In the matter of CFLD (Cayman) Investment Limited

The court convened a single scheme meeting under Part 26 of the Companies Act 2006 to consider a proposed Scheme of Arrangement for CFLD (Cayman) Investment Limited, a Cayman Islands company, which would restructure 11 tranches of unsecured US dollar bonds governed by English law. The judge applied established principles on class composition: a class must not be split unless rights are so dissimilar that members cannot consult together in their common interest, having regard to both existing rights and rights conferred by the scheme itself. The court concluded the bondholders have materially similar rights (they would rank pari passu in liquidation), differences in coupon and maturity were not material, the cash prepayment fee and adviser fee arrangements did not fracture the class, and special treatment for "blocked" (sanctions-impacted) creditors preserved pro rata entitlements. The convening order was made because there was more to unite the class than divide it and there was no jurisdictional roadblock at this stage.

Background and parties: The applicant company, CFLD (Cayman) Investment Limited, part of the China Fortune Land Development Group, proposed a Scheme of Arrangement under Part 26 of the Companies Act 2006 to restructure offshore bond liabilities (11 tranches of unsecured, English-law governed US dollar bonds guaranteed by the Group parent). The Group faces severe liquidity pressures and the Scheme is part of a wider restructuring intended to avoid liquidation risk in the Cayman Islands and a consolidated liquidation in the People's Republic of China.

Nature of the application: This was a convening hearing seeking an order to summon a single meeting of Scheme creditors to vote on the Scheme. The relief sought was an order convening a meeting and approving the form, timing and documentation for that meeting; the merits and fairness of the Scheme were reserved for the sanction hearing.

Issues framed: The court identified the matters for determination at the convening stage under section 896(1) of the Companies Act 2006: notification of the hearing, identity of Scheme creditors, whether creditors fall into a single class, jurisdiction and sanction issues, timing and conduct of the meeting, and adequacy of documentation.

Evidence and procedure: The court read witness statements from company and information agent personnel, the Explanatory Statement and Practice Statement materials. The company had obtained commitments representing about 83 per cent by value of bondholders under an RSA, and had adjusted terms (cash prepayment fee increased to 2.8%). No Scheme creditor appeared at the hearing.

Court reasoning and findings: The judge held that bondholders are creditors within Part 26 (including contingent creditors) and that the comparator for existing rights is their rights in a liquidation, where they would rank pari passu. Differences in coupon and maturity were not, on that basis, material such as to require separate classes. The rights conferred by the Scheme (including options over new bonds) applied equally and differences in outcome would reflect commercial elections by creditors rather than distinct legal rights. The cash prepayment fee was treated as a genuine prepayment reducing entitlement to new bonds (offered to all creditors) and not a material consent bounty. Adviser fee reimbursement (noted to be $2.5 million) was small relative to restructuring consideration and did not create a separate class. For Scheme creditors affected by sanctions, the court accepted a mechanism by which their entitlements are preserved on trust until sanctions lift or a 21-year perpetuity expires; such "blocked" creditors were analogous to creditors who had not evidenced holdings in time and did not require a separate class. On jurisdiction, the court accepted the matter should generally be considered at sanction unless a roadblock appears; none was found at the convening stage.

Directions: The court ordered convening a single creditors' meeting to be held on 12 January 2023 with voting and procedural arrangements as set out in the draft order and approved the Explanatory Statement for circulation.

The court made an order convening a single Scheme meeting for the bondholders to vote on the proposed Scheme. The rationale was that the bondholders’ existing rights and the rights conferred by the Scheme were not so dissimilar as to require multiple classes: differences in coupon and maturity were not material, the cash prepayment fee and adviser fee arrangements did not fracture the class, and the proposed treatment of sanctions-affected (blocked) creditors preserved their pro rata entitlements. No jurisdictional impediment was identified at the convening stage.