HKCFI 1705
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
COMPANIES WINDING-UP PROCEEDINGS NO 174 OF 2018
IN THE MATTER of section 177(1)(d) and (f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Chapter 32 of the Laws of Hong Kong
IN THE MATTER of CW Advanced Technologies Limited
|Before: Hon Harris J in Chambers
|Date of Hearing: 11 July 2018
|Date of Decision: 11 July 2018
|Date of Reasons for Decision: 19 July 2018
REASONS FOR DECISION
1. On 26 June 2018 CW Advanced Technologies Limited (“Company”) presented a petition seeking an order that it be wound up. The following day I heard an application ex parte by the Company to appoint provisional liquidators over it. I adjourned the application to 11 July 2018 in order that various issues addressed later in these reasons could be addressed by the Company, creditors and the Official Receiver. The Company subsequently withdrew its application. Instead an application to appoint provisional liquidators was made by the Company’s largest creditor, Bank of China (Hong Kong) Limited (“BOC”). On 11 July 2018, I granted an order appointing provisional liquidators to the Company.
2. BOC applied for the appointment of provisional liquidators on conventional grounds, as opposed to for the sole purpose of restructuring. But this matter involves significant cross-border elements and engages the much discussed new Singapore restructuring regime. I thus asked to be addressed on the cross-border implications, including the possibility of recognising and assisting the Singapore proceedings. I also requested the Official Receiver to provide amicus assistance.
3. In the end, both the Company and BOC largely eschewed the cross-border issues. Because of the parties’ position, the court does not need to make a determination on the cross-border issues, such as whether the Singapore moratorium is eligible for recognition in Hong Kong. Nevertheless BOC’s application for provisional liquidation here calls for a better understanding of the practice of cross-border restructuring and the importance of advance cross-border planning, which I will discuss briefly below for the benefit of future applicants.
4. The Company is a Hong Kong incorporated private company and is part of a corporate group (“CW Group”) which is a precision engineering solutions provider. The CW Group is headquartered and has its principal place of business in Singapore.
5. The holding company of the CW Group is CW Group Holdings Limited (“CWG”). CWG is incorporated in the Cayman Islands, managed from Singapore, listed on the Hong Kong Stock Exchange, and a registered non-Hong Kong company.
6. CWG wholly owns SG (BVI) Limited, a company incorporated in the British Virgin Islands, which in turn wholly owns the Company.
7. The Company’s principal activities include entering into:
(a) supply contracts in respect of industrial machinery and equipment; and
(b) trade finance facilities with Hong Kong-based banks to fund the performance of its obligations under the supply contracts.
8. The Company’s customers are primarily based in South East Asia, with the supply contracts generating approximately 40% of the CW Group’s revenue. The Company’s assets primarily consist of its receivables under the supply contracts.
The CW Group’s Financial Condition
9. The CW Group (including the Company) has encountered financial difficulties. In particular, the CW Group could not issue new notes under its Multicurrency Debt Issuance Programme (“Programme”) to re‑finance the outstanding notes which fell due on 25 June 2018 and to re‑finance the CW Group’s outstanding bank loans.
10. The failure to issue new notes under the Programme led to, among others:
(a) some bank lenders terminating the CW Group’s banking facilities; and
(b) some bank lenders (including BOC) serving letters of demand on the CW Group.
11. In particular, on 7 June 2018, CWG and the Company received statutory demands from BOC dated 3 June 2018 (“Statutory Demands”), demanding the immediate repayment of:
(a) approximately HK$157.5 million (plus interest) outstanding in respect of a term loan extended to CWG, guaranteed by the Company; and
(b) approximately US$14.5 million outstanding in respect of a general banking facility granted to the Company, guaranteed by CWG.
12. Notes issued under the Programme are governed by Singapore law, whereas all of the Company’s bank debt is governed by Hong Kong law.
13. The Company accepts that the CW Group (thus including the Company) is unable to pay its debts and is cashflow insolvent.
