RE CHEUNG KONG (HOLDINGS) LTD

HCMP 93/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 93 OF 2015

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REASONS FOR DECISION
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Introduction

1.  The “new” Companies Ordinance, Cap. 622 (“Ordinance”) is the product of a comprehensive exercise, launched by the Administration in mid-2006, to re-write the “old” Companies Ordinance, Cap 32 (“Predecessor Ordinance”). It was passed by the Legislative Council on 12 July 2012. On 3 March 2014, the Ordinance came into operation pursuant to the Companies Ordinance (Commencement Notice) 2013: LN 163 of 2013.

2.  There is before this court an application by Cheung Kong (Holdings) Limited (“Company”) by petition dated 27 February 2015 (“Petition”) for (i) sanction under Section 673 of the Ordinance of a Scheme of Arrangement dated 6 February 2015 (“Scheme”) between the Company and holders of its ordinary shares and (ii) confirmation under section 229 of the Ordinance of the reduction of the Company’s share capital as provided for in the Scheme (“Reduction of Capital”).

3.  On 17 March 2015, this court sanctioned the Scheme and confirmed the Reduction of Capital. As the Scheme is the first one known to Leading Counsel to have been sanctioned under the Ordinance, this court indicated that it would hand down its Reasons for Decision which I hereby do.

Overview

4.  The Company was incorporated in Hong Kong on 8 June 1971.  Until close of trading on 10 March 2015, it was listed on The Stock Exchange of Hong Kong Limited (“Stock Exchange”) and had been so listed for about forty three years. The principal business of the Company and its subsidiaries (“Group”) consists of property development and investment, operation of hotels and serviced suites, property and project management, investment in infrastructure businesses and securities and ownership and leasing of movable assets.  The Group also has a 49.97% shareholding interest in Hutchison Whampoa Limited (“Hutchison”), another company listed on the Stock Exchange. The issued and paid up capital of the Company is approximately HK$10.49 billion. A total of 2,316,164,338 ordinary shares have been issued all of which are fully paid or credited as having been fully paid.

5.  The gist of the Scheme is the interposition of an exempted company newly incorporated with limited liability in the Cayman Islands viz CK Hutchison Holdings Limited (“CKH Holdings”) as the new holding company of the Group. Accordingly, the Company and its existing subsidiaries will become subsidiaries of CKH Holdings. Existing shareholders of the Company, including overseas shareholders but excluding “Non-Qualifying Overseas Shareholders” as defined in the Scheme, will receive, by way of allotment[1], one share in CKH Holdings in exchange for every share in the Company held at Record Time and become shareholders of CKH Holdings thereafter. 

6.  The reason why Non-Qualifying Overseas Shareholders are excluded is provided in paragraph 15 of the Explanatory Statement in the Scheme Document. In short, if the law of any relevant overseas jurisdiction precludes an offer of CKH Holdings shares, or precludes it except after compliance by CKH Holdings with conditions with which it is unable to comply or which it regards as unduly onerous, no CKH Holdings shares will be issued to the Non-Qualifying Overseas Shareholders. Instead, the CKH Holdings shares, which would otherwise have been allotted to the relevant Non-Qualifying Overseas Shareholders, will be allotted to a person selected by the Board of CKH Holdings who will sell such shares on the market as soon as reasonably practicable after dealings in the CKH Holdings shares commence on the Stock Exchange. CKH Holdings will then cause the aggregate proceeds of such sale (net of expenses and taxes) to be paid to the relevant Non-Qualifying Overseas Shareholders in Hong Kong dollars in full satisfaction of their rights to the relevant CKH Holdings shares.

7.  The other principal features of the Scheme are:

(1) the share capital of the Company will be reduced by canceling and extinguishing all the shares in issue as at the Record Time;

(2) subject to and immediately upon such reduction of capital taking effect, the share capital of the Company will be increased to its former amount by the creation of such number of new shares as is equal to the number of shares cancelled;

(3) the Company will apply all credit arising in its books of account as a result of such capital reduction in paying up the newly created shares which will be allotted and issued, credited as fully paid, to CKH Holdings.

8.  Implementation of the Scheme will not, save for the change of the place of incorporation of the holding company of the Group from the Company to CKH Holdings, affect inter alia the financial position or business of the Group. 

Prior Proceedings, The Court Meeting and the General Meeting

9.  On 3 February 2015, this court ordered that the Company be at liberty to convene a meeting (“Court Meeting”) in Hong Kong of the holders of ordinary shares for the purpose of considering and, if thought fit, approving the Scheme.

