Between: Sections 15 & 86 of the Companies Law (2018 Revision) and the Grand Court Rules 1995 Order 102 and China Agrotech Holdings Ltd ((in Liquidation))
| Jurisdiction | Cayman Islands |
| Judgment Date | 22 July 2019 |
| Docket Number | CAUSE NO: FSD 68 OF 2019 (NSJ) |
| Court | Grand Court (Cayman Islands) |
CAUSE NO: FSD 68 OF 2019 (NSJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Mr. Jayson Wood of Harney Westwood & Riegels for the Company and the liquidators
On 16 July 2019 1 heard two applications (together the Applications) made by China Agrotech Holdings Limited (in liquidation) (now Da Yu Financial Holdings Limited) (the Company) acting by its Hong Kong liquidators. The Company's liquidators are Stephen Liu Yiu Keung and David Yen Ching Wai (Mr Yen) of Ernst & Young Transactions Limited. The Company and the liquidators were represented at the hearing by Mr. Jayson Wood of Harney Westwood & Riegels (Harneys).
The first application was for an order confirming a capital reduction under sections 15 of the Companies Law (2018 Revision) (the Companies Law). The second application was for an order sanctioning a scheme of arrangement between the Company and its creditors under section 86 of the Companies Law,
The Company is incorporated in the Cayman Islands and the liquidators were appointed by the Hong Kong court on 17 August 2015. The Company's shares were listed on the Main Board of the Hong Kong Stock Exchange (but trading in the shares has been suspended since 18 September 2014).
The capital reduction and the scheme are part of a post liquidation restructuring of the Company. The liquidators have negotiated a series of agreements and arrangements that, if implemented, will result in the Company being able to continue as a going concern (and retain and realise the value of its Hong Kong listing) and result in the termination of the winding up proceedings. The Company and the liquidators have promoted schemes of arrangement with the Company's creditors in this Court and in Hong Kong and are seeking this Court's confirmation of the reduction of capital.
At the end of the hearing 1 made orders confirming the capital reduction and sanctioning the scheme (but providing, in relation to the latter, that the order only be sealed in circumstances described below). I indicated that I would give my reasons in writing, which I now do.
The background to the capital reduction and scheme is set out in my judgment dated 16 July 2019 (the Judgment).
The Judgment dealt with a dispute concerning the validity of the resolutions voted on at an extraordinary general meeting of the Company held on 22 May 2019 (the EGM). One of the resolutions was a special resolution approving the capital reduction. The validity of the resolutions had been challenged by a shareholder of the Company, Perfect Gate Holdings Limited ( Perfect Gate), who voted against the resolutions. The Company and the liquidators applied by summons dated 12 June 2019 (the Summons), for a declaration that the resolutions proposed at the EGM had been validly passed and that the decision of the chairman at the EGM (Mr. Yen) to disallow Perfect Gate's votes and to declare the resolutions as passed was binding and effective. I granted the Company's application for a declaration and made an order that the resolutions proposed at the EGM were validly passed as declared by the chairman at the meeting.
The procedural history of the Applications is also set out in the Judgment. I would note that my order directing that a meeting of creditors be convened to consider and vote on the Cayman scheme was made on 30 April 2019 (the Convening Order).
The Company's (and the liquidators') application to the Hong Kong court to sanction the Hong Kong scheme is listed to be heard on 22 July 2019. That application is opposed by Perfect Gate. At the hearing I asked Mr Wood to explain the basis on which Perfect Gate considered that it had standing to oppose and the grounds on which Perfect Gate opposed the Hong Kong sanction application. He told me that he was unable to provide details to the Court since Perfect Gate's case had yet to be fully particularised. Perfect Gate is not required to file its further skeleton argument until 4.30pm Hong Kong time on 18 July 2019. Although Perfect Gate has clearly already filed a skeleton argument and should have filed further evidence by 12 July, copies of these documents were not provided to the Court or their contents explained. In any event, Mr Wood confirmed that Perfect Gate had not notified the Company and the liquidators that it opposed the application to sanction the Cayman scheme. Nor had it notified the Company and the liquidators that it opposed the application to confirm the capital reduction. Perfect Gate had not given notice of its opposition or made an application to oppose the sanction of the Cayman scheme or the capital reduction.
