Re China Sce Group Holdings Ltd
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HCMP 1948/2025 [2026] HKCFI 4824 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 1948 OF 2025 ________________
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__________________________________ REASONS FOR DECISION __________________________________ Overview 1.By order dated 24 March 2026 following the last hearing on even date (“Convening Hearing”), this Court granted leave to China SCE Group Holdings Limited (“Company”) to convene a Scheme Meeting of its Scheme Creditors in connection with the proposed Scheme[1]. 2.The Scheme Meeting was convened on 18 May 2026, and the Scheme was duly approved. 381 out of 385 Scheme Creditors representing approximately 88.1% in value of those present and voting voted in favour of the Scheme. Background 3.The Company was incorporated in the Cayman Islands and registered in Hong Kong as a non-Hong Kong company. The shares of the Company have been listed on the Main Board of The Stock Exchange of Hong Kong Limited (“SEHK”) since 2010 (stock code: 1966.HK). The Company is the ultimate holding company of the Group and serves as one of the Group’s main offshore financing platforms. Its subsidiaries are incorporated in the Mainland, the Cayman Islands, the British Virgin Islands (“BVI”) and Hong Kong. The Group is engaged in property development, commercial and property management, and long-term rental apartment operations across the Mainland. Since mid-2021, the Group has faced liquidity difficulties due to the downturn in the Mainland real estate market. The Company defaulted on the Existing 2021 Syndicated Loan, triggering cross-defaults on its other debts. As at 30 June 2025, offshore principal defaults amounted to approximately RMB 17.45 billion. 4.As at 31 December 2025:
5.The liabilities under the Existing Debt (i.e. the Existing Notes and the Existing Loans) are approximately US$2.27 billion and represent approximately 87.16% of the Company’s total existing liabilities arising from financing arrangements as of 31 December 2025. Since late 2023, the Company has taken steps to formulate and implement a proposal to restructure the Existing Debt. On 28 November 2024, the Company reached an agreement in-principle on major commercial terms of the Restructuring with the Ad Hoc Group. This led to the launch of the Restructuring Support Agreement (“RSA”) on 26 June 2025, which was further amended after consultation with the Bank Group on 20 November 2025. By 1 March 2026, Scheme Creditors representing approximately 78% of the principal amount of the Existing Debt had acceded to the Amended RSA. The Scheme 6.The key effect of the Scheme is the release of the Scheme Creditors’ Claims under the Existing Debt, which comprise:
7.All Existing Notes and Existing Loans benefit from a common security package comprising guarantees from 22 wholly-owned Hong Kong and BVI subsidiaries (“Subsidiary Guarantors”) and charges over each of their shares (“Share Charges”). The Existing Notes and their guarantees are governed by New York law, while the Existing Loans and their guarantees are governed by Hong Kong law. 8.Under the Scheme, the Scheme Creditors will, inter alia, release the following claims which are defined in the Scheme as “Scheme Claims”, “Ancillary Claims” and “Restructuring Claims” against any “Released Person” in exchange for the Scheme Consideration. 9.The overall economic effect of the Scheme (assuming full subscription of Option 1 and Option 3 and the full conversion of the Mandatory Convertible Bonds (“MCBs”)) would be to reduce the liabilities of the Company by US$1.7 billion, representing a total reduction of 33.2% of the Company’s liabilities. The Options 10.The Scheme Consideration comprises one or a combination of three Options all issued by the Company, which are set out in the ES, Section 8.2(a) and Scheme, Clause 10.1. A brief summary of each of the Options is as follows:
11.The New Notes and MCBs will be guaranteed by the New Subsidiary Guarantors and secured on a pari passu basis by collateral comprising charges over (i) the shares of certain New Subsidiary Guarantors, and (ii) the Allocation Account[3]. 12.In addition to the Scheme Consideration:
13.The Options differ in, inter alia, form, tenor, interest rate, redemption / repayment period and price, and whether they are subject to a “cap”:
14.Options 1 and 3 are subject to the “caps”, which if exceeded will trigger a pro-rata cut-back with the excess reallocated to Option 2. Scheme Creditors who make no valid election by the Record Time will be allocated to Option 2. Key Provisions of the Scheme 15.The main features of the Scheme are set out below. Scheme Effective Date 16.The Scheme becomes effective on the Scheme Effective Date after the Court sanctions the Scheme and the Sanction Order is registered with the Registrar of Companies. When the Scheme becomes effective, amongst other things:
