RE MERCURIES- JEANTEX HOLDINGS LTD (IN LIQUIDATION)

HCCW 836/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 836 OF 1999

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D E C I S I O N

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1. This is an application taken out by the liquidators of Mercuries-Jeantex Holdings Ltd ("the Company") under section 199(1)(f) and section 200(3) of the Companies Ordinance, Cap. 32, for an order that they may write off certain remaining assets listed in the statement of affairs of the Company that cannot be realised to date despite the efforts of the liquidators.

2. These assets comprise investment in stocks, lands and buildings, and debts due to the Company. The total cost of these assets, as stated in the statement of affairs submitted by the directors, amounted to approximately HK$76 million. The total net book value of these assets as at 7 December 1999 amounted to about HK$10.15 million.

3. The first category, being investment in stocks, consists of shares in nine companies. Seven of these companies are unlisted companies and are either subsidiaries or related companies of the Company. They are either dormant or of no substance.

4. The 8th company, Mercuries-Jeantex (HK) Ltd ("MJHK") is also a related company and a private company. The Company holds 100,000 ordinary shares of HK$10 each in MJHK. In October 2002, an offer was received from Theme International Holdings (BVI) Ltd ("Theme BVI") to purchase all the Company's shares in MJHK at HK$1,000, which is substantially lower than the paid up value of these shares being HK$1 million. That offer was subsequently increased to HK$10,000 in February 2003. As Theme BVI is one of the two members of the committee of inspection, the liquidators consulted the other member, DBS Kwong On Bank ("DBS") about the increased offer, and DBS found this unacceptable. The liquidators have written to Theme BVI on 26 February 2003 asking the latter to submit a revised offer. No such offer has been submitted to date, so the liquidators do not think the shares in MJHK can be realised.

5. The 9th company in which the Company holds shares is Agristar Inc., the shares of which are traded thinly on the OTC market in the United States. These shares are restricted securities and the cost of realisation is likely to exceed the proceeds.

6. The second category of assets is two landed properties in Dongguan, China. The first property is registered in the name of a former director who is now bankrupt. There is no evidence that he was holding the property on trust for the Company. The title documents and keys have been delivered up by the liquidators to the Official Receiver as the trustee in bankruptcy. The other landed property is of insignificant value with title deeds missing. It was gifted to a Chinese government official but without transfer documents. The time costs involved in realising this property would probably exceed expected proceeds.

7. The third category consists of inter-company debts due from subsidiaries or related companies in the total amount of about HK$54.9 million. Demand letters were sent in June 2000 and no reply has been received from any of the debtors which are dormant or have ceased operation. There are also three overseas debtors and the liquidators have not been able to locate their addresses.

8. On 7 January 2003, the liquidators called a meeting of the committee of inspection and proposed a resolution to be passed to write off the above assets that cannot be realised. Theme BVI declined to pass this resolution, after challenging the liquidators on the basis upon which the shares of MJHK should be valued in the liquidators' offer to sell them to Theme BVI.

9. The summons today has been served on both members of the committee of inspection, Theme BVI and DBS. There is no response from them. I am satisfied on the evidence before me that sanction should be given to the liquidators to write off the above assets. They are either of insignificant value or the costs of realisation are expected to exceed the proceeds. Reasonable efforts have been made by the liquidators to realise the assets and to no avail.

10. I order that the assets may be written off. These assets have not been set out in the summons although they have been identified in the supporting affirmation. They should be set out properly in the draft order submitted to the court for approval.

11. I also order that the costs of this application be paid out of the assets of the Company.

12. In respect of the other part of the summons which is for the approval of the liquidators' remuneration and disbursements, I do not propose to deal with this today. Quite apart from the fact that I am not minded to cap the legal fees as suggested to do away with the need for taxation, an application of this kind is to be dealt with on paper without a hearing in the usual way.