RE DAIDO CONCRETE (H.K.) LTD.

HCMP 4329/00

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 4329 OF 2000

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REASONS FOR JUDGMENT

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1. This was a petition for the Court's sanction under s.166(2) of the Companies Ordinance of a Scheme of Arrangement between Daido Concrete (H.K.) Ltd ("the Company") and its shareholders.

2. The matter had previously come before the Court, according to the procedure prescribed under s.166(1), by way of an Originating Summons issued by the Company for an order that it be at liberty to convene a meeting of the shareholders for the purpose of considering the Scheme. In the present case, there was only one class of shareholders, whose interests were identical, and therefore only one meeting was required to be convened.

3. On 29 August 2000, I made an order that the Company convene a meeting of the shareholders and gave subsidiary orders as to advertisement of the notice of meeting in the approved form, service of the notice on shareholders and appointment of a chairman of the meeting.

4. Pursuant to that, a meeting was convened and the Scheme was resolved upon by the shareholders present. Hence, this Petition for the Court's sanction.

5. On the hearing of a petition for sanction of a scheme of arrangement under s.166(2), the Court has to be satisfied:-

(1) that the class of shareholders was properly constituted;

(2) that the meeting was convened in compliance with the Court's directions given under s.166(1);

(3) that a simple majority in number representing 3/4 in value of the shareholders present and voting at the meeting, after proper explanation of the effects of the scheme, after consideration of the interests of the class and acting bona fide, have agreed to the arrangement; and

(4) that the arrangement was such that an intelligent and honest shareholder might reasonably approve.

6. As to (1), in the present case there is only one class of shareholders involved, as there is only one class of shares in the capital of the Company and all these shares would be treated identically under this Scheme of Arrangement.

7. As to (2), it was clear on the evidence filed on the Petition that the Court's directions have been complied with and that the meeting had been properly held. Whilst the Chinese version of the proxy form contained a clerical error in the omission of a few characters, I was satisfied upon reading it that the omission could not have led to any misinterpretation or misunderstanding of the proxy form on the part of the recipient shareholders.

8. As to (3), it was clear from the Scheme document exhibited that a proper explanation of the effects of the Scheme had been given to the shareholders. At the meeting, shareholders holding over 80% of the issued share capital of the Company attended in person or by proxy. They voted unanimously to accept the Scheme without modification. There is no evidence to indicate that they did not have the interests of the class at heart, and there is no reason to doubt their bona fides.

9. As to (4), I was satisfied that the Scheme was such that an intelligent and honest shareholder might reasonably approve.

10. The Company is a listed company, engaged in the manufacture, sale and trading of construction materials. It has a number of subsidiaries. Its operations are based in Hong Kong but it also serviced the Mainland market. The Company had serious financial difficulties in 1997 which led to a restructuring exercise in 1999.

11. The result of the restructuring exercise was that a company called Golik Holdings Limited ("GHL") became the ultimate holding company. Its wholly-owned subsidiary Worldlight Group Ltd ("WGL") holds 50.1% of the Company's issued share capital. GHL is incorporated in Bermuda.

12. The directors of the Company together with WGL have after deliberation, concluded that business can now be expanded beyond Hong Kong and the Mainland to Taiwan and Japan, but that the new business in Taiwan and Japan should be undertaken by a separate chain of overseas companies with separate lines of reporting and independent cost centres for more flexibility and autonomy.

13. Further it is thought that the Company should move away from being a combined operating, asset-holding and investment-holding company. The concept is that by having the listed vehicle solely as a holding company, separate from business operations, it would be isolated from any losses and liabilities that might be incurred by the operational companies in the group.

14. To this end, the Scheme involves the exchange of shares in the Company for those in Daido Group Ltd. ("Daido Group"), a company incorporated in Bermuda, which is the place of incorporation of GHL, the ultimate holding company. Daido Group would then become the holding company of a group of companies including the Company. The Scheme will not cause any alteration in the underlying net assets, or the business or financial position, of the Company and its subsidiaries.

15. Subject to compliance with the regulatory authorities' requirements, shares in Daido Group will be listed on the Hong Kong Stock Exchange upon withdrawal of the shares in the Company. The new shares will have a lower par value than the existing shares, but the shares in the Company have been trading below par for some time, and the issue of the Daido Group shares at a lower par value is to facilitate fund-raising in the future without the need to obtain permission for issue of shares at a discount. The lower par value will not affect the proportion of the net assets attributable to each of the shareholders. The difference between the net asset value of the Company and the nominal value of the Daido Group shares will be credited to a "contributed surplus account" in Daido Group's books, which will be distributable.

16. It appears to me that in light of the above, the Scheme was one which an intelligent and honest shareholder might reasonably approve. Daido Group and Daido (BVI), a subsidiary of Daido Group which will be the transferee of the shares of the Company under the Scheme, have agreed to be bound by the Scheme and given the necessary undertakings.

17. Accordingly, I gave an order sanctioning the Scheme in terms of the draft Order.