Cithara Global Multi-Strategy SPC v Haimen Zhongnan Investment Development (International) Company Ltd

• Jurisdiction: British Virgin Islands
• Judge: Mangatal, J
• Judgment Date: 19 July 2023
• Judgment citation (vLex): [2023] ECSC J0719-5
• Docket Number: CLAIM NO. BVIHC(COM) 2022/0183
• Court: High Court (British Virgin Islands)

In the Matter of Haimen Zhongnan Investment Development (International) Co., Ltd.

And in the Matter of the Insolvency Act 2003

Between:

Cithara Global Multi-Strategy Spc

Applicant

and

Haimen Zhongnan Investment Development (International) Co. Ltd.

Respondent

CLAIM NO. BVIHC(COM) 2022/0183

EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE

COMMERCIAL DIVISION

Appearances:

Peter Burgess, Eleanor Morgan and Sophie Christodoulou for the Applicant

Jerry Samuel, Anna Lin and Marie Stewart for the Respondent

INDEX

No.	CONTENTS	PAGES	PARAGRAPHS (INCLUSIVE)
1	The Applications	4–6	[1] – [7]
2	Company's Request for further Submissions	5–6	[7]
3	Court's decision on 5 July 2023	6	[8]
4	The Issues	6	[9]
5	The Court Documents	6–7	[11] – [13]
6	The New York Law Expert Evidence	7	[13]
7	The Factual Background	8–16	[14] – [39]
	The Company	8	[14] – [17]
The Notes and Key Terms of the Indentue, Offering Memorandum and Euroclear Procedures	8–13	[18] – [24]
The Notes and Indenture	8–12	[18] – [22]
The Offer Memorandum	12	[23]
Euroclear Operating Procedures	12	[24]
Euroclear Authorizations/Statements of Account	13	[25]
Cithara's Holdings and the Company's Non-Payment	13–15	[26] – [32]
The present proceedings	15–16	[33] – [39]
8	The Statutory Framework	16–19	[40] – [47]
9	Cithara's Arguments	20–32	[48] – [75]
10	The Company's Arguments	33–42	[76] – [101]
11	Oral Submissions by the Company	42	[102] – [103]
12	Cithara in Reply	42–43	[104] – [108]
13	Further Submissions by the parties— Re Shinsun	43	[109]
14	Company's Supplemental Skeleton Argument	43–46	[110] – [115]
15	Cithara's Supplemental Skeleton Argument	46–49	[116] – [127]
16	DISCUSSION AND ANALYSIS	49–88	[128] – [207]
	Pleading Points taken by the Company	49	[128]
The “substantial dispute as to debt” line of cases	50–51	[129] – [131]
The Substantive Arguments
Applicable Law	51–52	[132] – [135]
The Experts	53–55	[136] – [143]
Is Cithara a Creditor under New York Law?	55–60	[144] –[153]
Court finds Cithara is a Creditor Under New York Law	58–60	[148] – [153]
Is Cithera a Creditor under BVI Law?	60–84	[153] –[192]
Re Nortel	60–67	[153] – [158]
Bio-Treat and Shinsun	68	[159] – [161]
Steel	69–70	[162] – [164]
Bio-Treat	70–75	[165] – [170]
Shinsun	75–80	[171] – [184]
Court finds that Cithara is a Creditor under BVI Law	80–83	[185] – [192]
Conclusion on Cithara's Standing	84	[193]
Strike Out Application	85	[194]
The JPL Application	85	[195]
The Liquidation Application	85–88	[196] – [207]
Company Insolvent	85–86	[197]
Strong Reasons for granting	86–87	[199] – [201]
Views of Creditors	87–88	[202] – [207]
Disposition	88	[208]
	Appendix to Judgment	90

The Applications

1 Mangatal, J (Ag.): The Application before me is an originating application by Cithara Global Multi-Strategy SPC (“ Cithara” or “ the Applicant”) filed 10 October 2022 seeking the appointment of Liquidators (“ the Liquidation Application”) over Haimen Zhongnan Investment Development (International) Co. Ltd, (“ the Company” or “ Respondent”). The Liquidation Application was listed for three hours.

2 The Company has also filed a Notice of Opposition and has filed an ordinary application that it has referred to as a “strike out” application, dated 29 November 2022. In one of the grounds of this application it is stated that the Company “ opposes the Application on the ground that the applicant lacks locus standi as a creditor to bring the Application, on the basis that under the indenture dated 9 June 2021 (“ the Indenture”), the Applicant is not a “Holder” as defined in the Indenture, being a person in whose name a Note is registered in the Note of Register. On this basis the Application should be struck out.” Somewhat confusingly the only relief actually sought in this application was an extension of time for the service of evidence and an adjournment of the Initial Hearing of the Liquidation Application in December 2022, which was granted on 8 December 2022. However, because the Company has referred to the ordinary application dated 29 November 2022 as “ the Strike Out Application”, I have used and will use that terminology.

