RE AVT HOLDINGS LTD

HCMP 2889/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2889 OF 2003

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REASONS  FOR  JUDGMENT

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1. This is a petition by AVT Holdings Limited ("the Company") under section 59 of the Companies Ordinance, Cap. 32 for an order to confirm a reduction of capital. There is no opposition to the petition. I have made an order as sought by the Company and these are the reasons for my judgment.

2. The Company was incorporated on 23 December 1993 under Cap. 32. It is registered as a foreign company in Australia and its shares have been listed on the Australian Stock Exchange Limited since 18 October 1994. It has been carrying on business as an investment and holding company and dealing in pharmaceutical, medicinal and chemical preparations.

3. The present authorised share capital of the Company is HK$75 million divided into 150 million shares of HK$0.50 each. The issued share capital is HK$50,749,998.00 divided into 101,499,996 shares of HK$0.50 each, all of which have been fully paid up or credited as fully paid up. The credit standing in the share premium account is HK$71,920,494.00.

4. At an extraordinary general meeting of the Company held on 10 February 2003, special resolutions were passed for (1) the consolidation of shares in that every nine of the ordinary shares shall constitute one new ordinary share of HK$4.50 and the nominal amount of each of the new ordinary share be increased to HK$4.50; and (2) the reduction of capital from HK$75 million divided into 16,666,666 ordinary shares of HK$4.50 each to HK$8,333,333.00 divided into 16,666,666 new ordinary shares of HK$0.50 each, in that paid up capital to the extent of HK$4.00 upon each of the 16,666,666 ordinary shares of HK$4.50 is to be cancelled and the nominal amount of each of the shares is to be reduced to HK$0.50.

5. By the consolidation, the number of issued shares has become 11,277,777 shares. By the proposed reduction, the paid up capital to be reduced is HK$45,111,108.00 (being 11,277,777 shares x HK$4.00; equivalent to A$8,582,783.00).

6. The Company has sought the reduction of capital to write off permanent trading deficits. Between 23 August 1994 and 15 January 2003, it has suffered an aggregate loss of A$13,702,045.00 from investing in Shenzhen Neptunus Pharmaceutical Co. Ltd ("Shenzhen Pharmaceutical") and AVAX Australia Holdings Pty. Ltd ("AVAX Holdings"). The capital proposed to be cancelled is less than the aggregate deficits.

7. In respect of Shenzhen Pharmaceutical, trading losses in the total amount of over HK$20 million were suffered between 1994 and 1998. The Company has disposed of its entire interest in Shenzhen Pharmaceutical by an assets sales agreement dated 9 February 1998. As a result of the disposal of its interest, the Company has realised an aggregate loss of A$5,560,596.00.

8. As for AVAX Holdings, the Company used to own a 50% interest and has invested an aggregate sum of A$10 million. In view of the trading losses of AVAX Holdings, the Company sold its 45% interest in AVAX Holdings in June 2001, leaving a mere 5% interest. In January 2003, AVAX Holdings and its two subsidiaries were put into voluntary liquidation and the liquidators of these companies have confirmed that no distribution would be made to the shareholders. As no payment would be received by the Company in respect of its 5% interest in AVAX Holdings, the Company has realised an aggregate loss of A$8,141,449.00 from its investment.

9. These realised losses are permanent losses and are unrepresented by available assets. The board of directors is satisfied that the deficits should be written off and cancelled in order that the Company's share capital structure reflects more accurately the current value of the available assets. The proposed reduction does not involve either diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paid up share capital. There is a letter from the Australian lawyers of the Company dated 9 April 2003 confirming that the requirements of the listing rules of the Australian Stock Exchange in respect of a reduction of capital have been complied with, other than the steps that must be taken when court approval is obtained for the reduction of capital.

10. The shareholders are treated equitably in the reduction of capital as the par value of all the shares is to be reduced by identical amounts. The proposals for reductions have been explained to all shareholders properly in the explanatory memorandum sent to them with the notice of meeting of shareholders dated 8 January 2003. The reduction of capital is for a discernible purpose and I am satisfied that the proposed reduction would not cause prejudice to the creditors of the Company.

11. For the above reasons, I have made an order confirming the reduction of capital and approved the minute of reduction submitted to the court.