Re China Resources – PL fails for lack of Hong Kong creditor support
In the recent decision of Re China Resources and Transportation Group Ltd in the Grand Court of the Cayman Islands, Justice Doyle dismissed an application for the appointment of provisional liquidators under s104 of the Companies Act (2021 Revision), on the ground that the petitioner had not established the appointment was necessary to prevent the dissipation or misuse of company assets or to prevent mismanagement or misconduct on the part of the directors, describing the evidence as “flimsy” and little more than assertion. The Court was also concerned that the application did not appear to have the support of any other creditors.
In its statutory demand to the Company, it was noted by the petitioning creditor that it: “shall be the prospective creditor of your company” and referred to the maturity date on promissory notes issued by the Company to the petitioner of 15 April 2024 and expressly accepted that the “debts are not yet due”. The letter gave the Company 14 days to “redeem the above promissory notes and pay relevant interests” and if that was not done it is stated that “our client shall have no choice but to take relevant actions without further notice”. The petition stated that “the Petitioner seeks a winding up order on the grounds of insolvency and that it is just and equitable in the circumstances”, and cited a generalised complaint in respect of “mismanagement”. The Court was not required to decide the point that “creditor” in s104 is likely to include prospective creditors, although it does not, unlike s94(1)(b), expressly say so.
A PL was sought on the basis of jeopardy to assets pending the determination of the winding up of the Company. The Learned Judge cited earlier Cayman Islands authority of Justice Jones in Orchid Developments Group Limited (21 December 2012), of Justice Segal in Asia Strategic Capital Fund LP (17 March 2015) and the judgment of Justice Parker in CW Group Holdings Limited (3 August 2018).
It was held that: “There is insufficient evidence before the court to take the serious step of appointing provisional liquidators. I do not accept [counsel’s] submission that the Court has been provided with “cogent evidence of mismanagement by the directors of the Company”. I would describe the evidence on the mismanagement point as flimsy. It is little more than mere assertion”. There was therefore no urgent need for an investigation into the affairs of the Company.
The Court appears to have been additionally troubled by the lack of broader creditor support – an issue recently re-iterated as of fundamental importance by the Hong Kong Courts in the light touch restructuring PL cases of Lamtex and China Bozza. The Grand Court judge in refusing the appointment of the jeopardy to assets PL held that: “I note also that the application does not appear to have the support of any other creditors despite the public announcement on the website of the Hong Kong Stock Exchange of this hearing today” and “It would appear that the Petitioner does not have the support of the Company’s other creditors in seeking the appointment of provisional liquidators and a winding up order”.