RE AETHER LTD

HCCW 397/2020

[2024] HKCFI 1288

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 397 OF 2020

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DECISION

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1.  This is the application of China Cinda (HK) Asset Management Co Limited (“Cinda”) for a validation order under section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance Cap 32 (“the Ordinance”) to allow it to dispose of 51% of the issued shares (“the 51% Shares”) in Aether Limited (“the Company”) without such disposal being rendered void. Cinda is the registered owner of the 51% Shares.

2.  The Liquidators of the Company, the Receivers and Chang An who have been served with this application have confirmed that they have no objection to the order sought by the summons. The Official Receiver whose attendance has been excused has left it to Cinda to make out its case.

Background facts

3.  The Company is a holding company with an 80% beneficial interest in a substantial real estate asset (“the Project Property”), held through a Mainland company.

4.  As at 23 July 2021, the remaining 49% shares in the Company (“49% Shares”) were held by Xeno Origin Limited (“Xeno”) and Kenora Corporation Limited (“Kenora”) and the 51% Shares by CBD Aether Center Limited (“CBD”), Cinda’s predecessor in title.

5.  In 2018, Cinda made available various loan facilities (“the Facilities”) to enable CBD to acquire the 51% Shares from a Singaporean conglomerate. As security for repayment of the Facilities, Cinda held a charge over the entire issued shares and share capital in CBD (“CBD Share Charge”) and a charge over the 51% Shares (“the Company Share Charge”).

6.  CBD drew down US $315.5 million pursuant to the Facilities, repayable on 28 May 2021. However, CBD defaulted under the Facilities entitling Cinda to enforce the Company Share Charge on 31 May 2021.

7.  As regards the 49% Shares, Guanghua SS Holdings Limited (“Guanghua”), an affiliate of MBK Partners (“MBK”) had made available various facilities to Xeno and Kenora who were also in default. As a result, MBK appointed receivers (“the Receivers”) over the 49% shareholding on 23 November 2020 and Guanghua presented a winding up petition against the Company (HCCW 397/2020).

8.  The Company was wound up on 7 June 2021 and the provisional liquidators appointed on the same day became the joint and several liquidators of the Company (“the Liquidators”).

9.  On 5 July 2021, Cinda’s solicitors wrote to the Liquidators explaining Cinda’s interest in the liquidation of the Company. It is Cinda’s belief that the Project Property is of substantial value such that there is likely to be a surplus after paying the costs and expenses of the liquidation and the creditors, which surplus would then be distributed to contributories including the holder of the 51% Shares.

10.  Cinda decided that given the Company’s interest in the Project Property, its efforts to enforce its security were best served at that stage by transferring the 51% Shares to itself (“the 2021 Transfer”).

11.  Although a winding up petition was presented against CBD in the Cayman Islands on 25 November 2020 (“the CBD petition”), Cinda has been advised by its Cayman lawyers that notwithstanding the petition it could exercise its rights under the Company Share Charge as a secured creditor. As a transfer of the 51% Shares by CBD to Cinda would be void unless the Court otherwise orders, Cinda applied for a validation order under section 182 on 23 July 2021.

12.  On 2 September 2021, Harris J granted the order and allowed the 51% Shares to be transferred to Cinda without prejudice to CBD’s right of redemption (“the 2021 Validation Order”).

13.  Cinda became the registered owner of the 51% Shares on 8 November 2021.

14.  CBD was wound up by the Cayman Court on 17 November 2021 and formally dissolved on 16 February 2023. That event did not affect the validity of the 2021 Transfer nor Cinda’s security interest under the Company Share Charge.

Restructuring arrangements

15.  Cinda continued to explore its options on how it may obtain a recovery in respect of the outstanding amount which, as of 31 December 2023, was approximately USD 633 million including accrued interest (“the Outstanding Amount”).

16.  Meanwhile, MBK/Guanghua was also exploring ways to seek recovery of sums owing to it.

17.  Cinda and MBK Ltd, agreed an enforcement strategy which involved establishing a Cayman Islands company, Chang An Ltd (“Chang An”) with a view to holding all the shares in the Company and to work together in an effort to achieve value from the Project Property.

