RE SEAPOWER RESOURCES INTERNATIONAL LTD

HCMP 2977/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2977 OF 2003

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(Heard Together)

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J U D G M E N T

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1. I have before me a petition presented by Seapower Resources International Limited (provisional liquidators appointed) ("the Company") acting by its joint and several provisional liquidators to seek sanction of the court to a scheme of arrangement between the Company and the scheme creditors under section 166 of the Companies Ordinance, Cap. 32.

2. The relevant background matters may be stated as follows.

3. The Company was incorporated in the Cayman Islands on 4 April 1989 with its head office and principal place of business in Hong Kong. Its shares were listed on the Stock Exchange of Hong Kong in March 1990. It was established to perform the functions of an investment holding company.

4. On 11 December 2001, a syndicate of financial creditors presented a petition to wind up the Company in HCCW No. 1352 of 2001. Trading in the shares of the Company has been suspended since 28 December 2001. On 31 December 2001, the court appointed provisional liquidators to the Company and on 22 April 2002, the powers of the provisional liquidators were extended to include the power to consider and implement a scheme of arrangement and do all things necessary to facilitate a restructuring proposal.

5. After the sale of businesses and assets of the operating subsidiaries of the Company, it was apparent to the provisional liquidators there were unlikely to be any further material realisations and that the best way to maximise recoveries for creditors was by means of a restructuring which realised value from the listed status of the Company's shares. The provisional liquidators are of the view that without a restructuring the Company is likely to be put into liquidation.

6. On 22 June 2002, the Company and the provisional liquidators entered into a restructuring agreement ("the Former Restructuring Agreement") with, among others, Leader Glory Holdings Ltd and Pang Man Kin Nixon (collectively, "the Former Investors"). The former schemes were approved by the required statutory majority of creditors in scheme meetings convened pursuant to the orders of the Hong Kong Court and the Cayman Islands Court and received the sanction of the courts in the two jurisdictions on 10 December and 12 December 2002. On 10 December 2002, an order was made in HCCW No. 1325 of 2001 that the petition for winding up the Company be dismissed, provided that such dismissal shall take effect from the date of and be conditional on the issue of the closing notice by the provisional liquidators to the Former Investors and that the provisional liquidators be discharged with effect from and conditional upon the issue of the closing notice.

7. The closing notice was not issued under the Former Restructuring Agreement as the Former Investors did not pay the subscription proceeds, notwithstanding the time for doing so was extended by the provisional liquidators. Hence, the order dismissing the winding up petition made on 10 December 2002 did not take effect. On 5 March 2003, the provisional liquidators gave notice to the Former Investors to terminate the Former Restructuring Agreement.

8. The Hong Kong Stock Exchange was willing to accept a further proposal for resumption of trading of the Company's shares. The provisional liquidators found a new investor, Many Returns Limited ("the Investor") and on 14 May 2003, the Company, the provisional liquidators and the Investor, among others, entered into a restructuring agreement ("the Restructuring Agreement"). The Restructuring Agreement was amended by a supplemental agreement on 11 August 2003. If the Restructuring Agreement is not completed, it seems that the Company will be placed into liquidation as any further restructuring proposals are unlikely to be acceptable to the Stock Exchange.

9. An originating summons was taken out by the Company in the present proceedings on 9 July 2003 for a scheme meeting to be held in Hong Kong. There was also an application to the Court in the Cayman Islands for the holding of a scheme meeting. This is to ensure that all scheme creditors are bound. The schemes in the two jurisdictions are in identical terms. On 29 July 2003, Deputy Judge To gave leave to convene a scheme meeting for creditors on 25 August 2003. A similar order was made by the Court in the Cayman Islands for a meeting to be held at the same time and place. The notice for convening the meetings was published in two newspapers in Hong Kong and in one newspaper in the Cayman Islands on 31 July 2003 and the composite scheme document was despatched to the scheme creditors on 1 August 2003. The meetings were duly held. The Hong Kong scheme and the Cayman Islands scheme were approved by the unanimous votes of all 48 of the scheme creditors present and voting in person or by proxy at the meetings.

10. On 30 July 2003, the Former Investors issued a summons in HCCW No. 1352 of 2001 pursuant to section 186, seeking leave to commence proceedings against the Company for specific performance of the Former Restructuring Agreement, an injunction to restrain the Company from progressing a restructuring with another investor, and, in the alternative, damages for misrepresentation or for breach of contract. On 2 October 2003, Barma J dismissed the application, having come to the view that it is "extremely unlikely" that the Court would contemplate making an order for specific performance, and would in all probability leave the Former Investors to their claim in damages for what it is worth. As for the proposed claim in damages, there is no reason to think that it will not be disposed of fairly whether this is adjudicated by an independent adjudicator in the course of the scheme of arrangement with the Investor if the Former Investor should choose to lodge a notice of claim under the scheme in the event this should receive the sanction of the court, or in the course of liquidation if the Company should go into liquidation. Accordingly, he refused leave for proceedings to be commenced by the Former Investors.

