RE CONSTELLATION HOLDINGS LTD

HCMP 4160/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4160 OF 2003

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J U D G M E N T

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1. This is a petition to confirm the reduction of share capital presented by Constellation Holdings Limited ("the Company") on 22 September 2003 under section 58 of the Companies Ordinance, Cap. 32.

2. The Company was incorporated on 26 June 1998. Its name was changed to its present name on 29 January 1999. The original authorised share capital is HK$1,000.00 divided into 1,000 shares of HK$1.00 each. This was increased to HK$10 million by the creation of 9,999,000 shares of HK$1.00 each by an ordinary resolution passed on 28 January 1999. The amount of capital paid up or credited as paid up is HK$10 million consisting of 10 million ordinary shares. There are two registered shareholders, Lau Kai Chi holding 9,999,999 shares and Wong Wing Cheong holding the remaining share.

3. On 18 September 2003, the Company passed a special resolution pursuant to Article 41 in the Articles of Association to reduce the share capital from HK$10 million divided into 10 million ordinary shares of HK$1.00 each to HK$1,000.00 divided into 1,000 ordinary shares of HK$1.00 each. The reason for the reduction of capital is that capital to the extent of HK$10 million was unrepresented by available assets.

4. From the date of incorporation in June 1998 to present, the Company has not carried on any business activity. It has only purchased some fixed assets which consisted of a motor vehicle in the amount of HK$3,157,000.00, a vehicle registration plate in the sum of HK$949,000.00 and office equipment of HK$49,810.00, making a total of HK$4,155,810.00.

5. When the shares of the Company were increased to HK$10 million, there was no actual payment for the price of the shares allotted to the shareholders at the time. The shareholders had paid for the fixed assets purchased by the Company in the sum of HK$4,155,810.00 and the sum of HK$5,311,110.00 being the further amount that the shareholders were supposed to pay for the price of their shares was recorded in the accounts of the Company as an amount due from a related company, and this amount was increased in the circumstances that I shall come to. The auditors of the Company stated that this was merely an accounting entry showing that the 9,999,000 shares had been credited as paid up.

6. Mr Lau has become a director and shareholder of the Company since April 2000. He acquired one share from Leung Wai Man Raymond on 7 April 2000 and 9,999,998 shares from Madam Ho Lai Wah on 19 September 2000. For the latter acquisition, no payment was actually made but a loan in the sum of HK$9 million odd which was recorded as due from Madam Ho to the Company was transferred to Mr Lau. There was no actual loan due from Madam Ho to the Company in the amount of HK$9 million odd, this was just an accounting entry to show that the shares had been credited as paid up.

7. In early 2003, the directors decided to transfer the motor vehicle and the office equipment to the related company. Hence the amount due from the related company was increased from HK$5,311,110.00 to HK$9,016,800.00. The only remaining fixed asset held by the Company is the vehicle registration plate bought in April 1999 at HK$949,000.00.

8. Audited financial statements were prepared for the period up to 15 June 2003. The auditors did not qualify their opinion. There is a further letter from the auditors dated 18 November 2003 stating that there is no change in the financial position of the Company after 15 June 2003.

9. In the special resolution passed on 18 September 2003, unconditional approval was given to the directors of the Company to exercise the powers contained in the Articles of Association to cancel the liability due from the shareholders which is represented by 9,999,000 shares. The purpose of the proposed reduction is to reflect the true financial position of the Company and to write off that part of the capital which did not exist.

10. It is confirmed by the auditors that the operating expenses incurred from incorporation on 26 June 1998 to 30 September 1999 had been settled. Further operating expenses for the period from 1 October 1999 to 15 June 2003 in the sum of HK$34,200.00 have been fully paid. The Company has no outstanding liabilities.

11. On 25 November 2003, I gave directions for the settlement of a list of creditors to be dispensed with and for the petition to be advertised. No creditor of the Company has come forward.

12. The proposed reduction would not affect the existing right of the two shareholders and both have agreed to the reduction. There is a discernible purpose for the reduction. The Company has no business activity and no creditors. In the circumstances, I think it is appropriate to make an order confirming the proposed reduction of capital and I approve the minutes proposed to be registered as set out in the petition.