Re Barits Ho Chong Securities Co Ltd

HCMP 1280/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1280 OF 2005

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Before: Hon Kwan J in Court

Date of Hearing: 1 September 2005

Date of Judgment : 1 September 2005

Date of Handing Down of Reasons for Judgment: 2 September 2005

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REASONS  FOR  JUDGMENT

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1.This is an amended petition presented by Barits Ho Chong Securities Company Limited (“the Company”) on 20 June 2005 for confirmation of reduction of its share capital pursuant to section 59(1) of the Companies Ordinance, Cap. 32.

2.The Company was incorporated on 20 August 1992 under its former name.  Its name was changed to its present name with effect from 6 March 1998.

3.The Company commenced business shortly after incorporation and is currently a licensed corporation registered under the Securities and Futures Ordinance, Cap. 571 and a participant of The Stock Exchange of Hong Kong Limited.  It is engaged in the business of securities dealing, broking and margin financing.

4.The present authorised share capital of the Company is HK$300 million divided into 500,000 ordinary shares of HK$600.00 each, all of which have been issued and are fully paid up or credited as fully paid up.

5.There is provision in the articles of association for reduction of the share capital by special resolution subject to any incident authorised and consent required by law.

6.By a written resolution of the sole shareholder of the Company, Barits Holdings Limited (“Barits Holdings”), passed on 18 June 2005 pursuant to section 116B of Cap. 32, the Company resolved that the authorised capital be reduced from HK$300 million divided into 500,000 ordinary shares of HK$600.00 each to HK$60 million divided into 100,000 ordinary shares of HK$600.00 each, and that such reduction of capital be effected by returning issued and paid-up capital of HK$240 million representing 400,000 ordinary shares of HK$600.00 each to Barits Holdings and cancelling the same.

7.The directors are of the opinion that the sum of HK$240 million proposed to be repaid to Barits Holdings is in excess of the wants of the Company and cannot be usefully employed any longer in its business.

8.In about 2004, the Company planned to acquire a securities brokerage firm in Mainland China.  According to the regulations then in force in the Mainland, the holding company of such a brokerage firm had to attain a minimum capital requirement of HK$300 million.  To satisfy such requirement, the authorised share capital of the Company was increased from HK$30 million to HK$300 million by the creation of an additional 450,000 ordinary shares of HK$600.00 each pursuant to an ordinary resolution of the Company passed on 18 March 2004 and on 19 and 30 March 2004, the Company issued a total of 450,000 ordinary shares for a total consideration of HK$270 million.

9.As it transpired subsequently that the above acquisition is no longer viable in the near future, the proceeds of HK$270 million raised in the above exercise, which is unexpended, is considerably in excess of the wants of the Company.  At the level of the capital to be reduced as proposed, the Company’s paid-up capital would still be six times of the minimum paid-up capital which the Company is required to maintain under section 5 of the Securities and Futures (Financial Resources) Rules, Cap. 571N and Table 1 in Schedule 1 thereto.

10.It does not appear that the proposed reduction of capital should in any way prejudice the business of the Company or affect other prudential requirements imposed on the Company by law.

11.The Company has adduced its audited accounts for the past three years and its latest management accounts covering the period from January 2005 to 29 August 2005.

12.As at 30 June 2005, the cash at banks and on hand stood at HK$310 million odd.  On top of that, as at that date, there were loans due from related companies to the Company in the total amount of HK$96 million odd, one of the loans was in the sum of HK$91 million odd due from Barits Global Asset Management Limited (“BGAML”). BGAML has repaid the said loan in full by various instalments on 7, 13, 27 and 29 July 2005, as shown in the general ledger balance of the Company as at 31 July 2005.

13.With this repayment of the loan, the liquid assets of the Company have increased substantially.  As at 29 August 2005, the Company’s cash at bank and on hand has increased to HK$398 million odd.  As such, even if share capital amounting to HK$240 million is to be returned to Barits Holdings out of cash with the Company’s bankers, the Company would still be left with bank balances and cash of about $158 million odd after the repayment of capital.

14.As at 29 August 2005, the Company’s liabilities stood at HK$116 million odd.  This consisted predominantly of amounts payable to the Company’s clients and brokers arising from the ordinary course of business in dealing in securities.  It is anticipated that such liabilities will be paid in the ordinary course of business on a regular basis.  In any event, the Company should still have bank balances and cash of about HK$158 million odd after the reduction of capital and this should be more than sufficient to enable the Company to pay all its liabilities and leave a margin of slightly more than 36.2% of such liabilities.

15.Furthermore, as at 29 August 2005, the Company had receivables totalling HK$27.4 million odd from its clients, brokers and the Central Clearing and Settlement System (“CCASS”).  The receivables are readily realisable and are regarded as liquid assets in the monthly financial returns that the Company is required to file with the Securities and Futures Commission.  Of the receivables, the amount due from brokers totalled HK$509,000.00 odd and the amount due from CCASS was about HK$2.6 million odd; there ought to be no material risk of default for such receivables.  As regards the receivables from clients totalling HK$24.3 million odd, about HK$9.8 million odd would have to be settled by the clients within two working days of the purchase of securities on their instructions and the rest, which arose out of money borrowed by the clients under margin accounts or custody accounts, is secured by listed securities pledged in favour of the Company.

16.The financial position of the Company is apparently sound.  As at 31 December 2004, it had retained profits of HK$61 million odd.  The latest management accounts showed a payment out of dividends of HK$50 million in April 2005.  Notwithstanding the payment of such dividends, the retained profits still stood at HK$10 million odd.

17.At the hearing of the summons for directions on 10 August 2005, I made an order to dispense with the settlement of a list of creditors, having been satisfied that the cash standing to the credit of the Company at its bankers should exceed its debts and the amount of the capital proposed to be returned by a reasonable margin, and that no creditors would be prejudiced by the proposed reduction.  The direction made regarding the advertisement of the notice of presentation of the amended petition and of the hearing date has been complied with.  No objection to the proposed reduction has been received.

18.The jurisdictional requirements for confirmation of reduction of capital have been satisfied.  There is no question of inequitable treatment of any shareholder in the reduction, there being only one shareholder in the Company and that shareholder must have exercised an informed judgment in proposing the resolution for reduction.  There is a discernible purpose for the reduction.  I have been satisfied that the interests of creditors would not be prejudiced, in dispensing with the settlement of a list of creditors.

19.For the above reasons, I have made an order confirming the reduction of capital in terms of the draft submitted.

Mr Jenkin Suen, instructed by Messrs Or, Ng & Chan, for the Petitioner