A A
HCMP 2304/2020
B [2021] HKCFI 310 B
IN THE HIGH COURT OF THE
C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D COURT OF FIRST INSTANCE D
MISCELLANEOUS PROCEEDINGS NO 2304 OF 2020
E
________________ E
F IN THE MATTER of Freeman F
Fintech Corporation Limited
G
(stock code: 279) G
H and
H
IN THE MATTER of section 670,
I
671, 673 and 674 of the Companies I
Ordinance, Chapter 622 of the Laws
J J
of the Hong Kong Special
Administrative Region
K K
________________
L L
Before: Hon Harris J in Court
M Date of Hearing: 2 February 2021 M
Date of Decision: 2 February 2021
N N
________________
O
DECISION O
________________
P P
The Petition
Q Q
1. On 24 December 2020 I granted leave pursuant to section 670
R R
of the Companies Ordinance (Cap 622), for Joint Provisional Liquidators
S of the Company to convene a meeting of its unsecured creditors in order S
that they could consider and vote on a proposed scheme of arrangement to
T T
U U
V V
- 2 -
A A
compromise the unsecured debt of the Company (“Scheme”). The meeting
B B
took place on 22 January 2021. The Scheme was approved unanimously.
C C
2. I have heard this morning the petition to sanction the Scheme
D D
which was issued on 27 January 2021. A parallel scheme has been
E introduced in the Cayman Islands in which the Company is incorporated. E
I understand that the hearing of the necessary petition in the
F F
Cayman Islands will be heard before Mr Justice Segal on 3 February 2021.
G G
Background
H H
3. As I have mentioned the Company is incorporated in the
I I
Cayman Islands and this explains the reason for the introduction of a
J
parallel scheme. The Company is listed on the Stock Exchange of J
Hong Kong Limited (“Exchange”). It is insolvent.
K K
L
4. On 10 May 2019 a winding-up petition was presented. On L
28 February 2020 the Joint Provisional Liquidators were appointed over
M M
the Company. On 26 March 2020 Linda Chan J extended their powers to
N include exploring a possible restructuring of the Company’s debt. On N
28 February 2020 trading in its shares on the Exchange was suspended.
O O
The Exchange has imposed conditions on the Company which if not
P satisfied by 27 August 2021 will result in its shares being delisted. P
Ninety-seven percent of the debt of the Company is secured. I am told that
Q Q
the secured creditors support the Scheme. As I have already mentioned the
R Scheme, however, only compromises unsecured debt. R
S S
Relevant Legal Principles
T T
U U
V V
- 3 -
A A
5. The principles which guide the court in determining whether
B B
or not to sanction a scheme of arrangement are explained in [13]–[14] of
C my decision in Re Mongolia Mining Corporation 1: C
D
“13. The function of the court at the hearing of a petition to D
sanction a scheme is to consider—
E (a) whether the scheme is for a permissible purpose; E
(b) whether creditors who were called on to vote as a single
F class had sufficiently similar legal rights that they could F
consult together with a view to their common interest at
G
a single meeting; G
(c) whether the meeting was duly convened in accordance
H with the court’s directions; H
(d) whether creditors have been given sufficient information
I about the scheme to enable them to make an informed I
decision whether or not to support it;
J J
(e) whether the necessary statutory majorities have been
obtained; and
K K
(f) whether the court is satisfied in the exercise of its
discretion that an intelligent and honest man acting in
L accordance with his interests as a member of the class L
within which he voted might reasonably approve the
M scheme. M
See Re Dorman, Long & Co Ltd;2 Re China Light & Power Co
N Ltd; 3 Re Cable & Wireless HKT Ltd; 4 Re PCCW Ltd; 5 Re N
Wheelock Properties Ltd; 6 Re Cheung Kong Holdings Ltd ; 7
Re China Assets (Holdings) Ltd; 8 Re Enice Holding Company
O O
Ltd.9
P 14. First, it is well-established that debt restructuring is a P
permissible purpose of a scheme of arrangement.”
Q Q
R R
1
[2018] 5 HKLRD 48.
2
[1934] Ch 635 at 655 and 657.
S S
3
[1998] 1 HKLRD 158.
4
[2001] 1 HKLRD 7.
5
[2009] 3 HKC 292 at [113].
T T
6
[2010] 4 HKLRD 587.
7
[2015] 2 HKLRD 512.
8
[2017] HKEC 2641.
