RE CARNIVAL GROUP INTERNATIONAL HOLDINGS LTD

HCCW 48/2020 [2022] HKCFI 3097 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING-UP) PROCEEDINGS NO 48 OF 2020 __________________ IN THE MATTER of Section 327(3)(b) the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) and IN THE MATTER of Carnival Group International Holdings Limited __________________ Before: Hon Linda Chan J in Chambers Date of Statements to Show Cause: 13 September 2022 Date of Decision on Costs: 6 October 2022 ____________________________ D E C I S I O N O N C O S T S ____________________________ On 23 August 2022, I made a winding-up order against the Company (“WU Order”) and ordered the directors to show cause as to why they should not be liable to pay the costs of and occasioned by the Company’s continued opposition to the Petition. In the same order, the directors were joined as respondents for the purpose of costs only. The directors concerned and the dates of their appointment and resignation (if any) are as follows: Mr Chau Wai Hing, the 2nd respondent, was an Independent Non-Executive Director (“INED”) from 3 May 2019 to the date of the WU Order; Mr Ma Hang Kon Louis, the 3rd respondent, was an INED from 3 May 2019 to the date of the WU Order; Mr Tso Hon Sai Bosco, the 4th respondent, was an INED from 3 May 2019 to the date of the WU Order; Mr Tang Runtao, the 5th respondent, was an executive director (“ED”) from 26 February 2020 to the date of the WU Order; Mr Luo Jiaqi, the 6th respondent, was an ED from 26 February 2020 to 3 September 2021; and Mr Tin Ka Pak, the 7th respondent, was an ED from 18 December 2020 to 15 May 2021. On 13 September 2022, each of the directors filed a statement to show cause. In respect of the 3 INEDs, their statements are almost identical and may be summarised as follows: They agree with the contents of the statement of Mr Tang; They supported the debt restructuring effort of the Company in Hong Kong and the Mainland, and also supported the effort of the EDs (including Mr Luo and Mr Tin) in pushing forward the debt restructuring effort of the Company; At all times, they believed that no winding-up order should be made against the Company so that the Company could continue as a going concern with its listing status preserved for the following purpose: “to ensure that the court-led Qingdao Restructuring will be successful, to let the new investor have reasonable time to materialise its investment in Rio Carnival (Qingdao), to facilitate the [Company’s] negotiations with the creditors of Beijing Yanlin Project, to allow the continual the [sic] sale of units in the Beijing Yanlin Project, to enable the [Company] to realise its assets and those of its subsidiaries in an orderly and controlled manner, and to effectuate the [Company’s] utilising proceeds of sale and/or of restructuring for debt repayment” They instructed legal advisors to contest the Petition “for the best interest of its creditors” and they did not stand to benefit from the Company’s opposition to the Petition; and They genuinely and honestly believed that the Company had “legitimate and bona fide grounds” to contest the Petition, to remain as a going concern with its listing status preserved and to maximise the return to its creditors. As for the 3 EDs, their statements contained the same averments as those set out in the statements of the 3 INEDs. In addition, they summarised the restructuring efforts made by the Company which included: The proposed placement of new shares which, if completed by its long stop date (29 October 2021), would raise HK$66 million and the proceeds would be “prioritised” by the Company for repayment of interest due to the immigration bondholders with a view to facilitating discussion and possibly agreeing on a restructuring plan with the Company. The court-led “Qingdao Restructuring” in respect of Rio Carnival (Qingdao) Property Co., Ltd., a main subsidiary of the Company (“Rio Carnival”), which had been approved by the Huangdao District People’s Court of Qingdao, Shandong Province. Such Restructuring, if approved by the creditors and implemented, might result in certain proceeds being remitted to the Company through the relevant subsidiaries, which would then be used to service the debts owed by the Company to its creditors. On 24 May 2021, the creditors committee of Rio Carnival resolved that the Administrator should identify potential investors who were willing to participate in the Restructuring. The Restructuring was originally scheduled for voting at the creditors’ meeting of 15 September 2021, and