Companies Winding-up Proceedings2003

RE FUJIAN GROUP LTD

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25590-EN-2003-12-10

RE FUJIAN GROUP LTD

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HCCW000068A/2003

HCMP 4692/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4692 OF 2003

____________

IN THE MATTER of FUJIAN GROUP LIMITED (PROVISIONAL LIQUIDATORS APPOINTED)

AND

IN THE MATTER of Section 166 of the Companies Ordinance (Cap. 32)

____________

AND

HCMP 5166/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5166 OF 2003

____________

IN THE MATTER of FUJIAN GROUP LIMITED (PROVISIONAL LIQUIDATORS APPOINTED)

AND

IN THE MATTER of Section 59 of the Companies Ordinance (Cap. 32)

____________

AND

HCCW 68/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 68 OF 2003

____________

IN THE MATTER of FUJIAN GROUP LIMITED (PROVISIONAL LIQUIDATORS APPOINTED)

AND

IN THE MATTER of the Companies Ordinance (Cap. 32) of the Laws of Hong Kong

____________

(Heard Together)

Coram: Hon Kwan J in Court

Date of Hearing: 10 December 2003

Date of Judgment: 10 December 2003

Date of Handing Down of Reasons for Judgment: 12 December 2003

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REASONS FOR JUDGMENT

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1. I have before me a petition to seek the sanction of the court to a scheme of arrangement under section 166 of the Companies Ordinance, Cap. 32, a petition to seek the confirmation of a proposed reduction of capital under section 58, and an application in HCCW No. 68 of 2003 for an order that the petition to wind up the company concerned, Fujian Group Limited ("the Company"), be dismissed conditional upon the completion of the scheme of arrangement. I have granted the reliefs sought at the conclusion of the hearing and these are the reasons for judgment.

The Company

2. The Company was incorporated in Hong Kong on 20 June 1958. Its name was changed to its present name on 17 July 1998. The shares of the Company were listed on the Hong Kong Stock Exchange Limited on 22 February 1973. Trading in the shares was suspended on 16 February 2001 and has remained suspended.

3. The Company has been carrying on business as a holding company. The main business operations of the company and its subsidiaries (collectively "the Group") comprise a hotel operation in Xiamen, investment in property and the holding of other investments.

4. The present authorised share capital of the Company is HK$500 million divided into 4 billion ordinary shares at a par value of HK$0.125, of which 1,074,328,367 have been issued and are fully paid up and the remainder are unissued.

5. Provisional liquidators were appointed for the Company by the court on 15 January 2003 to facilitate a restructuring proposal (Re Fujian Group Ltd. [2003] 1 HKC 659), by which time the Company was in the last stages of the delisting process of the Stock Exchange.

6. A review by the provisional liquidators of the Company's financial affairs indicated that the Company's only material realizable unsecured assets are the listed status of its shares and its interest, through subsidiaries, in a hotel business in Xiamen. It was apparent to the provisional liquidators that the best way to maximize recoveries for creditors of the Company was to find an investor who would be prepared to put forward a rescue proposal under which it would acquire a controlling interest and offer a return to creditors in return for the creditors discharging and releasing their claims against the Company. Any such investor would require the listed status of the Company to be retained.

The restructuring agreement

7. On 25 April 2003, a restructuring agreement was entered into between the Company, the provisional liquidators, Sino Earn Holdings Limited ("Sino Earn"), Jian Xing Finance Limited ("Jian Xing"), HC Technology Capital Company Limited ("the Investor") and the escrow agent to implement the proposal to restructure the Company that had been submitted to the Stock Exchange on 20 January 2003. Sino Earn owns beneficially 32% of the issued shares of the Company and is a secured creditor. Jian Xing is also a secured creditor. Sino Earn and Jian Xing together have security over most of the assets of the Group.

8. The restructuring involves, among other things, the capital restructuring, the debt restructuring, the subscription for new shares, and the loan capitalization.

