Ping an Securities Group (Holdings) Ltd

• Jurisdiction: Bermuda
• Judge: Hargun
• Judgment Date: 08 April 2022
• Court: Supreme Court (Bermuda)
• Docket Number: 2020 No. 310

In the Matter of Ping an Securities Group (Holdings) Limited

And the Matter of the Companies Act 1981

[2022] SC (Bda) 25 Com (8 April 2022)

Before:

The Hon. Chief Justice Hargun

2020 No. 310

In the Supreme Court of Bermuda (Commercial Court) COMPANIES (WINDING UP)

Appearances:

Mr Henry Tucker and Mr Kyle Masters of Carey Olsen Bermuda Limited, for the Joint Provisional Liquidators;

Mr Nicholas Miles of Kennedy Chudleigh Ltd, for the Hong Kong Court-appointed Liquidators

Appointment of parallel liquidators in different jurisdictions; whether such appointments are conducive to the proper operation of the liquidation; whether such appointments are in conformity with the principles of comity and co-operation

Introduction

1 On 22 March 2022, the Court heard two applications in relation to the appointment of permanent liquidators of Ping An Securities Group (Holdings) Limited (“ the Company”) pursuant to section 171 of the Companies Act 1981. First, there is an application by Osman Mohammed Arab, Lai Wing Lun both of RSM Corporate Advisory and Edward Alexander Niles Whitaker of R&H Services Limited, the existing Joint Provisional Liquidators (“ JPLs”), appointed by this Court, that they should be appointed permanent liquidators of the Company. This application is made by summons dated 4 February 2022. Secondly, there is an application by Yip Wa Ming and Lai Kar Yan of Deloitte Touche Tohmatsu, the liquidators of the Company appointed in Hong Kong by Regulating Order of the High Court of Hong Kong dated 19 August 2021 (“ the Hong Kong Liquidators”) for an order that Rachelle Ann Frisby of Deloitte Ltd and the Hong Kong Liquidators be appointed as the permanent liquidators of the Company. The issue for determination by the Court is who should be appointed the permanent liquidators of the Company pursuant to the Court's jurisdiction set out in section 171 of the Companies Act 1981.

Background

2 The Company was incorporated in Bermuda and its shares listed on the Stock Exchange of Hong Kong. The Company's key operating subsidiaries were incorporated in Hong Kong and they operate a licensed security brokerage and financial services business in Hong Kong.

3 On 2 October 2020, the Company's former management obtained an order from this Court appointing the JPLs on a soft touch basis for the purposes of restructuring of the Company. This application was supported by the First Affirmation of Cheung Kam Fai, an Executive Director and the Chief Executive Officer of the Company, dated 23 September 2020. In that Affirmation Mr Cheung advised the Court that:

• (1) The Company is the holding company listed vehicle for itself and its subsidiaries (“ the Group”), which is primarily involved in the business of financial advisory, loan financing, insurance brokerage, and property development.

• (2) The Company finds itself in a position of acute financial distress. The unanticipated outbreak of COVID 19 has placed extraordinary demands on the Group's liquidity, and magnified pre-existing financial issues which the Group had already been grappling. All of these matters, taken together, have left the Company and the Group in a precipitous financial situation. The Group is currently insolvent on a cash flow and balance sheet basis. The Company is also insolvent on a cash flow and balance sheet basis.

• (3) The Board of Directors of the Company (“ the Board”) believes that these challenges—although extremely serious—are surmountable and that a financial restructuring is in the best interests of the creditors given the intrinsic value of the Group's underlying assets and considerable goodwill in the market, built up to 50 years of continuous operations. As such, the Company is in the process of formulating a restructuring plan to extract it from its current financial difficulties, strengthen its capital base and permitted to continue trading as a going concern.

• (4) The Company therefore seeks the appointment of the JPLs for the purpose of implementing a restructuring of the Companies financial liabilities. The Board anticipates that the restructuring proposal will ultimately be executed by way of a scheme of arrangement, potentially involving a fresh share issuance, the disposal of assets, a compromise of rescheduling of the Group's debts or, in all likelihood, a combination of some or all of these courses of action.

