DLA Piper Represents OCM in the Winding-up of Jiayuan International

DLA Piper Hong Kong recently represented OCM APDO Gene Investments Ptd Ltd (OCM) as supporting creditor in the winding up of Jiayuan International Group Limited (佳源國際控股有限公司) (Company). The High Court of Hong Kong agreed with OCM that Jiayuan had failed to put forward any viable restructuring proposal or scheme of arrangement and granted a winding-up order against the Company on 2 May 2023. DLA Piper team was led by Harris Chan (Partner), assisted by KC Tai (Of Counsel), Matthew Tam (Associate) and Winsome Lai (Trainee Solicitor).

Facts of the case

The Company was a listed investment holding company engaging in development of large scale residential and commercial complexes in the Mainland. It was incorporated in the Cayman Islands and registered as a non-Hong Kong company under the Companies Ordinance (Cap. 622).

On 6 September 2022, Yeung Man presented a winding-up petition against the Company on the basis that the Company had failed to repay the indebtedness of USD14.5 million on certain Senior Notes (Petition). The Petition was first heard in March 2023 and was adjourned multiple times since the Petition was first presented against the Company.

The Company opposed to the Petition and argued that the Company had a reasonable prospect of being able to compromise the debts owed by relying on an Exchange Offer launched by the Company in August 2022 (Exchange Offer) in respect of senior notes of USD1.1 billion with due dates between October 2022 and February 2024 (Existing Notes).

Under the Exchange Offer, eligible noteholders in exchange would be issued with new senior notes with due dates ranging from January 2025 to May 2026 (New Notes). The effect of such offer was that the maturity dates of the Existing Notes would be extended and the event of default to which the Company was subject would be waived or rectified.

However, on 26 April 2023 (6 days before the adjourned hearing on 2 May 2023), the Company announced to terminate the Exchange Offer and proceeded to pursue a restructuring scheme.

The Decision

At the adjourned hearing on 2 May 2023, the supporting creditors, including OCM and the Hong Kong and Shanghai Banking Corporation Limited (HSBC) which substituted Yeung Man as the petitioner, demanded an immediate winding up order against the Company.

The Company sought an adjournment of 2 months (or an even shorter adjournment) in order to “take further steps to design and implement restructuring proposals which would be in the best interests of all creditors”. However, Linda Chan J rejected the Company’s proposal and considered that there was no utility in granting a further adjournment mainly on the following grounds:

1. the Company was clearly insolvent and did not have the means to pay the debts due;
2. the Company failed to provide any viable debt repayable proposal or put forward any concrete restructuring proposal in respect of the debts owed to the creditors (including HSBC and OCM), let alone one which would have support of majorities of the creditors;
3. although the holder of the Existing Notes indicated their support of the Exchange Offer, their support had been overtaken as the Exchange Offer had already been terminated;
4. the three creditors who opposed to immediate winding-up only indicated that they would support the Company’s intended debt restructuring but they failed to explain what “intended debt restructuring” they support and did not even file notice of intention to appear;
5. amongst the creditors who filed notices of intention to appear in the Petition, only 1 creditor supported the further adjournment of 2 months.

In light of the above, despite the Company’s effort to deal with and restructure its indebtedness, the Court viewed that such so-called “restructuring scheme” was merely an idea put forward by the Company. The Company had not formulated any comprehensive plan and failed to make any meaningful progress to restructure its debts since the petition was first presented 8 months ago in 2022. Therefore, the Court granted the immediate winding up order against the Company.

Full text of the judgment of the Jiayuan case can be read here.