RE C.A. PACIFIC FINANCE LTD (in Liquidation)

HCCW 36/98
HCCW 37/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) ACTIONS NO. 36 AND 37 OF 1998

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DECISION

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1.  This is an application on the part of the liquidators of CA Pacific Finance Ltd and CA Pacific Securities Ltd for directions relating to the allocation and distribution of:

(1)	corporate actions (primarily cash and stock dividends, bonus shares, etc.) which have been
	-	received by CAP Securities, or
	-	recovered from the Lenders to CAP Finance to whom securities belonging to CAP Securities’ clients had been pledged ("the Lenders");
(2)	other cash, being
	-	cash recovered from Yu Fung Bank, one of the Lenders,  being surplus proceeds of sales effected by that Lender;
	-	cash recovered from Lenders which are believed to be referable to corporate actions although it has not been segregated as such;
(3)	what one might term "residuary assets", being
	-	cash resulting from the rounding down of share allocations and cash proceeds;
	-	unclaimed shares and cash;
	-	balance of interest (after deductions made for the Official Receiver’s charges).

2.  I am grateful to the liquidators and their legal advisers for a very clearly drafted affirmation of Mr Rainier Lam Hok Chung, one of the joint and several liquidators.

3.  Essentially the directions are for the purpose of effecting a just and also pragmatic way of dealing with the above corporate actions, cash and residuary assets.

4.  I do not intend to reproduce the proposed directions in respect of each of the above categories, save to say that the theme running through them is that corporate actions would be converted into cash (save in a few exceptional cases where allocation and distribution to specific clients can be done efficiently and cost-effectively because of the small numbers involved), and allocation and distribution of the proceeds and other cash would be along the lines of the guidelines set in my earlier judgments (briefly, where there is a shortfall in a line of stock, distribution to cash clients in priority to margin clients, and as between cash clients themselves, pari passu).  The proposals are also similar to directions given by Kwan J in other cases involving failed brokerages, namely Peregrine Brokerage Ltd in 2003 and Chark Fung Securities in 2002 and 2005.

5.  I approve the liquidators’ proposals.  In so doing I am satisfied that the general creditors of CAP Finance are not prejudiced, because that company was not the beneficial owner of the shares which it had pledged to the Lenders, having only a security interest in those shares as lender to the margin clients.  As such, the corporate actions and cash never formed part of that company’s free assets. 

6.  I am mindful that some clients may prefer to have shares distributed to them rather than cash, but taking into account:

-    the desirability of finalizing the liquidators’ dealings with the trust assets as soon as possible to reduce costs,

-    the fact that the average value of the bonus shares (including stock dividends) - spread over approximately 100 stocks - per client entitled thereto is only about $7,000,

-    the fact that clients on the Committees of Inspection have not expressed concern over the proposals,

-    the fact that the liquidators have by letter dated 31 August 2006 informed all clients of the application on 20 October 2006, and

-    the Official Receiver’s support for the proposals, 

I am prepared to give the directions along the lines of the proposals set out in Mr Lam’s 5^th Affirmation.