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HCMP 503/2021 and HCCW 120/2019
(HEARD TOGETHER)
[2021] HKCFI 1592
HCMP 503/2021
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 503 OF 2021
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IN THE MATTER of China Oil Gangran Energy Group Holdings Limited (Provisional Liquidators Appointed) (For Restructuring Purposes) |
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and |
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IN THE MATTER of section 670 of the Companies Ordinance (Cap 622) |
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IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
COMPANIES WINDING-UP PROCEEDINGS NO 120 OF 2019
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IN THE MATTER of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 of the Laws of Hong Kong |
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and |
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IN THE MATTER of China Oil Gangran Energy Group Holdings Limited (the “Company”) |
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(HEARD TOGETHER)
Before: Hon Harris J in Court
Date of Hearing: 26 May 2021
Date of Decision: 26 May 2021
Date of Reasons for Decision: 4 June 2021
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R E A S O N S F O R D E C I S I O N
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The Application
1. The Company seeks (a) the Court’s sanction under section 673 of the Companies Ordinance (Cap 622) (“Ordinance”) of a scheme of arrangement between the Company and its Scheme Creditors, and (b) the Court’s approval of an amendment to the Scheme to correct a drafting error.
2. The Scheme Meeting was duly convened on 18 May 2021. The resolution of the Scheme Meeting was carried by a majority in number of the Scheme Creditors present and voting, in person or by proxy, holding 91.58% of the Claims voted.
3. The Scheme forms part of a wider restructuring which involves new investors acquiring a controlling stake in the Company with a view to saving the Company’s Hong Kong listing status. A successful restructuring will give the Scheme Creditors a higher recovery (estimated to be 12.9%) than a liquidation. Absent restructuring, the Company would be liquidated and the Scheme Creditors’ estimated recovery would be 0.5%–0.9%.
Corporate background
4. The Company was incorporated in the Cayman Islands, is registered as a non-Hong Kong company, and has been listed on the Growth Enterprise Market of the Hong Kong Stock Exchange (“SEHK”) since 18 May 2011. Trading in the Company’s shares has been suspended since 2 July 2019.
5. The Company is an investment holding company with subsidiaries in Hong Kong, the British Virgin Islands, and the Mainland (together, “Group”). The Group’s business focuses on the following three areas:
(1) power and data cords;
(2) trading of refined oil and chemicals; and
(3) trading of commodities.
6. The Group’s operations are predominantly in Hong Kong and the Mainland.
The Company’s insolvency proceedings and restructuring efforts
7. On 24 April 2019, a petition was presented to wind up the Company in Hong Kong (HCCW 120/2019) (“Petition”). The Petition has been adjourned to 19 July 2021 to afford the Company time to pursue its restructuring. On 5 November 2019, the Cayman Court appointed soft-touch provisional liquidators (“PLs”) to facilitate the Company’s restructuring efforts. On 5 May 2020, this Court granted recognition to the PLs.
8. As one of the Company’s key assets is its Hong Kong listing status, the Company and PLs have sought to rescue the Company’s listing status so that the Company could resume trading its shares. The Scheme is necessary in order to meet SEHK’s resumption conditions by the deadline of 31 May 2021. Upon the completion of the Scheme:
(1) the Subscribers will control about 75% of the Company’s shares;
(2) the Company’s debts owed to the Scheme Creditors amounting to approximately HK$136 million will be discharged.
Principal features of the Scheme
9. 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 Consideration which includes the Cash Amount (approximately HK$17.6 million) and the Creditors’ shares. 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.
Drafting error in the Scheme
10. Clause 69 of the Scheme contains a drafting error which was discovered shortly before the Scheme Meeting. Clause 69 provides:
“In the event the Schemes are terminated pursuant to Clauses 67 or 68 above, the Claims which are discharged and extinguished against the Company under Clause 1 of this Scheme will be deemed to have revived and the Scheme Creditors will be entitled to pursue such Claims against the Company in such ways as if the Schemes had never been effective and binding upon them.”
11. The reference to Clause 67 was a drafting error. Clause 67 provides that the Scheme will terminate when the terms of the Scheme have been carried out. It would not make sense for the Claims to revive after the Scheme Creditors receive all their entitlement under the Scheme.
12. The Court may permit post-meeting modifications of a scheme if the modifications would not be likely to cause a hypothetical reasonable creditor to take a different view in relation to the scheme, and would not be foisting on scheme creditors something substantially different to that which has been approved at the scheme meeting [1].
13. The reference in Clause 69 of the Scheme to Clause 67 was clearly erroneous and makes no sense because it would defeat the whole purpose of the Scheme. Deleting the reference to Clause 67 would therefore not cause a hypothetical reasonable Scheme Creditor to take a different view in relation to the Scheme. In my view, the Court can properly permit this post-Scheme Meeting deletion of the reference in Clause 69 of the Scheme to Clause 67. I shall so order.
The legal principles governing the sanction of a scheme
14. In considering whether to sanction a scheme, the Court applies some well-established principles which I recently restated in Re China Singyes Solar Technologies Holdings Ltd [2]. The Court will consider in particular the following:
(1) whether the scheme is for a permissible purpose;
(2) 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;
(3) whether the meeting was duly convened in accordance with the Court’s directions;
(4) whether creditors have been given sufficient information about the scheme to enable them to make an informed decision whether or not to support it;
(5) whether the necessary statutory majorities have been obtained;
(6) 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
(7) 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.
Class composition
15. In considering whether creditors are properly classified, the test is whether creditors who are called on to vote as a single class have sufficiently similar legal rights that they could consult together with a view to their common interest at a single meeting. The relevant principles may be summarised thus:
“The overarching question is whether the pre and post-scheme rights of those proposed to be included in a single class are so dissimilar as to make it impossible for them to consult with a view to their common interest. If that is the case, separate meetings must be summoned…
The second principle is that it is the rights of creditors, not their separate commercial or other interests, which determine whether they form a single class or separate classes. Conflicting interests will normally only ever arise at the sanction stage as a question for consideration …
The third principle … is that the court should take a broad approach to the composition of classes, so as to avoid giving unjustified veto rights to a minority group of creditors, such that the test for classes becomes an instrument of oppression by a minority …
The fourth principle is that the court has to consider, on the one hand, the rights of the creditors in the absence of the scheme and, on the other hand, any new rights to which the creditors become entitled under the scheme. If, having carried out that exercised [sic], there is a material difference between the rights of the different groups of creditors, they may, but not necessarily will, constitute different classes. Whether they do so depends on a judgment as to whether such a difference makes it impossible for the different groups to consult together with a view to their common interest.”[3]
16. In applying the above test, the starting point is to identify the appropriate comparator: that is, what would be the alternative if the scheme does not proceed [4].
17. I am satisfied that the Scheme Creditors properly voted as a single class for these reasons:
(1) The appropriate comparator here is an insolvent liquidation because, absent the Scheme, an insolvent liquidation of the Company would be an unavoidable outcome.
(2) The Scheme Claims are the Company’s general unsecured debts.
(3) All general unsecured creditors will be given a pro-rated amount out of the Scheme Consideration (see Clause 19 of the Scheme).
(4) There are no separate class disputes or conflicts of interest.
Statutory majorities
18. The Scheme Meeting was uneventful and Scheme Creditors proceeded to vote...
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