RE RNA HOLDINGS LTD

HCCW388/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 388 OF 2004

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DECISION

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1.  This is an application by RNA Holdings Limited (“the Company’) for a further adjournment of the Petition.  The petitioner and two of the supporting creditors oppose the adjournment.

2.  This is the third adjournment sought by the Company.  Two adjournments had previously been granted on 14 June and 26 July 2004.

3.  As in the case of the previous adjournments, the present adjournment is sought for the purpose of allowing a restructuring of the Company to take place. 

4.  The latest evidence filed with the court shows that the restructuring proposal has, in principle, the support of 76.25% of its creditors in value.  The largest creditor, the Marquarie Bank, is in favour of the restructuring.  The creditors who oppose the restructuring, including the petitioner, constitute about 2% in value. The evidence also shows that the restructuring is going to yield more than a liquidation of the Company.

5.  In essence the Company’s case is that there are reasonable prospects of the restructuring proposal obtaining the approval of the majority of the creditors such that there are special circumstances to justify not making a winding-up order.  Reliance is placed on the decision of Kwan J in Re APP (Hong Kong) Limited (unreported) HCCW 1130 of 2003 at para.26.  

6.  The thrust of the petitioner’s opposition is that there are serious risks of the restructuring proposal falling through in the course of implementation.  It is said that the Company may not be able to address the concerns of the SFC, given that it is now in the second phase of de-listing. Additionally, the Company has yet to resolve the differences with its auditor, Ernst & Young.

7.  The issue for the court is whether it has been demonstrated that there are reasonable prospects of the restructuring proposal receiving the requisite approvals of the creditors and the shareholders such that a winding-up order should not be made instantly.

8.  I accept that, as matters stand, the restructuring proposal is not without hurdles, of which there are two main ones.  The first relates to the Company’s proposal to change its auditors in order to reduce the costs of the restructuring.  The second concerns the chances of the Company being accepted by the SFC for re-listing.

9.  The question of changing the auditors is to be dealt with at the special general meeting on 9 September 2004.  If the change is approved, then the Company will proceed to have the audited accounts for April 2003 April 2004 prepared by the new auditors.  The Company expects these accounts to assist in addressing the concerns of the SFC on the re-listing of the Company, in relation to the reliability of the Company’s accounts and the sufficiency of the level of the Company’s operations.  If the change of auditor does not materialize, then the financier is expected to reconsider the funding provisions for the restructuring so as to cater for the fess of the existing auditors, and this will require an additional 4-6 weeks.  In the meantime, there will the appeal hearing of the SFC. 

10.  The two supporting creditors who are present in court are the former employees of the Company.  They are concerned that their salaries and employment benefits have remained unpaid for some time, and they therefore wish to have the winding-up order made as soon as possible.  As pointed out by Mr Maurellet, under the restructuring proposal, the preferential part of the employees’ claims will be paid in full.  It is correct that it may take some time for the employees to receive their entitlements when the restructuring proposal is put into full implementation.  On the other hand, even if the Company were to be put into liquidation now, whether and when the employees’ preferential claims can be met in full would depend on the results and progress of liquidation.   

11.  Notwithstanding the risks that Miss Lam has pointed to in her submissions, I am of the view that the evidence filed does not justify a conclusion that there is no reasonable prospect of the restructuring obtaining the requisite approvals.  It is also to be noted that the Company is a public company, and it has creditors other than the petitioner and the supporting creditors.  The Court should also have regard to the interests of its shareholders as well as all the creditors.

12.  Taking the matter in a round, including the concerns expressed by the two supporting creditors, I consider that further time should be given to enable the special general meeting be held and for any reconsiderations of the funding provisions to be given, if the auditor is not to be changed.

13.  Mr Maurellet informs the court that the Company’s appeal to the SFC is to take place on 19 October 2004.  On this basis, I will adjourn the Petition to 25 October 2004 at 9:30am before the Companies Judge.  No later than three clear days before the adjourned hearing, the Company shall file and serve evidence relating to the progress of the restructuring together with an updated timetable for its implementation.  The costs of today are reserved.