RE AKAI HOLDINGS LTD.

HCMP 3381/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3381 OF 2002

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R E A S O N S F O R J U D G M E N T

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1. This is a petition to seek the sanction of the court to a scheme of arrangement to be made between Akai Holdings Limited (in compulsory liquidation)("the Company") and its creditors, under section 166 of the Companies Ordinance, Cap. 32. The petition is brought by the liquidators of the Company with the view to realise the listed status of the Company for the benefit of the creditors.

The background

2. The Company was incorporated with limited liability in Bermuda on 10 October 1991 under its former name of Semi-Tech (Global) Company Limited, with its principal place of business in Hong Kong. Its shares were listed on the Stock Exchange of Hong Kong in October 1991. The principal business of the Company was as an investment vehicle for the Semi-Tech Corporation Group. It was registered under Part XI of Cap. 32. The procedure under section 166 is applicable to unregistered or overseas companies by virtue of section 166(5) and Part X of Cap. 32.

3. On 13 January 2000, a creditors' petition was presented in Hong Kong to wind up the Company. On 23 August 2000, an order to wind up the Company was made by the Hong Kong court. Trading in the shares of the Company on the Stock Exchange has been suspended as from that date. On 24 May 2001, Messrs Nicholas Hill, Fan Wai Kuen, Joseph and R. Craig Christensen were appointed by the Hong Kong court as the joint and several liquidators of the Company.

4. On 28 August 2000, the same petitioning creditors filed a petition in Bermuda to wind up the Company. On 29 September 2000, the Bermudan court made a winding-up order and on 16 March 2001, the same individuals were appointed as the joint and several liquidators of the Company by the Bermudan court.

5. The total number of proofs of debt received to date in Hong Kong as well as in Bermuda is 59. The total value of proofs received in Hong Kong is HK$9,855,359,252.00, whereas the total value of proofs received in Bermuda is HK$8,975,675,776.00. I understand the difference in amount is because of the difference in cut-off dates and interest. The total number of proofs admitted in Hong Kong is 37 and the aggregate value is HK$2,604,552,129.00. The total number of proofs admitted in Bermuda is 35 with the total value of HK$2,688,723,553.00. Of the proofs admitted, the value of preferential debts, being amounts owed to three employees, is HK$38,968.00.

6. The total receipts to date amounted to HK$1,110,877.80, and the total payments to date are HK$16,237.50. The cash at bank held by the liquidators is HK$1,091,640.00.

7. The identifiable assets, books and records of the Company taken into the custody of the liquidators are limited. Although a number of potential claims against various parties have been identified, the liquidators are hampered by their restricted access to documents. Further, there are insufficient funds available to the liquidators to undertake the necessary investigations or to obtain legal advice. The liquidators are unable to predict with any certainty if any realisations may be available from the winding-up, other than the realisation from the listed status of the Company. The shareholders can expect to receive no return in the winding-up.

8. On 7 September 2001, the Stock Exchange advised the Company that it was in the third stage of the de-listing procedure and that unless a resumption proposal was submitted to the Stock Exchange by 11 March 2002, the listing of the shares of the Company on the Stock Exchange would be cancelled.

9. Between September 2001 and February 2002, a number of potential investors approached the liquidators with resumption proposals. After conducting negotiations with the interested investors and considering the merits of each proposal, the liquidators formed the view that the proposal ("the Proposal") submitted by a group of investors (collectively "the Investors") who are all shareholders of Hang Ten International Holdings Limited ("Hang Ten BVI") was the resumption proposal most likely to be successfully implemented and provide the best return to the creditors.

10. On 28 February 2002, the liquidators submitted the Proposal to the Stock Exchange. On 8 March 2002, the Stock Exchange advised the Company that the third stage of the de-listing procedure had been extended to 17 July 2002 to enable the Proposal to be progressed.

11. On 16 April 2002, the liquidators entered into a restructuring agreement with the Investors, which was amended by a supplemental agreement on 14 May 2002. On 12 July 2002, on the application of the liquidators, the Stock Exchange extended the third stage of the de-listing procedure to 29 November 2002 to enable the Company to implement the Proposal. On the application of the liquidators, on 23 October 2002 the Stock Exchange further extended the third stage of the de-listing procedure to 22 January 2003.

12. The Stock Exchange has advised the Liquidators that the extension of the de-listing procedure is only in respect of the Proposal and not any other resumption proposal. Accordingly, if the Proposal is not successfully implemented, the Stock Exchange is unlikely to grant a further extension regardless of whether or not an alternative proposal is made to the liquidators.

The creditors' scheme

13. As the Company was incorporated in Bermuda, it is proposed to seek sanction of the shareholders' scheme from the Supreme Court of Bermuda. I am given to understand there may be an application in Hong Kong under section 182 of Cap. 32, to validate the transfer of all the Company's shares under the shareholders' scheme to Hang Ten Group Holdings Limited ("Hang Ten"), i.e. the company the shares of which are sought to be listed on the Stock Exchange by way of introduction under the Listing Rules based on the listed status of the Company's shares. It is envisaged that the existing profitable business of Hang Ten BVI will be injected into Hang Ten.

14. Identical creditors' schemes are proposed to be effected in Hong Kong and Bermuda. The purpose of both schemes is to approve the share transfer embodied in the shareholders' scheme and the split in consideration to the shareholders as an inducement for the transfer of their shares to Hang Ten.

