definition of Restructuring Entitlement in the Scheme is stated to mean “the sum of (a) the outstanding principal amount of the Existing Debt Instruments held by that Scheme Creditor at the Record Time and (b) all accrued and unpaid interest (except for any default interest or other special interests or fees) on such Existing Debt Instruments up to (and including) 30 June 2024.” Accordingly, Scheme Creditors with a right to ordinary interest can add the accrued interest to their claim but Scheme Creditors with a right to ordinary interest and to default interest must exclude the default interest component and therefore are required to waive part of their right to interest.

68.But I accept that the mere existence of different rights before the sanctioning of and of different treatment under a scheme does not of itself require that the relevant scheme creditors must be put in separate classes. As Mr Justice Hildyard said in England in Re Lehman Brothers International (Europe) (in administration) [2018] EWHC 1908 (Ch) a material difference in legal rights does not of itself require the formation of a different class. The essential requirement is that the (each) class should be comprised only of persons whose rights are sufficiently similar to enable them properly to consult and identify their true interests together. Or to put it another way, the question is whether the rights to be released and discharged by the scheme or the new rights which the scheme gives in their place are so different as to require that their holders be permitted to deliberate separately.

69.I am satisfied, for the reasons given by the Company, that the rights of the Scheme Creditors with an entitlement to default interest which is to be released by the Scheme and the resulting difference in entitlement to the Scheme consideration are not so different from Scheme Creditors with a right only to ordinary interest as to require that the default interest Scheme Creditors be permitted to deliberate separately.

70.In this case, as noted above, the applicable default interest rates range from 2.00% to 4.25% per annum in addition to the original interest rate; the aggregate default interest accrued to 30 June 2024 across all Existing Loans is approximately US$3.33 million, representing only around 0.50% of the Existing Loan Lenders’ total estimated Scheme Claims of US$669.67 million; on a lender-by-lender basis, default interest represents approximately 0.25% to 1.23% of each relevant lender’s total claim and if default interest were included in the Scheme Consideration calculation, the estimated recovery for affected creditors would increase by only 0.04% to 0.16% . The amount of default interest involved is relatively small. Further, as I have noted above, the average estimated returns under the Scheme are approximately 12.00% - 17.50% so that an assessment of the materiality of the difference in treatment by reference to projected rates of recovery also indicates the difference is not sufficiently material to require a separate class of default interest Scheme Creditors. An additional 0.04% - 0.16% recovery on top of these approximate returns does not seem to me to be sufficiently material. As Justice Harris put it in Re Sunac the difference arising from the exclusion of default interest is not so stark that it is impossible for creditors to consult together with a view to their common interest.

Fees

71.In Re Times China Madam Justice Linda Chan summarised the applicable principles and the Court’s approach to the assessment of the acceptability and impact of the Company assuming an obligation to pay fees incurred by Scheme Creditors as follows (my underlining):

“39. As regards AHG Work Fee, the relevant principles have been stated in Re Kaisa, §41; Re Golden Wheel, §38 and may be summarised as follows:

(1) Generally, where the payment of a work fee by the company to some creditors independently of the scheme, it would not give rise to a class issue.

(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.

(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 the creditors.

72.In Re Shimao Madam Justice Linda Chan said this (underlining added):

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

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

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

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

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

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

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

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

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

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

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

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

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

73.Shortly before the sanction hearing in this case Madam Justice Linda Chan handed down another judgment dealing with the Court’s approach to fees. This is her judgment in Re Fantasia Holdings Group Co Limited [2026] HKCFI 3449. At the sanction hearing I directed Mr Maurellet’s attention to this judgment as it seemed to me to be relevant to the issues arising in this case and clearly the latest judicial word on the topic. Linda Chan J dealt with a consent fee and work fees as follows (my underlining):

“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% (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. 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.”

74.It is important to recognise that the relevant comparator is not the nominal and face value of the Scheme Creditor’s principal debt under the Existing Debt Instruments but the projected and estimated returns under the Scheme and in a liquidation. The main question is whether the fees and payments offered are likely to affect and distort to a material extent a Scheme Creditor’s decision to vote (is the amount offered an additional right under the Scheme which is offered only to a sub-set of the Scheme Creditors which induces their vote in support or is otherwise unfair and discriminatory?).

