CHOW WAI SHING DANIEL AND ANOTHER v. LU YING

HCMP 486/2017

[2020] HKCFI 2148

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 486 OF 2017

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J U D G M E N T

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Index

A.Introduction

B. Undisputed facts

C. Expert evidence

D.Parties’ respective case

E. Issues

F. Legal principles applicable to section 49 of the Ordinance

G.Challenge as to expertise and experts’ approach

H. Market Value issue

J.  Applicability of Fair Value issue

K.Awareness of Identity Issue

L. Quantum of Fair Value issue

M.Was the sale price substantially less than the Market Value or Fair Value of the Shares?

N.Conclusion

A.  INTRODUCTION

1.  The Applicants (“Trustees”) seek an order that the disposal by Ding Yi (“Bankrupt”) of 400,000,000 ordinary shares in North Asia Strategic Holdings Limited (“the Shares”) to the Respondent on 31 March 2016 for a cash consideration of HK$30,000,000 (“the Disposal”) be set aside on the ground that it constituted a transaction at an undervalue under section 49 of the Bankruptcy Ordinance, Cap 6 (“the Ordinance”). 

B.  UNDISPUTED FACTS

2.  I gratefully adopt the undisputed facts helpfully summarized in the submission of Mr Ho SC (leading Mr Isaac Chan), counsel for the Applicants.

3.  Before the Disposal:

(a)  The Bankrupt was the Chairman and an Executive Director of the subject company, North Asia Strategic Holdings Limited (“NAS”). 

(b)  The Bankrupt’s wife, Ms Zhang Yifan (“Madam Zhang”), was one of the executive directors of NAS and held no shares in NAS in her own right.

(c)  The Respondent (“Lu”) was appointed as the representative of the Shanghai office of one of NAS’s subsidiaries.  Lu was also a director of another subsidiary of NAS.  On Lu’s own admission, she personally knew the Bankrupt.

4.  NAS was a company listed on the Growth Enterprise Market in Hong Kong (“GEM”) at all material times.  Its principal businesses were (i) trading of high technology electronics, such as surface mount technology, assembly equipment and the provision of related services such as installation, training, repair and maintenance; and (ii) provision of leasing finance to its customers for a wide array of assets.  Until 4 November 2016, NAS was also engaged in provision of consulting services in mining exploration, exploitation and valuation services for merger and acquisition. As on 31 March 2016:

(a)  The total assets of NAS amounted to HK$1,294,194,000; cash or cash equivalents was $592,646,000;

(b)  The total liabilities of NAS amounted to HK$479,862,000;

(c)  The net-asset-value (“NAV”) of NAS was HK$814,332,000, ie $0.44 per share;

(d)  The profit(s) or loss(es) for the financial years ending on 31 March 2014, 2015, 2016 and 2017 were HK$47,150,000, HK$25,553,000, (HK$271,330,000), and HK$30,621,000 respectively; and

(e)  The loss of HK$271,330,000 for the financial year ended on 31 March 2016 was mainly caused by the significant impairment loss of the goodwill in respect of its mining consulting operation recognised at HK$243,600,000, and a provision for a bad debt of HK$20,000,000 (being trade receivables related to the mining consulting operation).

5.  On 28 March 2016, an arbitration award was made against the Bankrupt for payment of USD33,350,000 plus interest.

6.  On 30 March 2016:

(a)  The Bankrupt held altogether 402,445,296 shares (21.02% of the total issued shareholding) in NAS.

(b)  Lu held 569,058,206 shares (29.72% of the total issued shareholding) in NAS, as well as Convertible Bonds which would have entitled her to further shareholding in NAS upon conversion.

7.  On 31 March 2016:

(a)  The Bankrupt and Lu contracted for the Disposal at the price of HK$0.075 per share, and the Disposal was completed on the same day after trading hours.

(b)  As a result of the Disposal, Lu held 50.60% of the total issued shareholding in NAS.

(c)  The closing price of the shares of NAS was HK$0.096.  The respective average closing prices of the NAS shares for the 5, 10 and 30 consecutive trading days immediately prior to and including 31 March 2016 were HK$0.098, HK$0.096 and HK$0.098.  The average closing price for the NAS shares for the period beginning on 1 April 2015 up to and including 31 March 2016 was HK$0.146.

(d)  The Bankrupt resigned as Chairman and Executive Director of NAS.

8.  As a result of the acquisition, Lu was obliged to present a general offer (“GO”) to all other shareholders to acquire their shares.  On 18 April 2016, Lu and NAS jointly announced that Lu would make a GO to all other shareholders of NAS to acquire their shares at HK$0.075 per share.

9.  About 6 weeks after the Disposal, on 10 May 2016, the Bankrupt petitioned for his own bankruptcy.

10.  In the relevant circular dated 19 May 2016 discussing the GO, the Independent Financial Adviser noted, amongst others, that:

“Nevertheless, given that the trading volume of the NAS shares has been very thin during [the period from 16.4.2015 to 17.5.2016], it is uncertain as to whether there would be sufficient liquidity in the Shares for the Independent Shareholders to dispose of a significant number of the Shares in the open market without depressing the Share price. In spite of the release of the Preliminary Announcement and the Joint Announcement in April 2016 [regarding the general offer], the average daily trading volume to the total number of issued Shares still remains at a relatively low level of 0.06%. We are of the view that the Offer represents an opportunity for the Independent Shareholders, particularly for those who hold a large volume of the Shares, to dispose part or all of their Shares at the Offer Price if they so wish to.”

11.  On 20 May 2016, both the Independent Board Committee of NAS and the Independent Financial Advisor made public announcements that Lu’s GO for HK$0.075 per share was not fair or reasonable and therefore not attractive.  Eventually, only 47,818,132 shares in NAS were sold to Lu by other shareholders pursuant to the GO.

12.  On 23 June 2016, Madam Zhang (who joined NAS in November 2014 as an Executive Director) was appointed to replace the Bankrupt as the Chairman of NAS and has stayed in that office ever since.

13.  On the following day, ie 24 June 2016, the Bankrupt disposed of the remaining 2,445,296 shares in NAS by 10 transactions at an average price of HK$0.93553 per share.

14.  On 11 October 2016, the Court granted an order for bankruptcy against the Bankrupt.  His major asset at that time was a cash balance of HK$29,889,406.14 (which obviously was the consideration received from Lu for the Disposal).

15.  On 25 November 2016, the Trustees were appointed as the trustees in bankruptcy for the estate of the Bankrupt pursuant to the resolutions passed at the general meeting of creditors.

16.  On 3 March 2017, the Trustees commenced the present proceedings.

17.  On 8 June 2017, the board of NAS declared a special dividend of HK$0.06 per ordinary share.  The special dividends attributable to the Shares amounted to HK$24,000,000.

18.  On 26 June 2017, Lu (i) confirmed to the Court that in the event that the Disposal is set aside, the Trustees are entitled to use the special dividends of HK$24,000,000 to set off against the HK$30,000,000 being the price for the Shares at the Disposal that the Trustees will have to return to Lu; and (ii) undertook to the Court that she would not take any steps whether directly or through agent, etc, to in any way dispose of or deal with or diminish the value or otherwise encumber or remove from Hong Kong any of the Shares until judgment in the present proceedings or further order of the Court.

C.  EXPERT EVIDENCE

19.  Pursuant to the Order of the Court dated 6 March 2018, the parties’ respective experts have filed their respective expert reports on the following issues:

Issue 1:

What was the market value for the Shares on 31 March 2016 if sold in one lot?

Issue 2:

Does the value arrived at in Issue 1 change if it is determined that, before entering into the transaction, the intended seller and the intended purchaser were mutually aware of their counterparties’ interests in NAS, namely the intended purchaser knew that the intended seller held 402,445,296 shares, and that the intended seller knew that the intended purchaser held 569,058,296 shares and the Convertible Bonds?

Issue 3(a):

Following on from Issue 2, does the value arrived at in Issue 1 change if only the intended seller was aware of the intended purchaser’s interest?

Issue 3(b):

Following on from Issue 2, does the value arrived at in Issue 1 change if only the intended purchaser was aware of the intended seller’s interest?

Issue 4:

Do the values arrived at in Issue 2, Issue 3(a) or Issue 3(b) change if the concept of “Fair Value”, as defined in paragraphs 38 to 40 of the International Valuation Standards 2013 (“IVS 2013”) approved by the International Valuation Standards Council, is adopted as opposed to “Market Value”?

20.  The expert for the Trustees was Mr Frank Yuen (“FY”) and that for Lu was Mr Charles Li (“CL”).  The experts agreed on (i) the definition of Market Value; (ii) the fact that discount for illiquidity was only applicable for assessment of Market Value under Issue 1 but not Issues 2 to 4 (Note: CL subsequently resiled from this, see paragraphs 177-179 below); and (iii) the premise for valuing the Shares should be that NAS was a going-concern.  They, however, disagreed on all other major aspects of each other’s opinions.

21.  For Issue 1, the experts’ conclusions can be summarized as follows:

Table 1 on Market Value

	FY	CL
Base Value	HK$0.0974 per share	HK$0.103 per share
Illiquidity Discount	10% discount	30% discount
Swing Vote Premium	15% Premium	Not applicable
Market Value	HK$40,908,000 (HK$0.1023 per share)	HK$28,800,000 (HK$0.072 per share)

22.  For Issues 2, 3(a), 3(b) and 4, both experts drew no distinction in terms of their conclusions, which can be summarized as follows:

Table 2 on Fair Value

	FY	CL
Market Value (ie Issue 1)	HK$40,908,000 (HK$0.1023 per share)	HK$28,800,000 (HK$0.072 per share)
Control Premium	30% Premium	Not applicable
Shell Premium	HK$350 million	Not applicable
Conclusion	HK$50,648,000 (HK$0.1266 per share) if add Control Premium HK$243,200,000 (HK$0.608 per share) if add Shell Premium	HK$28,800,000 or below (HK$0.072 per share)

23.  The experts’ differences thus stem from whether or not (1) “Control Premium” and (2) “Shell Premium” should be included, and their respective amount.

24.  The experts differed in the selection of comparables and the method of analyzing the data selected. The Court has thus to determine which approach of the experts is to be preferred.

D.  PARTIES’ RESPECTIVE CASE

25.  It is the Trustees case’s that the consideration for the Shares was not fairly negotiated and the Disposal was at an undervalue. The Bankrupt and Lu were mutually aware of or must have known each other’s identity and hence his/her respective shareholding in NAS throughout the entire transaction from negotiation to completion.  It was readily inferable from all surrounding circumstances that the Disposal was not a normal transaction motivated by any commercial consideration.  The Trustees submit that:

(1)  The Shares were sold at a significant discount since, on the Trustees’ case, the Market Value of the Shares if sold in one lot was HK$40,908,000.

(2)  If the Bankrupt was, as a matter of fact, aware of Lu’s identity at the time of negotiating the sale, the Shares should further have been sold at a significant premium because the Disposal increased Lu’s shareholding from 29.72% to 50.60%.

(3)  When one applies the concept of Fair Value (with the Control Premium and/or the Shell Premium), the undervalue was even more prominent.

26.  The Trustees seek to set aside the Disposal and ask for an account and payment of all benefits received in relation to the Shares from 31 March 2016 up to the date of the order pursuant to section 51A of the Ordinance. 

27.  Lu disputes the applicability of the Fair Value concept.  She contends that the proper approach is to consider the Market Value, ie only Issue 1 for the experts.  The Disposal was not at an undervalue:

(1)  Due to the low liquidity of the shares in NAS and the fact that the Shares were to be sold in one block, the Shares should be sold at a discounted price.

(2)  The Shares represented only about 20% of the shares in NAS and would not give a purchaser any controlling stake. Thus, any purchaser would not have purchased the Shares if a premium was proposed.

(3)  Lu already had Convertible Bonds in hand, which she could have converted and obtained effective control of NAS.

(4)  As per Lu’s expert evidence, the Market Value of the Shares was HK$28.8 million.

28.  Lu also contends that even if the Trustees are able to persuade the Court to take account of the Fair Value, the Trustees must demonstrate as a matter of fact that the Bankrupt was aware of:

(1)  Lu’s identity as the purchaser and her existing interests in NAS; and

(2)  An intention on the part of Lu to sell NAS as a “shell” at the time of negotiating the Disposal.

29.  Lu said that the Trustees would be unable to establish those facts as she did not know that the Bankrupt was the seller.  She dealt with Mr Pun, the stockbroker conducting the Disposal, and did not liaise with the Bankrupt in relation to the Disposal.

