RE DEXIN CHINA HOLDINGS COMPANY LTD

HCCW 164/2024

[2024] HKCFI 1610

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 164 OF 2024

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REASONS FOR JUDGMENT

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1.  At the hearing of the petition presented by China Construction Bank (Asia) Corporation Limited, the petitioner (“Petitioner”), against Dexin China Holdings Company Limited (“Company”) I made a usual winding up order against the Company. These are the reasons for my judgment.

Background

2.  The Company was incorporated in the Cayman Islands.  It has since 15 June 2018 been registered as a non-Hong Kong under the Companies Ordinance (Cap. 622).  The principal place of business of the company is at China Resources Building, 26 Harbour Road, Hong Kong.  The shares of the Company have since 26 February 2019 been listed on the Main Board of The Stock Exchange of Hong Kong Limited (“HKEx”) (stock code: 2019).

3.  The Company is an investment holding company and holds a number of subsidiaries (together “Group”) which engage in the business of property development and construction services, property investment and hotel operation in the Mainland.  According to the Company’s annual report for the year ended 31 December 2022, its business involved 146 projects in 25 cities and the Group had land reserve of 14.6 million square metres. 

4.  Pursuant to an Indenture dated 3 December 2020 (“Indenture”) executed by inter alios the Company and the Petitioner (as trustee for itself and the holders of the Notes), the Company issued a series of 9.95% senior notes due 2022 (collectively “Notes”). 

5.  Under the Notes, the Company was obliged to pay US$350 million to the Petitioner upon their maturity on 3 December 2022 and interest was payable every 6 months with the first payment due on 3 June 2021.

6.  The Company failed to pay the interest due on 3 June 2022 and failed to pay the principal upon maturity of the Notes on 3 December 2022.   

7.  As at 23 February 2024, the Company was indebted to the Petitioner the sum of US$410,073,125 (“Debt”).  On the same day, the Petitioner served a statutory demand on the Company requiring it to pay the Debt within 21 days thereof (“SD”). 

8.  The Company did not pay any amount to the Petitioner.  On 20 March 2024, the petition was presented against the Company.

9.  As the Company failed to comply with the SD, by virtue of s.178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (“Ordinance”), the Company is deemed insolvent.

Grounds of opposition

10.  Ms Queenie Lau SC (leading Mr Thomas Wong), counsel for the Petitioner, submits that the Company does not have any proper ground to oppose the petition for the following reasons:

(1)  Hu 1^st (as defined in §11 below) should be disregarded altogether since the Company has neither sought leave to file its evidence out of time nor provided any explanation for the very substantial delay; and

(2)  In any event, the 2 contentions raised in Hu 1^st viz., (a) the second core requirement is not satisfied, and (b) some holders of the Notes are opposed to the Petition, are both plainly meritless.

11.  As regards the first point, Ms Lau submits that the Company failed to comply with rule 32(1) of the Companies (Winding-up) Rules (Cap. 32H), which required evidence in opposition to be filed by 29 March 2024[1]. It was only until 5 June 2024 that the Company filed the Affidavit of Tsui Ming Lun, which exhibited 胡一平的非宗教式誓詞 dated 4 June 2024 (“Hu1^st”).This was despite the fact that on 8 May 2024, the Company issued a summons for a validation order in respect of the transfer of fully paid-up shares, which was granted by DHCJ Le Pichon on 28 May 2024.

12.  The Company did not issue any summons to apply for extension of time to file any affirmation out of time.  Nor did the Company provide any explanation for the delay in Hu 1^st.  It was only until 7 June 2024 that the Company belatedly filed the affirmation of Li Weixiang but the only explanation proffered was that the Company had been conducting without prejudice discussions with various holders of the Notes and decided to delay giving instructions to the solicitors to prepare an affirmation in opposition. I do not think that this provides a justification for the court to grant leave to the Company to file Hu 1^st and without the usual condition requiring the Company to pay the Debt into court[2]. As the Company does not have the means to pay the Debt, there is no useful purpose for the court to grant conditional leave for the Company to file Hu 1^st. It follows that there is no evidence in opposition to the petition.   

13.  Even if, contrary to my view, there is a proper basis for the court to grant leave for the Company to file Hu 1^st without any condition, I do not think that the grounds raised by the Company have any merit.   

14.  The Company contends that there is no reasonable possibility of benefit that a winding up order would benefit the Petitioner such that the second core requirement for the court to exercise the discretionary jurisdiction to wind up a foreign company under s.327(3) of the Ordinance is not met.  Reliance is placed on the following matters:

(1)  The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) [3]. 