3 The Company has asserted that Cithara does not have standing as a creditor for the purpose of section 162 (2) (b) of the BVI Insolvency Act 2003 (“ the BVI IA”). If it succeeds on that point, there is no need for a separate application to strike out, as the Liquidation Application would fall to be dismissed based on Cithara's lack of standing. If the Company fails on that point, the Court would then go on to consider the Liquidation Application or other relevant applications.

4 The Company's position is that if the Court is minded to refuse the Strike Out Application, the Company seeks an order appointing joint provisional liquidators to the Company instead of a winding up order, having filed an ordinary application, tardily, on 20 March 2023 (“ the JPL Application.”)

5 Prior to the substantive hearing of the Liquidation Application and Strike Out Applications, on 27 March 2023 I first heard and determined an application by the Company by ordinary application dated 17 February 2023 (“ the Extension Application”). This application was listed to be heard for one hour, immediately before the Liquidation Application. The Company sought an extension of time for determination of the Liquidation Application because of possible restructuring plans. I reserved my decision until 29 March 2023. I refused the Extension Application and gave an oral ruling on those issues, essentially on the basis that the Company's plans to propose a restructuring plan were bound to fail since the Company was nowhere near the 75% threshold required for a BVI Scheme of Arrangement. Further reasons and development of this point were set out in my oral Ruling, and I do not intend to repeat those here.

6 After the hearing of the Liquidation Application, the Strike Out Application, and the JPL Application was completed on 29 March 2023, I reserved judgment and took time for consideration of the issues. By a consent order dated 31 March 2023 the parties agreed, pursuant to section 168(2) of the BVI IA to an extension of time of the period for determination of the Liquidation Application until 10 July 2023.

Request by Company to make further submissions after judgment reserved

7 In the latter part of April 2023, the Court received urgent correspondence from Conyers, the legal practitioners for the Company, indicating that there was a recent decision of the Grand Court of the Cayman Islands that they wished permission to submit for the Court's attention, this decision having been delivered on 21 April 2023, after I had reserved judgment. Mourant, the legal practitioners for Cithara objected. However, I determined that it was just and appropriate to allow Conyers to rely upon the Cayman judgment and to let the Court have responsive written submissions limited to 2 pages, by 2 May and by 4 May 2023 from the Company and Cithara respectively. I have read the decision of Doyle J in FSD 192 of 2022 in In the Matter of Shinsun Holdings (Group) Co. Ltd. (“ Shinsun”) and I will discuss it later in this judgment.

Court's Decision on 5 July 2023

8 On 5 July 2023, I announced that my decision was as follows: (1) The Company's Application for the Appointment of JPLs filed 20 March 2023, is refused/dismissed. (2) The Originating Application filed by Cithara on 10 October 2022 seeking the appointment of Liquidators is granted as prayed. I indicated that my reasons/ written judgment would follow. This is my judgment, as promised.

The Issues

9 In relation to the Liquidation Application there are essentially two issues:

• (1) Is Cithara a “ creditor” for the purposes of s.162(2)(b) of the BVI IA? and

• (2) If so, should the Liquidation Application be granted?

10 The JPL Application, which has close ties to the Extension Application (which as I have said I previously refused), will be dealt with separately.

The Court Documents

11 The documents before the Court include the following:

• (1) The Liquidation Application dated 10 October 2022;

• (2) The first affidavit of Zhang Jun dated 10 October 2022 (“ Zhang 1”) filed by Cithara in support of the Liquidation Application and the second affidavit of Ursula Lawrence-Archer dated 23 March 2023;

• (3) The notice of opposition and the Adjournment Application filed by the Company;

• (4) The Strike Out Application; and

• (5) The first affirmation of Xin Qu dated 29 November 2022 filed by the Company in opposition to the Liquidation Application, the second affirmation of Xin Qi dated 29 November 2022 filed by the Company in support of the Strike Out Application, and the fifth affirmation of Xin Qi, in support of the PL Application.

12 A notice of intention to appear and affidavit of Wu Li, dated 20 March 2023 (“ Wu 1”) on behalf of Ease Sail Holdings Limited (“ Ease Sail”) and a notice of intention to appear and affidavit of Roddy Stafford dated 23 March 2023 (“ Stafford 1”) on behalf of Burlington Loan Management Designated Activity Company (“ Burlington” and for ease of reference referred to together with Ease Sail as the “ Supporting Creditors”), have also been filed in support of the liquidation application (and in...