Re App (Hong Kong) Ltd

HCMP 2420/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2420 OF 2004

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Before: Hon Kwan J in Court

Date of Hearing: 4 October 2005

Date of Judgment: 4 October 2005

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J U D G M E N T

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1.This is a petition presented by APP (Hong Kong) Ltd. (“the Company”) seeking sanction of a scheme of arrangement with its creditors.

2.On 30 July 2004, an order was made for a court meeting of the creditors to be convened and directions were given for the despatch of the scheme documents to creditors.  The meeting of the creditors was held on 1 September 2004.  The debts of 15 creditors were admitted for the purpose of voting.  14 voted in favour of the scheme, they represented 95.42% in value of the total indebtedness admitted for voting purpose.

3.Prior to the hearing, the only creditors who have been opposing the scheme reached an agreement with the Company and indicated they would withdraw their opposition.  They are American Home Assurance Company (“AHAC”) and APP International Trading (V) Ltd (“APPIT(V)”).  AHAC was the only creditor who voted against the scheme at the meeting.  The debt of APPIT(V) was not admitted for the purpose of voting.

4.The agreement reached by AHAC and APPIT(V) with the Company is on the basis that the Company will apply to court for a variation of the terms of the scheme as follows:

(1)	to reduce the period of adjudication of the claims by the scheme adjudicator from three calendar months to two; and
(2)	to remove the adjudication deposit of HK$50,000.00 as a condition precedent to the commencement of the adjudication process and that the costs of the adjudication will follow the event, namely, to be borne by the losing party.

5.There is also one other amendment to the scheme and that is to alter the name of the Reporting Accountant, due to the change of name of RSM Nelson Wheeler Corporate Advisory Services Limited to Alvarez and Marsal Asia Limited.  A marked up copy of the relevant pages in the scheme with the amendments is placed before the court.  The Company seeks sanction of the scheme as amended. 

6.The revisions made to the scheme are relatively minor variations.  A copy of this has been sent to all other creditors who voted at the creditors’ meeting.  Twelve creditors who had voted in favour of the scheme indicated they would have no objection to the revisions, apart from AHAC who had voted against the scheme. The total indebtedness of the creditors who had voted and not responded to the amendments only amounted to 1.64% of the aggregate value of the debts admitted for the purpose of voting.  The adjudicator has also written stating that he would consent to carry out the adjudication of the scheme debts on the amended terms.

7.The court has inherent jurisdiction to correct any obvious mistake in the document which sets out the scheme, but cannot alter the substance of the scheme and impose on the parties an arrangement to which they had not agreed.

8.Here, I have a clear requisite statutory majority of creditors consenting to the amendments to the scheme.  I do not think there is any jurisdictional obstacle to give sanction to the scheme with the amendments.  I am also satisfied that there would no detriment to the creditors in view of the minor amendments. 

9.I propose to sanction the scheme as amended, a copy of which is to be annexed to my order.  It would only be necessary to give brief reasons in view of the withdrawal of opposition by the only opposing creditors.

10.For the background of the Company, the APP group, the winding-up petition presented against the Company, and other matters leading to the proposal of the scheme, I refer to my previous judgment in HCCW No. 1130 of 2003 handed down on 5 May 2004, paragraphs 5 to 17.

11.The effect of the scheme may be summarised as follows:

(1)	all unsecured creditors, with the exception of three types of claims that have been specifically excluded, will be bound by the scheme;
(2)	all unsecured creditors are invited to file notices of claim, which will be determined by the scheme administrator, and will either be admitted or rejected;
(3)	all disputes concerning the admissibility of the debts will be determined by the adjudicator;
(4)	creditors of all admitted claims will have a choice of the consideration to take: either 10 cents in the dollar, or one new share for every dollar of the debt to rank pari passu to the existing shares, or a combination of cash and new shares in the proportion chosen by the creditors; and
(5)	all costs of the scheme and the scheme consideration will be paid for with new money, to be put up by the controlling shareholders. Their consideration will be converted into new shares on the same basis as if they were admitted debts under the scheme.

12.The statutory provisions for sanction of a scheme have all been complied with.  I am satisfied that it is necessary to convene a creditors’ meeting for only one class of creditors, having regard to the test that constitution of a class is to be judged by reference to similarity or dissimilarity of rights, not private interest arising from matters extraneous to such rights.  The scheme affects all creditors in the same way, they have the same choice whether to take cash or shares or a combination of both at their own discretion.  They can properly vote in one class, whether they are outside creditors, or creditors related to the Company or the APP group.

13.I am also satisfied that the class of creditors was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and not coercing the minority to promote interests adverse to those of the class whom they purport to represent.

14.Evidence was adduced from ten related creditors as to why and how they had exercised their voting power.  There was no consultation with any member of the APP group or of the controlling shareholders.  The common directors have excused themselves from discussion and voting.  I do not think a case was made out for the votes of the related creditors to be discounted.

15.Lastly, I ask whether the scheme is such that an intelligent and honest man, as a member of the class concerned and acting in respect of his interest, might reasonably approve.  Having considered the financial position of the Company and the estimated recovery if the Company is to be wound up, I can see significant advantages to creditors under the scheme.

16.For these reasons, I will make an order to sanction the scheme as amended.

17.It is agreed by all parties who appear today that each will bear its own costs, and I so order.

Mr. Charles Manzoni, instructed by Messrs Tanner De Witt, for the Petitioner

Mr. Russell Coleman, instructed by Messrs Deacons, for the Opposing Creditors, American Home Assurance Company and APP International Trading (V) Ltd.

Miss Teresa Wu, instructed by Messrs Holman, Fenwick & Willian, for the Supporting Creditors, (1) Lucky Ever Ltd., (2) APP China Trading Ltd., (3) Vestwin Industrial Ltd.

Mr Richard Zimmern, instructed by Messrs Laracy Gall, for the Supporting Creditors, (1) PT Indah Kiat Pulp & Paper Tbk, (2) PT Lontar Papyrus Pulp & Papers, (3) IK Import & Export Ltd., (4) PT the Univenus, (5) PTPakrik Kertas, (6) Tjiwi Kimia Tbk, (7) PT Pindo Deli Pulp & Papers, (8) TK Import & Export Ltd., (9) TK Trading Ltd., (10) APP International Trading (China) Ltd.