RE NEWOCEAN ENERGY HOLDINGS LTD

HCCW 86/2022 [2022] HKCFI 2501 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMPANIES (WINDING-UP) PROCEEDINGS NO 86 OF 2022 __________________ IN THE MATTER of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) and IN THE MATTER of NewOcean Energy Holdings Limited (新海能源集團有限公司) __________________ Before: Hon Linda Chan J in Court Date of Hearing: 8 August 2022 Date of Order: 8 August 2022 Date of Reasons for Judgment: 10 August 2022 __________________________________ R E A S O N S F O R J U D G M E N T __________________________________ At the hearing of the Petition presented by Kuwait Petroleum Corporation (“Petitioner”) against NewOcean Energy Holdings Ltd (“Company”), I made the usual winding up order against the Company. These are the reasons for my judgment. Background The Company is incorporated in Bermuda. Its shares have since 1999 been listed on The Stock Exchange of Hong Kong Limited (“SEHK”). The Company is an investment holding company and has a principal place of business in Hong Kong. The Company has a number of indirect subsidiaries in Hong Kong, Macau, the Mainland and Singapore which engage in the business of selling and distributing liquefied petroleum gas (“LPG”), natural gas and other petroleum products (together “Group”). These subsidiaries are held through a wholly owned subsidiary incorporated in the BVI, Sound Hong Kong Ltd (“Sound BVI”). Amongst the indirect subsidiaries: NewOcean Petroleum Company Ltd is incorporated in the BVI and is registered as a non-Hong Kong company. It has a place of business in Hong Kong and engages in oil trading business. Sound Management Service Ltd (“SMSL”) and Sound Agents Ltd (“SAL”) are both incorporated in Hong Kong. SMSL holds all the shares in SAL which, in turn, holds vessels and carries on LPG trading business in Hong Kong. There is no dispute that the Company has since at least April 2020 been in financial difficulty. In September 2020, the Company obtained the in-principle support from creditors holding 59% of the total indebtedness (“Core Creditors”) to consider a proposed restructuring. In December 2020, the Company filed applications in Bermuda and Hong Kong for directions to convene meetings of the creditors to consider and vote on a draft scheme of arrangement. The hearing scheduled for 18 January 2021 was adjourned to April 2021 for the Company and the Core Creditors to further discuss and formalise the draft scheme. Although there were discussions with a potential strategic investor on the sale of certain LPG assets, the discussions fell through after a creditor (Hang Seng Bank Limited) obtained a freezing order against a subsidiary in Zhuhai which held a substantial interest in the LPG storage terminal. Petition Pursuant to the agreement for sale and purchase of LPG made between the Petitioner and the Company dated 5 September 2019 and 2 March 2020 (together “Agreements”), the Petitioner sold various cargoes of LPG to the Company under 17 invoices. By 27 October 2020, the total amount due to the Petitioner was US$3,065,860.44 (“Debt”). By a statutory demand served on the Company on 9 November 2021, the Company was required to pay the Debt. No payment was made by the Company. On 12 April 2022, the Petition was presented. On 6 June 2022, the Company commenced arbitration against the Petitioner alleging that the Agreements had been discharged by frustration or that they had been terminated in accordance with the force majeure clause. In the affirmation of Shum Siu Hung filed on 8 June 2022, the Company opposed the Petition on 3 grounds: The second core requirement is not satisfied in that a winding up order would not benefit the Petitioner or the general body of creditors. The Debt is bona fide disputed given that the Agreements contain an arbitration clause such that the dispute should be resolved in arbitration. The Company has carried on restructuring under the supervision of the Bermuda court. The Petition should be adjourned so that the Company can continue with its restructuring effort. Winding-up proceedings in Bermuda On 22 October 2021, HSBC presented a petition against the Company in Bermuda. Thereafter: The Company applied for and obtained an order from the Bermuda court to appoint Mr Kenneth Fung and Mr Roderick Sutton both of FTI Consulting, and Mr Edward Whittaker of R&H Services as provisional liquidators (collectively “PLs”). At the hearing on 14 December 2021, the Bermuda court refused to make an immediate winding up order against the Company primarily on the ground that the Company should be given more time to put forward a scheme, and adjourned the petition to 8 April 2022. The hearing