75.As regards the Consent Fee in this case, as I have noted, Scheme Creditors who acceded to the RSA by the Extended Consent Fee Deadline are entitled to a Consent Fee of 0.15% of the aggregate principal amount of their Eligible Participating Debt. As in Re Fantasia, all Scheme Creditors were given the equal opportunity to accede to the RSA so as to avail themselves of the entitlement to receive the Consent Fee and the amount of 0.15% is not material when compared to the estimated return under the Scheme, which are, as already noted. approximately 12.00% - 17.50%. Further, there has been complete transparency as to the amount and terms of the Consent Fee and no objections have been made.

76.As regards the Ad Hoc Group Work Fee in this case, the Ad Hoc Group receives a sum of US$14 million, which represents approximately 1.51% of the aggregate outstanding principal amount of their holdings. This compensates them for negotiating over a particularly long period of time since it covers fees in respect of the 2024 Scheme. In Re Fantasia the Work Fee was a similar percentage of the outstanding principal, being 1.55%. In that case the projected recovery under the scheme was materially lower than in the present case at 5.95% to 15.8% and the projected return in a liquidation was also lower at 0.44% to 1.57% (compared with 0.75%-4.49% in the present case). I note Madam Justice Chan’s conclusion in Re Fantasia that on those figures the work fee was material by reference to these two reference points and her warning that her conclusion that this did not fracture the class in that case was heavily dependent on the fact that the level of support for the scheme was high and no objections had been raised to payment of the work fee. In the present case, the projected level of recoveries in the Scheme and in a liquidation are materially higher than in Re Fantasia although in absolute terms these levels are quite low. But it seems to me that it is appropriate to conclude that the Ad Hoc Group Work Fee does not fracture the class. In this case there was also a high level of support for the Scheme and importantly those Scheme Creditors who voted against the Scheme (which included some major financial institutions who are litigating against the Company and its management) chose not to object to the Ad Hoc Group Work Fee. I also take into account that this fee covers work done for the 2024 Scheme. It also seems to me that it is appropriate to adopt a more flexible approach in relation to work fees where the work done is genuinely helpful – and indeed on some occasions essential – to the restructuring process and the sums charged are reasonable and at a market rate.

77.As regards the Advisor Fees, the Company is paying the adviser fees of the Ad Hoc Group (of US$2.15 million which represents approximately 0.24% of Ad Hoc Group’s debt) the Bank Group (of around US$2.228 million which represents approximately 0.36% of the aggregate outstanding principal of the Existing Loans). While there have been increasing concerns in multiple jurisdictions at the level of advisers’ fees in corporate restructurings involving schemes, the amounts charged in this case are relatively modest and the quantum of the Advisor Fees has been disclosed and there has been no objection. Further, while the agreement to pay the fees incurred by some Scheme Creditors does constitute a distinct benefit conferred on them, it is important to take into account the fact that payment of the fees represents reimbursement for costs incurred and the work done can be seen once again to be genuinely helpful – and indeed on some occasions essential – to the restructuring process. So it seems to me that the agreement of a scheme company to pay such fees does not fracture the class and is generally unobjectionable where there are no other groups of Scheme Creditors who have acted in a representative and helpful capacity who wish also to be paid and where the amounts to be paid represent the genuine reimbursement of reasonable costs which have been properly incurred for the benefit of the groups of Scheme Creditors concerned and to the restructuring process.

Conditions to effectiveness

78.This is the Company’s second scheme within a short period, and it is important to scrutinise the Restructuring Conditions to ensure that there is a realistic prospect of them being satisfied before the Longstop Date (or that it is reasonable to assume that there would be a proper basis for extending the Longstop Date). If there was a material uncertainty that one or more of the conditions could be satisfied at all or in time it might be necessary to defer the sanction hearing until the position became clearer.

79.In this case, Mr Hoi in his evidence (in Hoi 2) has given a helpful update on the status of each of the Restructuring Conditions. He confirmed, as I have noted above, that “… the Company [was] not aware of any impediments that would prevent the Restructuring Effective Date from occurring” and that “The Company does not see any obstacle to fulfilment of all Restructuring Conditions and anticipates that the Restructuring Effective Date will take place on or before 30 September 2026.”