30.  Lu challenged the qualifications of FY as an expert.  Each party also criticizes the approach of the opposite party’s expert in his sampling method and analyses of data obtained.

E.  ISSUES

31.  By the end of the trial, the issues boil down to the following:

(1)  What was the Market Value of the Shares as of 31 March 2016? (“Market Value Issue”)

(2)  Is the concept of Fair Value applicable to the assessment of the value of the Shares for the purpose of section 49 of the Ordinance?  (“Fair Value Issue”)

(3)  As a matter of fact, was the Bankrupt aware of the identity of Lu and her existing interest in NAS at the point of negotiation and agreement of the Disposal? (“Awareness of Identity Issue”)

(4)  What should be the Fair Value of the Shares as of 31 March 2016?  (“Quantum of Fair Value Issue”)

(5)  Was the sale price substantially less than the Market Value or Fair Value of the Shares?

F.  LEGAL PRINCIPLES APPLICABLE TO SECTION 49 OF THE ORDINANCE

32.  The Originating Summons expressly relies on section 49 of the Ordinance which provides that:

“49. Transactions at an undervalue

(1) Subject to this section and sections 51 and 51A, where a debtor is adjudged bankrupt and he has at a relevant time (defined in section 51) entered into a transaction with any person at an undervalue, the trustee may apply to the court for an order under this section.

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that debtor had not entered into that transaction.

(3) For the purposes of this section and sections 51 and 51A, a debtor enters into a transaction with a person at an undervalue if—

(a) …;

(b) …; or

(c) he enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the debtor.”

33.  There is no dispute that the Disposal accrued within the “relevant time” of 2 years under section 51 of the Ordinance. It is thus not necessary to establish insolvency of the Bankrupt at the time of the Disposal before invoking section 49.

34.  The value of an asset that is being offered for sale is, prima facie, not less than the amount that a reasonably well informed purchaser is prepared, in arm’s length negotiations, to pay for it.  Where there is a market for assets of the type in question, in general the figure to be taken is the market value.  See Phillips and anor v Brewin Dolphin Bell Lawrie Ltd and anor [2001] 1 WLR 143, at §30, Lord Scott; and Goode on Principles of Corporate Insolvency Law, 5^th ed, 2018, §13-25.

35.  Insofar as listed shares are concerned, this is not necessarily equated with the existing share price on the open stock market or the book value at any given time.  Rather, in considering whether the transaction was at an undervalue, the Court forms a view as to the price which the asset would have fetched in the open market: National Westminster Bank plc v Jones and ors [2001] 1 BCLC 98 at §80, Neuberger J.

36.  To establish “undervalue”, under section 49(3)(c):

(1)  The money or money’s worth of the consideration that the bankrupt received for entering into the transaction (“incoming value”) must be “significantly less” than the value in money or money’s worth of the consideration provided by the bankrupt (“outgoing value”). This requires a comparison between the incoming value and outgoing value. Both values must be considered from the debtor’s point of view. 

(2)  It is not necessary for the Court to ascribe a precise figure to the outgoing value or the incoming value, as section 49 will apply when the court is satisfied that, whatever the premise values may be, the incoming value is on any view significantly, as opposed to negligibly, less than the outgoing value. 

(3)  The Court, if it considers appropriate to do so, could consider the issue of undervalue by taking from a range of possible values those which are most favourable to the party seeking to uphold the transaction. 

Re MC Bacon Ltd [1990] BCLC 324 at 340g-h; Reid v Ramlort Ltd (No. 2) [2005] 1 BCLC 331 at §§102-104; and Delaney v Chen [2011] B.P.I.R. 39 at §§15-16, CA.

37.  The above legal principles on deciding if there was an undervalue are not really disputed.  What is disputed is whether or not the Court should ascribe any Fair Value or special value to the Shares. Mr Shieh SC (and Ms Rachel Lam SC), counsel for the Respondent, submits that the Court should not, otherwise it would be inconsistent with paragraphs 34-36 above.  As a corollary, he queries the relevance of Lu’s existing shareholding in NAS or her increase in shareholding in NAS from 29.72% to 50.60% as a result of the Disposal when the proper test for ascertaining Market Value is applied. The issue of Fair Value will be separately dealt with in Section J below.

G.  CHALLENGE AS TO EXPERTISE AND EXPERTS’ APPROACH

38.  This case relies heavily on expert evidence.  CL was challenged as he based his opinion on “experience”.  He claimed that he did not want to “cherry pick” but listed out all the data for the court.  FY’s expertise was challenged because he did not have experience with valuation of shares of listed companies or application of the Takeovers Code.  His qualitative analyses of data were criticized as being subjective.

39.  Of course, an expert who has no knowledge or experience in a particular field is not qualified to give expert evidence.  To give an extreme example, one cannot ask an expert in building construction to give evidence on configuration of a motor vehicle. 

40.  However, I do not think it can be disputed that an expert witness can give evidence as to facts, interpret the data, express his/her opinion on those facts or data, and rely on his experience in his discipline. He/she may draw on literature in his discipline.  The Court will decide what weight should be attached to his/her opinion.  See Kennedy v Cordia (Services) LLP (Scotland) [2016] UKSC 6, §§39-41, Lord Reed and Lord Hodge:

“39 Skilled witnesses, unlike other witnesses, can give evidence of their opinions to assist the court. This gives rise to threshold questions of the admissibility of expert evidence. An example of opinion evidence is whether Miss Kennedy would have been less likely to fall if she had been wearing anti-slip attachments on her footwear.

40  Experts can and often do give evidence of fact as well as opinion evidence. A skilled witness, like any non-expert witness, can give evidence of what he or she has observed if it is relevant to a fact in issue. An example of such evidence in this case is Mr Greasly's evidence of the slope of the pavement on which Miss Kennedy lost her footing. There are no special rules governing the admissibility of such factual evidence from a skilled witness.

41  Unlike other witnesses, a skilled witness may also give evidence based on his or her knowledge and experience of a subject matter, drawing on the work of others, such as the findings of published research or the pooled knowledge of a team of people with whom he or she works. Such evidence also gives rise to threshold questions of admissibility, and the special rules that govern the admissibility of expert opinion evidence also cover such expert evidence of fact. ...”

41.  There can also be no doubt that the expert is entitled to express his opinion from his general experience. See English Exporters v Eldonwall Ltd [1973] 1 Ch 415 at 420D-421A, per Megarry J:

“… Let me further ignore cases in which questions in cross examination may have let in evidence that otherwise would be inadmissible, and confine myself to the admissibility of hearsay in chief and in re-examination in these valuation cases. In such circumstances, two of the heads under which the valuers' evidence may be ranged are opinion evidence and factual evidence. As an expert witness, the valuer is entitled to express his opinion about matters within his field of competence. In building up his opinions about values, he will no doubt have learned much from transactions in which he has himself been engaged, and of which he could give first-hand evidence. But he will also have learned much from many other sources, including much of which he could give no first-hand evidence. Textbooks, journals, reports of auctions and other dealings, and information obtained from his professional brethren and others, some related to particular transactions and some more general and indefinite, will all have contributed their share. Doubtless much, or most, of this will be accurate, though some will not; and even what is accurate so far as it goes may be incomplete, in that nothing may have been said of some special element which affects values. Nevertheless, the opinion that the expert expresses is none the worse because it is in part derived from the matters of which he could give no direct evidence. Even if some of the extraneous information which he acquires in this way is inaccurate or incomplete, the errors and omissions will often tend to cancel each other out; and the valuer, after all, is an expert in this field, so that the less reliable the knowledge that he has about the details of some reported transaction, the more his experience will tell him that he should be ready to make some discount from the weight that he gives it in contributing to his overall sense of values. Some aberrant transactions may stand so far out of line that he will give them little or no weight. No question of giving hearsay evidence arises in such cases, the witness states his opinion from his general experience.” (underline added)

42.  It is apparent from the citation in English Exporters that an expert witness cannot stop at saying “I have a lot of experience.  This is my opinion.”  When challenged as to his opinion, there are 2 minimum sources on which he should justify himself: (i) his first hand evidence in past transactions; and (ii) information or publication in his discipline. 

43.  CL’s expertise was in corporate finance (such as IPOs, take-overs) and had dealt with listing.  However, as shall be demonstrated, when challenged, CL could not meet the requirements in paragraph 42.  He adduced irrelevant evidence of facts, ie transactions that fell way outside a reasonable period of the Disposal.  His “experience” was not supported by first hand evidence in past transactions or publication in his discipline.

44.  Judging from his curriculum vitae and answers in cross-examination, FY was not a market participant, not an expert in the securities field and was not licensed by the SFC to advise on corporate finance.  His expertise was in insolvency matters.

45.  FY has done valuation of businesses and companies in shareholder disputes and divorce proceedings in Hong Kong and overseas jurisdictions.  However, he has not identified the cases (probably due to privacy reasons).  There was no specific mention of valuation of shares in listed companies or experience with application of the Takeovers Code.

46.  Mr Shieh SC queries FY’s expertise since the subject matter of this case is the value of a listed company rather than private company.

47.  In my view, FY is not any less an appropriate expert.  Every expert will have his first experience with the court.  In dealing with insolvency matters and valuation of private companies, one can reasonably expect FY to have knowledge of the Companies Ordinance and related codes or regulations.  As will be demonstrated, even if this was FY’s first experience with valuation of shares of a listed company or application of the Takeovers Code, his opinion was well reasoned, rational and supported by relevant publications.

48.  The difference between FY and CL was that when his opinion was challenged, FY backed his opinion up by data and reasons and left the Court to choose amongst the alternatives.  CL effectively invited the Court to accept his word because that was his say-so, without evidence to show his first-hand experience or admissible data.  At times, CL’s opinion was even contradicted by his own data.  I do not favour CL’s approach.  I prefer FY’s approach, subject to certain aspects that I expressly doubt or reject in the analyses below.

49.  Counsel have made thorough analyses of the experts’ opinions and it is not necessary to set them out here in full.  In the following analyses, I will just deal with the main arguments.

H.  MARKET VALUE ISSUE

H1. Principles agreed between the experts on Market Value

50.  The definition of “Market Value” as set out in IVS 2013 and 2017 is the estimated amount for which an asset or liability should exchange:

(1)  on the valuation date;

(2)  between a willing purchaser and a willing seller;

(3)  in an arm’s length transaction;

(4)  after proper marketing; and

(5)  where the parties had each acted (i) knowledgeably, (ii) prudently and (iii) without compulsion.

51.  For the purpose of assessing the Market Value:

(1)  The only characteristic of the potential purchaser that needs to be taken into account is paragraph 50(5).  All other characteristics of the purchaser would be disregarded.  In other words, the Market Value for the Shares should be the same whether they were sold to Lu or any other willing purchaser.  This is to be contrasted with the Fair Value which takes into account the fact that Lu, upon acquiring the Shares, would increase her shareholding to above 50%. 

(2)  An Illiquidity Discount, ie a discount for the thin trading volume of the shares in NAS should apply.

(3)  The premise for valuing the Shares should be that NAS was a going-concern.

H2.  Parties’ respective case on Market Value

52.  As can be gleaned from Table 1 above, the components of Market Value are in dispute (in descending order of significance):

(1)  The rate of the Illiquidity Discount;

(2)  Applicability of the Swing Vote Premium; and

(3)  The proper Base Value to apply. 

53.  FY based his valuation on the following factors:

(1) Background of the Disposal, the parties involved, and NAV (§§40-137, FY Report);

(2)  An Illiquidity Discount of 10% of the Base Value for the thin trading volume or illiquidity of the shares in NAS with reference to 5 comparables and upon the qualitative and quantitative analyses of NAS (§§160-243, FY Report);

(3)  A Swing Vote Premium of 15% of the Base Value for the substantial size of the Shares which could influence the affairs of NAS in light of the then shareholding structure, with reference to 2 publications with worldwide data (§§244-255, FY Report); and

(4)  A Base Value of HK$0.0974 per share, being the average closing price for the 5 trading days immediately prior to and including the date of the Disposal (§§157, FY Report; §14 Joint Report); the Base Value was conservative as the closing price for the year before the Disposal was consistently higher than the Disposal Price (§149, FY Report).

54.  CL based his valuation on the following factors:

(1)  An Illiquidity Discount of 30% of the Base Value based on his experience (§10.4, CL Report).

(2)  A Base Value of HK$0.103 per share, arrived at after taking a holistic view of the comparables in the market as at 31 March 2016; this value was 14.71 times NAS’ average earning per share of HK$0.007 (§§10.1-10.3, CL Report).

