Sino-Ocean Group Holding Limited, Re

At a convening hearing for a restructuring plan involving a foreign company, the court must be satisfied that the statutory conditions for a plan are met and must consider whether the proposed creditor classes are properly constituted. Class composition depends on both the rights creditors give up and the rights they receive. Creditors should be separated where differences make it impossible for them to consult together in pursuit of their common interest. Differences in the form and mix of plan consideration may be material even where the expected commercial value is similar. The court should avoid both materially different creditors being placed together and artificial fragmentation designed to facilitate cram down. Questions concerning the fairness or commercial allocation of consideration generally belong at the sanction hearing.

Sino-Ocean Group Holding Limited, a Hong Kong-incorporated holding company, applied under Part 26A of the Companies Act 2006 for permission to convene meetings of four classes of creditors to consider a restructuring plan. The plan formed part of a cross-jurisdictional restructuring, alongside a Hong Kong scheme concerning Hong Kong-law debt.

Long Corridor Asset Management Limited objected principally to the proposed class composition and sought an adjournment or permission to raise further class-composition objections at the sanction hearing. The court also considered jurisdictional conditions, possible roadblocks, the explanatory statement and the proposed timetable.

1. Convening order. The statutory conditions for a Part 26A plan were satisfied. The Plan Company was a “company” for the purposes of the legislation, the proposed plan was an arrangement, and the company had encountered or was likely to encounter financial difficulties affecting its ability to continue as a going concern.
2. Class composition. The court applied the principles stated in Re Virgin Atlantic Airways Ltd, Re Virgin Active Holdings Limited and endorsed in Re AGPS Bondco Plc. The relevant comparison includes both “rights in”, namely rights being released or varied, and “rights out”, namely rights conferred under the plan. The question is whether the differences are so substantial that creditors cannot consult together with a view to their common interest. The approach is broad and fact-sensitive. The question is whether there is more to unite than to divide the creditors.
3. The proposed Classes A to C were properly separated. Although the creditors’ rights in were substantially similar, the different mixes and options of securities offered as rights out were materially different. Similar commercial value did not create sufficient commonality. The distinction between fairness of the consideration and correctness of class composition was material; further investigation into the valuation evidence could affect fairness but would not alter the fact that different rights were offered.
4. The fees and payments available under the restructuring support agreement did not fracture the classes. The absence of a shareholder class did not require intervention because the shareholders were not being bound and their exclusion did not threaten the plan’s viability.
5. The question of sufficient jurisdictional connection for a foreign company was left primarily to the sanction hearing. At the convening stage, there was no apparent roadblock. English-law governing provisions and jurisdiction or arbitration clauses could provide a sufficient connection, depending on the evidence.
6. The explanatory statement was in an appropriate form, but it should give greater prominence to the plan’s expected commercial effect on shareholders. An adjournment was refused, although the timetable was slowed to allow creditors more time to assess the fairness of the plan. Meetings were directed to be convened.