Cayman Islands restructuring of Chinese companies
16 September 2021
The well publicised Cayman Islands ("Cayman") based restructuring of Luckin Coffee Inc ("Luckin") and the more recent Cayman court orders made in respect of MIE Holdings Corporation may well prove to be a road map for the troubled Chinese real estate developer China Evergrande Group (formerly Hengda Group) ("Evergrande").
Like Luckin the holding company for Evergrande is registered in Cayman and that gives access to the Cayman restructuring process of appointing "light touch" Provisional Liquidators to work alongside the current management team with the object of promoting a Scheme of Arrangement with creditors. During the Provisional Liquidation the restructuring company can benefit from a stay of litigation against it whilst it seeks to formulate a settlement with creditors which can be implemented by 50% in number and 75% in value of the creditors voting to approve the settlement.
Also like Luckin, shares of Evergrande are listed in Hong Kong and Bonds have been issued in USD. The path for the Cayman Provisional Liquidators to obtain recognition in both Hong Kong and the USA has been successfully trodden by Luckin and others. There is no reason to believe that Evergrande will not be able to take the same path.
The Luckin Joint Provisional Liquidators have reported that a Restructuring Agreement exists with the Luckin Bond Holders, which forms that basis of a Scheme of Arrangement to be filed in September 2021. This proves that for Cayman registered holding companies of Chinese based operating companies restructuring debt using the Cayman "light touch" Provisional Liquidators promoting a Scheme of Arrangement is well established and successful.
Creditors of a Cayman registered Chinese holding company would be well advised to understand the Scheme of Arrangement process before being approached by the Provisional Liquidators and be aware of their rights in the process. Bedell Cristin has advised creditors in many Schemes of Arrangement including those involving Cayman registered Chinese holding companies and a previous briefing provides a high level review of what is involved.
If you would like any further information, please get in touch with your usual Bedell Cristin contact or one of the contacts listed.