• (5) It is proposed that the JPL's will be appointed on a “ light touch” basis, with the directors remaining in office to assist the JPLs in their role. The involvement of management of the Company in the restructuring process will be of paramount importance and will allow for the most efficient implementation of the restructuring proposal. The Board is of the firm view that the appointment of the JPL's, with the Board remaining in place to assist in creditor negotiations and the formulation of the restructuring proposal, will fortify investors' confidence in the Company and the Group.

4 On 2 October 2020, Subair Williams J appointed the JPLs on a “ light touch” basis, as requested by the Company. The Court also issued a Letter of Request to the High Court of Hong Kong Special Administrative Region seeking its assistance and aid of the Court in recognising the appointment of the JPL's. The Hong Kong Court duly recognised the Order and the JPLs in accordance with the request made by this Court.

5 On 15 July 2020, prior to the presentation of the Petition in Bermuda on 23 September 2020, Ms Yang Xueli had presented a Petition, subsequently amended on 30 October 2020, to the Hong Kong Court seeking a winding up order in respect of the Company. There were a number of adjournments in relation to that Petition. The Petition came before Harris J of the High Court of Hong Kong on 10 May 2021 and on that occasion Harris J stated that in the exercise of his discretion, he would make the normal winding up order. Harris J further stated that “ the provision liquidators are not appointed by this court and therefore, the Official Receiver will become the first provisional liquidator in Hong Kong.”

6 In concluding that the appropriate order was to wind up the Company, Harris J expressed a number of concerns in the way the proposed restructuring had proceeded in Hong Kong:

“3. The expectation that is recorded in [decision of 10 May 2021] has not been realised, instead, matters have progressed as follows. The provisional liquidators have made no effort to contact the Petitioner and not provided her with any information at all about the progress of the restructuring until Ms Yang received a copy of the 2 ^nd affirmation of Lai Wing Lun, one of the provisional liquidators, on Friday, 7 May 2021, in other words, the working day before the petition came back on for hearing before me …

5, Neither Ms Yang nor the Court, should have been put in the position of being given information which is manifestly incomplete, so close to the hearing that it was difficult to deal with. I have reached the stage at which I am increasingly concerned about the way soft touch provisional liquidation, and what is generally referred to as the Z-Obee technique is being used. I have explained this in a number of decisions and I have recently completed other decisions which will be handed down very shortly developing those concerns further. Soft touch provisional liquidation need close monitoring by the Court and I expect soft-touch provisional liquidators and their legal advisers to ensure that this is possible not, as in the present case, make representations to the court on which they know the court has relied and then ignore them.”

7 Harris J had earlier expressed understandable concerns about the abuse of the Z-Obee technique in Li Yiqing v Lamtex Holdings Limited [2021] HKCFI 622. This Court is bound to take these concerns into account in considering whether to sanction a “ light touch” provisional liquidation in aid of a proposed restructuring of a company in financial difficulties.

8 Following the winding up order made by the Hong Kong Court, on 23 July 2021, the first creditors' meeting was held at which a majority in value of the creditors voted for Mr Osman Mohammed Arab and Mr Lai Wing Lun of RSM Corporate Advisory (Hong Kong) Limited, two of the JPL's appointed by the Bermuda Court.

9 The Official Receiver did not make an application to the Hong Kong Court to appoint Mr Arab and Mr Lai as the permanent liquidators but instead made an application under section 227A(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, for a Regulating Order. 1

10 In support of the application for a Regulating Order, the Official Receiver submitted to the court report dated 13 August 2021. In that report the Official Receiver asserted:

• (1) The Official Receiver considers that there is a possible conflict of interest or question of partiality in relation to the proposed appointment of Mr Arab and Mr Lai. Liquidators should not only be independent and impartial, but they should also be seen to be so and any conflict of interest or even over familiarisation should be discouraged.

• (2) Mr Arab and Mr Lai's previous involvement in the soft touch provisional liquidation and that they have previously advised the Company, it is considered that it would give rise to a reasonable perception of conflict of bias on the part of the creditors.

• (3) Further, there are matters liquidators are required to investigate and functions they have to perform which may impact on the duties and activities of JPL's. In view that the JPL's were appointed upon the application of the Company, it is doubtful if the potential interests of Mr Arab and Mr Lai due to their prior office of JPL's could be effectively managed. It appears that it is inevitable that Mr Arab Mr Lai if so appointed as liquidators, would be required to undertake problematical tasks of “ self review”. The Official...