RiseSun is a large property group with extensive interests in property development projects in around 86 cities across the PRC, managing assets worth around RMB30 billion. RongXingDa is the offshore note issuer of RiseSun, which issued two sets of New York law governed senior notes due on separate dates, collectively valued at US$800 million. It was faced with a default under both notes and following a proposed exchange offer, implemented a scheme of arrangement in substantially the same terms as the offer, to restructure the indebtedness.

Key matters the Court had to determine included: (i) whether the proposed mechanics for the holding of the scheme meeting would constitute a valid meeting, and (ii) whether the payment of 1.5 per cent instruction fee to creditors committed to supporting the scheme, fractured the class. The Court was entirely satisfied that the holding of the meeting in the BVI with a simulcast to Hong Kong and the ability of creditors to participate virtually would constitute a valid meeting. In determining class composition, the Court was satisfied that the fee did not operate to fracture the class of creditors; and indeed noted English authority that suggested a fee of 2.5 per cent would not do so either.

Whilst the high support rate of 98.15 per cent of RongXingDa’s creditors was a relevant consideration, the Court emphasised that it would not simply endorse the majority vote, but held it right to do so in this case. Further, it was not clear the scheme would be enforced everywhere internationally but with RongXingDa concurrently applying for Chapter 15 recognition in New York, Justice Jack found issues of international recognition to be of little weight, and would not amount to a reason not to sanction the scheme.

Harneys acted for RongXingDa. Harneys is also offshore counsel to other distressed Chinese property developers and bondholders amidst the recent wave of distressed real estate restructurings.

Copies of the judgment are available here and here.