CACV 179/2003









Coram: Hon Stock JA and Ma JA in Court

Dates of Hearing: 4 and 7 July 2003

Date of Judgment: 7 July 2003




Hon Ma JA:


1. On 19 May 2003, Master Lung gave summary judgment to the Plaintiff on its claim in this action for over US$8 million together withinterest and costs. The application for summary judgment was not opposed by the Defendant. However, the Defendant applied by summonsfor an order that there be a stay of execution on the judgment on the basis of ongoing discussions aimed at the restructuring ofthe corporate group of which the Defendant was a part.

2. Essentially, the Defendant was saying this in support of its application for a stay:-

(1) The Defendant is the Hong Kong subsidiary of SK Global Limited (“SK Global”), which is a Korean company that was established in1953 carrying on the business of the import and export of chemicals, oil, gas and associated energy products. The Defendant was asubsidiary through which SK Global raised finance and through which it carried on its trading activities.

(2) SK Global went into serious financial difficulties and a massive indebtedness was owed to creditors both inside and outside Korea.The liabilities over assets of SK Global is said to be in the region of US$5.2 billion.

(3) The Defendant was obviously affected by the parent’s predicament. Its liabilities are said to be in the region of some US$561million, of which US$461 million is owed to banks and US$100 million relates to bond debts. About 42% of the US$461 million indebtednessis attributable to Korean banks, the rest to banks outside Korea.

(4) From at least March 2003, restructuring proposals for SK Global have been taking place in Korea involving SK Global’s domestic(i.e. Korean) creditors. It would appear that as from March 2003, these creditors have refrained from taking any court action inKorea. The initial period of the standstill was to end on 18 June 2003. The restructuring proposals were based on the requirementsof the Korean Corporate Restructuring Promotion Act.

(5) As far as the foreign creditors of SK Global were concerned (mainly banks), a steering committee was set up led by Standard CharteredBank to coordinate the discussions and communications between SK Global, the domestic creditors and the foreign creditors. Most ofthe foreign creditors were willing to exercise forbearance in taking any action (including action against the Defendant) so thatrestructuring discussions in relation to their debts could also take place.

(6) The wish of the majority of SK Global and the Defendant’s creditors was that the restructuring proposals for SK Global would cometo fruition. It was said that 18 June 2003 was a significant date since the Korean creditors would be required then to vote eitheron any restructuring proposals or on “the extension of the standstill period for another month until 18 July 2003”.

(7) Any action taken by a creditor such as the Plaintiff to execute on a judgment obtained against the Defendant would or might bringabout a host of activity from the other creditors and it was said that this would jeopardise any restructuring plans.

3. On the Plaintiff’s part, it was said that it had a right to levy execution on the judgment obtained against the Defendant. It was(and remains) concerned about the possible (and I put it no higher than that) mismanagement and fault on the part of SK Global’sofficers. Its General Counsel, Mr Bruno Fontaine, also says this:-

“Whilst [the Plaintiff] appreciates that there may be difficulties in [the Defendant] providing any information as to its restructuringoptions, [the Plaintiff] cannot be expected to agree to a forbearance in circumstances where it has not been provided with any informationas to a restructuring process, a restructuring process is likely to take years and indeed it has no idea as to whether a restructuringprocess will ultimately be successful.”

4. This was essentially the position that faced Chu J when she heard the stay application on 6 June 2003. A stay was ordered that dayby the learned judge until 20 June 2003 with liberty to apply, on condition that certain interest was paid by the Plaintiff to theDefendant. In her Reasons for Decision, the learned judge held that the court had jurisdiction to grant a stay in the above circumstances,and that in the exercise of discretion, a stay in the terms I have just set out should be granted.

5. Essentially, Chu J was of the view that the restructuring discussions should be given a chance to take place. The learned judge recognisedthe possibility that on 18 June 2003, the Korean creditors might extend the standstill for another month (see: paragraph 7 of herReasons for Decision). She also said this in paragraph 28:-

“For the reasons aforesaid, I am of the view that there should be a stay to await further development of the restructuring. Althoughthe Korean creditors of SK Global Korea will vote on whether to continue with restructuring on 18 June 2003, to allow time for thedefendant’s solicitors to act, I agree that the stay should go up to 20 June 2003.”

6. By a Summons dated 19 June 2003, the Defendant applied for an extension of the stay up to and including 18 July with liberty to apply.The affirmation in support of this application deposed to the fact that some progress had been made. On 17 June 2003, the Koreandomestic creditors agreed on a restructuring proposal that constituted a “plan for management normalisation” for the purposes ofthe Corporate Restructuring Promotion Act. However, the acceptance of the proposals was conditional upon agreement being reachedbetween SK Global and its foreign creditors on the restructuring of their debts. This obviously included the Defendant’s debts. Itwas said that the foreign creditors were to meet on 27 June 2003.

7. On 20 June 2003, Seagroatt J extended the stay only until 4 July 2003 when the matter should, he thought, be revisited before ChuJ.