10.  Pursuant to the said Order, the Company convened the Court Meeting on 25 February 2015 at 9 am at the Ballroom, 1^st Floor, Harbour Grand Kowloon, Hung Hom, Kowloon, Hong Kong. As appears from the chairman’s Report, the relevant votes cast in favour of and against the Scheme were as follows:

 Arithmetically, approximately 99.758% of the voting rights of the shareholders present and voting, in person or by proxy, were cast in favour of the Scheme while the voting rights cast against the Scheme represented less than 0.25% of the total voting rights attached to all the disinterested shares in the Company within the meaning of section 674(3) of the Ordinance. In terms of “Head Count”, approximately 97.99% in number of the shareholders present and voting, in person or by proxy, voted in favour of the Scheme.

11.  On the same day, after the conclusion of the Court Meeting, the Company convened a General Meeting for the purpose of considering a special resolution to approve inter alia the Reduction of Capital. Approximately 99.758% of the voting rights of the shareholders present and voting, in person or by proxy, were cast in favour of the Reduction of Capital. The special resolution was thus duly passed as a special resolution of the Company in accordance with section 564 of the Ordinance.

12.  On 5 March 2015, this court gave further directions for advertising the presentation and the hearing of the Petition. This court also dispensed with the settlement of a list of creditors of the Company, the reason being, in the view of this court, the Reduction of Capital would not involve (i) the diminution of any liability in respect of the unpaid share capital of the Company or (ii) the payment to any shareholder of the paid up share capital of the Company. As the Reduction of Capital would be a technical one lasting only a short period of time, and as it did not appear that any creditors of the Company would be affected by it, it was appropriate to dispense with the need to settle a list of creditors: Re Hong Kong Construction (Holdings) Ltd. [2007] 1 HKLRD 190; Re Wheelock Properties Ltd. [2010] 4 HKLRD 587.

Commercial Purpose of the Scheme

13.  The Scheme is proposed by the Board in order to re-organise the structure of the Group (“Re-organisation”). The Re-organisation, in turn, is part of a larger business plan (“Plan”) jointly announced by the Boards of the Company and Hutchison on 9 January 2015 (“Joint Announcement”).

14.  According to the Joint Announcement, the reorganisation and combination of the businesses of the Group and the Hutchison Group will create two new listed companies:

(1) CKH Holdings, which will take over all the non‑property businesses of both Groups.

(2) CK Property, which will combine the property businesses of both Groups.

15.  Once the Scheme is passed by the Company shareholders and sanctioned by the Court, the following transactions will be proposed for the consideration of the respective shareholders of CKH Holdings and Hutchison and/or the Court.

16.  The Husky Share Exchange. Under the Husky Share Exchange, the Husky Sale Shares Purchaser (an indirect wholly-owned subsidiary of Hutchison) has conditionally agreed to acquire approximately 6.24% of the common shares of Husky Energy Inc. (“Husky”) in issue in exchange for the issue of 84,427,246 new CKH Holdings shares by CKH Holdings, representing a share exchange ratio of 1.376 new CKH Holdings shares for every one Husky share to be acquired. On completion of the Husky Share Exchange, assuming that there are no other changes in the shareholding of Husky, the Hutchison Group will own an aggregate of approximately 40.2% of the Husky shares in issue. 

17.  The Hutchison Proposal. Under the Hutchison Proposal, the CKH Holdings Group will make a conditional share exchange offer to the Hutchison Scheme Shareholders for the cancellation of all the Hutchison Scheme Shares (which will be all the Hutchison shares in issue other than those held by the Group) by way of another scheme of arrangement (“Hutchison Scheme”). Under the Hutchison Scheme, all the Hutchison Scheme Shares will be cancelled and extinguished and the Hutchison Scheme Shareholders (other than Non-Qualifying Hutchison Overseas Shareholders, if any) will receive newly issued CKH Holdings shares at the share exchange ratio of 0.684 of a new CKH Holdings share for every one Hutchison Scheme Share held at the relevant record time.  On completion of the Hutchison Proposal, Hutchison will become a wholly-owned subsidiary of CKH Holdings.

18.  The Spin-off Proposal. Under the Spin-off Proposal, following the completion of the Hutchison Proposal, the Group’s property businesses will be transferred to the CK Property Group, which will at that time be wholly owned by CKH Holdings. CKH Holdings will then distribute CK Property shares in specie to CKH Holdings shareholders (other than Non‑Qualifying CKH Holdings shareholders, if any) as at the relevant record date in the ratio of one CK Property share for every one CKH Holdings share then held.

