(Bloomberg) -- Some creditors of Glory Health Industry Ltd. convinced a New York state court that they have standing to sue the Chinese property developer for missing payments on its bond, a ruling that further clarifies which bondholders are eligible to file legal claims.

Glory Health, which missed payments on its $335 million bond, sought to dismiss a lawsuit from a group of investors by arguing they aren’t the trustee or holders of the notes. But the fact that investors — who hold 42% via prime brokers — received approval from the notes’ clearing agent was enough for their standing to sue, the Supreme Court of the State of New York ruled March 11 while tossing Glory Health’s motion to dismiss. The court released the order on its website later in the week.

The ruling provides a glimpse of a possibly expedient way for creditors to sue financially strapped bond issuers to get paid under New York law, the state with jurisdiction on a large bulk of Chinese companies’ dollar notes. Glory Health’s predicament is also notable because it may foreshadow Chinese developers’ legal options in fending off creditors of their dollar-denominated bonds amid cratering property prices and demand.  

The order could make New York law-governed dollar notes “more easily enforceable as a general matter, which could even impact pricing,” said Kobre & Kim LLP attorney John Han, who represents bondholders in the case. Investors “may no longer need to form groups to take action, and can make and quickly execute on strategic decisions without going through a bond trustee.” 

About $244 billion of Chinese companies’ outstanding dollar-notes principal are governed by New York law, according to Bloomberg-compiled data. That’s more than a third of all their outstanding dollar bonds. 

“Defendants’ assertion that only the trustee or holder can bring suit under the Indenture is not supported by the case law,” Judge Joel M Cohen wrote in the order. 

Glory Health argued that the governing debt documents only allow noteholders or a trustee to sue, not the investor group which includes Hong Kong-based BFAM Asian Opportunities Master Fund. But the plaintiffs responded that they received authorization from Euroclear Bank, the notes’ clearing system, to file the suit.

Whether certain bond investors are actual “holders” of the notes and have standing to sue in default has been a contentious issue in the aftermath of China’s property debt crisis. 

A Hong Kong court recently found that an investor was merely “beneficial” owner of dollar notes sold by Leading Holdings Group Ltd. and wasn’t qualified to file a winding-up petition, according to a recent post by local law firm Tanner De Witt. 

--With assistance from Jonathan Randles and Steven Church.

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