The Companies Act (2021 Revision) and Green Dragon Gas Ltd
| Jurisdiction | Cayman Islands |
| Judge | Mr. Justice Robin McMillan |
| Judgment Date | 07 April 2021 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | Cause No.: FSD 197 of 2020 |
The Honourable Mr. Justice Robin McMillan
Cause No.: FSD 197 of 2020
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Whether there is a bona fide substantial dispute as to the validity of a petitioner's purported debt — The burden of proof—The interests of a company and the interests of the creditors in the circumstances of insolvency or near insolvency — The scope of contractual estoppel.
Mr. Richard Gillis Q.C., Mr. Matthew Dors and Mr. Rupert Stanning of Collas Crill for GIC Private Limited, Petitioner
Mr. Tom Smith Q.C., Mr. Sebastian Said and Mr. Daniel Hayward-Hughes of Appleby for Nordic Trustee AS, Majority Creditor
Mr. Mark Goodman, Mr. Guy Cowan, and Ms. Natasha Partos of Campbells for Green Dragon Gas Limited, the Company
This hearing arises from an Order of the Court dated 14 October 2020 and confirmed on 15 January 2021 that the following issue be determined:
“Whether there is a bona fide and substantial dispute as to the validity of the Petitioner's purported guarantee, which should lead to a dismissal or adjournment of this Petition, so as to allow that dispute to be resolved in the appropriate type of proceedings, and forum.”
A Petition was originally presented by GIC Private Limited (“GIC”, “the Petitioner”) on 4 September 2020 to wind up Green Dragon Gas Ltd (“GDG”, “the Company”) on the basis that it was unable to pay its debt to GIC, in the amount of US $69,249,411.12 as at 31 July 2020 (representing principal and interest but excluding enforcement costs). It is claimed that this debt is due under the terms of a guarantee provided by GDG to GIC (“the GIC Guarantee”).
However, this Petition is opposed by Nordic Trustee AS (“NT”, “the Majority Creditor”). It is also opposed by the current Directors of GDG, appointed by way of a Receivership.
In elementary terms NT asserts that there is a bona fide and substantial dispute as to the validity of the GIC Guarantee. In addition, the focus of the Receivers' objection is that there is no evidence of misconduct or mismanagement on the part of the Directors appointed by the Receivers as 100% shareholders such as to justify winding up and in any event that there is a bona fide substantial dispute as to the Petitioner's alleged debt.
GDG carries on business as part of a group of companies (“the G3E Group”) that specialise in the exploration and development of coal bed methane gas in the People's Republic of China (“PRC”). G3 Exploration Limited (“G3E”), formally known as Green Dragon Gas Ltd, is the holding company of the G3E Group and is currently in official liquidation.
G3E is the ultimate holding company of the G3E Group. G3E's immediate subsidiary is Greka Gas China Ltd (“GGC”).
GGC's immediate subsidiary is GDG, which is the company that is the subject of this Petition.
G3E itself is now in Official Liquidation with Messrs Lawson and Kennedy of Alvarez and Marsal having been appointed as Joint Official Liquidators (“the JOLs”).
Messrs Borrelli and Mansfield of Borrelli Walsh (“the Receivers”) have been appointed as Receivers pursuant to a Share Mortgage over the shares in GGC, securing the Majority Creditor's bond finance to G3E (“the NT Bonds”). The Receivers are now Directors of both GGC and GDG (“the Directors”).
The Directors are reporting to the Court and to the parties as to their work on a monthly basis, with further reports to be filed when there are any material developments. These reports have considerably assisted the Court.
The Directors have also provided a range of undertakings, protecting the assets of the Company, to which all parties and the Petitioner agreed, so as to allay any concerns that they were acting to the prejudice of the Company and creditors, although this remains an issue of apparent concern to the Petitioner.
Those undertakings were given, notwithstanding that the Company and the Majority Creditor neither conceded that the Petitioner was a creditor, nor that there was any reasonable basis to consider that the Directors had acted or would act to the prejudice of the Company and its creditors.
GDG's immediate subsidiary is a Dutch company, Greka Energy (International) B.V. (“GBV”). GBV is the G3E Group's main operating subsidiary, and a party to a number of production sharing contracts (“PSCs”) with two Chinese State Owned Entities relating to the G3E Group's exploration and development of coal bed methane in China. It is the PSCs which are the G3E Group's most valuable assets.
A helpful summary of the evidence previously filed on this Petition and relevant citations are set out at paragraphs 7 – 9 of the Majority Creditor's Skeleton Argument dated 4 February 2021 as follows:
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“7. At the 13 – 14 October Hearing, the Court made an order for the winding up of G3E, declining to allow the GDG Petition to be used by the Petitioner to further delay the resolution of that long outstanding petition.
