RE ASIAN INFORMATION TECHNOLOGY INC. LTD

HCMP 3035/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3035 OF 2004

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REASONS   FOR   JUDGMENT

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1.  This is a petition for confirmation of reduction of capital brought by Asian Information Technology Inc. Limited (“the Company”).

2.  The Company was incorporated on 7 January 1998, with an authorised share capital of HK$10,000.00 divided into 10,000 shares of HK$1.00 each. As at present, the authorised share capital of the Company is HK$18,134,909.00, divided into 18,134,909 shares of HK$1.00 each, all of which were issued and paid up in full in cash. Fame Hall International Company Limited (“Fame Hall”) holds all but one of the issued shares, the remaining share is held by Jaw Shih Wei, a director of the Company. The ultimate holding company is Asian Information Technology Inc., which is incorporated in the Republic of China. The Company is principally engaged in the trading of computer parts.

3.  There is provision in the Articles of Association for reduction of capital by special resolution.

4.  On 18 November 2004, the Company passed a special resolution in accordance with section 116B of the Companies Ordinance, Cap. 32, to reduce its share capital from HK$18,134,909.00 to HK$10,819,344.00, divided into 10,819,344 shares of HK$1.00 each; the reduction is to be effected by cancellation of paid-up share capital which is lost in the amount of HK$7,315,565.00, without reducing liability on its shares and all the cancelled 7,315,565 shares were issued to and registered under the name of Fame Hall.

5.  According to the audited financial statements of the Company for the year ended 31 December 2003, there was an accumulated deficit in the profit and loss account in the sum of US$937,893.00, which was equiv to HK$7,315,565.00.

6.  The proposed reduction of capital 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.

7.  The proposed reduction of capital is to enable the Company to write off the accumulated losses, so that the ultimate holding company can report the accumulated losses as an investment loss for the purpose of tax deduction in Taiwan.

8.  According to an affirmation made by the Company’s solicitor, the accumulated losses of the Company were in the nature of trading losses accumulated throughout the years since the economic downturn in 1998. He provided a breakdown of the nature and amount of the losses of the Company since incorporation in 1998 to 2003, taken from a one-page internal record of the Company. Notwithstanding that the accounts of the Company had been audited in Hong Kong and Taiwan, the Company has not able to locate and retrieve relevant supporting documents regarding its losses, other than giving a breakdown of accumulated losses from the one-page record.

9.  In recognition that the Company may not be able to adduce sufficient evidence to satisfy the court that the accumulated losses sought to be written off, or all of the accumulated losses, are losses of a permanent nature, the Company is willing to give an undertaking to set apart a separate capital reserve in the sum equivalent to the amount by which capital is proposed to be reduced out of any recovery by the Company in future, not to distribute or part with any part of the sum without leave of the court, and to report such undertaking in the audited financial statements of the Company.

10.  I accepted the undertaking offered by the Company and at the hearing of the summons for directions on 6 January 2005, I ordered that the settlement of a list of creditors be dispensed with.

11.  On the hearing of the petition, I confirmed the reduction of capital sought by the Company. The reduction is for a discernible purpose, there is sufficient protection for the creditors of the Company, and all procedural requirements have been met.