The Insolvency Team at Gall continues to advise Century Sunshine Holdings Group Limited (Stock Code: 509) (the “Company”) on its debt restructuring and has successfully secured sanction of a Hong Kong scheme of arrangement (the “Hong Kong Scheme”) (as part of parallel schemes of arrangement in Hong Kong and Singapore). In August 2023, the Honourable Mr Justice Harris sanctioned the Hong Kong Scheme between the Company and 5 of its subsidiaries in the British Virgin Islands and Hong Kong on one hand and their Scheme Creditors on the other: Re Century Sunshine Group Holdings Ltd and Others [2023] HKCFI 2041.
Background
Founded in 2003 and listed on the Main Board of SEHK in August 2008, Century Sunshine was the first listed company in Hong Kong to specialise in the ecological fertiliser business in Mainland China. The company’s business suffered considerably due to the pandemic, and in order to avoid liquidation and to encourage returning the company to solvency, it has been pursuing a Group-wide debt restructuring.
In 2021, Gall advised the Company’s key Bermudian subsidiary Rare Earth Magnesium Technology Group Holdings Limited (Stock Code: 601) (“Rare Earth”) in the successful restructuring of its debt and dismissal of a hostile creditor’s winding up petition: Re Rare Earth Magnesium Technology Group Holdings Ltd [2022] HKCFI 1686.
Rare Earth’s restructuring paved the way for the Hong Kong Scheme to restructure the Century Sunshine Group’s other debts in Hong Kong and Singapore.
The Hong Kong Scheme
A scheme of arrangement is one way to restructure a company’s debts when a company encounters financial difficulty. Under section 673 of the Companies Ordinance (Cap. 622), a sanctioned scheme will be binding on the company and its scheme creditors.
In considering whether to sanction the Hong Kong Scheme, the Court applied the principles recently restated in Re China Singyes Solar Technologies Holdings Ltd [2020] HKCFI 467, in particular:
- Whether the scheme is for a permissible purpose;
- Whether creditors who were called on to vote as a single class had sufficiently similar legal rights such that they could consult together with a view to their common interest at a single meeting;
- Whether the meeting was duly convened in accordance with the Court’s directions;
- Whether creditors have been given sufficient information about the scheme to enable them to make an informed decision on whether or not to support it;
- Whether the necessary statutory majorities have been obtained;
- Whether the Court is satisfied in the exercise of its discretion than 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
- 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.
The Hong Kong Court also affirmed that the ancillary discharge of third-party guarantees and releasing the liability of directors and professional advisers for claims arising from the preparation and introduction of the Hong Kong Scheme is permissible and can properly be treated as forming part of the compromise achieved by the Hong Kong Scheme, consistent with the decision of the English Court in Re Virgin Active Holdings Ltd [2021] EWHC 1246 (Ch).
Further, the Court restated that the correct approach to calculating a nominee’s vote is to regard such vote as once for and once against for the purposes of the headcount test.
After the Hong Kong Scheme was sanctioned, the Company also presented a Pre-pack Scheme in Singapore to pursue parallel restructuring, and on 31 July 2023 the Singapore Court sanctioned the same.
