Silk Road Logistics : Explanatory Statement And Scheme of Arrangement

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this document or as to the action you should take, you should consult your solicitor, professional accountant or other professional adviser without delay.

EXPLANATORY STATEMENT

AND

SCHEME OF ARRANGEMENT

Pursuant to Sections 670, 671, 673 and 674 of the Companies Ordinance (Cap.622) of Hong Kong,

as amended from time to time

FOR THE SCHEME CREDITORS OF

SILK ROAD LOGISTICS HOLDINGS LIMITED

絲路物流控股有限公司

(a company incorporated with limited liability under the laws of Bermuda)

Capitalised terms used in this Scheme Document including the cover page shall have the same respective meanings as ascribed to them on page 67 in the section headed "Preliminary" of Part III of the Scheme of Arrangement contained in this Scheme Document.

Silk Road Logistics Holdings Limited proposes to enter into the Scheme with its Scheme Creditors pursuant to section 670 of the Companies Ordinance. The Court has ordered that a meeting of Scheme Creditors (i.e. the Scheme Meeting), which will be held at 10:00 a.m. (Hong Kong time) on Thursday, 25 January 2024 at 10/F., United Centre, 95 Queensway, Admiralty, Hong Kong for the purposes of considering and if thought fit approving the Scheme, with or without modification. A copy of the Notice of Scheme Meeting is set out in Appendix 3 to this Scheme Document.

You have received this Scheme Document as you are a person who is believed to be a Scheme Creditor. The action required to be taken by you is set out on page 61 under the section headed "15.16 Action to be taken". You must be a Scheme Creditor in order to be present at the Scheme Meeting convened by orders of the Court. Whether or not you intend to attend the Scheme Meeting, you are requested to complete and sign and return with the Company a Notice of Claim set out in Appendix 5 and the Proxy Form set out in Appendix 6 to this Scheme Document as soon as possible in accordance with the instructions set out therein. Completion and return of the Proxy Form will not preclude you from attending and voting in person at the relevant meeting or any adjournment thereof, should you so wish. In the event that you attend and vote at the relevant meeting or any adjournment thereof after having lodged your Proxy Form, the returned Proxy Form shall be deemed to have been revoked.

This Scheme Document shall be published in both Chinese and English. Should there be any discrepancy between the Chinese and the English versions, the English version shall prevail.

You should read this Scheme Document in its entirety before making any decision as to how to vote on the resolutions to be considered at the Scheme Meeting.

2 January 2024

	CONTENTS
		Page
IMPORTANT NOTICE	iv
EXPECTED TIMETABLE	vi
PART I: LETTER FROM THE BOARD	1
PART II: EXPLANATORY STATEMENT	12
1	INTRODUCTION	12
2	PURPOSE OF THIS EXPLANATORY STATEMENT	13
3	WHY YOU HAVE RECEIVED THIS SCHEME DOCUMENT	13
4	WHAT IS A SCHEME OF ARRANGEMENT?	13
5	BACKGROUND OF THE GROUP	14
6	THE RESUMPTION PLAN	18
7	THE SCHEME	29
8	BUSINESS PROJECTION	35

• ENTRY INTO FORCE OF THE SCHEME AND

	CONDITIONS PRECEDENT	37
10	RISK FACTORS	38
11	INTERESTS OF DIRECTORS	46
12	THE ADVANTAGES AND DISADVANTAGES OF THE SCHEME	47
13	RETURN COMPARISON	48
14	RESTRUCTURING COSTS AND SCHEME COSTS	52
15	PROCEDURE AND MISCELLANEOUS MATTERS	53
16	SANCTION HEARING	64
17	RECOMMENDATION FOR THE SCHEME	65

