Your World of Legal Intelligence
 Hong Kong | 1-800-335-6202

Re Hidili Industry International Development Ltd

Judgment Cited authorities 6 Cited in Precedent Map Related
Vincent
JurisdictionHong Kong
Judgment Date17 June 2022
Neutral Citation[2022] HKCFI 1833
Year2022
Subject MatterMiscellaneous Proceedings
CourtCourt of First Instance (Hong Kong)
Judgement NumberHCMP170/2022
HCMP170/2022 RE HIDILI INDUSTRY INTERNATIONAL DEVELOPMENT LTD

HCMP 170/2022

[2022] HKCFI 1833

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 170 OF 2022

________________________

IN THE MATTER of Hidili Industry International Development Limited （恒鼎實業國際發展有限公司）
and
IN THE MATTER of sections 670, 671, 673 and 674 of the Companies Ordinance (Cap. 622)

________________________

Before: Hon Harris J in Court

Date of Hearing: 6 June 2022

Date of Decision: 6 June 2022

Date of Reasons for Decision: 17 June 2022

________________________

REASONS FOR DECISION

________________________


Introduction

1. Upon the Company’s application dated 31 January 2022, I ordered on 9 February 2022 that the Company have leave to convene a meeting of its Scheme Creditors (“Scheme Meeting”) to consider and, if thought fit, to approve a proposed scheme of arrangement (“Scheme”).

2. The Company has complied with the directions and convened the Scheme Meeting on 24 May 2022. The Scheme was duly passed by around 99.68% in value and 99.20% in number of the Scheme Creditors present and voting at the Scheme Meeting. By its Petition dated 30 May 2022, the Company seeks an order that the Scheme be sanctioned.

3. The Company was incorporated in the Cayman Islands on 1 September 2006 and was registered in Hong Kong as a non-Hong Kong Company on 18 June 2007. The Company has been listed on the Main Board of the Stock Exchange of Hong Kong (“HKEX”) since 21 September 2007. The Company is an investment holding company whose direct or indirect subsidiaries (together with the Company, “Group”) are principally engaged in coal mining and the manufacture and sale of clean coal and coke and coal-related business in the Mainland. The Group’s major investments include coal mines, coal washing plants and goods yards in Yunnan, Guizhou and Sichuan provinces.

4. The Company and the Group are cash-flow insolvent:

(1) As of 31 December 2021, the book value of the Company’s total assets and total liabilities were approximately RMB2,236.6 million and RMB1,342.2 million respectively. The book value of the Company’s current assets and current liabilities were approximately RMB8 million and RMB1,342.2 million respectively.

(2) As of 31 December 2021, the book value of the Group’s total assets and total liabilities were approximately RMB12,129.3 million and RMB11,206.5 million respectively. The book value of the Group’s current assets and current liabilities were approximately RMB1,560.2 million and RMB10,869.1 million respectively.

5. US$400 million 8.625% senior notes due 2015 form a major part of the Company’s liabilities (“Notes”). The Company defaulted on the Notes on 4 November 2015.

6. The bulk of the Group’s indebtedness arises from the Notes, borrowings from onshore banks, and trading and business-related debts. As at 31 December 2021, the indebtedness of the Group under the Notes, onshore borrowings, and trade and business-related debts were RMB1,252.74 million (11.18%), RMB7,707.04 million (68.77%), and RMB1,304.78 million (11.65%) respectively.

7. Since late 2015, the Company has engaged in extensive negotiations with its stakeholders in an attempt to restructure its indebtedness. The Company negotiated with the banks in the hope of restructuring its onshore debts. In this regard, the onshore lending banks have set up an Onshore Creditors Committee to facilitate negotiations. The Company also engaged in extensive negotiations with the holders of the Notes including the Steering Committee in an attempt to restructure the Company’s indebtedness under the Notes. The Steering Committee are institutional creditors holding 20% in value of the Notes.

8. The negotiations with the Onshore Creditors Committee culminated in:

(1) An agreement where Onshore Converted Shares will be issued to the onshore lending banks in return for the discharge of the conversion interest of about RMB1,050 million.

(2) An agreement where the outstanding principal of about RMB5,867 million together with outstanding interest of about RMB616.99 million (after discharge of the conversion interest) owed to the onshore lending banks will be extended to 4 February 2025.

9. Separately, the negotiations with the Steering Committee culminated in a number of term sheets which set out the basis upon which the Company’s liabilities under the Notes are to be compromised. These term sheets contain the key terms which form the basis of the Scheme, the key features I explain below.

10. The Scheme seeks to compromise the Company’s offshore liabilities under the Notes. In this regard:

(1) A Scheme Creditor is defined as “a person with a beneficial interest as principal in the Notes held in global form or global restricted form through the Depositary at the Voting Instruction Deadline and which has a right, upon satisfaction of certain conditions, to be issued definitive notes in accordance with the terms of the Notes”.

(2) A Scheme Claim is defined as “any Claim of a Scheme Creditor in respect of a Liability of the Company or any Subsidiary Guarantor arising directly or indirectly pursuant to, under or in connection with the Note Documents, excluding for the avoidance of doubt, any Excluded Liability”.

11. Broadly speaking, the Scheme will compromise and release the Scheme Creditors’ Scheme Claims against the Company and the Subsidiary Guarantors. In return, the Scheme Creditors will become eligible to receive the Scheme Consideration. There are two options open to the Scheme Creditors in terms of how they receive the Scheme Consideration.

12. Option 1: A participating Scheme Creditor can receive the following:

(1) A Pro Rata share of the Scheme Shares, which in aggregate represents approximately 46.1% of the total issued Shares in the Company on a fully diluted basis on the Restructuring Effective Date.

(2) A Pro Rata share of Zero-Coupon Bonds, which will have a face value equal to the 13/16 of the Total Accrued Interest Amount.

(3) A Pro Rata Share of a Cash Payment, which represents cash equal to 3/16 of the Total Accrued Interest Amount.

13. Option 2: Participating Scheme Creditors may elect to participate in the Share Placement Programme (“SPP”):

(1) Those who elect to participate in the SPP will receivetheir Pro Rata share of the Zero-coupon Bonds, and their Pro Rata share of the Cash Payment. The Scheme Shares to which such Participating Scheme Creditors would have been entitled to will be issued directly in the form of SPP Shares to the Creditor SPV and not directly to the Participating Scheme Creditor.

(2) The Company will use its best efforts to sell or procure the sale of the SPP Shares and will distribute the sale proceeds to the SPP Participants within the 36-months period following the Restructuring Effective Date.

14. Insofar as the returns comparison is concerned:

(1) If the Scheme becomes effective, the expected recovery rate of the Scheme Creditors under the Scheme (excluding any claims against third parties) is approximately 120%.

(2) If the Scheme is not approved, the restructuring will not be able to proceed further and it is likely that the Group (including the Company) would be placed into insolvent liquidation. The expected recovery rate of the Scheme Creditors in a liquidation scenario is 0.223% to 0.241%.

Legal Principles

15. The function of the Court at the hearing of a petition to sanction a scheme is to consider:

(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 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.

See my decision in Re Da Sen Holdings Group Ltd[1].

16. It is well-established that debt restructuring is a permissible purpose of a scheme of arrangement: see Re Mongolian Mining Corp[2].

17. In considering the issue of class, 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. As explained in [14] of Da Sen:

(1) 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.

(2) 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 arise at the sanction stage as a question for consideration.

(3) 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.

(4) The fourth principle is that the court has to consider, on the one hand, the rights of the...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT