In re GHF ASIA LTD.

1998, MP No.354

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. GHF Asia Limited (the "Company") is a wholly owned subsidiary of General Housing Finance Company Limited.

2. On 23 January 1998, it presented a petition to seek the confirmation by the court of the reduction of the issued share capital of the Company by HK$39 million. The purpose of the reduction is to enable the Company to return to its parent the $39 million which is in excess of the wants of the Company and cannot, in the opinion of its directors, any longer be usefully employed in its business.

3. At the date of the petition, the Company held 13 residential properties in Hong Kong acquired over a period of time stemming from the early 1980's. In December 1997, it entered into four agreements for sale and purchase relating to four of those properties for over $43 million. Pursuant to those agreements, one such sale was to be completed on 6 February. Two further sales were to be completed on 26 February and the remaining sale was to be completed on 16 March.

4. The special resolution relating to the reduction of capital was duly passed in compliance with s.116(b) of the Companies Ordinance.

5. At the first hearing of the summons for directions on 9 February, the Company sought an order to dispense with the settlement of a list of creditors of the Company. Whilst there is no doubt that the Company holds valuable assets which far exceed its needs, these were illiquid.

6. There was at that date four creditors whose consents to the reduction of capital had been obtained. However, the consents obtained did not contain any agreement to postpone the relevant debts to any other debt or claim against the Company outstanding as at the relevant date. Accordingly, the Summons was adjourned for one week for fresh consents to be obtained since the order sought could not have been made in the absence of subordination agreements on the part of those debtors.

7. By the time of the adjourned hearing of the summons for directions on 16 February, the cash position of the Company had undergone changes. Although the Company had cash of over US$6 million at the date of the adjourned hearing, US$2.3 million of that was a loan that had been obtained from a bank in order to ensure that the Company had enough cash to enable it to return HK$39 million to its parent company. The new consents that were obtained contained a waiver or postponement provision up until 16 February. It was at that further hearing that it transpired that in fact two of the four sales had already been completed. Whilst that fact did not appear from the evidence filed because it had been overlooked, it emerged in response to the court's question relating to the cash position of the Company. This fact was relevant. But for the early completion of one of the transactions scheduled for 26 February, the purchase monies of the two properties would have generated more than enough cash when added to what the Company had then to finance the return of capital as well as the loans.

8. It is plain from the further evidence filed that without taking out additional loans, the Company would not have sufficient liquid assets to finance the return of capital. Albeit that the Company itself had substantial illiquid assets in the form of a substantial portfolio of properties, for loans to be obtained to fund the return of capital to the parent is rather unusual.

9. In these circumstances, the consent of the lender is obviously critical to any dispensation with the settlement of a list of creditors. The fresh consents obtained agreed to a postponement of debts up to the date of the hearing of the adjourned summons for directions only and not up to the date of the anticipated order confirming the reduction of capital. There is thus a window of one week during which the position of debtors who have not consented may be prejudiced. On those facts, I was not prepared to dispense with the settlement of a list of creditors unless further fresh consents were obtained to deal with that concern.

10. The urgency for the petition to be heard on 23 February arose from the fact that the parent company is a Japanese company and the return of capital was important for its fiscal year, ending 31 March but for internal audit purposes, the critical date was at the end of this month. The summons for directions was therefore adjourned for a further two days to 18 February in order to enable fresh consents to be obtained that would extend the date of the postponement of debts to the anticipated date of the order on the hearing of the Petition i.e. on 23 February.

11. Upon the further consents being obtained, the court was satisfied at that further adjourned hearing of the summons for directions, that it would be appropriate to dispense with the need to settle the list of creditors and so ordered.

12. The petition having come on for hearing today, I am satisfied that the court ought to confirm the reduction of capital sought. The creditors on whose behalf the court had been concerned are sufficiently protected by the consents that have been obtained. Accordingly, I make an order in terms which confirms the reduction.