The 4 July 2003 hearing

8. On 4 July 2003, due to the unavailability of Chu J, the application resumed before Yam J. Further affirmations were served by bothsides. Reference was made to the fact that on 26 June 2003 and 27 June 2003, meetings took place between SK Global, Hana Bank (whichwas a Korean Bank who was the principal bank for the Korean banks) and, respectively, the steering committee for the foreign creditorsand the foreign banks themselves. Proposals were presented by Hana Bank as to the restructuring of SK Global’s foreign indebtedness.These proposals, however, were rejected.

9. Notwithstanding the rejection, it would appear that the majority of the foreign creditors were still keen on further negotiations.At least it could not be said that they were no longer interested in any further discussions whatsoever.

10. The affirmation served on behalf of the Defendant also stated as follows:

“The Defendant respectfully seeks an order extending the stay of execution of the judgment to 18 July 2003. By this date, if foreignfinancial creditors have not been able to agree terms with SK Global and its domestic creditors, at least in principle, then it islikely that the domestic creditors will apply for a Korean court reorganisation.”

11. Reference is also made to a letter from Standard Chartered Bank to the Defendant’s solicitors in which it was stated:-

“Notwithstanding such rejection, the Foreign Bank Steering Committee is committed to exploring alternatives to the formal liquidationof the SK Group. Nevertheless, the SK Group has made it clear that the terms of any restructuring of the substantial sums due tothe foreign banks must be agreed on or before 18 July 2003.”

12. Yam J refused the extension. In his brief Reasons for Decision, he said that the “temporary lifeline in order to permit [the Defendant]one chance to save itself” (emphasis added) given by Madam Justice Chu had been “squandered”. There was no concrete restructuring on the tableand any further stay would be “pointless”.

13. The Defendant appeals to this court against that decision in the present appeal.

The Decision in the present appeal

14. In my view, a further stay should be granted until 21 July 2003, for the following reasons:-

(1) While I recognise that a stay on what otherwise is the Plaintiff’s entitlement to levy execution (just as any other judgment creditor)cannot be indefinite so as to allow negotiations to continue which may or may not produce fruitful results (a point which Mr Barlowemphasised persuasively), nevertheless it is right that a final chance be given to the Defendant.

(2) I say “a final chance” because the restructuring negotiations have now been continuing for quite some time and one has to acceptout of fairness to the Plaintiff that it has been deprived of what I have referred to as its entitlement.

(3) The Defendant may or may not be right in its optimism over the progress of talks, but it is clear that no agreement has been reachedon any material aspect or principle save that there should be ongoing discussions. However, the deadline of 18 July 2003 was onethat was before Chu J and the relevance of which I have alluded to earlier. At the last hearing, Mr John Scott, SC accepted thatthis represented “the last gasp” although he did not quite go so far today. A further limited stay in these circumstances cannotbe said to be unreasonable and, given the industry of the creditors so far (both inside and outside Korea) in seeking to have theindebtedness of the SK Global Group restructured, this appears on this occasion to be right.

15. Mr Barlow for the Plaintiff has submitted that we should not disturb what is essentially an exercise of discretion by the learnedjudge below. It is true that Yam J did exercise a discretion, but we feel that we are entitled to interfere for two reasons:-

(1) In my view, he was wrong to be of the opinion that Chu J had given the Defendant “one chance” to save itself, that the Defendanthad squandered it and that it was therefore pointless to grant an extension. Chu J granted a stay up to 20 June 2003 with the 18June 2003 deadline in mind which is when the Korean creditors were due to meet. She granted a stay so as to be apprised of any significantdevelopments in due course. The court was not, in our view, then imposing any final deadline.

(2) The learned judge was also perhaps unduly robust in denying the Defendant a last chance, particularly when no significant prejudicewould be caused to the Plaintiff by it.

16. Mr Barlow also made submissions which in reality go to Chu J’s jurisdiction to grant a stay but this is not an aspect which is beforeus. The Plaintiff has served notices of appeal against both Chu J and Seagroatt J’s orders and these appeals have yet to be heard.We have proceeded (as we must) on the basis of the existence of jurisdiction which Chu J found to be that the court could properlytake into account the prospect of a corporate restructuring and its probable consequences on the parties to the proceedings to arriveat a conclusion that was just and equitable. I make no comment, however, as to whether or not Chu J was correct on this.

17. I would also grant a liberty to apply in the present case. However, I wish to make it clear that unless an agreement is reached by21 July 2003 between the Defendant and its creditors in relation to any restructuring at least as to matters of principle, any furtherextension is extremely unlikely to be granted.

18. The order I therefore propose is that:-

(1) The appeal be allowed and Yam J’s decision be set aside.

(2) The stay of execution ordered by Chu J on 6 June 2003, as extended by Seagroatt J on 20 June 2003, be extended to 21 July 2003on the same conditions as specified in those orders, with liberty to apply.

Hon. Stock JA:

19. For the reasons given by Ma JA, I agree with the result and the order which he proposes and there will be an order in those terms.

(Frank Stock) (Geoffrey Ma)
Justice of Appeal Justice of Appeal


Mr Barrie Barlow, instructed by Messrs Denton Wilde Sapte, for the Plaintiff.

Mr John Scott, SC, instructed by Messrs Allen & Overy, for the Defendant.