The Hong Kong and Shanghai Banking Corporation Ltd v NewOcean Energy Holdings Ltd
| Jurisdiction | Bermuda |
| Judge | Clarke P,Kay J.A.,Bell, J.A. |
| Judgment Date | 30 September 2022 |
| Neutral Citation | BM 2022 CA 16 |
| Court | Court of Appeal (Bermuda) |
| Docket Number | Case No: Civ/2022/11 |
In the Matter of NewOcean Energy Holdings Limited
And in the Matterof the Companies Act 1981
Neutral Citation Number: [2021] CA (Bda) 16 Civ
THE PRESIDENT, Sir Christoper Clarke
JUSTICE OF APPEAL Sir Maurice Kay
JUSTICE OF APPEAL Geoffrey Bell
Case No: Civ/2022/11
CASE NUMBER 2021: No. 338
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SUPREME COURT OF BERMUDA SITTING IN ITS
ORIGINAL CIVIL/COMMERCIAL JURISDICTION
THE HON. MR. JUSTICE MUSSENDEN
Dame Lois Browne-Evans Building
Hamilton, Bermuda HM 12
Kevin Taylor, Walkers (Bermuda) Limited for the Appellant
Keith Robinson, Carey Olsen Bermuda Limited, for the Respondent
Lalita Vaswani, Appleby (Bermuda) Limited, for the Joint Provisional Liquidators
Hearing date(s): 25 July 2022
On Tuesday 26 July 2022 we allowed the appeal of the Hong Kong and Shanghai Banking Corporation (“ HSBC” or “ the Petitioner”) from the decision of Mussenden J, dated 31 May 2022 (leave to appeal having been granted by the judge on 1 June 2022), and ordered that the Respondent, NewOcean Energy Holdings Ltd ( “NewOcean” or “ the Company”), a Bermuda company, should be wound up and that the joint provisional liquidators should continue as provisional liquidators with the powers granted pursuant to section 175 of the Companies Act 1981, which powers were not to be limited by section 170 (3) of the Companies Act, such that the Light Touch Order and the Amended Light Touch Order (see below) were no longer to be in effect. These are the reasons why we did so.
NewOcean was incorporated on 19 November 1998. It is a holding company with a large number of direct and indirect subsidiaries. These carry on business in a number of different fields including the sale and distribution of liquid petroleum gas (“LPG”) and natural gas, sales of oil products, sales of electronic products, and property dealing and development. The Company's subsidiaries own an LPG storage terminal, LPG refueling stations, and an oil storage terminal in the People's Republic of China (“PRC”), and the Zhuhai Commercial Property complex (“the Complex”), also in the PRC. The Group also owns vessels, and land in Hong Kong. On 30 July 1999 the Company was listed on the Hong Kong Stock Exchange (“HKSE”).
In early 2020 the Company ran into financial difficulties. It entered into negotiations with some of its creditors in relation to the repayment of loans. The Petitioner was a member of a “Core Banks Committee” which commenced negotiations with the Company in about June 2020. That Committee expanded into a “ Steering Committee”, with added banks, which negotiated on behalf of over 30 bank creditors for about a year. By December 2020 two parallel schemes of arrangement were proposed in Bermuda and Hong Kong (the “ Hong Kong Scheme”, the “ Bermuda Scheme” and, together, the “ Schemes”). The Hong Kong Scheme was to apply to the Company's wholly owned subsidiary, Sound Agents Ltd ( “Sound Agents”), a Hong Kong company which guaranteed the debts incurred by the Company and the Group to the Bank lenders. The Bermuda Scheme was to apply to the Company.
The Schemes were to involve an organised sale of specified assets (“ the Disposal Assets”) the proceeds of which were to be distributed to the “ Scheme Creditors”, which included the Petitioner. The Hong Kong and Bermuda courts ordered the convening of meetings of creditors in their respective jurisdictions on 18 January 2021 to approve the Schemes.
The Company proposed that the claims of (most of) the Company's creditors be:
“ compromised and extinguished under the Schemes and that funds be raised by NewOcean and Sound Agents through a combination of the Group's internal cash flow and the organised sale of the Disposal Assets and be distributed to the Scheme Creditors under the Schemes” 1
In particular, the Company and Sound Agents would ensure that the debts to the “ Core Bank Creditors” (as defined, including the Petitioner) would be repaid in accordance with a payment schedule 2 which involved payment of 20% of the debts owed to Core Bank Creditors (“the debts”) being paid by 30 September 2021 (extendable to 31 December 2021 if holders of 2/3 of the aggregate principal outstanding agreed); 66% of the debts was to be paid by 30 September 2022 (extendable to 31 December 2022 if the Majority Core Creditors, as defined, consented; and 100% of the debts was to be paid by 30 September 2023. At this stage, the Company was already proposing what amounted to a liquidation of its key assets, rather than some restructuring plan in the traditional sense.
