Re Up Energy Development Group Ltd

• Jurisdiction: Bermuda
• Judgment Date: 19 November 2018
• Date: 19 November 2018
• Docket Number: Commercial Jurisdiction 2016 No 183
• Court: Supreme Court (Bermuda)

[2018] Bda LR 100

In The Supreme Court of Bermuda

Commercial Jurisdiction 2016 No 183

In the Matter of Up Energy Development Group Ltd

and

And in the matter of the Companies Act 1981

Mr J Wasty for the Petitioner

Mr M Burrows for the Creditors supporting the Petition

Mr C Luthi for the Creditors opposing the Petition

Mr K Taylor and Ms N Tovey for the Joint Provisional Liquidators

The following cases were referred to in the judgment:

Re LAEP Investments Ltd [2014] Bda LR 35

Re Gerova Financial Group Ltd [2012] Bda LR 43

Bowes v Hope Life Insurance Co (1865) 11 HLC 389

Re Demaglass Holdings Ltd [2001] BCLC 633

Re Crigglestone Coal Co [1906] 2 Ch 327

Loch v John Blackwood [1924] AC 783

Capital Partners Securities Co Ltd v Sturgeon Central Asia Balanced Fund Ltd [2017] Bda LR 78

Re P & J Macrae Ltd [1961] 1 WL 229

Re JD Swain [1965] 1 WLR 909

Heart & Soul Construction Ltd v Eve [2017] Bda LR 143

Re Atrium Training Services Ltd [2013] EWHC 2882

Z-OBEE Holdings Ltd [2017] Bda LR 19

Re Gooch's Case (1871) 7 Ch App 207

Petition To Wind-up Bermuda Exempted Company — unless Orders — just And Equitable Principles — objections By Majority Of Creditors And Jpls — whether To Adjourn Petition To Wind-up

JUDGMENT EX TEMPORE of Subair Williams J

Introduction

1. This Court is concerned with a winding-up petition of the Company which is incorporated in Bermuda and publicly listed on the Main Board of Hong Kong Stock Exchange.

2. The Petitioner is an undisputed and unsecured creditor who holds Tranche A and Tranche B Convertible Notes issued by the Company at a redemption value of HK$150,000,000 which matured on 18 January 2016. On account of the Company's non-payment on any portion of the redemption value, the Petitioner made a statutory demand for payment which was served at the Company's registered office on 1 April 2016.

3. The petition was subsequently filed on 6 May 2016 following a long standing dispute between the Petitioner and the CEO of the Company, who is also the ultimate beneficial owner of the Company.

4. The Petitioner applied to wind up the Company under section 162(a) of the Companies Act 1981 on the grounds that it is unable to pay its debts. In the alternative, the Petitioner asks that the Company be wound up under section 161(e) on the basis that it would be just and equitable to do so.

5. The Court appointed Joint Provisional Liquidators (JPLs) on 7 October 2016. After a year's worth of adjournments following the appointment of the JPLs, the Court heard and refused the Petitioner's plea for the Company to be wound up on 13 October 2017 and instead adjourned the petition in favour of the wishes of the majority of creditors and the JPLs.

6. In April 2018 the Court approved a timeline for a restructuring plan. However, several projected steps were unachieved.

7. In a two-part hearing in July 2018 and October 2018, the Petitioner applied for the Company to be wound up. The Petitioner's application was once again opposed by the JPLs and a majority (ie. 50% plus) of the unsecured creditors. At the conclusion of the contested hearing of the Petition, I refused the application to wind up the Company at this stage of the proceedings but reserved judgment on the Petitioner's alternative application for Unless Orders in the following terms:

“Unless the JPLs file an application (by way of summons) to convene a creditors' meeting by 4pm on 23 November 2018 Up Energy Development Group Limited (Company) shall be wound up on that date and at that time pursuant to the usual winding up order.

Unless the JPLs serve on the Petitioner and file with the court a final draft scheme of arrangement by 4pm on 30 November 2018 the Company shall be wound up on that date and at that time pursuant to the usual winding up order.”

8. I now give my reasons for refusing to wind up the Company at this stage in favour of a further adjournment of the petition and also give my decision on the Petitioner's alternative plea for the making of Unless Orders.

Background Proceedings

9. By petition dated 29 March 2016, HEC Securities Limited sought to wind up the Company in the Hong Kong High Court on the grounds of an unpaid debt in the form of a matured convertible note for HK$230,000,000.