H3.  Illiquidity Discount

55.  In selecting the comparables, both experts sought “off-exchange” transactions as it was recognized that for such a huge volume of shares, it was not practicable to sell them in the market.

56.  FY had 5 transactions (of 5 listed companies) as comparables whereas CL had 11 (of 7 listed companies). 

57.  FY’s criteria (§172, FY Report) were as follows:

(1)  The underlying shares were listed on GEM;

(2)  The transactions were announced within 12 months prior to the date of the Disposal (with one exception, being a transaction that took place only 11 days after the Disposal);

(3)  The transaction involved transfer between 15% and 25% interest of a shareholder of a listed issuer; and

(4)  The listed issuer in relation to the selected transaction was not subject to enquiry by the SFC into its shareholding due to high concentration (“high concentration enquiry”).

58.  FY’s selected transactions disclosed a range of discounts from 6.4% to 19.6% with a median of 10.1%.  He did qualitative analyses, having considered eg the annual returns, financial performance of the relevant company and suggested some factors causing the variation in percentages, before giving an opinion on the Illiquidity Discount as 10%.

59.  On the other hand, CL started off with a view based on his “experience” that the discount for such minority and non-controlling block in a listed company with low liquidity would be in the region of 30% (§8.2.5, CL Report) and then proceeded to verify his view.

60.  CL’s criteria for selecting comparables were as follows (§8.2.7, CL Report):

(1)  The underlying shares were listed on HKEX (with no distinction between GEM and the Main Board);

(2)  Non-H-share companies;

(3)  Companies with less than HK$1.5 billion market capitalisation; and

(4)  The transactions took place in the six-month period from October 2016 to March 2017.

61.  CL explained under cross-examination that he was to find relevant data in the market, which was then averaged to verify his view of 30% discount.  It was not to find a company whose attributes were the closest possible match to NAS.

62.  I find CL’s approach to be problematic for these reasons.

63.  Firstly, CL’s starting premise based on experience carried the risk of bias.  Contrary to the principle in paragraph 42 above, his report never gave any example of first-hand experience in past transactions or publications accepted in his discipline that supported the 30% discount.

64.  Secondly, the dates on which the selected transactions took place were at least 6 months after the Disposal.  The market did not have such information at the time of the Disposal.  The selected transactions were irrelevant.  If the 30% was based on experience, there should be abundant data before the Disposal Date in support.

65.  CL explained that October 2016 was the earliest date for the search engine for the HKEX website but this explanation was starkly contradicted by FY’s search results.  In fact, under cross-examination CL admitted that he could have applied different search criteria in the HKEX website to search for comparables before the Disposal date although such method would require more effort in studying the announcements to identify the relevant transactions.

66.  In my view, it is not acceptable for an expert to adopt an irrelevant period for searching data simply because it was easier to search.  This ground alone is sufficient to reject CL’s evidence on the Illiquidity Discount.

67.  Thirdly, CL’s data did not support his experience of 30% discount.  In 10 of his 11 selected transactions, the discounts ranged from 1% discount to 56%.  One even had a premium of 10%.  CL claimed that the respective discounts came up with an average of 32% (excluding the transaction with 10% premium) or 28% (including that transaction). 

68.  With respect, this average approach carried no weight because none of the 11 transactions carried a 30% discount.  Only 3 out of 11 carried a discount of less than 5% variation from 30%.  CL has not attempted to explain the wide range of discounts.

69.  Among the 11 transactions, 3 involved Kwan On Holdings Ltd of which the share size ranged from 6.9% to just over 10%.  The discounts were over 50% in all the 3 transactions.  One could not help wonder what the problem of Kwan On was – to have sale and purchase of such substantial shareholdings in 2 months.  CL has not begun to explain.

70.  The 30% discount was also irreconcilable with the asset approach which CL mentioned in his report.  He asserted that “it would be more prevalent for non-Hang Sang Index companies with smaller market capitalisation to have a larger discount of share price to the NAV per share than those [real estate developers] shown in Exhibit 11.3.7”.  However, he had not given a single example in support.

71.  This Court has specifically asked CL for the possible reasons for variation in discounts and why the discounts in his selected transactions were not the 30% that he advocated.  CL admitted that each transaction had its unique features, for example, the seller wanted to sell urgently.  And yet he admitted that he had never considered if there were unique features in any of those 11 selected transactions; he considered the job impossible (做唔到).

72.  Fourthly, CL failed to distinguish between GEM and Main Board shares when selecting comparables. Even Lu’s witness, Pun, admitted that GEM shares were more difficult to sell. And yet in respect of the 11 transactions selected by CL, 10 were Main Board shares.  CL’s explanation was that the Illiquidity Discount for GEM shares should be greater than for Main Board shares.  However, this explanation was contrary to his own “experience” of 30%, which made no distinction between GEM and Main Board shares.  In fact, the only GEM Board company amongst the 11 transactions showed a discount of 11% - which was not greater than the discount for Main Board shares (like Kwan On) and in fact supported FY’s opinion of 10% Illiquidity Discount.

73.  Fifthly, the variation in block sizes was too great to be of meaningful comparison.  CL's selected transactions involving block sizes ranging from 6.9% to 29.9% shareholding.  Under cross-examination, he claimed that so long as the block size would not trigger a GO, no differentiation in block sizes was required. 

74.  I am unable to agree.  There were only 2 out of 11 selected transactions involving a block size of 21.7% and 25.3% (ie within 5% variation from the size of the Shares.  Those 2 transactions had a premium of 10% and discount of 46% respectively.  CL has not explained the difference.

75.  For the 5 reasons above, I reject CL’s opinion on the Illiquidity Discount as irrelevant, lacking rational bases and unreliable.

76.  Insofar as FY’s selection criteria were concerned, Mr Shieh SC’s challenges were directed at:

(1)  FY’s lack of expertise (“1^st challenge”).

(2)  Inclusion of the “no high concentration enquiry” in the criteria.  This was because a high concentration enquiry would not in itself suggest any irregularity in the company.  If no irregularity was discovered during the inquiry, SFC would not make an announcement to withdraw the warning (“2^nd challenge”).

(3)  The qualitative analyses, as being “subjective” and “cherry-picking”.  It “double counted” factors affecting share prices (“3^rd challenge”).

77.  In respect of the 1^st challenge, I repeat my observations in Section G above.  The challenge to FY’s expertise is unfounded.

78.  In respect of the 2^nd challenge, Mr Shieh SC contends that high concentration enquiry in itself was not uncommon and, unlike suspension from trading, was not an indication of irregularity in the listed company.  He also points out that FY could not even define what constituted high concentration and was not even aware if SFC had issued guidelines on this aspect.  

79.  I am not persuaded by Mr Shieh SC’s argument. FY had cited the high concentration warning announcements of SFC, which referred to the possibility of a substantial fluctuation in the price of shares even with a small number of shares traded, given the high concentration of shareholding in a small number of shareholders.  Shareholders and prospective investors were warned to exercise extreme caution.

80.  A knowledgeable and prudent purchaser reading the announcement could reasonably take the view that the substantial fluctuation might reflect a distorted picture of the share price.  FY’s view was no different.

81.  FY had excluded one selected transaction in respect of sale of 22.62% in KSL Holdings at a discount of 87%.  CL contended that, without KSL, the “average” discount in FY’s selected transactions would be 12%; but with KSL, it would be 25%.  An 87% discount was way above even the highest discount of 56% in CL’s irrelevant data. I agree with FY that KSL Holdings should be excluded as an outlier.  

82.  Further, finding an “average” was not FY’s approach.  Even if average was relevant, an “average” of FY’s selected transactions has meaning given the small range of discount (from 6.4% to 19.6% excluding the outlier).  To the contrary, an “average” has little weight given the wide range (from 1% to 56%) in CL’s selected transactions.

83.  In respect of the 3^rd challenge as to qualitative analyses, CL criticized FY’s explanations for the variations in the Illiquidity Discount for FY’s selected transactions as “subjective”; the factors considered by FY were “judgmental in nature and [were] not supposed to form a part of the basis of assessment under Issue 1”.  By not investigating the reasons behind the discount, CL claimed to have given more “objective” analyses.

84.  Such criticism overlooked the fact that an expert’s opinion often required some judgment on his part, to assist the Court on areas within the expert’s expertise.  It is of course always open to the Court to determine the weight to give to the expert’s judgment.

85.  In §35 of the Joint Report, CL admitted that there were a number of contributing factors to form the bases and magnitude of discount and market norms.  He explained market norms and time to sell but he did not list other contributing factors.

86.  Mr Shieh SC conceded in his final submission that there was no direct correlation between the estimated time to sell and the level of discount.  CL was not advocating a linear formula for calculation of Illiquidity Discount.  With this concession, an “average” approach has simply ignored factors beyond illiquidity.

87.  Following on from the 2 preceding paragraphs, the implication is that the purchasers and sellers in CL’s selected transactions were not acting knowledgeably or prudently and without compulsion.  The discounts were totally arbitrary.

88.  Applying paragraphs 40 and 41 above in Section G, CL had given factual evidence in the form of data but not opinion evidence as to how the data could be interpreted to assist the Court.

89.  On the other hand, apart from giving data, FY had done more by giving opinion evidence on why the data appeared as it did.  His explanations on the variation in discounts was not subjective.  They were based on information in the public domain which told about possible motives of the purchaser and seller, business prospect, financial position of the relevant company, market sentiment, discount or premium of the trading price over NAV, and annual reports. (§§237-240, FY Report)

90.  Further, FY explained under cross-examination that the substantial shareholder of a company would have more in depth understanding of the situation and performance of a company than the other investors.  That could explain why a substantial shareholder would be prepared to accept a discount of various rates based on matters other than illiquidity, e.g. the poor or promising outlook of the business.  This was just common sense and I agree.

91.  The Trustees further submit that even if the market was fully aware of the actual situation and performance of a company, a substantial block of shares could still attract a greater discount.  That was not because of illiquidity but the fact that the financial risk that the purchaser of a substantial stake in a poorly performing company would be far greater than a small investor who traded through the trading system.  This was again common sense and I also agree.

92.  It was also raised in cross-examination of FY, that the factors taken into account by him in his qualitative analyses “double-counted” the factors determining trading prices of shares and the only factor causing the discount was illiquidity.  However, this line of cross-examination contradicted CL’s own admission in paragraph 85 above.

93.  In summary, it could be seen that CL’s selection of comparables started on a wrong footing based on his alleged experience, picked a wrong period for comparison, failed to have regard to the GEM Board nature and block size of shares and hence put forth discounts without explaining the variations. Such an approach was plainly irrelevant and inadequate.  

94.  On the other hand, FY’s approach of selecting comparables was rational, related to the nature of NAS shares being GEM shares and the block size in question.  His qualitative assessment gave the Court the proper perspective as to variations in discounts.  FY’s approach was consistent with the agreed basis of assessing the Market Value, namely, that the purchaser and seller acted “knowledgeably”, prudently and without compulsion.  I accept the FY’s approach as more principled and reliable to that of CL’s, notwithstanding the small sample size.  I find the Illiquidity Discount to be 10%.

H4.  Swing Vote Premium

95.  According to FY,

“A swing vote stock is stock that, when combined with another sufficiently large block, can influence the affairs of the corporation either directly or indirectly. If the owner of the swing stock is not related to any other shareholder, and no shareholder owns a controlling interest, but the two blocks constitute a majority, the owner of the swing block can indirectly influence the corporation by voting with that block.”

“Any time the voting power of a minority interest can be combined with the voting power of other minority interests to create a controlling interest the potential for swing-vote value exists.”

“The basis of the swing vote premium is that the owner of a minority voting interest has the potential to combine with other interest holders to gain majority voting control of the entity…For the swing vote premium to apply, the holdings of all the owners must be considered.”

“Depending on the distribution of the stock, a block could have the potential to gain a premium price over a pure minority value because of its potential as a swing block.… Many scenarios could be constructed where a swing block would have the potential to command some premium over a pure minority value. Generally, they arise when a sale of the block could cause a change (for instance, strengthening or weakening) in a control position. However not all swing vote situation deserve a premium.”

96.  Swing Vote Premium is a novel concept in Hong Kong.  FY based his opinion on 2 publications known as (i) “The Price of Control: An Empirical Investigation of the Control Premium in M&A Transactions, pre and post Financial Crisis of 2007/2008” by David Dietz in 2015 (“Dietz”);and (ii) “Mergerstat Control Premium Study” published by Factset Mergerstat, LLC (“Mergerstat”) setting out the empirical studies and statistics based on thousands of merger and acquisition transactions in various markets across the world (§§275-290, FY Report).