19.  The adoption of CKH Holdings as the ultimate listed holding company of the Group is said to facilitate the Spin-off Proposal and provide greater flexibility for making distributions to shareholders of CKH Holdings. As stated in the letter from the Board of the Company to shareholders, the Spin-off Proposal, if made by the Company, would utilise a significant portion of the Company’s distributable reserves since under the Companies Ordinance, a Hong Kong company may only make distributions to shareholders out of its profits available for distribution. By contrast, the Cayman Companies Law permits a Cayman Islands company to make distribution out of profits and, subject to a solvency test and any provisions of the company’s memorandum and articles of association, out of the share premium account. The Re-organisation will create a substantial share premium in CKH Holdings which will facilitate the Spin-off Proposal, the payment of dividends and any future corporate exercise involving significant share issues or distribution to CKH Holdings shareholders, without limiting CKH Holdings’ ability to pay ordinary or special dividends in the future.

20.  Upon the Re-organisation, CKH Holdings will control and operate the same assets and businesses as the Company and the listing status of the Company on the Stock Exchange will be withdrawn while CKH Holdings will become listed on the Main Board.   

Sanction of the Scheme

21.  Under the Predecessor Ordinance, the functions of the Court in considering whether to sanction a scheme of arrangement between a company and its members have traditionally been stated to be two-fold:

(1) First, to see that the resolution in support of the scheme was passed by the statutory majority of members at a meeting duly convened and held.

(2) Second, to see whether the scheme is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve.

Re Dorman, Long & Co Ltd. [1934] Ch 635; Re The Hongkong and Shanghai Banking Corporation Ltd. [1991] 2 HKLR 111; Re China Light & Power Company Ltd. [1998] 1 HKLRD 158; Re Hong Kong Construction (Holdings) Ltd. supra.

22.  Provided that the members are acting on sufficient information and with time to consider what they are about, and are acting honestly in considering where their commercial interest lies, the Court would normally be reluctant to refuse sanction of a scheme of arrangement approved by the requisite majority. As Lindley LJ put it in the context of a scheme of arrangement with creditors in Re English, Scottish and Australian Chartered Bank [1893] 3 Ch 385 at 409:

“If the creditors are acting on sufficient information and with time to consider what they are about, and are acting honestly, they are, I apprehend, much better judges of what is to their commercial advantage than the court can be. I do not say it is conclusive, because there might be some blot in a scheme which had passed that had been unobserved and which was pointed out later.” (emphasis added)

23.  Properly understood, that oft-quoted and followed passage does not purport to lay down any “rule” as such – rather, it is a declaration of pragmatism which, in my view, has a lot to commend itself to Courts dealing with applications of this nature. Where the number of shareholders is large and their background diverse, the collective decision of the shareholders as reflected in the result of a court meeting will in many cases be the best practical guide to whether the scheme of arrangement is fair and to their commercial advantage, or not. The Court, however, retains the ultimate discretion to sanction or not sanction the scheme, in accordance with established legal principles, to meet the justice of the individual case.

24.  That passage would, of course, be of little assistance to an applicant for the court’s sanction of a scheme if there is sufficient proof that the majority of a class of members have voted in the way they did because of their interests as shareholders of another class with different rights: Gore-Browne on Companies 45^th Ed. para. 46[27]; Carruth v Imperial Chemical Industries [1937] AC 707 at 769. But the reason why that passage does not assist the applicant in such a situation is not because of anything illogical or false about it, but because the meeting of members to consider the scheme was not properly constituted. The remedy to such a mischief lies in the court’s insistence that the meeting or meetings of members to consider the scheme must be properly constituted - in this regard, it was held by the Court of Final Appeal that persons whose rights were so dissimilar that they could not sensibly consult together with a view to their common interest must be given separate meetings: UDL Argos Engineering & Heavy Industries Co. Ltd. (2001) 4 HKCFAR 358. 

25.  From time to time, Courts have devised variants of and elaborations on the traditional two-tier test in order to meet the exigencies of the applications before them.

26.  In Re China Light & Power Company Ltd. supra at 168, Le Pichon J (as she then was) observed thus:

“….In Re Dorman, Long & Co Ltd[1934] Ch 635 Maugham J held (at p.655) that –

‘It is plain that the duties of the court are two‑fold.  The first is to see that the resolutions are passed by the statutory majority in value and number … at a meeting or meetings duly convened and held.  The other duty is in the nature of a discretionary power …’ ”

He went on to say (at p.657) as follows –

“In my opinion, then, so far as the second duty is concerned what I have to see is whether the proposal is such that an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve.”

