FDG Electric Vehicles Ltd

• Jurisdiction: Bermuda
• Judge: Shade Subair Williams J
• Judgment Date: 20 July 2020
• Court: Supreme Court (Bermuda)
• Docket Number: COMMERCIAL JURISDICTION
• Date: 20 July 2020

[2020] SC (Bda) 32 Com

In The Supreme Court of Bermuda

COMMERCIAL JURISDICTION

2020 No: 118

In the Matter of FDG Electric Vehicles Limited

(Provisional Liquidators Appointed) (For Restructuring Purposes Only)

In the Matter of the Companies Act 1981

Sino Power Resources Inc: Mr. Keith Robinson and Mr. Kyle Masters ( Carey Olsen Bermuda Limited) (Petitioning Creditor)

Joint Provisional Liquidators: Mr. Kevin Taylor and Mr. Benjamin McCosker ( Walkers (Bermuda) Limited)

FDG Electric Vehicles Limited: Mr. Christian Luthi and Mr. Jonathan O'Mahony ( Conyers Dill & Pearman Limited)

Whether to appoint Joint Provisional Liquidators under s. 170(2) of the Companies Act 1981) — Whether to Remove previously appointed ‘light-touch’ / ‘soft-touch’ Joint Provisional Liquidators — Legal Principles on the Appointment and Removal of Provisional Liquidators — Letter of Request for Recognition by Hong Kong High Court

RULING

RULING of Shade Subair Williams J

Shade Subair Williams J

INDEX
TOPIC	Page No.
INTRODUCTION	3
FACTUAL BACKGROUND	4
The Debt owed to the Petitioner	4
The Court's 12 March Order Appointing JPLs with ‘Light Touch’ Powers	6
Allegations that the Petitioner was not full and frank in its disclosure to the Court	7
THE APPLICATIONS FOR NEW JOINT PROVISIONAL LIQUIDATORS WITH UNLIMITED POWERS	11
Complaints about the Board's Conduct	11
Commercial transactions made by the Board	11
Shareholder Support of the Board	16
The Application of the Proceeds of the Rights Issue	18
Complaints about the JPLs	20
Prospects of a Restructuring	31
Extent to which the Petitioner's Consent may be required
THE JPLs' APPLICATION FOR A LETTER OF REQUEST	37
RELEVANT STATUTORY FRAMEWORK AND LEGAL PRINCIPLES	37
The General Legal Position on the Appointment of Provisional Liquidators	37
Where a Majority of Unsecured Creditors are seeking the Appointment of Provisional Liquidators and a Change of Previous Court-Appointed Provisional Liquidators	39
Legal Principles Applicable to the Removal of Provisional Liquidators	41
ANALYSIS AND DECISIONS	42
Decision as to the Appointment of Joint Provisional Liquidators (s. 170(2))	43
Decision as to the Replacement of the Current JPLs	47
CONCLUSION	52

Introduction

1 The present case holds a mirror to a maze of conflict between a petitioning creditor; an insolvent parent company; a frangible board of directors; drifting subsidiaries; indignant shareholders and impugned joint provisional liquidators. The applications before this Court were pressing by nature but the factual evidence is multiplex and has commanded a careful and steady analysis. It has not been lost on this Court that the present applications not only deal with exorbitant sums of money owed to the creditors but also impacts the widespread reputation of a public conglomerate and shakes the sense of security of an employment populace.

2 This Court is concerned with various summons applications, one of which was filed 1 by the Petitioner, Sino Power Resources Inc. (“the Petitioner”) on an ex parte summons dated 30 March 2020 for an order fully extending the current powers of the joint provisional liquidators' (“the JPLs”). Prior thereto, on 12 March 2020 this Court granted the Petitioner's ex parte application (made on short notice) for the appointment of JPLs with a ‘light touch’ or ‘soft touch’ powers. (Subsequent controversy arose on the form of the 12 March 2020 Order which sought to empower the JPLs under paragraph 14(b) with the ability to suspend or remove the Board of Directors without further reference to the Court.)

3 At the direction of this Court, the Petitioner's 12 March and 30 March summons applications were heard on an inter partes basis. The hearing of these summonses precedes the first hearing of the Petition to wind up FDG Electric Vehicles Limited (“the Company”) which was filed on 5 March 2020 under section 161(e) of the Companies Act 1981. (This came subsequent to another petition which has been separately filed against the Company by one of its shareholders known as “Jingang”.)

4 On the 30 March summons, the Petitioner prays for a full-power conferment on the JPLs on the basis that such an order would safeguard the interests of the creditors as a whole, the Company itself and third parties. A further summons application was filed by the Petitioner in April 2020 seeking the immediate replacement of the current JPLs for the appointment of Ms. Wing Sze Tiffany, WONG and Ms. YEUNG Mei Lee of Alvarez & Marsal Asia Limited in Hong Kong and Mr. Mathew Clingerman of KRyS & Associates (Bermuda) Ltd.

