In re Sakura Finance Hongkong Ltd.

1998, No. MP1033

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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R E A S O N S

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1. This is a petition by Sakura Finance Hongkong Limited ("the Company") to seek confirmation by the court of a reduction of the share capital of the Company.

2. The Company which was incorporated in March 1973 became a public company on 18 May 1983. It is registered as a deposit-taking company and is an authorised institution under the Banking Ordinance and an exempted dealer under the Securities Ordinance. The present authorised capital of the Company is US$48,021,125 divided into 48,021,125 shares of US$1 each of which 15,021,125 shares had been issued and are fully paid up or credited as fully paid up. All the issued shares are beneficially owned by the parent company, the Sakura Bank Limited.

3. In April 1990, the Taiyo Kobe Bank Limited and the Mitsui Bank Limited merged and became the Sakura Bank Limited. The Company was the deposit-taking company of the Taiyo Kobe Bank Limited in Hong Kong and Sakura Finance Asia Limited, formerly known as Mitsui Finance Asia Limited which was the deposit-taking company in Hong Kong for the Mitsui Bank. As a result of the merger, it was resolved that the businesses and activities of their two deposit-taking companies should be consolidated and that Sakura Finance Asia Limited would carry on the deposit-taking business. Since 1 April 1990, the Company has ceased to accept new business and continues to transact business solely for the purpose of discharging existing obligations. For that reason, the Board of Directors of the Company have reached the conclusion that at least US$11 million have become in excess of the wants of the Company. Accordingly, the purpose of the proposed reduction of share capital is to cancel 11 million of its issued shares to enable the Company to return to its parent the sum of US$11 million which will be injected into the business of the Company's fellow subsidiary.

4. On 6 March 1998, a special resolution of the Company was passed in accordance with section 116(B) of the Companies Ordinance resolving that the capital of the Company be reduced by 11 million out of the 15,021,124 shares in issue and registered in the name of the Sakura Bank Limited by cancelling such shares.

5. The current financial position of the Company is set out in its audited financial statements for the year ended 31 December 1997 prepared by its auditors KPMG Peat Marwick and unaudited management accounts for the two months of January and February 1998. As appears from the unaudited balance sheet as at 28 February 1998, the Company had assets of US$47.5 million including a certificate of deposit from the Bank of China of book value of US$10.3 million, other certificates of deposit of US$16.2 million and securities of a little over US$20 million. These effectively represent exposures to banks in Thailand and South Korea of US$24.3 million and US$11.5 million respectively. The auditors have opined and concluded that provisions for permanent diminution in value of such exposures were not necessary.

6. So far as the Company's liabilities are concerned, these are of the order of US$30.55 million. Written consents have been obtained from the principal creditors Sakura Finance Asia Limited, the Company's fellow subsidiary, and its parent the Sakura Bank to the proposed reduction of capital and their agreements to postpone their claims to any other debts or claims against the Company. Consents and agreements to postpone have also been obtained from the auditors as well as the solicitors so that, for practical purposes, the only liability left relates to a provision for the payment of profits tax of under US$7,000. On this basis, the assets of the Company far exceed its liabilities.

7. In the context of the consents and agreements to postpone, revised consents have been obtained so that these debts are respectively postponed to any other debt or claim against the Company "outstanding on the date when the proposed reduction of capital becomes effective" as opposed to postponement of claims outstanding on the date of the relevant consents which were given prior to the hearing of the summons for directions on 16 March. In the case of a return of capital due to excess of the wants of the Company, such agreements to postpone should extend to the effective date, i.e. the date when the reduction of capital takes effect. See Re GHF Asia Limited 1998, MP No.354.

8. In the present case, there is the added comfort that the Company has given an undertaking that the US$11 million to be returned to the parent will only be paid as and when the certificates of deposit issued by the Bank of China and the Thai Farmers Bank maturing respectively on 17 July 2002 and 7 December 1998 are sold and out of such proceeds only and not otherwise.

9. In all the circumstances, it is plainly appropriate that the court should confirm the reduction of capital sought. On the evidence before me, and having regard to the agreements to postpone, non-consenting creditors of the Company are sufficiently protected and will not be prejudiced by the return of capital sanctioned by the reduction.

(Doreen Le Pichon)

Judge of the Court of First Instance,
High Court