11. A Notice of Appeal was filed by the Former Investors against the decision of Barma J on 14 October 2003. I understand the Company will be seeking security for costs in the appeal and that the appeal is due to be heard on 30 January 2004. On 14 November 2003, the Former Investors issued a Notice of Motion, erroneously in my view, in HCCW No. 1325 of 2001, seeking an order for the adjournment of the petition in HCMP No. 2977 of 2003 until after their appeal is heard and determined. I gave leave to the Former Investors to withdraw this Notice of Motion and to file a fresh Notice of Motion in HCMP No. 2977 of 2003.

12. I have considered the grounds of appeal in the Notice of Appeal and heard submissions from counsel for the Former Investors. It does not appear to me there are good prospects of success on appeal in respect of the proposed claim for specific performance or for an injunction. I can see no reason why the appeal should be allowed to delay or frustrate the scheme of arrangement with the Investor. I therefore dismiss the Notice of Motion of the Former Investors.

13. I should mention that there has been no extension granted by the Investor to the existing long stop date of 15 November 2003, so if closing cannot be achieved based on all conditions precedent having been satisfied or waived by this date, the scheme would fail, to the detriment of all the creditors who have voted in favour of it.

14. I turn to the terms of the Investor's proposal in the Restructuring Agreement. In essence, the Investor is to acquire a controlling interest in the Company's enlarged and restructured shareholding and such shares are to resume trading on the Stock Exchange. In consideration of the compromise of their claims against the Company, the scheme creditors are to receive

(1)	a pro rata share of the cash consideration of HK$38 million which has been paid by the Investor pursuant to the subscription agreement;
(2)	a ratable entitlement to the creditor share allocation, being new shares credited as fully paid up representing 2% of the issued share capital of the Company immediately after the closing date, to be issued and allotted to the scheme administrators under the scheme, or the proceeds of sale of the same; and
(3)	50% of receivables, if any, as recovered within 12 months of closing.

15. Preferential creditors will be paid in full to the extent of their preferred claims out of the scheme funds. All security interests of secured creditors would remain unaffected by the scheme. The claims of secured creditors in respect of their secured claim amounts will be discharged on realisation or release of their security interests or, if earlier, agreement with the scheme administrators of a value for their security interests.

16. The Investor has made separate contribution of HK$6.4 million towards the costs of the scheme and another HK$1 million for the costs of the petitioning creditor in HCCW No. 1325 of 2001.

17. I accept there is only one class of creditors for the purpose of the scheme meeting. I am satisfied the scheme meeting was convened in compliance with the directions given by the court on 29 July 2003. As mentioned, the scheme has been approved unanimously by scheme creditors present and voting in person by proxy, so the statutory majority for the passing of the resolution to approve the scheme is satisfied. The scheme document gave proper explanation of the effects of the scheme to the scheme creditors to enable them to come to a reasonable judgment as to how to vote at the scheme meeting. The scheme creditors, after consideration of the interests of the class and acting bona fide, have approved the scheme unanimously. I therefore have jurisdiction to sanction the scheme.

18. I am further given to understand that at an extraordinary general meeting of the Company earlier today, the shareholders have approved the necessary resolutions in respect of various matters required to implement the Restructuring Agreement, except for the resolutions relating to the reduction of capital and removal of directors. I am also informed by counsel that the approvals of the Hong Kong Stock Exchange and the Securities and Futures Commission have been sought and that it is expected that such approvals will be forthcoming.

19. The Investor has appeared by counsel in these proceedings to give an undertaking to be bound by the terms of the scheme and to execute all documents and do such acts as may be necessary to give effect to it.

20. My discretion should be exercised in favour of sanctioning the scheme. The listed status of the Company is the main remaining asset. The consideration received by the scheme creditors in respect of the cash consideration and the allocation of new shares will represent an ultimate return to each of them of approximately 4.9%. I am satisfied that the scheme is such that an intelligent and honest creditor might reasonably approve.

21. I will therefore grant an order to sanction the scheme. The sanction is conditional on notice being filed by the provisional liquidators that all conditions precedent in the Restructuring Agreement have been satisfied to the extent they have not been waived, so as to take care of the outstanding conditions precedent not been fulfilled to date. There will be an order in terms of the draft submitted to me.

22. The winding up petition is restored before me and heard at the same time as the petition for sanction of the scheme, as one of the conditions precedent for the closing of transactions in the Restructuring Agreement is a court order for withdrawal of the petition in HCCW No. 1325 of 2001. I will make an order for dismissal of the petition and the release and discharge of the provisional liquidators, conditional again upon the issue of the closing notice by the provisional liquidators to the Investor under the terms of the Restructuring Agreement in the terms of the draft order submitted to me as amended.