RE GLOBAL MASTER INTERNATIONAL LTD

HCMP 5426/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5426 OF 2003

____________

____________

______________

J U D G M E N T

______________

1. This is a petition for confirmation of reduction of capital of Global Master International Limited ("the Company"), pursuant to sections 48B(1) and 59(1) of the Companies Ordinance, Cap. 32. On 8 December 2003, the Company passed a special resolution for reduction of capital in these terms:

(1) that the share premium account of the Company be reduced from HK$23,389,900.00 to HK$15,121,950.00; and

(2) that such reduction be effected by repaying to the holder of the 8,500 "A" ordinary shares the sum of HK$1.00 each the sum of HK$972.70 per "A" ordinary share in accordance with the class rights of the "A" ordinary shares as set out in article 132 of the Articles of Association.

2. The total sum proposed to be repaid to the holder of the "A" ordinary shares is HK$8,267,950.00 and this is to be paid out of cash in the bank account of the Company.

3. The background leading to the reduction may be given as follows.

4. The Company was incorporated in Hong Kong on 15 September 2000 with an authorised share capital of HK$10,000.00 divided into 10,000 ordinary shares of HK$1.00 each. The authorised share capital was later increased to its present amount of HK$100,000.00 divided into 85,000 "A" ordinary shares of HK$1.00 each and 15,000 "B" ordinary shares of HK$1.00 each, of which 8,500 "A" ordinary shares and 1,500 "B" ordinary shares have been issued and are fully paid up.

5. There are two registered shareholders. LDO Management LCC ("LDO"), which is incorporated in the state of Nevada, USA, holds all of the issued "A" ordinary shares. Service Point Solutions, SA ("Service Point"), which is incorporated in Spain, holds all of the issued "B" ordinary shares.

6. There is at present standing to the credit of the share premium account of the Company the sum of HK$23,389,900.00, which has arisen as a result of the issue of:

(1) 8,498 "A" ordinary shares of nominal value of HK$1.00 to LDO on 4 April 2001 at a premium of HK$916.86 per share, resulting in the addition of HK$7,791,400.00 to the share premium account; and

(2) 1,500 "B" ordinary shares of nominal value of HK$1.00 to Service Point on 4 April 2001 at a premium of HK$10,399.00 per share, resulting in the addition of HK$15,598,500.00 to the share premium account.

7. On 18 October 2003, the Company received the sum of US$2,411,732.00 from Service Point. A portion of this fund was used by the Company to discharge inter-company debts, director's loans and outstanding legal fees and the balance was to pay the outstanding subscription money for the 1,500 "B" ordinary shares. A sum of HK$15,598,500.00, equal to the aggregate amount of the premium on those shares, was transferred to the share premium account of the Company on 20 October 2003.

8. The Company has not conducted any active operation since incorporation and its only activity has been investment holding. No change to the business of the Company is expected in the foreseeable future.

9. The directors are of the view that the investment holding activity of the Company does not require a substantial amount of capital and that the Company can be sufficiently financed by the remaining paid-up capital after the proposed reduction of the share premium account. Thus, the capital intended to be reduced is in excess of the needs of the Company and cannot be usefully employed in the Company's business. LDO requested the Company to reduce the share premium account in the manner as proposed and to effect a preferential return to LDO of the surplus capital on reduction.

10. There is provision in article 6 of the Articles of Association for reduction of the share premium account by a special resolution. There is no requirement in the Articles of Association for the consent of the holders of any particular class of shares before the capital can be reduced or repaid to the shareholders. Article 132 provides that on a return of assets on a liquidation, reduction of capital, winding up of the Company or otherwise, the surplus assets of the Company remaining after payment of the liabilities shall be applied: firstly, in paying to the holders of the "A" ordinary shares an amount equal to US$50,000,000.00; and secondly, in paying the balance pro rata to the holders of ordinary shares in proportion to the number of ordinary shares held as if they constituted a single class of ordinary shares. Article 132 was adopted as part of the Company's new articles by unanimous agreement of LDO and Service Point on 24 January 2003.

11. On 1 December 2003, an extraordinary general meeting was held to consider and pass the resolution for reduction of the share premium account in the manner as stated earlier. However, Service Point did not attend and there was insufficient quorum. At the adjourned extraordinary general meeting on 8 December 2003, although Service Point was again absent, there was sufficient quorum by virtue of article 54 which provides that at the adjourned hearing if a quorum is not present within half an hour, one member present in person or by proxy or (being a corporation) by its duly authorised representative shall be a quorum. The special resolution was duly passed pursuant to the Articles of Association. The purpose of the proposed reduction was set out in detail in the notice of the extraordinary general meeting dated 4 November 2003.

12. At the hearing of the summons for directions on 13 January 2004, the Company sought an order that s. 59(2) of Cap. 32 should not apply as regards any creditor of the Company. I had made an order to dispense with settlement of a list of creditors notwithstanding the proposed reduction involves a return of capital to a shareholder, as I was satisfied it would be appropriate to do so having regard to the financial position of the Company.

13. According to the management accounts as at 31 October 2003, the Company had no liabilities, actual or contingent. It was confirmed by the auditors of the Company that it had no contingent liability as at 30 November 2003. The Company had some HK$8.5 million cash in its bank account as on 19 December 2003, sufficient for the purpose of effecting payment to the holder of the "A" ordinary shares as envisaged under the proposed reduction. Since the beginning of 2002, the Company has not engaged in any active trading. Since 31 October 2003, there has been no change to the share capital or any material change to the financial position of the Company.

14. Notice of the petition has been duly advertised pursuant to the directions given on 13 January 2004. No creditor or contributory has appeared in opposition at the hearing of this petition. As mentioned earlier, Service Point did not attend the extraordinary general meeting and there is no indication that it intends to oppose the petition.

15. The reduction of the share premium account is for a discernible purpose. The shareholders are treated equitably in the sense that they are treated in accordance with the class rights as provided in the Articles of Association. The purpose of reduction was set out in sufficient detail in the notice of the extraordinary general meeting. The proposed reduction does not affect the rights of the creditors as the Company has no actual or contingent liabilities.

16. In the circumstances, it would be appropriate to confirm the proposed reduction of capital. I therefore make an order in terms of the draft submitted to me.