XCHRX Chu Chung Tin Securities Ltd. ("the Company")

HCMP 947/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 947 OF 2001

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J U D G M E N T

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1. This is an application under Section 59 of the Companies Ordinance for an order confirming a reduction of capital by the company.

2. The Company is a securities company. It was incorporated in 1995 with authorised capital of $10m. divided into 100 shares of $100,000 each. All 100 shares have been allotted and have been paid up. There are only 2 shareholders, Mr Chu Chung Tin and Mr Chu Wing Man Raymond.

3. On 16 February 2001, the Company passed a resolution to the effect that the capital be reduced from $10m. to $5m. by reducing the nominal amount of all the shares from $100,000 each to $50,000 each, and by returning $50,000 upon each of the 100 shares.

4. The reason for that special resolution was because since January 2001, this securities company has ceased to provide securities margin financing for its clients. Accordingly, under Rule 9 of the Financial Resources Rules of the Securities and Futures Commission Ordinance, it is no longer necessary for the Company to have at all times and to maintain paid-up share capital of $10m. Pursuant to Rule 9(1)(b), a paid-up share capital of $5m. would be adequate.

5. Accordingly, the Company, having so resolved, applied to the court by way of summons for directions in relation to an application under Section 59(3) on 20 March 2001. I was satisfied on the evidence that it would be satisfactory to dispense with the settlement of a list of creditors in view of the financial state of the Company. I ordered that the petition and notice of this hearing be inserted into local newspapers and that has since been done.

6. On an application to court under Section 59 and Section 60 of the Companies Ordinance, the court has, first of all, to see if the Company is authorised under its Articles of Association to reduce its capital. I am satisfied that there is such an article in the present case. The Articles of Association of this Company do not exclude Article 47 of Table A which provides that the Company may, by special resolution, reduce its share capital in any manner and with and subject to any instrument authorised and consent required by law.

7. Secondly, I am required to see whether there has been a proper resolution of the Company. Since the directors are the only two shareholders of this Company and since there was a unanimous special resolution in this case, I am satisfied that that has been done.

8. Thirdly, I am required to consider whether the interest of the creditors may be affected. In the present case, the latest profit and loss account and balance sheet of the Company as at 30 April 2001 show that there is cash of about $7m. under current assets of more than $9m., with current liabilities of less than $80,000. Accordingly, it was not necessary for a list of creditors to be ordered under Section 59(2) and I am satisfied that the interest of the creditors would not be affected by a reduction in the capital.

9. There is clearly, in this case, an excess of required capital.

10. In the circumstances, upon the undertaking of the Company by its solicitors to file an affirmation by a director of the Company exhibiting the profit and loss account and balance sheet which have been handed up to me this morning, I will make an order in terms of the draft order provided to me save that in the schedule, the minute of order should read as follows in the relevant sentence: "At the date of the registration of this minute, all of the 100 shares of $50,000 each have been issued and are deemed to be fully paid up."