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Re Century Sun International Ltd

Judgment Cited authorities 12 Cited in 1 Precedent Map Related
Vincent
Judgment Date06 October 2021
Neutral Citation[2021] HKCFI 2928
Year2021
Judgement NumberHCMP759/2021
Subject MatterMiscellaneous Proceedings
CourtCourt of First Instance (Hong Kong)
HCMP759/2021 RE CENTURY SUN INTERNATIONAL LTD

HCMP 759/2021

[2021] HKCFI 2928

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 759 OF 2021

________________

IN THE MATTER OF Century Sun International Limited
and

IN THE MATTER OF the Companies Ordinance (Cap 622)

________________

Before: Hon Harris J in Court
Date of Hearing: 8 September 2021
Date of Decision: 6 October 2021

________________

D E C I S I O N

________________

Introduction

1. On 23 June 2021 I made an order that Century Sun International Limited (“Company”) have liberty to convene a meeting of its unsecured creditors for the purpose of considering and approving a proposed scheme of arrangement restructuring the Company’s unsecured debt. The Scheme meeting was held on 29 July 2021. A majority in number of Scheme Creditors attending and voting at the meeting representing 76.9% of the unsecured debt voted approved the Scheme. The statutory majority required by section 674 of the Companies Ordinance, Cap 622 (“Ordinance”), was, therefore, obtained. On 20 August 2021 the Company issued a Petition seeking the Court’s sanction of the Scheme. Two Scheme Creditors, SES Germany GmbH and New Skies Satellites B.V., appeared before me through counsel to oppose the Petition. The objections that were advanced at the hearing before me were in summary as follows:

(1) The class was not properly constituted.

(2) The result of the meeting did not fairly represent the views of the class by virtue of materially different interests amongst them in the Scheme being sanctioned.

(3) The explanatory statement was inadequate and in the form presented to Scheme creditors was not one a honest, rational creditor would support.

Background to the Scheme

2. The Company was incorporated in Hong Kong in January 2011. The Company is part of a media group headquartered in the Mainland (“Group”) headed by StarTimes Communication Network Technology Co. Ltd (“Parent”). The Group is engaged primarily in the businesses of large-scale television broadcasting system integration; network investment and operation; programme integration, translation, dubbing, production and distribution; and digital TV technology research and development.

3. The Company’s business is in the field of international digital television, consisting of broadcasting content procurement, production, delivery and related services, procurement and resale of satellite bandwidth, fibre circuits, uplink and other digital transmission services. Typically the Company would purchase digital television programmes from international suppliers, re-package the programmes from different suppliers, and offer programme packages to the Company’s ultimate customers overseas via companies affiliated to the Group. The Company’s key ultimate customer base is in Africa and its main source of revenue comes from the sale of digital television and internet video services to companies affiliated to the Group which in turn provide the services to the ultimate customers throughout Africa. After years of business development, the Company currently has more than 30,000,000 ultimate customers in Africa, accounting for more than 30% of the market share in the Pan-African region.

4. Although the Group is still operating, the Company is suffering from financial distress because of its unique business in international transmission bandwidth and digital television programme focusing on the African market. The Company’s heavy investment and operating costs coupled with an unstable revenue stream at the early development stage accounted for the significant accumulated losses in its early years. On 14 July 2020, the Company was subject to a winding-up petition in Hong Kong (HCCW 214/2020) (“Petition”). The Petitioner is a supplier of television programmes. As the Company has become profitable since 2018, the Company has been pursuing a debt restructuring in order to return to a solvent going concern. The Company’s restructuring efforts have led to the Scheme.

5. The Scheme Creditors’ recovery under the Scheme is estimated to be about 30%, whereas in a liquidation the Scheme Creditors’ recovery is estimated to be about 14%.

6. The Scheme Creditors may be divided into two categories:

(1) creditors who are companies affiliated to the Group accounting for about 65% of the Company’s indebtedness; and

(2) creditors who are not affiliated to the Group (“External Scheme Creditors”) accounting for about 35% of the Company’s indebtedness.

