Reed Smith Client Alerts

Key takeaways
  • The Court of First Instance ordered the bond issuer to issue definitive certificates to the ultimate investor in the event of default (China Ping An Insurance Overseas (Holdings) Limited v. Luck Gain Limited and ors [2023] HKCFI 3315)
  • The issuance of definitive certificates enabled the ultimate investor to have a direct legal recourse against the bond issuer without encroaching the “no look through” principle
  • The case shed light on the potential remedies available to the ultimate investors of intermediated bond securities against the issuers


The plaintiff (the Plaintiff) invested US$190 million in the guaranteed bonds (the Bonds) issued by the first defendant (the 1st Defendant) and guaranteed by the second defendant (the 2nd Defendant). Among the US$190 million, an amount of US$50 million of the Bonds was acquired under a subscription agreement dated 8 December 2020 (the Subscription Agreement), and the rest was acquired by the Plaintiff on the market. The Bonds were constituted by, among other things, a Global Certificate (the Global Certificate) and a Deed of Covenant dated 10 December 2020 (the Deed of Covenant).

The Bonds were cleared through Euroclear Bank S.A./N.V. (Euroclear). The Plaintiff held its interests in the Bonds through the Bank of China (Hong Kong) Limited (BOC(HK)), which was an account holder in Euroclear. The Bonds were also subject to a Fiscal Agency Agreement made between, inter alia, the 1st Defendant and the fourth defendant (the 4th Defendant), which was the registrar.

The 1st and 2nd Defendants failed to pay the principal amount of US$190 million upon the maturity date of 9 December 2021. Therefore, on 13 April 2022, the Plaintiff presented a winding-up petition against the 1st Defendant, who argued that the Plaintiff was not the registered bondholder and, therefore, had no standing to sue. The said petition was dismissed.

Hence, the Plaintiff commenced this action and argued that clause 4.2 of the Subscription Agreement empowered the Plaintiff to compel the 1st and 2nd Defendants to have the Global Certificate exchanged into definitive certificates (the Definitive Certificates) to be registered in the name of the Plaintiff, thereby enabling the Plaintiff to directly sue on the Bonds.

Global certificates or definitive certificates?

Definitive certificates are physical security papers given to individual investors representing their respective ownership. Global certificates, on the other hand, are a single document representing the entire amount of a particular bond issuance, regardless of how many investors own the notes in that issue. Global certificates are usually registered under the name of a custodian and permanently held by the custodian. In practice, debt securities issued in the international debt capital markets are usually issued in global form to facilitate the trading and settlement procedures of the clearing systems.

The differences between global and definitive certificates have significant legal consequences. For global certificates, the Hong Kong courts adopt the “no look through” principle espoused in Secure Capital SA v. Credit Suisse AG [2017] 2 CLC 428, which stated that only the holder of the certificate (which is usually the custodian) might enjoy enforceable rights against the issuers and the individual investors would have no standing to sue the issuers. In contrast, investors holding definitive certificates can directly sue on the bond and/or present a winding-up petition against the defaulted issuer.