(2)  It is “highly unlikely” that the listing status of the Company will have any residual value if the Company is wound up.  The Petitioner has not adduced evidence to establish that there is a real, not a hypothetical prospect of the listing being realised for an amount that produced a meaningful return to creditors (Re China Huiyuan Juice Group Ltd [2021] 1 HKLRD 25, §§30-33).

(3)  The “substantive assets” of the Group are held through BVI subsidiaries and their subsidiaries.  Save for some negligible amount of cash balance in bank accounts, the Company does not hold any assets in Hong Kong which are readily realizable[4].

(4)  The Company has substantial assets and business in the Mainland[5]. A liquidator appointed in Hong Kong will not be able to achieve any value in the Mainland and a winding-up order made in Hong Kong would be an exercise in futility. 

15.  Cap. 645 has no application to the Company and is irrelevant. 

16.  As regards the second core requirement, the court adopts a pragmatic approach and considers whether there is a reasonable possibility of a sufficient benefit accruing to the petitioner from being permitted to set in motion the winding-up procedure in Hong Kong in respect of a foreign company.  The benefit need not be monetary or tangible in nature, and is met “so long as the benefit can be said to be a real possibility, rather than a merely theoretical one”.  Even if there is nothing for the liquidator to administer, the court may hold that the second requirement is satisfied so long as there is “some useful purpose serving the legitimate interest of the petitioner” (Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd (2022) 25 HKCFAR 98, §§54, 56, 61, 83).

17.  By reason of the following matters, the second core requirement is plainly satisfied:

(1)  As the Company is a listed company, the leverage or commercial pressure created by the petition itself constitutes a sufficient benefit to the Petitioner (cf. Shandong Chenming §§62-67, 80-83).

(2)  The Company carried out substantial fund-raising activities in Hong Kong including issuing the Notes in Hong Kong which were listed on HKEx. 

(3)  The Company has bank accounts at Hang Seng Bank and Bank of China which have been used to defray the expenses of the principal office in Hong Kong[6].  Although the combined balance of these accounts as at 30 April 2024 was less than HK$80,000, it is reasonable to infer that substantial funds must have been paid into and out of the bank accounts held by the Company in Hong Kong given that the Notes were issued in Hong Kong.  If and to the extent that the Company has lent the funds raised to any direct or indirect subsidiaries to finance their business and the same have not been repaid, such amounts are assets of the Company and may be recovered by the liquidators upon the winding up of the Company. 

(4)  The winding up of the Company would enable liquidators to take control over the Company and, thereafter, to conduct a proper investigation into the Company’s assets and affairs and where possible, recover assets for the benefit of the creditors as a whole (cf. Re Up Energy Development Group Ltd [2022] 2 HKLRD 993 §§47-48).

(5)  Although the Company was incorporated in the Cayman Islands, there is no suggestion that the Company has maintained any office or carried out any substantive activity in the Cayman Islands.  By contrast, the Company’s shares have since 2019 been listed on HKEx and has a principal place of business in Hong Kong.  There is a reasonable possibility of benefit that the liquidators appointed in Hong Kong will be able to seek recognition and assistance from the Mainland courts under the “Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region” issued in May 2021.   

18.  In his Skeleton, Mr Alex Fan, counsel for the Company, argues that the third core requirement is not met as the Petitioner “is merely acting in the capacity of the Trustee acting on behalf of the holders of the [Notes]”.  The argument only falls to be rejected.  The Petitioner is one of the holders of the Notes.  As the Notes were listed on HKEx, it is reasonable to infer that there are holders who are subject to the in personam jurisdiction of the court. 

19.  As for the Company’s contention that some holders of the Notes oppose the petition[7], it does not constitute a valid ground for the court to adjourn the petition.

20.  The starting point is that a petitioner whose debt is not in dispute is entitled ex debito justitiae to a winding up order against the company.  The burden lies on the company to demonstrate good grounds for the court not to make such an order against it.  As stated in Re Jiayuan International Group Limited[2023] HKCFI 1254, §12(3):

“If the company opposes the petition on the ground that there is a reasonable prospect of being able to restructure and compromise the debts and restore its solvency, it has to demonstrate to the court that a concrete restructuring proposal or a scheme of arrangement has been prepared and put forward to the creditors for their consideration, and such proposal or scheme has the support of the requisite majorities of creditors. It is not enough for the company to point to certain commercial discussions with some creditors or make a general assertion that it has been actively pursuing a restructuring proposal. Nor is it enough for the company to say that it is only seeking a short adjournment of the petition. Unless the company is able to demonstrate that there is some useful purpose in adjourning the petition, there is no proper basis for the court to delay the creditor’s right in seeking an immediate winding up order against the company.”