17.There is a gap between the Scheme Effective Date and the Restructuring Effective Date as time is needed for the determination of Scheme Claims, allocation of Options, and execution of a series of post-sanction steps to implement the Scheme: e.g. Re CIFI Holdings (Group) Co Ltd[4]. Restructuring Effective Date 18.“Restructuring Effective Date” is the date when (i) the Company will distribute, and/or take certain specified steps to ensure that, the Scheme Consideration and Consent Fee (together, the Restructuring Consideration) are distributed to the Participating Creditors[5], (ii) the Existing Notes will be cancelled and the Existing Finance Documents will be terminated and discharged, (iii) the Deeds of Release will be executed by the Company for and on behalf of the Scheme Creditors, and (iv) all new documents necessary to implement the Restructuring will become effective. 19.The Restructuring Consideration for those who have not submitted the requisite documentation before the Record Time will be placed in the Holding Period Trust and distributed or managed as per the Holding Period Trust Deed. 20.The Restructuring Effective Date will only occur if the conditions set out in Clause 7.2 are met. If the Restructuring Effective Date does not occur by the Longstop Date, the Scheme will lapse. 21.The Longstop Date may be extended in two ways:
Released Claims 22.As can be seen in the definitions of “Ancillary Claim”, “Restructuring Claim”, and “Released Person”, the Scheme will release certain claims held by the Scheme Creditors against various third parties, as is consistent with contemporary scheme practice. 23.First, the Scheme will release the liabilities of the Existing Subsidiary Obligors, being guarantors and security providers of the Existing Debt, to prevent any potential ricochet claims from arising post Restructuring that could otherwise undermine the Scheme: see Re Sunac China Holdings Limited[7]. 24.Secondly, the Scheme will release the “Released Persons” (comprising, inter alia, the Group, the AHG, the Bank Group, and their respective Personnel, advisors and agents, and other service providers involved in the Restructuring) from “Restructuring Claims” arising out of the preparation, negotiation, sanction or implementation of the Scheme and the Restructuring Documents. The releases are consistent with those in Re Sunac[8]. 25.The releases are subject to carve-outs, which are similar to those in Re Sunac[9]. The releases do not extend to liability for fraud, gross negligence, or wilful default (Clause 2.4(d)(ii)) or liability of advisors arising under their duty of care to their client (Clause 2.4(e)). There is also no general release for directors’ breaches of duty (Clause 2.4(b)). Developments after the Convening Hearing 26.Following the Convening Hearing, the Company updated the draft ES to (i) update the financial information disclosed therein, (ii) reflect material developments that had occurred since the hearing, and (iii) provide additional illustrative information on the economic effect of the Restructuring on the Company and the Group. 27.Two specific changes, which were alluded to at the Convening Hearing, are worth highlighting:
Out-of-Scope Debt 28.The debts and liabilities borrowed or guaranteed by the Company falling outside the Scheme represent 12.84% of the Company’s total existing liabilities as of 31 December 2025. Such Out-of-Scope Debt are either not due, have been restructured or are in the process of being restructured. These comprise:
29.No lender has indicated any intention to take hostile action against the Company, and all have expressed a willingness to cooperate with it. No Scheme Creditor has objected to the exclusion of the above debts from the Scheme. Analysis 30.In considering whether a Scheme should be sanctioned, the Court taken into account the following factors[10]:
31.The Company submits that each of the above factors is satisfied. I agree. Permissible Purpose 32.The Scheme seeks to restructure the debts of the Company; this is a permissible purpose of a scheme. Class Composition 33.The issue of whether the classes of creditors are properly constituted is to be determined as per the guidance in Re CIFI[11]. The key question is whether the new rights granted by the Scheme in place of the existing rights are so different that the Scheme must be treated as a compromise with more than one class. I am satisfied that the Scheme Creditors are properly placed in one class. 34.First, whilst there are differences in (i) the type of debt instruments, (ii) their interest rates (5.95%-7.375% for the Existing Notes and Hibor / SOFR + 3.7% + credit adjustment spread 0.114480% or Hibor / SOFR + 6.35% for the Existing Loans), (iii) their default interest rates (approximately 2% for the Existing Loans but none for the Existing Notes) and (iv) their maturity dates, these differences do not fracture the class. The relevant comparator is that of an insolvent liquidation. In a liquidation scenario, the rights of all Scheme Creditors against the Company would be materially the same and their claims would rank pari passu: see Re Haya Holdco 2 Plc[12]. 