of the petition in Bermuda took 6 days. HSBC and the majority of the Company’s bank creditors (including the Core Creditors) were of the firm view that the proposed restructuring had no realistic prospect of success and that the Company should be wound up. At the last day of the hearing (9 May 2022), the judge considered that the reasons justifying the previous adjournment remained valid and that the Company should be given more time to progress with the restructuring. The petition was further adjourned to 8 July 2022. HSBC appealed against the judge’s refusal to wind up the Company. On 26 July 2022, the Court of Appeal in Bermuda allowed HSBC’s appeal, and made a winding up order against the Company and ordered the PLs to continue to act as provisional liquidators with full powers to act on behalf of the Company. As a result of the winding up order made by the Bermuda court, the directors ceased to have power to act on behalf of the Company except for the purpose of opposing the petition or any appeal against the order made by the Bermuda court. Mr Manzoni SC, counsel for the Petitioner, informs the Court that the former directors (acting in the name of the Company) have applied for leave to appeal against the order of the Court of Appeal to the Privy Council and a stay of execution of the winding up order. No hearing date has yet been fixed in respect of either application. Discussion Although the Company has filed 2 affirmations and raised 3 grounds in opposition to the Petition, those grounds are no longer pursued by the Company given that: by letter dated 4 August 2022, Messrs. Kobre & Kim (“K&K”) informed the Court that as a result of the winding up order made by the Bermuda court, they no longer have authority to act for the Company. K&K were excused from attending the hearing; and by email dated 27 July 2022, the PLs informed the Petitioner’s solicitors that they support an immediate winding up order being made against the Company in Hong Kong which, they consider, would assist the liquidation of the Company as the majority of assets of the Group are located in Hong Kong and the Mainland. The view of the PLs is justified in view of the fact that the Group has carried on significant business and affairs in Hong Kong and the Company has substantial connections with Hong Kong. Particulars of the business, affairs and connections are pleaded in §§19 and 21 of the Petition. They are matters which need to be reviewed and administered by the liquidators in Hong Kong. HSBC has not filed any notice of intention to appear in these proceedings but has confirmed through its solicitors that it has no objection to the Court making an immediate winding up order against the Company. On 5 August 2022, Messrs. Tanner De Witt on behalf of Victory Mountain Limited (“VML”) filed a notice of intention to appear on and oppose the Petition. In his skeleton submissions, Mr Victor Joffe SC describes VML as a creditor of the Company to the extent of US$15 million which, it is said, has been guaranteed by the Company. No evidence has been filed by VML in respect of the alleged debt. Mr Manzoni submits that it is questionable if VML is a creditor of the Company as the alleged debt never features in any of the annual reports of the Company. Mr Joffe does not dispute this fact. For this reason alone, I am not satisfied that VML is a creditor of the Company. It follows that VML does not have the locus to appear in or oppose the Petition. Nor does VML have the necessary interest to contend that a winding up order to be made by the Court would not benefit the creditors. This is a matter for the creditors of the Company and none of them have made such contention. Even if, contrary to my view, VML is a creditor of the Company, I do not think that it has demonstrated any valid ground in opposition to the Petition. The only point advanced by Mr Joffe is that the second core requirement for the court to exercise its discretionary jurisdiction under s.327(3)(c) of the Companies (Winding-up and Miscellaneous Provisions) Ordinance (Cap. 32) (“CWUO”) is not satisfied for 2 main reasons. First, it is said that the Company does not have any assets within the jurisdiction and the liquidators appointed by the Hong Kong court would not be able to get control over Sound BVI. Reliance is placed on Re China Huiyuan Juice Group Ltd [2021] 1 HKLRD 255, where Harris J observed that any Hong Kong liquidators would not be able to change control of the BVI subsidiary and obtain control of the subsidiaries held by the BVI subsidiary (§§37, 41-44) and Re Grand Peace Group Holdings Ltd [2021] 4 HKLRD 230, §12. I do not think these authorities support VML’s contention: