RE OCEAN GRAND HOLDINGS LTD

HCMP 120/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 120 OF 2008

-----------------------------

--------------------------------

-----------------------------------------------------------

REASONS   FOR   JUDGMENT

----------------------------------------------------------

1.  This is a petition under section 166 of the Companies Ordinance, Cap. 32 to sanction a scheme of arrangement between Ocean Grand Holdings Limited (“the Company”) and its unsecured creditors who do not have a preferential claim and whose claims have been admitted under the scheme (“the Scheme Creditors”). The petition was presented by the Company acting by its provisional liquidators.

2.  The Company was incorporated in Bermuda on 15 May 1997 and was registered in Hong Kong on 8 July 1997 under Part XI of Cap. 32. It is a holding company whose subsidiaries were engaged principally in the manufacture and wholesale of aluminium extrusion products and chemicals for use in the electroplating process. The products are produced on sites located in Nanhai and Zhuhai in the Mainland, and in Hong Kong.

3.  On 24 July 2006, the Company presented a petition for its own winding up in Hong Kong and in Bermuda and upon the application of the Company, provisional liquidators were appointed on the same day in Hong Kong and on the following day in Bermuda. The winding-up petition has been adjourned several times and was last adjourned to 23 June 2008.

4.  The shares of the Company have been listed on The Stock Exchange of Hong Kong Limited (“the Stock Exchange”) since 23 September 1997. Trading in its shares has been suspended since 17 July 2006. On 13 March 2008, the Stock Exchange placed the Company into the 3^rd stage of the delisting procedures, in accordance with Practice Note 17 to the Rules Governing the Listing of Securities on the Stock Exchange (“the Listing Rules”). If the Company does not put forward a valid resumption proposal by 12 September 2008, the Stock Exchange intends to cancel the listing of the Company on that date.

5.  As at 30 September 2007, the estimated aggregate claims of the Scheme Creditors against the Company amounted to approximately HK$1,777 million.

6.  The provisional liquidators are of the view that the most likely way to maximise recoveries for creditors is by a restructuring which realises value from the listed status of the Company’s shares, this being the only material realizable asset identified by the provisional liquidators. From their review of the Company’s financial position, the value of the assets from which recoveries may be made in a liquidation is uncertain and is likely to be nil. Provided certain requirements of the Listing Rules are complied with, a viable restructuring arrangement can be structured and the proposal submitted by the investor, Gold Star Success Limited (“the Investor”), would seem to represent the best prospect for a return for the Scheme Creditors. The Investor is an independent third party not connected with and not acting in concert with the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates or concert parties within the meanings prescribed by the Listing Rules or the Hong Kong Code on Takeovers and Mergers.

7.  On 20 December 2007, the Company, the provisional liquidators, the Investor, and Deloitte Touche Tohmatsu as escrow agent entered into a restructuring agreement for implementation of the restructuring proposal.

8.  Under the terms of the restructuring agreement, the Investor would, upon all conditions precedent being satisfied, subscribe for 600,000,000 new ordinary shares of the Company for about HK$60 million in cash and subscribe for 1,200,000,000 convertible shares of the Company for about HK$120 million in cash. The total consideration for the subscription payable by the Investor would be HK$180 million in cash. Further, the Investor would pay HK$16 million, which forms part of the cash consideration, for the purpose of discharging all costs and expenses in relation to the negotiation, preparation and implementation of the restructuring agreement.

9.  Once the conditions precedent are satisfied and the scheme has come into effect, HK$35 million from the subscription proceeds would be transferred to the trust account for the scheme. All monies from time to time credited to the scheme trust account would be held for the benefit of the Scheme Creditors, subject to payment of the provisional liquidators’ taxed costs and expenses, the costs for the winding-up petition, the preferential claims (if any), and the costs of the scheme.

10.  In addition, the Company would allot and issue 157,600,000 new ordinary shares, credited as fully paid, representing about 19.7% of the total enlarged ordinary shares of the Company at closing of the restructuring agreement to the Scheme Creditors with a put option so that each Scheme Creditor, if he elects to exercise the put option, is entitled to sell his new ordinary share to the Investor at approximately HK$0.1586 per share at any time within 6 months from the date of the scheme administrators transferring the new ordinary shares to such Scheme Creditor. Each Scheme Creditor would be entitled to be allotted and issued such number of new ordinary shares (being equivalent to 157,600,000 divided by the total amount of admitted claims established under the scheme) for each dollar of his admitted claim out of a fixed number of new ordinary shares available for distribution to the Scheme Creditors in proportion to their respective admitted claims.

11.  The issue and allotment of 157,600,000 new ordinary shares and distribution of cash dividend to the Scheme Creditors under the scheme shall be in full and final settlement of their claims. From the effective date of the scheme, each Scheme Creditor discharges and waives all claims against the Company in consideration of the right to participate with each other Scheme Creditor under the scheme.

12.  On the closing date, the Company shall transfer its entire interests in the issued share capital of each of the scheme companies (being those subsidiaries of the Company listed in part 2 of appendix 6 of the scheme of arrangement) to the scheme administrators or their nominees for the nominal sum of HK$1.00. The scheme administrators shall take such steps as appropriate to recover any amounts to which the Company is entitled and may be realised from the scheme companies and pay any amount recovered into the scheme trust account as scheme funds.

13.  The Scheme Creditors consist of a class of all creditors of the Company with non-preferential claims against the Company as at the effective date of the scheme. It is expected that persons with preferential claims, estimated at HK$56,000.00, will be paid in full to the extent of their preferential claims out of the scheme funds, recognising the priority which they would have in a winding up of the Company.

14.  On 7 December 2005, the Company issued US$125,000,000.00 aggregate principal amount of 9.25% guaranteed notes due 2010 and on 6 March 2006 it issued US$35,000,000.00 aggregate principal amount of 9.25% guaranteed notes due 2010, which was subsequently consolidated with the former to form a single series. Based on the information available to the provisional liquidators, they estimated that the potential realisation from the security to the noteholders are approximately HK$16,972,500.00. As such, the unsecured portion of the debt due to the noteholders would be approximately HK$1,223,027,500.00. The noteholders can participate in the scheme in respect of the unsecured portion of their debts.

15.  The estimated recovery to the Scheme Creditors would be approximately 3.4%, before taking into account any amounts payable in respect of costs.

16.  On 12 February 2008, leave was given to the Company to convene a meeting of the Scheme Creditors for the purpose of considering and if thought fit approving the scheme. Directions for publication of a notice of the Scheme Creditors’ meeting and service on all Scheme Creditors of the composite document containing the notice, the scheme, the revised explanatory statement and a proxy form have been complied with.

17.  The meeting was duly convened on 7 March 2008. Out of a total of 30 Scheme Creditors who were present and voting, 29 of them whose claims represented 97.04% of the amount of indebtedness of these 30 creditors, voted in favour of the scheme. The resolution approving the scheme was duly passed by the majority prescribed by section 166.

18.  I am satisfied that the class of the Scheme Creditors has been properly constituted and that they have been provided with adequate explanation and information of the scheme for them to make an informed decision how they ought to vote. The statutory requirements for the sanction of a scheme of arrangement have all been complied with. I am also satisfied that the scheme of arrangement is such that an intelligent and honest man, being a member of the class concerned and acting in respect  of his interest, might reasonably approve. I have therefore exercised my discretion to sanction the scheme of arrangement.