RE HITACHI (HONG KONG) LTD.

HCMP 1438/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1438 OF 2002

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J U D G M E N T

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1. This is a petition for an order that the reduction of share capital be confirmed. The petition is brought by Hitachi (Hong Kong) Limited ("the Company"), a private company incorporated in Hong Kong in 1964. It has been carrying on business as importer, exporter and trader dealing with all kinds of electrical commodities and home appliances of the brand name Hitachi. All the shares of the Company except for one share are owned by the parent company in Japan, Hitachi Limited. The remaining share is held on trust for the parent company.

2. According to the latest annual return filed on 10 January 2002, the authorised share capital of the Company is HK$255,166,380.00 made up of 25,511,638 ordinary shares of HK$10.00 each, all of which are issued and paid up. By a special resolution passed on 25 February 2002 pursuant to clause 47 of Table A of the Companies Ordinance, Cap.32 (which is incorporated into the Articles of Association by Article 2), it was resolved that:

" Subject to the confirmation of an order by the High Court of Hong Kong Special Administrative Region made pursuant to Section 58 of the Companies Ordinance, Cap. 32, the capital of the Company shall be reduced from $255,116,380.00 divided into $10.00 for each ordinary share to $0.3527 for each ordinary share and that such reduction be effected by cancelling paid up capital to the extent of $9.6473 upon each of the issued ordinary share of $10.00 each and thereby reducing the nominal amount of each of the said $255,116,380.00 from $10.00 to $0.3527 accordingly."

3. This petition was filed on 16 April 2002 and amended on 5 June 2002 seeking an order confirming the reduction of share capital as resolved in the special resolution. By an order made on 23 April 2002, the list of creditors under Section 59 of Cap.32 was dispensed with. The petition has been advertised pursuant to the order of 23 April 2002.

4. The reasons for reduction of share capital would appear to be as follows. After the incorporation of the Company, the share capital was increased a number of times to cope with the expansion of business. In 1991, the Company commenced to have an export business in China. Huge losses were suffered due to drastic market price cutting in China. In 1996, the Company stopped its export business in China and concentrated on the business in Hong Kong. By then the parent company had formed a subsidiary, Hitachi (China) Limited, to operate the business in China. It was decided by the parent company that in suitable time, the subsidiary in China should be solely responsible for the business in China whereas the Company should be solely responsible for the business in Hong Kong. The Asian economic crisis in 1997 accelerated this decision for the division of markets by the two subsidiaries. The parent company also wanted the Company to tidy up its accounts by writing off bad debts and losses and that it should have a new start in the 21st century.

5. On 6 March 2000, the parent company injected HK$135,449,710.00 to the Company to write off the losses and bad debts in respect of the export business in China and an ordinary resolution was passed to increase the authorised share capital.

6. By another ordinary resolution passed on 28 September 2001, the authorised share capital was further increased from HK$144,449,710.00 to HK$255,116,380.00 for the purpose of injecting further working capital to the Company as it was still trading at a loss. Prior to the passing of the special resolution on 25 February 2002, the latest audited account covering the period from 1 April 2001 to 31 December 2001 showed that the loss of the Company before taxation was HK$187,318.00 whereas the year ended 31 March 2001 had a pre-taxation profit of HK$5,605,721.00.

7. I understand that the bad debts have been completely written off with the two injections of capital made by the parent company. As the two increases in the share capital in 2000 and 2001 have served their purpose, the Company wishes to reduce its share capital to the amount as it was before the increase in 2000 as per the special resolution. All the creditors of the Company have been informed of the special resolution for the reduction of capital and the latest financial position of the Company and they have all confirmed in writing that they would raise no objection to the reduction of capital.

8. I am satisfied that the proposed reduction does not involve any alteration or variation of the rights attached to any share and does not involve either diminution of any liability in respect of any unpaid capital or the payment to any shareholder of any paid up capital.

9. Since 1993, the Company has set aside a fund of HK$60,000,000.00 for general reserve as a contingency to meet any further liability that may be incurred without the need of an injection of capital. I am given to understand that the Company will not declare any dividend for this year and will not change the status of the general reserve in the forthcoming financial year. It seems that the losses suffered are permanent losses in the sense that they are permanent so far as is presently foreseeable (In Re Jupiter House Investments (Cambridge) Ltd [1985] 1 WLR 975 at 978-979).

10. I am satisfied that the interests of the shareholders and creditors have been properly protected and that there is a discernible purpose for the reduction of capital as proposed. I make an order to confirm the reduction of share capital as per the special resolution passed on 25 February 2002 and I approve the form of minute proposed to be registered as set out in paragraph 14 of the amended petition.