was postponed to 13 January 2022 at which the creditors did not approve the Restructuring. It was only at the meeting of 19 January 2022 that the creditors of Rio Carnival voted for the Restructuring and the same was approved by the Qingdao court on 20 January 2022 and proceeded to execution for 12 months (until 19 January 2023). The Company contemplated to resume the sale of units in Beijing Yanlin Project which, if proceeded, would result in certain proceeds being remitted to the Company to service the debts owed to the creditors. The Project was subsequently taken over by the creditors. Nevertheless, the directors considered that if the Qingdao Restructuring was implemented such that partial repayment of debts could be made to the creditors, the Company would be able to invite other investors to invest in Beijing Yanlin Project which, in turn, would secure the creditors’ agreement to release the Project for sale. So far as Beijing Yanlin Project is concerned, it is clear from the announcement made by the Company on 12 January 2022 that the subsidiary concerned would not be able to sell any units in the Project given that the requisite pre-sale permit had not been obtained and the creditors seized the Project in as early as July 2021. This means that from July 2021 onwards, there was no basis for the directors to hold the view that it was possible to sell any units in the Project, still less to generate any proceeds for the Company. The statements of the INEDs and EDs show that all along, the directors only dealt with the onshore creditors, which are creditors of the subsidiaries (and of the Company as guarantor) and held the projects concerned as security. It must be clear to the directors that unless all the amounts due to the onshore creditors were repaid in full, no proceeds would be available for payment to the Company. The assertion that if the Qingdao Restructuring were implemented, there would be proceeds paid to the Company rings very hollow. As the directors never approached the immigration bondholders (to whom HK$1.155 billion was owed) to discuss or obtain their in-principle agreement to restructure the debts owed to them, it is difficult to see how they could come to the view that the Company should oppose the Petition on the ground that a restructuring proposal in respect of all its indebtedness would be implemented if given time to do so. More importantly, even if (which I do not think is the case) there were any basis for the directors to believe that they could secure the agreement of the requisite majorities of creditors of the Company and implement a restructuring proposal in respect of all the debts owed by the Company, the responsible thing to do would be to disclose the true financial state of the Company and of the Group to the creditors and the court, and asked for time to progress the proposed restructuring. It did not provide any justification for the directors to cause the Company to oppose the Petition on jurisdictional ground, which was the only ground advanced by the Company in opposition to the Petition at the hearing on 23 August 2022. For the above reasons, I consider that the 2nd to 5th respondents should be personally liable for the costs of and occasioned by the Company’s continued opposition to the Petition at the hearing on 23 August 2022. It seems to me that after the resignation of the 6th and 7th respondents, they had no involvement in causing the Company to continue to oppose the Petition and should not be liable to pay the costs occasioned by such opposition. I order that the 2nd to 5th respondents do pay to the Petitioner, the Supporting Creditors (with one set of costs) and the Official Receiver their costs of and occasioned by the Company’s opposition to the Petition at the hearing on 23 August 2022, to be taxed if not agreed and with certificate for 2 counsel in respect of the Petitioner’s costs. (Linda Chan) Judge of the Court of First Instance High Court ONC Lawyers, for the Petitioner WT Law Offices, for the Company and its directors Chen & Lee Law Office, Cheung & Choy, Chiu, Szeto & Cheng, Clyde & Co, Ellen Au & Co., Gallant, H. Y. Leung & Co. LLP, Ho & Ip, Miao & Co., Ling & Lawyers, Patrick Chu, Conti Wong Lawyers LLP, Patrick Mak & Tse, Stevenson, Wong & Co., Tony Kan & Co., W. K. To & Co., Wellington Legal, for supporting creditors China Tonghai Finance Limited, a supporting creditor, is not represented Liang Hai Rong, a supporting creditor, is not represented Leng Lin, a supporting creditor, is not represented The Official Receiver is not represented