U 9
[2018] HKCFI 1736. U
V V
- 4 -
A A
6. In the present case it seems to me that these criteria are clearly
B B
satisfied. The Scheme is very simple and as I have mentioned has been
C unanimously approved by those creditors who attended the Scheme C
meeting in person or proxy and voted. There is only one issue which
D D
requires some consideration before determining whether or not the Scheme
E should be sanctioned and that concerns the debt of a PRC based creditor of E
the Company (“PRC Creditor”).
F F
G Debt not governed by Hong Kong law G
H 7. The PRC Creditor is owed approximately HK$48 million H
which represents approximately 1.5% of the total unsecured debt of the
I I
Company. The PRC Creditor’s debt is governed by Macanese law. The
J PRC Creditor with whom the Joint Provisional Liquidators’ staff have J
previously liaised by telephone has been sent a copy of the Scheme
K K
document and the notice of the Scheme meeting and the proxy forms.
L These he would have received by 30 December 2020. The PRC Creditor L
has not, however, returned a proxy form, a notice of claim or made any
M M
contact with the Joint Provisional Liquidators concerning his debt or the
N scheme. N
O O
8. It is a well-established common law rule that a foreign
P composition does not discharge a debt unless it is discharged under the law P
governing the debt. This is the “Rule in Gibbs” as discussed in my decision
Q Q
in the matter of China Lumena New Materials Corporation 10:
R R
“There is only one matter which requires consideration and that
is that some of the debt is not governed by Hong Kong law. This
S is of particular significance as this is the first case of which I am S
aware of a scheme purporting to compromise debt governed by
T
Mainland law. As I explain in [34] of my decision in Winsway T
U 10
[2020] HKCFI 338 at [10]. U
V V
- 5 -
A A
Enterprises Holdings Ltd , it is a well-established common-
11
B
law rule (the Rule in Antony Gibbs & Son v La Société B
Industrielle et Commerciale des Métaux 12 which is followed in
Hong Kong) that a foreign composition does not discharge a
C debt unless it is discharged under the law governing the debt. C
This does not affect the court’s jurisdiction to sanction a scheme.
The jurisdiction under section 673 is not limited to compromises
D D
of rights governed by Hong Kong law. It is, however, relevant
to the exercise of the court’s discretion to approve the scheme as
E the court will not sanction a scheme, which has no, or limited, E
utility. In the present case a significant amount of the debt is
held by a Mainland branch of the China Development
F Bank (‘CDB’): approximately 42%. As there is currently no F
mechanism for recognition and enforcement of a Hong Kong
G scheme of arrangement in the Mainland on the face of the matter, G
it not having been demonstrated to me that a Mainland court
would treat the Scheme as compromising the Mainland law debt,
H this calls into question the utility of the Scheme.” H
I I
9. The fact that some of the debt which the Scheme purports to
J compromise is not governed by Hong Kong law does not effect the court’s J
jurisdiction to sanction the Scheme. It is, however, relevant to the
K K
Scheme’s utility. Generally the court will be reluctant to sanction a scheme,
L and on occasions may refuse to do so, if there is a serious issue concerning L
whether or not the scheme will achieve its apparent purpose.
M M
N 10. However, it does not follow that because part of the debt will N
not be compromised under the law that governs the debt that the court
O O
should decline to sanction a scheme. The court will consider the more
P general issue of utility and whether the scheme is likely to substantially P
serve the purpose for which it has been introduced. I discuss this in [12]
Q Q
and [13] of the China Lumena decision:
R R
“12. As I explain in Winsway before approving a scheme the
court must be satisfied of its utility. That utility can be called
S into question if in a transnational context there is a serious S
question over the extent to which the scheme will be enforceable
T against foreign creditors. However, it is well-established that in T
11
[2017] 1 HKLRD 1.
U 12
((1890) 25 QBD 399). U
V V
- 6 -
A A
assessing whether or not this is the case the court takes a robust
B
and practical approach. For example, in re Perusahaan B
Perseroan (Persero) PT Perusahaan Penerbangan Garuda
Indonesia 13 , an English scheme in respect of an Indonesian
C company was sanctioned despite the existence of dissenting C
creditors and despite the fact that there was no parallel scheme
in Indonesia or formal recognition of the English scheme in
D D
Indonesia.
E 13. Ultimately, the guiding principle is that the court should E
not act in vain or make an order which has no substantive effect
or will not achieve its purpose. The principle does not require
F either worldwide effectiveness or worldwide certainty. Thus it F
does not require that the court must be satisfied that the scheme
G will be effective in every jurisdiction worldwide: its focus is on G
jurisdictions in which, by reason of the presence there of
substantial assets or in which creditors might make claims, it is
H especially important that the scheme be effective. The court will H
sanction the scheme provided it is satisfied that the scheme
would achieve a substantial effect: Re Lehman Brothers
I I
International (Europe) (No 10) 14.”
