"Notes Holders" With Indirect Beneficial Interest Have No Standing To Wind Up Issuer Company

• Published date: 10 August 2023
• Law Firm: Herbert Smith Freehills
• Author: Mr Gareth Thomas, Alexander Aitken, Jojo Fan, Peter Ng and Jody Luk

In Re Leading Holdings Group Limited[2023] HKCFI 1770, the Hong Kong Court has made it clear for the first time that, based on a construction of the contractual documentation, investors with an indirect participation in notes issued by a company have no standing to petition for winding up of the issuer, despite their obvious commercial interest in the credit of the issuer.

BACKGROUND

Leading Holdings Group Limited (the "Company"), a Hong Kong listed company, issued certain 12% Senior Notes (the "Notes").

The structure of the Notes, as summarised below, is very commonly seen in the bond market:

• The Company's books showed only one registered global note (representing the total of the issued Notes) and one registered holder of the global note (the "Note Holder"). The global note was delivered to the trustee, being the Bank of New York Mellon, London Branch ("BNYM") who also served as the common depositary.
• The global note was registered in the name of the nominee of the common depositary for the accounts of Euroclear and Clearstream and the Company would make payments due in respect of the global note to the common depositary, which would then distribute the relevant share of the payments made to the investors.
• End investors did not acquire the title of the global note or receive the physical copy of the note certificate. Instead, they purchased a portion of the indirect beneficial interest in the Notes through third-party banks and brokers who had accounts with Euroclear or Clearstream.

In the Petitioner's case, DBS Bank Ltd ("DBS") held the Petitioner's beneficial interest in the Notes via an Euroclear account, as a...