Capital restructuring

9. Under the proposed capital restructuring, the Company's share capital will be restructured by way of the capital reduction and the unissued share subdivision as follows:

(1) The nominal value of the issued shares will be reduced from HK$0.125 to HK$0.0125 each. The entire credit balance arising from the capital reduction shall be applied to reduce part of the accumulated losses of the Company, which amounted to around HK$1,161.4 million as at 31 March 2003.
(2) Each of the unissued shares of HK$0.125 each will be subdivided into 10 unissued shares of HK$0.0125 each.

Debt restructuring

10. As at 31 March 2003, the Company had audited unsecured indebtedness of around HK$489.7 million and secured indebtedness of around HK$236.3 million. As at 31 August 2003, the Company had unaudited unsecured indebtedness of around HK$501.8 million and secured indebtedness of around HK$245.6 million. The outstanding liabilities of the Company are to be restructured in the following manner:

(1) Sino Earn and Jian Xing, being the secured creditors of the Company (the provisional liquidators are not aware of any other secured creditors apart from these two), have agreed to discharge all their claims and release all security, save as excepted, in consideration of (i) the allotment of new shares to them resulting in 16.4% and 3.4% respectively in the shareholdings in the Company as restructured; and (ii) the payment by the Company to Sino Earn of an amount that equals 3% of the rental arrears (estimated to be HK$7,335.00 if the closing date is in January 2004). They will not participate in the scheme of arrangement to be made between the Company and the scheme creditors (i.e. creditors other than the Investor, Sino Earn, Jian Xing, preferential creditors, and secured creditors to the extent of an amount equal to the agreed value of, and upon realization, the net proceeds of realization of a security interest).
(2) The Company and the scheme creditors will enter into a scheme of arrangement under which the scheme creditors will compromise all their claims against the Company in consideration of a cash payment by the Investor of HK$11 million (which will come out of the subscription proceeds referred to below) and shared by the scheme creditors on a pari passu basis.
(3) The preferential creditors (their total claims are up to a maximum of HK$300,000.00, recently estimated at around HK$90,000.00) will be paid in full, out of an advance of HK$300,000.00 by the Investor to the Company for this purpose.

11. Upon completion of the restructuring, the indebtedness of the Company (except the indebtedness owed to the Investor for the purpose of the restructuring of about HK$2.14 million) will be extinguished. The major outstanding debts of the Group upon completion are estimated at HK$59.1 million, these include the amounts due to the Industrial and Commercial Bank of China Xiamen branch ("the ICBC") and the Xiamen Railway Development Company of the Shanghai Railway Department ("the Railway Department") for about HK$36.4 million and HK$6.4 million respectively as at 31 March 2003. Settlement agreements have been reached with the ICBC and the Railway Department in September 2003 with payments to be made over seven to five years. The Investor has agreed to provide a contingency reserve to the Company for the settlement of the ICBC claim of no more than RMB 29 million.

Subscription of new shares by the Investor

12. Upon the implementation of the capital restructuring, the Investor will subscribe for around 2,344,827,586 new shares at HK$0.0125 each for a total cash consideration of HK$34 million. The subscription proceeds will be applied by the Company in the 12 months immediately following completion of the restructuring as follows:

(1) HK$3,426,000.00 in settlement of part of the debts of the Group owing to the ICBC and the Railway Department;
(2) up to HK$11.3 million for cash payments due under the debt restructuring of the Company; and
(3) the balance of around HK$19.27 million will be held by the Company as working capital of the Group.

Loan capitalisation

13. It is estimated that the Investor will advance about HK$8.93 million to the Company for the interim working capital requirements of the Company, settlement of the fees and expenses incurred in the implementation of the restructuring, and repayment of the amounts owed to preferential creditors. The cash advance of HK$6.79 million will be capitalised at the completion of the restructuring at HK$0.0145 per new share, resulting in 468,275,862 new shares to be issued to the Investor. The balance of the cash advance of HK$2.14 million will continue to be treated as loans to the Company after completion.

14. As a result of the subscription of new shares by the Investor and the loan capitalisation, the Investor will acquire a controlling interest of 63.6% in the restructured shareholding of the Company and such shares are to resume trading on the Stock Exchange.