5 The Petitioner's applications are supported by the written evidence of (i) Mr. Jun Zhou of China Orient International Asset Management, Hong Kong (“China Orient International”) and Vice President of China Orient International Asset Management (International) Holding

Limited (“China Orient Holding”), a representative of the sole shareholder of the Petitioner (First Affirmation); (ii) Ms. Jin Zhai, the head of the legal department of China Orient International (First-Fifth Affirmations); (iii) Mr. Yang Yang, a senior associate of Carey Olsen Hong Kong LLP (First Affirmation) and (iv) Mr. Henry Tucker, Counsel of Carey Olsen Bermuda Limited (First Affidavit)

6 The Company, who has opposed the Petitioner's application for extended powers to be conferred on any JPLs, but who also seeks for the current JPLs to be replaced by nominees of its own choosing, has filed evidence from (i) Mr. Che, the Director and Chief Executive Officer (“CEO”) of the Company (Four Affirmations).

7 The JPLs have also filed an ex parte summons for a Letter of Request to be directed to the High Court of the Hong Kong Special Administrative Region (“the Hong Kong High Court”) for recognition of my 12 March Order and any further Order of this Court in respect of the powers conferred on the JPLs. The JPLs filed affidavit evidence sworn by Mr. Yen Ching Wai David (First and Second Affidavit) in support of its own 12 May summons application for a Letter of Request and in response to the evidence filed by the Petitioner and the Company. Mr. David Yen is one of the three JPLs appointed by this Court on 12 March 2020, the other two JPLs being Ms. SO Kit Yee Anita and Ms. Eleanor Fisher. Additionally, the JPLs filed two reports in these proceedings, dated 6 April 2020 and 11 May 2020.

8 The hearing of these applications was conducted remotely by an audio-recorded teleconference chambers hearing during the closure of the Supreme Court due to the effects of the worldwide COVID-19 Pandemic. Notwithstanding, this matter proceeded on the basis of the Court's determination that these applications raise issues of urgency in a commercial context.

9 Having heard the most able of submissions from Counsel for the Petitioner, the Company and the JPLs, for which I am most grateful, I now give my decision and underlying reasons.

Factual Background

The Debt owed to the Petitioner

10 The Company is a Bermuda exempt company which operates from Hong Kong as an investment holding company. Its shares are publicly traded on the Hong Kong Stock Exchange. The Company, together with its multiple direct and indirect subsidiaries (“the Company Group” / “the Group”), carries on a business which principally involves the manufacturing and sale of pure electric vehicles and lithium-ion battery and related cathode products.

11 The Company's authorized share capital is HK$1,000,000,000 divided into 5,000,000,000 shares valued at HK$0.20 per share. (On the Petition, it is stated that as of 3 March 2020 1,949,469,872 shares were issued.)

12 The Petitioner is a creditor of the Company in respect of a debt which exceeds the sum of HK$1,000,000,000.00 (US$128,649,300 at relevant time of conversion rate). The debt is said to partly arise in default of the terms of a loan facility agreement for HK$600,000,000.00 (US$76,923,076.92) made on 28 November 2017 (“the Facility Agreement”). Interest payable under clause 9.1 of the Facility Agreement was fixed at the rate of 12% per annum for payment on the final day of each six month interest period. Under clause 9.3, interest at an additional 5% per annum would accrue in default of any loan obligation amount payable under the Facility Agreement as particularized in a Finance Document. Further, an event of default would contractually entitle the Petitioner to serve a notice on the Company demanding immediate payment of all interest and principal.

13 The debt owed by the Company is also said to arise out of its default under a subscription agreement entered into on 28 November 2017 with the Petitioner for secured convertible bonds to the aggregate value of HK$400,000,000.00 (US$51,282,051.28) (“the Subscription Agreement”). The principal sum of the convertible bonds was issued under a bond instrument which was executed on the same day (“the Bond Instrument”). Interest at the rate of 8% per annum was payable under Condition 9. The Bond Instrument also contains provisions entitling the Petitioner to give a notice of redemption for immediate payment of the principal sum of the bonds and interest together with additional interest at the rate of 24% in the event of default repayment as due. I shall collectively refer to the Subscription Agreement and the Bond Instrument as “the CB Agreement”.

14 The evidence before the Court suggests that the debt owed to the Petitioner accounts for at least 50% of the Company's indebtedness to its unsecured creditors. The Facility Agreement and the CB Agreement are secured for the Petitioner's benefit by share charges over three of the Company's subsidiaries: (i) Preferred Market Limited (“Preferred Market”); (ii) Union Grace Holdings...