RE CHINA POWER CLEAN ENERGY DEVELOPMENT CO LTD

HCMP 756/2019

[2019] HKCFI 2098

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 756 OF 2019

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REASONS FOR DECISION

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1.  On 4 June 2019 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 12 July 2019 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.  The reduction of capital is an integral and necessary component of the scheme as the privatisation requires cancellation of the scheme shares that represent approximately 73.58% of the total issued shares.  The balance of the shares (26.42%) 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 meetings.

3.  After the approved cancellation of the scheme shares, an equal number of new shares will be created immediately and issued to the offeror, credited as fully paid, to restore the share capital of the Company.  The shares will then be withdrawn from listing on the Exchange.

4.  The reason why it is proposed that the Company should be privatised is that the shares are thinly traded and the share price is at a substantial discount to net asset value.  The cash consideration of HK$5.45 per share represents a premium of approximately 41.9% and 78.1% over the pre-announcement trading price of HK$3.84 and the average closing price of HK$3.06 for the 30 trading days up to and including the pre-announcement trading date. HK$5.45 represents approximately a 35% discount to net asset value at 31 December 2018.  There is an alternative to take new shares in the Company, but it is not envisaged that any member will choose it.

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

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]; Re Cheung Kong Holdings Ltd [6]; and Re China Assets (Holdings) Limited [7].

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 [8].

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 documents, 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 [9], [56] to [58].

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

12.  There is one final matter that I should mention.  Three shareholders, namely, China Three Gorges Corporation (27.1%), Shining East Investments Limited (7.58%) and China Energy Group Guangdong Electric Power Design Institute Co, Ltd (2.86%) and the offeror are ultimately held by the State-owned Assets Supervision and Administration Commission of the State Council of the People’s Republic of China (“SASAC”). At the early stages of the Scheme it was thought that if these shares were voted (as they were) an issue might arise as to whether or not they are disinterested shares within the meaning of section 674(3)(a)(ii) of the Ordinance.  The issue would be whether or not the three companies were associates of the offeror, which they would be “if the offeror or member is a body corporate, a reference to a body corporate in the same group of companies as the offeror or member” (section 667(1)(b) of the Ordinance). 

13.  Section 2 of the Ordinance defines group as “any 2 or more bodies corporate one of which is the holding company of the other or others” and if SASAC is a body corporate it would thus be a holding company of the offeror and the three shareholders I have mentioned and consequently the shares held by those three shareholders would not be disinterested shares.  As it transpired this issue became academic, because such was the overwhelming support for the Scheme that the statutory majority was obtained even if the votes of the three shareholders are excluded.  It is, therefore, not necessary for me to decide whether or not SASAC is a body corporate.  I will, however, make some general observations.

14.  The Company filed an expert report prepared by Zhang Xianchu (“Professor Zhang”) from Hong Kong University.If I understand Professor Zhang correctly it is his view that under Mainland company law a corporate entity is one which fits within the definition of “legal person” for profit, which SASAC is not.  SASAC is a special administrative organ directly under the State Council.  Professor Zhang characterises SASAC as a statutory body bearing administrative functions and that it has the legal personality of a governmental body.  He suggests that SASAC is thus a “special legal person” (a term used in a heading in Section 7 of the General Principles of Civil Law of 2017) as it satisfies the criteria of Art 97 of the General Principles of the Civil of 2017, which provides “The governmental bodies with independent funds and statutory bodies that bear administrative functions shall have the legal personality of governmental bodies from the date of their establishment, and may engage in the civil activities required for the performance of their functions.”

15.  I accept that on the face of the matter SASAC comes within Art 97, but it does not seem to me that it necessarily follows that this means it is not properly characterised as a corporate entity for the purposes of section 667(1)(b), although I accept that it is strongly arguable that it is not.  Deciding firmly that this is the case would in my view require a more in depth consideration of the characteristics of a corporate entity under Hong Kong law and whether under Mainland law it is a necessary requirement of a company that it operates for profit or the concept is more elastic and is to be defined by reference to an entities organisational character rather than its purpose.  I do not consider that these issues are adequately explored in the material before me and as it is not necessary for me to decide these undoubtedly intriguing questions,     I shall leave the matter there.

16.  I will make an order sanctioning the Scheme in the conventional terms contained in the draft presented to me.