The Disposal Assets included the Complex in Zhuhai, PRC, and land in Hong Kong; 11 bunker ships in Hong Kong and Singapore; an oil products storage terminal; a deep-sea oil terminal; an LPG deep-sea terminal, 5 LPG refueling stations and 4 LPG refueling plants. The target disposal dates for each of the assets would take place over a period of 2 years from 30 June 2021 to 30 June 2023 for a total of US$552 million 3
The 18 January 2021 meetings were adjourned for three months because there were ongoing discussions with the Steering Committee. The Schemes were then not pursued due to lack of creditor support, and were effectively withdrawn on 3 May 2021 by the vacation on that date of the dates fixed by the Hong Kong Court for the sanctioning of what was described as the “New Court Scheme” (which had replaced the earlier “Court Scheme”).
In June 2021 the members of the Committee formally declared to the Company's bank creditors that the negotiations had been unsuccessful.
NewOcean was indebted to HSBC on a number of bases. On 30 September 2021 HSBC served a statutory demand on the Company at its registered office for HK$ 5,799,061.20 and US$ 70,646,036.85. The amounts demanded, which included interest, were
The total amount said to be due at the date of the Petition was HK $ 5,433,659.12 and US$ 70,802,320.35.
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(i) HK $ 5.799 million plus US $ 27 million, and US $ 6.3 million, being the sums due under guarantees by NewOcean of loans made to two of its subsidiaries, Sound Agents and NewOcean Resources (Singapore) Pte Ltd (“ NAS”), under a Facility Letter of 21 January 2020;
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(ii) US $ 7 million due under a Facility Agreement of 25 August 2016 under which HSBC became a lender
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(iii) US$ 30.3 million due under a Facility Agreement of 28 May 2018.
The Company did not pay the amount demanded, or any of it, within 21 days, as a result of which it became deemed unable to pay its debts in accordance with section 162 (a) of the Companies Act 1981. None of the amount demanded was paid after the 21-day period.
Meanwhile, in September 2021 the Company had circulated to all its bank lenders the latest draft of its proposal in a form which has been described as “Restructuring Facility Agreement” (“RFA”) 4, referred to as the “ Current Proposal”. The document is extremely long and complex. It is, in essence, similar to the Schemes and is the proposal that is advanced in these proceedings. It involves a “restructuring” of the debts owed to 31 creditors (banks or funds) party to the scheme, whereby all their debts would become the subject of a syndicated loan due for payment on an Initial Final Repayment Date, being 30 September 2022. They would, however, become due on an Extended Final Repayment Date of 31 March 2023 if ( inter alia):
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(a) NewOcean had disposed of the LPG Business Assets, the LPG Refilling Plant Assets and the LPG Refueling Station Assets, as defined, together “ the LPG assets”, and used the proceeds to repay the Exposures (i.e. the amounts due to the 31 Original Lenders specified in Schedule 1) to the extent of at least 65% of the amount due together with interest; and had done so by the date of the Extension Request, which was to be given no later than 1 month before the Initial Final Repayment Date; and
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(b) that Majority Lenders, as defined, being lenders with loans which were 66.67% in value of total exposure, had notified NewOcean of their consent to the Optional Extension no later than the Initial Final Repayment Date.
Under the RFA substantially all of the known assets of the Group with material value would be pledged, and several subsidiaries of the Company would provide guarantees and indemnities. The proposal excluded all but the bank creditors. Thus, even if full payment was made under the scheme, non-bank creditors would not be covered by it. The Company was to realise assets belonging to the Group; the proceeds of disposal were to be received in a “Proceeds Account” and applied to the payments of accrued interest on the Exposures (i.e. the amounts owed to the banks under the term loan agreement to be made available under the Facility Agreement) and the satisfaction of the Company's obligations in respect of those Exposures. This proposal did not commend itself to a significant majority of the Company's bank creditors.
The LPG Assets had been valued as of June 2020 at US $ 548 million 5. On 9 November 2021 the Company signed a non legally binding Letter of Intent 6 with a subsidiary of China Huaneng, a PRC state-owned enterprise, providing that the subsidiary would purchase the LPG Assets through the issuance of convertible bonds or preference shares in a company owning the Assets at a range from US $ 270 to 450 million, with a target completion date of before September 30 2022. The total Debt at this stage was some US $ 860 million. China Huaneng has now dropped out.
On 22 October 2021 HSBC presented a petition (“the Petition”) to the Bermuda Supreme Court seeking the winding up of the Company on the ground that it was not able to pay its debts and/or that it was just and...
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