- i -

		CONTENTS
PART III: SCHEME OF ARRANGEMENT	66
SECTION 1	- DISCHARGE AND RELEASE OF CLAIMS	81
SECTION 2	-	BAR TO PROCEEDINGS	81
SECTION 3	-	CONDITIONS PRECEDENT	82
SECTION 4	- OBLIGATIONS OF THE COMPANY	83
SECTION 5	- TRUST ACCOUNT AND SHARE CERTIFICATES	83
SECTION 6	- MORATORIUM CREATED BY THE SCHEME	84
SECTION 7	- PROOF AND DETERMINATION OF CLAIMS	85
SECTION 8	- ENTITLEMENT OF THE SCHEME CREDITORS IN RESPECT
		OF THEIR ADMITTED CLAIMS AND DISTRIBUTION . . . .	88
SECTION 9	- ADMINISTRATION OF THE SCHEME COMPANIES	93
SECTION 10	- MEETINGS OF SCHEME CREDITORS	94
SECTION 11	- TERMINATION OF THE SCHEME	95
SECTION 12	- PAYMENT OF SCHEME COSTS	97
SECTION 13	- THE SCHEME ADMINISTRATORS, THE SCHEME
		CREDITORS' COMMITTEE AND THE ADJUDICATORS . . .	98
SECTION 14	-	GENERAL	108

- ii -

CONTENTS

APPENDIX 1:	SUBSIDIARIES AND RELATED COMPANIES OF
	THE COMPANY	I-1
APPENDIX 2:	ORDERS OF EX PARTE SUMMONS/ORIGINATING
	SUMMONS	II-1
APPENDIX 3: NOTICE OF SCHEME MEETING	III-1
APPENDIX 4: LIST OF CREDITORS	IV-1
APPENDIX 5: FORM OF NOTICE OF CLAIM	V-1
APPENDIX 6: FORM OF PROXY	VI-1
APPENDIX 7:	LIQUIDATION ANALYSIS	VII-1
APPENDIX 8:	GROUP CHART	VIII-1
APPENDIX 9: LIST OF OPERATIONAL CLAIMS	IX-1

- iii -

IMPORTANT NOTICE

This Scheme Document has been prepared in relation to the Scheme pursuant to Sections 670, 671, 673 and 674 of the Companies Ordinance between the Company and the Scheme Creditors. For the avoidance of doubt, the Scheme as herein described pertain to the same compromise that is proposed by the Company to the Scheme Creditors for their consideration and approval.

Nothing contained herein will constitute an admission of any fact or liability on the part of the Company with respect to any claim against it. No estimate of the amount of a claim against the Company specified in any form of proxy returned to the Company or otherwise provided to the Company or the admission by the Chairperson of such amount or part of it for voting purposes will be admissible against the Company in any proceedings or be binding in the determination of the Claims by the Scheme Administrators or the Adjudicators. Any such estimate or admission by the Chairperson will only be used for voting purposes at the Scheme Meeting convened in accordance with the orders of the Court for the purpose of approving the Scheme.

The information contained herein has been prepared by the Company based on information available to it. To the best of the knowledge, information and belief of the Company and the Directors, the information contained in this Scheme Document is in accordance with the facts and does not omit anything likely to affect the import of such information, each in a material respect. The Company and the Directors have taken all reasonable steps to ensure that this Scheme Document contains the information reasonably necessary and material to enable the Scheme Creditors to make an informed decision about how the Scheme affect them and whether or not they should vote in favour of approving the Scheme.

The statements, opinions and information contained herein are made, held or given respectively as at the Scheme Document Date unless another time is specified and such statements, opinions and information are made, held or given solely by or on behalf of the Company unless expressly attributed to another party. Publication of this Scheme Document shall not give rise to any implication that the facts set out in it since the date of publication remain unchanged.

- iv -

IMPORTANT NOTICE

The summary of the principal provisions of the Scheme and the related matters contained herein is qualified in its entirety by reference to the Scheme itself, the full text of which is set out in the section headed "Part III − Scheme of Arrangement" of this Scheme Document. Scheme Creditors entitled to vote and otherwise participate in the Scheme are advised to read in full and consider carefully the text of the Scheme itself.

