RE PLUS HOLDINGS LTD

HCMP 859/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 859 OF 2008

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And

HCCW 612/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 612 OF 2006

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(Heard together)

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REASONS   FOR   JUDGMENT

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1.  This is a petition of Plus Holdings Limited (“the Company”), acting by its provisional liquidators, to seek sanction of a scheme of arrangement between the Company and the scheme creditors as defined therein (“the Scheme” and “the Scheme Creditors”), pursuant to section 166 of the Companies Ordinance, Cap. 32.  There is also an application by consent that subject to sanction of the Scheme, the winding-up petition presented against the Company be dismissed.

2.  The Company was incorporated in Bermuda on 28 August 1996 and was registered as an overseas company in Hong Kong under Part XI of Cap. 32, with a principal place of business in Hong Kong.  Its principal activity was investment holding.  The Company and its subsidiaries (“the Group”) were principally engaged in the manufacturing of software, provision of solutions and related services, trading of communication products, provision of financial services, investment holdings, and provision of telecommunication infrastructure solution service.

3.  The present authorised share capital of the Company is HK$300,000,000 divided into 3,000,000,000 ordinary shares of HK$0.10 each, of which HK$139,116,248.30 divided into 1,391,162,483 shares have been issued and are fully paid or credited as fully paid.

4.  The shares of the Company have been listed on the Main Board of The Stock Exchange of Hong Kong Limited (“HKEx”) since 3 February 1997.  Trading in its shares has been suspended since 17 December 2004.

5.  On 15 November 2006, a creditor’s petition was presented to wind up the Company.  Provisional liquidators were appointed for the Company on 17 May 2007.

6.  On 29 March 2007, HKEx announced that the Company has been placed into the third and final stage of the delisting procedures and if no viable proposal for resumption of trading was submitted to HKEx at least ten business days before 28 September 2007, HKEx would cancel the listing status of the Company.

7.  The Company’s main assets are its listing status and its subsidiary in Beijing, in which the Company holds a 51% equity interest.  The provisional liquidators were of the view that the most effective way to maximise recovery for creditors was to find an investor who would put forward a rescue proposal.  Eventually, an independent investor, Wai Chun Ventures Limited (“the Investor”) was found.  The Investor made a restructuring proposal under which it would acquire a controlling interest in the Company and it is to offer a return to the creditors in exchange for the discharge and release of their claims against the Company.

8.  The Company by its provisional liquidators submitted to HKEx a resumption proposal on 12 September 2007 and a supplement to the proposal on 19 November 2007, setting out the principal terms of the proposed restructuring of the Company’s indebtedness.  By a letter dated 23 November 2007, HKEx granted in principle approval and allowed the Company to proceed with the resumption proposal subject to the fulfilment of certain conditions within six months from the date of the letter.  One of the conditions is to obtain approval for the schemes of arrangement for debt restructuring from the Company’s shareholders and creditors and from the courts of Hong Kong and Bermuda.  HKEx has granted an extension of time to comply with the conditions on or before 22 August 2008.

9.  To pursue the proposed restructuring, various agreements were entered into between the Investor and the Company on 5 July 2007, 26 July 2007, 23 August 2007 and 31 March 2008.  The Investor has revised the total amount of cash injection into the Group from HK$200 million to HK$170 million for the subscription of new shares, convertible preference shares and options, and the monetary threshold is revised from HK$25 million to HK$30 million, so as to enable the unsecured creditors to receive approximately 30% recovery of their claims, subject to costs and expenses, under the Scheme.

10.  There are two classes of creditors under the Scheme: the secured creditor, Showa Leasing (Hong Kong) Limited, with a claimed amount of approximately HK$11.1 million, and the unsecured creditors.  The claim of the secured creditor shall be settled at HK$9.5 million and it shall forfeit its remaining claims over HK$9.5 million and waive all other claims and shall not be entitled to share any portion of the HK$30 million to be distributed among the unsecured creditors.  The funds of HK$9.5 million for the settlement of the secured creditor’s claim would be paid out of the Company’s working capital to be provided by the Investor.  The unsecured creditors shall receive approximately 30% of their indebtedness, subject to costs and expenses, for settlement of their claims.

11.  The results of the Scheme to both classes of creditors would be far better than what they could have obtained in a liquidation scenario.

12.  As part of the restructuring proposal, the Investor has agreed, if trading in the shares of the Company can be resumed, to subscribe for 4,000,000,000 new shares, 11,000,000,000 convertible preference shares and 20,000,000,000 new shares upon full conversion of the subscription rights attaching to the options at a par value of HK$0.01 per share, representing 74.2% of the Company’s enlarged share capital at a total consideration of HK$170 million.

13.  Also as part of the restructuring proposal, the share capital of the Company will be reduced by way of cancellation of the paid-up capital to the extent of HK$0.09 on each issued share of par value of HK$0.10, resulting in the reduction of the issued share capital from HK$139,116,248.30 to HK$13,911,624.83, giving rise to a credit of HK$125,204,623.47 on the basis of 1,391,162,483 shares in issue, and the cancellation of the entire amount standing to the credit of the share premium account of the Company as at 31 March 2007 of approximately HK$383,117,000.  The total credits of HK$508,321,623.47 (HK$125,204,623.47 + HK$383,117,000) will be credited to the contributed surplus account of the Company and applied to set off against most of the Company’s accumulated losses as at 31 March 2007 of approximately HK$675,935,000.  The contributed surplus amount is expected to be reduced to nil after setting off against the accumulated losses of the Company, which will have a remaining deficit of HK$59,621,376.53.

