In the matter of CFLD (Cayman) Investment Limited

At a convening hearing for a scheme of arrangement, the court considers notification, creditor identity, class composition, jurisdiction, meeting directions and documentation. Creditors belong in one class where their rights are not so dissimilar that they cannot consult together in the common interest. The comparison includes both their existing rights and the rights conferred by the scheme, viewed principally against the scheme company. Differences in maturity, interest, optional allocation, an available prepayment fee, reimbursed adviser fees and sanctions-related payment arrangements do not necessarily fracture a class. A separate class requires a material and substantive difference in rights. Jurisdictional issues may generally be deferred to the sanction hearing unless there is an immediate jurisdictional roadblock.

CFLD (Cayman) Investment Limited, a Cayman company within the China Fortune Land Development Group, applied under Part 26 of the Companies Act 2006 for an order convening a single meeting of holders of 11 tranches of English-law unsecured bonds. The proposed scheme formed part of a wider restructuring of the Group’s offshore debt.

The principal issues were whether the bondholders constituted one class, whether the court had jurisdiction to convene the meeting, whether the proposed notice and meeting arrangements were appropriate, and whether the explanatory documentation was adequate. Particular issues included different maturity and coupon terms, a cash prepayment fee, adviser-fee reimbursement and bondholders affected by financial sanctions.

1. The application was granted. A single meeting of scheme creditors was convened to consider and, if thought fit, approve the scheme.

2. At the convening stage under section 896(1) of the Companies Act 2006, the court considered notification, the identity of creditors, class composition, jurisdiction, meeting arrangements and documentation. The merits and fairness of the scheme were reserved for the sanction hearing.

3. The governing class principle was that a class comprises persons whose rights are not so dissimilar that it is impossible for them to consult together in the common interest. Following Sovereign Life Assurance v Dodd and Re Apcoa Parking Holdings GmbH, the court compared both existing rights and rights conferred by the scheme. The focus was on rights against the scheme company, rather than commercial interests. A difference must be material and substantive, and the court should avoid creating an unnecessary minority veto.

4. The bondholders’ differing maturity dates and coupon rates did not require separate classes. In a liquidation, the bonds would be accelerated and rank pari passu as unsecured claims. Their scheme rights were also sufficiently similar: differences in replacement-bond allocations resulted from common election rights and individual commercial choices.

5. The cash prepayment fee did not fracture the class. It was available to all creditors on an equal basis, operated as a genuine prepayment with a corresponding reduction in replacement-bond entitlement, and was immaterial in the context of the anticipated recoveries. Reimbursement of advisers’ fees likewise did not fracture the class because it reflected fees actually incurred, was payable whether or not the scheme was sanctioned and was immaterial.

6. Bondholders affected by sanctions remained entitled to their pro rata restructuring consideration, which would be held on trust pending release from the sanctions or expiry of the perpetuity period. They therefore did not constitute a separate class. The proposed voting arrangements were approved, subject to the position of any designated sanctioned person.

7. The arrangement fell within section 895(1)(a) of the Companies Act 2006. Any further issue concerning the company’s status or sufficient connection with England could be deferred to the sanction hearing because no jurisdictional roadblock arose at the convening stage. The explanatory statement was adequate and comprehensible for its sophisticated investor audience.