RE CHUNG KIU CHINESE PRODUCTS EMPORIUM LTD

HCMP 2187/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2187 OF 2008

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REASONS  FOR  JUDGMENT

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1.  This is a petition to seek confirmation of the reduction of share capital of Chung Kiu Chinese Products Emporium Limited (“the Company”), pursuant to section 58 of the Companies Ordinance, Cap. 32.

2.  The Company was incorporated on 28 April 1958.  Its present authorised share capital is $80,000,000 divided into 80,000 shares of $1,000 each, all of which are paid up.  The shares are allotted to 72 shareholders consisting of a few body corporates and mostly individuals.

3.  Since incorporation, the Company had for decades been principally engaging in the business of investment holding and an emporium for Chinese products similar to a department store with several outlets.  It also had subsidiaries which had been engaged in real estate investments as well as properties letting.  Currently the Company’s principal business is to hold various investments in its subsidiaries in Hong Kong and the People’s Republic of China (“PRC”).  The Company, being the ultimate holding company of the group, has been the capital vehicle of its subsidiaries and was responsible for raising funds to finance the set up and operation of its subsidiaries.

4.  There is provision in the articles of association that the Company may by special resolution reduce its share capital in any manner and with, and subject to, any incident authorised, and consent required by law.

5.  By the special resolution of the Company duly passed at an extraordinary general meeting held on 29 August 2008, it was resolved that the share capital of the Company be reduced from $80,000,000 divided into 80,000 shares of $1,000 each to $8,000,000 divided into 80,000 shares of $100 each.

6.  A notice for the said extraordinary general meeting and a circular from the board of directors were sent to all the shareholders, explaining the reasons for the proposed resolution.  The resolution passed represented the informed consent of the attending shareholders at the extraordinary general meeting.

7.  The proposed reduction of share capital involves payment to its shareholders of paid-up share capital of $72,000,000 but does not otherwise involve the diminution of the liability of a member of the Company in respect of unpaid share capital.

8.  Between 1963 and 1981, the group’s business was considerably expanded in Hong Kong.  Since mid-1990s, the Company ceased to expand and has reduced its operation substantially in Hong Kong.  Further, after 1997, the Company had gradually closed down its Chinese products emporium business and disposed of its landed properties in Hong Kong.  At present, the Company’s principal activity is mainly an investment holding company without other business activities.  The activities of the subsidiary companies remaining are those interests in the property development projects in the PRC.

9.  It is evident from the financial statements that the group’s turnover has for a long time been in a negligible size except for the year ended the 31 March 2007.  The turnover for that year was due to the sale of properties.  As a result of the substantial downsizing of the Company’s business, there is no further need for the Company to maintain its share capital at the present level.

10.  As of 31 March 2008, the Company had net assets in the sum of $92,143,766.  And if the consolidated accounts are being considered, the group had net assets of $130,465,830.  Such funds cannot be usefully employed in the Company’s and/or the group’s operation.  The Company does not seek to expand its current business any further.  Many of its shareholders are elderly people.

11.  The proposed capital reduction will result in a sum of $72,000,000 to be repaid to the shareholders.  Such sum is, in the honest and true opinion of the directors of the Company, not required and is in excess of the wants of the Company for its future operations.  The Company’s proposed reduction will not in any way prejudice the business of the Company or in any way affect other prudent requirements imposed on the Company by law.

12.  As at the end of September 2008, the available aggregate cash and bank balances maintained by the Company reached a sum of $77,312,958.63 with $58,936,557.62 being held directly by the Company and $18,376,401.01 being held by its wholly-owned subsidiary Wing Kiu Enterprises Ltd (“Wing Kiu”).  The latest un-audited management accounts up to 30 September 2008 were produced.  There is no material change in the Company’s financial position and liquidity since the latest audited financial statements for the year ended 31 March 2008.  The financial position and the liquidity of the Company and the group are apparently sound.

13.  As of 30 September 2008, the Company’s liabilities owing to third parties other than to certain shareholders amounted to $28,129,304, which is due to Wing Kiu.  The Company does not currently have any outside creditors.  The liabilities owed to shareholders of $1,317,500 are the balance of unpaid dividend on share capital and the reason for such liabilities outstanding is due to the fact that the relevant shareholders had passed away and there are disputes over their estates.  The Company has put aside those funds and would stake hold the same until the disputes have been resolved.

14.  As such, the creditors of the Company are unlikely to be prejudiced by the proposed reduction.

15.  The repayment of capital will be funded from cash and deposits kept in the bank accounts by the Company and Wing Kiu.  I am satisfied there should not be any material impact on the financial position of Wing Kiu as well.

16.  At the hearing of the summons for directions on 2 December 2008, an order was made that the settlement of a list of creditors of the Company be dispensed with.  Directions given for the advertisement of the petition have been complied with.

17.  Two of the shareholders appeared at the hearing of the summons for directions to voice their opposition.  They have since withdrawn their opposition by their letters to the court both dated 16 December 2008.  The Company has not received any further notice of opposition and no one has appeared at the hearing of the petition to oppose it.

18.  I am satisfied the shareholders are treated equitably in the proposed reduction, the reasons for the reduction have been properly explained in the circular of the board, the reduction is for a discernible purpose and the interest of creditors of the Company are sufficiently safeguarded.  I have therefore made an order in terms of the draft submitted.