05 November 2021
In Re Samson Paper Holdings Ltd  HKCFI 3288, the Honourable Mr. Justice Harris sanctioned a scheme of arrangement notwithstanding that there were proposed modifications after the relevant scheme meeting. His Lordship further put a gloss on Re Burwill Holding Limited  HKCFI 1318 and clarified the relevance of a company’s listing status in scheme practice.
The Material Facts
Samson Paper Holdings Ltd (“Company”) is listed on the Main Board of the Stock Exchange of Hong Kong (“HKEX”). Because of balance sheet insolvency and failure to comply with financial covenants, its trading was halted. The Company and its provisional liquidators later entered into a restructuring agreement with certain investors (“Investors”) and proposed a scheme, which was approved in a scheme meeting (“Scheme”).
Under the proposed restructuring, the Investors would subscribe for 70% of the enlarged share capital of the Company. There would be an open offer to certain qualifying shareholders (“Open Offer”), and this would be underwritten by the Investors. For the scheme creditors, they would also receive newly issued shares (“Creditor Shares”). Alternatively, they may opt for cash, in which case the scheme administrators may sell the Creditor Shares back to the Investors under a put option to raise funds.
The original terms of the Scheme were approved by the requisite majority of creditors at a meeting previously approved to be convened by the Court.
After the creditors’ meeting, in response to the HKEX’s enquiries, the Company proposed to have an independent third party acting as the underwriter for the Open Offer. Further, to better comply with the public float requirement, the Company suggested that the put option should be made through a placing agent with independent third parties instead (“Proposed Modifications”).
Harris J was satisfied that the Scheme should be sanctioned following the general principles. As the Company has not yet entered the delisting stage, his Lordship distinguished Re Burwill Holding Limited and held that the Court can properly sanction the Scheme all else justifying it doing so.
On the Proposed Modifications, his Lordship observed that the Scheme contains a conventional modification provision. That provision allows amendments to be made to the terms of the Scheme after the creditors have already approved them at the creditors’ meeting, provided that no material adverse effect would be caused to the interests of the scheme creditors. Citing with approval the English case of Re Aon Plc  EWHC 1003 (Ch), his Lordship allowed the Proposed Modifications.
This decision is commendably correct and will facilitate scheme of arrangement in Hong Kong.
As can be seen from Re Burwill Holding Limited, if a company’s listing status has been cancelled and it has entered into the review process, sanctioning a scheme may influence the HKEX Listing Review’s Committee decision and/or amount to wastage of judicial resources. In contrast, where a company’s shares are only suspended from trading, the same considerations do not apply. Harris J’s decision is therefore right as a matter of principle and consistent with authority.
It is equally important to highlight that the present case is the first decision in Hong Kong dealing with post-creditors’ meeting modifications to the scheme. The Court’s recognition of the conventional modification provision is most welcome. This will strike a good balance between allowing necessary modifications as circumstances change and ensuring scheme creditors’ interests are adequately protected.