Section 92 of the Companies Act (2022 Revision) and Global Cord Blood Corporation

• Jurisdiction: Cayman Islands
• Judge: Justice Kawaley
• Judgment Date: 31 March 2023
• Docket Number: FSD CAUSE NO. 108 OF 2022 (IKJ)
• Court: Grand Court (Cayman Islands)

In the Matter of Section 92 of the Companies Act (2022 Revision)

And in the Matter of Global Cord Blood Corporation

Before:

The Hon. Justice Kawaley

FSD CAUSE NO. 108 OF 2022 (IKJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

Just and equitable winding-up petition-standing of stranger to company to join or intervene in winding-up proceedings to enforce its contractual rights against third parties—Companies Act (2023 Revision) sections 92–95

Appearances:

Mr David Chivers KC and Ms Joanne Verbiesen and Mr Jamie McGee and Mr Jonathan Stroud of Bedell Cristin, on behalf of Blue Ocean Structure Investment Company Limited (the “Petitioner”)

Mr Thomas Raphael KC of counsel and Ms Ilona Groark of Kobre & Kim for (“GMSCL”), the Applicant

Ms Gemma Lardner and Mr Corey Byrne of Ogier for the Litigation Steering Committee of the Company

RULING ON STANDING

Background

1 As a source of unusual factual and legal conundrums, the present proceedings are like the archetypical ‘gift that keeps on giving’. The main background events thus far can conveniently be summarised as follows:

• (a) the Company was incorporated in the Cayman Islands in 2009. It is managed primarily from Hong Kong but is listed on the New York Stock Exchange (“NYSE”). Its business focus is lifesaving medical technology, the storage of umbilical cord blood stem cells, mainly in Mainland China where it is said to be the largest such service provider;

• (b) the Petitioner is 100% owned by a special purpose vehicle, Nanjing Ying Peng HuiKang Medical Investment Partnership (Limited Partnership) (“Ying Peng”) to hold a 65.4 % stake in the Company which was sold by Golden Meditech Holdings Limited (“GMHL”) and Golden Meditech Stem Cells (BVI) Company Limited (“GM BVI”) to Ying Peng in 2018;

• (c) after 2018, the Company continued to be controlled by Mr Kam Yuen, the founder of GMHL which by then held a minority shareholding interest in the Company;

• (d) on 5 May 2022 the Petitioner presented the Petition which formally sought a just and equitable winding-up but which primarily sought to prevent the consummation of the “Cellenkos Transaction” which was said to have been improperly approved by the Company's Board without shareholder approval in circumstances where the main beneficiaries of the transaction were related parties being entities linked to Mr Kam and the Company's management;

• (e) the Petitioner supported by other minority shareholders, purportedly convened an extraordinary general meeting for 16 June 2022 at which it was sought to, inter alia, replace the directors who had approved the Cellenkos Transaction and terminate the Cellenkos Transaction (the “EGM Resolutions”);

• (f) on 12 May 2022, Richards J granted the Petitioner's ex parte application for an injunction restraining the Company from implementing the closing of the Cellenkos Transaction or the issuing of new shares;

• (g) on 23 May 2022, GM BVI filed a Schedule 13D SEC filing in New York asserting that it held a charge over the Petitioner's shares. The validity of the share charge is the subject of proceedings commenced by the Petitioner itself in the British Virgin Islands (“BVI”), the trial of which was vacated;

• (h) on 15 June 2022, I declined to grant an injunction restraining the holding of the EGM on the Company's 14 June 2022 ex parte on notice Summons. I granted the Company's alternative head of relief, restraining implementation of any resolutions passed at the meeting until an inter partes hearing;

• (i) on 16 June 2022 the EGM purportedly passed the EGM Resolutions reconstituting the Board and potentially creating a majority opposed to the Cellenkos Transaction;

• (j) on 29 July 2022, following an inter partes hearing on 13–14 July 2022, I refused the Company's application for a Validation Order permitting completion of the Cellenkos Transaction. The validity of the EGM Resolutions turned in large part on whether the new shares purportedly issued through Phase 1 of the Cellenkos Transaction on 4 May 2022 at a time when the Company had no statutorily compliant share register. The way in which evidence about this change to the share register was belatedly disclosed was perturbing, and I declined to grant the Company's application for a declaration that the EGM was invalidly convened;

• (k) on 22 August 2022, the Petitioner applied by Summons to appoint provisional liquidators. The Company was given notice of the hearing but elected not appear to challenge the Petitioner's application and the hearing proceeded on an ex parte on notice basis;

