Wed 04/13/2022 08:13 AM
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Relevant Documents:
Particulars of Claim
ETS Reply and Defence to Counterclaim
GLAS Reply and Defence to Counterclaim
ETS Reply and Defence to Counterclaim
ETS Response to Request For Further Information

Singapore Affidavit on behalf of GLAS

GLAS, as trustee to European TopSoho’s, or ETS’s, defaulted €250 million convertible bond, has brought a claim of fraudulent transfer against the company, seeking to trace and recover 12 million unpledged shares in French fashion retailer SMCP. The shares were last known to be in a JPMorgan account in Singapore in December, transferred via the British Virgin Islands. The U.K claim is one front in a dispute that has been litigated in France, Luxembourg and Singapore.

Continue reading for more reporting on TopSoho's defaulted bond and request a trial to access more of Reorg's analysis and actionable insights. 

Court filings show that the convertible bondholders have been sucked into the wider financial distress of the Shandong Ruyi Technology Group, a vast Chinese conglomerate and ultimate parent of ETS that once aspired to rival French luxury group LVMH. The shares, representing a 16% stake in SMCP, appear to have been pledged as security for Ruyi debt in 2018 despite written assurances to bondholders in June last year that the shares were unencumbered and an agreement to subordinate any Ruyi debts to the bondholder debt.

When ETS failed to repay the bonds at maturity in September 2021, GLAS, as trustee, took enforcement action over 29% of the shares in SMCP that were pledged against the convertible bonds (the pledged shares). SMCP owns French fashion brands including Sandro, Maje and De Fursac. Until September 2021, ETS held 53.7% of SMCP’s share capital.

Via this claim in the English High Court GLAS seeks to take the unpledged shares, on behalf of the convertible bondholders as unsecured creditors to ETS, to make up the difference between the amounts owed to the bondholders and the value of the pledged shares. ETS, which GLAS says is insolvent, has no other assets.

GLAS claims that the sale of the unpledged shares by ETS to BVI-based Dynamic Treasure Group on Oct. 22, 2021 – for €1 – was a transaction at an undervalue, within the meaning of section 423 Insolvency Act 1986. The transaction was conducted by Chenran Qiu on behalf of Dynamic Treasure. Qiu is the daughter of Ruyi’s chairman Yafu Qiu. She is a manager of ETS and was a board member of SMCP until she was removed on Jan. 14 at the request of GLAS, along with all other board members appointed by Ruyi. Qiu is director of several companies in the Ruyi fashion empire including Lycra, Aquascutum and Savile Row tailor Gieves & Hawkes.

As such, GLAS says the disposal did not take place on arms’ length commercial terms, and that the purpose of the disposal was to put the unpledged shares out of GLAS’ reach as a creditor of ETS. In addition to the unpledged shares, GLAS claims:

  • €250 million in principal under the convertible bonds;

  • €3.43 million in owed interest under the bonds;

  • Contractual interest at a rate of 4% per annum on the above sums; and

  • An additional €5 million payable to the ad hoc group and due upon failure to repay bonds within five days of maturity.


As of Jan. 4, a breakdown of SMCP’s shareholding was as follows:

Source: SMCP. Note that European TopSoho is shown as holding the 12,106,939 unpledged shares since SMCP has not been informed of the identity of the current holder.

Today, Wednesday, April 13 SMCP’s share price is €6.37, implying the 12,106,939 unpledged shares are currently worth approximately €77.1 million.

A simplified representation of European Topsoho’s obligations and guarantees is below:

Source: Reorg

The position of ETS within the wider Shandong Ruyi group is shown HERE.

12M SMCP Shares Pledged to Xinbo in 2018

In 2018, ETS became a guarantor for debt owed by its ultimate parent Shandong Ruyi to an entity also majority owned by Ruyi, known as Wuhu Ruyi Xinbo Investment Partnership Enterprise LP, or Xinbo. This is despite ETS confirming to bondholders in June 2021 that the shares remained unencumbered. At the same time, ETS’s own debt, the €250 million bond, was guaranteed by Forever Winner, a Ruyi group entity.

ETS has disclosed that in July 2018 it “voluntarily” pledged the shares that it held in SMCP to guarantee Shandong’s Ruyi’s obligations to Xinbo, a partnership between Shandong Ruyi which owns 64.97%, and China Cinda Asset Management Co., or Cinda, a bank which holds around 33.84%.

Pacific Securities Co. Ltd. provided the original debt of RMB 1.4 billion ($220 million) to Shandong Ruyi. The debt was originally due on Sept. 28, 2019, but was extended by 12 months. Cinda acquired the title to the debt for full value plus interest on Dec. 27, 2017. On the same day Cinda assigned the debt to the Xinbo partnership.

In 2018, ETS agreed that if Ruyi became unable to repay the debt, Xinbo may enforce against the shares. ETS says its liability under the guarantee was stated to be “independent and irrevocable.” On Oct. 8, 2021, ETS received a notice from Xinbo requiring it to transfer the unsecured shares to the securities account of Dynamic Treasure as Xinbo’s nominee.

