RE BOCI RESEARCH LTD.

HCMP 6985, 6986 AND 6989/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

NOS.6985, 6986 AND 6989 OF 1999

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J U D G M E N T

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1. BOC International Holdings Limited ("Holdings") was established in 1998 as an investment bank holding company and is a wholly-owned subsidiary of the Bank of China. BOCI Research Limited ("Research") was also established in 1998 and is a subsidiary of Holdings and an indirect subsidiary of the Bank of China. BOCI Asset Management Limited ("Asset Management") was established in 1993 as a subsidiary of the then China Development Finance Company (Hong Kong) Limited, now known as BOCI Capital Limited, which is a wholly-owned subsidiary of Holdings and a wholly-owned indirect subsidiary of the Bank of China.

2. These petitions have been presented as a result of the reorganization of the share capital of the above-named companies (collectively "the Companies") so that they become denominated in US dollars rather than Hong Kong dollars. The Bank of China keeps the consolidated accounting records of its Hong Kong and overseas subsidiaries in US dollars and has also adopted a policy whereby assessment of performance of certain subsidiaries, including the above-named companies, is to be based on US dollars. The re-denomination of the share capital of the companies in US dollars would be in line with achieving that policy. In each case, it is proposed that the present Hong Kong dollar share capital be cancelled and the share capital be immediately increased thereafter but denominated in US dollars.

Holdings

3. In the case of Holdings, the present share capital is HK$8,000,000,000, divided into 800,000 shares of HK$10,000 each of which 350,000 have been issued and are fully paid up. The proposed new share capital will be US$1,000,000,000, divided into 1,000,000 shares of US$1,000 each of which 455,000 are to be issued and credited as fully paid up. This will result in a slight decrease in the authorized share capital from HK$8,000,000,000 to HK$7,770,500,000 and a slight increase in the paid-up capital from HK$3,500,000,000 to HK$3,535,577,500.

Research

4. The present share capital of Research is HK$1,000,000 divided into 100 shares of HK$10,000 each, all of which had been issued and are fully paid up. The proposed new share capital will be US$130,000, divided into 130 shares of US$1,000, all of which are to be issued and credited as fully paid-up. This will result in a slight increase in the share capital of the Company to HK$1,010,165.

Asset Management

5. Its present share capital is HK$500,000,000 divided into 50,000 shares of HK$10,000 each, of which 40,000 have been issued and are fully paid up. The proposed new share capital will be US$150,000,000 divided into 150,000 shares of US$1,000, of which 52,000 are to be issued and credited as fully paid up. This will result in a large increase in the authorized share capital to $1,165,575,000 and a slight increase in the paid-up capital from HK$400,000,000 to HK$404,066,000.

6. Two matters arise from the petitions. These are considered below.

REDENOMINATION

7. There are no Hong Kong authorities relating to the reorganization of capital for the purpose of redenominating it in a different currency. The leading English authority is Re Scandinavian Bank Group Plc. [1988] Ch 87 where Harman J had to consider the effect of section 2(5) of the Companies Act 1985 where it was proposed to denominate the company's share capital in different currencies. The corresponding Hong Kong provision is section 5(4) of the Companies Ordinance :

"(4) In the case of a company having a share capital-

(a) the memorandum must also, unless the company is an unlimited company, state the amount of share capital with which the company proposes to be registered and the division thereof into shares of a fixed amount;

...."

The issue in that case was the lawfulness of multi-currency capital which does not arise in these petitions. Nevertheless it was accepted by leading counsel for the Attorney-General as amicus curiae that an English company could have a share capital measured by a foreign currency, and consequently shares fixed in amount by reference to a foreign currency (see 105 E-F). Indeed, it would appear that quite a large number of companies in the United Kingdom have foreign currency share capital (see 107F). Accordingly, there is nothing in section 5(4) of Cap.32 to prevent a company from issuing shares of a fixed amount in a foreign currency. Each share so issued would then be of a fixed amount within the meaning of the section.

8. Where the share capital is reduced to nil, and shares are then immediately reissued in a new currency, the English practice is for the minute of order confirming the reduction to show the increase in share capital although that is not actually required by the relevant statutory provision. See Re Anglo-American Insurance Limited [1991] BCLC 564. Section 61(1) of Cap.32 is the Hong Kong equivalent of section 138(1) of the Companies Act 1985.

9. The practice appears to me to be a sound one as Harman J noted (at pp.565 h-i and 566 a-b), it will enable anyone who consults the register to work out the amount of the share capital once the rate of exchange on the relevant date has been determined. A minute which omits any statement of the re-increased share capital would be (a) positively misleading to any member of the public who read it, and (b) would not be in accordance with the purpose of the statutory provision. I agree and would respectfully adopt and follow the English practice.

DECREASE IN AUTHORIZED SHARE CAPITAL

10. In the case of each of the Companies, there will be a slight increase in the issued share capital as a result of the reorganization of capital. However, in the case of Holdings, the authorized share capital will decrease slightly. It is to be noted that the reduction of share capital does not involve any diminution of liability in respect of unpaid capital or the payment to any shareholder of any paid up capital. Holdings is privately owned and there is but only one beneficial shareholder. In these circumstances, no one would be prejudiced or disadvantaged by the slight decrease in authorized capital.

ORDER

11. I am satisfied that the reductions of capital ought to be confirmed. Accordingly, I will exercise my discretion to sanction the reductions. The minutes which reflect the practice adopted in Re Anglo-American Insurance Limited (supra) are approved.