Re Lai Sun Development Co Ltd
Read the full judgment text of HCMP 1850/2006 on BabelCite. This High Court CFI judgment was delivered on 17 October 2006.
1. This petition was presented by Lai Sun Development Company Limited (“the Company”) for confirmation of a reduction of its share capital.
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HCMP 1850/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 1850 OF 2006 ____________
____________ Before: Hon Kwan J in Court Date of Hearing: 17 October 2006 Date of Judgment: 17 October 2006 Date of Handing Down of Reasons for Judgment: 19 October 2006 _________________________________ REASONS FOR JUDGMENT _________________________________ 1.This petition was presented by Lai Sun Development Company Limited (“the Company”) for confirmation of a reduction of its share capital. 2.The Company was incorporated in Hong Kong on 29 June 1959 as a private company under its former name. It became a public company in November 1972. Its principal activities are property development, property investment and investment in hotels, telecommunications, media and the entertainment business. 3.The present authorised capital of the Company is HK$9,200,000,000.00 divided into 16,000,000,000 ordinary shares of HK$0.50 each and 1,200,000,000 10% non-voting cumulative participating redeemable preference shares of HK$1.00 each, of which 12,746,042.320 ordinary shares have been issued and are fully paid or credited as fully paid. None of the preference shares are in issue. The paid-up capital is HK$6,373,021,160.00. 4.There is provision in the articles of association for reduction of the share capital by special resolution in any manner authorised by and subject to any conditions prescribed by law. 5.By a special resolution of the Company passed in accordance with section 116 at an extraordinary general meeting on 24 July 2006, it was resolved that the paid-up capital of the Company be cancelled to the extent of HK$0.49 per ordinary share in issue on the date upon which the reduction of capital takes effect and that the nominal value of each ordinary share in the authorised share capital be reduced from HK$0.50 to HK$0.01. As a consequence, the share capital will be reduced by HK$6,245,560.737.00. 6.The capital reduction has two purposes. They were set out in a circular to all members of the Company dated 30 June 2006. 7.The first purpose is to reduce the nominal value of each ordinary share in the Company to an amount which is less than the price at which the Company’s shares have been trading on The Stock Exchange of Hong Kong Limited, thereby facilitating the ability to raise funds in future through allotment of the Company’s shares. 8.The second purpose is so that the Company may apply HK$5,619,000,000.00 of the credit arising from the capital reduction towards reducing in part the accumulated losses of the Company, which amounted to HK$11,067,292,000.00 as at 31 July 2005 and HK$10,966,746,399.00 as at 30 June 2006. As a result, the Company’s paid-up capital will more closely reflect the available net assets of the Company. The balance of the credit arising from the capital reduction that is not applied towards reducing the accumulated losses, being HK$626,560,736.80, will be credited to the Company’s share premium account and will continue to represent capital of the Company. 9.The proposed cancellation of issued and paid-up capital does not involve the diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital. 10.The accumulated loss position of the Company was set out in some detail in the supporting affirmation. The amount of losses proposed to be written off reflects the Company’s losses in respect of two matters. 11.The first matter is its losses in respect of its interests in a wholly owned subsidiary called Smart Leader Limited (“Smart Leader”) and the former wholly owned subsidiary of Smart Leader, Furama Hotel Enterprises Limited (“FHEL”). This has to do with the Company’s acquisition of the FHEL group of companies at the height of the property market in mid 1997, before the Asian financial crisis that year. The companies in that group have never fully recovered and various companies and assets comprised within that group have been transferred or sold since 1997. As a result, Smart Leader is now an inactive company with no assets and no prospects of returning any further sums to the Company. 12.As at 31 July 2005, the Company made a cumulative provision in respect of its investment in Smart Leader and FHEL of HK$5,245,000,000.00. The Company’s auditors have confirmed that the above provision was agreed to the group’s books and records as at 31 July 2005 and it was a figure upon which the auditors based their audit of the annual financial statements for the year ended that date. Since then, an additional and final provision of HK$2,000,000.00 was made by the Company in respect of this investment. Thus, the total loss for this investment recorded by the Company was HK$5,247,000,000.00. 13.The second matter concerns the Company’s losses in respect of its interest in a wholly owned subsidiary called Peakflow Profits Limited (“Peakflow”), a company which, in turn, now holds a 10% interest in a company called Bayshore Development Group Limited (“Bayshore”), the owner of AIG Tower located at 1 Connaught Road, Central. The Company had reduced and disposed of part of its indirect investment in Bayshore and losses were recorded on the disposal. 14.The Company had made a provision of HK$372,000,000.00 in its audited accounts as at 31 July 2005 being the net overall loss in respect of Peakflow. The auditors had likewise confirmed that the provision was agreed to the group’s books and records and was a figure upon which they based their audit. 15.As the Company may yet derive further recovery in respect of certain underlying assets formerly held within the Smart Leader group to the extent that they continue to be held by other subsidiaries (the Company continues to own 50% of Fortune Sign Venture Inc. and therefore a half interest in the Majestic Hotel and Majestic Centre in Kowloon; 10% of Bayshore and therefore a 10% interest in AIG Tower; and 100% of FHEL and therefore the prospect of recovering the outstanding balance of the consideration due to FHEL in respect of the sale of the Furama Shenyang and to receive future amounts in respect of the few residual business interests of FHEL), the Company has proposed to credit any additional return from these remaining underlying assets to a special capital reserve for the protection of creditors and an appropriate undertaking is offered to give effect to this, the terms of which are set out in the schedule annexed to this judgment. 16.At the hearing of the summons for directions on 26 September 2006, I made an order to dispense with the settlement of a list of creditors. 17.The proposed reduction is for discernible purposes. By the undertaking, I am satisfied that the interests of creditors would not be prejudiced. I have therefore made an order in terms of the draft submitted.
Mr Jonathan Harris, SC, instructed by Richards Butler, for the Petitioner Schedule The Company by its Leading Counsel undertaking that, forthwith upon the proposed reduction of capital taking effect,
will be credited to a special capital reserve (the “special capital reserve”) in the accounting records of the Company and that, for so long as there shall remain any debt of or claim against the Company outstanding as at the effective date of the reduction of capital (the “effective date”) which, if such date were the date of the commencement of the winding up of the Company, would be admissible in proof against the Company and the persons entitled to the benefit thereof shall not have agreed otherwise, such reserve
PROVIDED ALWAYS that:-
AND the Company by its Leading Counsel further undertaking, for so long as the aforesaid undertaking shall remain effective:-
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