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8. The Court further ordered the hearing before it today to be listed, to determine the bona fide substantial disputed debt issue, and set down directions for the exchange of evidence on 15 December 2020 (Majority Creditor), 25 January 2021 (Petitioner), and 1 February 2021 (Majority Creditor). The Court also granted leave for expert evidence on Norwegian contract law to be adduced.
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9. Pursuant to those directions, and in addition to the evidence previously filed on this Petition, the Court has the following evidence before it, focusing on the disputed debt issue in particular:
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(a) The Majority Creditor's Evidence:
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(i) The First Affirmation of Mr Fredrik Lundberg, and Exhibit FL-1;
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(ii) The Second Affirmation of Mr Fredrik Lundberg; and Exhibits FL-2 and FL-3;
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(iii) The Expert Report of Professor Woxholth, Professor of Law at the University of Oslo, and Exhibits GW1 and GW2; and
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(iv) The Third Affirmation of Mr Fredrik Lundberg, and Exhibit FL-4.
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(b) The Petitioner's Evidence:
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(i) The First Affidavit of Mr Jason Triplitt, and Exhibit JT-1;
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(ii) The First Affidavit of Mr Justin Stock, and Exhibit JS-1.
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(c) The Company's Evidence:
(i) The Fourth Affirmation of Mr Cosimo Borrelli, and Exhibit CB-5.
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In terms of general perspective, an important point is made by the Majority Creditor at paragraph 12:
“12. First, and most importantly, the Court is not required to determine the dispute as to the validity of the Purported Guarantee. Consistently with the well-known case law set out below, and the terms of the preliminary issue drafted and approved in light of it, the function of the Court is merely to decide whether there is a bona fide substantial dispute as to the validity of the Purported Guarantee.”
The further related question is then raised as to whether the dispute is one whose resolution will require the sort of investigation that is normally within the province of a conventional trial and whether the circumstances are such as may require cross-examination on the Majority Creditor's or the Petitioner's evidence.
In order to address the issues raised it is first necessary for the Court to set out a chronology of the relevant events and then the relevant principles of the applicable governing law.
At this juncture it is important to note that the original Green Dragon Gas Ltd changed its name on 20 December 2017 to G3E, and that a new Green Dragon Gas Ltd entity, which is the Company and is the subject of these proceedings, was then incorporated on 2 January 2018.
On 2 June 2014, the Petitioner entered into a Bond Agreement with the G3E Group's ultimate holding company G3E, the latter issuing USD50m, 7% “unsecured convertible bonds” (the “GIC Agreement”, “the GIC Bonds”).
On 19 November 2014, a Bond Agreement was entered into between the Majority Creditor, as bond trustee and G3E, the latter issuing USD88m, 10% “Senior Secured Callable Bonds” (the “NT Bond Agreement”, “the NT Bonds”). On the same day, Greka Exploration and Production Ltd (“GEP”) (another indirect subsidiary of G3E) provided a guarantee with regard to the NT Bonds.
On 3 December 2014, G3E and the Majority Creditor executed a Share Mortgage over G3E's shares in GGC.
On 14 December 2016, the Petitioner entered into an Amendment Agreement in respect of the GIC Bonds, granting GIC a put option that could be used to require G3E to purchase the GIC Bonds (“the Put Option”) and a Buy Back Option giving GIC the right to require G3E to purchase all G3E shares held by GIC at maturity. The final maturity date was extended from 30 May 2017 to 31 December 2020.
On 31 May 2017, the NT Bond Agreement was amended by an Amendment and Waiver Agreement (“the NT Bond Amendment Agreement”).
On 23 June 2017, G3E sent the Petitioner an Amendment Letter, extending the Put Option exercise date to 27 October 2017, and amending its terms. Mr Grewal, for G3E, signed the letter, which included that; “subject to our obligations in the senior secured bonds issued by the Issuer to Nordic Trustee ASA we have agreed in favour of GIC to use our reasonable endeavours to provide GIC with security over assets of the issuer or other assets reasonably acceptable to GIC, to secure the Issuer's obligations to GIC under the [GIC] Bonds…”
On 5 October 2017, G3E sent the Petitioner a Comfort Letter stating that “in anticipation of paying all [G3E] debt, we have initiated a sales process of certain assets” and that, should it be implemented, sufficient cash would be allocated to settle GDG's obligations to GIC under the Put Option.
On 17 October 2017, Cooley UK LLP (acting for GIC) (“Cooley”) sent G3E a Conditional Exercise Notice in respect of the Put Option seeking additional protection...
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