Hong Kong Court clarifies approach to work fees in scheme sanctions

In Re Fantasia Holdings Group [2026] HKCFI 3449, the Hong Kong Court of First Instance sanctioned a scheme of arrangement under section 670 of the Companies Ordinance (Cap. 622), facilitating the restructuring of approximately US$6.76 billion of offshore debt. 

The decision is significant because it addresses the increasingly common use of work fees payable to ad hoc creditor groups in large restructurings. While the Court accepted that a material work fee may affect class composition, it ultimately sanctioned the scheme on the facts of the case. 

Background

The Company, a Cayman-incorporated and Hong Kong-listed property developer, was adversely affected by the downturn in the Mainland real estate market and reduced access to both onshore and offshore financing. By 30 June 2025, the Company was insolvent. 

Following negotiations with an ad hoc group of noteholders, the Company entered into a restructuring support agreement in August 2025. By October 2025, holders of 87.38% of the outstanding principal under the existing notes and 65.84% of the outstanding principal under additional debt instruments had acceded to the agreement.

The scheme compromised approximately US$6.76 billion of offshore debt. Estimated recoveries under the scheme ranged from 5.95% to 15.8%, compared with liquidation recoveries of 0.44% to 1.57% for existing noteholders and 0.27% to 11.04% for other creditors.

Decision

The Court applied the well-established principles governing the sanction of schemes of arrangement, and readily concluded that the scheme served a legitimate purpose, the meeting had been properly convened, sufficient information about the scheme had been provided to creditors, the requisite majorities had approved the proposal and that the scheme is one which an “intelligent and honest” creditor might approve.

On class composition, the Court reaffirmed that the relevant question is whether creditors' rights, not their commercial interests, are so dissimilar that they cannot consult together with a view to their common interest. Despite differences in security arrangements and credit support, the Court held that the creditors in this case could properly vote as a single class because their legal rights were sufficiently similar.

The most significant aspect of the judgment concerned a work fee payable to the ad hoc group. The fee amounted to approximately US$21.78 million, representing 1.55% of the outstanding principal held by the ad hoc group. The Court considered the fee material when compared with expected recoveries under the scheme (5.95%–15.8%) and particularly when compared with estimated liquidation recoveries (0.44%–1.57%). 

Despite its materiality, the Court concluded that the work fee did not fracture the creditor class in the circumstances of the case. The Company had fully disclosed the work fee, no creditor raised any objection on the payment, the level of creditor participation at the scheme meeting was high, and the support for the scheme was overwhelming. Even if the ad hoc group were put into a separate class, the scheme would still have been approved by the requisite majority. For these reasons, the Court was not prepared to withhold sanction.

Comments

This decision confirms that work fees warrant careful scrutiny because they can create divergent economic interests within a creditor class. Equally important is the Court’s emphasis on context. In this case, the decision to sanction the scheme was driven heavily by the fact that the work fee was fully disclosed, attracted no objections, and was accompanied by high creditor participation and overwhelming support. In some cases, a material work fee may well fracture a creditor class and place sanction at risk, if creditors challenge the arrangement or support for the scheme is less compelling.

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