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The curator has rescinded the aircraft and engine lease agreement between East Star and GE Commercial Aviation Services (GECAS), an aircraft fleet and financing solutions provider.
A day earlier, Wuhan East Star International Travel Services Co., Ltd., the third largest shareholder of East Star, jointly submitted a restructuring application to a local court in Wuhan with a strategic investor Shanghai Yujie Industry Co., Ltd. Grandall Legal Group serving as the attorney in the case.
The curator claimed that Grandall Legal Group held press conference and applied for a restructuring without getting approval from Wuhan East Star International Travel Services, thus its act had no validity.
East Star has decided to sell at least an 85% stake to Shanghai Yujie. In return, it will get at least CNY 500 million or USD 73.2 million from a consortium headed by the strategic investor.
Previously, East Star rejected an acquisition bid proposed by Air China Limited (SHSE: 601111 and SEHK: 0753), one of China's top three airways, and was believed to have lost an opportunity to avoid bankruptcy.
Earlier, East Star's main creditor China National Aviation Fuel Holding Company (CNAF) filed a similar application to the local court, which was turned down. CNAF said that it would appeal against the ruling made by the court.
Yin Zhengyou, lawyer of Weiheng Law Firm and attorney of CNAF, pointed out that as long as East Star obtained capital infusion, it would be able to afford the lease of aircrafts and engines. Meanwhile, the company had not lost its route resources. It was only grounded and suspended to provide services.
However, there are some other barriers for the restructuring of East Star. China's bankruptcy law grants debtors and certain promoters the right to apply for a restructuring before the court declares a bankruptcy. Literally, creditors are not allowed to file another restructuring application after they apply for a liquidation of debtors. The law has not clarified how to resolve such conflicts between creditors.
That means, since GECAS has applied for a liquidation of East Star as a creditor, there is no legal basis available for CNAF to submit another application for a restructuring of the same company.
GECAS declined to make any comment on June 24, although it paid much attention to the case. Geoff Li, spokesperson of GE (China) Co., Ltd., revealed that GECAS had begun recapturing airplanes and engines leased to East Star.
(USD 1 = CNY 6.83)
Source: www.cnstock.com (June 25, 2009)
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