15. In consideration of the assistance provided by the Company and the liquidators in facilitating a listing of the shares of Hang Ten by way of introduction,

(a) Hang Ten will pay HK$12 million to the Company;

(b) Hang Ten will issue and allot to the Company 2,100,000,000 shares in Hang Ten with a par value of HK$0.001;

(c) pursuant to the shareholders' scheme, all of the issued shares in the Company will be acquired by Hang Ten on terms that the shareholders of the Company will, subject to the terms of the shareholders' scheme, receive in aggregate 300,000,000 shares in Hang Ten, credited as fully paid up and ranking pari passu in all respects with the shares in Hang Ten to be distributed among the shareholders of the Company, pro rata in accordance with their respective holdings in the shares of the Company, subject to rounding down, held on the final record date for determining entitlements of the shareholders of the Company under the shareholders' scheme;

(d) as soon as practicable after the closing date, Hang Ten will transfer all the shares of the Company to the liquidators for the sum of HK$1.00; and

(e) the Company will remain in liquidation and its assets and liabilities will be dealt with in the winding-up proceedings of the Company, including the realisations in (a) and (b) above, so there is to be no compromise of the creditors' claims against the Company and the creditors will partake in the distribution of the Company's assets in the liquidation in the normal order of priority.

16. In addition to the consideration paid to the Company and the shareholders, Hang Ten will pay for the costs and expenses of restructuring and implementing the schemes up to the amount of HK$6.45 million.

17. As for the split of the consideration between shareholders of the Company and the creditors, an estimate of the proposed apportionment can be calculated using a net asset value of HK$0.62 per Hang Ten share. The net asset value basis is used here, not the net tangible asset value of the shares in Hang Ten, because the assets of Hang Ten include substantial goodwill and intangible assets and if these were to be excluded for the pro forma statement of adjusted net tangible assets of Hang Ten, the Hang Ten shares will have no attributable value on this basis. The calculation of the apportionment of consideration on the basis of HK$0.62 per Hang Ten share may be given as follows:

	HK$	% of Total Consideration
Creditors
Cash	12,000,000	44.6
2,100,000,000 Hang Ten shares	13,020,000	48.5
Total Creditors' Consideration	25,020,000	93.1
Shareholders
300,000,000 Hang Ten shares	1,860,000	6.9
Total Consideration	26,880,000 ==========	100

18. The split in consideration would appear to be within the range of token consideration in the cases giving guidance on the subject.

Compliance with statutory requirements

19. For the court to exercise its power to sanction the creditors' scheme, I must be satisfied that the requirements under sections 166 and 166A have been complied with.

20. Firstly, the group of creditors or members as constituting a class for the purpose of summoning a meeting to approve the scheme must be properly constituted as a class.

21. A class would be properly constituted if the rights of members are not so dissimilar as to make it impossible for the members to consult together with a view to their common interest. Here, there is only one class of creditors in that all are unsecured and there is no waiver of claims involved, so they will all participate in the liquidation according to their rights in the normal order of priority.

22. Secondly, there must be compliance with the order made on 3 September 2002 regarding the holding of creditors' scheme meeting, the publishing of notices of the meeting, the service of the scheme documents on the creditors, and the reporting by the chairman of the outcome of the meeting to the court. There is compliance with the order save in the following respect.

23. The order provided for publication of the notice of the creditors' scheme meeting in Bermuda as well as in Hong Kong 21 clear days before the day appointed for the meeting, which was on 26 September 2002. The notice published in Bermuda on 4 September 2002 was the notice in relation to the creditors' scheme meeting convened by the Supreme Court of Bermuda. Due to an administrative oversight, the notice in relation to the scheme meeting convened by this court was not published until 6 September 2002, so the notice was published only 19 clear days before the day appointed for the meeting.

24. There is power and discretion to waive a technical non-compliance with the court's directions for convening a meeting, where "the meetings had been in substance (though not precisely) summoned in the manner prescribed" (Re Anglo-Spanish Tartar Refineries Ltd [1924] WN 222, per Romer J; Re Kansa General International Insurance Co. Ltd (in compulsory liquidation) [1999] 1 HKC 254 at 262). This is an appropriate case to waive the non-compliance with the directions. The notice was published in Bermuda only two days late. To the liquidators' knowledge, there are in fact no creditors registered with addresses in Bermuda. The creditors in Hong Kong would have had the benefit of adequate notice by the publication of the notice in Hong Kong, in compliance with the directions given. The creditors' scheme to be approved in Hong Kong is identical to the creditors' scheme in Bermuda. The creditors' meeting of the schemes in both places was held concurrently and at the same place. Lastly, it is not a statutory requirement that notice of the meeting convened by the court must be given at least 21 clear days before the meeting.

25. Thirdly, the creditors must have been given a sufficient explanation of the scheme and its effect, to enable them a make a reasonable judgment how to vote at the meeting. I am satisfied that the explanatory statement here has complied with the requirements of section 166A.

26. Lastly, the requisite statutory majority representing three-fourths in value of the creditors present and voting at the meeting must have agreed to the scheme. In this instance, 100% in number and value of those present and voting have voted in favour of the creditors' scheme. No one had turned up at the hearing of the petition to oppose the sanctioning of the scheme.

27. I therefore have jurisdiction to sanction the scheme approved by the requisite majority.

Exercise of the discretion

28. The creditors' scheme would appear to be the only feasible way by which the value of the listed status of the Company may be realised for the benefit of the creditors. I am satisfied that the scheme is one that an intelligent and honest person, being a member of the class concerned and acting in respect of his interest, might reasonably approve.

29. I have therefore made an order sanctioning the creditors' scheme as per the draft submitted, on the undertaking by Hang Ten and the Investors to be bound by the scheme and to execute such documents and do all things necessary to give effect to the scheme. The costs of the petition are in the cause of the winding-up of the Company.