The frustration of funds and investment houses, holding beneficial interests in notes issued by defaulting Asian corporates, in not being able to cause a trustee to take effective and swift steps to enforce creditor rights, is commonplace, and has been the reason behind a number of faltering enforcements and restructurings in Asia in recent times.

In the recent breakthrough case In the matter of China Forestry Holdings Co Ltd ("China Forestry") Walkers has successfully represented the beneficial interest holders of certain notes issued by China Forestry in obtaining a winding up order against the company, without the involvement of the trustee.

The order made by the Grand Court of the Cayman Islands (the "Court") in FSD 31 of 2015 is a decision which should assist other beneficial interest holders to be able to take action against defaulting issuers in similar circumstances, and should be seen as a welcome development in what is a complex area of law.

The Notes

Cayman Islands incorporated entities are commonly used as the debtor entity in Asian corporate and financing structures, issuing notes to investors for the purpose of raising capital for the underlying group. Such notes are commonly held through depository and trustee arrangements whereby the beneficial interest holder of the note is not the registered holder of the note.

It is commonplace, on the occurrence of an event of default under the notes, for the trustee to be contractually obliged to take steps against the issuer if (i) it is instructed to do so by a requisite majority of note holders and (ii) there is an acceptable indemnity in place for it doing so. It is these two pre-requisites that create the majority of issues for note holders in practice. In the China Forestry case, however, rather than asking the trustee (or registered holder) to take action, the beneficial interest holders took steps themselves.


Section 94(1)(a) of the Companies Law (2013 Revision) provides that a petition to the Court for an order winding up a company may be presented by, inter alia, any creditor or creditors, including (relevantly) any contingent or prospective creditor or creditors.

The Court agreed with the arguments raised by the note holders that they had standing to petition for the winding up of China Forestry as contingent creditors by virtue of their right to become certificated holders of the notes on the occurrence of certain events. The Court also accepted that the note holders had adequately demonstrated the company's insolvency by virtue of the steps they had taken on behalf of the registered holders of the notes, to which the company had not adequately responded. The Court made the winding up order sought, and effected the appointment of officeholders to China Forestry who will be able to pursue a restructuring for the benefit of the company's creditors as a whole.


As far as we are aware, this is the first time that a beneficial interest holder of notes has obtained a winding up order from the Court without the involvement of the trustee. For beneficial interest holders in note issuances who may want to take direct unilateral action without the need to galvanise support from other note holders or to provide an indemnity to the trustee, it is important to ensure that the documentation for the notes includes appropriate authorisation language, that the beneficial interest holders' rights are sufficient to allow it to be classed as a contingent creditor, and that there is no contractual prohibition on the presentation of a winding up petition in the express terms of the indenture.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.