RE FIRST CAPITAL GROUP CO. LTD.

HCCW437/99 and 438/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO.437 OF 1999

------------

-------------

------------------------

R E A S O N S

------------------------

1. These are creditors' petitions presented by Guangdong International Trust & Investment Corporation Hong Kong (Holdings) Limited (in creditors' voluntary liquidation) ("the Petitioner") to wind up First Capital Group Company Limited and Hong Kong First Capital Company Limited ("the Companies"). The Companies are part of the China Wealth Group engaged in the manufacture of ceramic tiles. First Capital Group Company Limited is indebted to the Petitioner in a sum in excess of US$5 million and Hong Kong First Capital Group Company Limited is indebted to the Petitioner in the sum in excess of HK$5.4 million. The debts are not disputed.

2. At the hearing, I ordered that the Companies be wound up pursuant to Cap.32. The reasons appear below.

3. Mr Li Fa, a director of each of the Companies made submissions on their behalf. The petitions were first heard on 7 July. Two adjournments of seven days each were granted to enable the Companies to file evidence relating to an alleged restructuring proposal.

4. The evidence filed by the Companies was to the effect that on 6 July 1999, China Wealth Group applied to First Fidelity Global Group Ltd. and its subsidiary Euro Fidelity Commerce Trust Co. Ltd., both of Rhode Island, for a three-year medium term loan in the sum of US$10 million to the Group to finance production operations. A series of exchanges with the proposed lenders by e-mail was exhibited. Included in the bundle were communications from one Rick Nelson. It is none too clear who he is and what role he plays in all of this. Be that as it may, it would appear that the proposed lenders are currently considering the application. No loan has been granted and even if one were to be granted, no part of that loan can be applied to discharge the Companies' indebtedness to the Petitioner. Such sums as may be advanced pursuant to the application will be subject to a custodian agreement and sums will only be released for specific purposes which, as noted above, do not extend to the repayment of the Companies' indebtedness.

5. What the evidence filed disclosed is this : all the loan will enable the Companies to do is to expand their operations. The Companies expect that given an extension of some four to six months, assuming that the loan were forthcoming (which is uncertain), they will be in a position to formulate some plan for repaying the indebtedness by instalments.

6. I agree with the submissions of counsel for the Petitioners that this new evidence does not really take matters much further. It will have become apparent that there is at present no restructuring proposal, properly so called, affecting the Companies. The debts which total some HK$45 million are undisputed. That being the case and there being no realistic prospect of the debts being repaid even if the parent company were to succeed in obtaining a loan to expand their operations (and in this context, I do find the negotiations by e-mail to be somewhat suspect), no case for any further adjournment has been made out. In my judgment, to grant any further adjournment which in any event can only be for a very short period of time, would not serve any useful purpose. In the circumstances, I see no alternative to the making of the compulsory winding-up orders sought.

7. The Petitioners' costs are to be a liquidation expense.