Compliance with sections 166 and 166A

15. By order of the court dated 6 November 2003, leave was given to the Company to convene the scheme meeting which was held on 25 November 2003. There is only one class of creditors for the scheme meeting, as preferential creditors are to be paid in full to the extent of their preferred claims, and secured creditors are either not part of the scheme or may elect to stand as unsecured creditors in whole or in part having agreed a valuation for or released their security.

16. Pursuant to the above order, notice of the scheme meeting was published in the newspapers as directed by the court and a copy of the scheme document including the explanatory statement, the notice convening the meeting and a proxy form was served personally on each of the scheme creditors by hand or by mail. I consider the explanatory statement to have given sufficient information to the creditors for them to reach a reasonable decision how to vote at the meeting.

17. At the scheme meeting, the resolution that the scheme of arrangement be approved was passed by 17 out of 19 creditors present and voting in person or by proxy. The aggregate claims of the creditors voting in favour of the scheme represent 99.38% in value of the total claims. The statutory majority required under section 166(2) of 75% in value of the creditors present and voting at the scheme meeting has been achieved.

Approval of the scheme of arrangement

18. The decision of those voting in favour of the scheme is a reasonable one in respect of the interests of the creditors. The restructuring is the only viable proposal available to the Company. If the scheme is not successfully implemented, the restructuring proposal will fail and it is likely that the Company will be wound up. It is the opinion of the provisional liquidators that the scheme creditors are likely to receive a better return through the scheme with more certainty and in a shorter period of time than if the Company were wound up.

19. Of the unsecured debts of the Company, approximately HK$162 million are due to scheme creditors which are companies in the Group. To ensure that external scheme creditors receive the benefit of amounts that would flow back to the Company as though all Group companies were wound up and their assets distributed to their creditors, the provisional liquidators have produced a "group liquidation scenario" under the scheme, which is based on a distribution of the scheme consideration and assumes a hypothetical winding up and immediate distribution of assets of every Group company on the date on which the scheme becomes effective. This is to achieve the same result as would be achieved in a liquidation of the Group but without the cost or delay.

20. The Company's shareholders have approved by all necessary resolutions the various matters required to implement the restructuring agreement at an extraordinary general meeting on 3 November 2003. There was a detailed circular to the shareholders on 9 October 2003 giving an adequate explanation of the restructuring proposal.

21. The Investor has by counsel provided an undertaking to the court to be bound by the scheme of arrangement and to execute and do and procure to be done all such documents, acts and things as may be necessary for the purpose of giving effect to the scheme.

22. In the circumstances, it is appropriate to sanction the scheme and I have made an order in terms of the draft submitted. The sanction is to take effect upon the filing of a notice by the provisional liquidators that the conditions precedent referred to in the restructuring agreement have been satisfied, to the extent that they are not waived by the parties to that agreement.

Confirmation of reduction of capital

23. As mentioned above, capital restructuring forms part of the restructuring proposal of the Company. There is provision in the articles of association that the Company may by special resolution reduce its share capital.

24. At the extraordinary general meeting held by the Company on 3 November 2003, the following resolutions, among others, were passed as special resolutions:

(1) the nominal value of each issued share of the Company will be reduced from HK$0.125 to HK$0.0125 so that the Company's issued share capital of HK$134,291,046.00 will be reduced by HK$120,861,941.00 to HK$13,429,105.00; and
(2) the surplus of HK$120,861,941.00 arising from the capital reduction shall be applied to write off the same amount of the accumulated losses of the Company on a dollar for dollar basis.

25. The above resolutions are conditional upon the approval of the resolutions confirming and approving the transactions in the restructuring agreement and the waiver granted by the Securities and Futures Commission of any obligation of the Investor and parties acting in concert to make a general offer for all the shares of the Company not already owned by it on completion of the restructuring agreement, and conditional upon the Listing Committee of the Stock Exchange granting approval to the listing of and permission to deal in the new ordinary shares of the Company.

26. All the shareholders are treated equitably in the proposed reduction, which does not involve alteration or variation to the rights attached to any shares of the Company, or diminution of any liability in respect of unpaid capital or the payment of any paid up capital of the Company. I am satisfied that the proposals for reduction of capital have been properly explained to the shareholders in the circular I have mentioned earlier.

