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HCCW 108/2015
[2018] HKCFI 555
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
COMPANIES WINDING‑UP PROCEEDINGS NO 108 OF 2015
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IN THE MATTER of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Chapter 32 of the Laws of Hong Kong |
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and |
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IN THE MATTER of China Solar Energy Holdings Limited (formerly named Rexcapital International Holdings Limited) |
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| Before: Hon Harris J in Chambers |
| Date of Hearing: 18 August 2017 |
| Date of Decision: 20 March 2018 |
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D E C I S I O N
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Introduction
1. The court may permit provisional liquidators to pursue a corporate restructuring, provided they are appointed on such conventional grounds as the need to preserve the debtor’s assets. Provisional liquidators (“PLs”) were appointed to China Solar Energy Holdings Limited (“Company”) on asset preservation grounds, and they were given restructuring powers. Ex hypothesi the PLs’ current sole remaining function is to complete the Company’s restructuring. Should the PLs be discharged?
2. This is the issue before the court, arising out of a summons issued by Ankang Ltd (“Ankang”) on 10 February 2017 (“Ankang’s Summons”) for, inter alia, the winding-up of the Company and the discharge of the PLs.
Background to the Company’s Provisional Liquidation
3. The Company is incorporated in Bermuda and listed on the Hong Kong Stock Exchange (“HKSE”), but trading in the Company’s shares has been suspended since 13 August 2013. HKSE has placed the Company into various stages of the delisting procedure since January 2015. The Company is now in the final delisting stage.
4. The Company has been in financial distress at least since January 2015. On 26 March 2015, Crown Master International Trading Co Ltd (“Crown Master”) presented a winding-up petition against the Company due to its inability to answer a statutory demand for payment of a sum in excess of HK$36 million, which represented the outstanding principal of certain convertible notes issued by the Company.
5. On 12 June 2015, Crown Master assigned its debt to Ankang, and on 18 January 2016 Ankang was substituted as the Petitioner in place of Crown Master.
6. Also on 12 June 2015, Ankang became the holder of approximately 14.6% of the Company’s shares and replaced the Company’s board of directors. Ankang’s shareholding was increased to 16.9% in July by exercising rights under the convertible notes.
7. On 21 August 2015, on the Company’s application, the Company was placed into provisional liquidation and the PLs were appointed. The Company’s application for provisional liquidation was supported by Ankang.
8. The Company was placed into provisional liquidation on the basis that the PLs were needed to:
(a) safeguard the Company’s assets (including the Company’s listing status) which were in jeopardy, and
(b) investigate certain suspicious transactions entered into by the Company.
9. The Company’s listing status was said to be in jeopardy because:
(a) the Company was in the process of being delisted;
(b) the Company had failed once to submit a resumption proposal;
(c) the Company would be delisted by July 2016 unless HKSE received satisfactory resumption proposals which addressed a number of issues, including:
(i) the Company’s compliance with the listing requirement of having a sufficient level of operations or assets of sufficient value to warrant the continued listing of the Company’s shares;
(ii) the Company’s investigation into certain allegations and complaints received by HKSE about the Company’s operations and directors, disclosure of the findings of such investigation, and any remedial steps;
(iii) the Company’s publication of all outstanding financial results and addressing any audit qualifications;
(iv) the Company putting in place adequate financial reporting procedures and internal control systems to meet the requirements of the listing rules.
10. Pursuant to the terms of the order of appointment (“Order”), the PLs were granted a range of powers, including the following restructuring powers:
Para 4(11) of the Order
“to consider and, if thought to be in the best interests of creditors of the Company, to enter into discussions and negotiations for and on behalf of the Company or the Subsidiaries, for purpose of, restructuring the Company and the Subsidiaries’ business and operations, restructuring or rescheduling the Company’s indebtedness, or for sale of the Assets, including, as deemed appropriate, to draft, with a view to implementing, a scheme of arrangement to be entered into between the Company and its creditors, and to call meeting of shareholders and/or creditors and to do all things necessary to facilitate such actions including a review (and/or take into their custody or under their control where deemed necessary) of all the books, records, property and things inaction [sic] to which the Company is or appears to be entitled wherever situate provided that any such proposed restructuring, rescheduling or sale shall not be binding on the Company until approved by the Court.”
