The Companies Act (2022 Revision) and Shinsun Holdings (Group) Company, Ltd

• Jurisdiction: Cayman Islands
• Judge: Justice David Doyle
• Judgment Date: 21 April 2023
• Docket Number: CAUSE NO: FSD 192 of 2022 (DDJ)
• Court: Grand Court (Cayman Islands)

In the Matter of the Companies Act (2022 Revision)

And in the Matter of Shinsun Holdings (Group) Co., Ltd.

Before:

The Hon. Justice David Doyle

CAUSE NO: FSD 192 of 2022 (DDJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

HEADNOTE

Determination of whether the Petitioner has legal standing to progress a winding up petition — whether the Petitioner is a contingent creditor — whether the Petitioner was authorised to progress a winding up petition

Appearances:

Brett Basdeo and Barnaby Gowrie of Walkers for the Petitioner

Tom Lowe KC and Andrew Jackson of Appleby (Cayman) Ltd for the Company

INDEX

Heading	Page
The main issues before the court	4
Summary	4
The relevant legal structure	4–5
The Indenture	5–9
The Note	9–11
The function of expert witnesses	11–12
The expert evidence in this case:	12
— Mr Glosband's evidence	12–13
— Mr Kane's evidence	14–16
The joint memorandum of the experts	17–18
Question 1: Whether or not the principal of, and accrued and unpaid interest on, the Notes is immediately due and payable	18–19
— Question 2: Whether the Petitioner currently has the right to receive Certificated Notes as defined in the Indenture	20–21
— Question 3: Whether or not the Petitioner is a creditor of the Company	21–22
Question 4: Whether under the terms of the Indenture and/or Notes, a holder of the ultimate beneficial interest in the Notes is entitled to initiate winding up proceedings against the issuer of the Notes	22–23
Question 5: Whether a holder of the beneficial interest in the Notes is entitled to initiate winding up proceedings against the Issuer of the Notes, and, if so, whether there are requirements under the Indenture with which they would have to comply before they would be entitled to initiate winding up proceedings	23–24
The oral expert evidence	25–28
Some American authorities	28–32
The Euroclear “authority”	32–33
The Law	33
Section 94 (1)(b) of the Companies Act	33
— GFN	33–35
Bona Film	35–36
Re William Hockley	36–37
Re SB A Properties Limited	38
— Re Nortel	38–41
— Re Dunderland Iron Ore Company, Limited	41–42
— Bio-Treat	42–44
— Titan	45
— Two Cayman Orders without reasoned judgments	45–47
— Some English cases on standing and schemes of arrangements	47–51
— Re Asia Momentum	51–55
— Re Lancelot	56–58
— The “no look through” principle; privity of contract and section 8 of the New York Uniform Commercial Code Law	58–64
Submissions	64
The main written submissions made on behalf of the Petitioner prior to the hearing	64–70
The main post hearing supplementary written submissions made on behalf of the Petitioner	70–71
The main written submissions made on behalf of the Company prior to the hearing	71–74
The main post hearing supplementary written submissions made on behalf of the Company	74–76
The oral submissions made on behalf of the Petitioner and the Company	76–79
Determination	79
The standing issue	79–84
The authority issue	84–86
Three further points	86
(i) Has the debt been duly accelerated?	86–87
(ii) The draft “Creditor Support Agreement”	87
(iii) Can the Petitioner take advantage of section 6.01 (g) of the Indenture?	88
Conclusion	88

The main issues before the court

1 Issues as to standing and authority have arisen in these proceedings: Does Shenwan Hongyan Strategic Investments (H.K.) Limited (the “Petitioner”) have locus standi (legal standing) to progress a winding up petition against Shinsun Holdings (Group) Co., Ltd. (the “Company”) or is it otherwise authorised to progress the proceedings?

2 The Petitioner says that it is a contingent creditor with standing and is otherwise authorised to progress these proceedings. The Company says that the Petitioner is not a contingent creditor, does not benefit from proper authority and does not have standing.