J J
11. The position seems to me to be this. The Company has no
K assets in Macau and enforcement in Macau is not of concern to the K
Company and has no bearing on the utility of the Scheme. As I explain in
L L
15
[36] of my decision in Re Winsway Enterprises Holdings Ltd :
M M
“The second issue is answered by the Privy Council’s decision
in New Zealand Loan and Mercantile Agency Co v Morrison16.
N N
The Privy Council held, applying Gibbs, that a scheme of
arrangement sanctioned in England under the Joint Stock
O Companies Arrangement Act 1870 did not prevent a claim being O
brought in Victoria in respect of a debt governed by the law of
Victoria. It did, however, bind all creditors ‘wherever the
P creditors may be found, whether in the United Kingdom or in the P
Colonies or in foreign countries; and within the jurisdiction of
Q the English Courts, all, wherever domicile, will be bound by the Q
result.’17 The Scheme will, therefore, prevent action being taken
within the jurisdiction of the Hong Kong courts regardless of the
R governing law of the debt. This is one of the principal reasons R
for introducing a scheme such at the present one. It will prevent
S S
13
[2001] EWCA Civ 1696 at [27] (Peter Gibson LJ).
T T
14
[2018] EWHC 1980 (Ch); [2019] Bus LR 1012 at [187]–[191] (Hildyard J).
15
[2017] 1 HKLRD 1.
16
[1898] AC 349.
U 17
Lord Davey pp357-8. U
V V
- 7 -
A A
action being taken in Hong Kong by a dissident creditor, which
B
interferes with the Company’s listed status.” B
C The Scheme if sanctioned in Hong Kong will prevent the PRC Creditor C
taking enforcement proceedings in Hong Kong. Accordingly, the PRC
D D
Creditor’s debt does not impact adversely on the utility of the Scheme. I
E will, therefore, make the order which has been handed to me sanctioning E
the Scheme.
F F
G G
(Jonathan Harris)
H H
Judge of the Court of First Instance
High Court
I I
Mr James Wood, instructed by P C Woo & Co, for the joint and several
J provisional liquidators J
K K
L L
M M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V
A A
HCMP 2304/2020
B [2021] HKCFI 310 B
IN THE HIGH COURT OF THE
C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D COURT OF FIRST INSTANCE D
MISCELLANEOUS PROCEEDINGS NO 2304 OF 2020
E
________________ E
F IN THE MATTER of Freeman F
Fintech Corporation Limited
G
(stock code: 279) G
H and
H
IN THE MATTER of section 670,
I
671, 673 and 674 of the Companies I
Ordinance, Chapter 622 of the Laws
J J
of the Hong Kong Special
Administrative Region
K K
________________
L L
Before: Hon Harris J in Court
M Date of Hearing: 2 February 2021 M
Date of Decision: 2 February 2021
N N
________________
O
DECISION O
________________
P P
The Petition
Q Q
1. On 24 December 2020 I granted leave pursuant to section 670
R R
of the Companies Ordinance (Cap 622), for Joint Provisional Liquidators
S of the Company to convene a meeting of its unsecured creditors in order S
that they could consider and vote on a proposed scheme of arrangement to
T T
U U
V V
- 2 -
A A
compromise the unsecured debt of the Company (“Scheme”). The meeting
B B
took place on 22 January 2021. The Scheme was approved unanimously.
C C
2. I have heard this morning the petition to sanction the Scheme
D D
which was issued on 27 January 2021. A parallel scheme has been
E introduced in the Cayman Islands in which the Company is incorporated. E
I understand that the hearing of the necessary petition in the
F F
Cayman Islands will be heard before Mr Justice Segal on 3 February 2021.
G G
Background
H H
3. As I have mentioned the Company is incorporated in the
I I
Cayman Islands and this explains the reason for the introduction of a
J
parallel scheme. The Company is listed on the Stock Exchange of J
Hong Kong Limited (“Exchange”). It is insolvent.