The Company’s Restructuring Exercise
11. From the outset, the PLs intended to procure a restructuring with a view to the Company resuming the trading of its shares. Ankang was one of the potential investors in discussions with the PLs to explore how the Company could be restructured.
12. On 17 December 2015, the PLs entered into an exclusivity agreement with another investor, Happy Fountain Limited (“Happy Fountain”), to progress the potential restructuring which might involve Happy Fountain injecting a profit-making business into the Company in order to facilitate the Company’s resumption of trading.
13. The evolution of the Company’s restructuring exercise through the PLs’ operation is in brief as follows:
(a) On 21 December 2015, the Company submitted a resumption proposal prepared by Happy Fountain to HKSE. On 29 January 2016, HKSE rejected the proposal. After two rounds of review by HKSE, the rejection was confirmed in August 2016.
(b) On 7 September 2016, the Company submitted a second resumption proposal prepared by Happy Fountain to HKSE. On 26 September 2016, HKSE responded with some comments on the areas that needed more work in order to comply with the listing requirements.
(c) On 14 February 2017, in light of HKSE’s comments, the Company submitted a third resumption proposal prepared by Happy Fountain to HKSE. This resumption proposal was prepared on a reverse take-over basis. Further comments were received from HKSE.
(d) On 15 September 2017, the Company submitted a new listing application to HKSE.
(e) On 16 March 2018, the Company announced that the re‑listing application submitted in September 2017 had lapsed on 15 March 2018. The Company and its professional advisers are working towards the resubmission of a new listing application to HKSE.
14. The PL’s current primary task is to complete the restructuring exercise. If the resumption proposal is successful, all the Company’s creditors will be paid in full. Otherwise, the Company’s creditors are unlikely to obtain any substantial recovery.
15. Although Ankang was supportive of the Company’s application for provisional liquidation in August 2015, it is now against the Company’s restructuring deal being conducted with Happy Fountain.
Procedural Background
16. Although this decision is concerned with Ankang’s Summons only, it may be helpful to set out the procedural history leading up to today’s decision. The procedural evolution is in summary as follows:
(a) Upon the receipt of a letter from Ankang’s solicitors dated 15 November 2016, the PLs first learnt of Ankang’s opposition to the Company’s current restructuring attempt. The letter questioned the PLs’ authority to enter into certain agreements needed for the restructuring. Ankang’s Summons was then issued in February 2017.
(b) In view of Ankang’s Summons and in light of the Company’s revised resumption proposal to HKSE, the PLs took out two summonses dated 22 February 2017 and 21 March 2017 (“PLs’ Summonses”) seeking the court’s approval of the PLs’ entry into various restructuring agreements.
(c) On 27 February 2017, Ankang’s Summons and the PLs’ Summonses came before me. I ordered that the PLs’ Summonses be adjourned to be dealt with by Anthony Chan J and Ankang’s Summons be adjourned for argument.
(d) On 30 March 2017, Anthony Chan J granted the relief sought in the PLs’ Summonses.[1] On 14 June 2017, Anthony Chan J dismissed Ankang’s application for leave to appeal against that decision.[2]
17. This decision is solely concerned with one part of Ankang’s Summons, namely the discharge of the PLs. Ankang’s Summons is opposed by the PLs, the Company and Happy Fountain.
Ankang’s Submissions
18. Ankang’s arguments for discharging the PLs may be summarised thus:
(a) Because the decision in Re Legend International Resorts Ltd [3] holds that provisional liquidation cannot be permitted when the sole or primary function of the provisional liquidators is to carry out business or debt restructuring, the current provisional liquidation of the Company (being solely or at least primarily concerned with the corporate or business restructuring of the Company) is a misuse of the provisional liquidation regime.
(b) The PLs cannot be heard as saying that they are needed to protect the Company’s asset in the form of its listing status. This is because a company’s listing status is not an asset. Further, using provisional liquidation to protect a company’s listing status means using provisional liquidation for the purpose of restructuring. Restructuring means...
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