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Perfect Direct Ltd And Another v Dejin Resources Group Co Ltd

Judgment Cited authorities 7 Cited in Precedent Map Related
Vincent
Judgment Date19 June 2015
Year2015
Judgement NumberHCCW76/2014
Subject MatterCompanies Winding-up Proceedings
CourtHigh Court (Hong Kong)
HCCW76/2014 PERFECT DIRECT LTD AND ANOTHER v. DEJIN RESOURCES GROUP CO LTD

HCCW 76/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) NO 76 OF 2014

_______________

IN THE MATTER OF Section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Chapter 32
and
IN THE MATTER OF Dejin Resources Group Company Limited (德金資源集團有限公司)

_______________

BETWEEN
PERFECT DIRECT LIMITED 1st Petitioner
NEW HEAVEN INVESTMENT LIMITED (Putative) 2nd Petitioner
and
DEJIN RESOURCES GROUP COMPANY LIMITED
(德金資源集團有限公司)		 Respondent

_______________

Before: Deputy High Court Judge Manzoni SC in Court
Date of Hearing: 27 May 2015
Date of Judgment: 19 June 2015

________________________

JUDGMENT
________________________

1. The petitioner has applied, by a petition dated 31 March 2014, to wind up Dejin Resources Group Company Limited (“the Company”) on the grounds of insolvency.

Background

2. The Company is a limited company incorporated in Bermuda with its registered office at Clarendon House, 2 Church Street, Hamilton, HM11, Bermuda. It has an authorised share capital of 250,000,000,000 shares of $0.01 per share, of which 429,594,983 were issued as at the date of the petition.

3. The Company, which was previously known as Bright International Group Ltd, was listed on the Main Board of the Stock Exchange of Hong Kong (“SEHK”) in November 1999 and at that time its principal activities consisted of the sale of lighting products. It is registered in the Hong Kong Companies Registry as a non‑Hong Kong company with a principal place of business at Unit D, 4/F Sing Ho Finance Building, 166‑168 Gloucester Road, Wanchai.

4. In May 2010 the Company completed two transactions to acquire nine goldmines in Mainland China. For the purposes of those transactions it issued two series of convertible notes (“the Notes”) in the principal amount of approximately $1 billion for one series and $6 billion for the other series. The Notes are governed by Hong Kong law, and both the Company and the Noteholders have submitted to the jurisdiction of the Hong Kong courts in respect of them.

5. Since July 2010, and as at the date of the petition, the petitioner has been the holder of Notes with a principal amount of $399 million. In addition, New Heaven Investment Limited (“New Heaven”), who is applying by summons dated 12 December 2014 to be added as the 2nd petitioner in these proceedings and whose position I shall address below, is the holder of $3 million of the Notes. There were 22 other Noteholders as the date of the petition to whom the Company owed $843 million, although since that date there has been some movement in the numbers of Notes held and identity of the Noteholders. In addition, there is evidence that the petitioner is in fact obliged to transfer the ownership of $189 million worth of Notes it holds to Yu Guolin, pursuant to an arbitration award dated 28 November 2013 issued by the Shanghai International Economic and Trade Arbitration Commission, and (insofar as enforcement of that award in Hong Kong is concerned) pursuant to an order of Madam Justice Mimmie Chan dated 10 June 2014.

6. There is no dispute that the Notes matured on 13 May 2013. There is also no dispute that the Company has not paid the petitioner the amount due upon maturity of the Notes. The dispute concerns whether or not the petitioner is in fact estopped from claiming the amount by virtue of representations and negotiations which will be analysed in more detail below.

7. It also does not appear to be seriously in dispute that absent some agreement as to an amendment of the terms of the Notes, the Company is insolvent. According to the consolidated financial statements for the period ending 31 December 2012 the Company had net current liabilities of $861,296,000 of which the vast majority consisted of the liabilities in relation to the Notes. However I should note that Mr Wilson Cheung, the Chairman of the Board of Directors of the Company (“the Board”), has stated at paragraph 36 and 37 of his 1st affirmation that:

“the auditors have been satisfied that for as long as the Alteration of Term could be put in place, the Company should be able to continue as a going concern.”