Background to BOC’s Application for Provisional Liquidation
14. In light of their financial difficulties, the CW Group’s management took the following steps with a view to achieving a debt restructuring:
(a) RSM Corporate Advisory Pte Ltd (“RSM Singapore”) was engaged as a restructuring advisor.
(b) On 22 June 2018, four companies in the CW Group (including CWG and the Company) made an application to the Singapore court under section 211B of the Singapore Companies Act for a six-month moratorium in order to facilitate a restructuring (“Singapore Moratorium”).
(c) On 26 June 2018, the Company presented its own winding-up petition and made an application for the appointment of provisional liquidators in Hong Kong. The candidates put forward were Osman Mohammed Arab and Wong Kwok Keung of RSM Corporate Advisory (Hong Kong) Limited (“RSM HK”). BOC did not object to the Company’s provisional liquidation application, but wanted the provisional liquidators to be So Man Chun and Jong Yat Kit of PricewaterhouseCoopers.
15. To achieve a group-wide restructuring, the CW Group sought the Singapore Moratorium for these reasons:
(a) The CW Group is headquartered in Singapore, with most of its directors based in Singapore.
(b) A large proportion of the holders of the outstanding notes are probably Singapore-based investors.
(c) More than 50% of the CW Group’s bank debt is Singaporean bank debt.
(d) The Singapore insolvency regime could facilitate a group‑wide restructuring, including in respect of companies incorporated outside Singapore.
16. The effect of the Company’s application for the Singapore Moratorium was that an automatic moratorium came into effect for 30 days after the date of filing or until the application is decided by the Singapore court, whichever is earlier.
17. The Company’s application for provisional liquidation in Hong Kong was to:
(a) avoid a potential open-ended winding-up petition being presented by BOC (ie without provisional liquidators) which would create substantial commercial uncertainty, detrimental to the Company’s ability to recover its trade receivables; and
(b) allow the provisional liquidators to preserve the Company’s assets and business, especially given that RSM Singapore and RSM HK are part of the RSM network and therefore the RSM professionals could pursue a coordinated approach to creditor engagement.
18. When the matter came before me on 27 June 2018, I raised some questions about the relevance and impact of the Singapore Moratorium. I then adjourned the matter to 11 July 2018 for substantive hearing.
19. In the meantime, the bank creditors of the Company took the following steps:
(a) On 22 June 2018, Fubon Bank (Hong Kong) Limited presented a petition to the Grand Court of the Cayman Islands (“Cayman Court”) for the winding-up of CWG.
(b) On 28 June 2018, BOC filed a summons in the Cayman Court seeking the appointment of Simon Conway of PwC Corporate Finance and Recovery (Cayman) Limited, and Christopher So Man Chun of PricewaterhouseCoopers Ltd as provisional liquidators of CWG.
20. Separately, the Board of CWG liaised with a creditor of CWG, Brownstone Ventures Limited (“Brownstone”), resulting in the following:
(a) On 29 June 2018, Brownstone presented a petition to the Cayman Court for an order that CWG be wound up on the grounds of CWG’s inability to pay its debts.
(b) Immediately following Brownstone’s presentation of the winding-up petition, on 29 June 2018, CWG filed a summons in the Cayman Court seeking the appointment of Eleanor Fisher and Gordon MacRae of Kalo (Cayman) Limited and Osman Mohammed Arab of RSM HK as “soft touch” provisional liquidators of CWG on the grounds that, inter alia, CWG would like to present a compromise or arrangement to its creditors.
21. On 5 July 2018, the Company’s Hong Kong solicitors wrote to inform the court that, in light of the developments since 27 June 2018 and the Company’s limited resources, the Company would withdraw its application for provisional liquidation in Hong Kong.
22. On 6 July 2018, BOC issued a summons for the appointment of So Man Chun and Jong Yat Kit of PricewaterhouseCoopers as provisional liquidators of the Company in Hong Kong. BOC argued that...