This week’s TGIF considers a recent decision of the Federal Court which demonstrates that, irrespective of the COVID-19 landscape, the Court will continue to support administrators acting to maximise a return for creditors and stakeholders.

Key takeaways

The Court has granted one of the first Winding Up Orders under CIGA 2020.

The winding up petition had been issued on 1 May 2020, 8 weeks before CIGA 2020 came in to force, but after 27 April 2020, the date from which CIGA 2020 applies retrospectively. As a result, the petitioner could not have ensured that the winding up petition satisfied the requirements of CIGA 2020, as those requirements were not in existence at the time that the petition was presented.

Hong Kong Court refuses to grant an antisuit injunction to stay a winding-up petition where an arbitration agreement existed

19 August 2020

The Hong Kong Court of First Instance has dismissed an application by a British Virgin Islands (BVI) company (C) for an interim anti-suit injunction against proceedings commenced by a Cayman Islands company (D) for the winding-up of the BVI company in the High Court of the BVI.

On July 2, 2020, the Court of Appeal for Ontario (the “Court”) released its decision in Hutchingame Growth Capital Corporation v.

The Second Circuit ruled last week in Lehman Bros. Special Fin. Inc. v. Bank of Am. Nat'l Ass'n, No. 18-1079 (2d Cir. 2020) that a Lehman Brothers affiliate cannot claw back $1 billion in payments made pursuant to swap agreements that were terminated when Lehman Brothers Holdings Inc. (“LBHI”) and certain of its affiliates filed for bankruptcy in 2008. The panel concluded that the Bankruptcy Code provides a safe harbor for the liquidation of such swap agreements and also the distribution of proceeds from the collateral.

Shandong Chenming Paper Holdings Limited v Arjowiggins HKK 2 Limited CACV 158/2017 (date of judgment 5 August 2020)¹

Introduction

Capital intensive businesses often raise capital from multiple sources, including loans from senior and subordinated lenders and hybrid financing – most typically loans accompanied by warrants – from so-called mezzanine lenders. A borrower’s cost of funds with respect to each depends on the quantum of risk associated with the particular credit. Senior lenders enjoy priority in payment and recourse to discernible collateral and are able to offer lower interest rates and lower fees.

1. Introduction

Under Hong Kong law, a company shall be deemed to be unable to pay its debts if a creditor, to whom the company is indebted of at least HKD 10,000 (around USD 1,290), has served on the company a demand requiring the company to pay and the company has not done so within three weeks.

As previously reported in our article of 21 May 2020, the Corporate Insolvency and Governance Act 2020 (Act), introduced a number of new tools for businesses suffering financial distress. One of the new measures introduced by the Act was the 'Restructuring Plan' – a process modelled on the existing scheme of arrangement (Scheme) but with the following key distinctions:

As we discussed in our July newsletter, the Corporate Insolvency and Governance Act 2020 (CIGA 2020) has introduced a new Restructuring Plan, which is similar to existing Schemes of Arrangement. In essence a Court can sanction a restructuring plan which binds a dissenting class   of creditors, if that class would be in no worse a position than the most likely alternative.