97.  FY pointed out that at the time of the Disposal, the shareholding structure of NAS was as follows(FY Report, §69):

(1)  Lu: 29.72% together with Convertible Bonds in the principal amount of HK$60 million, which allowed her to increase her shareholding to 37.55% upon full conversion (“Conversion”). The conversion price under the Convertible Bonds was HK$0.25 per share. 

(2)  Bankrupt: 21.02%.

(3)  One “C.L Davids Fond og Samling” (“Samling”): 5.54%.

(4)  Public shareholders: 43.72%. 

98.  According to FY, with such a shareholding structure, the owner of the Shares (20.9%) would be able to yield influence over the management of NAS, as his/her inclination to vote on particular issues might be determinative of the outcome in the general meeting:

(1)  As CL admitted in the Joint Report, the common turnout rate for public shareholders in general meetings was 10%.

(2)  Lu (or the successor of her shares) faced a real threat to be outvoted if the owner of the Shares could manage to persuade those 10% public shareholding to vote against Lu.

(3)  The uncertainty would increase if the owner of the Shares managed to persuade Samling to vote together against Lu.

(4)  On issues where Lu (or the successor of her shares) was disqualified from voting, eg connected transaction including but not limited to asset injection into NAS, the owner of the Shares would be able to dominate the general meeting under the usual turnout rate of the public shareholders. 

(5)  If Lu (or the successor of her shares) could secure the support of the owner of the Shares, they together could form a majority of 50.6% to prevail in the general meetings.  Further, Lu could make sure the connected transactions proposed by her (or any other resolution for vote she was disqualified from voting) could be adopted through the support of the owner of the Shares. 

(6)  Under such circumstances, the owner of the Shares should be able to influence the management of the Company.  There is no commercial reason for Lu not to reach out to the owner of the Shares to seek the latter’s view on management issues, e.g. direction of the business development or appointment of directors, to make sure there would be no unnecessary hostility in the management of NAS.  It would not be unreasonable to expect the owner of the Shares would be allowed to nominate directors to the board of NAS for direct participation in the management. 

(7)  This is particularly so when Lu (insofar as she claimed) did not have personal involvement in the management of NAS but relied upon the Bankrupt and his wife Zhang.  Lu would have an interest to make sure the new owner of the Shares would be agreeable to her choice of directors. 

(8)  Under such circumstances, given the Shares would carry influence in the management of NAS, they should be about to command a premium from a willing purchaser. 

99.  Having considered Dietz and Mergerstat, FY considered the Swing Vote Premium to be 15% of the Base Value.

100.  Mr Ho SC submits that there was no evidence at the time of the Disposal that Lu would take such steps to increase her shareholding in order to counter the influence that the owner of the Shares could exert.  There was no guarantee of success of the GO, and Conversion would require Lu to pay HK$0.25 per share, more than double the trading price.  To suggest that Lu would take such steps instead of cooperating with the owner of the Shares was devoid of rational basis.

101.  Mr Shieh SC disputes both the applicability of the Swing Vote Premium and the percentage on the following grounds:

(1)  Swing Vote Premium is a concept new to Hong Kong (“ground 1”).

(2)  A Swing Vote is applicable to a private company or joint venture but not a publicly listed company with a 25% public float like NAS (“ground 2”).

(3)  As stated in an academic article, “What is swing vote value?” in June 1996/The CPA Journal, cited by FY himself, there “has to be a need to create a controlling block of stock to take advantage of an opportunity or solve a problem.  Speculation that opportunities or problem may exist sometime in the future do not create swing-vote value” (“ground 3”).

(4)  The Trustees have not led evidence to suggest that Lu wished to have any particular agenda to pursue in consequence of the swing vote, whether before or after the Disposal.  Neither was FY able to do so under cross-examination (“ground 4”). 

(5)  The Shares could not command a Swing Vote Premium because Lu could always make a GO or exercise her Conversion rights to obtain control (“ground 5”). 

(6)  A swing vote is difficult to use because in a related transaction, the relevant shareholder would not be able to vote (“ground 6”). 

(7)  The 15% figure chosen by FY was arbitrary and found no support in the literature that he cited (“ground 7”).

102.  With regard to ground (1), I do not think the novelty of a concept excludes its applicability.  Much depends on the evidence led and how the concept is applied.  As FY explained, whilst it might be difficult to sell a block of shares, it was equally difficult to buy.  The Swing Vote Premium was thus looking at things more from the perspective of a purchaser.

103.  With regard to ground (2), I do not think one can say definitively that a Swing Vote Premium cannot apply to a publicly listed company.  Much depends on the shareholding structure.

104.  With regard to grounds (3) and (4), I agree that in the absence of other pointers, mere evidence of the share structure is not sufficient to command a Swing Vote Premium.

105.  By way of example, a swing vote may be useful where, eg there is a feud between 2 family groups of shareholders with equal shareholding and one group wants to the purchase the minority block of shares.  There were no such pointers here.  In fact, this view is consistent with the articles cited by FY, which all discussed solely held corporations and concentrated shareholdings.

106.  Apparently, FY has assumed that the purchaser was someone other than Lu, and that purchaser would not vote in accordance with his/her own wish but would swing towards another shareholder. 

107.  If Lu were to be the purchaser, any “swing value” would immediately evaporate upon her purchase, as she would hold over 50%.  It would not be necessary to carve out the Shares for any swing vote. This applied even if she were to purchase through a nominee, for her nominee would not swing to any side but to Lu’s.

108.  Grounds (5) to (7) are irrelevant given my views on grounds (3) and (4).

109.  However, just for the sake of completeness, one can refer to my view of Dietz and Mergerstat, discussed under Control Premium in Section L4.  I find the 15% assessed by FY to lack rational basis.

110.  In summary, although a Swing Vote Premium can exist in principle where there are pointers apart from the shareholding structure, having regard to my analyses on grounds (3) and (4), I am not satisfied that a Swing Vote Premium applied to this case.

H5.  Computation of the Market Value

111.  CL did not adopt the close of trading price on the date of the Disposal or the 5-day average before that date.  He chose to derive the Base Value by the “market approach” by applying a PE multiple of 14.66 to the average earning per share of NAS of HK$0.007, ie HK$0.103. He regarded that as “very close to the six month average market price of NAS of HK$0.116 per share”, and in fact very close to the Base Value chosen by FY plus the Swing Vote Premium, ie HK$0.112.

112.  In other words, both experts agreed that the Illiquidity Discount should be applied to a value above the trading price of the Shares.

113.  I have found the Illiquidity Discount to be 10%.  The Swing Vote Premium did not apply.  The computation of Market Value for the Shares sold as one lot, using the respective Base Value, is as follows:

Table 1A on Market Value

	FY	CL
Base Value	HK$0.0974 per share	HK$0.103 per share
Illiquidity Discount	10% discount	10% discount
Swing Vote Premium	Not applicable	Not applicable
Market Value	HK$35,064,000 (HK$0.08766 per share)	HK$37,080,000 (HK$0.0927per share)

J.  APPLICABILITY OF FAIR VALUE ISSUE

J1.  Parties’ respective case

114.  FY suggested that Fair Value was applicable to proceedings under section 49 of the Ordinance.  There should be added to the purchase price the Control Premium (for acquiring absolute majority in NAS) and the Shell Premium (for the Hong Kong listing status of NAS).  He based his valuation on Dietz and Mergerstat for the Control Premium.

115.  CL disagreed that Fair Value applied.  If it did apply, he opined that the Fair Value remained at or below the Market Value of HK$28,800,000 on the bases that:

(1)  Based on empirical studies of comparable transactions (§12.2, CL Report), and features unique to this present transaction (namely, the existing shareholding of Lu (§§12.4.1, 12.4.2 and 12.5, CL Report)), a Control Premium did not apply. In fact, the seller’s bargaining power would be weakened if the purchaser and seller were found to be mutually aware of each other’s respective interests (§12.5.8, CL Report).

(2)  The application of a Shell Premium was based on erroneous assumptions (§§78-79 Joint Report) and would only apply to a one shot acquisition of over 50% shareholding but not, as here, where Lu had built up her shareholding in stages to get over 50% (§87, Joint Report).

(3)  The figure of HK$350 million was wholly arbitrary (§94, Joint Report).

J2.  Meaning of Fair Value

116.  Fair Value requires a valuation to take into account the special value of the particular asset to a special purchaser. It is not the same concept as fair value in accounting.  It may not be the same as Market Value.

117.  Fair Value is defined in IVS 2013 as follows:

“38. Fair value is the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties.

…

40. For purposes other than use in financial statements, fair value can be distinguished from market value. Fair value requires the assessment of the price that is fair between two identified parties taking into account the respective advantages or disadvantages that each will gain from the transaction. It is commonly applied in judicial contexts. In contrast, market value requires any advantages that would not be available to market participants generally to be disregarded.

41. Fair value is a broader concept than market value. Although in many cases the price that is fair between two parties will equate to that obtainable in the market, there will be cases where the assessment of fair value will involve taking into account matters that have to be disregarded in the assessment of market value, such as any element of special value arising because of the combination of the interests.

…

Special Value

43. Special value is an amount that reflects particular attributes of an asset that are only of value to a special purchaser.

44. A special purchaser is a particular buyer for whom a particular asset has special value because of advantages arising from its ownership that would not be available to other buyers in the market.

45. Special value can arise where an asset has attributes that make it more attractive to a particular buyer than to any other buyers in a market. These attributes can include…economic or legal characteristics of an asset. Market value requires the disregard of any element of special value because at any given date it is only assumed that there is a willing buyer, not a particular willing buyer.

46. When special value is identified, it should be reported and clearly distinguished from market value.” (underline added)

118.  The concept of Fair Value has received judicial recognition when the courts had to consider “the value … in money or money’s worth” in situations like the present:

“Value is not a matter which is to be decided in a vacuum. Value usually is associated with a person. The pure concept of value is, of course, what a reasonable objective person would pay for the property rather than lose it, but very often the property will have a special value to a person because of factors unique to that person. For instance, a particular copy of a book may have special value because the inscription once showed it belonged to the intending purchaser’s grandfather. If that special fact is known to the vendor and to other persons, it may be a matter to take into account when working out what the hypothetical objective purchaser would pay rather than lose it, but very often the special feature will not be known to the vendor or to the general market.” McDonald & Anor v Hanselmann (1998) 144 FLR 463, at p 467 (underline added)

119.  The special value, which could take the form of a “ransom value” that the subject transaction could confer upon the counterparty.  The transaction should be valued as a whole by taking into account instead of ignoring such ‘ransom value’ when assessing whether the transaction was at an undervalue.  Otherwise it would “fly in the face of reality and common sense”: Agricultural Mortgage Corp Plc v Woodward[1994] BCC 688 (“Woodward”), at p.696H-p.697A, Sir Christopher Slade.

120.  In Woodward, D1 fell into arrears with his mortgage before his bankruptcy.  Shortly before the deadline he agreed with the plaintiff mortgagee for the arrears to be cleared, D1 granted to D2 (his wife) a long tenancy of the mortgaged property at full market rent.  The value of the mortgaged property with vacant possession was over £1 million but, subject to tenancy, was less than £500,000. The mortgage was for £700,000.  The judge held that the transaction was entered into by D1 for the purpose of prejudicing the interest of the plaintiff, which was not challenged.

121.  The English Court of Appeal rejected D2’s argument that the only relevant value was the best market rent for the lease (which she had agreed to pay) and declined to look at the tenancy in isolation.  The tenancy gave D2 the threefold benefits of safeguarding the family home, enabling her to acquire and carry on the family farming business and a surrender value which would place her in a ransom position as against the plaintiff.  The Court of Appeal held that the transaction conferred on her significant enhanced benefits beyond the rights granted by the tenancy agreement itself for which enhanced benefits she did not pay.  The tenancy agreement was held to be a transaction at undervalue and was set aside.

122.  Another example of ransom value could be found in Margo Ann Freeguard v Royal Bank of Scotland P.L.C. [2005] EWHC 978 Ch.  A mortgagee bank was found to be negligent in its exercise of power of sale by failing to sell a strip of land, which was the sole access to an adjacent field, at its ransom value to the owner of the adjacent field.  The test to be applied was “the best price reasonably obtainable by a mortgagee”.

123.  In Inland Revenue Commissioners v Clay[1914] 3 KB 466, the court had to deal with valuation of the property for sale, ie the amount which the land, “if sold at the time in the open market by a willing seller in its then condition, free from incumbrances, ... might be expected to realize”. (underline added)  IRC v Clay was not an insolvency case.

