RE DICKSON GROUP HOLDINGS LTD (In Liquidation)

HCMP 357/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 357 OF 2008

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(Heard together)

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REASONS  FOR  JUDGMENT

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1.  I have before me two applications.  The first is a petition of Dickson Group Holdings Limited (in liquidation) (“the Company”) under section 166 of the Companies Ordinance, Cap. 32.  The Company seeks sanction to a scheme of arrangement (“the Scheme”) duly approved at the Scheme meeting ordered by the court and held on 23 April 2008.  The other application is for a stay of the winding-up proceedings of the Company in HCCW No. 333 of 2006 permanently.

2.  The Company was incorporated in the Cayman Islands on 10 September 1990 and its domicile was changed to Bermuda on 11 February 2004.  It was registered as an overseas company under Part XI of Cap. 32 and its shares have been listed on the Main Board of The Stock Exchange of Hong Kong Limited (“HKEx”) since 1993.  Trading in its shares has been suspended since 30 December 2005.

3.  The principal activity of the Company is investment holding.  It held 30 companies directly and indirectly.  The Company through its subsidiaries was principally engaged in building construction and maintenance industry.

4.  A winding-up petition was presented against the Company by a creditor on 30 June 2006.  It was ordered to be wound up on 18 December 2006.  The liquidators were appointed by the court on 29 May 2007.

5.  On 7 June 2007, HKEx announced that the Company was to be put into the third and final stage of delisting procedures.  Unless a viable resumption proposal was to be submitted by 6 December 2007, the listing of the Company would be cancelled.

6.  The Company’s listing status is its major intangible asset.  The liquidators formed the view that the most effective way to maximise recovery for the creditors was to find an investor who would be prepared to put forward a rescue proposal under which it would acquire a controlling interest in the Company and offer a return to the creditors in exchange for the discharge and release of their claims against the Company.

7.  On 30 August 2007, an independent third party investor (“the Investor”) put forward a restructuring proposal.  This was accepted by the liquidators and received in principle support from the committee of inspection.  The restructuring agreements were entered into on various dates in November 2007, January and February 2008.

8.  On 21 November 2007 and 18 February 2008, the Company through its financial adviser submitted a resumption proposal and supplementary information to HKEx.  By a letter dated 22 February 2008, HKEx granted in principle approval to the resumption proposal and allowed the Company to proceed subject to the fulfilment of certain conditions within six months from the date of the letter or such extended period as may be granted.  One of the conditions is to obtain approval for the Scheme from the shareholders, creditors and the courts of Hong Kong and Bermuda. 

9.  The restructuring proposal and the restructuring agreements, if successfully implemented, will result in the following:

(1) a restructuring of the share capital of the Company through the increase in the authorised share capital, the issuance of new shares in the Company to be subscribed by the Investor (“the Subscription Shares”), the issuance of new shares to independent third parties for the maintenance of public float of the Company, and issuance of convertible notes to be subscribed by the Investor, all of which will give rise to the increase of working capital in the maximum amount of about HK$384.8 million;

(2) all the Scheme creditors discharging and waiving their claims under the Scheme by payment of the Scheme funds;

(3) the Scheme assets will be transferred to a new company (“Newco”) incorporated in Hong Kong and controlled by the Scheme administrators for a nominal consideration for the benefit of the creditors; and

(4) the resumption of trading of the shares of the Company upon completion of the proposed restructuring subject to the restoration of sufficient public float of the Company.

10.  The major terms of the restructuring proposal are as follows:

(1) The authorised share capital of the Company will be increased to HK$1,000,000,000.00 divided into 20,000,000,000 shares of HK$0.05 each.

(2) The Investor will subscribe for the Subscription Shares at par value of HK$0.05 per share at the total consideration of HK$300 million.

(3) The Investor will subscribe for convertible notes in the amount of not more than HK$225 million (if required by the Company) at the conversion price.

(4) The Investor intends to continue the business of Dickson Construction Engineering (Guangdong) Limited and has agreed to provide interim advances of up to HK$40 million to it.

(5) The Company will allot and issue new shares to independent third parties not connected with the Company and its connected person to maintain the public float of the Company.

11.  The Scheme comprises inter alia these major terms:

(1) HK$75 million out of the subscription monies paid by the Investor for the subscription of the Subscription Shares will be transferred to an account designated the Scheme trust account to satisfy the admitted preferential claims, petition costs and scheme costs, with the remaining proceeds to be distributed to creditors with admitted non-preferential claims on a pro-rata basis.

(2) The Scheme assets will be transferred to Newco and the Scheme administrators will try to realise them.  Any net recoveries will be distributed to the creditors as further dividends.