The Scheme has been proposed by the Company and no other person has been authorised by the Company to make any representations concerning the Scheme which are inconsistent with the statements contained in this Scheme Document and, if made, any such representations should not be relied upon.

The contents of this Scheme Document should not be taken as legal, tax or financial advice. Scheme Creditors should consult their professional advisers in relation to the legal, tax, financial or other matters relevant to the action which they may take in connection with the Scheme.

- v -

EXPECTED TIMETABLE (Note 1)

EXPECTED TIMETABLE

Date & Time

Date of despatch of this Scheme Document . . . . . . . . . . . . . . . . . Tuesday, 2 January 2024 Voting Record Time (Notes 2 and 3) . . . . . . . . . . . 10:00 a.m. on Tuesday, 23 January 2024 Scheme Meeting (Note 4) . . . . . . . . . . . . . . . . . . 10:00 a.m. on Thursday, 25 January 2024 Sanction Hearing (Notes 5 and 6) . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 7 March 2024 Scheme Effective Date (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 21 March 2024 Completion Date (Note 8) . . . . . . . . . . A date to be fixed after the fulfillment (or waiver,

as applicable) of the conditions precedent, which is tentatively expected to be in March or April 2024

Cut-Off Date (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . A date to be fixed by the Scheme Administrators after the Scheme becomes effective

Notes:

1. The dates in this timetable and mentioned throughout this Explanatory Statement are expected dates and are put forward on the assumption that none of the court hearings or the Scheme Meeting are adjourned or delayed. It is possible that the filing of the Sanction Order may be delayed if any person appeals against the Sanction Order. If there is any change to the date or time listed in this timetable, the revised date or time will be announced as soon as possible by the Company.
2. The Voting Record Time is the latest date and time for delivery of the enclosed Notice of Claim and Proxy Form by post or personal delivery to the offices of the Restructuring Adviser at 27/F, One Taikoo Place, 979 King's Road, Quarry Bay, Hong Kong, for the attention of Mr. Fredric Leung, or by email to [e-mail] or [e-mail] for the attention of Mr. Fredric Leung.
3. Completion and return of the Proxy Form will not preclude a Scheme Creditor from attending and voting in person at the Scheme Meeting. If a Scheme Creditor attends and votes in person at the Scheme Meeting, the Proxy Form will be deemed to have been revoked.
4. The Scheme Meeting will commence at the time stated. Any Scheme Creditor that wishes to attend the Scheme Meeting is required to produce a duplicate copy of their Notice(s) of Claim, evidence of personal identity (for example, a passport or other picture identification) and in case of a corporation, evidence of corporate authority (for example, a valid power of attorney and/or board minutes) at the registration desk by no later than an hour before the scheduled time of the Scheme Meeting.
5. The actual date of the Sanction Hearing will depend on the schedule of the Court and is subject to any further directions which the Court may make.
6. Any creditor or shareholder desiring to oppose or support the making of the Sanction Order shall have the right to attend and be heard at the hearing of the Sanction Petition in person or by counsel.

- vi -

EXPECTED TIMETABLE (Note 1)

1. The Scheme Effective Date is the date on which the Scheme becomes effective in accordance with the terms of the Scheme. The Scheme will become effective and legally binding when an office copy of the Sanction Order is delivered to and registered by the Registrar of Companies in Hong Kong and when the other conditions precedent set out in Section 3 of the Scheme are fulfilled.
2. The Completion Date is the date on which completion of the Proposed Restructuring takes place. The Completion Date is an expected date.
3. The Cut-Off Date is the latest time and date for lodging of the Notice(s) of Claim for the purpose of proof and determination of Claims by the Scheme Administrators or Adjudicators. The Cut-Off Date will be set as soon as practicable after the Scheme has become effective. Once the Cut-Off Date has been fixed, the Company will inform the Scheme Creditors by notice of the latest date and time for lodging the Notice(s) of Claim for the purpose of proof and determination of Claims. A Scheme Creditor who has previously submitted a Notice of Claim for voting purposes is not required to submit a further Notice of Claim for dividend purposes.
4. Unless otherwise indicated all references to time are references to Hong Kong time.

