In the recent decision in Re Shinsun Holdings (Group) Co., Ltd. FSD 192 of 2022 (DDJ) (21 April 2023) (unreported), the Grand Court of the Cayman Islands ruled, for the first time, that an ultimate beneficial holder of notes could not bring winding-up proceedings against the issuer where it had failed to obtain the necessary authorisations as required in the indenture. The Honourable Doyle J dismissed the winding-up petition on the basis that the petitioner, Shenwan Hongyuan Strategic Investment (H.K.) Ltd (Shenwan), neither had standing as a contingent creditor nor authorisation from the registered holder of the notes to progress the winding-up proceedings.
BACKGROUND AND KEY ISSUES
Shinsun Holdings (Group) Co., Ltd. (the Company), a Cayman incorporated exempted company, had issued certain senior notes due 2023 (the Notes) pursuant to a New York law governed indenture (the Indenture). The Indenture was entered into with China Construction Bank (Asia) Corporation Limited, as trustee (the Trustee) who also served as the common depositary of the Notes (the Depositary). The Notes were registered in the name of CCB Nominees Limited (CCB Nominees), the nominee of the Depositary, and traded through Euroclear. Through the Hong Kong Monetary Authority (HKMA), a participant of Euroclear, Shenwan acquired a 25% interest in the Notes. At the time of the hearing no certificated notes had been requested and CCB Nominees remained the sole registered holder of the global note.
The Company defaulted on its interest payment which triggered Shenwan to instruct the Trustee to issue a notice of acceleration (the Notice of Acceleration). When the Company failed to settle the outstanding debt, Shenwan proceeded to file the Petition in the Cayman Islands. Shenwan claimed that the debt had been accelerated with the Notice of Acceleration and that it was therefore, immediately due and payable. Shenwan argued that it had standing to bring the winding-up proceedings on the basis of: (i) a statement of account letter (STAK Letter) issued by Euroclear to HKMA authorising beneficial owners to commence proceedings; and/or (ii) its position as a contingent creditor of the Company.
DETERMINATION
Doyle J applied the legal principles on construction of contracts under New York law that were agreed between the New York law experts and found that based on the principle of privity of contract (or what would be referred to as the "no look through" principle under English law) there was no contractual relationship between the Company and Shenwan.
Shenwan's argument alleging that it had standing as a contingent creditor on the basis that it had a contingent right given that it could instruct HKMA and HKMA could then instruct Euroclear, which would eventually make Shenwan a Holder of the Notes under the terms of the Indenture (by obtaining a certificated note), was firmly rejected by the Court. Doyle J found that Shenwan had confused and conflated the concept of contingent creditor with contingent standing - it had to show an existing obligation owed by the Company to Shenwan and it was wholly inadequate for a party to plead, in effect, that its standing was itself contingent upon the happening of some future event. Doyle J's findings are consistent with other overseas authorities1.
Doyle J also rejected Shenwan's reliance on the STAK Letter, the alleged authorisations provided in both the Euroclear Operating Procedures and the HKMA Central Moneymarkets Unit CMU Reference Manual to support its argument that proper authority had been obtained for Shenwan to bring the winding-up petition. The Court ruled that under the terms of the Indenture, a proxy or other appropriate authority needed to be provided by CCB Nominees as the registered holder. Shenwan failed to follow the clear requirements of the Indenture and obtain such authorisation from CCB Nominees, hence, it lacked authority (and standing) to commence the winding-up proceedings.
Accordingly, the Petition was dismissed.
Doyle J also ruled that the debt had not been duly accelerated due to the Notice of Acceleration being invalid. Pursuant to the Indenture, the Trustee could only act upon the written direction of the Holders of at least 25% of the aggregate principal amount then outstanding. No evidence was produced by Shenwan that the Trustee was acting on the written direction of the Holder in respect of the Notice of Acceleration; and, in fact, the evidence clearly showed that the Trustee was acting on the instructions of Shenwan rather than the Holder.
This case serves as a clear reminder that the terms of an indenture should be carefully followed to ensure that the proper authorisation has been obtained before winding-up proceedings are commenced against an issuer.
Footnote
1. Secure Capital SA v Credit Suisse AG [2017] EWCA CIV 1486; Community Development Pty Ltd v Engwirda Construction (1969) 120 CLR 455; Re William Hockley Ltd [1962] 1 WLR 555; Bio-Treat Technology Limited v Highbridge Asia Opportunities Master Fund LP [2009] SC (Bda) 26 Civ (28 May 2009)
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SHINSUN HOLDINGS (GROUP) CO., LTD. 