K K
L
4. On 10 May 2019 a winding-up petition was presented. On L
28 February 2020 the Joint Provisional Liquidators were appointed over
M M
the Company. On 26 March 2020 Linda Chan J extended their powers to
N include exploring a possible restructuring of the Company’s debt. On N
28 February 2020 trading in its shares on the Exchange was suspended.
O O
The Exchange has imposed conditions on the Company which if not
P satisfied by 27 August 2021 will result in its shares being delisted. P
Ninety-seven percent of the debt of the Company is secured. I am told that
Q Q
the secured creditors support the Scheme. As I have already mentioned the
R Scheme, however, only compromises unsecured debt. R
S S
Relevant Legal Principles
T T
U U
V V
- 3 -
A A
5. The principles which guide the court in determining whether
B B
or not to sanction a scheme of arrangement are explained in [13]–[14] of
C my decision in Re Mongolia Mining Corporation 1: C
D
“13. The function of the court at the hearing of a petition to D
sanction a scheme is to consider—
E (a) whether the scheme is for a permissible purpose; E
(b) whether creditors who were called on to vote as a single
F class had sufficiently similar legal rights that they could F
consult together with a view to their common interest at
G
a single meeting; G
(c) whether the meeting was duly convened in accordance
H with the court’s directions; H
(d) whether creditors have been given sufficient information
I about the scheme to enable them to make an informed I
decision whether or not to support it;
J J
(e) whether the necessary statutory majorities have been
obtained; and
K K
(f) whether the court is satisfied in the exercise of its
discretion that an intelligent and honest man acting in
L accordance with his interests as a member of the class L
within which he voted might reasonably approve the
M scheme. M
See Re Dorman, Long & Co Ltd;2 Re China Light & Power Co
N Ltd; 3 Re Cable & Wireless HKT Ltd; 4 Re PCCW Ltd; 5 Re N
Wheelock Properties Ltd; 6 Re Cheung Kong Holdings Ltd ; 7
Re China Assets (Holdings) Ltd; 8 Re Enice Holding Company
O O
Ltd.9
P 14. First, it is well-established that debt restructuring is a P
permissible purpose of a scheme of arrangement.”
Q Q
R R
1
[2018] 5 HKLRD 48.
2
[1934] Ch 635 at 655 and 657.
S S
3
[1998] 1 HKLRD 158.
4
[2001] 1 HKLRD 7.
5
[2009] 3 HKC 292 at [113].
T T
6
[2010] 4 HKLRD 587.
7
[2015] 2 HKLRD 512.
8
[2017] HKEC 2641.
U 9
[2018] HKCFI 1736. U
V V
- 4 -
A A
6. In the present case it seems to me that these criteria are clearly
B B
satisfied. The Scheme is very simple and as I have mentioned has been
C unanimously approved by those creditors who attended the Scheme C
meeting in person or proxy and voted. There is only one issue which
D D
requires some consideration before determining whether or not the Scheme
E should be sanctioned and that concerns the debt of a PRC based creditor of E
the Company (“PRC Creditor”).
F F
G Debt not governed by Hong Kong law G
H 7. The PRC Creditor is owed approximately HK$48 million H
which represents approximately 1.5% of the total unsecured debt of the
I I
Company. The PRC Creditor’s debt is governed by Macanese law. The
J PRC Creditor with whom the Joint Provisional Liquidators’ staff have J
previously liaised by telephone has been sent a copy of the Scheme
K K
document and the notice of the Scheme meeting and the proxy forms.
L These he would have received by 30 December 2020. The PRC Creditor L
has not, however, returned a proxy form, a notice of claim or made any
M M
contact with the Joint Provisional Liquidators concerning his debt or the
N scheme. N
O O
8. It is a well-established common law rule that a foreign
P composition does not discharge a debt unless it is discharged under the law P
governing the debt. This is the “Rule in Gibbs” as discussed in my decision
Q Q
in the matter of China Lumena New Materials Corporation 10:
R R
“There is only one matter which requires consideration and that
is that some of the debt is not governed by Hong Kong law. This
S is of particular significance as this is the first case of which I am S
aware of a scheme purporting to compromise debt governed by
T
Mainland law. As I explain in [34] of my decision in Winsway T
U 10
[2020] HKCFI 338 at [10]. U
V V
- 5 -
A A
Enterprises Holdings Ltd , it is a well-established common-
11
B
law rule (the Rule in Antony Gibbs & Son v La Société B
Industrielle et Commerciale des Métaux 12 which is followed in
Hong Kong) that a foreign composition does not discharge a
C debt unless it is discharged under the law governing the debt. C
This does not affect the court’s jurisdiction to sanction a scheme.