Principal features of the Scheme

7. The Scheme seeks to discharge the Company’s general unsecured debts and in return the Scheme Creditors will be entitled to a pro rata distribution of the Scheme Funds in the sum of approximately HK$284.2 million.

8. Upon the completion of the Scheme:

(1) the Company’s debts to the Scheme Creditors amounting to approximately US$121 million will be discharged;

(2) the Company’s existing contracts with the Scheme Creditors will be terminated; and

(3) the Scheme Creditors’ claims against the Third-Party Obligors will be discharged (Clause 2.4 of the Scheme), such as the Opposing Creditors’ claims against Century Sun (Mauritius) Co Ltd (“CS Mauritius”) (a joint obligor) and the Parent (a guarantor).

9. In case there are creditors holding secured debts and preferential debts, these creditors will participate in the Scheme only to the extent of the unsecured, non-preferential portion of their claims.

10. The governing law of the unsecured debts to be discharged under the Scheme may be divided into three categories:

(1) approximately 50% of the contracts with the External Scheme Creditors are governed by English law;

(2) the remaining about 50% of the contracts with the External Scheme Creditors are governed by the laws of the country of the Scheme Creditors, including French law, New York law and Swiss law; and

(3) all the contracts with the Company’s associated companies have no governing law.

11. The Company is not pursuing any parallel scheme in any jurisdiction.

Principles governing sanction of the Scheme

12. The general principles, which guide the Court in deciding whether a scheme should be sanctioned are uncontroversial. In Re China Singyes Solar Technologies Holdings Limited[1] I summarise them:

“(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 such 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) in an international case, whether there is sufficient connection between the scheme and Hong Kong, and whether the scheme is effective in other relevant jurisdictions.”

13. There is no dispute that the Scheme is for a discernible purpose, that the meeting was convened in accordance with the order giving leave to convene a meeting of Scheme Creditors, that statutory majorities were obtained or that despite much of the debt being governed by foreign law the Scheme, if sanctioned, would probably be effective to achieve its intended aim of restructuring the Company’s debt. What is controversial is the constitution of the classes, whether the result of the meeting satisfactorily represented the interests of the Scheme Creditors, the adequacy of the information contained in the Explanatory Statement and, related to the latter consideration, was the Scheme as presented was one an intelligent and honest creditors acting in accordance with his interests as a member of the class might reasonably approve. I shall deal with the objections in that order, but before doing so it will be helpful if I explain the additional right that the Opposing Creditors say they have, which is relevant to the constitution of the class and the ability of the Scheme Creditors to fairly vote in one class.

Discharge of third party guarantees

14. On 29 May 2020 the Company, a related company CS Mauritius and New Skies Satellites B.V. signed an assignment and assumption agreement pursuant to which CS Mauritius assumed the liabilities of the Company under a master service agreement and a service level agreement. On 9 May 2020 the Company, CS Mauritius and SES Germany GmbH signed similar agreements. These agreements allow the Opposing Creditors the right to pursue their debts against CS Mauritius.

15. It is a common feature of recent schemes that they contain a provision that releases third party rights, commonly guarantees of the debt sought to be compromised given by associated companies of the company, whose debt is the subject of the scheme. The reason for this is that in order for the scheme to be effective it will be necessary for the business group of which the company is part to be released from liability. In [8]–[9] of China Singyes[2] I explain this.

“8. In addition the court will consider whether there is a defect in a scheme, which makes it unlawful or in some way inoperable. As I mentioned in [6] the Scheme provides for a release of guarantees given by the Subsidiary Guarantors of the debts of the Company compromised by the Scheme. Necessarily this effects a third party right in the sense that the Scheme purports to compromise a contractual right that a Scheme...

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  • Re Zhongliang Holdings Group Company Ltd
    • Hong Kong
    • 19 March 2024
    ...supra at [38]. [20] Re Altitude Scaffolding Ltd, supra at [18]. [21] [1986] FCA 464. [22] Supra. [23] Re Century Sun International Ltd [2021] HKCFI 2928; [2021] HKCLC 1477 at [24] Supra, [26]. [25] [2020] HKCA 973; [2020] HKCLC 1549 at [37]. [26] [2024] EWCA Civ 24 at [115]–[117] (Snowden L......

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