• (l) on 22 September 2022, I appointed Margot MacInnis and John Royle of Grant Thornton Specialist Services (Cayman) Limited and Chow Tsz Nga Georgia of Grant Thornton Recovery & Reorganisation Limited as Joint Provisional Liquidators of the Company (the “JPLs”). In a Judgment delivered on the same date 1, I found that credible evidence had been adduced by the Petitioner to the effect that evidence adduced by the Company through its Chief Financial Officer (an executive director and principal deponent) in the form of a bank statement showing the sale proceeds for the Cellenkos Transaction being deposited into one of its bank accounts had been materially false;

• (m) in the 22 September 2022 Judgment I also found that the Petitioner “ has a seriously arguable case-and at this stage it is almost an irresistible case- for setting aside the Order that I made…on the grounds of fraud”. This was because the Company's evidence that it had paid US$664 million on 29 April 2022 and supposedly issued the new shares on 4 May 2022 as consideration for Phase 1 of the Cellenkos Transaction was pivotal to my decision to continue my 15 June 2022 injunction restraining implementation of the EGM Resolutions. This evidence and the lack of any rebuttal from the Company constituted grounds for serious concern about the risk of mismanagement in the Company's affairs;

• (n) on 9 December 2022 the Petitioner filed a Summons seeking to set aside the Orders granted on 29 July 2022 with the obvious intention of implementing the EGM Resolutions which was sought to be listed for hearing in mid-February 2023.

2 It was against this background that by a Summons dated 18 January 2023 (the “GM Summons”) GMSCL applied, inter alia, for the Petition to be struck-out or stayed:

“ under the Court's inherent jurisdiction and/or injunctive jurisdiction/power and/or pursuant to section 54 of the Arbitration Law 2012, in particular because the Petition is

an abuse of the Grand Court's process and/or breach of contractual obligations of those controlling the Petitioner…”

3 This application was on its face a surprising one which at first blush appeared to be, as the Petitioner complained, an attempt by the ‘Kam camp’ to make a desperate last-ditch attempt to prevent the EGM Resolutions being deployed to change control of the Company's Board. There was a battle in correspondence in relation to the priority in which the Petitioner's and GMSCL's Summonses should be heard. Whilst the Petitioner contended it was obvious that GMSCL lacked standing to intervene in the present proceedings to enforce contractual rights against third parties, it made no sense to proceed with the Petition while an application to strike-out or stay was waiting in the wings. Therefore, on 1 February 2023 I directed that the GMSCL standing issue should be determined first. Only if a sufficient case was made for GMSCL's application to be heard at all would the Court further delay the hearing of the Petitioner's application to set aside the Orders that I granted on 29 July 2022 on the grounds of fraud. Directions were also given in relation to a related application about the standing of the Company's Litigation Steering Committee to appear in opposition to the Petition. However, this was disposed of by consent by the end of the 14 March 2023 hearing.

4 By the end of the hearing, it was clear that GMSCL was not entitled to be formally joined as a party and it appeared to me that Mr Raphael KC was primarily placing reliance upon the Court's flexible inherent jurisdiction to hear an interested party. Mr Chivers KC submitted that I should decline to consider this Court's injunctive jurisdiction in the absence of any formal application for injunctive relief being moved before the Court. The application for injunctive relief was part of the substantive relief sought in the GM Summons and was supported by the offer of an undertaking. I see no justification for deferring for separate consideration GMSCL's standing to seek the injunctive relief it presently seeks in these proceedings. In my judgment, GMSCL's standing to seek injunctive relief is in the circumstances of the present case in a practical sense, as opposed to in an abstract conceptual sense, indistinguishable from the main standing questions in relation to joinder and intervention.

5 GMSCL's counsel managed to diminish the strength of my initially strong provisional view that his client's case on standing was so obviously lacking in merit that it could be summarily rejected. Unusual applications often contain hidden merits. Being mindful of the adage ‘discretion is the better part of valour’, I somewhat reluctantly decided to reserve judgment. However, after carefully considering the merits of an unusual application in relation to which there was, unsurprisingly, no factually similar illustrative authority, I am ultimately satisfied that GMSCL's application must indeed be firmly rejected for reasons that can be stated with comparative brevity.

GMSCL's factual case on standing

6 GMSCL's proposed intervention is based on its rights as a creditor of Sanpower Group Co., Ltd. (“Sanpower Group”). In essence, the owners of a minority interest in Ying Peng, the 100% owner of the Petitioner, are said to be substantially indebted to GMSCL. On 30 June 2018, a few months after...