14.  On the completion date, the Scheme administrators shall instruct the provisional liquidators to transfer to the Scheme trust account approximately HK$46.8 million which covers the settlement of the legal costs of the petitioner in the winding-up petition, the preferential claims, the secured creditor’s claim, the Scheme costs, the restructuring cost, and dividends for the purpose of distributing to the unsecured creditors.

15.  By an order of the court made on 13 May 2008, a meeting was ordered to be convened of two classes of creditors, being the secured creditor as one class and all unsecured creditors as a separate class, to consider and, if thought fit, to approve the Scheme.  Directions were given for the service of the Scheme documents on the known Scheme Creditors and for the advertisement of a notice of the Scheme meeting.  These directions have been complied with.

16.  At the Scheme meeting held on 23 June 2008, the secured creditor approved the Scheme.  As for the unsecured creditors, 18 out of 19 creditors present and voting voted in favour of the Scheme and one voted against.  The claims of the votes in favour amounted to 99.53% of the claims of the 19 creditors.  For each of the two classes of creditors, a majority in number and not less than 75% in value of the claims of the Scheme creditors present and voting in person or by proxy duly approved the Scheme, in accordance with the requirement of section 166.

17.  Another scheme meeting, with two classes of creditors voting separately, was held on 14 July 2008 in respect of the scheme creditors to a scheme of arrangement for sanction in the Supreme Court of Bermuda.  This scheme was duly approved by the requisite majority of each class of creditors.  The provisional liquidators have sought sanction from the Supreme Court of Bermuda of this scheme.

18.  The unsecured creditor who attended the Scheme meeting and voted against the Scheme, Elizabeth Mo & Associates, subsequently submitted a letter to the provisional liquidators dated 17 July 2008.  This letter was placed before the court, as well as the reply of the provisional liquidators dated 25 July 2008.

19.  These complaints were made by Elizabeth Mo & Associates against the provisional liquidators in their handling of the debt restructuring:

(1) they had failed to disclose promptly to the creditors the material change in the recovery rate of unsecured creditors from 100% to 30%, which has a material adverse effect on the interest of creditors as a whole and is a very significant term of the Scheme;

(2) they had failed to disclose promptly to the creditors the negotiation for payment to the secured creditor;

(3) they had failed to make proper enquiries into the validity of the debenture of the secured creditor; and

(4) they had failed to put all the above matters raised by Elizabeth Mo & Associates to the creditors for consideration.

20.  It was contended by Elizabeth Mo & Associates that the failure of the provisional liquidators as alleged meant that the creditors had not received timely, complete and full information and they had been misled when voting in favour of the Scheme that it was for the benefit of the creditors as a whole.  Complaint was also made that the creditors have not been treated fairly and equally in the Scheme.

21.  I have considered the reply of the provisional liquidators.  It does not appear to me the complaint of failure to disclose relevant information promptly to the creditors is made out.  They had informed the creditors of the progress of the restructuring verbally.  A letter setting out the outline of the settlement proposal under the Scheme was sent to creditors on or about 10 March 2008.  Details of the proposed settlement under the Scheme, including the proposed payment to the secured creditor, had also been announced by them on 3 April 2008.  Last but not least, a set of the Scheme documents dated 6 June 2008 was sent to each of the known Scheme creditors for the Scheme meeting on 23 June 2008.  I agree with the provisional liquidators that the Scheme creditors would have ample opportunity and sufficient time to consider the terms and conditions of the Scheme before the Scheme meeting.  No complaints were received from any other creditor in relation to disclosure of the restructuring proposal or the Scheme.

22.  The recovery rate of 30% for unsecured creditors was determined by the Investor as a commercial decision.  It was beyond the control of the liquidators.  The provisional liquidators could only exercise their best endeavour to achieve the best available recovery rate for unsecured creditors and provide them with adequate information to make an informed decision in their own best interest whether to support the Scheme. 

23.  As for the proposed settlement with the secured creditor, the negotiation was conducted between the Investor and the secured creditor.  The provisional liquidators had obtained legal advice on the validity of the debenture of the secured creditor.  Furthermore, the payment of the HK$9.5 million to the secured creditor shall be subject to the final adjudication and determination by the Scheme administrators under the Scheme, so the validity of the debenture will be subject to adjudication.

24.  The representative of Elizabeth Mo & Associates had attended the Scheme meeting on 23 June 2008 and raised her concerns on the change in recovery rate for unsecured creditors and the proposed settlement with the secured creditor.  The other unsecured creditors who attended the meeting were aware of her concerns when they all voted in favour of the Scheme. 

25.  The provisions of the statute for the exercise of the power to sanction a scheme of arrangement have been complied with.  The classes of creditors voting at the Scheme meeting were properly constituted.  The Scheme meeting was duly convened in accordance with the directions of the court.  As mentioned earlier, I am satisfied there was adequate disclosure of material information to the creditors to enable them to make a reasonable judgment how to vote at the meeting.  The Scheme was approved by the requisite majority of each class of creditors to be bound by the Scheme. 

26.  I consider that the Scheme should be sanctioned, as it is such that, as an intelligent and honest man, a member of each of the classes concerned and acting in respect of his interest, might reasonably approve.  I have made an order in terms of the draft submitted.

27.  The dismissal of the winding-up petition is the last condition to be satisfied before the debt restructuring can be completed and the Scheme can become effective.  It is anticipated that the restructuring will be completed on or about 20 August 2008.  I have made an order in terms of the consent summons for dismissal of the petition, on condition that the Scheme administrators confirm that the restructuring is completed and the Scheme is effective save for the requirement for there to be a withdrawal of the petition.