35.Secondly, the Existing Notes and the Existing Loans benefit from the same package of guarantees granted by third parties and Share Charges granted by the Company and third parties[13]. 36.Thirdly, the rights of the Scheme Creditors under the Scheme are identical: each is entitled to choose from the same Options as Scheme Consideration. 37.Fourthly, whilst the exclusion of default interest from the calculation of the Scheme Creditors’ entitlements only affects Existing Lenders (other Scheme Creditors are not entitled to default interest), the Recovery Analysis Report shows that the inclusion of default interest in the Scheme Creditors’ Claims would increase recovery for the Existing Lenders by only approximately 0.1%-0.5%[14]. Such a minimal difference would not render it impossible for Existing Lenders and Existing Noteholders to consult together in their common interest: see Re Sunac[15]. 38.Fifthly, 31 December 2024 (and not a more recent date) is used to calculate the Scheme Creditors’ entitlement under the Scheme. I accept that this would not fracture the class:
39.Sixthly, Consent Fee, AHG Work Fee, AHG Advisor Fee and Bank Group’s Advisor Fee are payable by the Company, but this would not fracture the class of Scheme Creditors:
Compliance with the Court’s Directions 40.I am satisfied that the Company has complied with the Convening Order. On 27 April 2026, 21 days before the Scheme Meeting, the Notice of Scheme Meeting (in English, Traditional Chinese and Simplified Chinese) was dispatched via the following methods:
41.The Notice of Scheme Meeting also contains a link to the Transaction Website to enable the Scheme Creditors to access copies of (i) the Scheme Document, (ii) the ES, (iii) other documents referred to in the ES, and (iv) advanced drafts of the templates of the transaction documents required to implement the Restructuring listed in Section 10.1 of the ES. Sufficiency of Information 42.I am also satisfied that sufficient explanation has been given in the ES:
43.The Recovery Analysis Report was prepared based on the Company’s and the Group’s audited financial results as at 31 December 2024. To give the Scheme Creditors an updated assessment of the Company’s financial position and effect of the Restructuring, Scheme Creditors were provided with the:
Statutory Majorities 44.385 Scheme Creditors representing US$2,388,273,276 in value attended and cast valid votes in the Scheme Meeting. Of those present and voting, 381 Scheme Creditors holding approximately US$2,103,728,104 in amount, i.e., 99.0% by number and 88.1% in value, voted in favour of the Scheme. Thus, the statutory majorities are clearly met. Discretionary Factors 45.The Court is slow to differ from the view of the majority as it normally acts on the principle that businessmen are much better judges of what is to their commercial advantage than the Court: see Re CIFI[21]. Given that the average estimated returns under the Scheme (14.6%-28.1%[22]) are higher than that under a liquidation scenario (2.3%-5.0%, which are the estimated recoveries from the Company and the Existing Subsidiary Guarantors in liquidation), I accept that the Scheme is one which an intelligent and honest man might approve. 46.Insofar as the conditions of the Scheme Effective Date are concerned, the only outstanding conditions are (i) the sanction of the Scheme by this Court, and (ii) the filing of a sealed copy of the order sanctioning the Scheme with the Registrar of Companies. There should not be any impediments to the Scheme coming into effect other than the sanctioning itself. 47.As to the status of the various conditions precedent to the Restructuring Effective Date (as set out in Clause 7.2 of the Scheme), this has been addressed in the 2nd affirmation of Wong Chiu Yeung (“Wong 2nd”). The most important are the following:
48.Whilst not a Restructuring Condition, the Company will also be required to pay an estimated US$5.60 million on the Restructuring Effective Date (subject to final determination by the Scheme Administrator), representing the cash component of the Option 1 Scheme Consideration payable pursuant to Clause 9.3(c)(ii) of the Scheme. 49.The Group is currently in the process of arranging the remainder of the amounts payable by remitting money from its onshore to offshore bank accounts, including by way of remittances and refinancing of other offshore investments and receivables. The risk associated with limitations on timely remittance is expressly identified as a risk factor in Section 13.2(k) of the ES. International Jurisdiction / Utility 50.Although the Company is an offshore company, the Court can exercise its jurisdiction to sanction the Scheme since the Company is listed in Hong Kong, some of its creditors are in Hong Kong, and some of the debts to be compromised under the Scheme are governed by Hong Kong law. There is therefore a sufficient connection between the Scheme and Hong Kong: see Re CIFI[24]. Conclusion 51.For the above reasons I made an order on 16 June 2026 sanctioning the Scheme.
