Re Shun Sing Finance Co Ltd

HCMP 2518/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2518 OF 2006

____________

____________

Before: Hon Kwan J in Court

Date of Hearing: 17 April 2007

Date of Judgment: 17 April 2007

Date of Handing Down of Reasons for Judgment: 19 April 2007

_________________________________

REASONS  FOR  JUDGMENT

__________________________________

1.This petition was presented by Shun Sing Finance Company Limited (“the Company”) for confirmation of its proposed reduction of capital under section 59 of the Companies Ordinance, Cap. 32.

2.The Company was incorporated on 27 February 1981. Since its incorporation, it has carried on business as a licensed money lender under the Money Lenders Ordinance, Cap. 163. The current licence is for a period of 12 months from 20 February 2007.

3.The present authorised share capital is $10 million, divided into 10 million ordinary shares of $1.00 each, all of which are issued and fully paid up. There are four shareholders of the Company – Shun Shing Motors Company Limited, Tam Chan Fung Enterprises Limited, Belway Investment Limited and Man Ho Yin Edward. Each of the shareholders has appointed one director to the board.

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

5.By special resolutions of the Company passed in accordance with section 116 of Cap. 32 at an extraordinary general meeting on 13 October 2006, it was unanimously resolved to reduce the capital to $2 million, divided into 10 million shares of $0.20 each, and that such reduction be effected by returning paid-up capital to the extent of $0.80 on each of the 10 million issued shares of $1.00 and by reducing the nominal amount of the said shares from $1.00 to $0.20 each. It was also resolved that forthwith upon such reduction of capital taking effect, the 10 million shares of $0.20 each be consolidated in such manner that every five of the said shares shall constitute one $1.00 share upon which the sum of $1.00 shall be credited as having been paid and the capital of the Company be increased to its present amount of $10 million by the creation of 8 million new shares of $1.00 each.

6.A few years ago, the directors took the view that it was unsafe for the Company to continue to grant unsecured loans to borrowers in its money lending business. Since then, after the borrowers have gradually made repayments, the directors do not propose to make any further advance to new borrowers. For this reason, they have concluded that at least $8 million can no longer be usefully employed in the business and have proposed to repay the same to the shareholders being money in excess of the wants of the Company.

7.By a written resolution of all the directors of the Company dated 2 March 2007, they approved the transfer of 2,030,000 shares in the Company held by Man Wai Tat to his son Man Ho Yin Edward and the appointment of the latter as a director in lieu of his father. The transfer of shares took place on 5 March 2007. Man Ho Yin Edward has signed a confirmation dated 10 March 2007 to acknowledge that he is fully aware of and agrees to the present application for confirmation of the proposed reduction of capital.

8.The Company had made loans to each of the four directors and the debit balance in the directors’ current accounts as at 31 August 2006 amounted to $7,790,850.00. The loans have all since been repaid.

9.As at 13 April 2007, the bank balances of the Company stood at $8,540,450.92. It is proposed to effect the repayment of $8 million out of cash in the Company’s bank accounts.

10.I have considered the audited accounts from 2000 up to 31 August 2006 and the latest management accounts prepared up to 13 April 2007. The current liabilities have all along been maintained at a relatively low level. The financial position of the Company would appear to be sound.

11.According to the management accounts as at 13 April 2007, the Company did not have any liabilities. The directors anticipate that all future liabilities will be repaid in the ordinary course of business over the next 12 months. The Company has no debentures and no debenture stock and none of its property is charged in any way.

12.The Company was the lessee of premises under a lease for a two-year term expiring on 31 August 2007 at a monthly rental of $12,945.00. The premises were surrendered to the landlord on 26 February 2007. It was agreed between the Company and the landlord that the Company would have no obligations or liabilities under the tenancy agreement upon the surrender. The Company has moved to new leasehold premises. The new lease will expire on 4 December 2008 and the monthly rental is $6,400.00. It has paid rental and outgoings of the new premises up to 31 March 2007. 

13.The total revenues of the Company have decreased consistently from $6.6 million odd for the year ended March 2000 to just over $1 million for the year ended March 2006. Its business at the end of 2006 is less than 20% of what it was at the end of 2001. It was submitted that the operating capital required for the Company’s current and future business is likely to decrease proportionally. There would appear to be an excess of the required capital.

14.After the repayment of capital out of the cash balance, there would still be $497,220.14 in the bank accounts of the Company. In addition to the future operation income of the Company, this sum of money would appear sufficient to cover the operating expenses of the Company in the near future.

15.Under the Money Lenders Ordinance, and in the conditions stated in the Money Lenders licence issued to the Company, there is no minimum capital requirement for the Company to qualify as a licensed money lender.

16.At the hearing of the summons for directions on 27 March 2007, an order was made that the provisions in section 59(2)(a) to (c) shall not apply as regards any class of creditors of the Company. Directions given for the advertisement of the petition have been complied with. There is no opposition to the petition.

17.The shareholders would be treated equitably in the proposed reduction as all would be affected in the same way. All the directors and shareholders were involved in the discussion and design of the scheme for the proposed reduction at its inception and they knew the details and mechanism. The new shareholder has confirmed that he is fully aware of and understood the proposal. The reduction is for a discernible purpose. I am satisfied that the interests of creditors would be adequately safeguarded.

18.I have therefore confirmed the reduction of capital and made an order in terms of the draft submitted.

Mr. King Wong, instructed by Messrs. Amelia Cheung & Co.,  for the Petitioner