Re Sinocan Holdings Ltd.

HCCW 238/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 238 OF 2002

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REASONS FOR JUDGMENT

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1. This is a petition presented by J H Y International Inc against Sinocan Holdings Ltd ("the Company") on the basis of a debt in the sum of HK$567,084,300.00. The debt is not disputed by the Company. It arose out of an agreement dated 13 October 1999 entered into between the petitioner, twenty-one creditor banks of the Company and the Company, pursuant to which the banks irrevocably assigned to the petitioner all the banks' rights, title and interest under various loan and other facility documentation entered into between them and the Company, and all amounts due by the Company under such agreements. A statutory demand for the debt was served on 31 January 2002 and the petition was presented on 1 March 2002.

2. At the hearing of the petition, the Company sought an adjournment of four weeks for the Company to explore the possibility of an offer received from a company in Taiwan, Crystal Alliance Limited ("Crystal") on 14 June 2002, to purchase in cash substantially all of the assets that the Company might intend to dispose of. After hearing submissions, I have refused the Company's application for an adjournment and made a winding-up order. These are the reasons for my decision.

3. The Company was incorporated in Bermuda and was registered in Hong Kong under Part XI of the Companies Ordinance, Cap. 32 with its principal place of business in Hong Kong. It has been carrying on the business of the manufacture and sale of steel cans for use in the beverage and food industries in China. The shares of the Company have been listed on the Hong Kong Stock Exchange since June 1994. It is the ultimate holding company of a number of subsidiaries which operate factories in a number of cities in China .

4. The Company went into financial difficulties in 1998 as it was affected by the Asian financial crisis. On 29 March 1999, the HSBC presented a petition to wind up the Company. The petition was adjourned several times for the Company to seek funding from potential investors or a restructuring of its debts. In the end, an agreement was reached to restructure the Company's debts and it was the agreement dated 13 October 1999 entered into between the petitioner, the twenty-one creditor banks and the Company that I have referred to earlier. As a result, the petition presented by the HSBC was dismissed and the petitioner became the Company's largest creditor.

5. Since then, the Company has endeavoured to obtain new funding to support its manufacturing operations, but was able to obtain further facilities except to a very limited extent. It continued to be in default of its repayment obligations in respect of the debts assigned to the petitioner. Eventually, the petitioner came to the view that its negotiations with the Company on reorganising the affairs of the Company and its subsidiaries would not bear fruit and the statutory demand was served on the Company in January 2002.

6. It is not in dispute that the Company is insolvent. In the audited financial statements for the year ended 31 December 2001, the auditors made a disclaimer whether the financial statements gave a true and fair view of the state of affairs of the Company and of the group, because of the significance of the fundamental uncertainty relating to the going concern basis and the limited evidence made available to them in respect of various matters. According to the consolidated balance sheet, the total assets of the group as at 31 December 2000 were approximately HK$549 million. The net current liabilities of the group were HK$678 million and net liabilities were HK$243 million. The balance sheet of the Company revealed assets of HK$33 million, net current liabilities of HK$567 million and net liabilities of HK$534 million. The accumulated losses of the Company as at 31 December 2001 amounted to HK$969 million. I understand that the debt owed to the petitioner represented over 95% of the Company's total debts.

7. The only information I have relating to the offer of Crystal is its letter dated 14 June 2002 to the Company, stating that Crystal is a shareholder on record of the Company and that it is offering to purchase in cash at fair market value substantially all of the assets (i.e. plants, property, equipment, shareholdings in subsidiaries, accounts receivable, intellectual property, etc) which the Company may intend to dispose of. It was further stated that the offer is not subject to any financing contingencies but is subject to confirmatory due diligence and negotiation of an asset purchase agreement and that Crystal is prepared to commit the resources necessary to expedite the transaction. On 19 June 2002, the Company wrote to Crystal asking the latter to make a detailed offering proposal for its further consideration. Crystal replied on 20 June 2002, stating that its officer in charge had to attend to an urgent matter abroad and the detailed proposal would be submitted upon his return on 9 July 2002.

8. On behalf of the Company, it was submitted that notwithstanding the information relating to Crystal's offer was limited at this stage, the Company should be given a chance to explore with Crystal the offer to purchase in cash substantially all of its assets. It was submitted that if this transaction were successful, it would fetch a better price for the assets of the Company as compared to the situation when the assets are to be realized in liquidation.

9. The petitioner opposed the adjournment. It was pointed out that according to the financial statements, the total assets of the group, not just of the Company, were only HK$549 million, less than the amount of the debt in the petition. Even if all or substantially all of the assets of the group are to be realized, that would not be sufficient to pay the petitioner's debt. Further, the petitioner is opposed to any proposal for debt restructuring. Without the support of the petitioner, who is the largest creditor and whose debt represented over 95% of the Company's total indebtedness, any debt restructuring exercise simply cannot get off ground.

10. For the above reasons, I have declined to grant the adjournment sought by the Company. I made an order to wind up the Company and ordered that the petitioner's costs are to be paid out of the Company's assets.