124.  The subject property had a special value to a special purchaser (trustees) who owned adjoining property and desired to extend their nursing home.  The English Court of Appeal held that the fact that the immediately adjoining landowner(s) were likely to offer more than the property would be worth to anybody else was a fact which could not be disregarded (p472).  The trustees actually paid an amount 33.3% above the provisional valuation and that was held to be the price that “might be expected to realize”.  "Expected" referred to the expectations of properly qualified persons who had taken pains to inform themselves of all the particulars ascertainable about the property, its capabilities, the demand for it, and the likely buyers (at pp475-6).

125.  In the context of companies, there were examples of taking into account strategic value of substantial shareholding in a company for assessing the Fair Value of the same.  See Toll (FHL) Pty Limited v Prixcar Services Pty Ltd & ors (2007) 17 VR 632, involving a private joint venture company.  Toll notified the company directors of disposal of its 33.3% shareholding.  The dispute was over valuation.  It was held that the notion of Fair Value of shares in joint venture company or closely held corporation necessarily imported the special value of the shares in the hands of another shareholder and that discounting for a minority shareholding was not “fair”.  It was at least arguable that Toll’s shareholding might be of special strategic significance in terms of the votes required to pass special resolutions and because the ability to control Toll’s shareholding in the company carried with it the ability substantially to influence board decisions and, if aggregated with an existing shareholding, could lead to control.  (at §§26, 27, 34 & 35)

126.  In the light of these authorities as well as common sense, a transaction must be viewed as a whole.  It would be ludicrous to ignore the special value that the subject transaction conferred upon the counterparty (ie in this case, Lu) for the purpose of s.49 of the Ordinance.  In these authorities, knowledge of the seller that he could command a Fair Value was not necessary.  Objective circumstances would speak for him.

127.  Mr Shieh SC does not agree that any premium should be ascribed to an asset solely as a result of the identity of the purchaser or any inferences which the Trustees suggest should be made as to the lack of bona fides of the Disposal.  He makes 3 points.

128.  Firstly, “a comparison [had] to be made between the value obtained by the company for the transaction and the value of consideration provided by the company.  Both values … must be considered from the company’s point of view.”  Re MC Bacon Ltd at 340f‑g, wherein the Court had to consider undervalue under a provision similar to section 49 of the Ordinance. These principles were followed in Delaney v Chen.

129.  Mr Ho SC submits that the ratio in MC Bacon was that creation of the security over the assets did not deplete them and therefore the owner did not suffer any loss.  All that the owner suffered was the inability to apply the proceeds of sale of such assets otherwise than in satisfaction of the secured debt.  The supposed requirement of making comparison from the company’s point of view was not part of the ratio in MC Bacon.

130.  I do not agree with the last sentence in the preceding paragraph.  Mr Shieh SC’s proposition in paragraph 128 was correct.

131.  However, more importantly, Re MC Bacon Ltd was decided before the English Court of Appeal’s case of Woodward.  In subsequent cases, the courts followed Woodward.

132.  In Re Thoars (No. 2), Reid v Ramlort Ltd (No. 2)[2005] 1 BCLC 331, whilst applying the comparison principle set out in MC Bacon, Parker LJ expressly stated that Woodward was just such a case (§103, at p383).  In Re Thoars, the impugned transaction was the declaration of a trust over an insurance policy by the deceased (who left an insolvent estate) in favour of one of his creditors.  Under the policy a sum of £180,000 was payable on the death of the deceased, but the policy had a surrender value of £71.  As consideration for the declaration of trust, the creditor paid the deceased £3,000.  The trial judge set aside the declaration of trust for undervalue as the policy was worth at least £10,000 at the time of the declaration of trust, having regard to the deceased’s then state of health.

133.  It was argued by the creditor that, absent direct evidence of the existence of a special purchaser for such policy, the value of such policy could only be the surrender value of such policy.  The English Court of Appeal rejected such contention as it flew in the face of reality and common sense (§117, at p385), holding that, from the deceased’s point of view, there would be a significant pay-out under the policy upon his death. 

134.  Secondly, Mr Shieh SC tries to distinguish Woodward. He submits that Neill LJ made clear that the ransom value was not something which affected the calculation of the Market Value (at p698C-D) as D2 there was paying the full market rent.  That judgment emphasized that the tenancy had the effect of diminishing the value of the estate, whereas there was no parallel of depletion of any asset in the estate in the present case. When one spoke of ransom value, one is talking about the position of the transferee squeezing benefit out of the other party (the plaintiff mortgagee in Woodward).  There was no ransom in the present case as the Shares did not allow Lu to be in any kind of superior bargaining position as against the Bankrupt or any identifiable party.

135.  With respect to Mr Shieh SC, citation from IVS 2013 in paragraph 117 above already stated that special value may not be the same as Market Value.  The rental agreement in Woodward was at the best market rent.  It was still regarded as undervalue having regard to all the circumstances.  Ransom value or strategic value are just two forms of special value pointing to transacting at an undervalue.  There can be other forms, like Margo Ann Freeguard and IRC v Clay.  The lack of “ransom” in the present case did not matter.

136.  Further, ransom value is not just about the transferee squeezing benefit from a counterparty.  It equally applies to a transferor who could have but failed to squeeze benefit out of a sale, eg IRC v Clay. 

137.  Even applying Re MC Bacon, from the point of view of the bankrupt there, the outgoing value far exceeded the incoming value because of the benefits to the bankrupt’s wife. The Disposal in the present case was a one-off deal and, from the Bankrupt’s angle, it did deplete the Bankrupt’s estate because of the low sale price.

138.  None of the authorities referred to by Mr Shieh SC have rejected the application of the Fair Value.  I hold that if the purchaser and seller were aware of each other’s identity, or only one person’s identity was known to the other, to ignore the special value is to shut one’s eyes to reality.  Woodward is good law.  Fair Value does apply to the present case.

139.  Thirdly, Mr Shieh SC submits that even if Fair Value is applicable, it should still be ignored unless the Court makes positive finding that Lu and the Bankrupt were mutually aware of each other during the negotiation for the Disposal. 

140.  Mr Ho SC disagrees.  He refers to MacDonald v Hanselmann and IRC v Clay, above, and propounds that the key for considering the special value is whether it would be known to the public that a special purchaser was in existence. 

141.  I do not agree with the broad proposition of Mr Ho SC.  In both of the cases that he cited, the purchasers were known to the sellers.  I doubt if there could be a situation known to the public that a special purchaser was in existence but his/her identity was not known to or ascertainable by the seller.

142.  Anyway, applying Mr Ho SC’s proposition to a hypothetical situation, the shareholding structure of NAS was a matter of public record.  Lu could always be the hypothetical special purchaser who wanted to achieve over 50.6% control of NAS.  It would mean that the Bankrupt could command a Fair Value regardless of whether Lu was the intended purchaser.  An existing shareholder (apart from Lu) who would not actually be acquiring over 50% and who did not pay a Fair Value would face an allegation of undervalue.  That could not be right.

143.  I hold that the Bankrupt had to know the identity of Lu as a purchaser before Fair Value could apply to the Disposal.

K.  AWARENESS OF IDENTITY ISSUE

144.  The Trustees have to establish that the Bankrupt was aware of the identity of Lu as the purchaser and her existing interest in NAS at the point of negotiation and agreement of the Disposal before Fair Value was engaged.

145.  One Trustee, Lu and Pun have testified.  The Bankrupt has not.  The Trustees have not given evidence as to what enquiries they had made of him as to his state of knowledge.  However, in my view, even if the Bankrupt had given a negative answer to the Awareness of Identity Issue, the Trustees were not obliged to accept his answer.

146.  The Trustee’s evidence was based on documents and was not disputed.  It gave the background of the case.  I accept it.

147.  With regard to the evidence of Lu and Pun, this was not a case that really turned on the Court’s view of a witness’ demeanour in the witness box but on the inherent logicalities (or lack of it) of their evidence having regard to contemporaneous documents and circumstances.

148.  The evidence of Lu, in summary, was that the Disposal was a “blind sale”, ie neither she nor the Bankrupt were aware of each other being the purchaser and seller of the Shares respectively.  Her knowledge of the availability of the Shares and its purchase occurred within a day.  Her evidence is summarized in paragraphs 149-164 below.

149.  Lu first met the Bankrupt in Shanghai in 2014. She later acquired Convertible Bonds from Million Land Ltd, which was holding 269,058,296 shares in NAS in 2014.  She built up 29.12% shareholding in NAS and surpassed the Bankrupt as the largest shareholder of NAS in about a year’s time.  Her acquisition was said to be motivated by the acquisition price on each occasion being lower than the price of the Convertible Bonds and not because of the Bankrupt.  On her 2 acquisitions from Million Land, Lu used the broker firm Orient Patron Securities Limited, the same firm involved in the Disposal.

150.  Lu claimed not to have paid attention to the overall percentage she was holding.  Despite being the single largest shareholder of NAS since June 2015, she has never been appointed as a director of NAS, even after purchase of the Shares.  She felt it better to leave the management to the board as she was not proficient in English and was not familiar with regulations governing listed companies.  She accepted in cross-examination that she knew the Bankrupt and his wife were the executive directors of NAS, and the Bankrupt was the Chairman of the board.

151.  Lu was instead appointed as a representative of the Shanghai office of one of NAS’ subsidiary, the function of which was to raise capital.  She was also appointed as a director of another subsidiary of NAS. She initially claimed that it was the Company which appointed her but admitted in cross-examination that it was the Bankrupt who appointed her to both positions.  She plainly wanted to distance the Bankrupt from her.

152.  Lu claimed to have first learnt of the availability of the Shares on 31 March 2016, the same day that she struck the deal.  It was at the time she signed transfer documents that she knew that the Bankrupt was the seller.

153.  The credibility of Lu was important.  She was not cross-examined as to her knowledge of the Bankrupt’s state of mind, whether the Bankrupt knew her identity and the level of her shareholding at the time of the Disposal.  However, when assessing her credibility, one should not lose sight of the big picture at the time of the Disposal. 

154.  On the Bankrupt’s side:

(1)  NAS was a cash rich company – with about HK$592 million cash or cash equivalents.  If the Bankrupt had needed to meet the arbitration award, simply declaring a dividend would have sufficed.  There was no need to sell the Shares.

(2)  But for an intention to evade satisfaction of the arbitration award, there was no apparent urgency in selling the bulk of his shares.

(3)  He would have known from the purchase price that the purchaser (whoever that may be) would be obtaining an immediate huge profit upon acquisition of the Shares.  Why would he want to sell the Shares at such a “throw-away” price on the same day it was put on the market, without any bargaining at all?

(4)  Given that he was Chairman on the board, it was impossible that he did not know about the shareholding structure. 

(5)  Given that Lu had been building up her shareholding in NAS, it was unimaginable that the Bankrupt had not approached Lu for the sale.

(6)  Orient Patron was the placing agent in the earlier exercise.  The Bankrupt must have known that Orient Patron had been assisting Lu in acquiring the shares in NAS.  When the Bankrupt approached Orient Patron to sell the Shares, it must have at least occurred to him that Lu would be approached by Orient Patron.

(7)  Lu trusted the Bankrupt and his wife. There was no reason that the Bankrupt would not approach Lu directly to offer selling the Shares to her, or to inform her of the intention to sell or to resign as Chairman.

(8)  After the Bankrupt disposed of the rest of his shares in NAS and resigned as a director, his wife, who owned no shares in NAS took over as Chairman.  The appointment of the wife had no logical reason unless it had the blessing of Lu as majority shareholder.

155.  The Disposal completely lacked commercial sense from the Bankrupt’s point of view.  Viewed in the light of the arbitration award and the petition for his own bankruptcy shortly after the Disposal, it was plain that the Bankrupt had no genuine commercial motive over the sale but to strip himself of a major asset and to strip the Company of cash upon a declaration of dividend.  It was further to inhibit the Trustees from assuming the capacity of shareholders of NAS and investigate into affairs of NAS to maximize recovery on behalf of the Bankrupt’s estate.

156.  On Lu’s side, she claimed:

(1)  Not to be aware that the Bankrupt was the largest shareholder of NAS before she acquired the shares from Million Land in 2015.

(2)  Not to know that the shares she acquired from the placement in 2015, upon which she became the shareholder of NAS for the first time, represented 15% of shareholding in NAS, as she was only concerned about the number of shares to be acquired and the trading price.

(3)  Not to know that she had become 29.72% shareholding in NAS and surpassed the Bankrupt as the single largest shareholder.

157.  It was inherently improbable that a knowledgeable investor in GEM shares, trading at those volumes, would have consistently ignored the percentage of her own shareholding and the shareholding structure of NAS.  If Lu had so trusted the Bankrupt and his wife, she would not have omitted to find out that he was once the largest shareholder and person in real control of NAS.

