RE JOYCE BOUTIQUE GROUP LTD

HCMP 266/2020

[2020] HKCFI 800

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 266 OF 2020

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R E A S O N S    F O R    D E C I S I O N

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The Application

1.  On the 24 March 2020 the company issued a petition seeking the court’s sanction pursuant to sections 673 and 674 of the Companies Ordinance, Cap 622 (“Ordinance”), of a scheme of arrangement to privatise Joyce Boutique Group Limited (“Company”) and also the court’s confirmation, pursuant to section 229 of the Ordinance, of the technical reduction of capital which is a component of the scheme.

Use of Video Conferencing Facilities

2.  This application is unusual because the originating summons and the petition have been dealt with exclusively during the general adjournment period (“GAP”).  I heard the application for an order to convene a court meeting on the 26 February 2020 and I dealt with the summons for directions, including the application to dispense with preparation of a list of creditors, on the papers.  I heard the petition on 21 April 2020 using the court’s video conferencing facilities (“VCF”). 

3.  On 8 April 2020 the Court of Appeal heard an appeal also using VCF [1].  In [5]–[27] of the judgment Lam VP discusses the legal considerations in conducting hearings in the absence of the parties and in particular remote hearings.  It is not necessary for me to repeat the analysis here.  Division 2 of Part 13 of the Ordinance does not deal with the procedural mechanism by which the court is to process an application to sanction a scheme of arrangement.  Section 673(2) simply provides “The Court may, on application made for the purposes of this subsection, sanction the arrangement or compromise”.  RHC O102 r5 provides that an application under section 673 must be made by petition.  Rule 16 provides that before hearing of such a petition, a notice specifying the day appointed for the hearing must be published.  RHC O9 deals with petitions, but other than referring to a hearing does not state how they are to be determined.  I can find nothing in the Ordinance nor the Rules of the High Court which suggest that Lam VP’s analysis and conclusions are not applicable to a hearing to sanction a scheme of arrangement, namely, that the hearing may be conducted without the physical presence of the interested parties.  The issues that arise are largely practical ones such as the ability of those entitled to appear and wishing to appear at the hearing being able to access the hearing remotely.  This was never likely to be an issue in the present case, because the scheme is uncontroversial and the Company (the Petitioner) was likely to be the only party to appear.  This proved to be the case. The Offeror wrote to the Court undertaking to be bound by the Scheme and to take all necessary steps to effect it.  This is normal in cases in which there is a physical hearing in open court.  If the scheme had been controversial and a number of shareholders had wished to attend the hearing and object to the court sanctioning the scheme I anticipate that it would not have been practical to conduct that hearing using VCF.

Background

4.  Joyce Boutique Holdings Limited was incorporated in Bermuda with limited liability on 24 April 1989 under the Companies Act 1981 of Bermuda, registered as a non-Hong Kong company on 4 April 1991 and listed in Hong Kong on 16 October 1990.  It carried on business principally retailing high end fashion.  The Company was incorporated in Hong Kong on 6 May 2019 under the Ordinance as a company limited by shares.  Following a restructuring, the Company became the holding company of Joyce Boutique Holdings Group on 26 August 2019 and commenced trading on the Main Board of the    Hong Kong Stock Exchange on 27 August 2019.  The present issued and paid-up share capital of the Company is HK$162,400,000 divided into 1,624,000,000 Shares.

5.  On 11 December 2019, JoyBo International Limited (“Offeror”), a shareholder of the Company, requested the Board of the Company to put forward a proposal to the scheme shareholders for the privatisation of the Company by way of a scheme of arrangement (the “Proposal”). The Proposal was then announced by way of public announcement dated 12 December 2019 (the “Announcement”).

6.  The total shareholding of the scheme shareholders comprises 440,161,277 Company shares, representing approximately 27.10% of the issued share capital.  The balance of the shareholding is held by the Offeror. These shares were not voted at the Court meeting and do not form part of the scheme shares.

The Scheme

7.  Upon the Proposal being approved and implemented:

(1) All Scheme Shares held by the Scheme Shareholders will be cancelled in exchange for a cancellation price of HK$0.280 per Scheme Share, which represents a premium of approximately 91.78% over the closing price of the Company’s shares on the last pre-announcement trading date.

(2) The share capital of the Company will be reduced by cancelling and extinguishing the Scheme Shares.  Upon such reduction, the share capital of the Company will be increased to its former amount by the creation of and allotment to the Offeror of the same number of the Company’s shares as the number of Scheme Shares cancelled, credited as fully paid.

(3) The Company’s shares will be withdrawn from listing on the Hong Kong Stock Exchange.

The result will be that the Company becomes fully owned by the Offeror and will no longer be a listed entity.

The Court and General Meeting

8.  The Court meeting in respect of the Scheme was held on 23 March 2020.  Thereafter, on the same date, a general meeting in relation to, amongst other things, voting on resolutions to approve the reduction of capital, was also held.  98.19% of the voting rights attaching to the holders of the scheme shares attending the court meeting (in person or by proxy) voted in favour of the Scheme and 0.22% of the total voting rights attached to all disinterested shareholders (as defined in section 674(3)(a) of the Ordinance) voted against the resolution to approve the Scheme.

Relevant Legal Principles

9.  The functions of the court at the hearing of a petition to sanction a scheme have been summarised in my decision in Re Dah Chong Hong Holdings Limited [2]. In short, the court will 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 a class within which he voted might reasonably approve the scheme.

See also: Re Wheelock Properties Ltd [3]; Re China Power Clean Energy Development Company Limited [4].

10.  Privatisation of a listed company is an acceptable and permissible purpose for such schemes of arrangement; see Re Dah Chong Holdings Limited [5]; Re Wheelock Properties Ltd [6].

11.  Where the scheme involves a general offer or a takeover offer, section 674(2)(a) of the Ordinance requires (i) support of a 75% majority of the voting rights of the shareholdings of the members present and voting; (ii) votes cast against it must not exceed 10% of the voting rights attached to all disinterested shares.

12.  Insofar as the technical reduction of capital is concerned, the court will sanction the reduction which has been approved by a special resolution of members if the following requirements are satisfied:

(1) The shareholders are treated equitably;

(2) The reasons for the reduction are properly explained;

(3) The interests of creditors are safeguarded; and

(4) The reduction is for a discernible purpose.

A technical reduction which is integral to a scheme satisfies the above criteria: Re China Power Clean Energy Development Company Limited [7].

Analysis

13.  The principal features of the Scheme have been summarised above.  The Scheme was explained to the holders of scheme shares in the normal comprehensive explanatory document.

14.  The independent financial advisor (the “IFA”) and the independent board committee (the “IBC”) have indicated their support for the Scheme.  The IFA had advised that the Proposal and the Scheme were fair and reasonable and recommended the independent shareholders vote in its favour.  In doing so, the IFA took into account inter alia the low trading volume of the Company’s shares and the cancellation price compared to the recent share price.

15.  In my view the Scheme is clearly one that an independent shareholder acting in their own interests, might reasonably accept as demonstrated by the overwhelming vote in favour.

16.  Insofar as the technical reduction of capital is concerned, this has been approved at the general meeting.  The shareholders were treated equitably; they have been given a detailed explanation through the scheme documents; creditors’ interests will not be prejudiced by the technical reduction for a brief time (since the equivalent amount of shares will be reissued shortly after the reduction); and there is a discernible purpose for it: it is an integral part of the Scheme.

17.  Finally, as I have already noted the Offeror has written to the Court to undertake that it will be bound by the Scheme and take all necessary steps to effect it.

Conclusion

21.   In the circumstances, I grant order in terms of the draft order submitted to the Court.