RE ETYUE LTD.

HCMP 421/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 421 OF 2001

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J U D G M E N T

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1. This is a petition under Section 166 of the Companies Ordinance for the Court's sanction of a Scheme of Arrangement between Yetyue Ltd. (hereafter referred to as "the Company") and its Trade Creditors as defined by the Scheme.

2. The Company is in the business of importers/exporters and manufacturers of various goods. Since its incorporation, it has carried on the business of a trading company in undergarments.

3. In July 2000, the Company suffered a setback in that it was unable to receive payment of invoices for goods sent to its principal customer which is a company based in the United Kingdom by the name of Pinetime Ltd. This was apparently due to Pinetime's own financial difficulties. Pinetime was a major customer of the Company ever since the commencement of the Company's business in 1986. Pinetime owed the Company an amount of more than HK$1.6 million. Furthermore, Pinetime stopped placing purchase orders with the Company and that has critically reduced the business turnover of the Company by about 80%. Furthermore, the Company, in anticipation of goods to be ordered by Pinetime, had manufactured large quantities of goods valued at about HK$1.3 million. However, due to the fact that Pinetime no longer placed any orders with the Company, the stock has remained idle and the labelled goods could not be resold by the Company.

4. In the circumstances set out above, the liquidity of the Company had substantially deteriorated. This caused the Company's bankers to withdraw financial support since mid-September 2000. Since then, the Company had been placed in a critical financial situation. This worsened earlier this year when there were demands made by banks on the Company to repay overdrafts and other facilities. The overdrafts and facilities have been paid off by the principal shareholder and director of the Company by the name of Mr Chung Cheuk Kit and also from certain D/P payments by Pinetime. Mr Chung, in a bid to selvage his company, has agreed to waive irrevocably and permanently all rights to repayment from the Company.

5. In these circumstances, the Company has proposed a Scheme of Arrangement with its Trade Creditors in that :

a) all Trade Creditors of the Company would accept an arrangement under which there would be a 60% reduction of the amounts of the existing debts due from the Company to each of the creditors and

b) the reduced trade debts (i.e. 40% of the existing trade debts) would be repayable by the Company by 6 equal monthly instalments commencing 28 days after the Petition today.

6. On 16 May 2001, I ordered that a meeting of the Trade Creditors be convened for the purposes of considering and approving (with or without modification) the Scheme. The meeting was duly held on 11 June 2001 and at the said meeting, the Scheme was approved without modification. There is evidence to the effect that all the creditors of the Company had been notified and there were present and voting in person or by proxy at the meeting some 15 creditors.

7. Out of these 15 creditors, 13 present and voting voted in favour of the scheme and 2 abstained. There were none voting against the resolution. Therefore there is a sufficient majority in number of those present and voting at the meeting. As for the value of the debts, I have looked at the table set out in the Petition, which is verified on affidavit. Suffice it to say that there is certainly more than the 75 % in value required for the purposes of Section 166.

8. In any consideration whether sanction should be given by the Court to a Scheme of Arrangement under Section 166, the court considers three aspects:

1) whether the statutory provisions have been complied with. As set out above, the statutory provisions have been complied with in this case;

2) whether the class voting had been fairly represented. Here, all the creditors present and voting at the Scheme meeting were independent trade creditors and there is no evidence of any coercion by the majority of any of the minority;

3) whether the Scheme is such that a reasonable man of business would approve the Scheme. Given the difficulties that the Company has found itself in and having looked at the accounts of this Company, it would appear that a reasonable man of business would have voted in favour of the Scheme as indeed the majority both in number and value of these creditors present and voting at the scheme meeting have in fact done.

9. In the circumstances, I would sanction the Scheme and make an order in terms of the draft order handed up to me today.