158.  It was also unimaginable that the Bankrupt or NAS had never informed Lu of the fact that she was the largest shareholder and the percentage of her shareholding, particularly since there was a statutory obligation in making disclosure of interest when the shareholding exceeded a certain percentage.

159.  More incredible was Lu’s response at the time of the purchase.  She vacillated between being told by Pun before and after signing the transfer documents but settled with the version of being told after the signing.  When Pun told her that she would own over 50% shares in NAS and had to make a GO, the only reasonable realization must be that she was acquiring from a major shareholder, the Bankrupt. 

160.  When the Chairman of the board was disposing of his shareholding, Lu’s only reasonable reaction must be to contact him immediately to find out the reason for the Disposal, to see if NAS was in a crisis or to find out if her trust in the Bankrupt was misplaced.  Lu did not and her explanation was that “their personal relationship was not that close” and she was not nosy.  Why she would relate a question of potential business crisis with just personal relationship was inexplicable.

161.  Further, Lu’s obligation to make a general offer was a serious matter, requiring about HK$70 million to acquire the rest of the shareholding.  When Pun reminded her to make a GO, she immediately replied “OKOK” without any need for clarification or any time to think.  She was plainly aware of the meaning of a GO and the financial obligation involved.  It was incredible that she denied knowledge of the percentage of her shareholding.

162.  Lu purported to paint a picture that she was totally isolated from the management of NAS and she was perfectly comfortable with that.  Again, with investment in over 50% shareholding, that picture totally lacked commercial sense.

163.  By the Disposal, Lu would have acquired just over 50% and hence would have control over the NAS’ cash.  Simply by declaring a dividend, the cash she could have obtained would have been sufficient for her to meet the cost of the acquisition and/or any GO price.  The dividend declared in 2017 soon after the acquisition represented 80% of her purchase price.

164.  In summary, the Disposal was not negotiated. There was no due diligence done.  The Disposal was concluded in one day by a few telephone conversations between Pun and Lu.  In such a bulk purchase of shares, Lu did not even know that she had to make a GO until Pun told her about it.  She readily accepted it by saying “OKOK” without considering her means and how to do the GO.  I only need to state these to reject Lu’s evidence as a fairy tale.  I find her to be incredible and reject her version.

165.  As for Pun, a witness on subpoena, he was a broker with no particular connection with the Bankrupt or Lu.  He appeared to be an independent witness with no interest in the outcome of this case.

166.  According to Pun, he was instructed by the Bankrupt to find a purchaser.  The Bankrupt did not name Lu.  Pun discovered by reference to the contacts and records in his office that Lu held NAS shares. She was the 3^rd of 3 potential purchasers whom Pun had contacted. He did not try to find a 4^th potential purchaser because he thought that GEM board stock was illiquid and there could be a lot of fraud in it.  So if someone was willing to make an offer for such a big lot, it was already a good outcome.

167.  Pun has produced “official” telephone records of his brokerage company.  The records suffered from the following inadequacy:

(1)  They only recorded the concluded deal rather than the preliminary discussions with clients.  Prior to making the official record, Pun had used his own mobile phone to discuss with the client and confirm the deal.

(2)  Lu confirmed that the only asking price Pun told her about was HK$0.098 but Pun’s evidence was that the asking price was HK$0.100.  Their evidence was not consistent.  In fact, other than the price of HK$0.075, the telephone records did not mention any other price.

The official telephone records produced were plainly incomplete whether Lu or Pun’s evidence is to be accepted.

168.  Mr Shieh SC suggests that there is no reason to doubt Pun’s evidence because the way Pun went about contacting potential clients was inherently inconsistent with the suggestion that there was a sham/dishonest arrangement between the Bankrupt and Lu.  It was not suggested to him in cross-examination that it was a sham or that the Bankrupt “instructed” him to “find” the “correct” purchaser.

169.  I do not consider such “instruction” to Pun to be a necessary element in the context of this case.  As Pun testified, people who purchased GEM shares were few.  It was only natural that he would make inquiries of past clients who had purchased NAS shares and it would not be difficult to get to Lu eventually and get at the “right” price that the Bankrupt would want to “sell” and Lu would want to “buy”.

170.  On such evidence, Mr Shieh SC submits that there is no direct evidence of the Bankrupt’s state of mind and knowledge.  The Trustees do not found their case on the lesser accusation that the Bankrupt must have deduced on his own volition that Lu was the purchaser and knew of her existing level of shareholding of NAS.  The Trustees’ case is premised on an inference that the Bankrupt must have known the identity of Lu as purchaser and there was a prior arrangement between the Bankrupt and Lu over the Disposal. It was to create a sham that they did not know each other’s identity as seller and purchaser, which was denied by Lu.

171.  Although the standard of proof that the Trustees have to meet is one of balance of probabilities, the more serious the allegation the less likely it is that the event occurred and hence the stronger and more cogent should be the evidence to overcome the unlikelihood of what is alleged and thus to prove it.  This does not mean that where a serious allegation is in issue the standard of proof required is higher.  It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred.  Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at §625.

172.  The Court is faced with a choice between: (i) Lu’s version, purportedly supported by Pun as an independent witness, that the Disposal was in accordance with her ongoing acquisition of NAS shares at a price she desired; and (ii) a serious assertion of effectively a sham arrangement which, if accepted, would deprive her of a whole block of NAS shares and hence majority interest.

173.  Considering all the circumstances, to suggest that it was a blind sale of the Shares without any contact between Lu and the Bankrupt simply defied commercial sense and logic.  Viewing the evidence of Lu and Pun in its entirety against the contemporaneous circumstances, Lu knew or would reasonably have known that the seller was the Bankrupt (see in particular paragraph 159 above).

174.  It was also an irresistible inference that being in charge of the management and in view of paragraph 154 above, the Bankrupt knew Lu’s continued interest in building up her shareholding and that she was the purchaser at or before the Disposal.  The sale and purchase could not have gone through without the Bankrupt and Lu knowing each other being involved.  Pun’s involvement could not give the contrived Disposal any credence of an arms-length transaction.  I hold that the Bankrupt was aware of the identity of the purchaser being Lu.

L.  QUANTUM OF FAIR VALUE ISSUE

L1.  Fair Value and Illiquidity Discount

175.  There is dispute as to components of the Fair Value.  Initially, the dispute was over the Control Premium and Shell Premium. A new dispute arose in the course of oral evidence as to whether Illiquidity Discount was necessary to the concept of Fair Value.

176.  In the Joint Report, both FY and CL unequivocally agreed that:

“3. …a discount for illiquidity is necessary for valuing the Subject Shares only when assessing the market value in the Subject Shares under Issue 1, and that it is not necessary to apply a discount for illiquidity in Issues 2 to 4.”

177.  Nevertheless, in his examination-in-chief, CL suggested that there was a typo in the statement quoted above.  The correct statement should be “that it is not necessary to apply a further discount for illiquidity in Issues 2 to 4.”  

178.  I cannot accept that there was a typo.  The statement was in an agreed joint report.  To add the word “further” would render the meaning of the first part of the statement that an Illiquidity Discount is necessary “only” when assessing the market value under Issue 1 meaningless.

179.  I find that CL was withdrawing his agreement to the statement in the witness box.  It was too late to do so as FY was deprived of the opportunity to provide data and give an opinion that CL got it wrong.

180.  Illiquidity Discount is about “cost of buyer’s remorse: it is the cost of reversing an asset trade almost instantaneously after you made the trade” (§163, FY Report). “Fair Value is about the fair price between an identified buyer and identified seller as the asset has special value to that buyer and not any other buyer in the market.  It is not about “buyer’s remorse” at all and so Illiquidity Discount does not apply to Fair Value.

181.  Accordingly, I shall act on the agreed statement cited in paragraph 176 above as representing the correct position.

L2.  Fair Value and Control Premium

182.  The key issue in the dispute over Fair Value of the Shares is the meaning of “control” in the context of NAS.

183.  FY considered that upon acquisition of the Shares, Lu would own 50.6% shareholding in NAS.  He regarded such combined shareholding as controlling shareholding which would give Lu the following rights:

(1)  To appoint or change operational management;

(2)  To appoint or change members of the board of directors;

(3)  To declare and pay cash and/or stock dividends;

(4)  To negotiate and consummate mergers and acquisitions; and

(5)  To liquidate, dissolve, sell out or recapitalize a company.

184.  CL disagreed for the following reasons:

(1)  The definition of control in a listed company was 30% shareholding, based on the Takeovers Code (“1^st reason”);

(2)  There had to be a public float of 25% according to the Listing Rules (“2^nd reason”); 

(3)  Lu already had de facto control since she could have increased her shareholding to 37.55% by Conversion without having to pay any premium for the Shares (“3^rd reason”); and

(4)  Takeovers which may induce a Control Premium were usually those where the purchaser had no previous shareholding and where they saw a long-term strategic use of the listing status (“4^th reason”).

185.  With regard to the 1^st reason, according to the Takeovers Code:

“Unless the context otherwise requires, control shall be deemed to mean a holding, or aggregate holdings, of 30% or more of the voting rights of a company, irrespective of whether that holding or holdings give de facto control.

186.  With regard to the 2^nd reason, since there was a requirement of public float of 25%, a person who held 30% may not have actual control of the listed company, as the rest of the 45% could be held singly or jointly by shareholders who held more than 30%. 

187.  What CL failed to mention was that under the Takeovers Code, 2 categories of shareholders had to make a general offer to acquire the shares of all the other shareholders: 

(1)  A shareholder who held less than 30% voting rights and through one or more transactions acquired shares which increased his shareholding to over 30%.  This requirement acknowledged that the 30% gave a shareholder significant influence or even control over the management of the listed company and allowed other shareholders a chance of exit in the light of the emergency of such significant influence or control.

(2)  A shareholder within the “Creeper Zone”, ie who held more than 30% but less than 50% of voting rights in a listed company and had, over the last 12 months increased his/her shareholding by 2% or above.

188.  The rationale for the Creeper’s Zone was that:

“… A shareholding between 30% and 50% does not give its holder the certainty that it will retain control of the company forever. Such shareholders are thus left with uncertainty, as a result of which they may be tempted to ‘creep up’, i.e. to move from 30% to 50% without triggering a bid. There are two approaches to address this issue…The restricted increase approach. Some countries provide that any acquisition of shares – or of a certain quantity of shares over a certain time period – above the 30% (or 33%) threshold will give rise to a mandatory bid…” (A Legal and Economic Assessment of European Takeover Regulation, Clerc & Demarigny, 2012)

189.  It was therefore plain that the Takeovers Code recognized that there was a category of shareholders who would want to increase his/her shareholding beyond 30%.

190.  With regard to the 3^rd reason, Conversion was not economically advantageous to Lu compared to purchase of the Shares because:

(1)  The capital involved for the Conversion was greater.  Lu would have to pay HK$60 million, but get an increase in shareholding only up to 37.55%.  On the other hand, even with the 30% Control Premium as suggested by FY, Lu would only have to pay HK$50,648,000 to achieve a greater increase of her shareholding to 50.6%.

(2)  The costs for the resultant GO would be higher if Lu had opted for Conversion.  Under rule 26 of the Takeovers Code, she would be required to make a GO at the conversion price of HK$0.25 per share to the balance of 62.45% shareholders at the potential costs of $336,484,737 (ie 1,345,938,948 shares x HK$0.25).  Had Lu acquired the Shares with the Control Premium, she would only be required to make a GO to the rest of the 49.4% shareholders based on the purchase price, ie at the costs of HK$119,755,870 (ie 945,938,948 shares x HK$0.1266).

(3)  Lu would be subject to the Creeper Zone control if, after the Conversion, she still wanted to increase her shareholding to over 50%, unless the GO to be made upon Conversion had already enabled her to increase her shareholding to over 50%.  On the other hand, acquiring the Shares allowed Lu to immediately rise above 50% with the need for one GO but not the second GO in the Creeper Zone.

191.  Accordingly, Lu had gained actual control over NAS by purchasing the Shares at a much lower cost than if she had opted for Conversion.

192.  With regard to the 4^th reason, CL was not entirely correct.  As will be seen from his own comparables, there were purchasers of block shares who had minority shareholding in hand at the time of purchase. (See paragraphs 200(2), 203-204 below.)

193.  In summary, having regard to the rights which Lu might acquire on gaining over 50% shareholding and that none of the 4 reasons can withstand scrutiny, I agree with FY that, in principle, Lu should have paid a Control Premium.

