A Leg to Stand on — Key Takeaways for Bondholders Seeking Direct Action…

A Leg to Stand on — Key Takeaways for Bondholders Seeking Direct Action Following the Cayman Grand Court Decision in Shinsun Holdings

SUMMARY
In the recent decision of Re Shinsun Holdings (Group) Co., Ltd. FSD 192 of 2022 (DDJ) (21 April 2023) (unreported), the ultimate beneficial owner of bonds held through Euroclear failed to evidence that it was authorised, or had standing, to pursue a winding-up petition against the issuer. This decision demonstrates the pitfalls that bondholders who hold their securities via clearing systems will need to avoid when directly enforcing claims against issuers, and we discuss some of the practical steps that bondholders could take in this context.

Factual Background

Shinsun Holdings (Group) Co. Ltd (“Shinsun Holdings”) is the Cayman Islands-incorporated holding company of a Chinese real estate developer. Shinsun Holdings issued $200,000,000 12% Senior Notes Due 2023 (the “Notes”) pursuant to a New York law governed indenture (the “Indenture”) in book-entry form through the facilities of Euroclear and Clearstream. China Construction Bank (Asia) Corporation Limited acted as trustee (the “Trustee”) and as the common depository of the Notes (the “Common Depositary”) for Euroclear and Clearstream. The Notes were evidenced by a global note which specified that the registered holder was CCB Nominees Limited (“CCB Nominees”) as the nominee of the Common Depositary. Importantly, no certificated notes (“Certificated Notes”) were issued under the Indenture at the time of the hearing and the sole “Holder” for the purposes of the Indenture was CCB Nominees. Read more