80.Two of the Restructuring Conditions merit attention.

81.First, is the NDRC condition in respect of which Mr Hoi’s (somewhat high level and generalised) evidence is that the Company “[did] not expect any insurmountable difficulties in terms of obtaining authorizations from the relevant governmental bodies.”

82.In Re Shimao at [18] - [20], Madam Justice Linda Chan gave a helpful summary of the reasons for NDRC approval and the process for obtaining it (my underlining):

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

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

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

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

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

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

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

83.In Re Sunac Mr Justice Harris said as follows at [32] (underlining added):

“Approval from the National Development and Reform Commission (“NDRC”) is required in accordance with the Administrative Measures for the Review and Registration of Medium- and Long-Term Foreign Debts of Enterprises. This is because the Company intends to issue, under the Scheme, New MCB 2s which will remain as bonds until the mandatory conversion window after 30 months from the Restructuring Effective Date or 31 December 2025, whichever is earlier. Following the Convening Hearing, the Group submitted its application to the NDRC for approval. I am told that the NDRC’s feedback has been broadly positive and that the Company intends to submit the sealed Sanction Order to the NDRC once approval has been obtained.”

84.In Re Zhongliang Holdings Group Company Limited Mr Justice Harris said this:

“40. As a final cross-check, the Court will evaluate whether there is any blot or defect in the scheme which may hinder its operational effectiveness (Re China Bozza Development Holdings Ltd36). Two matters were brought to my attention. First, it is a recognised practice in complex restructurings that schemes sanctioned by the Court typically take effect following a series of post-sanction steps. The present Scheme is similar because the Restructuring Effective Date is conditional on a series of post sanction steps to implement the Scheme, such as the issuance and listing of debt instruments that form part of the Restructuring Consideration. I am satisfied that the Company is likely to be able to satisfy these Restructuring Effective Date conditions. The present case is thus similar to Re Sunac China Holdings Ltd, and the Court would not be acting in vain in sanctioning the Scheme.”

85.The other Restructuring Condition that merits a mention is the provision of funding to pay the fees and the need for the potential remittance of onshore funds to offshore to pay the required fees and expenses. Mr Hoi’s evidence was once again rather amorphous and high level (that the Company had been liaising with its onshore banks and the personnel of the State Administration of Foreign Exchange).

86.Having said that, and in relation to both of these Restructuring Conditions, I note Mr Hoi’s overall positive conclusions and his evidence that “… the Company [was] not aware of any impediments that would prevent the Restructuring Effective Date from occurring” and that “The Company does not see any obstacle to fulfilment of all Restructuring Conditions and anticipates that the Restructuring Effective Date will take place on or before 30 September 2026.” In the circumstances, I am able and do conclude that the Company has shown that it is likely to be able to satisfy these Restructuring Conditions within an acceptable timeframe.

Releases

87.In her judgment in Re Yuzhou, Madam Justice Linda Chan said as follows:

“34. In my view, the starting point is to consider what types of third parties releases are involved in the restructuring, and whether such releases can be justified. In general, there are the following types of third parties releases and the justifications for their inclusions in the scheme are different.

35. First, a release which is necessary for the implementation of the scheme. This includes where a third party (including a subsidiary of the company) has provided guarantee or security in favour of the creditor’s claim to be compromised under the scheme. The justification for releasing the third party is that without the release, the third party may bring contribution claim against the company. This would undermine the scheme as it means that the company would remain liable for the claim even though the purpose of the scheme is to compromise that very claim.

36. Second, a release which forms part of the scheme between the company and the creditors, and the scheme has been approved by the creditors. Such release, if properly disclosed to the creditors, is unobjectionable as it is a matter which the creditors can consider and approve. The court would be slow to differ from the majority’s views, as this is essentially a matter of commercial judgement which businessmen are better placed in deciding whether it is in their interests or to their commercial advantage to accept the arrangement under the scheme.

