Founder Information (Hong Kong) Ltd (In Liquidation) v Peking University Founder Group Co Ltd

Judgment Date17 December 2021
Neutral Citation[2021] HKCFI 3817
Year2021
Judgement NumberHCA798/2021
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA778/2021 NUOXI CAPITAL LTD (IN LIQUIDATION IN THE BRITISH VIRGIN ISLANDS) v. PEKING UNIVERSITY FOUNDER GROUP CO LTD

HCA 778/2021, HCA 798/2021, HCA 1418/2021,
HCA 1442/2021 and HCMP 1831/2021
(HEARD TOGETHER)

[2021] HKCFI 3817

HCA 778/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 778 OF 2021

____________________

BETWEEN
NUOXI CAPITAL LIMITED(諾熙資本有限公司)
(IN LIQUIDATION IN THE BRITISH VIRGIN ISLANDS)
Plaintiff

and

PEKING UNIVERSITY FOUNDER GROUP COMPANY LIMITED
(北大方正集團有限公司)
Defendant

____________________

AND

HCA 798/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 798 OF 2021

____________________

BETWEEN
FOUNDER INFORMATION (HONG KONG) LIMITED
(香港方正資訊有限公司)(IN LIQUIDATION)
Plaintiff

and

PEKING UNIVERSITY FOUNDER GROUP COMPANY LIMITED
(北大方正集團有限公司)
Defendant

____________________

AND

HCA 1418/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1418 OF 2021

____________________

BETWEEN
HONGKONG JHC CO., LIMITED(香港京慧誠有限公司)
(IN LIQUIDATION)
Plaintiff

and

PEKING UNIVERSITY FOUNDER GROUP COMPANY LIMITED
(北大方正集團有限公司)
Defendant

____________________

AND

HCA 1442/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1442 OF 2021

____________________

BETWEEN
KUNZHI LIMITED(坤智有限公司)
(IN LIQUIDATION IN THE BRITISH VIRGIN ISLANDS)
Plaintiff

and

PEKING UNIVERSITY FOUNDER GROUP COMPANY LIMITED
(北大方正集團有限公司)
Defendant

____________________

AND

HCMP 1831/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1831 OF 2021

____________________

IN THE MATTER OF Peking University Founder Group Company Limited(北大方正集团有限公司) (in Restructuring in the Mainland of the People’s Republic of China)
and
IN THE MATTER OF the inherent jurisdiction of the Court

____________________

BY
ZHENG ZHIBIN(郑志斌) Applicants
ZHANG TING(张婷)
(MEMBERS OF THE PEKING UNIVERSITY FOUNDER
GROUP LIQUIDATION GROUP, ADMINISTRATOR OF
PEKING UNIVERSITY FOUNDER GROUP COMPANY
LIMITED(北大方正集团有限公司)
(IN RESTRUCTURING IN THE MAINLAND OF
THE PEOPLE’S REPUBLIC OF CHINA))

____________________

(HEARD TOGETHER)

Before: Hon Harris J in Chambers

Dates of Hearing: 29 – 30 November 2021

Date of Decision: 17 December 2021

_________________

D E C I S I O N

_________________

The Applications

1. A number of applications are made in these four actions[1]. The Plaintiffs seek case management directions for an expedited trial of all four actions, which I understand it to be common ground involve identical legal and factual issues. The Defendant has issued a summons seeking principally a stay of the actions in order that the disputes between the Parties are resolved in reorganisation proceedings taking place before the Beijing No.1 Intermediate People’s Court (“Beijing Court”). In addition, the Administrator of the Defendant (explained in [7][2]) issued an originating summons shortly before the hearing in which the Defendant seeks an order for recognition and assistance of the reorganisation proceedings in Beijing and stay of the actions.

2. The applications give rise to issues of some importance. The actions concern the enforceability of what are known as Keepwell Deeds, given by the Defendant in respect of a number of its subsidiaries. Keepwell Deeds have become an increasingly common feature of the financing arrangements entered into by Mainland[3] business groups and foreign lenders. In the present case the Keepwell Deeds relate to US$1.7 billion of debt. The Keepwell Deeds are governed by English law and contain Hong Kong exclusive jurisdiction clauses. The applications brought by the Defendant are the first of their sort in Hong Kong and give rise to issues concerning the interplay between the exercise of a party’s contractual rights and the impact of insolvency proceedings once a debtor has become insolvent and become subject to a formal insolvency process.

Background

3. The Defendant in the four actions, Peking University Founder Group Company Limited, is incorporated in the Mainland (“Company”). It is the holding company for a commercial group, whose activities stretch across a wide range of businesses the nature of which are not relevant for present purposes (“PU Group”). It is majority owned by Peking University Asset Management Co Limited (“PUAM”). PUAM is wholly owned by Peking University, which is ultimately controlled by the Ministry of Education. PUAM is, therefore, a State-owned enterprise.