8. The “Alteration of Terms” is a phrase which has been adopted in the various announcements of the Company, and in the financial statements of the Company, to mean the proposed alteration to the terms of the Notes which was being negotiated between the Company and the various Noteholders. I shall adopt it in this judgment as meaning that, although inevitably given that the proposed amendments to the Notes varied in terms of their detail from time to time, the phrase is inevitably somewhat loose in its precise definition. But the precise detail of the proposed amendments are not material to the matters that I have to decide.

9. To the extent that there is any dispute in relation to insolvency I find that the Company is insolvent, and was insolvent as at the date of the petition.

10. As a result of that finding it is not necessary for me to reach any conclusion about the validity of service of the Statutory Demand dated 6 September 2013 pursuant to section 327(4)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“the Ordinance”). Service of that Statutory Demand is disputed by the Company on the ground that it was apparently sent only via email rather than being properly served. The petitioner does not agree, but has not addressed this matter in any detail because of what it says is the obvious insolvency of the Company. Consequently I make no findings as whether the Statutory Demand has, or has not, been served so as to give rise to a “deemed insolvency” under the ordinance.

11. The Notes are such that the conversion price varies according to various complex provisions contained in clause 7. The detail of the variation in conversion price is not material to the issues before me and consequently I do not address it. Suffice it to say that the conversion price has varied from the initial conversion price of $0.6 per share to $24 per share at or around the time of maturity.

12. In early 2013, in anticipation of the maturity of the Notes, and no doubt having regard to the high conversion price, the Company commenced negotiations with the Noteholders in an attempt to vary the terms of the Notes. The petitioner was one of the largest holders at that stage and the Company approached the petitioner with a view to obtain its agreement to extend the maturity date of the Notes for three years, to 13 May 2016, and as a quid pro quo to reduce the conversion price from $24 to $0.40. There appears to be a degree of agreement between the parties that in or around January 2013 there was a meeting between various representatives of the parties in which the proposed amendments were agreed (although at that stage it appears that the new conversion price was to be $0.3).

13. On 1 March 2013 the petitioner signed an undertaking pursuant to which, in simple terms, it agreed that subject to all the necessary consents and approvals being obtained, it would sign an amendment to the Notes extending the maturity date and altering the conversion price in the manner set out above. It was the express intention of the Company to negotiate with all Noteholders and to obtain the agreement of them all for the purposes of the Alteration of Terms. However the undertaking signed by the petitioner contained a provision for the promotion of a scheme of arrangement in order to facilitate the amendments in the event that not all of the Noteholders reached agreement. I have referred to that undertaking only briefly because there is no dispute that it lapsed, and that a subsequent undertaking which was also in writing has become the operative document about which the dispute centres.

14. On 2 April 2013 the Company made an announcement that it had obtained the consent of a majority of the Noteholders to the Alteration of Terms. However the announcement made it clear that no formal agreement had been entered into with the Noteholders. The Company said that it would continue to use its best efforts to negotiate with the remaining Noteholders so as to obtain a unanimous consent for the proposals, but it did not preclude the possibility of putting forward the Alteration of Terms by way of a scheme of arrangement. It is clear that at the same time as the announcement the Company was also taking detailed legal advice about the possibilities for, and implications of, such a scheme of arrangement.

15. On 13 May 2013 a second undertaking (“the Undertaking”) was signed by the petitioner, consenting to extend the maturity date of the Notes for three years and to reduce the conversion price from $24.00 to $0.30.

16. The terms of the Undertaking are important and I set out the relevant terms below:

“Re: Irrevocable Undertaking in relation to the Outstanding 0% convertible notes (the Convertible Notes) in an aggregate principal amount of HK$5,920,000,000 due 2013 issued by [the Company].

We, Perfect Direct Ltd, are the holders of the Convertible Notes in the principal amount of HK$339,000,000. Unless otherwise stated, the terms used herein shall have the same meanings as those defined in the instrument (the “Instrument”) relating to the Convertible Notes dated 13 May, 2009.

We hereby agree with, irrevocably undertake to and confirm with the Issuer the followings [sic]:

1. Subject to paragraph 3 below, we hereby irrevocably and unconditionally agreed to amend the terms of the Convertible Notes in the following manner:

a. The Maturity Date shall be revised to 13 May, 2016: and

b. The Conversion Price shall be reset at...

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