Sino-Ocean Group - Case Update

The English Court has sanctioned Chinese developer Sino-Ocean’s Part 26A restructuring plan, paving the way for approval to be sought for a parallel scheme of arrangement in Hong Kong. The plan was approved over the objections of Long Corridor Asset Management, a creditor holding about 1.5% of the liabilities under the plan.

The plan sought to restructure unsecured financial indebtedness across four classes of creditors (“Class A” to “Class D”) through the issuance of new secured debt instruments, convertible securities, and perpetual securities. The plan was approved by over 75% in value of those voting at the meetings of the Class A creditors and the Class C creditors. However, the plan was not approved by the requisite statutory majorities of the Class B creditors and the Class D creditors.

At the sanction hearing, which was argued over three days in mid-January, Long Corridor took the position that the plan was too generous to shareholders, who stand to retain over 50% of their equity in the plan company, and that a fairer plan would provide a greater share of the equity to plan creditors and dilute existing shareholders to a small percentage.

Long Corridor also took issue with the inclusion of Class A creditors in the restructuring plan, which it argued was unnecessary, unjustified and done to create an artificial "cramming class" of creditors. The Class A debt, which is governed by Hong Kong law, is being compromised pursuant to the Hong Kong scheme. As the Hong Kong Scheme will be recognised in this jurisdiction in accordance with the ordinary principles of private international law, Long Corridor argued that it would not be fair or appropriate for the Court to exercise its cross-class cram down powers under section 901G of the Companies Act 2006 based on votes in favour of the restructuring plan by the Class A creditors.

Long Corridor also argued that consent from Class C should be disregarded as the plan was approved by the requisite majority only by reason of the affirmative votes cast in respect of existing debt instruments held on behalf of a creditor who was also an affiliate China Life Insurance Group, one of Sino-Ocean’s largest shareholders.

On 3 February, the Court released its judgment sanctioning the restructuring plan and exercising its power to cross-class cram down the Class B and Class D creditors. Key findings included that:

• The value split between creditor classes was “substantially fair”;

• The plan may be seen as “unduly generous” towards shareholders, but there was a good reason for this. The continued retention of shareholders China Life and Dajia Insurance Group with a minimum 15% stake each would allow the company to be considered a Chinese state owned entity, giving it benefits and access to better terms on the debt markets; and

• The evidence did not establish Long Corridor’s argument that the China Life affiliate was voting in the interests of China Life.

The Hong Kong scheme sanction hearing is scheduled for 19 February.

The decision can be accessed here.

Professionals involved:

• Tom Smith KC, Ryan Perkins and Annabelle Wang of South Square (instructed by Sidley Austin) for Sino-Ocean

• David Allison KC of South Square (instructed by Allen Overy Sterling) for the Co-ordination Committee of Creditors of Sino-Ocean

• Mark Arnold KC and Henry Phillips of South Square (instructed by Linklaters) for Long Corridor