RE CLUB MEDITERRANEE (CLUB MED) HONG KONG LTD

HCMP 931/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 931 OF 2005

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REASONS  FOR  JUDGMENT

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1.  This is a petition presented by Club Mediterranee (Club Med) Hong Kong Limited (“the Company”) for confirmation of reduction of capital under section 58(1) of the Companies Ordinance, Cap. 32.

2.  The Company was incorporated on 16 April 1982 and changed its name to the present name on 5 November 1982.  Its present authorised capital is HK$10 million divided into 1 million ordinary shares of HK$10.00 each, all of which have been issued and are fully paid up.

3.  The Company is the Hong Kong arm of the resort operator known as Club Med.  It has been carrying on the business of tourist and travel agents.  There are only two registered shareholders, Vacances (S) Pte. Limited, a company incorporated in Singapore, and Club Med Asie S.A, a company incorporated in Luxembourg.

4.  There is provision in the articles of association for reduction of capital by special resolution in any manner allowed by law.

5.  At an extraordinary general meeting of the Company on 28 February 2005, a special resolution was passed unanimously to reduce the capital of the Company from HK$10 million to HK$2.2 million, divided into 1 million shares of HK$2.20 each, and that such reduction be effected by cancelling paid up capital to the extent of HK$7.80 upon each of the 1 million ordinary shares of HK$10.00 each, and reducing the nominal value of each of the said shares to HK$2.20.

6.  The reason for the reduction is that capital to the extent of HK$7.8 million and upwards had been lost or was unrepresented by available assets.

7.  The proposed reduction does not involve either the diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid up capital.

8.  The Company has produced its audited financial statements from 1 November 1995 to October 2004, and the management accounts for the period from 1 November 2004 to 31 March 2005.  As appeared from the management accounts as of 31 March 2005, the Company had accumulated trading losses of HK$8,228,571.54, which were attributable to losses carried forward and accumulated from the preceding years.

9.  On the hearing of the summons of directions on 28 June 2005, I ordered that the settlement of a list of creditors be dispensed with.  The notice of presentation of the petition has been advertised pursuant to the directions given.

10.  There is no question that the shareholders have not been treated equitably by the proposed reduction of capital.  There is also no question as to the Company’s solvency.

11.  The need to reduce the capital of the Company is to reflect the losses suffered in its operation in the previous years, in particular, losses relating to the operation and subsequent closure of the India branch of the Company in March 1998, which amounted to HK$8,281,099.00.  There are also depreciation losses in the value of the leasehold improvements, office furniture and equipment between October 1998 and October 2004 amounting to HK$760,213.00.  I am satisfied that all the losses incurred are business operation losses of the Company and are permanent losses.  In all the financial years and periods from November 1995, the Company has not written off any bad debt, so the issue of possibility of any bad debt written off being recoverable in the future does not arise.

12.  I am satisfied that the proposed reduction of capital is for a discernible purpose and that the interests of creditors are safeguarded.  I have therefore made an order in terms of the draft submitted.