Re Leading Holdings Group Ltd (領地控股集團有限公司)  4 HKLRD 71,  HKCFI 1770
This application concerned whether the petitioner (P), who was an investor of a global note, had the standing to present a winding-up petition against the issuing company (C) and whether P was a contingent creditor for that purpose. C was a limited company incorporated in the Cayman Islands and listed in Hong Kong. C issued certain notes (the Notes), which were constituted by a foreign law-governed indenture (the Indenture) between C, a bank (the Trustee) and various guarantors. C’s books only showed one registered global note (the Global Note). The Global Note was executed by C and registered in the name of the Trustee (who also served as the common depositary) for the accounts of Euroclear and Clearstream. The Trustee was the sole holder of the Global Note. P was the indirect owner of a sub-interest in US$1.3 million of the Notes via DBS Bank. The Indenture provided that investors (such as P) purchased a portion of the indirect beneficial interest in the Global Note via their intermediaries such as banks and brokers (such as DBS Bank) who had accounts with Euroclear and Clearstream. Pursuant to the “No Action Clause” and the “Right to Payment Clause” of the Indenture, only the holder of the Global Note (but not “holders” of book-entry interests) had the right to institute proceedings with respect to the Indenture or the Notes or to bring suit for enforcement of payment. As a result, indirect participants such as P did not have any directly enforceable rights against C under the terms of the Indenture.
In its petition to wind up C, P claimed that it was the beneficial holder or owner of the Notes in the sum of US$1.3 million; that C failed to make payment of the principal sum and interest of the Notes on the due date; that C was insolvent and unable to pay its debts; and that P was alternatively entitled to present the petition as a contingent and prospective creditor of C. P argued that it was a contingent creditor since it might be entitled to request for the issuance of definitive notes in certain specified circumstances whereupon it could directly enforce its claims against C. C applied to strike out the petition on the ground that P had no standing to present the petition.
Held, allowing C’s application, that:
- (1) It was incumbent on P to demonstrate that it had standing to present the petition as it was a burden which the petitioner had to discharge up to the substantive hearing of the petition. It was not right to say that the petition should not be struck out unless it was plain and obvious that P had no locus (Tallington Lakes Ltd v Ancasta International Boat Sales Ltd  BCC 327, Re Lam Kwok Hung Guy  4 HKLRD 793 applied). (See paras.29-31.)
- (2) In a typical structure of a global note with a “No Action Clause”, the trustee represented and protected the bondholders who were treated as forming a class. In consenting to the “No Action Clause” by purchasing bonds, the bondholders waived their rights to bring claims that were common to all bondholders and thus could be prosecuted by the trustee. The purpose of the regime was to ensure that the class of bondholders all acted through the trustee, such that there was neither competition between the bondholders, nor the potential for multiplicity of actions or for duplication of actions brought by the trustee on the one hand and individual bondholders on the other (Re Jinro (HK) International Ltd (No 2)  4 HKC 637, Elektrim SA v Vivendi Holdings 1 Corp  2 All ER (Comm) 213 , Re China Oceanwide Group Ltd  HKCFI 455 applied). (See paras.53-58.)
- (3) Before an account holder became entitled to a direct interest in the notes, the only party with a right to sue the issuer was the holder of the notes. The system operated on the basis of a “no look through” principle, whereby each party had rights only against their own immediate counterparty. Account holders must look solely to Clearstream or Euroclear (as the case may be) for their share of each payment and in relation to all other rights arising under the global note. Investors with “book-entry interests” only held the notes indirectly or had “sub-interests” in the notes. It would be contrary to commercial common sense to suggest that such ultimate account holder could somehow petition for winding-up and thereby bypass the limitations otherwise imposed under the design of the global note structure. Accordingly, P only had rights against DBS Bank; DBS Bank only had rights against Euroclear; etc (Secure Capital SA v Credit Suisse AG  1 BCLC 325, Deutsche Trustee Co Ltd v Bangkok Land (Cayman Islands) Ltd  EWHC 657 (Comm), Winterbrook Global Opportunities Fund v NB Finance Ltd  EWHC 737 (Ch), Madison Pacific Trust Ltd v Shakoor Capital Ltd  EWHC 610 (Ch), Galapagos Bidco SARL v Kebekus  EWHC 68 (Ch) applied). (See paras.59-65, 118.)
- (4) The position of a beneficiary of a trust property was different from that of an equitable assignee of property. The former generally had no personal right to sue, was not a creditor and did not have standing to petition for winding-up (Re Uruguay Central and Hygueritas Railway Company of Monte Video (1879) 11 Ch D 372, Re Dunderland Iron Ore Co Ltd  1 Ch 446, Roberts v Gill & Co  1 AC 240, McEneaney v Stevens  EWHC 993 (Ch), Re Canberra Babington Pty Ltd  NSWSC 552 applied; Re China Cultural City Ltd  4 HKLRD 1 doubted). (See paras.67-79.)
- (5) A contingent creditor denoted a person towards whom, under an existing obligation, the company may become subject to a present liability upon the happening of some future event. The existing obligation provided a legal nexus between a person and a company, such that any liability which would or may arise in a future event under such legal nexus could be taken into account as prospective or contingent liability. Without the requirement of a legal nexus, the matter would be at large. P would not qualify as a contingent creditor because there was no existing contractual relationship and obligation as between P and C. It followed that P did not have standing to commence the petition against C (Re William Hockley Ltd  1 WLR 555, Re Sutherland, deceased  AC 235, Re SBA Properties Ltd  1 WLR 799, Community Development Pty Ltd v Engwirda Construction (1969) 120 CLR 455, Stonegate Securities Ltd v Gregory  Ch 576, Re Universal Dockyard Ltd  1 HKLRD 935, Re Nortel GmbH  AC 209, Re Shinsun Holdings (Group) Co Ltd (FSD 192/2022 (DDJ), Grand Court of the Cayman Islands, 21 April 2023) applied; Re Jackin Total Fulfilment Services Ltd  3 HKLRD 475 distinguished). (See paras.94-109, 116.)
- (6) The expression “contingent creditor” could have different interpretations in different contexts. What was at stake in cases on schemes of arrangement concerned voting rights on schemes which may affect economic interests, as distinct from locus to present winding-up petition which was a more draconian right than a mere voting right for schemes. It was therefore inappropriate to attach any undue weight to such authorities (Re T & N Ltd  1 WLR 1728, R (Steele) v Birmingham City Council  1 WLR 2380, Re Shinsun Holdings (Group) Co Ltd (FSD 192/2022 (DDJ), Grand Court of the Cayman Islands, 21 April 2023) considered; Re GW Pharmaceuticals Plc  BCC 696, Re Haya HoldCo 2 Plc  EWHC 1079 (Ch) distinguished). (See paras.131-136.)
[The above is excerpted from the headnote to the report in HKLRD.]