Restructuring In Provisional Liquidation: In The Matter Of Sun Cheong Creative Development Holdings Limited

• Published date: 17 December 2020
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: Campbells
• Author: Mr Guy Cowan and Harry Shaw

As COVID-induced insolvencies and restructurings gather pace, in Sun Cheong Creative Development Holdings Limited the Grand Court of the Cayman Islands (the "Grand Court") has provided a timely overview of the principles of comity and modified universalism applicable in cross border restructurings.

Background

Sun Cheong Creative Development Holding Limited (the "Company") is incorporated in the Cayman Islands, registered in Hong Kong and its shares are listed on the Hong Kong Stock Exchange. It is the holding company of a group which manufactures and sells a range of plastic household products. The Company conducted the majority of its business outside of Hong Kong, with manufacturing occurring in mainland China.

While the Company had historically been profitable and had the capacity to generate significant revenue, it was facing financial difficulties owing to a confluence of events in 2019 and 2020, including the US/China trade war, the loss of the Company's founder and the disruption occasioned by the COVID-19 pandemic. The Company was indebted to 11 different bank creditors in the aggregate sum of HK$168 million and it was accepted that the Company had insufficient assets to satisfy these debts when they fell due. Several banks had commenced recovery action in Hong Kong, and two winding up petitions were also presented to the Hong Kong Court.

With the looming threat of a winding up order being made in Hong Kong, the Company urgently petitioned the Grand Court for its own winding up on 27 July 2020, and at the same time applied for the adjournment of the petition hearing and the appointment of joint provisional liquidators from FTI (the "JPLs"), to pursue a restructuring of the Company's liabilities under the supervision of the Grand Court. The Company's request for the appointment of JPLs was presented on the basis that, inter alia, (i) the Company had a "white knight" investor prepared to inject HK$75 million into the Company to facilitate a restructuring, (ii) the board of directors had undergone wholesale changes, and (iii) independent reporting identified that official liquidation would be catastrophic for creditors, seeing returns of only 1 cent on the dollar.

Locus of the primary insolvency proceeding

Before considering the request for the appointment of provisional liquidators, and in circumstances where two petitions had already been presented in Hong Kong, the starting point for the Grand Court was to consider which jurisdiction was the most...