Re Leading Holdings Group Ltd

HCCW 343/2022

[2023] HKCFI 1770

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 343 OF 2022

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J U D G M E N T

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A. INTRODUCTION

1. This is the hearing of the Summons issued by the Company (“Summons”) seeking an order to strike out the winding-up petition (“Petition”) presented by the petitioner (“P”) together with the substantive hearing of the Petition.

2. By the Petition dated 27 September 2022, P asks that the Company be wound up on the ground that it is indebted to P in the sum of US$1.3 million plus interest at the rate of 12% per annum totalling US$1,397,500 (“Debt”), which arises out of the 12% Senior Notes Due 2022 (“Notes”) issued by the Company on 28 June 2021.

3. According to the Petition:- P is the beneficial/equitable holder/owner of the Notes in the sum of US$1.3 million; the Company acted in breach of the Indenture governing the Notes (“Indenture”) by failing to make payment of the principal sum and interest of the Notes on 22 June 2022; the Company is insolvent as it is unable to pay its debts; and further or alternatively, P is entitled to present the Petition as a contingent and prospective creditor of the Company.

4. By the Summons dated 19 October 2022, the Company has applied for an order that the Petition be struck out or dismissed for abuse of process as P had no standing to present the Petition. In particular, it is denied that P is a contingent or prospective creditor of the Company.

5. By an order dated 6 January 2023 made by Peter Ng J, the substantive hearing of the Petition was adjourned for substantive argument to be heard together with the Summons.

6. The central issue in this hearing therefore hinges on P’s locus to present the Petition against the Company, particularly the question whether P is a contingent or prospective creditor of the Company. In this regard, it is perhaps unfortunate that the Petition contains little particulars of the facts relied upon in support of the contention that P is a contingent and prospective creditor. Instead, these are set out in the legal submissions lodged on behalf of P. This would appear objectionable, and the Court may take the view that it is not open to P to rely on any fact or grounds not fairly stated in the Petition: see Re China Oceanwide Group Limited[2023] HKCFI 455, Linda Chan J, §§20-32. Nevertheless, since the Company has not taken any pleadings point, I proceed to deal with such contention by P. As it transpires, ultimately I do not find favour with P’s contention and in light of such findings, the deficiency in the pleadings in the Petition is thus immaterial, but I fully endorse Linda Chan J’s remark in Re China Oceanwide at §32 that the Court expects practitioners and parties to abide by the principles on pleading the material facts in a petition in future.

B. BACKGROUND

B1. The Company

7. The Company is a company with limited liability incorporated in Cayman Islands on 15 July 2019 and was registered in Hong Kong on 23 October 2019 under Part 16 of the Companies Ordinance (Cap. 622) as a registered non-Hong Kong company. The registered office of the Company is in Cayman Islands and the principal place of business of the Company is in Hong Kong. The shares of the Company are listed on the Hong Kong Stock Exchange under stock code 6999.

B2. The Notes

8. On 28 June 2021, the Company issued the Notes. As submitted by Mr Ho on behalf of the Company (which is not seriously disputed by P), the pertinent legal structure and features of the Notes may be summarised as follows:

(1) The Notes were constituted by the Indenture between the Company, The Bank of New York Mellon, London Branch (“BNYM” or “Trustee”), and various guarantors.

(2) The Indenture is governed by New York law. It governs all contractual rights and obligations under the Notes.

(3) The Company, as the Notes issuer, has no direct contractual relationship with the ultimate beneficial investors in the Notes. Instead, the Company’s books show only one registered global note (“Global Note”), and only one registered holder of the Global Note (“Holder”).

(4) The Global Note was executed by the Company and delivered to the Trustee which also served as the common depositary (“Common Depositary”) (Section 2.04(c) and (d) of the Indenture).

(5) The Global Note was registered in the name of the Common Depositary for the accounts of Euroclear and Clearstream (Section 2.04(c) of the Indenture).

(6) The Holder of the Global Note is the Person in whose name the Global Note is registered in the Note register maintained by the Company (Sections 1.01 and 2.04(c) of the Indenture). The Holder is the owner of the Global Note for all purposes (Section 2.05(c) of the Indenture).

(7) On the facts, BNYM is the sole Holder (as well as the Trustee and the Common Depositary) of the Global Note. In contrast, P is neither a party to the Debenture nor the Holder of the Global Note.

(8) Investors (such as P) do not acquire the Global Note. Instead, each investor purchases a portion of the indirect beneficial interest in the Global Note via their intermediaries, such as banks and brokers who have accounts with Euroclear or Clearstream (Section 2.06 of the Indenture). Transfers of beneficial interests in the Global Note may be effected only through a book-entry system maintained by Euroclear and Clearstream (or their respective agents) (Sections 2.05(g) and 2.06 of the Indenture).

9. Further, the following provisions of the Indenture are of particular relevance (and hence quoted here for ease of reference):

“Section 2.06.Book-entry Provisions for Global Notes.

… So long as the Notes are held in global form, the Common Depositary (or its nominee) will be considered the sole holder of the Global Notes for all purposes under this Indenture and “holders” of book-entry interests will not be considered the owners or “Holders” of Notes for any purpose. As such, participants must rely on the procedures of Euroclear and Clearstream and indirect participants must rely on the procedures of the participants through which they own book-entry interests in order to transfer their interests in the Notes or to exercise any rights of Holders under this Indenture …

Section 6.06.Limitation on Suits.

A Holder of Notes may not institute any proceeding, judicial or otherwise, with respect to this Indenture or the Notes, or for the appointment of a receiver or trustee, or for any other remedy under this Indenture or the Notes, unless:

(a) the Holder has previously given the Trustee written notice of a continuing Event of Default;

(b) the Holders of at least 25% in aggregate principal amount of outstanding Notes make a written request to the Trustee to pursue the remedy;

(c) such Holder or Holders offer the Trustee indemnity and/or security and/or prefunding satisfactory to the Trustee against any costs, liability or expense to be incurred in compliance with such written request;

(d) the Trustee does not comply with the request within (i) 60 days after receipt of the written request pursuant to clause (b) above or (ii) 60 days after the receipt of the offer of indemnity and/or security and/or prefunding satisfactory to it pursuant to clause (c) above, whichever occurs later; and

(e) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes do not give the Trustee a written direction that is inconsistent with the written request.

Section 6.07. Rights of Holders to Receive Payment.

Notwithstanding anything to the contrary, the right of any Holder to receive payment of the principal of, premium, if any, or interest on, such Note, or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, which right shall not be impaired or affected without the consent of the Holder.” [Emphasis added]

10. Section 2.06 is of fundamental importance because it reflects the common features of the global note structure (which I will explain further below) under which only the holder (and the trustee) of the global note is recognized and can exercise any rights under the global note, whereas “holders” of book-entry interests will not be considered the owners or holders of the global note for any purpose. As such, participants (such as DBS Bank in the present case) must rely on the procedures of Euroclear and Clearstream and indirect participants (such as P in the present case) must rely on the procedures of the participants through which they own book-entry interests in order to transfer their interests in the global note or to exercise any rights of the holder under the same.

11. Echoing the above, the Indenture also contains provisions in Sections 6.06 and 6.07 which are commonly referred to as the “No Action Clause” and the “Right to Payment Clause” respectively. These provisions reinforce the position that only the holder of the global note (but not “holders” of book-entry interests) may institute any judicial proceedings, subject however to express limitations (although such limitations do not apply to an action to enforce payment). As a result, indirect participants such as P simply do not have any directly enforceable rights against the Company under the terms of the...