194.  I now proceed to compare the approaches of CL and FY over selection of comparables for the Control Premium.

L3.  Comparables for Control Premium selected by CL

195.  CL put forth 55 mandatory GOs in 2017 as comparables.  The price for the GO (“GO Price”) was supposed to be the price for the relevant transaction.  He compared the GO Price to the trading prices of the relevant shares on the last trading day, and the average trading prices of 5, 10 and 30 trading days prior to the relevant transactions.

196.  CL found that, rather than a Control Premium, there was a Control Discount of an average of 11.95% to the last trading day price.  There were 15 GEM Board transactions after taking out the Main Board transactions.  Out of the 15, the result was that 8 transactions were at a discount and 7 were at a premium.  Therefore, Mr Shieh SC submits that a Control Premium was not the norm.

197.  One notes immediately that the selected transactions were 9 to 21 months after the Disposal.  They were irrelevant as comparables as the information was not known to the market at the time of the Disposal and would not reflect market sentiments.  CL put forth the same explanation as for the selected transactions on Illiquidity Discount.  He did not deny during cross-examination that it was possible to find data for a relevant period by using a better, but more time-consuming, way.  I repeat my views in paragraphs 65-66 above and reject his 55 selected transactions as irrelevant.

198.  In any case, the 55 selected transactions (Exh A-1) were not useful as comparables.  I can do no better than using Mr Ho SC’s figures.

199.  Firstly, 40 out of the 55 selected transactions were in relation to Main Board companies, which were different in nature and had different investors to NAS listed on the GEM Board.

200.  Secondly, the way CL treated the prices on the last trading day and prices on the 30^th and 180^th day before the relevant selected transaction or announcement with the actual purchase price was unreasonable and produced distorted figures.

(1)  Presumably CL had in mind the fact that the Disposal was made within a day of the Bankrupt offering the Shares for sale.  That was plainly unrealistic, as one would expect that a sale of shares of this volume would have involved more than a day’s negotiation and due diligence exercise.

(2)  Of the 55 selected transactions, 43 involved purchasers who had no prior shareholding in the relevant company.  The other 12 involved purchasers who had less than 10% shareholding before the purchase.  It was unrealistic to suggest that those transactions were concluded within 1 to 10 days.  It was unbelievable that a purchaser would have just taken the price of the last trading day without investigation as to the true worth of the company before the purchase.

(3)  The 30-day and 180-day average trading prices were more relevant to the present case.

(4)  In the 55 selected transactions, 7 were regarded by the independent financial advisor as not fair or reasonable. Comparing the 30-day average trading price and the transaction price, the remaining 48 carried an average of 4.4% premium.  This was a surge from what CL put forth as an average of 7.34% discount using the last trading day price. Again, comparing the 30-day average and the transaction price and even if the 7 unfair transactions were included, the average discount of all 55 transactions was just 0.82%.  CL has not given any explanation to the significant surge in average share price over the 30-day period.

(5)  The 180-day average was completely ignored by CL without any explanation.  This was in sharp contrast to his approach for analyzing the Market Value when he examined the price of NAS for 6 months. He thought that 180 days were long enough to avoid any short-term fluctuation which might distort his analyses and was widely used by analysts in understanding the recent price movement of a company.

(6) Of the 29 selected transactions which had a discount (“the discount transactions”), 20 of them involved a substantial surge in share price and/or trading volume prior to the announcement of the relevant transaction.  In 7 out of the 29 transactions, ie items 2, 26, 28, 29, 33, 40 and 43, the transaction price actually carried a premium over the 180-day average price.  In all 29 transactions with a discount, the average discount fell significantly from the 33.39% over the last trading day price to 14.92% over the 180-day average, ie there was a substantial surge of 18.47% in the average share prices of all 29 transactions over the period of 180 days prior to the transaction.

201.  Thirdly, as noted by Mr Ho SC, the NAV and profits of the companies in those 29 discount transactions were ignored.

(1)  24 out of the 29 discount transactions (except items 15, 25, 27, 31, 43) carried substantial premia between the GO Price and the NAV per share.  The premia ranged from 17.19% to 9210%.  Amongst the 24 discount transactions, 18 had premia of over 100%.

(2)  16 out of the 29 discount transactions were loss-making.  The GO price in 14 out of those 16 transactions carried substantial premia over the NAV per share.

(3)  In those 13 profit-making companies, only 3 companies were neither making minimum profits nor having a profit/earning ratio higher than the average of the respective boards on which they were listed. 

(4)  In those 4 transactions which carried a discount between the GO Price and the NAV per share, 2 (items 15 and 27) were loss-making and 2 (items 31 and 43) were making minimal profits only.

(5)  The average premium over NAV was 738.4% (excluding the 4 discounted to NAV transactions) or 867% (including the 4 discounted to NAV transactions).

(6)  In other words, the last trading day price of all 29 discount transactions under CL’s analyses were in fact significantly overpriced in the trading market for one reason or the other. 

202.  On Mr Ho SC’s analyses, it can be seen that 51 of the 55 selected transactions in fact carried a premium over the last trading day or 30-day trading price, or a premium over NAV.  CL gave no explanation in contradiction.

203.  Fourthly, there was no evidence to support CL’s proposition that a premium was “generally attached only in a clean, one shot acquisition of over 50% interest, not an acquisition of a minority block.” (§87, Joint Report).

204.  In fact, some purchasers had zero shareholding in hand while 12 out of 55 had less than 10% before they acquired control.  See paragraph 200(2) above.

205.  Accordingly, if the 55 selected transactions of CL were held to be relevant, they actually supported the existence of the Control Premium propounded by FY.

L4.  Comparables for Control Premium provided by FY

206.  FY was unable to find empirical data on Control Premium in relation to share transactions of private or listed companies in Hong Kong.  He had resorted to data in Dietz and Mergerstat,which FY claimed to be well accepted by many valuers and experts.  Based on that data, FY suggested a Control Premium of 30%.

207.  CL disputed the relevance of Dietz and Mergerstat as referring to the USA market where listing rules did not provide for mandatory GOs and there was no requirement for minimum public float.  Different jurisdictions may have different thresholds for controlling interest (eg 30% in Hong Kong but 50% in USA).

208.  Dietz contained 19 years of data on worldwide transactions covering USA and Canada, Europe, Asia Pacific, Africa, Middle East, Latin America and the Caribbean.

209.  I agree with Mr Shieh SC’s observations:

(1)  Dietz was a graduate study thesis published in 2015.  There is nothing to show that the paper has been cited or gained recognition in any respect.

(2)  Dietz covered 2 time periods (2000-2004; and 2010-2014), which were far removed from the date of Disposal.

(3)  The key discoveries were that:

(a)  Whatever premium that did exist declined drastically by 22.47% after the financial crisis in 2007/2008.  The Control Premium fell more drastically in the US-Canada region than in the rest of the world;

(b)  However, the Control Premium on private companies has almost tripled in size post-crisis; and

(c)   Dietz acknowledged that any such premium varied between geographic regions and sectors.  FY agreed.

210.  For unknown reasons, FY had not utilized the methodology described in Dietz to run his own study of the Hong Kong market to ascertain the Control Premium.

211.  As for Mergerstat, the data covered the 3^rd quarter of 2016 and was relevant.

(1)  FY did not dispute that Control Premium could vary greatly across sectors, and the list of potential factors which affected any such premium were non-exhaustive.

(2)  The report did not include negative premium (ie where acquisition of control led to a discount on the purchase price). There were only 2 references in Mergerstat to negative premium in general form without supporting data, following the introduction.  FY claimed to have requested to submit an updated Mergerstat with negative premium but, in my view, it was too late for him to do so when it came to the making of the Joint Report.

(3)  Pratt: Business Valuation Discounts and Premiums, at pp63-64 (Exh R1), was put to FY in cross-examination.  It pointed out the drawback of not including negative premium, namely, that it would be a significant source of upward bias in calculating control premium.  FY was only able to suggest that the text was old (but then he also acknowledged that he himself had cited the text in other parts of his report).  However, oldness had no bearing on the soundness of Pratt’s criticism of not including negative premiums.

(4)  The report showed that the premium in international transactions had a very broad range – from ‑98.8% to 428% in the 3^rd quarter of 2016, with median at 47.4%.

(5)  FY also accepted in cross-examination that the acquisitions analyzed for the USA domestic deals were largely for 100% of the shareholding of the company, whereas the international deals were not necessarily for 100%.

(6)  For 1 April 2015 to 31 March 2016, the mean was ‑44.6% and the median 30.2%.

212.  FY had not distilled from Dietz or Mergerstat the industries similar to NAS’.  Both studies merely set out the data without qualitative analyses as what FY did for the Illiquidity Discount. Given the multiple variations, factors, countries and industries studied, it was meaningless to apply the mean or average figures in Dietz or Mergerstat to the Disposal.

213.  FY contended that there should be a Control Premium in this case having regard to the cash-rich position of NAS and its NAV.  The over 50% shareholding allowed Lu to utilize the cash immediately. The declaration of dividend of HK$0.06 per share in June 2017 was an example. The dividend attributable to the Shares amounted to HK$24,000,000, effectively reimbursing Lu 80% for the consideration for purchase of the Shares.

214.  If Lu were to wind up NAS, her 50.6% shareholding would give her substantial support to secure a special resolution.  She could then realize at least HK$ 0.222 per share, being the net current asset value and more than double the trading price.  If the shell of a listed company was worth something, she could get even more. (See under Section L5 on Shell Premium below).

215.  Having regard to the various advantages that Lu could obtain by purchasing the Shares instead of Conversion, FY made an educated guess of 30% of the Base Value for the Control Premium.

216.  Paragraphs 213-215 are all relevant factors. However, even though I am satisfied that a Control Premium should apply, using Dietz and Mergerstat as points of reference to fix the level of Control Premium is unsafe and unsound.

L5.  Fair Value and Shell Premium

217.  The listed status of a company is an asset with a value: Re Hua Han Health Industry Holdings Limited[2019] HKCA 906.  The Court of Appeal expressly held that:

“12. …It must be borne in mind that the Company is a listed company and its listed status is a valuable asset that could be realized for the benefit of the shareholders through a ‘backdoor’ listing by the interested purchaser, as has happened to not a few of the listed companies that have gone into liquidation. …

13. … Had this point been taken at the time, Haw Par would have been able to point to the listed status of the Company as a valuable asset that could be realized upon liquidation…”

218.  The existence of a Shell Premium has been recognized by the market and regulators.  According to a letter of the Hong Kong Stock Exchange dated June 2016 and updated in April 2018, cited by FY, HKEX noted “a number of listed issuers where their controlling shareholders either changed or had gradually sold down their interests shortly after the regulatory lockup period following listing.  One explanation for that phenomenon was the perceived premium attached to the listing status of such issuers rather than the existence of premium attached to the listing status of a company listed in Hong Kong.”

219.  This view was also shared by various publications and newspaper articles cited in §§294-304 of FY Report.

220.  Mr Shieh SC submits that:

(1)  It cannot be assumed that a person who attains over 50% shareholding would want to sell the listed shell for the purpose of facilitating a backdoor listing.  In this case there is no evidence that Lu had such intention.

(2)  There is sometimes a premium if the seller can demonstrate that the listed company and the business therein would meet certain stringent synergistic requirements of the intended purchaser.  FY acknowledged that one could not presume that a Shell Premium applied as there were many hurdles to surmount with the regulatory authorities before a company could potentially become suitable as a shell.  He admitted to a lack of expertise in corporate finance, listing procedure and reverse takeover.

(3)  A premium is generally only attached where the purchaser had no previous shareholding and where they see a long term strategic use of the listing status, particularly where they are planning for a business or asset injection at some later stage (§12.1.8 of CL Report).  It usually applies in a clean, one shot acquisition of over 50% interest, not an acquisition of minority block in stages to get over 50% shareholding.

(4)  The logical conclusion of FY’s theory is that if the purchaser already held 49% shareholding in the company, a Shell Premium would attach even if he were to acquire a mere 2% more because that would take his total shareholding to above 51%.  The applicability of a Shell Premium would entirely depend on the fortuitous fact of whether a particular acquisition represents the final “tranche” in a series of acquisitions which took the total shareholding to above 50%. 

(5)  The news reports talked about a shell value as a monetary value paid by purchasers for the shares they acquired, whereas FY wrongly used the reported values in news reports as a notional value attached to the entirety of the shareholding of a company and then “pro rating” it to the percentage of shares acquired in this case.  FY’s approach artificially deflated the “value” of the company to artificially generate the appearance of a Shell Premium.