18.  To that end, Guanghua set up Guanghua SS Finance Limited (“Guanghua Finance”) to let it offer to acquire the 49% Shares. Its offer was accepted by the Receivers whose efforts to market the 49% Shares over the past 30 months having been unsuccessful.

19.  Guanghua Finance entered into a sale and purchase agreement on 25 May 2023 to acquire the 49% Shares from the Receivers for USD 995,000.

20.  Guanghua Finance then obtained a validation order from Linda Chan J on 9 June 2023 for a transfer of the 49% Shares (which shares were fully paid up) as arranged by the receivers to Guanghua Finance or its nominee.

21.  The register of members of Chang An shows that Cinda is the registered holder of 892 shares on 14 July 2023 and Guanghua Finance the registered holder of 108 shares on 1 August 2023.

Legal principles

22.  The applicable principles for a section 182 validation order are well established. A useful summary may be found in Re ZPMC-Red Box Energy Services Ltd[2023] HKCFI 1207 at §4.

The present application

23.  Cinda wishes to sell the 51% Shares to Chang An by a sale directly or by appointing receivers to effect such sale (“the Contemplated Transaction”). Its power of sale by itself through receivers is authorised by clauses 8 and 10 of Schedule 1 to the Company Share Charge.

24.  The summons is framed to authorise a transfer to Chang An or such other party as Cinda or receivers appointed by it may determine. That caters for the possibility of a purchaser being other than Chang An given the duty to obtain the best price that is reasonably obtainable.

25.  Cinda has received advice that its power sale under the Company Share Charge survives the dissolution of CBD from a Hong Kong law perspective but that the Contemplated Transaction will be void unless a validation order is obtained from the Court.

26.  This application is similar to Guanghua Finance’s application for a validation order which was granted on 9 June 2023. In the present case, the 51% Shares are also fully paid up and there is thus no prejudice to the creditors of the Company.

27.  Since CBD has been dissolved, the issue of pre-emption rights is no longer relevant. Moreover, Cinda is not a party to the Shareholders’ Agreement.

28.  As regards CBD’s right of redemption, Cinda has been advised that CBD’s right is extinguished by a sale (and would attach only to any surplus after the secured debt has been satisfied).

29.  The former beneficial owners of the 49% Shares have commenced an action (HCA 1976/2023) asserting that the sale of the 49% Shares to Chang An for USD 995,000 was a sale at a gross undervalue and that Guanghua, the Receivers at Cinda have conspired together to cause loss to those former beneficial owners. Those claims are denied and the action is ongoing.

30.  I agree that the validation order sought, if granted, would not prejudice those claims since the plaintiffs in HCA 1976 did not have and do not assert any interest in the 51% Shares.

31.  There being no disadvantage or detriment to any person or entity who could conceivably have any interest in the Contemplated Transaction, I see no basis for not exercising the Court’s discretion to grant validation order sought.

32.  Accordingly, there is to be an order in terms of the summons.

Mr James Wood, instructed by Tanner De Witt, for the Applicant (China Cinda (HK) Asset Management Co Ltd)

The Joint and Several Liquidators, attendance be excused

The Joint and Several Receivers and Managers, attendance be excused

The Official Receiver, attendance be excused

HCCW 397/2020

[2021] HKCFI 2647

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 397 OF 2020

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________________

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D E C I S I O N

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1.  I have before me an application by China Cinda (HK) Assets Management Co Limited (“Cinda”) for a validation order under section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32. The transaction that Cinda wishes validated is the transfer to it, of 51% of the shares of the Company over which it has security. The security has been given in conjunction with facilities made available by Cinda to associated companies of the Company.

2.  The reason why the validation order and indeed the transfer is sought, it being on the face of the matter somewhat surprising that Cinda would be concerned about registering its interest in the shares of an insolvent company, is as follows.

3.  The Company owns one valuable asset, property in Beijing.  Cinda anticipates that it will be possible for that to be sold for an amount in excess of the Company’s debts, thus leaving money available for distribution to shareholders.  It also believes that as an experienced asset management company in China, it may be able to assist the sale of the property by the joint and several provisional liquidators of the Company in conjunction with the receiver appointed over the other 49% of the shares in the Company.