10. The petition for this Court to wind up the Company was filed on 6 May 2016 and made returnable for 1 July 2016.

11. By written public announcement made on 23 May 2016 (following several previous announcements), the Company issued the following statement, in part:

“THE COMPANY'S LEGAL ACTION PERTAINING TO DEBT RESTRUCTURING

As disclosed in the Announcements, the Company is in the process of formulating a Reorganization Plan and will implement a Scheme in the Supreme Court of Bermuda for sanction. Upon the successful approval of the Scheme, the Company will have the benefit of protection in Bermuda and time to implement the Reorganization Plan in the best interests of all stakeholders.

WINDING UP PETITION

On 20 May 2016, the Board was notified by the Bermuda legal counsel of the receipt of a winding up petition dated 18 May 2016 (Bermuda time) filed by Credit Suisse AG, Singapore Branch (the “Petitioner”) against the Company in the Supreme Court of Bermuda for the outstanding balance of the matured Convertible Notes in the principal amount of HK$150,000,000 (the “Winding Up Petition”). The hearing of the Winding up Petition was scheduled to be heard on 1 July 2016.

The Company is currently seeking legal advice in respect of the Winding Up Petition with a view to defend the Winding up Petition by challenging whether the Winding Up Petition is filed in the proper jurisdiction; and/or reach a settlement with the Petitioner on this matter; and / or implement the Reorganization Plan by way of a Scheme. The Company will keep its shareholders and potential investors informed of any further significant development when appropriate. Shareholders of the Company and potential investors should accordingly exercise caution when dealing in the securities of the Company.”

12. In support of the Petition, Baosteel Resources International Company Limited (“Baosteel”) filed a notice of intention to be heard via their (then) attorneys at Harneys Bermuda Limited. Baosteel is a creditor of the Company in respect of an outstanding balance on a matured Tranche A convertible note in the principle amount of HK$155,000,000 in addition to a default interest rate at 15% per annum. Baosteel's support of the Petition was outlined in the 29 June 2016 affirmation of its investment director, Mr Huang Xin.

13. A notice of intention to be heard in opposition of the Petition was filed by Taylors law firm on 29 June 2016 on behalf of China Minsheng Banking Corp Ltd Hong Kong Branch (“CMBC”).

14. By Ex Parte Summons dated 30 June 2016 and supported by the affirmation of Mr Jason Epstein, (the Petitioner's solicitor from Clifford Chance LLP) the Petitioner applied to the Court for the appointment of Joint Provisional Liquidators (“JPLs”) to oversee the development of a restructuring proposal exhibited to the affirmation of Mr Wang Dayong made on 28 June 2016.

15. The Petition and the Ex Parte summons were both adjourned to 4 July 2016 by the then Hon Chief Justice, Mr Ian Kawaley who in his reported ruling dated 20 September 2016 at paragraph 7 held:

“7. The Company on July 4, 2016 opposed the appointment of JPLs referring to its retention that very day of independent restructuring advisers RSM Corporate Advisory (Hong Kong) Limited (“RSM”). It argued that deference ought to be given to the majority of the creditors' position. Mr Taylor supported the Company's position, in part because of the stigma that provisional liquidation carried in Asia. I felt that the case for an immediate appointment had not been made out as there was no evidence of any misconduct on the part of management and a significant creditor constituency appeared to be supportive of there being no JPL appointment. I sought to fill the gap in independent monitoring by imposing as a condition of the adjournment Order a requirement that the Company attempt to form an informal creditors' committee.”

16. The Petition was adjourned to 9 September 2016 and the then learned Chief Justice Kawaley ordered:

“The Company shall, either through its Board of Directors or Independent Restructuring Advisors, use its best endeavours to establish a framework for communicating with all unsecured creditors of the Company, on an ongoing basis, in respect of all issues relating to implementation and feasibility of the restructuring proposal exhibited to the Affirmation of Wang Dayong made 28 June 2016 at pages 1 to 23 or any variation thereof.”

17. The application for the appointment of JPLs was renewed and vigorously contested on 9 September 2016 which was followed by Kawaley CJ's chambers ruling of 20 September 2016 confirming the appointments. In an amended Order of the Court dated 28 October 2016, Roy Bailey of Ernst & Young Ltd and Osman Mohammed Arab and Lai Wing Lun of RSM Advisory (Hong Kong) Limited were appointed JPLs against some background of controversy between the parties as to the preferred nominee liquidators. Reasons for the Court's decision were reported in Kawaley CJ's ruling of 4 November 2016.

18. From 9 September 2016 the Petition...