Summary

3 For reasons which follow, having considered the evidence, the relevant law and the submissions, I have determined that the Petitioner does not have standing or authority to progress these proceedings and the petition must therefore be dismissed.

The relevant legal structure

4 The Company issued 12% Senior Notes Due 2023 (the “Notes”) pursuant to a New York law governed indenture dated 18 August 2021 (the “Indenture”). The parties to the Indenture were the Company, various entities as subsidiary guarantors and China Construction Bank (Asia) Corporation Limited (the “Trustee”). The Trustee also acted as the “Common Depository”. The Petitioner was not a party to the Indenture. The registered holder of the relevant note was CCB Nominees Limited (the “Holder”). It appears that below the Holder in the structure was Euroclear as the clearing house and below Euroclear was the Hong Kong Monetary Authority (“HKMA” or the “Participant”) and below the Participant was the Petitioner. The Petitioner had no direct contractual relationship with the Company.

The Indenture

5 I set out some of the relevant parts of the Indenture as follows:

• (1) Section 2.04 concerns the form of the Notes and at Section 2.04 (d) it is provided that each of the Notes shall be delivered by the Trustee to the Common Depositary and shall be registered in the name of the Holder as nominee for the Common Depositary;

• (2) Section 2.04 (e): “If at any time the Common Depositary notifies the Company that it is unwilling or unable to continue as the Common Depositary for such Global Notes, a successor Common Depositary with respect to such Global Notes shall be appointed. If (i) a successor Common Depositary for such Global Notes is not appointed within 90 days after the Company receives such notice or becomes aware of such ineligibility, (ii) either Euroclear or Clearstream, or a successor clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention to permanently cease business or does in fact do so, or (iii) any of the Notes has become immediately due and payable in accordance with Sections 6.01 and 6.02 and the Company has received a written request from a Holder, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate of the Company directing the authentication and delivery thereof, will authenticate and deliver. Certificated Notes (which may bear a Note Legend) in any authorized denominations in an aggregate principal amount equal to the principal amount of such Global Notes in exchange for such Global Notes.” (my underlining);

• (3) Section 2.05 concerns registration and the register: “( ^a) The Notes are issuable only in registered form. The Company will keep at the office or agency to be maintained for the purpose as provided in Section 4.02 (the “Registrar”), a register (the “Register”) in which, subject to such reasonable regulations as it may prescribe, it will register, and will register the transfer of, Notes as provided in this Article. The name and address of the registered holder of each Note and the amount of each Note, and all transfers and exchanges related thereto, will be recorded in the Register. Such Register shall be in written form in the English language or in any other form capable of being converted into such form within a reasonable time. Such Register shall be available to the Trustee for inspection at all reasonable times and upon reasonable notice.”;

• (4) Section 2.05 (c) provides: “A Holder may register the transfer of a Note only by written application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of this Indenture. No such registration of transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar in the Register. Prior to the registration of any transfer by a Holder as provided herein, the Company, the Trustee, the Agents and any agent of any of them shall treat the Person in whose name the Note is registered as the owner thereof for all purposes whether or not the Note shall be overdue, and neither the Company, the Trustee, nor any such agent shall be affected by notice to the contrary. Furthermore. any Holder of a Global Note shall, by acceptance of such Global Note, agree that transfers for beneficial interests in such Global Note may be effected only through a book-entry system maintained by Euroclear and Clearstream (or their respective agents) and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry. At the option of the Holder, Notes may be exchanged for other Notes of any authorized denomination and of a like aggregate principal amount, upon surrender of the Notes to be exchanged to the Registrar. When Notes are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested if the requirements for such transactions set forth herein are met. To permit registrations of transfers and exchanges, the Company, each Subsidiary Guarantor and, if applicable, each JV Subsidiary Guarantor (if any) shall execute and the Trustee shall authenticate Notes at the Company's request.” (my underlining);

• (5) Section 2.06 (a) – (d) provides: “(a) Each Global Note initially shall be deposited with the Common Depositary and registered in the name of the Common Depositary or its nominee for the accounts of Euroclear and Clearstream.

  • (b) Transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Common...