(6)  The adoption of NAV as an indicator was also wrong as a proper market valuation should be used as a basis for comparison.  The Shell Premium was already embedded in the market price of the relevant company. Mr Shieh SC points out that all 5 selected transactions were trading at a price higher than their NAV.  If the transaction prices were compared to the trading price, then the transaction price would be at a discount and not a premium.  FY failed to explain why the 5 selected transactions (which were all trading at a premium to NAV) were appropriate in circumstances where NAS itself was trading at a discount to NAV.

(7)  Selection of NAV as the baseline was inconsistent with FY’s approach to other aspects of the valuation, such as Illiquidity Discount and Control Premium which were calculated by reference to the trading price.  CL’s view was that many companies in Hong Kong traded at a premium of NAV (as much as 400-500%).  Therefore, it was better to look at the company’s business value reflected in the trading price as the appropriate baseline.

(8)  FY’s theory of Shell Premium would mean that even if the purchaser had no intent to sell a shell and the deal was fully and properly negotiated, it could still fall foul of s.49 of the Ordinance if the seller went into bankruptcy.

221.  With regard to point (1) of Mr Shieh SC’s submission, sale as a shell is a reasonable opportunity open to the purchaser. One can assume in a commercial world that the purchaser seeks to maximize his profits.  Whether the purchaser realizes that he/she has this opportunity or does want to sell is not relevant to determination of the issue of Shell Premium.

222.  With regard to point (2), Mr Shieh SC’s submission is contradicted by FY’s selected transactions.  There were companies which continued with its business after the relevant takeover; whilst others developed a new line of business.  (See paragraph 234 below.)  They appeared able to surmount regulatory hurdles.

223.  With regard to point (3), Mr Shieh SC’s submission is contradicted by CL’s selected transactions.  There were purchasers with prior shareholding; there were those with none. 

224.  With regard to point (4), I prefer CL’s formulation of the issue to Mr Shieh SC’s.  The question is not whether a premium should be attached to a block of shares which would, in itself, give the intended purchaser controlling interest.  Rather, the question is whether a premium should be attached to a block of shares if, after acquiring such block, the intended purchaser’s shareholding would increase to over 50%.

225.  In Mr Shieh SC’s example, if the purchaser already holds 49% shareholding and still wants to acquire more, it begs the question why.  If the purchaser is not confident that he can move the shareholders to pass a resolution on a major issue, eg to sell the Company as a shell, I do not see why he should not pay a Shell Premium to acquire the additional 2%.

226.  With regard to point (5), Mr Shieh SC appears to be correct.  If so, the Shell Premium should be even higher in this case, ie HK$350,000,000.  What FY did was to work out the NAV plus Shell Premium in this case and pro-rated the Shell Premium having regard to the volume of the Shares.  He had ignored the Control Premium when assessing the Shell Premium (§387, FY Report).  This computation was of more advantage to Lu.  It reflected the fact that she would only become a 50.6% shareholder and that the Bankrupt could hardly charge a Shell Premium if the purchaser were a different person without a shareholding that could make up to over 50% after the purchase.

227.  With regard to point (6), as acknowledged by FY, listed companies rarely trade at exactly the NAV.  CL simply could not give a reason why, if the Shell Premium was already embedded in the market price of the shares of a company, someone in his comparables were still willing to pay a price much higher (or lower, in his own examples) than that market price to increase their shareholding to over 50%.  

228.  FY compiled the data with qualitative analyses.  It was a question of weight.  CL could not explain why there was a substantial premium over the NAV in the 4 transactions selected by FY.

229.  With regard to point (7), I respectfully differ from Mr Shieh SC’s view.  Market Value is for purchase of shares, whether as a block or individual shares.  Shell Premium is for purchase of a company. Accordingly, it is the worth of the company as a whole, reflected in its NAV that is important.  Computation of the unit price per share is merely for comparison to the Market Value or trading price.

230.  With regard to point (8), whether the transaction would fall foul of section 49 of the Ordinance depends how “fully and properly negotiated” the deal was.  A sale that may bring shareholding to over 50% can objectively command a Control Premium or Shell Premium and it applies whether or not the seller or buyer was subjectively aware of it.  That may explain why FY testified that the Control Premium and Shell Premium represented a “range” and he refused to choose between the two.  If one were to apply the test in Woodward, looking at things from the angle of the Bankrupt, the outgoing value to the purchaser would greatly exceed the incoming value (without a Control Premium or Shell Premium).

231.  I am of the view that a Shell Premium should be included in deciding the Fair Value of the Shares.

232.  As to quantum, FY has tried to ascertain the Shell Premium from 5 transactions selected with the following criteria:

(1)  The transactions were off-market ones;

(2)  The underlying shares were GEM shares;

(3)  The transactions were announced within 12 months prior to the Disposal; and

(4)  The transaction which caused an investor and any concerting parties to hold 30% or above interest in a listed issuer as enlarged by any allotment and issue of new shares.

233.  FY noted that the Shell Premium would not be disclosed in publicly available documents.  He therefore calculated the difference between the transaction price and the NAV of the company shown in the latest annual report and the share price on the date of the transaction.

234.  Again, FY did a qualitative analyses of the data obtained.  His findings, as summarized by Mr Ho SC, were as follows:

(1)  In 1 out of the 5 transactions, ie re AGTech Holdings Ltd (Stock code:8279), a fair portion of the premium over NAV was possibly paid in respect of the existing business of the company which would have synergistic effect with the business of the purchaser.  Given that the premium (HK$570 million) was the highest amongst the 5 transactions, FY excluded this transaction as an outlier.

(2)  For the other 4 transactions, FY inferred from the available information that the purchasers acquired the controlling stake in those 4 GEM listed companies primarily because of their listed status. 

(3)  Asian Capital Holdings Ltd (Stock code:8295) only had net assets of about HK$130 million.  For the years 2013 and 2014, the revenue ranged from HK$25 million to HK$31.64 million with a small profit of HK$8.64 million and a loss of HK$1.3 million respectively.  Its controlling shareholding was acquired by the Mainland Zhongzhi Group with a registered capital of RMB1 billion.  Subsequent to such acquisition, the assets and the profits significantly increased by 7-fold and 11-fold respectively.  The company name was changed to that ZZ Capital International Ltd.  From such findings, FY took the view that the original business of Asian Capital Holdings Ltd was unlikely to create significant value for the purchaser, given the imbalance of operation scale and profile.  Therefore, he inferred that the Zhongzhi Group paid a premium over the NAV of Asian Capital Holdings Ltd for acquiring its listed status.

(4)  Prosten Technology Holdings Limited (Stock code:8026) suffered a continuous decline in the value of its assets (from HK$87.37 million to HK$17.57 million), revenue (from HK$57.16 million to HK$9.76 million) and gross profit (from HK$27.32 million to HK$6.55 million) in the 3 financial years prior to the material disposal of the substantial shareholding by the previous shareholder.  The future prospects of this company were uncertain and auditors cast doubt on its ability to continue as a going concern.  Shortly after the change of the substantial shareholder, the company acquired completely different lines of business.  The revenue saw a 3-fold increase and the assets 7-fold.  FY therefore inferred that the new substantial shareholder paid a significant premium over the NAV, not for acquiring the previous business of the company but its listed status.

(5)  ETS Group Limited (Stock code:8031) suffered a continuous decline in profit in the 3 financial years prior to the subject disposal.  Subsequent to the change of substantial shareholder, the company developed a new branch of business.  FY therefore inferred that the new substantial shareholder paid the significant premium over the NAV, not for acquiring the previous business of the company but its listed status.

(6)  Brilliance Worldwide Holdings Limited (Stock code:8312) suffered a continuous decline in revenue and increase in loss in the 2 financial years prior to the subject disposal. The acquisition price was 1937% of the NAV of Brilliance.  Subsequent to the change of substantial shareholder, the company acquired a new company, developed a new branch of business, changed its name to that of the newly acquired company, viz China Hanya, and underwent a change of directors and senior management.  The NAV increased substantially from HK$20.04 million to HK$38.79 million a year later.  FY therefore inferred that the new substantial shareholder paid the significant premium over the NAV, not for acquiring the previous business of the company but its listed status.

235.  The Shell Premium, as found by FY, ranged from HK$215 million to HK$570 million.  Excluding the one with HK$570 million, the average Shell Premium was about HK$350,000,000, in line with the figures set out in media reports, especially the article by Bloomberg.  FY’s opinion on the Shell Premium was a reasoned one and not an arbitrary figure plucked from the news and articles with bias.  I accept FY’s opinion.

236.  I find the Shell Premium to be HK$350 million instead of the price being $40,908,000 for the Market Value with a pro-rated Shell Premium of $243,000,000 added to it.

237.  The computation of the Fair Value is as follows:

Table 2A on Fair Value

	FY	CL
Market Value	HK$35,064,000 (HK$0.08766 per share)	HK$37,080,000 (HK$0.0927per share)
Control Premium	Between Market Value and Shell Premium	Between Market Value and Shell Premium
Shell Premium	HK$350,000,000	HK$350,000,000

M.  WAS THE SALE PRICE SUBSTANTIALLY LESS THAN THE MARKET VALUE OR FAIR VALUE OF THE SHARES?

238.  Comparing the price of HK$30,000,000 and the computation in Table 1A (paragraph 113), Shares were sold at HK$5,064,000 or HK$7,080,000 below Market Value, whether one took FY or CL’s Base Value.The Disposal should be set aside for being at a substantial (as opposed to negligible) undervalue.  This alone is sufficient to grant the Trustees’ application under section 49 of the Ordinance.

239.  As for Fair Value, the Shell Premium, not paid, was in the amount of HK$350,000,000.  Even taking the more generous computation of FY at $243,000,000, the Disposal should still be set aside for undervalue.

N.  CONCLUSION

240.  The Market Value of a substantial lot of shares should take into account the Illiquidity Discount.  If there are pointers other than the shareholding structure, one may take into account a Swing Vote Premium but I find that there were no such pointers in this case.  I find the Market Value to be HK$35,064,000 to HK$37,080,000.

241.  Fair Value can apply to the assessment of undervalue under section 49 of the Ordinance if an asset is of special value to a purchaser and it is established that the purchaser and seller were aware of each other’s identity or only one of them was aware of the other’s identity.

242.  In this case, I find that the Bankrupt must have known the identity of Lu as purchaser, and Lu knew or would reasonably have known that the seller was the Bankrupt. The Shares were of a special value to Lu as it brought her shareholding up to 50.6% to achieve control over NAS.  She should have paid a Shell Premium of HK$350,000,000.

243.  This case relied heavily on expert evidence.  An expert should not take a subjective view based on “experience” that could not be supported by objective data, first-hand experience or publications in his discipline.  He should take care to select comparables for a relevant and reasonable period and properly define the characteristics for comparison.  He should explain why variations appeared in the comparables instead of just giving the statistical picture.  CL’s approach has failed in these respects.

244.  FY’s approach on the Illiquidity Discount and Shell Premium was a principled approach.  His data covered a relevant and reasonable period with well-defined characteristics for comparison.  His lack of experience on valuation of listed companies has not shown him to be inadequate or compromised his objectivity.  I accept his valuation on the Base Value, Illiquidity Discount and Shell Premium. 

245.  As for the Swing Vote Premium, it can exist in principle.  However, just the shareholding structure without other pointers (such as a feud between 2 groups of shareholders) is not sufficient to found a Swing Vote Premium. 

246.  As for Control Premium, reliance on worldwide data in Dietz and Mergerstat that covered a wide variety of countries and industries and without taking into account negative premium is not satisfactory.  The Court is unable to fix the percentage for a Control Premium, except to say that it should be something in between the Market Value and the Shell Premium.

247.  Having regard to the above analyses, in particular Section M, I hold that the Disposal was at an undervalue whether only Market Value applied or Fair Value applied as well.

248.  I therefore order as follows:

(1)  The Disposal be set aside on the ground that it constituted a transaction at an undervalue under section 49 of the Ordinance;

(2)  Upon payment of the consideration of HK$30,000,000 to Lu, the Shares shall be vested in the Trustees as part of the estate of the Bankrupt.  Lu shall forthwith deliver to the Trustees a duly executed transfer of the Shares in favour of the Trustees;

(3)  There be an account of all benefits, profits and dividends received in relation to the Shares from 31 March 2016 up to the date of this order, such account to be made out and verified by affirmation in accordance with Order 43, rule 4 of the Rules of the High Court. 

(4)  There be payment of all amounts found to be due upon the taking of such account under paragraph (3) above.

(5)  On a nisi basis, costs be to the Trustees, with certificates for 2 counsel.

249.  I thank counsel for their great assistance.