The question whether the liquidators would be able to get control over the subsidiaries incorporated in other jurisdictions is a question of fact. The Hong Kong court has in the past wound up many companies incorporated in other jurisdictions, and the liquidators appointed under the CWUO have often been able to obtain control over the subsidiaries or sub-subsidiaries incorporated in other jurisdictions including the BVI, Cayman Islands and Bermuda without any problem. This in part may be attributed to the fact that the directors (or shareholders) of the subsidiaries concerned have cooperated with and passed control of those subsidiaries to the liquidators appointed under the CWUO. This is unsurprising, particularly if the directors are based in Hong Kong and subject to the jurisdiction of the Court. In any event, if and insofar as it becomes necessary, the liquidators can seek a winding up order against the holding company from the court of the place of incorporation (if it has not already been wound up) or against the subsidiaries concerned from the courts of their places of incorporation. This can normally be done swiftly and without any issue. The point discussed in China Huiyuan and Grand Peace does not arise in this case as the Company has already been wound up by the Bermuda court. There is no basis to suggest that the PLs appointed by the Bermuda court would not be recognised in the BVI. Second, Mr Joffe submits that where, as here, the Company is already in liquidation in the place of its incorporation, the Court may decline to exercise its discretion to make a winding up order against the Company (Richard Sheldon QC, Cross-Border Insolvency, 4th ed, 2015, §§5.55 & 5.63; Banque des Marchands de Moscou (Koupetschesky) v Kindersley [1951] Ch 112; Re Halifax Sugar Refinery Co [1888] NSJ No. 4 at §§2-3; New Hampshire Insurance Co v Rush & Tompkins Group plc [1998] 2 BCLC 471 at 476). As the Company does not have any significant assets in Hong Kong, it is unclear what would be gained from an ancillary winding up order made against the Company. I note that similar contention has often been raised by companies whose shares are listed on the SEHK. This is despite the real and substantial connections between those companies and Hong Kong which are ordinarily sufficient to justify an ancillary winding up order against the companies concerned (Re Up Energy Development Group Limited [2022] 2 HKLRD 993, §§47-48). Indeed, the very fact that the listed companies saw the need to nominate independent accountants based in Hong Kong to take up the appointment as provisional liquidators/liquidators of the companies shows that the companies themselves considered that there are substantial matters and affairs which need to be dealt with by the provisional liquidators/liquidators in Hong Kong. In the authorities cited by Mr Joffe, the court was concerned with the utility of making a winding up order against the foreign company so as to bring into operation an ancillary winding up against such company within the jurisdiction. This is no different from the court requiring the petitioner to satisfy the second core requirement. If the petitioner is not able to demonstrate that there is a reasonable possibility that a winding up order in the local jurisdiction will benefit the petitioner (and the other creditors), there is no proper basis to ask the court to exercise its discretion under s.327(3)(c) of the CWUO to make a winding up order against the foreign company. In the present case, the Company has valuable business and assets held through sub-subsidiaries incorporated in Hong Kong (see §2 above). As stated in §16(1) above, if and to the extent that the directors are willing to cooperate, the liquidators appointed under the CWUO would be able to take control of and realise those assets for the benefit of the creditors as a whole. If, on the other hand, the directors are unwilling to cooperate, the liquidators appointed under the CWUO would need to bring proceedings against the sub-subsidiaries concerned in Hong Kong. The reality is that there are substantial steps which need to be taken by the liquidators appointed under the CWUO in Hong Kong and that there is a useful purpose for the Court to make a winding up order against the Company. (Linda Chan) Judge of the Court of First Instance High Court Mr Charles Manzoni SC leading Mr Look Chan Ho, instructed by Ashurst Hong Kong, for the Petitioner Mr Victor Joffe SC leading Mr Terrence Tai, instructed by Tanner De Witt, for the opposing creditor (Victory Mountain Limited) Kobre & Kim for the Company is excused Ms Ariel Kwok, of Official Receiver’s Office, for the Official Receiver