Not the right fit: Cayman Court rejects last minute restructuring proposal by Chinese apparel company
In the recent Grand Court decision of Evergreen International Holdings Limited (Unrep, 11 January 2022), Justice Ramsay-Hale flatly rejected Evergreen’s (a PRC manufacturer and retailer of men’s apparel) restructuring proposal and instead wound it up.
Evergreen was a Cayman Islands company listed on Hong Kong Stock Exchange with its principal business in the PRC and Hong Kong. It had defaulted on the interest payments on its bonds due in 2019 and in 2020. The petitioner issued a statutory demand (which was unsatisfied) and then petitioned to wind up the Company on the ground of insolvency.
The Company did not dispute the debt, but applied to adjourn the petition in order to enter into the Cayman Islands rescue process known as ‘light touch’ provisional liquidators for the purpose of restructuring. It was held that the general principle was that if the Court is satisfied that a company is unable to pay its debts, the petitioning creditor is entitled to a winding up order. Where the respondent company seeks an adjournment to facilitate a restructuring, (citing In the Matter of ACL Asean Tower Holdco Limited (Unrep, Grand Court, 8 March 2019), there should be “tangible grounds” which “are likely consist of either (a) support from a majority of creditors and a Listing Committee, (b) proactive restructuring steps taken by the company’s management, and/or (c) support from the majority of creditors as well as the joint provisional liquidators”.
Despite restructuring advisers being in place since April 2021, the Company had not put forward even an outline of any restructuring proposals, and it did not adduce any evidence of creditor support. The Court held that the Company’s application “has all the hallmarks of a last minute application of which the Court should be leery”, and refused to grant an adjournment. Further, the directors – or some them – with whom it was proposed the provisional liquidators would work on any restructuring proposal, were implicated in the mismanagement of the company.
In an earlier case of In the Matter of Midway Resources International, Justice Segal held, in determining that rescue provisional liquidators should be appointed, that “the evidence now shows both that the Company intends to present a compromise or arrangement to its creditors and to promote a restructuring of the Group and that the Restructuring Proposals are coherent and appear to offer [the] creditors an apparently attractive alternative to an insolvent liquidation of [the company]”.
The case is a timely reminder of the threshold required to adjourn a winding up petition in order to enter a rescue process.