27. I am also satisfied that creditors' rights have been safeguarded as all outstanding creditors who are scheme creditors are to compromise their debts under the scheme of arrangement. A similar scheme of arrangement with creditors with reduction of capital to write off losses and an increase in share capital was considered and sanctioned by the court in Re Interform Ceramics Technologies Ltd., HCMP No. 808 of 2001, Yuen J., 23 April 2001.

28. At the hearing of the summons for directions on 2 December 2003, leave was given to dispense with settlement of a list of creditors. Leave was also given to dispense with advertisement of the petition for confirmation of reduction of capital as sufficient notice of the proposed reduction had been given to the creditors of the Company.

29. There are discernible purposes for the reduction. It is to facilitate completion of the transactions in the restructuring agreement by firstly, enabling the Company to issue new shares at a consideration below the current nominal value of HK$0.125 per share in accordance with the terms of the agreement, and secondly, to enable the Company to reduce part of the accumulated losses. The credit arising from reduction of capital is around HK$120.9 million, whereas the accumulated losses of the Company according to audited accounts for the year ended 31 March 2003 amounted to HK$1,161.4 million. The major part of the losses is from losses incurred as a result of operating and finance costs over a five-year period from 1 April 1998 to 31 March 2003. To the extent of the losses to be reduced by applying the credit arising from the proposed reduction of capital, I accept that such losses are permanent losses.

30. I think it appropriate to confirm the proposed reduction of capital in this instance. I have made an order in terms of the draft submitted and approved the minute in the draft order.

Dismissal of the winding-up petition

31. One of the conditions precedent in the restructuring agreement is withdrawal of the winding-up petition in HCCW No. 68 of 2003 and the discharge of the provisional liquidators. The petitioning creditor, being the Hongkong and Shanghai Banking Corporation Limited, sought an order for dismissal of the petition, conditional upon the completion of the scheme of arrangement.

32. I have made an order as sought in terms of the draft submitted with slight amendments. In the event that the provisional liquidators do not file a notice by 18 December 2003 that the closing notice in accordance with clause 7.1 of the restructuring agreement has been issued, the petition is to be restored for hearing on 22 December 2003. Save that the Official Receiver's costs are to be paid out of the petitioner's deposit, there would be no order as to costs.

	(S Kwan)
	Judge of the Court of First Instance
	High Court

Representation:

Mr Paul Carolan, instructed by Messrs Allen & Overy, for the Petitioner in HCMP No. 4692 of 2003, the Petitioner in HCMP No. 5166 of 2003 and the Petitioner in HCCW No. 68 of 2003

Mr Paul Carolan, instructed by Messrs Simmons & Simmons, for the Investor in HCMP No. 4692 of 2003

Ms P McKenna, for the Official Receiver

35580-EN-2003-01-15

RE FUJIAN GROUP LTD.

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HCCW000068/2003

HCCW68/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.68 OF 2003

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BETWEEN
	IN THE MATTER of the Companies Ordinance, Cap.32 of Hong Kong

	AND

	IN THE MATTER of Fujian Group Limited

---------------------

Coram: Deputy High Court Judge Poon in Chambers

Date of Hearing: 15 January 2003

Date of Decision: 15 January 2003

Date of Handing Down Reasons for Decision: 21 January 2003

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REASONS FOR DECISION

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1. This is an ex parte summons on notice taken out by the petitioner for an appointment of provisional liquidators in respect of Fujian Group Limited ("the Company"), a public listed company. On 15 January 2003, I allowed the application and made an order in terms of the draft order with some minor amendments. These are my reasons.

Background

2. The events leading to the petition and the present application, as described in the petition and the second affirmation of Jackie Wong Chi Lung in support (both filed on 15 January 2003), can be summarized as follows.

3. As at 19 November 2002, the Company owed a total sum of HK$50,423,401.02 to the petitioner. It has been in default of its payment obligations to the petitioner since November 1998. Since October 2002, the petitioner has been acting as liaison bank for other creditors. According to the Company's published accounts, the amounts owed to those creditors (including the petitioner) stood at some HK$613 million, which comprised about 96% of the Company's total liability.

