RE MOREHEAD CO LTD

HCMP 162/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 162 OF 2009

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REASONS  FOR  JUDGMENT

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1.  This is a petition for confirmation of reduction of the share capital of Morehead Company Limited (“the Company”) under section 59 of the Companies Ordinance, Cap. 32.

2.  The Company was incorporated on 7 October 1988.  It is a wholly owned subsidiary of Taiheiyo Cement Corporation (“Taiheiyo”), a company incorporated in Japan and the shares of which are listed in the Tokyo Stock Exchange.  Taiheiyo carries on the business of the manufacture, export and sale of cement and other building materials and ancillary products.

3.  The Company commenced its business three years after its incorporation.  Its existing share capital is HK$22,800,000, divided into 22,800,000 ordinary shares of HK$1 each, all of which were issued and have been paid up.

4.  The Company is an investment vehicle of Taiheiyo for the purpose of holding 30% shares in a joint venture company known as Huan Chung International Shareholdings Company Limited (“HC International”).  A Taiwan corporation, Huan Chung Cement Shareholdings Company Limited (“HC Corporation”) holds the other 70% shares in the joint venture.  There is no other active business being carried out by the Company.  It has not maintained an office in Hong Kong.

5.  There is provision in the articles of association that the Company may, by special resolution, reduce its share capital in any manner and with and subject to any incident authorised and consent required by law.

6.  By a special resolution duly passed in writing and signed by its sole member on 21 January 2009, it was resolved that the capital of the Company be reduced from HK$22,800,000 divided into 22,800,000 shares of HK$1 each to HK$15,276,000 divided into 22,800,000 shares of HK$0.67 each, and that such reduction of capital be effected by returning paid-up capital to the extent of HK$0.33 upon each of the 22,800,000 shares of HK$1 each and by reducing the nominal amount of the said shares from HK$1 to HK$0.67 each.

7.  The sum of HK$7,524,000 proposed to be repaid to the shareholders is in excess of the wants of the Company and cannot in the opinion of the directors any longer be usefully employed in its business.

8.  The profits of the Company were generated exclusively from its investment in HC International, which were distributed by HC International to the Company by way of dividends.  After receiving dividends from HC International, the Company would then distribute most if not all of such profits to Taiheiyo.

9.  The Company has incurred no recurrent liabilities other than legal and professional fees, bank charges, auditors’ remuneration and business registration fees.

10.  In 2008, HC Corporation and the Company decided to reduce the total capital investment in HC International from NT$250 million to NT$150 million.  Application for the reduction of capital was made on 4 July 2008 and was approved on 7 July 2008 by the relevant authorities in Taiwan.  The amount of capital of NT$100 million was returned.  30% of the sum of NT$100 million, being the Company’s portion of the capital returned was made available for remittance to the Company.  This was converted into US$984,938.90 and remitted to the Company on 25 July 2008.

11.  In order for the Company’s sole shareholder, Taiheiyo, to absorb the amount refunded by NT International to the Company, the Company has applied for a reduction of its capital.

12.  The bank balance to the credit of the Company’s account as at 31 July 2008 is US$1,451,768.68 and as at 31 March 2009 is US$1,006,921.19 (equivalent to HK$7,853,985).  The management accounts as at 31 December 2008 showed that the net assets of the Company as at that date amounted to HK$22,835,655.83.

13.  The total liabilities of the Company are estimated not to exceed HK$124,150 and such liabilities will be paid out from the amount refunded by HC International to the Company before Taiheiyo is to absorb the returned capital from the Company.

14.  On 31 March 2009, an order was made by Barma J that section 59(2)(a) to (c) shall not apply as regards any class of creditors of the Company.  Directions for the advertisement of a notice of the presentation of the petition have been complied with.

15.  The reduction was approved by the sole shareholder, it is for a discernible purpose and it does not appear that the interest of creditors would be adversely affected.  I have therefore made an order confirming the proposed reduction of capital as per the draft submitted as amended.