RE CHUN TAI INDUSTRIES LTD.

HCCW972/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP PROCEEDINGS NO.972 OF 1999

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J U D G M E N T

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1. This is a creditors' petition which was presented on 29 October 1999. The petition has had a checkered history and there have been many adjournments.

2. The first hearing took place on 28 February. Many adjournments have since been sought in order to promote a restructuring proposal. In fact, the makings of the present proposal did not emerge until 2 May 2000. Since that date, there have been at least four adjournments to enable the Company to go forward with its restructuring proposal.

3. I need only mention one feature of the restructuring proposal for present purposes. Part of the Scheme would involve the issue of one share in Chun Tai Holdings Limited ("Holdings"), the holding company, in return for $1 of debt. Matters progressed relatively smoothly until 22 August when, at a directions hearing, the court was informed that statutory demands had been served by the Standard Chartered Bank and HSBC on Holdings on 17 and 18 August respectively. Although there is more than the requisite in-principle support for the restructuring in the Company, the whole proposal would come to naught if Holdings were put into liquidation. An adjournment was therefore granted for four weeks to enable the situation to be clarified. By then, the 21 day period would have elapsed and it was hoped that the situation would become clearer as to whether or not an arrangement or accommodation could be reached with Standard Chartered and HSBC.

4. When the matter was restored before me on 19 September, the situation was as follows. Although no winding-up petition had been presented against Holdings, no agreement had been reached with Standard Chartered and HSBC who held guarantees from Holdings in respect of debts of the Company. The parties have been engaged in negotiations as is evident from the correspondence exhibited although I have to say that the correspondence revealed that the negotiations were not taking place under the friendliest of circumstances. Essentially, it would appear that Standard Chartered and HSBC were looking for a 50% pay-out when they were only being offered something in the region of 35%. There was plainly an impasse. I therefore had the petition restored for hearing today.

5. If I were to allow the restructuring proposal to continue, it will necessarily mean further adjournments. But at any point in the future the whole proposal could collapse if Standard Chartered and/or HSBC decided to petition to wind-up Holdings. It seems to me that it would not be right to proceed on the basis and (I have to say unsubstantiated) assumption that differences with the banks in question will necessarily be resolved. The Company has had many months with which to deal with all its creditors, and this would obviously include Standard Chartered and HSBC who hold guarantees from Holdings in respect of the Company's indebtedness to them. It would be tantamount to reversing the normal burden in the promotion of a restructuring. Moreover, the creditors ought not to be left in that state of uncertainty.

6. Of course a winding-up order does not necessarily mean that a restructuring is ruled out definitively. A scheme is still possible. See for example In re Sharp Brave Company Limited (In Liquidation) [1999] 4 HKC 79. But at this stage the only appropriate order is a winding-up order and I therefore make one in respect of the Company.

7. So far as the Company's costs and the petitioners' costs are concerned, as there have not been any outstanding costs, they would be a liquidation expense.