4. On 21 January 2002, former employees of the Company commenced winding-up proceedings against the Company. By then, the Company was already discussing with the petitioner and the above creditors its inability to repay the debts due to them.

5. By the first hearing of that petition in April 2002, the Company and those creditors had reached an advanced stage of negotiation to restructure its debts, based upon an injection of funds by a third party. For this reason, the hearing of the petition was adjourned. However, the negotiation fell through after the investor withdrew. Efforts were continued to be made to invite an alternative investor. The petition was further adjourned in May 2002 to enable the Company and its creditors to have further time to explore restructuring alternative to liquidation.

6. On 19 June 2002, the Company made an announcement together with Soundwill Holdings Limited ("Soundwill") that the Company had entered into a number of undertaking concerning certain restructuring proposals. The petitioner was not aware of it beforehand. Negotiations between the petitioner and the creditors and Soundwill began and reached an advanced stage in early January 2003. However, on 6 January 2003, the petitioner was told by Soundwill that it was unable to complete the restructuring because it could not agree terms with one of the potential investors. The petitioner was later approached by Asian Capital (Corporate Finance) Limited ("Asian Capital") that an investor, whom Asian Capital represented, intended to make a proposal to enable the Company to persuade the Hong Kong Stock Exchange to allow the re-listing of the shares, which has been suspended since 16 February 2001. The details of the proposal would be communicated to the petitioner and the creditors of the Company by 15 January 2003.

7. On 10 January 2003, Asian Capital sent written confirmation of the intentions of their client, Fujian Investment and Development Co. Limited ("FIDC"), indicating that it would be possible to undertake the restructuring by agreement between the Company, FIDC and the creditors through a scheme of arrangement, subject to dealing with the interest of Soundwill.

8. By a letter dated 14 January 2003, Asian Capital told the petitioner that discussions with Soundwill had broken down and that it would only be possible to proceed with the proposed restructuring if provisional liquidators were appointed. The letter pointed out, inter alia, :

(1) that the Stock Exchange has announced that the deadline for the submission of any proposal for resumption of listing in the Company's share is 20 January 2003; and
(2) that FIDC would only proceed if provisional liquidators are appointed and if their offer is accepted by the Company, acting through the provisional liquidators, by close of business on 16 January 2003.

9. Mr Jackie Wong deposed in paragraph 17 of his second affirmation thus :

"I understand from Mr. Yeung of Asian Capital that he and the Investor have been informed by the Company's directors that their board could not reach a consensus in relation to cooperation with the Investor concerning the proposed restructuring in light of Soundwill's exclusivity agreement. It is clear that if the Company remains in the control of the directors there will be no prospect of a restructuring being achieved. I have also been informed by Mr. Yeung that two directors of the Company told him and the Investor and the Investor's solicitors in a meeting on Monday evening, 13th January 2003, that they understood that in the absence of their board's cooperation it was likely that there would be an application for the appointment of provisional liquidators and that they had no objection to such an appointment in the interest of rescuing the Company. At 8:36 p.m. yesterday [i.e. 14 January 2003] Allen & Overy sent a fax to the Company giving notice of HSBC's intention to apply for the appointment of provisional liquidators and asking for confirmation of whether the Company consents. There has been no response to that fax (see pages 66-67). My colleague, Stella Chan, has since attempted to telephone the Company's directors but without success."

10. On 15 January 2003, the petitioner filed the present petition in the morning and the ex parte summons on notice in the afternoon.

The Law

11. The court's power to appoint provisional liquidators under section 193(1) of the Companies Ordinance, Cap.32 is a general power and how it is exercised depend on the particular circumstances of each case. It is not possible to lay down any hard and fast rule and in the past, jurisdiction had only laid down broad guiding principles governing the exercise of the discretion. The first requirement the applicant must meet is to show by believable evidence that they have a good prima facie case for a winding-up order. If this requirement is met, in considering whether to exercise the power, the court will then have to take into account the commercial realities, the degree of urgency and need established by the applicant, the balance of convenience according to the particular circumstances and where any other good cause is shown. See Re Hang Tak Buddhist Hall Association Ltd [2002] 3 HKLRD 863.