4.  Neither the provisional liquidators nor the receiver object to this application.  As the shares are fully paid up on the face of the matter it would appear that the transaction will not prejudice creditors which is the normal consideration which influences the court in determining applications for validation orders[1].

5.  As there appears to be no reason to think that there might be any indirect disadvantage to creditors of the court confirming what is effectively, simply the registration of the ownership of the 51% of the shares in Cinda’s name, I will make an order in the terms of the draft presented to me validating the share transfer.

6.  There will be no order as to the costs of the application.

HCCW 397/2020

[2021] HKCFI 1695

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO 397 OF 2020

________________

________________

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D E C I S I O N

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1.  On 19 April 2021 I heard the petition and adjourned it to 7 June 2021 for the reasons set out in my decision of 19 April 2021. In [8] I say this:

“Mr Lim has also deposed to his expectation, which I assume is based on his familiarity with the matter and is genuine, negotiations being concluded in order that a drawdown should be possible by the end of May of this year. It seems to me that this is sufficiently precise and the timeline suggested by Mr Lim sufficiently close to the current date to justify the court exercising its discretion to adjourn the petition in order to allow the Company the opportunity to settle the Petitioner’s debt out of the money to be drawn down if the loan is concluded. I am not satisfied that the rather vaguer proposal relating to the realisation of the value of its interest in property in Beijing is. I will, therefore, tie the adjournment closely to the success of the loan. It is for this reason that I have adjourned the petition until 7 June 2021. If the loan has not been concluded by the time the petition is brought on before me, the Company should expect to be wound up unless it is able to produce a rather more compelling story demonstrating its ability to restructure its debt by realising its interests in the Beijing property than it has been done in the evidence currently before me.”

2.  As can be seen, my decision to adjourn the petition was largely tied to evidence which suggested that there was a realistic prospect of a loan being obtained which would allow the settlement of the Petitioner’s debt.  That loan was to come from Apollo Asia Management LLP.  The loan was not concluded.

3.  The position today is that the Company has asked for a further adjournment in order to allow it to obtain finance from two alternative sources.  One is a member of the China Resources Group.  The other is Oaktree Capital Management.  The precise details of the state of negotiations to obtain finance from those two sources are not significant for the purposes of today’s hearing.  It will suffice to say that in both cases, the documents that have been signed are non-binding term sheets.

4.  What the opposing contributory, who seeks an adjournment, has proposed is that the petition be adjourned until early September on the basis that the Petitioner will be paid the principal and interest due to it as at 6 September 2021 in full along with the costs of the proceedings.  For that payment to be feasible, one or other of the two prospective new financing arrangements would have to be concluded.  If they are not, the Company will be put into liquidation.

5.  The Petitioner is not persuaded that the proposal is in its best interests and seeks an immediate winding up.  The competing arguments largely centre on the following matters.  The Petitioner has no confidence in Mr Lim being able to finalise the arrangements, he is discussing with the two companies to which I have referred.  It believes that the appointment of liquidators will result in it being more likely that the value of the project in Beijing is realised to its benefit than allowing either Mr Lim to continue with his attempts to raise new finance or that the current receivers that have been appointed over the relevant interest in the Beijing project, being more successful than they have been to date in realising the project’s value.

6.  On behalf of Mr Lim, Mr Ho argued that first there is no particular reason to think that a liquidator would be any more successful than the receivers have been, and therefore, there was not any immediate reason to anticipate the Petitioner’s position being improved by an immediate winding up order.  Secondly, it is Mr Lim’s position that the Company is balance sheet solvent, and Mr Ho argued that Mr Lim therefore, has a legitimate interest in the maintenance of the Company’s enterprise value.

7.  There are no supporting or opposing creditors to the petition.  It seems to me that ultimately the decision that I have to make is a practical, commercial one.  The Petitioner is a sophisticated asset management company.  Mr Lim has already been given one opportunity to try and rescue the project and has been unsuccessful.

8.  It seems to me in the circumstances the correct approach by the court is to be guided by the view of the Petitioner of what is in its best financial interests unless there is a fairly compelling reason to do otherwise.  I am not satisfied that there is.  I will, therefore, make the normal winding up order.