In January this year, ETS said the share disposal was “made pursuant to a lawful and valid pre-existing financial arrangement.” It did not disclose further information citing confidentiality requirements. Against GLAS’ claim of fraudulent transfer, ETS argues that the disposal was lawful and “merely enforced the security already granted under the 2018 Agreement.”

Dynamic Treasure received the shares into an account managed by BNP Paribas then instructed BNP to convert the unpledged shares from pure registered form to bearer form on Nov. 3, 2021. This makes them “harder to trace and easier to dissipate,” according to GLAS’s solicitors. The shares were then transferred to an account held with JPMorgan in Singapore (No. 3887660). This is the last known location the shares have been traced to. GLAS is concerned that the shares could be transferred onwards into China making enforcement difficult or perhaps impossible.

On Nov. 19 The Singapore High Court granted an injunction [HERE] against ETS and Dynamic Treasure prohibiting the disposal of assets in Singapore and ordered disclosure of the location of the shares and any relevant account that received payment. In an affidavit, Chenran Qiu responded that ETS did not have any assets in the jurisdiction and did not anticipate receiving any assets.

On behalf of Dynamic Treasure, the directors of Grandall International Holding Ltd. (a BVI entity and the sole director of Dynamic Treasure) disclosed that as of Dec. 2, Dynamic’s account with JPMorgan in Singapore held the 12 million unpledged shares plus cash of about $8.5 million.

In a further affidavit in February, Grandall’s directors informed the court that the agreement by which Dynamic purchased the unpledged shares from ETS in October 2021 is false. “We did not sign the Exhibited Agreement…and believe that the Exhibited Agreement is not authentic.” A copy of the signed agreement can be found HERE.

GLAS asked the Singapore court to stay proceedings in order to pursue the parallel claim in England and Wales. The request was granted last month.

ETS Confirms Shares are Unencumbered

Following a disputed cross default caused by ETS’s guarantor Forever Winner in January 2021, ETS and the bondholder group entered discussions for a consensual restructuring of the bonds. The cross default was triggered by winding up petitions filed in Hong Kong by Hang Seng Bank for debt equivalent to $123 million and Industrial Bank Co. for $33.8 million. Forever Winner reached a settlement with the lenders the same month and contends there was no event of default.

The eventual agreement in June 2021 comprise five individual agreements [see HERE]:

  • A Deed of Confirmation (Confirming GLAS as trustee to the notes in place of BNP Paribas);

  • A Supplemental Trust Deed (to waive events of default);

  • A Transaction Payment Letter (providing €5 million to the ad hoc group upon failure to repay bonds within five days of maturity);

  • A Deferred Fee Letter (providing a payment equal to 2% of bonds to all holders upon failure to repay bonds within five days of maturity); and

  • A Subordination Agreement (by which various Ruyi entities agreed to subordinate their debts to ETS to the sums owing to the bondholders).


In March 2021, a draft restructuring term sheet was agreed with bondholders. The draft terms included waivers for any alleged defaults allowing ETS breathing space to pursue a refinancing of the bonds. The term sheet also included a negative covenant “not to transfer, sell, encumber or grant any security, declare any trust over, move to another jurisdiction, or otherwise dispose of any interest in the unpledged SMCP shares.” By the time the Supplemental Trust Deed was agreed in June, this had been watered down to the following statement:

“The company has confirmed that all SMCP shares that it holds which do not comprise part of the security for the bonds are not otherwise subject to any mortgage, charge, pledge, lien, encumbrance or other security interest securing the obligation of, or any declaration of trust in favour of, any person, or any other agreement or arrangement having a similar effect.”

Sino Power’s Consent Needed to Transfer the 12M Shares

In addition to the Xinbo share pledge, Shandong Ruyi had pledged the equity of ETS itself, as issuer, to Sino Power Resources as security for a $140 million mezzanine loan to another Shandong Ruyi entity. Sino Power is 100% owned by China Orient Asset Management Co., which is owned by China’s finance ministry. The ETS pledge gave Sino Power the benefit of any value above the par value of the notes in an insolvency situation. Prior to ETS’s failure to repay the convertible bonds, some sources considered that a refinancing by Sino Power was a distinct possibility.

ETS said in English court filings that Sino Power gave its permission orally to the share pledge agreement with Ximbo in 2018. An affidavit to the English High Court by Sullivan & Cromwell on behalf of the bondholder ad hoc group shows that Sino Power’s consent was also required before the 12 million shares could be transferred by ETS. However, an email from Allen & Overy (acting for Sino Power) on Nov. 5, 2021 explains that Sino Power only found out about the transfer “via public record” and therefore presumably did not expressly consent to the transfer.

