Re FDG Electric Vehicles Ltd
| Jurisdiction | Bermuda |
| Judgment Date | 20 July 2020 |
| Date | 20 July 2020 |
| Docket Number | Commercial Jurisdiction 2020 No 118 |
| Court | Supreme Court (Bermuda) |
[2020] Bda LR 39
In The Supreme Court of Bermuda
Commercial Jurisdiction 2020 No 118
Mr K Robinson and Mr K Masters for the Petitioner Creditor
Mr K Taylor and Mr B McCosker for the Joint Provisional Liquidators
Mr C Luthi and Mr J O'Mahoney for the Company
The following cases were referred to in the judgment:
Allied Ever Holdings Ltd v Li Shu Chung et al [2017] HKCFI 2113
Re North Mining Shares Company Ltd [2020] Bda LR 8
Re Up Energy Development Group Ltd [2016] Bda LR 94
Re ICO Global Communications (Holdings) Ltd [1999] Bda LR 69
In re P & J Macrae Ltd [1961] 1 WLR 229
In re JD Swain Ltd [1965] 1 WLR 909
Re Up Energy Development Group Ltd [2018] Bda LR 100
Maud v Aabar Block Sarl [2016] EWHc 2175
Re Agritrade Resources Ltd [2020] Bda LR 35
Deloitte & Touche AG v Johnson et al [1999] UKPC J0610
AMP Music Box Enterprises Ltd v Hoffman [2002] EWHC 1899
Re Adam Eyton Ltd (1887) 36 ChD 299
Re Shruth Ltd [2005] EWHC 1293
Re Marseilles Extension Railway & Land Co (1857) LR 4 Eq 692
Kelley (Trustee of the PCI Liquidating Trust) v Stevanovich and Ors [2018] Bda LR 89
Appointment of joint provisional liquidators — Whether to remove previously appointed light touch liquidators — Legal principles on the appointment and removal of provisional liquidators — Letter of request for recognition by Hong Kong High Court
RULING of Subair Williams J
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 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.
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 Limited (“Union Grace”) and (iii) Sinopoly Strategic Investment Limited (“Sinopoly”). I shall collectively refer to these three companies as “the Share Charge Subsidiaries”. Consequently, various terms of the Facility Agreement and the CB Agreement, were amended by a Deed of Amendment dated 30 June 2019 (“the Deed of Amendment”).
15. Under the Deed of Amendment, the Company and the Petitioner agreed to convert the total outstanding amount of interest due to the Petitioner under Facility Agreement and the CB Agreement (for the period of 5 December 2018 to 30 June 2019: HK$110,330,739.73 (US$14,144,966.63)) into 4,086,323,694 newly issued shares at the subscription price of HK$0.027 (US$0.003) per subscribed share (“the Subscription Shares”). The Petitioner is thus a minor shareholder of the Company whose holdings (at the initial stage of these proceedings and up until a subsequent share rights issuance) came to approximately 10% of the outstanding issued share capital of the Company. The Petitioner also has share charges over...
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