Re China Singyes Solar Technologies Holdings Ltd

HCMP 1882/2019

[2020] HKCFI 467

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1882 OF 2019

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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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Introduction

1. On 5 December 2019 I heard the Petition of China Singyes Solar Technologies Holdings Limited (“Company”) for sanction of a scheme of arrangement under s673 of the Companies Ordinance, Cap 622 (“Ordinance”) between it and the class of holders of unsecured debt described in [3] (“Scheme”). I made an order sanctioning the Scheme. These are my reasons.

2. The Company was incorporated in Bermuda, is registered in Hong Kong as a non-Hong Kong company, and has been listed in Hong Kong. The Company is a holding company of a number of subsidiaries (incorporated in the British Virgin Islands, Hong Kong and the Mainland) (together, “Group”). The Company is an investment holding entity and conducts its operations primarily through its Mainland subsidiaries. The Group is one of the largest curtain wall installation and solar engineering, procurement, and construction companies in the Mainland. Since June 2018, the Group’s financial condition deteriorated seriously, which led to the Company defaulting on some of its Mainland and offshore debt obligations, including the existing debt securities, described in the next paragraph; which I shall refer to as the “Existing Debt Securities”.

3. The Existing Debt Securities consist of:

(1) the RMB930,000,000 5% US$ settled convertible bonds due 2019 (“Convertible Bonds”) issued by the Company and constituted by a trust deed dated 8 August 2014 between (among others) the Company and the Hongkong and Shanghai Banking Corporation Limited (“HSBC”) (as trustee) which is governed by English law;

(2) the US$160,000,000 6.75% senior notes due 2018 (“2018 Notes”) issued by the Company and constituted by an indenture dated 18 October 2017 between (among others) the Company and HSBC (as trustee) which is governed by New York law;

(3) the US$260,000,000 7.95% senior notes due 2019 (“2019 Notes”) issued by the Company and constituted by an indenture dated 15 February 2017 between (among others) the Company and HSBC (as trustee) which is governed by New York law.

4. The Company’s obligations under the 2018 Notes and the 2019 Notes are guaranteed by a number of the Company’s subsidiaries (“Subsidiary Guarantors”). On 8 August 2019, Deutsche Bank AG, Hong Kong Branch (“DB”) presented a winding-up petition against the Company on the basis of claims arising from two term sheets between DB and the Company in connection with two proposed secured loan facilities. DB and the Company have recently reached a settlement and the winding-up petition has been dismissed.

5. Although the Scheme was drafted to cover the DB claims, in light of the parties’ settlement and dismissal of the Petition, the Scheme now seeks to compromise only the Existing Debt Securities. Specifically, the Existing Debt Securities will be cancelled in exchange for:

(1) US$41,400,000 in cash (“Notes Cash Consideration”); and

(2) new senior guaranteed notes due 2022 issued by the Company in principal amount equal to the aggregate amount outstanding in respect of the Existing Debt Securities less US$50,000,000 (being the sum of: (i) the amount of the Notes Cash Consideration; and (ii) the aggregate amount of the consent fee payable under a restructuring support agreement (“RSA”).

6. Subject to certain exceptions (such as claims relating to negligence, breach of fiduciary duty and fraud), the Scheme will result in the release of any claims which the Scheme creditors might have against a number of parties, including the Subsidiary Guarantors, the Company’s affiliates, and their personnel.

The legal principles governing sanction of a scheme

7. In considering whether to sanction a scheme, the Court applies some well-established principles which were recently restated in Re Mongolian Mining Corp [1] and Re Da Yu Financial Holdings Ltd [2] and in particular considers 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.

Release of Third Party Rights

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 creditor has against a third party rather than the Company. Is this permissible?

9.Part 13, Division 2 of the Ordinance provides for a company to make compromises sanctioned by the court with its creditors or any class of creditors [3]. As Patten LJ explains in [60] of Re Lehman Brothers International Europe [4]:“scheme of arrangement between a company and its creditors must mean an arrangement which deals with their rights inter se as debtor or creditor”. However, he goes onto state that this “does not prevent the inclusion in the Scheme of the release of contractual rights of action against related third parties necessary in order to give effect to the arrangement proposed for the disposition of the debts and liabilities of the company to its own creditors”[5]. As a consequence claims against third parties under, for example, guarantees may be comprised by a scheme provided (to borrow again the language of Patten LJ at [63]) the release of the claims is “merely ancillary” to the arrangement between the company and its creditors [6]. This is the case with the release of the subsidiaries’ liabilities to Scheme creditors under the guarantees of the Company’s liabilities that they have given. The releases are necessary in order to prevent a creditor from undermining the Scheme by attempting to recover from the Company’s subsidiary what it could not recover from the Company as a consequence of the Scheme. It is, therefore, permissible for the Scheme to include such a provision and it will be effective as a consequence of the court sanctioning the Scheme.

Other Considerations

10. The other criteria can be dealt with briefly. The Scheme involves a genuine debt restructuring and is clearly for a permissible purpose. Class composition is more complex.

11. As the Existing Debt Securities were issued in the form of global notes, this gives rise to a split between legal and beneficial ownership of the...