Legal update: Rights vs. Interests – English decisions not followed in in Re Aoyuan Group Limited [2025] HKCFI 310

In the recent decision of Re Aoyuan Group Limited (“Aoyuan”), Harris J sanctioned the inter-linked and inter-conditional schemes of arrangement promulgated by Aoyuan and its key subsidiary, Add Hero Holdings Limited (“Hero”), to restructure total liabilities in excess of US$6 billion.  In doing so, Harris J refused to follow English authorities relied upon by an opposing creditor regarding class constitution, determining that the principles settled by the Court of Final Appeal in Re UDL Argos dictate a different approach.

Aoyuan and Hero are part of a group that operates a real estate development business in Mainland China. Like many other Mainland property developers, it suffered severe financial difficulties due to the downturn in the Mainland property market. In respect of the scheme debts, Aoyuan predominantly acted as the primary obligor and Hero acted as a guarantor under certain instruments. Under the schemes, certain creditors were eligible to vote for the full amount and receive scheme consideration in both schemes and the main issue in dispute was whether the additional entitlements enjoyed by the “overlapping creditors” fractured the single class.

The opposing creditor argued that, in the context of inter-linked and inter-conditional schemes, the additional entitlement enjoyed by the overlapping creditors should be taken into account and result in a fractured class. The opposing creditor relied on English cases such as Re Baltic Exchange, Re Sunbird Business and Codere Finance (No.2) which accepted that when considering whether a class is properly constituted in cases “where a scheme is part of, or accompanied by, other arrangements…the class question must be answered by reference to all those arrangements taken as a whole”[1]. Those decisions further held that “…the Court should not adopt a narrow approach and look at a scheme in isolation…”[2].

At paragraph 73 of the judgment, Harris J determined that the approach taken in those English cases was not consistent with the position stated in  Re UDL Argos, namely that: “the test is based on similarity or dissimilarity of legal rights against the company…The question is whether the rights which are to be released or varied under the Scheme or the new rights which the Scheme gives in their place are so different that the Scheme must be treated as a compromise or arrangement with more than one class” (our emphasis).

The examination of rights compromised by the scheme (and not interests affected thereby) is the test for class composition. His Lordship also considered that the decision of Zacaroli J (as he then was) in Re Dundee Pikco Limited may not be consistent with the English cases relied upon by the opposing creditor (and appears to have preferred that approach). In Re Dundee Pikco Limited the Court held that where a scheme had more than one class, the fact that certain creditors hold debt in more than one of those classes does not split the class, as this goes to those creditors having different interests not holding different rights, and a difference in interest does not split a class. The learned Judge added that the position may nevertheless be relevant when the Court considers the scheme’s fairness.

Similarly, Harris J also held that any “special interest” held by the overlapping creditors could nonetheless be relevant at the sanction stage, namely whether the special interest enjoyed by the overlapping creditors would render a vote unrepresentative. However, on the facts, the Judge held that the opposing creditor failed to provide any evidence that the additional benefits obtained by the overlapping creditors were, or were likely to have been a material reason for voting for Aoyuan’s scheme.

The result of this decision is that in Hong Kong, when considering class composition, focus should be solely placed on the rights of creditors going in and out of “the” scheme. Rights or benefits arising from separate, even associated, schemes or other linked arrangements, would be considered as going only to a creditor’s interests and thus do not fracture a class. Such rights or benefits could nevertheless play a role in the exercise of the Court’s discretion. The decision also reinforces another important consideration in class composition namely that “the court should take a broad approach to the composition of classes … [the court] should be careful to avoid unnecessary proliferation of classes because by ordering separate meetings the court might give a veto to a minority group” (see His Lordship’s decision in Re Sunac China).

Robin Darton and Tim Au

If you would like to discuss any of the matters raised in this article, please contact:

Robin Darton
Partner | Email

Tim Au
Partner | Email

The above is not intended to be relied on as legal advice and specific legal advice should be sought at all times in relation to the above.

[1] Per Snowden J (as he then was) in The Baltic Exchange Limited, paragraph 15

[2] Per Snowden J (as he then was) in Re Sunbird Business Services Limited, paragraph 23