(1) Compliance with statutory requirements

As regards the first ground, there appears to be four separate considerations, namely :

(i) the classes of members or creditors must be properly constituted;

(ii) the meetings were duly convened in accordance with the directions given by the court hearing the originating summons;

(iii) members … have been given a sufficient explanation of the Scheme and its effects and sufficient information to enable them to make a reasonable judgment as to how to vote at the meeting; and

(iv) the requisite majority (i.e. a simple majority in number representing three quarters in value of those present and voting in person or by proxy at the meeting) has voted in favour of the Scheme.”

27.  At 170, Le Pichon J continued:

“(2) Overall merits

As regards the second ground, the initial onus is upon the applicant to establish the fairness of the Scheme.”   

28.  In Re PCCW Ltd. [2009] 3 HKC 292, at 305, the Court of Appeal, citing with approval the formulation set out in Buckley on the Companies Act 14^th Ed. p 473, laid down the following three matters which a court must satisfy itself before sanctioning a scheme of arrangement:

(1) All relevant statutory provisions have been complied with.

(2) The class of members was fairly represented by those who attended the court meeting and that the requisite statutory majority were acting bona fide and were not coercing the minority in order to promote interests adverse to those of the class whom they purported to represent.

(3) The scheme of arrangement was such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve.

29.  More recently, in Re Wheelock Properties Limited supra at 590‑1, Harris J further expanded the range of considerations to be taken into account by the Court in deciding whether or not to sanction a scheme of arrangement as follows:

(1) Whether the scheme is for a permissible purpose: In Re Savoy Hotel Ltd [1981] 1 Ch 351; Shaw Brothers (Hong Kong) Limited unrep.; HCMP 67 of 2009; Kwan J (as she then was);17 March 2009; Re PCCW Ltd. supra.

(2) Whether members who are called on to vote as a single class have sufficiently similar legal rights so that they can consult together with a view to their common interest at a single meeting: UDL Argos Engineering & Heavy Industries Co. Ltd. supra.

(3) Whether the meeting was duly convened in accordance with the Court’s directions: Re China Light & Power Co Ltd. supra.

(4) Whether members have been given sufficient information about a scheme so as to enable them to make an informed decision whether or not to support it: Re China Light & Power Co Ltd. supra.

(5) Whether a majority in number representing 75% in value of the members present and voting agree to the arrangement: Re China Light & Power Co Ltd. supra.

(6) The discretionary element of the sanctioning process - in particular, whether the Court is satisfied that the scheme is one that an intelligent and honest man acting in respect of his interests as a member of the class within which he votes, might reasonably approve: Buckley on the Companies Acts14^th Ed. at p 473; Re PCCW Ltd. supra.

30.  In the present case, I would adopt the formulation by Harris J as a convenient “checklist” of the matters that this court should bear in mind in the discharge of its functions in considering whether to sanction the Scheme.

31.  First, I have little doubt that a genuine re-organisation of a company’s structure as part of a larger business initiative is a permissible purpose. In the present case, I am satisfied that the purpose of the Scheme is a permissible one.

32.  Second, there is only one class of shares in the present case so no issue arises as to the correct composition of the class of shareholders for the purpose of the Court Meeting.

33.  Third, the Court Meeting was duly convened in accordance with the Order and directions of this court of 3 February 2015. While the registered correspondence addresses of a number of the Company’s overseas shareholders are no longer valid so that the Scheme Document, including inter alia the Explanatory Statement, notice of meeting and others, sent to each of them by courier service have been returned to the Company, the shareholding and hence voting rights of these overseas shareholders, twenty three in number, are insignificant in the present context and would not have affected the result of the Court Meeting one way or another.

34.  Fourth, from the Scheme Document, the shareholders have been given a detailed and sufficiently clear explanation of the Scheme, its purpose and its effect on their economic and legal interests so as to enable them to make an informed decision whether or not to agree to the Scheme.

35.  Fifth, the requisite statutory majority of shareholders have voted in favour of the Scheme at the Court Meeting.

36.  This is an area where the Ordinance departs from the Predecessor Ordinance in a material way.

37.  Under section 166 of the Predecessor Ordinance, a scheme of arrangement must receive the support of (i) a simple majority in number of shareholders (“Head Count Test”) and (ii) a 75% majority in value of the shareholdings (“75% Test”) before the Court’s sanction can be sought. As explained by Barma J (as he then was) in Re PCCW Ltd supra at [175] – [176], these dual requirements have been in place in respect of schemes of arrangement in the United Kingdom since 1870 and in Hong Kong since at least 1911.