37. Third, a release of the liability of the directors, officers, professional advisers and any other third parties. Such release, particularly when it is expressed in general or unqualified terms, cannot be said to be necessary for the implementation of the scheme. Nor is it justifiable. There is no reason why the directors, officers, professional advisers or third parties should be released from liability for any breach of duties or any cause of action which the company has or may have against them.

38. It has sometimes been said that the directors, officers and professional advisers are entitled to an indemnity against the company for any amount which they may be liable to pay to the company for any breach of duty, either under the articles of association or the contracts made between the company with such persons. However, such statement cannot be accepted at its face value for the following reasons:

(1) Very often, the company has already taken out insurance against any liability which the directors, officers and advisers may incur in the performance of their duties. As such, it is the insurer (rather than the company) which has to bear any liability to compensate the company for any loss suffered.

(2) Where the indemnity is only found in the articles of association of the company, such indemnity does not avail a third party as the articles of association is a statutory contract only as between the company and its members and the members inter-se.

(3) Even if the indemnity formed part of the contract made between the company and the relevant officers/advisers, whether it is valid or enforceable depends on the law which applies to the company concerned. For example, while the provision of such indemnity may be permissible for companies incorporated in offshore jurisdictions like Cayman Islands, Bermuda and BVI, the same cannot be said of a company incorporated in Hong Kong.

39. Fourth, a release of directors, officers and professional advisers from liability associated with the negotiations, preparation, and implementation of the scheme. Subject to carving out of any liability arising from fraud, wilful default, gross negligence or wilful misconduct (which cannot be justified), such release may be said to be reasonably necessary for the implementation of the scheme if the relevant person needs to take out additional insurance against any liability associated with the preparation of the scheme. In such scenario, it may be said that the release reduces the risk and costs associated with the preparation of the scheme.

40. Fifth, a release of third parties for liability unrelated to the creditors’ claims. This type of release is not permissible as it is not necessary for implementation of the scheme, and is no more than an attempt by the third parties to escape unrelated liabilities.”

88.In the present case, as the Company submitted and for the reasons given, none of the third-party releases, save possibly for one, offends against the principles set out in Re Yuzhou or is otherwise problematic.

89.The one area of concern relates to the release of the liabilities of Northeast Gemini in respect of the Gemini Notes. As I have noted, Northeast Gemini is the principal obligor while the Company is a guarantor. The Company relied on the dicta of Mr Justice Harris in Re Unity Group Holdings Ltd [2022] HKCFI 3419 at [16] - [17] where the learned judge said this (my underlining):

“16. The Singapore court has taken a different approach although reaching the same conclusion, namely, that a principal obligor’s obligations may be released, by permitting a guarantor’s scheme to discharge debts owed by the principal obligors, without the guarantor resorting to a deed of assumption to trigger a ricochet claim. In Pathfinder Strategic Credit LP v Empire Capital Resources, the Singapore Court of Appeal held (at [20(b)], [77], [79]–[82]):

‘What are the limits of the court’s jurisdiction under s 210(1) of the CA where the proposed scheme purports to release liabilities between the company’s creditors and third parties (Issue 2’)? This issue arises because the Proposed Scheme is put forward by Empire Capital as a guarantor and it contemplates the compromise and release of the liabilities of the primary obligors, BCR and BCE, under the 2015 and the 2017 Notes ….

In relation to the substantive test of jurisdiction, it seems to us that the proper inquiry is …. whether there is a sufficient nexus or connection between the release of the third party liability and the relationship between the company and the scheme creditors ….

Further, there also does not appear to be good reasons for drawing a distinction between a ‘primary’ and a ‘secondary’obligation in the context of a guarantee for the purpose of determining jurisdiction under s 210(1) of the CA.

On this basis, the Proposed Scheme would appear to fall within the scope of s 210(1) of the CA since the release of the debt owed by other members of the Berau Group to the 2015 and the 2017 Noteholders is evidently closely related to the creditor-debtor relationship between these noteholders and Empire Capital. The debts all arise out of the same note issues and indeed, from the creditors’ view, are effectively the same liability since the discharge of one extinguishes the right to pursue the other. On this basis, it is not relevant to the court’s jurisdiction under s 210(1) of the CA whether the scheme applicant is the issuer of the notes (BCR and BCE) or a guarantor of the same (Empire

Capital).

