The Companies Act (as Revised) and Baosheng Media Group Holdings Ltd

• Jurisdiction: Cayman Islands
• Court: Grand Court (Cayman Islands)
• Judge: Doyle, J.
• Judgment Date: 30 October 2024
• Year: 2024
• Docket Number: FSD 113 of 2024 (DDJ)

In the Matter of the Companies Act (As Revised)

And in the Matter of Baosheng Media Group Holdings Limited

Before:

The Hon. Justice David Doyle

CAUSE NO. FSD 113 OF 2024 (DDJ)

IN THE GRAND COURT OF THE CAYMAN ISLANDS

FINANCIAL SERVICES DIVISION

Determination of an application to strike out a winding up petition

Appearances:

Richard Fisher KC, Christopher Levers and Corey Byrne of Ogier (Cayman) LLP for Orient Plus International Limited

Stephen Moverley Smith KC, Mark Ffrancon Dowds of Carey Olsen for Baosheng Media Group Holdings Limited

Introduction and summary

1 In this case a petitioner by way of a petition dated 9 April 2024 seeks a winding up order against a company on the just and equitable ground.

2 By consent order made on 30 April 2024, it was ordered that within 28 days the company publish an advertisement, in respect of the presentation of the petition and its hearing on a date to be fixed, on the company's website and file a copy of it with the United States Securities and Exchange Commission. It was further ordered that the petition shall stand as the petitioner's particulars of claim. Inspection of relevant documents was ordered to take place by 1 October 2024 with evidence thereafter. The parties were ordered to apply for the petition to be listed for a case management conference on the first available date following service of reply evidence.

3 By a summons dated 10 July 2024 the company applied for an order striking out the winding up petition. Evidence and skeleton arguments were filed and on 17 October 2024 I heard legal submissions for and against the striking out of the winding up petition. I then reserved judgment which I now deliver.

4 For the reasons which follow I have decided to dismiss the strike out application.

The Summons

5 Baosheng Media Group Limited (the “Company”) applied by summons dated 10 July 2024 (the “Summons”) for an order that the winding up petition dated 8 April 2024 (the “Petition”) brought against the Company by Orient Plus International Limited (the “Petitioner”) be struck out pursuant to Order 18 rule 19(1)(a), (b) and (d) of the Grand Court Rules (“GCR”) and/or pursuant to the inherent jurisdiction of the court on the grounds that (a) it discloses no reasonable cause of action; (b) it is frivolous or vexatious; and/or (c) it is otherwise an abuse of the process of the Court. The Company also seeks an order that its costs of and incidental to the proceedings be paid by the Petitioner forthwith and on the indemnity basis.

The Background

6 Before turning to the specific grounds specified in the Summons, I set out some of the basic background to the Petition.

7 The Company was incorporated in December 2018 as a holding company for an international corporate group which provides online marketing services in the People's Republic of China (“PRC”).

8 The Petitioner says that in February 2021 the Company filed a final prospectus and an initial public offering (the “IPO”) was completed on 10 February 2021. The Petitioner says that it, Golden Genius International Limited (“Golden Genius”) and Union High-Tech Development Limited (“Union High-Tech”) purchased shares in the Company following the IPO.

9 On 2 March 2021 Golden Genius acquired 700,000 ordinary shares in the Company from Univest Securities LLC for a total consideration of US$3.5 million. On 17 March 2021 the Petitioner (for a total consideration of US$4 million) and Union High-Tech (for a total consideration of US$6 million) acquired 784,314 and 1,176,470 ordinary shares in the Company (respectively).

10 The Petitioner alleges that, in November/December 2020, the Company's management was questioned by criminal authorities in the PRC in relation to an investigation which resulted in a fine levied against the Company (the “Alleged Criminal Investigation”). The Company denies these allegations, does not recognise them and says it has filed evidence which contradicts the Petitioner's stated case in relation to the Alleged Criminal Investigation.

11 The Petitioner alleges that the Company, in conjunction with Beijing Sogou Information Services Co Ltd (“Sogou”), provided search ranking advertising services to a gaming company based in Wuxi, Jiangsu Province China which was said to be the basis for the Alleged Criminal Investigation. The Petitioner says that the Alleged Criminal Investigation was concluded in the second half of 2021 and it was determined that the Company was liable for promoting a gaming company in contravention of PRC law. The Petitioner alleges that the Company was fined RMB 10 million by the PRC government and Sogou was fined RMB 1.4 billion. The Petitioner alleges that at no time did the Company disclose the Alleged Criminal Investigation to the investors and this amounts to a material misstatement and omission pursuant to the Securities Act 1933.

