Re Socomec Kedu Hong Kong Ltd

HCMP 1164/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1164 OF 2009

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Before: Hon Kwan J in Court

Date of Hearing: 1 September 2009

Date of Judgment: 1 September 2009

Date of Handing Down of Reasons for Judgment: 3 September 2009

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REASONS   FOR   JUDGMENT

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1.This petition was presented by Socomec Kedu Hong Kong Ltd (“the Company”) for confirmation of the proposed reduction of its share capital, pursuant to section 59 of the Companies Ordinance, Cap. 32. Reduction of capital is sought in somewhat unusual circumstances to correct a clerical error that was made in preparing the memorandum of association regarding the number of shares taken up by the subscribers.

2.The Company was incorporated on 24 October 2006 with an authorised share capital of HK$43 million, divided into 430,000 ordinary shares of HK$100 each. All of these shares have been issued. However only 43,000 ordinary shares have been called and paid up, so the total amount of paid-up capital is HK$4.3 million. There are two shareholders at all times. Socomec S.A., a company incorporated in France, holds 219,300 shares, and Zhejiang Kedu Electric Manufacturing Co. Ltd., a company incorporated in the PRC, holds the remaining 210,700 shares.

3.There is provision in the articles of association that the Company may, by special resolution, reduce its share capital in any manner with, and subject to, any incident authorised, and consent required, by law.

4.By a resolution dated 19 June 2009 duly signed by all the shareholders pursuant to article 23 of the articles of association and section 116B of Cap. 32, it was resolved that the issued share capital be reduced to HK$4.3 million divided into 43,000 ordinary shares of HK$100 each, all of which have been issued and fully paid up and that such reduction be effected by extinguishing the uncalled liability and/or cancelling the unpaid issued capital of HK$38.7 million divided into 387,000 ordinary shares of HK$100 each, but the authorised share capital shall remain unchanged at 430,000 ordinary shares of HK$100 each.

5.When the Company was incorporated, it was intended by the subscribers to the memorandum of association (who are also the only shareholders) that the authorised share capital of the Company would be HK$43 million divided into 430,000 ordinary shares of HK$100 each, out of which only 43,000 ordinary shares of HK$100 each would be issued so that the issued share capital would only be HK$4.3 million and not HK$43 million. It was intended to use such issued share capital to establish a subsidiary in the PRC as an investment. The cash injection was to be made by stages and the registered share capital of the subsidiary was to be RMB 5 million, which was roughly equivalent to HK$4.3 million based on the exchange rate at that time.

6.The subscribers’ agent who effected the incorporation of the Company in Hong Kong made a clerical mistake when preparing the memorandum of association, with the result that the issued share capital was mistakenly stated as HK$43 million divided into 430,000 ordinary shares of HK$100 each. An annual return repeating the mistake was filed in November 2007. The mistake did not come to the attention of the directors and the company secretary until this was discovered by one of the directors in late 2007. There was no intention on the part of any officer of the Company to mislead any creditor or outsider in any manner.

7.After the mistake was discovered, the Company made a request to the Registrar of Companies in January 2008 asking for alteration of the memorandum of association by submitting an amended memorandum of association for registration, but this was refused by the Registrar.

8.The directors have confirmed that it has never been the intention of the Company that the issued share capital should exceed HK$4.3 million and the present called and paid-up capital of HK$4.3 million is ample for the requirements of the Company. The uncalled liability of HK$38.7 million in respect of the 387,000 issued shares is not required by the Company for the purpose of its business and it has no occasion for recourse to such capital. The directors consider it desirable that the uncalled liability on the 387,000 issued ordinary shares should be extinguished and/or cancelled.

9.At present, apart from the capital investment in a wholly owned subsidiary established in the PRC called Socomec Kedu Electric Co. Ltd.浙江溯科電氣有限公司, the Company has not carried on any business. The total capital investment in the subsidiary is HK$5,383,132. This is higher than the sum of HK$4.3 million because of the significant appreciation in the value of RMB in the past couple of years. The sum of HK$5,383,132 has been met partly by the present paid-up capital of the Company and the balance by the shareholders through their advances to the Company. It is not the intention of the Company to carry on any other business apart from being the holding company of the PRC subsidiary.

10.The audited accounts of the Company for the years ended 31 December 2007 and 31 December 2008, and the unaudited management accounts as at 31 March 2009 were all produced. There is confirmation by one of the directors there is no significant change in the present financial position of the Company. Other than administrative expenses of less than HK$20,000 a year, which have been paid regularly, the Company would have no liabilities. There are no substantial outside creditors. The shareholders who have made advances to the Company have consented to the proposed reduction of capital by passing the special resolution.

11.The proposed capital reduction does not involve an alteration or variation of the rights attached to the shares in the Company, nor does it involve the payment to any shareholder of any paid-up share capital.

12.At the hearing of the summons for directions on 11 August 2009, an order was made to dispense with the settlement of a list of creditors. Directions given for the advertisement of a notice of the petition have since been complied with.

13.The shareholders are treated equitably in the proposed reduction. The reduction is for a discernible purpose, which is to rectify a clerical mistake as to the issued share capital of the Company and the circumstances giving rise to the mistake have been fully explained. I am satisfied the interests of creditors would not be adversely affected by the proposed reduction of capital. According, I have made an order in terms of the draft submitted.

Mr Jin Pao, instructed by Messrs Tse Yuen Ting Wong, for the Petitioner