RE KEE WAI INVESTMENT CO. LTD.

HCMP 4045/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4045 OF 2002

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REASONS FOR JUDGMENT

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1. I have before me a petition seeking the sanction of the court to a scheme of arrangement ("the Scheme") between Kee Wai Investment Co Ltd ("the Company") and its shareholders, under section 166 of the Companies Ordinance, Cap. 32 and the confirmation of the proposed reduction of capital of the Company involved in the Scheme, under sections 59 and 60 of Cap. 32. At the conclusion of the hearing, I made an order giving sanction to the Scheme and confirming the proposed reduction of capital. These are the reasons for my judgment.

2. The Company was incorporated in Hong Kong on 13 June 1962. Its principal activities are investment holding and property investment. The present authorised capital is HK$10 million divided into 100,000 shares of HK$100.00 each, of which 57,000 shares are in issue and are fully paid.

3. Kee Wai Investment Company (BVI) Limited ("KWIC (BVI)") was incorporated in the British Virgin Islands on 15 October 2002 for the purpose of, inter alia, becoming the holding company of the Company. The authorised share capital of KWIC (BVI) is HK$100,000.00 divided into 100,000 shares of HK$1.00 each, 57,000 of which have been issued fully paid and are beneficially owned by the Company.

4. The primary purpose of the Scheme is to implement a group reorganisation whereby the Company will become a wholly owned subsidiary of KWIC (BVI) and the shareholders of the Company will become shareholders of KWIC (BVI). In view of the international nature of the bulk of the Company's assets, and to pave way for making further investments overseas if and when good opportunities arise, the directors consider it would be beneficial to establish a new overseas holding company for the Company.

5. Briefly, the Scheme involves the following steps:

(1) the reduction of the share capital of the Company by cancelling and extinguishing all of its issued shares;

(2) the increase of the authorised share capital of the Company to its former amount of HK$10 million by the creation of such number of new shares of HK$100.00 each of the Company as is equal to the number of the cancelled shares;

(3) the allotment and issue by the Company of the new shares created as aforesaid, credited as fully paid, to KWIC (BVI) or its nominees; and

(4) the allotment and issue by KWIC (BVI) of the new shares of HK$1.00 each, credited as fully paid, to the former holders of the shares of the Company cancelled as aforesaid in the proportion of one share of HK$1.00 each of KWIC (BVI) for every one share of HK$100.00 each of the Company held by such holders.

6. The new KWIC (BVI) shares so issued to the shareholders of the Company will rank pari passu in all respects.

7. On 5 November 2002, I made an order for a court meeting of the shareholders to be convened for the purpose of considering, and if thought fit, approving the Scheme and gave directions for the advertisement of the notice convening the meeting and service of the notice and the composite document containing the Scheme with the explanatory statement. The court meeting duly took place on 29 November 2002. All the six shareholders entitled to vote attended in person or by proxy and voted unanimously to approve the Scheme without modification.

8. An extraordinary general meeting of the Company was also held on 29 November 2002. Under article 38 of Table A to the First Schedule to the Companies Ordinance in force at the date of incorporation of the Company, which is adopted by the Company, the Company may by special resolution reduce its share capital in any manner allowed by law. By a special resolution passed at the extraordinary general meeting, it was resolved as follows:

(1) the Scheme is to be approved;

(2) for the purpose of giving effect to the Scheme,

(i) the share capital of the Company is to be reduced by cancelling and extinguishing the 57,000 shares of the Company in issue ("the Scheme shares") in that the capital is to be reduced from HK$10 million to HK$4,300,000.00, divided into 43,000 shares of HK$100.00 each (none of which has been issued);

(ii) subject to and upon such reduction of capital taking effect, the authorised share capital of the Company is to be increased to its former amount of HK$10 million by the creation of such number of new shares of HK$100.00 each as is equal to the number of the Scheme shares cancelled; and

(iii) on the date upon which the Scheme becomes effective, the Company shall apply the amount of the credit arising in its books of account as a result of the reduction of capital in paying up in full at par the new shares of HK$100.00 each to be created as aforesaid, which shares shall be allotted and issued, credited as fully paid, to KWIC (BVI) or to its nominees, and the directors of the Company are to be unconditionally authorised to allot and issue the same accordingly.

9. The purpose of the proposed reduction of capital does not involve either the diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital. The business, underlying assets and management of the Company and its subsidiaries after the implementation of the Scheme will remain as at present. The implementation of the Scheme will not, of itself, alter the underlying assets or financial position of the group, other than as a result of the payment of expenses relating to the Scheme. As none of the creditors of the Company will be prejudiced by the proposed reduction of capital, I gave directions on 10 December 2002 that the settlement of a list of creditors of the Company is to be dispensed with, under section 59(2) of Cap. 32. I also gave directions for the notice of the hearing of the petition to be advertised.

10. There is only one class of shareholders here. The directions for the advertisement of the notice of the court meeting and service of the notice and the Scheme documents on the shareholders have been fully complied with. The shareholders have been given an adequate explanation of the Scheme and its effect in the letter from the Chairman in the Scheme document, to enable them to make a reasonable judgment how to vote at the meeting. The Scheme was passed unanimously at the meeting duly convened.

11. I am satisfied that the requirements under sections 166 and 166A have been complied with for the court to exercise its power to sanction the Scheme. I am also satisfied that the Scheme is one that an intelligent and honest person, being a member of the class concerned and acting in respect of his interest, might reasonably approve.

12. I turn to consider the requirements that must be satisfied for the court to confirm a reduction of capital. The proposed reduction affects all the shareholders in the same way so the requirement that the shareholders be treated equitably is clearly satisfied. The proposals for reduction of capital have been properly explained to the shareholders in the letter from the Chairman that I have mentioned. I am satisfied that the creditors of the Company will not be prejudiced by the proposed reduction, which is to give effect to the Scheme and there is a discernible purpose for the reduction.

13. For the above reasons, I have made an order sanctioning the Scheme as per the draft submitted, on the undertaking by KWIC (BVI) to be bound by the Scheme and to execute all such documents and to do all such acts and things as may be necessary or desirable to give effect to the Scheme. I have also made an order confirming the reduction of capital to give effect to the Scheme and approved the minute as annexed to the draft order, with consequential directions regarding the registration and advertisement of the notice of registration of this order.