Insolvency

12. Here, I have no difficulty in concluding that the Company is unable to repay its debts to the petitioner. Thus a good prima facie case for winding-up on the ground of inability to pay its debts is established.

Just and convenient to appoint provisional liquidators.

13. Appointing provisional liquidators in similar circumstances has been judicially approved recently : see Re Keview Technology (BVI) Ltd [2002] 2 HKLRD 290, Re Luen Cheong Tai International Holdings Ltd [2002] 3 HKLRD 610 and Re I-China Holdings Ltd, HCCW1321/2002, unreported, 11 December 2003.

14. In Re Luen Cheong Tai International Holdings Ltd, Kwan J said at paras.28 to 32 :

"28. What is proposed by BOC and the supporting financial creditors is that provisional liquidators should be appointed to make an assessment of the financial position of the Company with a view to facilitating a restructuring of the Company and its subsidiaries, as they have lost faith in the management of the Company to put forward a viable proposal. It is hoped that the listed status of the Company may be realised in the absence of a winding up order as the financial and regulatory requirements of the Stock Exchange for such a relisting are less onerous than for a relisting by way of introduction where a company has been wound up. Hence, the listed status would be far more attractive to potential investors and could fetch a much higher value than in the situation after a winding up order is made, judging from the price generated for the listed status in Re Keview Technology (BVI) Ltd [2002] 2 HKLRD 290 at 296B. Thus, it is proposed that in the event that provisional liquidators are to be appointed, the petitioner would seek an adjournment of the petition at the hearing on 9 September 2002 for the provisional liquidators to explore restructuring proposals.

29. Is this a legitimate reason to seek the appointment of provisional liquidator? For a provisional liquidator to be appointed, an applicant is required to show a good prima facie case that a winding up order will be made. It may seem paradoxical that in this situation, the objective is not to wind up the company but to adjourn the petition so that a rescue proposal might be explored. In Keview, it was held by Yuen J (as she then was) that there is no jurisprudential objection in extending the powers of provisional liquidators appointed under section 193 of Cap.32 to carry out a corporate rescue role. It seems to me a logical extension of Keview that if provisional liquidators may be empowered by the court to facilitate a restructuring proposal, this recognised function of the provisional liquidators could provide the rationale for appointing them in the first place.
30. The statutory provisions, namely section 193(3) of Cap.32 and rule 28(1) of the Companies (Winding-up) Rules, are wide enough to accommodate such a ground for appointment. The English courts have recognised that the avoidance of a scramble by creditors for assets and the protection of assets pending the putting forward of a scheme of arrangement may be good reasons for the appointment of provisional liquidators in the case of insurance companies, where the administration order scheme is not available (see Keview, supra. at 293G to H; Re English & American Insurance Co. Ltd [1994] 1BCLC 649 at 650b to d; and Lightman and Moss, The Law of Receivers and Administrators of Companies, 3rd ed., para.2-045). I was also referred by Mr Bartlett to an Australian decision, Cope Allman (Marrickville) Pty Ltd v The Marrickville Businessman's Club Ltd (1983) 1 ACLC 1003, in which the court appointed a provisional liquidator for the purpose of ascertaining whether the company's business could be carried on effectively and possibly of ascertaining whether some arrangement or compromise could be reached with the creditors.

31. In Keview, it was held that it is not an abuse of the process for a petitioner to present a petition for the purpose of effecting a freeze on actions against the company, so that a scheme of arrangement can be worked out, adopting the dicta of Harman J in Re Esal (Commodities) Ltd [1985] BCLC 450 at 459 to 460. I respectfully agree. So long as it is intended by the applicant that a winding up order will be sought in the event that a scheme of arrangement cannot be achieved and that it is likely that a winding up order would be granted if it were sought, it does not appear to me there is any abuse of the process of the court.
32. For the above reasons, I accept this is also a proper ground for appointing provisional liquidators in this instance."

I respectfully agree.

