IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO. 3035 OF 2004
Before: Hon Kwan J in Court
Date of Hearing: 24 January 2005
Date of Judgment: 24 January 2005
Date of Handing Down of Reasons for Judgment: 25 January 2005
REASONS FOR JUDGMENT
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$1.00each. 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 oneof the issued shares, the remaining share is held by Jaw Shih Wei, a director of the Company. The ultimate holding company is AsianInformation Technology Inc., which is incorporated in the Republic of China. The Company is principally engaged in the trading ofcomputer 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, withoutreducing 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 deficitin 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 paymentto 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 companycan 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 tradinglosses accumulated throughout the years since the economic downturn in 1998. He provided a breakdown of the nature and amount ofthe losses of the Company since incorporation in 1998 to 2003, taken from a one-page internal record of the Company. Notwithstandingthat the accounts of the Company had been audited in Hong Kong and Taiwan, the Company has not able to locate and retrieve relevantsupporting 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 soughtto be written off, or all of the accumulated losses, are losses of a permanent nature, the Company is willing to give an undertakingto set apart a separate capital reserve in the sum equivalent to the amount by which capital is proposed to be reduced out of anyrecovery by the Company in future, not to distribute or part with any part of the sum without leave of the court, and to report suchundertaking 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 orderedthat 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.
Miss Connie Law, instructed by Messrs. David Ravencroft & Co., for the Petitioner