4. In 2017 and 2018 respectively two members of the PU Group issued bonds. Nuoxi Capital Limited (“Nuoxi”, the Plaintiff in HCA 778/2021) issued US$900 million in aggregate principal of bonds constituted by trust deeds dated 20 April 2017 and 24 January 2018. The trustee was the Bank of New York Mellon, London Branch. Nuoxi is incorporated in the British Virgin Islands (“BVI”). It is a wholly owned subsidiary of Hong Kong JHC Co Limited (“HKJHC”, the Plaintiff in HCA 1418/2021), which guaranteed Nuoxi’s obligations under the Nuoxi bonds. HKJHC is a member of the PU Group. It is incorporated in Hong Kong. It was wound up in Hong Kong on 13 January 2021. Nuoxi is in liquidation in the BVI. On 24 February 2021, I made an order recognising the BVI liquidators[4].

5. Kunzhi Limited (“Kunzhi”, the Plaintiff in HCA 1442/2021) issued US$800 million in aggregate principal of bonds (I shall refer to the Nuoxi bonds and Kunzhi bonds collectively as the “Bonds”) constituted by trusts deeds dated 17 April 2018 and 21 May 2018. The trustee was also the Bank of New York Mellon, London Branch (“Trustee”). Kunzhi is incorporated in the BVI. It is a wholly owned subsidiary of Founder Information (Hong Kong) Limited (“FIHK”, the Plaintiff in HCA 798/2021). FIHK is incorporated in Hong Kong. It was wound up in Hong Kong on 1 February 2021[5]. Kunzhi is in liquidation in the BVI. On 5 July 2021, I made an order recognising the BVI liquidators of Kunzhi.

6. Nuoxi and Kunzhi have defaulted on their payment obligations under their respective bonds. The guarantees given by HKJHC and FIHK have been called. The guarantees have not been honoured. The Company had entered into two Keepwell Deeds in relation to the Nuoxi bonds with Nuoxi, HKJHC and the trustee dated 20 April 2017 (“1st Nuoxi Keepwell Deed”) and 24 January 2018 (“2nd Nuoxi Keepwell Deed”) respectively. The Company has also entered into two Keepwell Deeds in relation to the Kunzhi bonds with Kunzhi, FIHK and the Trustee dated 17 April 2018 (“1st Kunzhi Keepwell Deed”) and 21 May 2018 (“2nd Kunzhi Keepwell Deed”) respectively. The material terms of all four Keepwell Deeds are identical. I shall refer to them collectively as the “Keepwell Deeds”. They required the Company to cause each of Nuoxi, Kunzhi, HKJHC and FIHK (1) to have a consolidated net worth of at least US$1 at all times and (2) to have sufficient liquidity to ensure timely payment by each of Nuoxi, Kunzhi, HKJHC and FIHK of any amounts payable under the Bonds. Nuoxi and Kunzhi defaulted on their obligations under the Bonds. The Plaintiffs contend that as a consequence the Company defaulted on its obligations under the Keepwell Deeds. The Plaintiffs have submitted claims to the Administrator (explained in the next paragraph) of the Company based on the Company’s breach of the Keepwell Deeds. Other than in respect of HKJHC’s claim the Administrator has rejected the Plaintiff’s claims without giving any reason.

7. The failure of Nuoxi and Kunzhi to honour their payment obligations arose from the deteriorating financial state of the PU Group. On 19 February 2020 the Beijing Court issued an order on the application of the Bank of Beijing Co., Ltd that the Company commence reorganisation pursuant to the Enterprise Bankruptcy Law (“EBL”). The letter of request from the Beijing Court in support of the Administrator’s application for recognition and assistance appends a copy of its decision of 19 February 2020 appointing, what the Decision refers to as a liquidation group to supervise the reorganisation and carry out the functions described in the Decision (“Administrator”) [6]. The Administrator comprises of a panel of 12 members. Two are partners in Beijing Dentons Law Office. The positions of the other 10 members have been redacted. I asked at the hearing why I had not been provided with this information, which has been provided in previous cases, most relevantly Re HNA Group Co., Limited[7]. I was told that the other members had requested the Beijing Court that their positions be kept confidential. I was subsequently told what their positions are (which is fairly conventional for a reorganisation of the size), but was requested to keep the information confidential. This I will do. However, I would have expected it to have been appreciated by the Company’s lawyers, and for it to have been explained to the members of the Administrator, that it was inappropriate to ask the Hong Kong court to recognise the Administrator, whilst withholding relevant information about the identity of the Administrator. This is not something I would expect to be repeated in future applications for recognition by administrators of Mainland companies unless there is very good reasons, which would need to be explained in evidence made by the relevant members of the Administrator.

8. On 21 February 2020 the Beijing Court issued...

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