Even if the test of necessity were to be adopted, as the Minority Creditors propose, we would have been inclined to find that it would be satisfied on the present facts. In our judgment, having regard to the legislative context of s 210(1), any jurisdictional test would have to be applied in a commercially sensible manner particularly where a group restructuring is concerned. In this context, even if it was the guarantor and not the primary obligor who was the scheme applicant, a release of the third-party debt owed by the primary obligor to the scheme creditors would still be regarded as necessary, since otherwise liability and enforcement risks would merely be shifted between members of the corporate group and the overall restructuring objective would be entirely unmet. Indeed, without a release of the primary obligor’s liability, it seems to us unrealistic to even expect a guarantor within the same corporate group to settle or compromise its contingent liability through a scheme of arrangement. In that context, the third-party releases must be viewed as necessary to give effect to the Proposed Scheme.

For these reasons, we would have affirmed our jurisdiction to grant leave under s210(1) of the CA in respect of the Proposed Scheme notwithstanding that the scheme applicant is Empire Capital who is a guarantor of the 2015 and the 2017 Notes, and that there are third party debts, including those of the primary obligors, sought to be compromised.’

17. In Re Swissport Fuelling Limited Trower J remarked obiter that “[i]t may be that on the issue of third-party releases, the Singapore Court of Appeal has blazed a more straightforward trail which English law ought to follow.” I also can see force in the Singaporean Court of Appeal’s analysis. The question is whether or not the release of the third party’s obligations to the third party’s creditors comes within section 673 of the Ordinance. As I understand it the deed of contribution entered into by a company and the principal obligor in the cases to which I have referred and also the present one, does not create a new economic right. The deed of contribution is used to make clear that in the event of a claim being advanced against a principal obligor, which is a member of the group of which the company the subject of the scheme forms part, it will trigger a right to recover from the Company albeit under the deed of contribution rather than the guarantee. In Re Century Sun International I explain that a scheme can properly contain provisions that release third party rights if it is necessary in order for the scheme to be effective. I can see no reason to distinguish between, for example, a release of the obligations of a third-party guarantor of a company’s debt, which is necessary to make a scheme effective (i.e. the restructuring returns the company to commercial and financial viability) and a release of a principal obligor’s liability, which has been guaranteed by the company. Both are permissible. If this is correct there is no need for a deed of contribution. There may be cases in which the relevant arrangements are such that it is thought by a company’s advisors that entering a deed of contribution makes the effect of the scheme easier to understand, but in my view it is not necessary.”

90.As can be seen, in Re Unity Group Holdings Ltd the company had entered into a deed of contribution with the principal debtor although Mr Justice Harris did not consider this to be necessary. Mr Justice Harris said that his understanding was that the deed of contribution did “not create a new economic right [but was] used to make clear that in the event of a claim being advanced against a principal obligor, which is a member of the group of which the company the subject of the scheme forms part, it will trigger a right to recover from the Company albeit under the deed of contribution rather than the guarantee.”  He considered that the deed was unnecessary because he did not see a distinction “between, for example, a release of the obligations of a third-party guarantor of a company’s debt, which is necessary to make a scheme effective (i.e. the restructuring returns the company to commercial and financial viability) and a release of a principal obligor’s liability, which has been guaranteed by the company. Both are permissible.”

91.As far as I can tell (reviewing the discussion as [6.14(g)] of  the ES) there is no deed of contribution in this case. I am therefore unable to see the basis on which a release of Northeast Gemini is needed to avoid ricochet claims against the Company by Northeast Gemini if only the Company as guarantor is released. Principal debtors do not, in the absence of an express agreement, acquire rights of indemnity against guarantors since they (the principal debtor’s) are the party with the primary responsibility to discharge the relevant liability. It therefore seems to me that such a discharge can only be justified by adopting the wide view of the meaning of necessity which was favoured by the Singapore Court of Appeal. As both Mr Justice Harris and Mr Justice Trower noted, this may well be an attractive and justifiable approach to third-party releases but it is not one, as I understand it, that has generally or as yet authoritatively been adopted or accepted by this Court (since there was a deed of contribution in Re Unity Group Holdings Ltd that case is distinguishable). It seems to me that despite this concern, I can still sanction the Scheme in this case and rely on this occasion on Mr Justice Harris’ decision and the fact that the release of Northeast Gemini in this case represents a non-material matter which has been clearly disclosed and to which no objection has been raised. However, this is an issue that may require further attention and review in future cases.

