The Hong Kong High Court has given a rare order for modifications to a scheme of arrangement after it had been implemented incorrectly by the scheme administrators. Drawing on instances in which the English courts have sanctioned modifications after approval by scheme creditors, the court held that the same principles apply here. Where modifications or additions are permitted under the terms of the scheme itself and are minor and might reasonably be considered by scheme creditors not to cause a scheme creditor to vote against the scheme, a scheme can be modified even after implementation.
The decision of the Honourable Mr Justice Harris in Re Moody Technology Holdings Ltd [2024] HKCFI 452 on 25 January 2024 concerned a rare application by a scheme company, in this case a China-based investment holding company listed in Hong Kong, for the modification of a scheme of arrangement he had sanctioned on 28 June 2022.
The company applied for two modifications to the scheme:
- to replace the scheme administrators following a dispute which arose with the company in relation to implementation of the scheme; and
- to provide for the new scheme administrators to re-calculate scheme claims and determine entitlements to scheme shares and cancel any scheme shares already issued in excess of the determined entitlement of scheme creditors.
The modifications also entailed an extension of time for assessment of scheme claims under the scheme.
The court’s decision
Harris J considered that, whilst modification to a scheme which was already in implementation was seemingly unprecedented based upon a review of Hong Kong authorities, the principle from Re Mongolian Mining Corp [2018] 5 HKLRD 48, that the court should consider whether creditors have sufficient information about a scheme to make an informed decision about whether to support it, was applicable to this situation.
Harris J also cited Re Hong Kong Building and Loan Agency Limited (香港建屋貸款有限公司) [2019] HKLRD 373, which concerned modifications to a scheme at the time of the scheme meeting, in support of the view that if amendments are “largely matters of detail which do not impact on a consideration of whether or not the Scheme should be approved”, they may be sanctioned by the court.
Harris J’s decision also drew on English case law where post-approval modifications to schemes were allowed where the terms of the scheme allowed for modifications approved by the court, and where modifications would not impact a reasonable creditor’s view of the scheme, but also that “it would be quite wrong to use the provision so as to foist on a class of creditors something substantially different to what has been approved” (Re Equitable Life Assurance Society [2002] BCC 319).
Better late than never
As the scheme terms expressly provided for an application for an amendment to be made to the court and the modifications were intended to ensure administration of the scheme as originally intended, the court was prepared to sanction the requested modifications.
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