Re Burlington Worldwide Ltd

HCMP 283/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 283 OF 2014

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J U D G M E N T

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1.By a Petition filed on 6 February 2014 (“Petition”), Burlington WorldWide Ltd (“Company”) seeks an order that its excess capital in the amount of HK$36,270,001.86 be returned to the shareholders (“Capital Reduction”) as proposed by a special resolution, which was approved by all the shareholders, referred to in para 7 therein be confirmed by the court pursuant to s 60(1) of the Companies Ordinance, Cap 32 (“Ordinance”).

2.This matter was heard on 18 February 2014 for directions.  At that hearing, the court ordered, inter alia, that the settlement of a list of creditors be dispensed with and that the Company should notify the public of the Petition by advertisement in one English and one Chinese newspaper.  The advertisements had duly taken place on 21 February 2014.

3.Further, evidence of the updated financial position of the Company has been presented to the court. 

4.No creditor of the Company has appeared today to resist this application. 

5.The background to the Company and the purpose of the Capital Reduction is set out in the 1^st Affidavit of Mr Kunberger (“Kunberger 1^st”).   In essence, due to a corporate reorganization of the Company’s ultimate parent, International Textile Group, Inc (“ITG”), which is one of the world’s largest producers of denim fabric and worsted wool, the function of the Company has changed from being the sales and marketing operation of Burlington Industries LLC (“BI”), its principal shareholder, to being the sales and marketing operation of Cone Denim Jiaxing Ltd (“CDJ”), both companies being wholly owned subsidiaries of ITG.

6.The present authorized share capital of the Company is HK$39,010,000.00 divided into 39,010,000 ordinary shares of HK$1.00 each and all shares have been issued and are fully paid up.  There is only one class of shares of the Company in issue.  In addition to BI, there is only 1 shareholder, Burlington Worldwide Inc (“BWI”), which is also wholly owned by ITG. 

7.The Company’s Articles of Association (“Articles”) allow the reduction of capital.  Article 47 of Table A in the First Schedule of the Ordinance, which forms part of the Company’s Articles by reason of Article 1 of the same, provides that the Company may “by special resolution reduce its share capital, any capital redemption reserve fund or any share premium account in any manner and with, and subject to, any incident authorized, and consent required, by law”.

8.The evidence before the court is that if the Capital Reduction is approved and share capital returned to BI by the Company, BI will use such capital to set off an inter-company loan owed by it to the Company in the sum of US$4,650,000 (about HK$36,270,001).  This will allow the realignment of the financial position between BI and the Company so as to effect the ITG reorganization and reflect the Company’s new role as an operating business under CDJ.  BWI will have its share capital returned in the sum of HK$0.93.

9.As at the date of Kunberger 1^st (28 January 2014), the Company had paid off all its debts and had no existing creditors.  This position has been re-confirmed and further explained by Mr Kunberger in his 2^nd Affidavit with reference to the Management Accounts of the Company for the year end 31 December 2013. 

10.The Company had a credit balance in its bank account of HK$422,912.58 as at 30 January 2014.  Further, ITG has undertaken and warranted to the court that it will put the Company in sufficient funds to cover any liability or debts owed by the Company, if any.  The Company is, according to its latest audited financial statements dated 31 December 2012 and its 2013 Management Accounts, profitable.

11.On the evidence before the court, I am satisfied that the first two statutory requirements under s 58 of the Ordinance, namely, that the Company’s Articles of Association authorize the reduction of capital and that the Company should pass a special resolution resolving to reduce its share capital, have been met.  

12.The third statutory requirement is that there should be confirmation by the court under ss 59 and 60 of the Ordinance.  There are basically four matters which the court would require to be satisfied before sanctioning a reduction of capital (see Re Cheuk Nang Technologies (Holdings) Ltd [2001] 4 HKC 571 at 573A-H), namely :

(a)   the shareholders should be treated equitably;

(b)   the shareholders should have had the proposal properly explained to them so that they could exercise an informed judgment in the general meeting;

(c)   creditors should be reasonably safeguarded; and

(d)   the reduction of capital should be for a discernable purpose.

13.I have no difficulty in accepting that these requirements have also been met.  This application concerns a company within a group owned by ITG.  Given that its two shareholders are wholly owned by ITG, the Company is indirectly owned by the same.  These matters arise out of a corporate reorganisation.  The Company is financially sound, the Capital Reduction is supported by all the shareholders and the interest of the creditors of the Company is sufficiently and reasonably safeguarded. 

14.In these premises, I make an order in terms of the draft order before this court as amended. 

15.Last but not least, I am grateful to Counsel for his assistance. 

Mr Richard Zimmern, instructed by DLA Piper Hong Kong, for the petitioner