RE TONSHIN HOLDINGS CO LTD

HCMP363/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.363 OF 2005

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REASONS FOR JUDGMENT

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Introduction

1. This is the petition by Tonshin Holdings Company Limited (“the Company”) for confirmation by the court of a proposed reduction of its paid up capital from HK$9,500,000.00 to HK$5,035,000.00 pursuant to section 58(1) of the Companies Ordinance.

2. On 8 April 2005, I allowed the petition.  These are my reasons.

The proposed reduction

3. The Company is a wholly owned subsidiary of CLP International Pte Ltd (“CLP”).  Its share capital is HK$9,500,000.00 divided into 9,500,000 shares of HK$1.00 each.  They have all been issue and fully paid up.  All but one share are registered in the name of CLP.  The remaining share is held by Lim Khoon Aik, a director of the Company, in trust for CLP.

4. The Company wishes to reduce its share capital to HK$5,035,000.00 with 9,500,000 shares of HK$0.53 each.  That would be achieved by cancelling the paid up capital to the extent of HK$4,464,000.00 upon each of the 9,500,000 shares and reducing their nominal value to HK$0.53.

Procedural requirements

5. The Company has to first satisfy the court that all the procedural requirements laid down in section 58(1) have been complied with.  In short, the proposed reduction of share capital is authorized by the Company’s articles of association.  And a special resolution to that effect has been passed.

6. Article 41 of its Articles of Association authorizes the Company to reduce its share capital by special resolution in any manner allowed by law.  A notice dated 17 January 2005 to convene an EGM for the purpose of passing a special resolution to reduce the share capital in the manner described above was given to all members.  The EGM was then duly convened on 26 January 2005 and the special resolution was unanimously passed.

7. I am satisfied that the procedural requirements have been complied with.

Proper case to exercise discretion

8. The Company next needs to satisfy the court that it is a proper case to exercise the discretion to confirm the proposed reduction.

9. There are four criteria :

1.	the shareholders of the Company are treated equitably;
2.	the reduction proposal is properly explained to the shareholders at the general meeting so that they could exercise an informed judgment;
3.	the creditors are safeguarded; and
4.	the reduction should be for a discernable purpose.

See Re Cheuk Ngan Technologies (Holdings) Ltd [2001] 4 HKC 571.

10. On the materials before me, the first two criteria are all met.

11. As to creditors’ interest, the position is this.  The proposed reduction causes no diminution in liability for unpaid capital.  For all the shares are fully paid up.  Thus the reduction does not involve any return to any shareholder of paid-up capital.  Further, according to its balance sheet for the year ended 31 March 2004, the Company had current liabilities up to the extent of HK$44,317.00 consisting of a loan of HK$25,335.00 due to a fellow subsidiary and HK$18,982.00, being accrued operating and administrative expenses.  Both sums have already been settled by another fellow subsidiary.  I am therefore satisfied that the 3^rd criterion is also met.

12. On the last criterion, the reduction is necessitated by the accumulated losses which the Company has suffered.  Such losses are unrecoverable operating and administrative expenses and losses arising from the disposal of the Company’s interest in its associated companies and other equities.  They have now become permanent.  It is trite law that in circumstance such as the present, writing off permanent losses by reducing the capital so as to facilitate the raising of working capital is a discernable purpose.  Thus I am also satisfied that the 4^th criterion is also met.

Conclusion

13. For the above reasons, I allowed the petition.