RE CHINA ASSETS (HOLDINGS) LTD

HCMP 1875/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1875 OF 2017

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D E C I S I O N

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1.  On 21 September 2017 I made an order on the application of the Company for leave to convene a meeting of shareholders to consider a scheme for the privatisation of the Company, which is listed on the Main Board of the Hong Kong Stock Exchange. The meeting took place on 25 October 2017 pursuant to that order, and the necessary statutory majority was comfortably obtained approving the scheme.

2.  On the same date, the Company held an extraordinary general meeting, at which members resolved the necessary special resolution approving a reduction of capital.  That is an integral and necessary component of the scheme as a privatisation requires the cancellation of the scheme shares that represent approximately 45.78% of the total issued shares.  The balance of the shareholding (54.22%) is held by the offeror and parties acting in concert with it.  Those shares do not form part of the scheme shares and consequently were not voted at the meeting.

3.  After the approved cancellation of the scheme shares, an equal number of new shares will be created immediately to restore the share capital of the company.  The shares will then be withdrawn from listing on the Exchange.  Separately, shares not within the scheme which were owned by the offeror and the parties acting in concert with it, would be transferred to the offeror at the cancellation price after the scheme becomes effective.

4.  The reason why it is proposed that the Company should be privatised is that its shares are thinly traded, and the present price reflects a deep discount to the net asset value per share.  It is also being prevented from pursuing various investments by reason of its listing status.  The proposal that was put to scheme shareholders involved payment to them of HK$6.8 per scheme share, representing a premium of 73% over the average closing price per share for the 180 trading days up to and including the last trading day.

5.  The present application is made pursuant to sections 673 and 674 of the Companies Ordinance, Cap 622.

6.  The function of the court at the hearing of a petition to sanction a scheme is to consider:

(1)   whether the scheme is for a permissible purpose;

(2)   whether members who were called on to vote as a single class had sufficiently similar legal rights that they could consult together with a view to their common interest at a single meeting;

(3)   whether the meeting was duly convened in accordance with the court’s directions;

(4)   whether members have been given sufficient information about the scheme to enable them to make an informed decision whether or not to support it;

(5)   whether the necessary statutory majority has been obtained; and

(6)   whether the court is satisfied in the exercise of its discretion that an intelligent and honest man acting in accordance with his interests as a member of the class within which he voted might reasonably approve the scheme.

See Re Dorman, Long & Co Ltd [1]; Re China Light & Power Co Ltd [2]; Re Cable & Wireless HKT Ltd [3]; Re PCCW Ltd [4]; Re Wheelock Properties Ltd [5]; and Re Cheung Kong Holdings Ltd [6].

7.  It is well-established that a privatisation of a listed company is a permissible purpose for a scheme of arrangement: see Re Wheelock Properties Ltd.[7]

8.  It seems clear to me that the proposed privatisation that was put to scheme shareholders was one that they might reasonably approve and that they were given sufficient information in the explanatory statement to make that judgment. 

9.  The requirements in the order relating to the convening of the meeting, the publication of notices and the circulation of the explanatory statement included in the scheme document, I am satisfied, were complied with.

10.  The reduction of capital to which I have referred earlier is technical in nature.  I am satisfied that it was approved by the requisite special resolution of members, that it treats all shareholders equitably, and that the reasons for it were properly explained.  For the reasons I have already given, the reduction was for a discernible purpose and, given its technical nature, the interests of creditors were safeguarded: see generally the discussion in Re Cheung Kong Holdings Ltd,[8] paras 56–58.

11.  Accordingly, I am satisfied that the scheme should be sanctioned and the reduction of capital approved.

12.  I will make an order in the terms of the draft that has been presented to me, subject to certain minor amendments to it:

(1)   The express inclusion in the recital paragraphs of the undertaking which the offeror has given through its solicitors to be bound by the scheme and execute and do, and procure to be executed and done, all documents and instruments and such other acts and things as may be necessary or desirable to be executed or done by the offeror for the purposes of effecting the scheme.

(2)   The amendment to para 4 of the draft order, which I have discussed with Ms Lam, which will now read substantially:

“when providing notice of the Order in accordance with paragraph 3 above, the Company shall provide a copy of this Order; the Scheme annexed to the Schedule to the said Petition and reproduced in the Schedule 1 hereto shall be uploaded to the following website: [details to be inserted].”