Grounded Ingenuity | Refined Results

June 30, 2021
By Timothy Loh and Mary Lam
In Re Freeman FinTech Corporation Ltd [2021] HKCFI 310, the Hong Kong court sanctioned a scheme of arrangement in respect of a debt restructuring in which the governing law of part of the debt was not Hong Kong law and the creditor to whom this debt was owed did not submit to the jurisdiction of the Hong Kong court. In this article, we discuss the background and rationale for the decision and provide some observations on what the decision may mean for future debt restructurings. If you would like more specific information about schemes of arrangement or debt restructuring, please contact one of our insolvency and restructuring lawyers.


On May 10, 2019, a winding-up petition was presented against Freeman Fintech Corporation Limited (“Company”), a company incorporated in the Cayman Islands and listed on the Stock Exchange of Hong Kong. On February 28, 2020, joint provisional liquidators were appointed over the Company and on March 26, 2020, the powers of the joint provisional liquidators were extended by the Hong Kong court to include exploring a possible restructuring of the Company’s debt

On December 24, 2020, the Hong Kong court granted leave (i.e. permission) for the joint provisional liquidators of the Company to convene a meeting of its unsecured creditors for the purpose of considering and voting on a proposed scheme of arrangement to compromise the unsecured debt of the Company. The scheme of arrangement was approved unanimously. On January 27, 2021, the joint provisional liquidators of the Company petitioned the court to sanction (i.e. approve) the scheme of arrangement.

Debt Governed by Non-Hong Kong Law

Whilst the court was satisfied that the requisite criteria for sanctioning a scheme of arrangement had been met, there was one issue which concerned an unsecured debt owed by the Company which was governed by Macanese law: because this debt was not governed by Hong Kong law, there was a risk that a scheme of arrangement under Hong Kong law would not discharge this debt, and hence there was an issue as to whether the proposed scheme would achieve its intended purpose to comprise the company’s unsecured debts.

Common Law Rule on Discharge of Debt

It is a well-established common law rule that an insolvency and restructuring proceeding in one jurisdiction does not discharge a debt unless the debt is discharged under the law governing the debt. One exception to this rule is when the relevant creditor submits to that insolvency and restructuring proceeding: in that situation, the creditor would be taken to have accepted that its contractual rights will be governed by the law of that insolvency and restructuring proceeding.

However, in the present case, the creditor to whom the Macanese law governed debt was owed had not submitted to the jurisdiction of the Hong Kong court, as it did not participate in the proposed scheme of arrangement or file any proxy form or notice of claim with the joint provisional liquidators concerning the debt or the scheme of arrangement.

Court Sanction of Scheme Unlikely Where No Utility

Whilst the Macanese law governed debt would not per se affect a Hong Kong court’s jurisdiction to sanction a scheme of arrangement, it would be relevant to the exercise of the court’s discretion in deciding whether or not to approve the proposed scheme. This is because generally, the court would be reluctant to sanction a scheme which has no or limited utility. A scheme would have limited utility when, for instance, a company has substantial asset in a non-Hong Kong jurisdiction and there is a likely risk that a creditor to whom the company owes a debt governed by the law of that jurisdiction would take steps to enforce the debt against the company in that jurisdiction despite the scheme in Hong Kong.

Whether Foreign Debt Affects Scheme’s Utility

After reviewing the authorities and the factual circumstance of the case, Justice Harris held that the Macanese law governed debt did not adversely impact the utility of the proposed scheme of arrangement and hence made an order to sanction the scheme. In reaching this conclusion, Harris J took into account a number of factors.

No Rule Court Sanction Will Be Refused If Debt Governed by Foreign Law

It does not follow that because part of the debt will not be compromised under the law that governs the debt that the court should decline to sanction a scheme. The court will consider the more general issue of utility and whether the scheme is likely to substantially serve the purpose for which it has been introduced.

Court Sanction Will be Refused If No or Limited Utility of Scheme

The guiding principle is that the court should not act in vain or make an order which has no substantive effect or will not achieve its purpose. The principle does not require either worldwide effectiveness or worldwide certainty. In other words, it does not require that the court must be satisfied that the scheme will be effective in every jurisdiction worldwide: its focus is on jurisdictions in which, by reason of the presence there of substantial assets or in which creditors might make claims, it is especially important that the scheme be effective.

Application of Principles to Present Case

In this case, the Company has no assets in Macau and enforcement in Macau is not of concern to the Company and has no bearing on the utility of the proposed scheme of arrangement. The proposed scheme, if sanctioned in Hong Kong, will prevent the PRC based creditor from taking enforcement proceedings in Hong Kong. Therefore, the proposed scheme of arrangement will prevent action being taken within the jurisdiction of the Hong Kong courts regardless of the governing law of the debt.


This is an important decision as it clarifies the how a Hong Kong court would approach the question of utility in deciding whether to exercise discretion to sanction a scheme of arrangement notwithstanding the existence of scheme debts governed by non-Hong Kong laws.


When Will a Court Sanction a Scheme of Arrangement?

When exercising its discretion in deciding whether to sanction a scheme of arrangement, the court will consider whether the following criteria have been satisfied:

  • whether the scheme is for a permissible purpose;

  • whether creditors who were called on to vote as a single class had sufficiently similar legal rights that they could consult together with a view to their common interest at a single meeting;

  • whether the meeting was duly convened in accordance with the court’s directions;

  • whether creditors have been given sufficient information about the scheme to enable them to make an informed decision whether or not to support it;

  • whether the necessary statutory majorities have been obtained; and

  • whether the court is satisfied in the exercise of its discretion that an intelligent and honest man acting in accordance with his interests as a member of the class within which he voted might reasonably approve the scheme.

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