Section 86 of the Companies Act (2023 Revision) and China Aoyuan Group Ltd ()
| Jurisdiction | Cayman Islands |
| Judge | Justice David Doyle |
| Judgment Date | 02 November 2023 |
| Docket Number | FSD 284 OF 2023 (DDJ) |
| Court | Grand Court (Cayman Islands) |
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The Hon. Justice David Doyle
FSD 284 OF 2023 (DDJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Determination of issues in respect of the convening of a meeting to consider a proposed scheme
Tom Smith KC, Ben Hobden and Caitlin Murdock of Harneys on behalf of the Company
I am grateful to Tom Smith KC, Ben Hobden and Caitlin Murdock who appear on behalf of China Aoyuan Group Limited (the “Company”) for their considerable assistance to the court. The skeleton argument dated 25 October 2023 of all three and the oral submissions of Mr Smith have helped me to focus on the main issues which arise for today's hearing. These are helpfully summarised at paragraph 86 of the skeleton argument as follows:
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(1) notice to creditors of the hearing;
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(2) class composition;
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(3) jurisdiction;
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(4) roadblock;
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(5) voting on the scheme; and
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(6) notice, timing and conduct of the scheme meeting.
I note that the proposed scheme is conditional on all schemes in the Cayman Islands, Hong Kong and the BVI, being duly sanctioned by the relevant courts. The Company before me today is a Cayman company which is the ultimate parent company of the Group, a Chinese property developer that focuses on the development and sale of residential and commercial properties. As is well known, that sector has had troubled times of late. The real estate industry in the People's Republic of China suffered a downturn from around 2020. Earlier this year the Company defaulted on certain debt and entered into negotiations in an effort to implement a financial restructuring to allow the Group to continue to trade on a going concern basis. The total outstanding principal amount of the debt subject to the schemes was approximately US$6.25 billion as at 30 June 2023.
If the scheme is not sanctioned it is likely that the Company will enter into liquidation and creditors (regardless of whether they hold ICA Debt or non-ICA Debt), on an insolvent liquidation, would only receive between 3.7% and 4.2% on their existing debt compared to an estimated 36.1% recovery if the scheme and restructuring are successful. I note the liquidation analysis dated 16 October 2023 prepared by Kroll at Appendix 7 of the Explanatory Statement and I note the limitations specified in the Kroll report. The Board considers the liquidation analysis is the likely alternative in the event that the scheme and the restructuring are unsuccessful.
I have considered the Explanatory Statement in relation to the proposed scheme at exhibit CZB-1.
I have considered section 86 of the Companies Act, Practice Direction No 2 of 2010 and the relevant authorities.
The primary purpose of this hearing today is to consider the issue of class composition. The court can also consider any issues as to jurisdiction (including international jurisdiction and effectiveness).
The court may also consider any obvious “showstoppers” or “roadblocks”.
I appreciate that my function today is not to consider the merits or fairness of the proposed scheme as such will be dealt with at any future sanction hearing if the scheme is approved by the statutory majority of creditors.
The court may however, at this early stage, review the Explanatory Statement filed to ensure that there are no manifest deficiencies but it is not my function at this initial hearing to approve the contents of the Explanatory Statement.
I deal with the various relevant issues as follows.
I am content that sufficient notice of the scheme and this convening hearing has been duly given.
I note the basic principles in respect of class composition — differences in rights do not necessarily fracture the class and it is important to avoid unnecessary class proliferation. The legal submissions, both in writing and orally, in this case covered this issue extremely well if I may say so. Paragraph 3.2 of Practice Direction No 2 of 2010 summarises the position as follows:
“In every case the Court will consider whether it is appropriate to convene class meetings and, if so, the composition of the classes so as to ensure that each meeting consists of shareholders or creditors whose rights against the company which are to be released or varied under the scheme, or the new rights which the scheme gives in their place, are not so dissimilar as to make it impossible for them to consult together with a view to their common interest…”
In this case the Company seeks an order that the Scheme Creditors vote in a single class meeting, since the rights of the Scheme Creditors are sufficiently similar to make it possible for them to consult together with a view to their common interest. As Mr Smith puts it they, the ICA debtors and the non-ICA debtors, are “all essentially in the same boat”, as the security (held by the ICA debtors) would be worthless in a liquidation scenario.
I agree that the rights are sufficiently similar across all the Scheme Creditors to allow a single scheme meeting to be held. I considered Re Ocean Rig UDW 2017 (2) CILR 495 — the helpful judgment of Parker J. I am content with a single class meeting and I note Harris J was also content with such at the hearing which took place in Hong Kong earlier today.
Nothing I have read or heard in respect of the RSA Fee, the Work Fee, or the Adviser Fees troubles me in respect of any class issues. There is no justification to fracture the single class approach in this case.
I also note the position in respect of access to information. There is no discrimination and no issues to detract from a single class approach.
In respect of sanctions no problematic issues appear to arise.
I am satisfied as to the court's jurisdiction. The Company is within the definition of company in section 86(5) of the Companies Act and the scheme is a compromise or arrangement.
I agree that there is no obvious roadblock or showstopper on the scheme which would unquestionably lead the court not to sanction the scheme. There is no obvious defect or reason to prevent the scheme going forward, if the requisite majority vote is obtained in its favour.
There is nothing in what I have read or heard today that leads me to the view that the scheme will not have international effectiveness in the relevant jurisdictions, and I look forward to additional submissions on that point in due course at the sanction hearing, if the scheme is approved by the statutory majority of creditors. There is no obvious reason today as to why scheme would not be recognised internationally.
I note the...
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