Modification clauses

92.In Re Shimao the scheme contained modification clauses similar to those used in this case, which Linda Chan J considered to be acceptable.

93.The modification provisions in that case fell into four parts. The first part dealt with the sanction stage and permitted the company to consent to any modifications, additions, or additional terms that the Court may think fit to approve or impose, which were necessary for the purpose of implementing the Restructuring and which would not have any material adverse effect on the interests of any creditors. The other parts dealt with modifications after Restructuring Effective Date. The scheme provided that (a) the company or the Scheme Administrator may apply to the court to modify the terms and conditions of the Scheme, provided that such modification would not have any material adverse effect on the interests of any creditors; (b) the company may make modifications to the extent necessary to ensure that the Scheme and the Restructuring Documents are not contrary to applicable sanctions, provided that such modifications or amendments must not be adverse or prejudicial to the interests of the creditors who are not subject to the sanction; and (c) modifications which are of a formal, minor or technical nature or to correct manifest error.

94.It seems to me that the modification clauses in the Scheme in this case are unobjectionable for the reasons given by the Company and summarised above. Importantly, the power under clause 27.2 for the Company/Scheme Administrators to apply to the Court to amend the Scheme after sanction is subject to the consent of the Majority Scheme Creditors (and the need to show that the modification would not directly or indirectly have any material adverse effect on the Scheme Creditors). As the Company submitted, such a provision has been approved previously (see Re Times China) and is unobjectionable in principle. The power to modify under clause 27.3 ensures that a modification can be made to ensure that the Scheme does not unlawfully contravene Applicable Sanctions.

The additional rights given to the Ad Hoc Group under the Scheme

95.As I have noted above, the Ad Hoc Group is to perform certain roles in the Scheme including exercising certain monitoring functions such as consenting to upward adjustments to Option caps and agreeing the form of the offshore account control agreement. The Company said that these roles were unobjectionable because they were primarily directed at implementing and monitoring the Scheme rather than conferring any differential economic benefit on the Ad Hoc Group. So they did not fracture the class or give rise to relevant unfairness going to the exercise of the Court’s discretion.

96.I accept that, when a group of Scheme Creditors are, or a single Scheme Creditor is, given additional consent rights or rights to monitor or appoint directors to the board of the company, the fact that such rights are “not accompanied by any prospect of financial reward” (to use Mr Justice Snowden’s formulation in Re Stemcor) is an important factor to be taken into account. But it is not determinative. There are rights which are not immediately capable of being converted into a monetary value which are nonetheless significant and which are capable of fracturing the class or of creating material unfairness (see for example the discussion in Mr Justice Hildyard’s judgment in Lehman Brothers, above, of an entitlement given to a scheme creditor to be consulted on some aspects of the adjudication process within the scheme). However, I am satisfied that in this case the rights given to the Ad Hoc Group, which have been identified in the ES and to which no objection has been made, do not give rise to class or fairness issues.

The fact that liabilities owed to the Excluded Liability Parties and will not be released

97.As I have noted, some Scheme Creditors will retain rights under some security and against some Group companies. BOCOM will retain rights under the PRC law-governed BOCOM Share Charge and BOC will retain its claims against Pengye Macau (as borrower), Leong Ma (as guarantor and security provider), Hoi Kin Hong and Hoi Wa Fong (as guarantors), and the security granted by Pengye Hong Kong will not be discharged in respect of its Macau law-governed liabilities.

