Kept-well: Hong Kong court hands keepwell trustee significant win

A Hong Kong court has awarded a trustee enforcing obligations under a keepwell deed more than US$489 million after finding the keepwell provider to be in breach. The decision by the Honourable Mr Justice Harris in Citicorp International Limited v Tsinghua Unigroup Co., Ltd (紫光集團有限公司)[2023] HKCFI 1572 comes shortly after an earlier decision involving the Peking Founder Group which ruled that the obligations contained in these deeds are enforceable in Hong Kong. The ruling, one of the most important Hong Kong corporate insolvency matters in recent years, represents a significant victory for bondholders and creditors enforcing agreements containing Hong Kong exclusive jurisdiction agreements. Hogan Lovells represented Citicorp in the proceedings.

In Tsinghua, the plaintiff trustee claimed for the defendant’s breach of contractual obligations owed to it under a keepwell deed and equity interest purchase undertaking (EIPU) in respect of US$450,000,000 six per cent Guaranteed Bonds due in 2020, issued by Unigroup International Holdings Ltd (the issuer) and guaranteed by Tsinghua Unigroup International Co Ltd (the guarantor).

The defendant was a PRC company and the indirect 100 per cent owner of the guarantor (a BVI company) which was in turn the direct owner of the issuer (another BVI company). The keepwell and EIPU provider had undergone reorganisation proceedings in the PRC under the PRC Enterprise Bankruptcy Law. The onshore proceedings concluded on 13 July 2022 only after the commencement of the Hong Kong proceedings.

The plaintiff argued that pursuant to the keepwell deed and the EIPU, the guarantor and issuer were required to have sufficient liquidity and/or means to comply with their obligations in respect of the bonds at all times. The plaintiff claimed the defendant failed to perform its obligations and was thus liable to the plaintiff for damages.

The defendant claimed the obligations were void or unenforceable or did not arise because they were subject to obtaining regulatory approvals that it said would have been impossible to obtain and/or that they were obligations that would have been terminated or discharged in any event under PRC law.

Both Tsinghua and the Peking Founder litigation (which trials were heard back-to-back), involved English-law governed deeds containing Hong Kong exclusive jurisdiction clauses. In both cases, proofs of debt had been submitted by the trustee in the onshore bankruptcy proceedings. In the Peking Founder case, the proof had been rejected but without any reasons being given by the PRC Administrator. In Tsinghua the Administrator gave the proof a “pending” status, effectively providing the trustee with no voting right, no participation in any creditors’ meeting and no say in the substance of the onshore restructuring plan.

The judgment

In his judgment, released just weeks after the decision in the Peking Founder litigation (see Hogan Lovells’ alert Hong Kong court rules keepwell deeds are enforceable in first of its kind decision), Mr Justice Harris noted that the issues dealt with in both trials were the same and the facts, although concerning unrelated business groups, were similar, with almost identical contractual documentation.

A major difference, however, was that the default on bonds issued by the Tsinghua Group and the consequent breaches of the keepwell deed and EIPU, which led to the claims, took place before it was ordered into reorganisation on 16 July 2021. This was not the case in respect of the claims brought by three of the plaintiffs in Peking Founder.

A further difference is that in Tsinghua the plaintiff sought a monetary judgment whereas in Peking Founder the plaintiffs only sought declaratory relief.

Harris J said there was no evidence of the company, the issuer or the guarantor ever making any efforts to comply with its keepwell or EIPU obligations “or, for that matter, giving any consideration to how they might do so”. The breaches occurred in December 2020, well before the reorganisation commenced in July 2021.

The defendant claimed it would not have been able to obtain the necessary regulatory approvals despite using its best efforts, but Harris J held that “in the present case there is no evidence of the defendant giving any consideration to what Regulatory Approvals were required, let alone making any effort to obtain any”. The defendant “did not formulate a plan to ensure that the finance required by the Keepwell Deed was provided to the Issuer or Guarantor in 2020 and never explored with the Approval Authorities whether whatever consents were required were likely to be given”.

In the view of Harris J, the “best efforts” obligation “required Tsinghua to consider the options that might be available to it in order to comply with the Keepwell Deed and the EIPU”. The defendant would need to “demonstrate what steps it took to comply and why they were unsuccessful. Tsinghua has failed to do so”.

The defendant had “adduced no evidence of any consideration being given to a means by which the Issuer or the Guarantor could be put in funds, which would enable them to comply with their obligations under the Bonds or the guarantee and it has not adduced any evidence to explain why it did not.” The defendant had also failed to provide evidence as to its financial state in late 2020 or show what if any options were available.

Harris J said that in his view it was clear that the defendant had failed to demonstrate that it was not possible for it to perform its obligations under the keepwell deed and/or the EIPU because it could not obtain the necessary regulatory approval prior to 10 November 2020, a significant date since “it would have been necessary for Tsinghua to have been considering its options at least a month in advance of the last date by which the Issuer and the Guarantor needed funds to pay the Bonds when they matured” on 10 December 2020.

On 7 December 2020, the guarantor (as lender) entered into a loan agreement with Tsinghua (as borrower) to lend US $523,000,000 to Tsinghua (Guarantor's Loan Agreement).  The court found that the Guarantor’s Loan Agreement demonstrated that in December 2020, Tsinghua had access to U.S. dollars that could have been used to comply with its obligations under the Keepwell Deed or EIPU but that instead of utilising the funds to settle its liabilities under the bonds, a decision was made to shift these funds back onshore.


As to the extent of loss suffered, Harris J said that the relevant question was “what was lost by the failure to comply with the Keepwell Deed and EIPU, the failure to comply being the failure to put the Issuer and/or the Guarantor in funds in order that they could pay the principal and interest due when they became due. There is no dispute that the Bonds matured and became payable on 10 December 2020. This is the date at which loss is to be assessed. The loss was the amount that should have been paid but was not.”

In giving judgment in the trustee’s favour, Harris J awarded the substantial sum of US$483,843,533 consisting of the principal amount, accrued interest and certain trustee costs.

A significant ruling

The decision represents a significant victory for bondholders and creditors demonstrating that material damages awards can be achieved from keepwell providers. The decision gives rise to a money judgment which may now be enforced directly against the defendant and its assets and the success in pursuing this will now be closely followed.

What is certain is that this landmark decision together with Peking Founder represents one of the most important developments in cross-border corporate insolvency matters and further opens the door to sensible interaction and cooperation between the Hong Kong and mainland courts.


Authored by Byron Phillips, Jonathan Leitch, and Nigel Sharman.

Chris Dobby
Hong Kong
Jonathan Leitch
Hong Kong
Byron Phillips
Hong Kong
Andy Ferris
Mark Lin
Hong Kong
Antonia Croke
Hazel Law
Hong Kong
Nigel Sharman
Senior Knowledge Lawyer
Hong Kong


This website is operated by Hogan Lovells International LLP, whose registered office is at Atlantic House, Holborn Viaduct, London, EC1A 2FG. For further details of Hogan Lovells International LLP and the international legal practice that comprises Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses ("Hogan Lovells"), please see our Legal Notices page. © 2024 Hogan Lovells.

Attorney advertising. Prior results do not guarantee a similar outcome.