38.  By virtue of section 674(2) of the Ordinance, the Head Count Test in a scheme of arrangement involving a general offer or a takeover offer is replaced by the requirement that the votes cast against the scheme must not exceed 10% of the voting rights attached to all disinterested shares (“Negative 10% Test”). For members’ schemes which do not involve a general offer or a takeover offer, and for creditors’ schemes, the Head Count Test is retained in the Ordinance, but the Court is given a new discretion to dispense with it. This discretion is embodied in the words “unless the Court orders otherwise” in section 674 (1)(c)(ii) and 674(1)(d)(ii) of the Ordinance which precede the Head Count Test.

39.  In other words, for schemes involving a general offer or a takeover offer, the dual requirements consist of the 75% Test and the Negative 10% Test.

40.  Mr Scott SC submits that the Scheme is a takeover offer within the meaning of section 674(2) of the Ordinance so that the Head Count Test is not engaged. Instead, the Negative 10% Test is applicable. I agree.

41.  Firstly, section 674(5)(b) of the Ordinance provides that an offer under which consideration is provided for the cancellation of shares in a company is a takeover offer if:

“(i) it is an offer under which consideration is provided for the cancellation of all the shares, or all the shares of any class, in the company …… and

(ii) the terms of the offer are the same –

(A) where the offer does not relate to shares of different classes, in relation to all the shares to which the offer relates; or

…..” (emphasis added)

42.  Secondly, although the Scheme provides a different form of consideration, ie cash instead of CKH Holdings shares, to Non‑Qualifying Overseas Shareholders, section 674(9) of the Ordinance provides that for the purpose of sub-section 674(5)(b)(ii), even though, in relation to all the shares to which an offer relates, there is a difference in the form of consideration offered, the terms of the offer are regarded as the same in relation to all the shares concerned if:

(1) the law of any relevant overseas jurisdiction precludes an offer of consideration in the form specified or precludes it except after compliance by the offeror with conditions with which it is unable to comply or it regards as unduly onerous;

(2) consideration in another form is offered to a person to whom an offer of consideration in the specified form is so precluded;

(3) the person is able to receive consideration in that other form that is of substantially equivalent value; and

(4) but for the difference in the form of consideration, the terms of the offer would be the same in relation to all the shares concerned.

43.  Construing section 674 as a whole, the rationale behind this dichotomy between “form” and “value” of the consideration offered in a scheme is not hard to discern.

44.  In order to qualify as a “takeover offer” so as to dispense with the Head Count Test, one of the prerequisites is that the terms of the offer in the scheme must be the same in relation to all the shares to which the offer relates. It is however recognised that the law of an overseas jurisdiction may prohibit the offer of consideration in the form specified in the scheme to a shareholder subject to that jurisdiction. It is also recognised that the law of that jurisdiction may impose conditions which the offeror is unable or considers too onerous to satisfy. In that scenario, section 674(9) kicks in and deems the terms of the offer to be the same, as long as the consideration offered to the overseas shareholder is of “substantially equivalent in value” to, albeit different in “form” from, the consideration offered to other shareholders.

45.  To conclude, in the present case, the offer contained in the Scheme provides consideration to shareholders of the Company in return for the cancellation of their shares, it is in relation to all the shares in the Company and, save for the Non-Qualifying Overseas Shareholders, the terms of the offer, including the “form” of the consideration offered, is the same in relation to all the shares in question. With regard to the Non‑Qualifying Overseas Shareholders, the consideration offered to them is of a different “form” but of substantially equivalent in “value”. In these circumstances, section 674(9) applies to deem the terms of the offer to be the same. It follows that the dual requirements of section 674(2)(a) ie the 75% Test and the Negative 10% Test, are satisfied.

46.  For the avoidance of doubt, even if this court errs in its finding that the Scheme involves a “takeover offer”, given the actual voting result at the Court Meeting, this court is satisfied that the dual requirements under section 674(1)(c) ie the Head Count Test and the 75% Test are satisfied.

47.  Sixth, on the overall merits of the Scheme, this court is satisfied that the Scheme is fair and is one that an intelligent and honest man acting bona fide in respect of his interests may reasonably approve.