12 The Petitioner says that Sogou merged with Tencent Holdings Limited (“Tencent”) and, in April 2021, the Company and Sogou's authorised agency agreement expired and the Company lost authorised agent status for its largest customer.

13 According to the Petitioner, “in or around 2021”, Tencent began an investigation (the “Tencent Internal Investigation”) into possible fraud and corruption among certain of its business lines (including suppliers and other third parties with whom Tencent did business). The Company does not admit this.

14 According to the Petitioner, on 16 January 2023, Tencent announced that its investigation had resulted in the termination of 70 of its members of staff, and “blacklisted” certain third-party suppliers, including members of the Company's group at the operations level in the PRC. The Company does not admit this.

15 The Petitioner says that it is inferred that, as a result of the Tencent Internal Investigation, Tencent determined that it would not renew Sogou's relationship with the Company “as a result of findings of unlawful conduct on the part of the Company and its management” (paragraph 51 of the Petition).

16 The Petitioner says that the blacklist included two subsidiaries, namely Beijing Baosheng Technology Company Limited and Baosheng Technology (Horgos) Company Limited.

17 The Petitioner alleges that certain 2021 and 2022 related party transactions with Horgos Zhijrantiancheng Technology Co. Ltd. (“HZT”), which relate to a Channel Cooperation Agreement, were entered into for an improper purpose and/or were not transactions bona fide in the best interests of the Company. The Company denies these allegations.

18 The Petitioner alleges that on 21 June 2023, Dong Hu and Hu Yanjun had a telephone conversation during the course of which the pair discussed, amongst other things; (1) the Petitioner taking a controlling interest in the Company; and (2) the Alleged Criminal Investigation. The Company denies these allegations and notes that Hu Yanjun has said that the transcript of the telephone conversation is “false” and a “fabrication”.

19 On 17 November 2023, the Company entered into a securities purchase agreement with a counterparty pursuant to which the Company agreed to issue that counterparty senior convertible promissory notes in an original amount of not more than US$42 million which were convertible into the Company's ordinary shares of par value of $0.0096 per share (the “Kaboom SPA). The Company later identified this counterparty as Kaboom Technology Limited (“Kaboom”). On 13 December 2023, the Company and Kaboom entered into an amendment agreement in response to comments from the NASDAQ on the Kaboom SPA. The Petitioner alleges that the Kaboom SPA (as amended) was entered into for an improper purpose on the part of the Company's directors and/or is oppressive to existing shareholders of the Company. The Company denies these allegations.

20 On 29 January 2024, US lawyers instructed by the Petitioner, Golden Genius and Union High-Te c h wrote to the Company notifying it that they intended to issue proceedings in relation to the alleged non-disclosures prior to the IPO. The letter attaches a transcript of the alleged telephone call between Dong Hu and Yanjun Hu on 21 June 2023.

21 On 1 February 2024, the Petitioner, Golden Genius and Union High-Tech together issued proceedings against the Company in the Southern District of New York (the “US Proceedings”).

22 On 7 February 2024, the Company entered into a securities purchase agreement with VG Master Fund SPC for the issue of ordinary shares to it (the “VGS PA”).

23 On 4 April 2024, the Petition was filed.

24 On 12 June 2024, the Company announced to the NASDAQ that the Kaboom SPA had been terminated on 31 May 2024 and the VG SPA had been terminated on 4 June 2024.

The Petition

25 The 24-page Petition seeks the winding up of the Company on the just and equitable ground. It is stated that the Petitioner holds a total of 40,850 ordinary shares in the Company.

26 Two other shareholders (Golden Genius with 700,000 shares and Union High-Tech with 61,275 ordinary shares) are supportive. Although not stated in the Petition, it was common ground at the hearing that the Petitioner holds 2.66% of the issued share capital and the other two supporting shareholders 3.99% and 2.37% respectively making a total of 9.02% in support of a winding up order.

27 At paragraph 71 of the Petition, under the heading “Grounds for Winding Up”, it is stated that the management of the Company have acted unfairly and/or oppressively towards the Petitioner, other investors and other minority shareholders and/or the affairs of the Company have been conducted with a lack of probity and the Petitioners and the other investors have justifiably lost confidence in the management of the Company.

28 At paragraph 72 of the Petition it is stated that the Petitioner's loss of trust and confidence in the conduct of the Company's affairs is justified by:

• (1) the significant concerns held by the...