98.While the risk of ricochet claims has been dealt with by the waivers to be given by Pengye Hong Kong, Hoi Kin Hong, Hoi Wa Fong and Shanghai Haoshang, the question arises as to whether this involves BOCOM and BOC being given different and preferential treatment under the Scheme. However, I am satisfied that in this case, disclosure having been clearly given and no objection having been raised, the differential treatment is not material and does not give rise to class or fairness issues. As the Company argued, BOCOM’s rights under the BOCOM Share Charge appear to be of little or no value and I assume that BOC’s retained rights are of limited value or otherwise that their retention does not result in a material increase in BOC’s recovery or other materially unfair treatment.

The litigation against the Company and management

99.As I have noted and as was explained by Mr Hoi in Hoi 2, BOC has commenced proceedings in respect of the Existing BOC Loan against the Company, Chairman Hoi, Mr Hoi and Pengye Hong Kong. It has recently obtained summary judgment against the Company and Pengye Hong Kong. The liability of the Company and of Pengye Hong Kong, as I have noted above, arise under guarantees governed by Hong Kong law.

100.BOC’s claims against the Company and Pengye Hong Kong will be discharged by the Scheme. The evidence does not deal with the issue whether the discharge under the Scheme of the Hong Kong law governed liabilities will be recognised outside Hong Kong but as I understand it the Company’s evidence is that BOC’s  proceedings do not give rise to any threat of enforcement against the Company or Pengye Hong Kong outside Hong Kong (of course any foreign jurisdiction applying the Gibbs rule will give effect to the discharges under the Scheme) or to the effectiveness of the Scheme (it may be that BOC has submitted to the jurisdiction by participation in the Scheme proceedings).

101.It also appears, again as I understand it, that there is no imminent risk of a judgment being obtained against Chairman Hoi and Mr Hoi which would have the effect of materially risking the implantation and effectiveness of the Scheme and the Company is satisfied that leaving Pengye Macau’s liabilities to BOC unaffected will not affect or imperil the effectiveness of the Scheme.

102.In the absence of any objections or evidence that these matters pose a serious practical risk to the effectiveness of the Scheme I do not consider that they provide a basis for refusing to sanction the Scheme.

Using 30 June 2024 as the date for establishing Scheme Creditors’ entitlements

103.I am also satisfied that the fact that Scheme Creditors’ entitlement is calculated by reference to 30 June 2024 does not create class or fairness issues. All Scheme Creditors, as the Company submitted, are treated equally and no Scheme Creditor has come forward to identify any adverse impact arising from using this date.

The Deeds of Release governed by New York law

104.I note that the Company is executing Deeds of Release governed by New York, as well as Hong Kong, law, as agent and attorney for Scheme Creditors. This is to release the New York law governed claims of Scheme Creditors against third parties. I note that the validity of such releases was recently considered by Mr Justice Harris in Re Sunac at [55]-[56] (“It has become common practice in restructuring schemes to appoint the company as the agent and attorney on behalf of each of the scheme creditors to enter contractual documents including releases. However, achieving international effectiveness by way of foreign recognition of a power of attorney granted under the Hong Kong scheme is a novel development in Hong Kong”). Re Sunac involved releases in the context of third-party releases of liabilities governed by the law of the Mainland. It may be that such releases will only be treated as effective in other jurisdictions to the extent that the (Hong Kong) Scheme is otherwise itself, independently of the Deeds of Release, effective to achieve such a discharge but the position is not yet settled. In this case, where there the Scheme is not to be made effective in the US pursuant to Chapter 15 of the US Bankruptcy Code, there might be an issue affecting the effectiveness of these Deeds of Release but I am satisfied that this is not a concern that I need to address or which affects the sanctioning of the Scheme in this case because of the very high level of support of the Scheme by the Scheme Creditors whose New York claims are covered by the Deeds of Release.

The position in respect of the Pending Out-of-Scope Debts

105.As I have noted above, the Company stated that was still “in ongoing negotiations with the banks [in respect of three [PRC law governed] tranches of Pending Out-of-Scope Debts with an aggregate principal amount of approximately US$92.74 million] …... to restructure these debts.” While the failure to conclude these negotiations creates some uncertainty, the Company appears to be confident that they will be successfully concluded and there is no suggestion that there is a real and serious risk that they will not be and that such a failure could create a material risk to the effectiveness of the Scheme.

Mr Jose Maurellet SC and Mr Terrence Tai, instructed by Sidley Austin, for the Company