Re Hing Fung Investments Ltd

HCMP 744/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 744 OF 2006

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Before: Hon Kwan J in Court

Date of Hearing: 7 June 2006

Date of Judgment: 7 June 2006

Date of Handing Down of Reasons for Judgment: 9 June 2006

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REASONS  FOR  JUDGMENT

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1.This is a petition presented by Hing Fung Investments Limited (“the Company”) to confirm a reduction of its share capital.  The background matters may be stated as follows.

2.The Company was incorporated under its former name on 20 August 1991 with an authorised capital of HK$10,000.00 divided into 10,000 shares of HK$1.00 each. 

3.In about June 2005, Ho Pui Yuen William negotiated with the directors and shareholders of the Company to purchase the entire shareholding as he was interested in purchasing the only asset of the Company, being 15 units of debentures (“the Debenture”) issued by The Clearwater Bay Golf & Country Club held and owned by the Company.  Upon perusing the books and accounts, he was concerned with an item of debt (“the Debt”) due to a shareholder in 2005 then standing at HK$34,928,125.00. The Debt was unsecured and was initially due from the Company to the ultimate holding company and then assigned by the ultimate holding company to the shareholder in June 2003.  The Debt seemed to have been carried forward for some years and it was not clear to Mr. Ho how it was created at the beginning.  As he was concerned that the validity of the Debt might be open to challenge, he decided not to ask the shareholder to assign the Debt to him upon the sale of the entire shareholding of the Company.

4.Instead, on the advice of his accountant, Mr. Ho requested the shareholders of the Company to increase the share capital and then set off the Debt against the increased capital, before the completion of the sale and purchase of the entire shareholding of the Company was to take place. 

5.Accordingly, on 28 September 2005, the then shareholders passed a resolution to increase the authorised share capital to its present amount of HK$35,000,000.00, by the creation of 34,990,000 shares of HK$1.00 each.  It was also resolved that the directors be authorised to allot unissued shares in the Company.  The total shares issued and allotted are 34,930,000, all of which are fully paid up or deemed as fully paid up, by setting off the Debt owed by the Company to the shareholder.

6.By a sale and purchase agreement dated 14 December 2005 relating to the entire issued share capital of the Company, Mr. Ho acquired all the issued shares from the former shareholders at the consideration of HK$1,720,000.00.  Since 21 December 2005, he is the sole shareholder and director of the Company.

7.Having acquired the entire shareholding, Mr. Ho is desirous of reducing the share capital to eliminate the accumulated deficit and bring the Company’s share capital more nearly into line with its only available asset, namely, the Debenture.  The only reason for the Company’s existence is to hold the Debenture.  The proposed reduction would facilitate the future sale by Mr. Ho of the entire issued shares in the Company with the Debenture held in the Company’s name.  The present market value of the Debenture is estimated at about HK$1,750,000.00. 

8.There is provision in the articles of association of the Company for reduction of its share capital by special resolution. 

9.On 10 April 2006, the Company duly passed a special resolution by way of a resolution in writing signed by its sole shareholder Mr. Ho, in accordance with section 116B of the Companies Ordinance, Cap.  32.  By this resolution, it was resolved that the issued capital of the Company be reduced from HK$35,000,000.00 divided into 35 million shares of HK$1.00 each to HK$1,772,173.00 divided into 1,772,173 shares of HK$1.00 each, and that such reduction be effected by cancelling paid-up capital of 33,227,827 shares of HK$1.00 each. 

10.The reason for the proposed reduction is that paid-up capital to the extent of HK$33,227,827.00 had been lost or was unrepresented by available assets as at the date of the passing of the special resolution and the reduction is to enable the Company to eliminate such deficit. 

11.The Company has had no business turnover since 2000.  According to the profit and loss account of the Company for the year ended 30 April 2001, the initial deficit of the Company in the year 2000 was HK$119,007.00.  As revealed by the detailed profit and loss account of the Company for the year ended 30 April 2001, the Company suffered loss on disposal of subsidiaries in the sum of HK$32,999,723.00 in the year 2000.  Since 2000 up to 31 March 2006, the Company has incurred expenses and suffered loss in the total sum of HK$111,097.00, excluding the provision for impairment in value of the Debenture.  The total accumulated loss of the Company as on 31 March 2006, excluding the provision for impairment in value of the Debenture, was HK$33,227,827.00.  Such loss suffered by the Company would appear to be permanent.

12.The proposed reduction does not involve the diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital. 

13.The total debt of HK$47,827.00 shown in the balance sheet of the Company for the year ended 30 September 2005 has been repaid by Mr. Ho on behalf of the Company.  As at present, the Company has no creditor except for Mr. Ho, as shown in the management accounts made up to 31 March 2006.

14.At the hearing of the summons for directions on 19 May 2006, an order was made to dispense with the settlement of a list of creditors.  Directions for advertisement of a notice of hearing of the petition have been complied with. 

15.This is an appropriate case to confirm the proposed reduction of capital.  I make an order in terms of the draft provided.

Mr. Ivan Cheung, instructed by Messrs Lam & Partners, for the Petitioner