European TopSoho Counterclaim and Failed Carlyle Refinancing Offer

ETS disputes the validity of GLAS’ appointment as trustee in place of BNP Paribas in December 2020. ETS also claims that Carlyle, as the holder of around 25% of the convertible notes, induced the June 2021 agreements by misrepresentation in order to pursue an aggressive default strategy.

Specifically ETS claims that Carlyle “did not honestly intend” to proceed with a refinancing of the €250 million convertible bonds and by withdrawing from negotiations close to the refinancing date, sought to “manoeuvre…[ETS]... into a a very difficult position” where upon it could put forward a proposal to purchase the SMCP shares from ETS at a “substantial undervalue.”

ETS claims a longstanding plan by Carlye to acquire SMCP. In filings, ETS says Carlyle made unsuccessful approaches to the Ruyi group in 2013 and July 2020. From March to July 2021 Carlyle expressed an intention to refinance European TopSoho before the September maturity date in return for additional security over the 12 million unpledged shares. The parties exchanged term sheets to that effect. On Aug. 3 Carlyle asked ETS to agree to a break fee should the deal collapse citing interest from Cinda in refinancing ETS.

On Aug. 6, ETS says that Carlyle withdrew from negotiations saying that it no longer thought a refinancing could be completed before the bonds matured on Sept. 21. ETS says things culminated on Sept. 10, 2021 with a telephone offer from Carlyle for €250 million to ETS, plus $50 million to be shared by China Orient and the Ruyi Group in return for all the shares held in SMCP. ETS rejected the proposal as undervaluing its interest in SMCP.

SMCP’s share price closed at €5.14 on Sept. 10, indicating that the 40.1 million shares held by ETS were worth approximately €206.1 million. At this point, 11 days from the bond’s maturity date, a share price above €6.25 was required to cover the amounts owed to bondholders.

ETS has sought further disclosure from GLAS. ETS’ claim is due to be heard before the English High Court on May 17, 2022.

A Non-Exhaustive Factual Timeline to the Claim is as Follows:

  • ETS issues €250 million 4% bonds convertible into shares of SMCP on Sept. 21, 2018. The Indenture is HERE.

  • June 22, 2020, ETS misses a €2.5 million interest payment.

  • July 8, 2020, ETS pays the missed €2.5 million interest payment within the grace period.

  • Jan. 7, 2021 GLAS sends ETS a default notice in relation to an alleged cross default caused by ETS’s parent and guarantor Forever Winner. Forever Winner had defaulted on facilities owed to two Hong Kong lenders.

  • Jan. 18, 2021, an ad hoc group holding more than 75% of the bonds forms. ETS engages Perella Weinberg as its financial advisor and Linklaters as its legal advisor. ETS denies there has been an event of default.

  • March 8, 2021, ETS and noteholders agree on a draft term sheet.

  • In June 2021 ETS and bondholders agreed a supplemental trust deed to waive any alleged defaults allowing ETS time to pursue a refinancing of the bonds. In return bondholders receive a €5 million fee in the event that the bonds are not repaid within five days of the maturity date. ETS also agrees to recognize the appointment of GLAS as trustee under the bonds.

  • ETS does not refinance the bonds and fails to repay principal or interest under the bonds on Sept. 21, 2021. GLAS provides ETS with a default notice on Oct. 4

  • Oct. 1, 2021. ETS files a claim in the English High Court alleging that the supplemental trust deed agreed in June is not valid due to misrepresentation and seeks document discovery. The claim is due to be heard before the High Court on May 17, 2022.

  • GLAS enforces and gains control of pledged SMCP shares on Oct. 29, 2021.

  • On Nov. 24, 2021 GLAS was granted an order by the Paris Commercial Court compelling ETS to disclose the identity of the initial buyer of the unpledged shares as Dynamic Treasury. The petition and court order is HERE.

  • A request by GLAS to open insolvency proceedings against ETS is dismissed by a district court in Luxembourg on Nov. 26, 2021. The bankruptcy petition is HERE.

  • Nov. 30, 2021. The Commercial Court of Paris granted GLAS' request to appoint a mandataire to convene a shareholder meeting of SMCP. SMCP’s Shandong Ruyi-appointed board declined a previous request on Nov. 17.

  • On Dec. 8, 2021 GLAS obtains a freezing order from the Paris Commercial Court against ETS and Dynamic Treasure Group Ltd, the initial transferee, prohibiting any further transfer of the unpledged shares.

  • Jan. 10, 2022. ETS said it has entered into non-binding exploratory discussions with a major investor with a view to refinancing the notes.

  • Jan. 14, 2022 Shandong Ruyi appointees are ousted from the board of SMCP.


In the English proceedings GLAS is represented by Sue Prevezer QC, Ben Woolgar and Sophie Bird of Brick Court Chambers, instructed by McDermott Will & Emery. European TopSoho is represented by Seb Oram and Dr Zhen Ye of 3 Paper Buildings, instructed by Ince Gordon Dadds.

European TopSoho and Shandong Ruyi did not respond to a request for comment. GLAS did not respond to a request for comment.

--Connor Lovell
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