- vii -

PART I: LETTER FROM THE BOARD

Silk Road Logistics Holdings Limited

絲路物流控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 988)

To the Scheme Creditors of the Company

Dear Sirs and Mesdames

INTRODUCTION

The Board is writing to you in your capacity as a person who is, or appears to be, a Scheme Creditor on behalf of the Company in connection with the Scheme, which the Company proposes to enter into with the Scheme Creditors under Hong Kong law.

This letter forms part of the Explanatory Statement prepared for the Scheme proposed by the Company. This letter, the Explanatory Statement and the Scheme seek to

1. provide background information on the current status of operations of the Group and the Company, (ii) set out and explain the key provisions of the Scheme; and (iii) explain the advantages and disadvantages of the Scheme, to assist the Scheme Creditors to reach an informed decision on whether to vote in favour of the Scheme at the Scheme Meeting.

The terms of the Scheme are set out in Part III with the heading "Scheme of Arrangement" of this Scheme Document. Please note that this letter and the Explanatory Statement should not be relied upon as a substitute for reading the provisions of the Scheme themselves or for consulting your independent professional adviser(s) as to the effect of the Scheme. You are advised to consult your independent professional adviser(s), legal or otherwise, on whether to vote in favour of or against the Scheme or to abstain from voting at the Scheme Meeting.

- 1 -

PART I: LETTER FROM THE BOARD

The Scheme is being proposed in Hong Kong because the Company has its principal place of business in Hong Kong and its liabilities are primarily governed by Hong Kong law. Accordingly, the Scheme is subject to the approval of the Court in Hong Kong. At the moment, the Company does not intend to put forward a parallel scheme in any other jurisdictions. However, the Company may make such application(s) as may be necessary in Bermuda or any other jurisdiction(s) in order to seek recognition and/or otherwise to give effect to the Scheme.

BACKGROUND

The Company was incorporated in Bermuda on 9 July 1993 and its Shares have been listed on the Main Board of the Stock Exchange since 21 January 1994. The Company is an investment holding company and its major assets are intercompany debts due from subsidiaries and cash held in banks and on hand. The Group mainly engages in logistics, oil and commodities trading businesses.

THE FINANCIAL POSITION OF THE COMPANY AND THE GROUP

Since 2020, the financial position of the Group has worsened progressively. This was caused by a number of factors including (i) the expiry of the Management Agreement in 2020, which was crucial for the commodities trading business of the Company established under the 2017 management agreement between Tewoo Import & Export Trading Co., Ltd. and Qian'an Logistics, (ii) the outbreak of the COVID-19 pandemic and its extensive adverse impact on the global economy and business environment for the Group, and (iii) insufficient working capital due to the Group's ongoing liquidity issues.

The expiry of the Management Agreement with Tewoo Import & Export Trading Co., Ltd. led to a substantial decrease in revenue in the Group's commodities trading business, which was a major revenue driver for the Group. The fact that the logistics and oil businesses of the Group operated on a minimal scale and were loss-making exacerbated the problem. All of this was made worse by the COVID-19 pandemic. These challenges hindered the Company's attempts to renegotiate contracts and explore new business opportunities, further worsening its financial difficulties.

For the year ended 31 December 2020, the Group recorded revenue from operations of approximately HK$34.6 million, representing a decrease of 99% from prior year. The revenue of the Group further dwindled to approximately HK$13.6 million for the year ended 31 December 2021 and approximately HK$7.4 million for the year ended 31 December 2022, representing a decrease of approximately 46% from prior year.

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