RE BACK IN TIME LTD

HCMP 196/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 196 OF 2009

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REASONS   FOR   JUDGMENT

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1.  This is a petition presented by Back In Time Limited (“the Company”) on 4 February 2009 for confirmation of the reduction of its share capital pursuant to section 59 of the Companies Ordinance, Cap. 32.

2.  The Company was incorporated on 28 August 2007.  Its principal activities are the holding of intellectual property relating to the area of tourism and investments in the shareholdings of other companies.  In addition, the Company through its wholly owned subsidiary is also engaged in food and beverage and merchandising business.

3.  The present authorised share capital of the Company is US$50,000,000 divided into 50,000 ordinary shares of US$1,000 each, of which 49,250 shares have been issued and are fully paid up.  The present issued share capital is therefore US$49,250,000.

4.  The Company was incorporated for the purpose of creating a theme park in Badaling, Beijing of the People’s Republic of China, which is located in the vicinity of the Great Wall (“the Badaling Project”).  In contemplation of the Badaling Project, a shareholder’s agreement and subscription agreement was entered into by the Company with various parties for capital injection, which involved the issue of 49,250 ordinary shares.  As a result, the Company received cash in the sum of US$14,252,500 and the allotment of shares was duly made in January 2008.

5.  In April 2008, the Company decided not to proceed with the Badaling Project due to uncertainty as to the commercialisation of historical relic sites in the laws of the PRC.  The project was terminated by the directors on 28 November 2008.  In the light of the termination, the shareholders were asked to consider if they wished to remain as shareholders and some decided to cease to hold all or a part of the Company’s shares.  The remaining shareholders decided to acquire the shares of the departing shareholders for cash through an intermediary vehicle.  The restructuring transfers took place in August and September 2008.

6.  At present, the Company is engaged in another project to set up the “JOVI” retail chain for food, beverage, entertainment, merchandising and licensing in the PRC (“the JOVI Project”).  The directors have made a forecast of the capital requirement for the starting up of the JOVI Project as between US$9.2 million to US$11 million, which is substantially lower than the capital requirement for the Badaling Project.

7.  The issued share capital of US$49,250,000 was calculated based on the requirements of the Badaling Project, which required substantial capital expenditure.  Due to the cessation of this project, the Company no longer requires to invest to such an extent in the current JOVI Project, as capital expenditure will be greatly reduced.  The amount of capital of $20,668,000 to be reduced is in excess of the wants of the Company and, in the opinion of the directors, cannot be usefully employed in its current business.  After the proposed reduction, the Company would still have an issued share capital of US$28,582,000, and that should be sufficient for the medium term requirements according to the cash flow projections of the directors for the JOVI Project.

8.  There is provision in the articles of association that the Company may by special resolution reduce its share capital in any manner allowed by law.

9.  By special resolutions of the Company duly passed on 14 January 2009 in accordance with section 116B of Cap. 32, it was resolved that the authorised share capital be reduced from US$50,000,000 of 50,000 ordinary shares of US$1,000 each to US$28,582,000 of 28,582 ordinary shares of US$1,000 each, and that the issued share capital be reduced from US$49,250,000 of 49,250 ordinary shares of US$1,000 each to US$28,582,000 of 28,582 ordinary shares of US$1,000 each, such reduction to be effected by (1) US$5,000,000 to reduce to nil the advances made to the current shareholders; and (2) US$15,668,000 to reduce the value of the carrying cost of the intellectual property of the Company, the value of which shall be reduced from US$34,997,500 to US$19,329,500.

10.  The financial position of the Company is apparently sound.  According to the audited accounts from the date of incorporation to 30 September 2008, the Company had net assets of US$48.7 million, net current assets of US$12.2 million, cash and bank balances of US$7.3 million, and total liabilities of US$139,417.84.  There is no substantial change according to the management accounts as at 31 January 2009.

11.  The Company’s auditors were unable to express opinion on the fair value of the intellectual property (US$34,997,500), as the Company was then in the process of restructuring and the use of the intangible assets to reduce the share capital would involve negotiations with existing shareholders and subjective valuation, and on the fair value of the investment in the JOVI Project (US$1,001,000), as operations were commenced for six months during which time losses were incurred due to start up costs.  However, even if those assets were excluded, the Company’s net assets (US$12,704,244.08) and net current assets (US$12,222,553.49) still exceeded the total liabilities of the Company by a substantial margin.

12.  The proposed reduction does not involve the diminution of any liability in respect of unpaid capital or the payment to any shareholders of any paid-up capital, nor does it involve any physical cash outflow to the shareholders, as the capital released by the reduction will be used to write off the advances to shareholders and partially write off the carrying cost of the intellectual property by US$15,668,000.  The writing off is an accelerated step of creating a write-off reserve for future amortisation.  The Company’s cash position will not be effected by the proposed reduction.

13.  After the proposed reduction of share capital, it is projected that the Company could still maintain a net cash balance of US$380,000 after the 1^st 3-year operations of the JOVI Project.

14.  As of the date of the petition on 4 February 2009, the Company has repaid all debts owed to external creditors (US$3,691.55 and US$3,200).  The accrued rental (US$118,383.51) would not be due until May 2009.  In view of the amount of cash standing to the credit of the Company at its bankers, there are sufficient assets to satisfy debts due to creditors.  As such, no creditors would be prejudiced by the proposed reduction.

15.  At the hearing of the summons for directions on 3 March 2009, an order was made to dispense with the settlement of a list of creditors of the Company.  Directions given for the advertisement of the petition have been complied with.

16.  There is only one class of shareholders in the Company, they are equitably treated by the proposed reduction.  They have made an informed judgment to approve the reduction.  The reduction is for a discernible purpose and the interests of creditors would appear to have been safeguarded.  I have therefore confirmed the reduction of capital and made an order in terms of the draft submitted.