15. In Re I-China Holdings Ltd, Deputy Judge Barma SC summarised the position in paragraph 26 thus :

"In the Keview case, Yuen J (as she then was) held that there was no objection to extending the powers of provisional liquidators to carry out a corporate rescue role. In the Luen Cheong Tai case, Kwan J took the decision one step further by recognizing the facilitation of a corporate rescue as a rationale for appointing provisional liquidators in the first place. So long as it is intended to seek a winding up of the Company in the event that any attempted restructuring fails, I agree that there is no reason why this should not be a proper ground for appointment of provisional liquidators. In a sense, it might be regarded as a form of preservation, if not of assets in the strict sense, then at least of value in the Company, for the benefit of its creditors, as it might enable the creditors to achieve a better return through a scheme of arrangement, in the course of which a higher value might be obtained for the benefit of the Company's listed status than would be possible after a winding up order were made (see the Luen Cheong Tai case, at para. 28 of the judgment)."

16. In the present case, I have no difficulty to conclude that, having considered all the circumstances and applying the principles cited above, it is just and convenient to appoint provisional liquidators. The proposed restructuring by FIDC through Asian Capital is the only viable option, the previous one proposed by Soundwill having failed already. It will give the creditors a far better return than on a winding-up, although the creditors will only be able to recover a mere 3% of the debts. In order to realize the opportunity it is necessary to appoint provisional liquidators to take over the control of the Company because firstly, its directors are unable or unwilling to handle or deal with the negotiations because of the exclusivity in favour of Soundwill; and secondly, FIDC so required. Time is pressing. FIDC imposed a deadline on 16 January 2003. If no restructuring proposal is put forward, the Company will not be able to meet the deadline of delisting on 20 January 2003. This will cause severe if not irreparable damage to the Company's listed status, its most valuable interest.

17. For the foregoing reasons, I allowed the application.

	(J. Poon)
	Deputy High Court Judge

Representation:

Mr Paul Carolan, instructed by Messrs Allen & Overy, for the Petitioner

Mr M.K. Tam, for Official Receiver Company, Fujian Group Limited, Absent

(1)	The nominal value of the issued shares will be reduced from HK$0.125 to HK$0.0125 each. The entire credit balance arising from the capital reduction shall be applied to reduce part of the accumulated losses of the Company, which amounted to around HK$1,161.4 million as at 31 March 2003.

(2)	Each of the unissued shares of HK$0.125 each will be subdivided into 10 unissued shares of HK$0.0125 each.

(1)	Sino Earn and Jian Xing, being the secured creditors of the Company (the provisional liquidators are not aware of any other secured creditors apart from these two), have agreed to discharge all their claims and release all security, save as excepted, in consideration of (i) the allotment of new shares to them resulting in 16.4% and 3.4% respectively in the shareholdings in the Company as restructured; and (ii) the payment by the Company to Sino Earn of an amount that equals 3% of the rental arrears (estimated to be HK$7,335.00 if the closing date is in January 2004). They will not participate in the scheme of arrangement to be made between the Company and the scheme creditors (i.e. creditors other than the Investor, Sino Earn, Jian Xing, preferential creditors, and secured creditors to the extent of an amount equal to the agreed value of, and upon realization, the net proceeds of realization of a security interest).

(2)	The Company and the scheme creditors will enter into a scheme of arrangement under which the scheme creditors will compromise all their claims against the Company in consideration of a cash payment by the Investor of HK$11 million (which will come out of the subscription proceeds referred to below) and shared by the scheme creditors on a pari passu basis.

(3)	The preferential creditors (their total claims are up to a maximum of HK$300,000.00, recently estimated at around HK$90,000.00) will be paid in full, out of an advance of HK$300,000.00 by the Investor to the Company for this purpose.

(1)	HK$3,426,000.00 in settlement of part of the debts of the Group owing to the ICBC and the Railway Department;

(2)	up to HK$11.3 million for cash payments due under the debt restructuring of the Company; and

(3)	the balance of around HK$19.27 million will be held by the Company as working capital of the Group.

(1)	the nominal value of each issued share of the Company will be reduced from HK$0.125 to HK$0.0125 so that the Company's issued share capital of HK$134,291,046.00 will be reduced by HK$120,861,941.00 to HK$13,429,105.00; and

(2)	the surplus of HK$120,861,941.00 arising from the capital reduction shall be applied to write off the same amount of the accumulated losses of the Company on a dollar for dollar basis.