RE STEREO LTD (the Company)

HCMP757/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.757 OF 2005

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REASONS FOR JUDGMENT

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1. This is a petition by Stereo Limited (“the Company”) for sanction of a scheme of arrangement.  On 5 July 2005, I allowed the petition.  These are my reasons.

The Company

2. The Company was incorporated on 21 February 1963.  It has an authorized share capital of HK$260,000 divided into 2,600 shares of HK$1.00 each, of which 100 shares had been issued and were fully paid up or credited as fully paid up and 2,500 shares had been deferred issued.  It carries on the business in the sale of photographic and audio-video equipment, photo development and printing services.

HCCW294/2004

3. On 5 March 2004, Canon Hong Kong Company Limited presented a winding-up petition, HCCW294/2004 against the Company on the ground of inability to pay its debts (“the Petition”).

The scheme

4. When the Petition was filed, the Company’s shareholders had been discussing with its creditors and potential investors including a Mr Chan Hoi Lam (“Mr Chan”) to restructure the Company.  After the Petition was filed, a rescue proposal was put forward which resulted in the scheme of arrangement now before me.

5. In order to implement the restructuring of the Company, a corporate vehicle called Vevion Hong Kong Limited, wholly owned by Mr Chan, was set up.  Under the scheme, Vevion will, among other things :

(1) make payment of HK$5.9 million for distribution among the scheme creditors;

(2) make payment of HK$2 million as fees for the recovery of interest in properties known as Scenic Rise of which 60% of the recovered proceeds will be distributed among the creditors as dividends;

(3) make payment of HK$350,000 as fees for the Company to recover of accounts receivables of the Company of which the net proceeds will be distributed to creditors as dividends;

(4) meet all costs of the scheme solely; and

(5) pay in full all preferential claims;

(6) will have the various assets as set out in the scheme documents transferred to it by the Company.

The court meeting

6. On 28 April 2005, I gave leave to the Company to convene a creditors’ meeting for the approval of the scheme with consequential directions.  Upon compliance of those directions, the meeting was duly convened on 31 May 2005.

7. The conduct of the court meeting has been summarized in the affidavit of Mr Cosmio Borrelli, who was the chairman of the meeting.  In brief, his evidence is thus.    Prior to the meeting, the potential creditors had had a fair opportunity to study the scheme document and the time to lodge their respective Notices of Claims.  There was sufficient information for the Reporting Accountants to assess the notice of claims being filed.  There was ample time for the Reporting Accountants to study, assess and to make known of the decision to each of the Notice of Claims being lodged.  There was ample opportunity given for all potential creditors to ask for a review as to the decision of the Scheme Administrators.   The benefit of the scheme, identified in paragraph 5 above, had been repeated in addition to the time given to the potential creditors in studying the scheme documents.  On the scheme documents, all creditors were brought to the attention that :

(a) Vevion will purchased certain assets of the Company specifically defined;

(b) the pre-conditions of the scheme coming into force; and

(c) the intending time table to the implementation of the scheme.

8. At the court meeting, 18 creditors representing the value of admitted claim for voting purposes in the amount of HK$44,115,656.01 (93.67%) voted in favour of the scheme.  Two creditors representing the balance of the value of admitted claim (6.44%) voted against it.   

Compliance with the statutory requirements

9. Section 166(2) of the Companies Ordinance provides:

“If a majority in number representing three-fourths in value of the creditors or class of creditors, or members or class of members, as the case may be, present and voting either in person or in proxy at the meeting, agree to any compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors or the class of creditors, or on the members or class of members, as the case may be, and also on the company or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company.”

10. Here, there are four separate conditions :

(1) The classes of members or creditors must be properly constituted.

(2) The meeting was duly convened in accordance with the directions given by the court hearing the originating summons.

(3) Members or creditors have been given a sufficient explanation of the scheme and its effects and sufficient information to enable them to make a reasonable judgment as to how to vote at the meeting.

(4) The requisite majority has voted in favour of the scheme.

See In re China Light & Power Co. Ltd [1988] 1 HKLRD 158,

per Le Pichon J (as she then was) at pp.181F – 184I.

11. On the undisputed evidence before me, I am satisfied that all these conditions have been fully met.

Overall merits of the scheme

12. The court next has a duty to consider whether the scheme proposal is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve : Re China Light & Power Co. Ltd, ibid.

13. Having considered the effects and merits of the scheme as outlined above, I am of the view that the above test has been satisfied.

Conclusion

14. For the above reasons, I allowed the petition and sanctioned the scheme.