In this case, the Judge noted that the scheme document had very dense description that was “hard to grapple even for lawyers and the court” and the company made no attempt to describe in a succinct or intelligible manner the key commercial terms and the effect of the restructuring. The Judge highlighted a number of unusual and questionable features of the restructuring that were not drawn to the attention of the court sufficiently or at all in the skeleton arguments for the hearing. The Judge concluded that the creditors were not given sufficient information about the scheme to enable them to make an informed decision at the scheme meeting and therefore refused to sanction the scheme.

In the course of giving the Judgment, the Judge reminded practitioners of their duty to make full and frank disclosure to the Court at the convening hearing which is almost invariably heard on a ex parte  basis. To properly discharge their duty, legal representatives are expected to:

1. provide in the skeleton arguments lodged for the convening hearing, a fair and full summary of the key terms of the restructuring and the scheme and their effect on the creditors. The summary should illustrate the changes on the financial position and the corporate and shareholding structure of the company before and after the restructuring in a way which can be readily understood by the creditors; and
2. draw to the attention of the Court, at the convening hearing, whether there are terms which are novel, unusual or potentially objectionable, and whether there are issues which have been or may be raised by the creditors.

Where a restructuring is conditional upon a scheme becoming effective or where the terms of the restructuring would have an impact on the return to the creditors under the scheme, the company itself should likewise, provide a full and fair summary on the key commercial terms and effect of the restructuring in the scheme document.

This case provides helpful guidance to companies and their legal representatives who are dealing with restructuring and schemes of arrangement which require sanction of the Court. As a matter of good practice, companies and practitioners in jurisdictions other than Hong Kong should also note and follow these guidelines.