RE KING KONG (GROUPS) LTD.

HCCW 1026/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP NO. 1026 OF 2000

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J U D G M E N T

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1. This is a petition based on a debt the subject matter of a Deed of Settlement which was entered into between the Petitioner and the Company in October 1999. The Statutory Demand was issued in August 2000 for a sum of some $16 million. The petition was issued about a month later in November 2000.

2. Just before the issue of the petition, the Company issued proceedings separately in which the Company is claiming that the Deed of Settlement should be avoided for various reasons. I understand there is a hearing which has been fixed for 27 March 2001.

3. Be that as it may, it would appear that of the loan the subject matter of the Deed of Settlement, the Company does not dispute that it owes the Petitioner an amount of $2 million. In relation to this $2 million which had been lent to the Company quite some years previously, the Company has in the last month repaid $620,000.00 with loans from third parties. Therefore, there is still an amount of $1,380,000.00 outstanding.

4. The Company admits that it is now unable to repay any part of that $1,380,000.00 but it claims that it hopes to receive that money in April from two sources: the first being a loan from a relative of the person controlling the Company which relative will be selling certain property, and secondly, from an intended disposal of the Company's interest in an associated company called Daily On.

5. I have been concerned that this Company, which has been admittedly unable to repay its debts having fallen due, is apparently carrying on business albeit that there are no supporting creditors before me. Consequently, I have given the Company a number of opportunities, this being the third adjournment, for it to adduce evidence of its financial position. I have asked for management accounts, if not audited accounts, to substantiate the Company's allegation that its only liability is this remaining outstanding debt of $1,380,000.00 but that it has substantial assets.

6. This morning, for the first time, I have before me the Company's management accounts which comprises of a rather brief profit and loss account and the balance sheet for the months ending 30 November 2000, 31 December 2000 and 31 January 2001.

7. These accounts show substantial current liabilities. There is said to be a bank loan in the amount of more than $38 million, which does not include the amount which is the subject matter of the petition. There are "Creditor and accruals" in the sum of $3 million which, I am told, includes the admitted debt and there is also a liability of more than $32 million to what would appear to be an associated company.

8. As far as the assets of the Company are concerned, the only asset that is said to be worth anything, is the Company's "interest in associated companies" which is said to be worth more than $80 million. However, there is no further information as to what is the value of the Company's interest in these associated companies.

9. I have been referred by counsel for the Company to certain remittance records which showed that certain amounts of money had been remitted into China, and for present purposes, I would assume that these amounts had been remitted for the purposes of these associated companies. However, I note that all these remittance records were in 1994. The fact that in 1994, a substantial amount of money had been remitted into China for projects of various associated companies does not mean that here and now, in 2001, the Company's interest in these companies is worth the same as (let alone more than) what it has injected into these projects.

10. Mr Shum has quite candidly admitted that there is really no evidence before me now to show the value of the Company's interest in these associated companies. Nor does there appear to be any explanation for the discrepancy between the previous statement made in the 2nd affirmation of Mr Wong Yin (that the Company owns assets of a value over $50 million and only owes liabilities in the amount of around $2 million) and the management accounts which have been exhibited to his 3rd affirmation.

11. In all the circumstances, I take the view that this is a case where the Court should not exercise its discretion to grant any further adjournment and I would make the usual winding up order.