48.  The Scheme involves a simple like for like replacement of one share in CKH Holdings for one Scheme Share.

49.  With regard to the Non-Qualifying Overseas Shareholders, on the evidence, there are a small number of shareholders with a registered address in California. Under the Corporate Securities Law of 1968 of California, CKH Holdings was required to obtain a “Qualification of the Offer and Sale of Securities”. On 30 January 2015, an  application for the Qualification had been submitted on behalf of CKH Holdings to the California Department of Business Oversight, but no approval was received by the deadline of 5 March 2015. In the absence of such approval, the laws of California preclude an offer of the shares in CKH Holdings to these shareholders rendering them “Non‑Qualifying Overseas Shareholders”. Accordingly, these shareholders will be given cash in lieu of shares in CKH Holdings.

50.  In my view, this arrangement is fair and equitable.

51.  Dealings in CKH Holdings shares on the Stock Exchange have already commenced on 18 March 2015. With the cash alternative, any Non‑Qualifying Overseas Shareholders can purchase in the market the equivalent number of shares in CKH Holdings, if so advised, and at such time as they see fit. In this day and age when trading of stocks via internet platforms is prevalent and inexpensive, I do not see any real prejudice to these shareholders in receiving cash instead of shares under the Scheme.

52.  Under the US Securities Act of 1933, as amended (“Securities Act”), the exchange by the shareholders of their shares in the Company for CKH Holdings shares to be issued pursuant to the Scheme is prohibited in the United States unless such issuance complies with the registration requirements of the Act or is exempted from such requirements.

53.  As indicated in the Scheme Document, the shares in CKH Holdings will not be registered under the Securities Act. Instead, the Company and CKH Holdings intend to rely upon Section 3(a)(10) of the Securities Act which provides an exemption from the registration requirements under specified circumstances. On 18 June 2009, the Staff of the Division of Corporation Finance published a Bulletin which states that issuers may invoke the Section 3(a)(10) exemption if the following conditions inter alia are met:

(1) A court must approve the fairness of the terms and conditions of the exchange.

(2) The reviewing court must find, before approving the transaction, that the terms and conditions of the exchange are fair to those to whom securities will be issued.

(3) The court must hold a hearing before approving the fairness of the terms and conditions of the transaction.

(4) The hearing must be open to everyone to whom securities would be issued in the proposed exchange.

(5) Adequate notice must be given to all those persons.

(6) The reviewing court must be advised before the hearing that the issuer will rely on the Section 3(a)(10) exemption.

54.  As this is a matter of US Federal law, I shall only state for the record that CKH Holdings had, prior to the hearing on 17 March 2015, advised this court that it intended to rely on the Section 3(a)(10) exemption, and the hearing before this court was open to everyone. The position under Hong Kong law, including the fairness of the Scheme and the adequacy of the notice of the hearing, is what I have explained in this Decision.

55.  To conclude, for the above reasons, this court, in the exercise of its power and discretion under section 673 of the Ordinance, approved the Scheme.

Reduction of Capital

56.  As stated earlier, the Reduction of Capital is an integral part of the Scheme.  The reason for the proposed reduction is to give effect to the Scheme. The Reduction of Capital was approved by the necessary special resolution in accordance with section 226 of the Ordinance at the General Meeting held on 25 February 2015.

57.  The Court will sanction a reduction of capital pursuant to section 229 of the Ordinance which has been approved by a special resolution of members if the following requirements are satisfied:

(1) The shareholders are treated equitably.

(2) The reasons for the reduction are properly explained.

(3) The interests of creditors are safeguarded.

(4) The reduction is for a discernible purpose.

Re Lippo China Resources Ltd. [1998] 1 HKLRD 20; Re Hong Kong Construciton (Holdings) Ltd. supra; Re Wheelock Properties Ltd. supra.

58.  In the present case, this court is satisfied that the shareholders of the Company are treated equitably in that they would maintain the same level of shareholding in CKH Holdings as in the Company. Concerning the Non‑Qualifying Overseas Shareholders, they will receive cash in lieu of shares in CKH Holdings, an arrangement which I find to be fair and equitable. The shareholders of the Company have been given an adequate explanation for the Reduction of Capital in the Scheme Document circulated to them.  It does not appear that creditors’ interests would be prejudiced by the technical reduction for a short period of time. Lastly, the reduction is for a discernible purpose, as it is an integral part of the Scheme.

59.  In these circumstances, this court is satisfied it would be appropriate to confirm the Reduction of Capital.