The jurisdiction under section 673 is not limited to compromises
D D
of rights governed by Hong Kong law. It is, however, relevant
to the exercise of the court’s discretion to approve the scheme as
E the court will not sanction a scheme, which has no, or limited, E
utility. In the present case a significant amount of the debt is
held by a Mainland branch of the China Development
F Bank (‘CDB’): approximately 42%. As there is currently no F
mechanism for recognition and enforcement of a Hong Kong
G scheme of arrangement in the Mainland on the face of the matter, G
it not having been demonstrated to me that a Mainland court
would treat the Scheme as compromising the Mainland law debt,
H this calls into question the utility of the Scheme.” H
I I
9. The fact that some of the debt which the Scheme purports to
J compromise is not governed by Hong Kong law does not effect the court’s J
jurisdiction to sanction the Scheme. It is, however, relevant to the
K K
Scheme’s utility. Generally the court will be reluctant to sanction a scheme,
L and on occasions may refuse to do so, if there is a serious issue concerning L
whether or not the scheme will achieve its apparent purpose.
M M
N 10. However, it does not follow that because part of the debt will N
not be compromised under the law that governs the debt that the court
O O
should decline to sanction a scheme. The court will consider the more
P general issue of utility and whether the scheme is likely to substantially P
serve the purpose for which it has been introduced. I discuss this in [12]
Q Q
and [13] of the China Lumena decision:
R R
“12. As I explain in Winsway before approving a scheme the
court must be satisfied of its utility. That utility can be called
S into question if in a transnational context there is a serious S
question over the extent to which the scheme will be enforceable
T against foreign creditors. However, it is well-established that in T
11
[2017] 1 HKLRD 1.
U 12
((1890) 25 QBD 399). U
V V
- 6 -
A A
assessing whether or not this is the case the court takes a robust
B
and practical approach. For example, in re Perusahaan B
Perseroan (Persero) PT Perusahaan Penerbangan Garuda
Indonesia 13 , an English scheme in respect of an Indonesian
C company was sanctioned despite the existence of dissenting C
creditors and despite the fact that there was no parallel scheme
in Indonesia or formal recognition of the English scheme in
D D
Indonesia.
E 13. Ultimately, the guiding principle is that the court should E
not act in vain or make an order which has no substantive effect
or will not achieve its purpose. The principle does not require
F either worldwide effectiveness or worldwide certainty. Thus it F
does not require that the court must be satisfied that the scheme
G will be effective in every jurisdiction worldwide: its focus is on G
jurisdictions in which, by reason of the presence there of
substantial assets or in which creditors might make claims, it is
H especially important that the scheme be effective. The court will H
sanction the scheme provided it is satisfied that the scheme
would achieve a substantial effect: Re Lehman Brothers
I I
International (Europe) (No 10) 14.”
J J
11. The position seems to me to be this. The Company has no
K assets in Macau and enforcement in Macau is not of concern to the K
Company and has no bearing on the utility of the Scheme. As I explain in
L L
15
[36] of my decision in Re Winsway Enterprises Holdings Ltd :
M M
“The second issue is answered by the Privy Council’s decision
in New Zealand Loan and Mercantile Agency Co v Morrison16.
N N
The Privy Council held, applying Gibbs, that a scheme of
arrangement sanctioned in England under the Joint Stock
O Companies Arrangement Act 1870 did not prevent a claim being O
brought in Victoria in respect of a debt governed by the law of
Victoria. It did, however, bind all creditors ‘wherever the
P creditors may be found, whether in the United Kingdom or in the P
Colonies or in foreign countries; and within the jurisdiction of
Q the English Courts, all, wherever domicile, will be bound by the Q
result.’17 The Scheme will, therefore, prevent action being taken
within the jurisdiction of the Hong Kong courts regardless of the
R governing law of the debt. This is one of the principal reasons R
for introducing a scheme such at the present one. It will prevent
S S
13
[2001] EWCA Civ 1696 at [27] (Peter Gibson LJ).
T T
14
[2018] EWHC 1980 (Ch); [2019] Bus LR 1012 at [187]–[191] (Hildyard J).
15
[2017] 1 HKLRD 1.
16
[1898] AC 349.
U 17
Lord Davey pp357-8. U
V V
- 7 -
A A
action being taken in Hong Kong by a dissident creditor, which
B
interferes with the Company’s listed status.” B
C The Scheme if sanctioned in Hong Kong will prevent the PRC Creditor C
taking enforcement proceedings in Hong Kong. Accordingly, the PRC
D D
Creditor’s debt does not impact adversely on the utility of the Scheme. I
E will, therefore, make the order which has been handed to me sanctioning E
the Scheme.
F F
G G
(Jonathan Harris)
H H
Judge of the Court of First Instance
High Court
I I
Mr James Wood, instructed by P C Woo & Co, for the joint and several
J provisional liquidators J
K K
L L
M M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V
HCMP2304/2020 RE FREEMAN FINTECH CORPORATION LTD - LawHero