There are three further applications before (or about to be issued in) the Hong Kong court. Details of these proceedings were provided by Mr. Greig of Harneys in his Fourth Affirmation dated 15 July 2019. First, as I explained in the Judgment, on 26 June 2019 Perfect Gate issued an originating summons against the Company and Mr. Yen seeking a declaration that Mr. Yen's decision as chairman at the EGM to exclude its votes was unlawful and that the purported special resolution proposed at the EGM was also unlawful (Perfect Gate's Application for Declaratory Relief). Secondly, Mr. Yen intends to file a summons to strike out Perfect Gate's Application for Declaratory Relief (the Strike Out Summons) on the basis that it is bound to fail since Perfect Gate is bound by the Judgment (which deals with the validity of the EGM resolutions) and because it is an abuse of process for Perfect Gate to seek to re-litigate matters which have been conclusively determined by this Court. Thirdly, Perfect Gate has applied for retrospective leave to bring Perfect Gate's Application for Declaratory Relief against the Company. Directions are to be sought at the 22 July hearing in relation the further conduct of these three applications.
Various documents were exhibited to Mr. Greig's Fourth Affirmation. These included the Company's announcement dated 11 July 2019. In that announcement the Company notified shareholders of the Judgment and provided an update on the status of the Hong Kong proceedings together with a revised expected timetable for the proposed restructuring. The announcement also dealt with the possibility and impact of possible further applications by Perfect Gate in relation to the Judgment. The announcement stated that:
“In (he event that Perfect Gate makes an application for leave to appeal the [Judgment] or order [sic] for suspension of execution of the [Judgment] by 23 July (Cayman Islands time), the Company will announce its withdrawal of the [public offer] by 25 July 2019. Refund cheques in respect of the [public offer] will be despatched to the applicants within five Business days from the announcement. In the[se] circumstances, the entire Proposed Restructuring will lapse and the Liquidators will proceed to conclude the liquidation and the Company will be dissolved.”
At the hearing, I sought clarification of the timetable and the Company's expectations regarding the closing of the post liquidation restructuring. Mr. Wood informed the Court that he understood that in order for the restructuring to be completed within the timetable laid down by the Hong Kong Stock Exchange and the Hong Kong Securities and Exchange Commission it was necessary for the sanction of the Cayman scheme, the sanction of the Hong Kong scheme and the confirmation of the capital reduction to be given by 24 July 2019. Mr Wood said that if this was done, and Perfect Gate did not take the steps set out in the 11 July announcement, then the restructuring would be successfully completed. The Company and the liquidators were proceeding on the basis that this would happen. Mr Wood also explained that there had been discussions with the Hong Kong authorities regarding the process and timetable for issuing and listing the new shares in order to expedite the process and ensure that the very tight timetable for completing the necessary steps could be met. It was important that the various preliminary steps that needed to be completed before the new shares could be issued, including the confirmation of the capital reduction, be taken without any delay. For that reason, it was important that the order confirming the capital reduction was made at the end of or as soon as possible following the hearing (and on an unconditional basis).
The statutory provision permitting a reduction of capital is contained in section 14 of the Companies Law which provides that:
“Subject to confirmation by the Court, a company limited by shares … and having a share capitaI may, if so authorised by its articles, by special resolution reduce its share capital in any Way…”.
Section 16(1) of the Companies Law provides:
“The Court, if satisfied with respect to every creditor of the company who under section 15 is entitled to object to the reduction, that either his consent to the reduction has been obtained or his debt or claim has been discharged or has determined, or has been secured, may make an order confirming the reduction on such terms and conditions as it thinks fit.”
The Company and the liquidators relied on the following statement in the judgment of Jones J in In re Santiago Pipelines Company & New Santiago Pipelines Company [ 2012 (2) CILR 343] at [12–14] of the matters that the Court will take into account when exercising its discretion under section 16(1):
“12. The statutory purpose of ss. 15 and 16 of the Companies Law...
To continue reading
Request your trial