21.  In the present case, all that the Company said is that some unidentified holders of 49.71% of the Notes are in discussion with the Company regarding a “contemplated restructuring plan”.  The assertion is not supported by any documents.  Even assuming it is true, I do not see how the ongoing discussions can be taken as the holders having expressed their opposition to the petition.

22.  Although the Company produced some letters signed by 5 holders who, it is said, hold 8.63% of the Notes, none of them has filed any notice of intention to appear in and opposes the petition.  More importantly, the letters only referred to discussions with the management team and/or their advisers regarding a “contemplated restructuring plan”.  There was no mention of what the “plan” entailed or when such plan would be made available to the other creditors including the Petitioner.  As the Company has not demonstrated that there is any concrete restructuring plan, let alone one which has the support of the requisite majorities of the creditors, there is no proper basis for the court to delay the Petitioner’s right in seeking an immediate winding up order against the Company.

HCCW 164/2024

[2024] HKCFI 1455

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP PROCEEDINGS NO 164 OF 2024

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D E C I S I O N

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1.  This is the application of Dexin China Holdings Company Limited (“the Company”) for a validation order.

2.  The Company is a Cayman Islands’ company whose shares have been listed on the Stock Exchange of Hong Kong Limited since 2019.

3.  The Company failed to make payment of the principal due on 3 December 2022, and accrued and unpaid interest due and payable under the Notes and Indenture.

4.  On 23 February 2024, China Construction Bank (Asia) Corporation Limited (“the Petitioner”), as Trustee of 9.95% Senior Notes due 2022 (“the Notes”) under any Indenture dated 3 December 2020 (“the Indenture”) served a statutory demand in the sum of just over US $410 million on the Company. It went unmet, culminating in the presentation of a petition on 20 March 2024 (“the Petition”) for a winding up order.

5.  The Company made an announcement in relation to the Petition on 21 March 2024 (“the Announcement”).

6.  On 25 March 2024, the Listing Division of the Stock Exchange requested that the Company publish an announcement (no later than 28 March 2024) to disclose whether or not the Company would apply for a validation order in respect of the transfer of its shares

7.  On 28 March 2024, the Company announced, inter alia, that legal advisors had been engaged to apply to the High Court for a validation order.

8.  On 2 April 2024, the Company made an announcement dated 28 March 2024 that

(i)  the Listing Rules required that the annual results of the Company and its subsidiaries (“the Group”) for the year ended 31 December 2023 be published on or before 31 March 2024;

(ii)  the Company required additional time before it could publish the 2023 Annual Results;

(iii)  the Listing Rules required that trading in the shares of the Company would be suspended until the publication of the 2023 Annual Results; and

(iv)  at the Company’s request, trading in its shares would be suspended until the 2023 Annual Results are published by the Company.

9.  Trading resumed on 26 April 2024 following the publication of the 2023 Annual Results on 25 April 2024.

10.  On 8 May 2024, the Company issued the summons seeking an order that

(1)  notwithstanding the presentation of the Petition, all transfers of issued and fully paid-up shares of the Company since the date of the Petition’s presentation shall not be void by virtue of section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“the Ordinance”); and

(2)  costs be in the cause of the Petition.

11.  A CCASS Shareholding Search conducted on 8 May 2024 show a total shareholding of 2,969,341,000 in CCASS. That number corresponds to number of issued shown in the 2023 Annual Report.

12.  The Petitioner and the Official Receiver take a neutral stance on the Company’s application as stated in their respective letters.

13.  This is a straightforward application. A transfer of fully paid-up shares will generally be unobjectionable since the object of section 182 of the Ordinance - to prevent a shareholder from evading his liability to contribute by transferring his shares to an impecunious party - can have no application to shares that are fully paid-up: see Re Belgravia Properties Ltd [2015] 1 HKLRD 509 at §§6 and 9.

14.  Where the evidence shows that all the issued shares of the Company are fully paid-up, the granting of a validation order would not prejudice the creditors of the Company in the event a winding up order. They would not be worse off as a result. In such circumstances, it would be appropriate to grant the validation order: see Re Alco Holdings Limited[2024] HKCFI 73 at §5; and Re XJ International Holdings Co Ltd[2024] HKCFI 1378 at §4.

15.  Accordingly, I make an order in terms of the summons.

Mayer Brown, for the Petitioner, attendance was excused.

Mr Anson Wong Yu Yat, instructed by Jun He Law Offices, for the Company.

The Official Receiver was absent.