Mr Terrence Tai and Ms Stephy Lo, instructed by Sidley Austin, for the Company [1] Unless otherwise stated, I shall adopt the abbreviation and terminology employed in the Scheme and the Explanatory Statement despatched to the Scheme Creditors (“ES”) in accordance with my order on the Originating Summons dated 24 March 2026 (“Convening Order”). [2] i.e. the ordinary shares of the Company. [3] A specified offshore account established to hold proceeds from the Cash Sweep tied to the disposal of certain specified accounts of the Group. [4] [2025] HKCFI 3250, [64]. [5] These are Scheme Creditor, other than Blocked Scheme Creditor, who have submitted the requisite documents prior to the Record Time. [6] [2025] HKCFI 1751, [49]. [7] [2026] HKCFI 68, [27(2)], [41(4)]. [8] Supra, [27], [41(4)(ii)]. [9] Supra, [28]. [10] See Re Sunac, supra, [35]. [11] Supra, [33]. [12] [2022] EWHC 1079, [72(1)]. [13] While the Existing 2023 Syndicated Loan was previously additionally secured by the Charged SCE Management Shares, such security would not have fractured the single class of Scheme Creditors, as the security is granted by a third party (Happy Scene Global Limited) instead of the Company and constitutes an interest (and not a right) against the Company: see Re CIFI, [44]. In any event, the shares were disposed of by 8 May 2026. [14] The recovery for lenders of the 2021 Syndicated Loan is expected to increase by only approximately 0.2%-0.5% (from 14.4%-27.7% to 14.6%-28.2%), while the recovery for lenders of the 2023 Syndicated Loan would increase by only approximately 0.1%-0.3% (from 14.5%-27.9% to 14.6%-28.2%). [15] Supra, [41(7)(i), (ii)(c)]. [16] [2024] HKCFI 2216, [27], [46], [61(5)]. [17] When calculating the Scheme Creditors’ entitlement to Scheme Consideration, general interest accrued up to 31 December 2024 is taken into account. If interest is accrued up to 31 December 2025, the blended expected recovery rate to the Scheme Creditors is 14.5% to 27.9%, compared to 14.6% to 28.1% based on interest accrued up to 31 December 2024. [18] Supra, [47]. [19] Supra, [39(1)], [(2)]. [20] The Company has already settled approximately US$4.98 million in the AHG Work Fee. [21] Supra, [53]. [22] The Estimated Return to Scheme Creditors is a blended rate for the general body of Scheme Creditors, averaging the Estimated Return to both noteholders and lenders of the Existing Debt. Scheme Creditors’ specific recoveries will differ depending on which type of Existing Debt they hold and in what proportion. The specific Estimated Return to lenders holding Existing 2021 Syndicated Loans is estimated to be 14.4%-27.7% in an Option Cap-Weighted Election %. The specific Estimated Return to lenders holding Existing 2023 Syndicated Loans is estimated to be 14.5%-27.9% in an Option Cap-Weighted Election %. [23] Including (i) US$2.61 million Consent Fee, (ii) US$8.71 million AHG Work Fee and (iii) US$12.6 million in other costs and expenses: see Wong 2nd, [66.2], [66.3]. [24] Supra, [57]-[59]. |
Cases cited in this judgment