RE JOBS DB HONG KONG LTD

HCMP 2130/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2130 OF 2005

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REASONS  FOR  JUDGMENT

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1.  This is a petition for confirmation of reduction of a share premium account presented by Jobs DB Hong Kong Limited (“the Company”) under sections 48B(1) and 58(1) of the Companies Ordinance, Cap. 32.

2.  The Company was incorporated under its former name on 1 June 1998.  Its present authorised share capital is HK$5 million divided into 5 million ordinary shares of HK$1.00 each, 4,000,001 of which have been issued and are fully paid up.  All but one of the issued shares are now held by the immediate parent company, Jobs DB Inc. (“JDB Inc.”), the remaining share is held in trust for JDB Inc.  Its ultimate parent company is Jobs DB Holdings Limited (“JDB Holdings”).

3.  There is at present standing to the credit of the share premium account the sum of HK$42,971,661.00, which has arisen as a result of various issues of shares by the Company at a premium in 1998 and 2004.

4.  Shortly after its incorporation, the Company commenced and has since continued to carry on business providing Internet based interactive recruitment services.

5.  There is provision in the articles of association for reduction of its share capital, any capital reserve or any share premium account in any manner by special resolution, subject to any incident authorised and consent required by law.

6.  By a special written resolution of all the shareholders of the Company passed on 10 January 2005, it was initially resolved that the share premium account which amounted to HK$42,971,661.00 be cancelled and the entire amount of the credit arising from the share premium account be applied in writing off part of the accumulated losses which amounted to HK$59,884,311.00 as at 31 December 2003.

7.  The Company later earned a net profit of HK$20,498,511.00 for the year ended 31 December 2004, thereby reducing its accumulated losses to HK$39,385,800.00.  A special written resolution of all the shareholders was then passed on 24 August 2005, by which it was resolved that the special resolution passed on 10 January 2005 be rescinded in its entirety and that the share premium account which amounted to HK$42,971,661.00 be reduced by the amount of HK$37,047,162.00 and the amount arising from the share premium reduction be applied in writing off part of the accumulated losses of the Company which amounted to HK$39,385,800.00 as at 31 December 2004.

8.  The proposed share premium reduction 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 or of any sum standing to the credit of the share premium account.

9.  The purpose of the share premium reduction is to enable the credit amount arising therefrom to be applied in writing off part of the accumulated losses of the Company, so as to bring forward the time when the Company may be in a position to pay dividends to its members.

10.  The Company has accumulated losses due to the fact that its expenditure (mainly staff salaries, marketing, depreciation and other operating expenses) has exceeded its income and the resulting deficit has been charged to the Company’s profit and loss account in each relevant period.  Until 31 December 2003, the Company has been unable to earn sufficient income from subscription paid by employers advertising job vacancies on the Company’s web site to meet its various operating costs.  The parent companies had advanced monies to the Company to finance its activity and operations in Hong Kong and the operation of the associated companies of the Company outside Hong Kong.  The premium arising from the allotment of 1 share of par value of HK$1.00 at a consideration of HK$39,971,662.00 to JDB Inc.  on 13 December 2004 was in effect to capitalise the debts owed by the Company to JDB Holdings and JDB Inc. and thereby to facilitate the subsequent proposed cancellation of the share premium account.

11.  In the supporting affirmation of the Group Finance Manager, he has provided a spreadsheet showing the income and expenditure of the Company for the accounting years ended 31 December 1998 to 31 December 2003, a narrative itemising the accumulated income and expenditure for the Company for the period since incorporation to the year ended 31 December 2003, an updated profit and loss account and details of the Company for the year ended 31 December 2004, and a reconciliation of permanent and non-permanent losses as at 31 December 2003 and 31 December 2004.

12.  Of the accumulated losses as at 31 December 2003, HK$49,450,533.00 related to losses that the directors have regarded as irrevocable.  The balance, HK$10,433,778.00, related to losses (comprising provisions for long service payments, provision for doubtful debts, provision for intercompany advances, and the net unrealised exchange rate losses on those advances) that the directors would regard as recoverable.

13.  Of the accumulated losses as at 31 December 2004, HK$37,047,162.00 related to losses that the directors have regarded as irrevocable.  The balance of HK$2,338,638.00, comprising the same four items as in the accumulated losses as at 31 December 2003, related to recoverable losses.  The movement in permanent losses from year 2003 to year 2004 reflected the improvement in the financial position of the Company.

14.  The directors only intend to write off that part of the accumulated losses to the extent they are regarded as irrevocable.  Hence, the resolution passed subsequently on 24 August 2005 was to reduce the share premium account by HK$37,047,162.00, so as to write off the accumulated losses as at 31 December 2004 to the extent that they are irrevocable.

15.  I am satisfied that the losses which the directors have regarded as irrevocable are rightly so regarded and that there would appear to be no prospect of recovery for these losses.  I have not required the Company to give any undertaking for the protection of creditors in the circumstances, as only the losses that are permanent in nature would be set off against the credit arising out of the reduction of the share premium account.

16.  I made an order dispensing with the settlement of a list of creditors on 6 December 2005.  The directions given for advertisement of the notice of presentation of the petition have been complied with.

17.  The legal principles upon which the court will sanction a reduction of the share premium account are similar in all respects to those upon which the court will sanction the reduction of the share capital (Re Ratners Group plc (1988) 4 BCC 293 at 295).

18.  The proposed reduction of the share premium account is for a discernible purpose and I am satisfied the interests of the creditors are safeguarded.  I have therefore sanctioned the reduction and made an order in terms of the draft submitted.  As the reduction involves only the share premium account, it is not required to register a minute of reduction in this instance (Re Lippo China Resources Ltd. [1998] 1 HKC 161 at 169D).