(3) The Scheme shall become effective and binding on the Company and the creditors after these conditions have been fulfilled:

(a)    over 50% in number representing not less than 75% in value of the creditors with non-preferential claims present and voting in person or by proxy at the Scheme meeting, have voted in favour of the Scheme;

(b)   the Scheme has received court sanction;

(c)   the conditions precedent under the restructuring agreements have been fulfilled; and

(d)   trading in the shares of the Company is resumed.

(4) From the effective date of the Scheme, each of the creditors discharges and waives all its claims for the right to participate with each of the other creditors in the distribution of the Scheme funds pursuant to the terms of the Scheme.

12.  Provisions are made in the Scheme for the procedure of filing of notices of claim by the creditors, and the examination and determination of claims by the Scheme administrators and adjudicators.

13.  As at the latest practicable date prior to the printing of the Scheme document, the total asset of the Company was about HK$0.35 million.  The amount of the proofs of debt as at the date of the Scheme meeting was over HK$810 million.  The liquidators were of the view that the distribution to the creditors would be uncertain if the liquidation was to be continued without implementing the restructuring proposal.

14.  In a liquidation scenario, the estimated recovery for unsecured creditors is approximately 4 cents in a dollar, subject to the costs of liquidation and verification of the assets and liabilities of the subsidiaries of the Company.  Under the Scheme, this will represent an estimated return to the Scheme creditors in relation to the Scheme assets.  In addition, the cash amount of HK$75 million after the full settlement of the admitted preferential claims will be distributed to the Scheme creditors in respect of their admitted non-preferential claims, and the estimated return is about 10 cents in a dollar, subject to costs.

15.  By an order made by Reyes J on 11 March 2008, leave was given to the Company to convene a meeting of the creditors for the purpose of considering, and if thought fit, approving, with or without modification, the Scheme.  The Scheme document has been served in the manner as directed by the court on the creditors and advertisements regarding the Scheme meeting have been duly published.

16.  The Scheme meeting on 23 April 2008 was attended by 24 creditors in person or by proxy with total claims of HK$768 million odd.  It was unanimously resolved that the Scheme be approved.

17.  There is only a single class of creditors for the purpose of the Scheme.  They are creditors with the benefit of a claim against the Company other than preferential creditors and secured creditors to the extent of the agreed value of their security interest, or upon realisation, the net proceeds of the realisation of their security interests.  Preferential claims admitted under adjudication will be paid in full out of the Scheme funds.  I am satisfied that the class of creditors was properly constituted.

18.  The directions given by Reyes J regarding the convening of the Scheme meeting have been properly complied with.  A proper explanation of the effects of the Scheme has been given in the explanatory statement served on the creditors, as required under section 166A.  The creditors were given sufficient information to enable them to make an informed judgment how they should vote at the Scheme meeting.  The requisite majority of creditors, being a simple majority in number representing 75% in value of the creditors present and voting at the meeting had voted in favour of the Scheme.

19.  I am satisfied that the Scheme is one which, as an intelligent and honest man, a member of the class concerned in acting in respect of his interest might reasonably approve of.  It would be appropriate to sanction the Scheme.  For the above reasons, I have sanctioned the Scheme and made an order as per the draft submitted.

20.  Leave was obtained from the Supreme Court of Bermuda on 2 May 2008 to convene a meeting to consider a parallel scheme of arrangement of the Company to be implemented in Bermuda and the meeting was held on 26 May 2008.  The Bermuda scheme was unanimously approved by all the creditors attending in person or by proxy.

21.  The Scheme has been approved by the creditors and sanctioned by the court and is ready for implementation.  A number of conditions precedent must be satisfied for the Scheme to become effective, one of them is a permanent stay of the winding-up proceedings.  I am given to understand that the conditions precedent relating to the completion of the restructuring agreements will commence almost simultaneously once the permanent stay of the winding-up proceedings is granted.

22.  There are special circumstances and good grounds to grant a permanent stay the effect of which is to bring the winding-up proceedings to an end.  The liquidators have considered the conduct of the directors and officers of the Company.  No matters have been reported to the Official Receiver requiring either prosecution or disqualification proceedings.  There is no objection from the Official Receiver on the ground that the affairs of the Company would require investigation.

23.  I grant a permanent stay of the winding-up proceedings on the condition that the Scheme administrators should confirm that the restructuring is complete and that the Scheme is effective, save as to the requirement for there to be a permanent stay.  The Official Receiver’s costs incurred in the winding-up proceedings, to be taxed if not agreed, would be paid out of the assets of the Company.