Re ChinaCom

• Jurisdiction: Cayman Islands
• Judge: (Quin, J.)
• Judgment Date: 16 June 2009
• Court: Grand Court (Cayman Islands)
• Date: 16 June 2009

Grand Court

(Quin, J.)

IN THE MATTER OF CHINA.COM INCORPORATED

C.D. McKie and J.F. Pennay for the petitioner.

Cases cited:

(1) Australian Estates & Mortgage Co. Ltd., In re, [1910] 1 Ch. 414; (1910), 79 L.J. Ch. 202; 17 Mans. 63; 102 L.T. 458, followed.

(2) British & American Trustee & Fin. Corp. Ltd. v. Couper, [1894] A.C. 399, dicta of Lord Herschell, L.C. followed.

(3) Compania de Elec. de Buenos Aires Ltd., In re, [1980] Ch. 146; [1979] 2 W.L.R. 316; [1978] 3 All E.R. 668, referred to.

(4) Consolidated Tel. Co. Ltd., In re(1885), 54 L.J. Ch. 795; 52 L.T. 575, followed.

(5) E.C. Powder Co., In re, [1887] W.N. 93, referred to.

(6) Freeman Corp., In re, Grand Ct., July 10th, 2006, unreported, referred to.

(7) Genuine Co., Re, English Ch.D., June 26th, 1944, unreported, referred to.

(8) Grosvenor Press Plc, In re, [1985] 1 W.L.R. 980; [1985] BCLC 286; (1985), 1 BCC 99, 412; [1985] PCC 260, considered.

(9) HannSpree Inc., In re, 2008 CILR 40, referred to.

(10) ING Secs. (Japan) Ltd., In re, 2004–05 CILR 308, referred to.

(11) Jupiter House Invs. (Cambridge) Ltd., In re, [1985] 1 W.L.R. 975; [1985] BCLC 222, considered.

(12) Lucania Temperance Billiard Halls (London), In re, [1966] Ch. 98; [1966] 2 W.L.R. 5; [1965] 3 All E.R. 879, referred to.

(13) Meux”s Brewery Co. Ltd., In re, [1919] 1 Ch. 28; (1918), 88 L.J. Ch. 14; [1918–19] All E.R. Rep. 1192; 119 L.T. 759; 35 T.L.R. 13, referred to.

(14) PDG Aurora LLC, In re, Grand Ct., January 6th, 2006, unreported, not followed.

(15) Poole v. National Bank of China Ltd., [1907] A.C. 229; (1907), 76 L.J. Ch. 458; 14 Mans. 218; [1904–7] All E.R. Rep. 138; 96 L.T. 889; 23 T.L.R. 567, dicta of Lord Loreburn, L.C. followed.

(16) Ransomes Plc, Re, [2000] BCC 455; [1999] 2 BCLC 591, dicta of Robert Walker, L.J. followed.

(17) Ratners Group Plc, ReUNK(1988), 4 BCC 293; [1988] BCLC 685, dicta of Harman J. followed.

(18) Seapower Resources Intl. Ltd., In re, Grand Ct., November 3rd, 2003, unreported, not followed.

(19) Sumatra Tobacco Plantations Co., In re, [1898] W.N. 80, followed.

(20) Thorn EMI Plc, Re, [1989] BCLC 612; [1988] BCC 698, dicta of Harman J. followed.

(21) Truman, Hanbury, Buxton & Co. Ltd., In re, [1910] 2 Ch. 498; (1910), 79 L.J. Ch. 740; 103 L.T. 553, referred to.

Legislation construed:

Companies Law (2007 Revision), s.15:

‘(1) Where a company has passed a resolution for reducing share capital, it may apply by petition to the Court for an order confirming the reduction.

(2) Where the proposed reduction of share capital involves either diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital, and, in any other case, if the Court so directs, subject to subsection (3), the following shall have effect-

. . .

(b) the Court shall settle a list of creditors so entitled to object, and for that purpose shall ascertain as far as possible without requiring an application from any creditor, the names of those creditors and the nature and amount of their debts or claims, and may publish notices fixing a day or period on or within which creditors not entered on the list are to claim to be so entered or are to be excluded from the right of objecting to the reduction; and

. . .

(3) Where a proposed reduction of share capital involves either the diminution of any liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital the Court may, if having regard to any special circumstances of the case it thinks proper so to do, direct that subsection (2) shall not apply as regards any class or any classes of creditors.’

s.16: ‘(1) The Court, if satisfied with respect to every creditor of the company who under section 15 is entitled to object to the reduction, that either his consent to the reduction has been obtained or his debt or claim has been discharged or has determined, or has been secured, may make an order confirming the reduction on such terms and conditions as it thinks fit.

(2) Where the Court makes any such order, it may-

(a) if for any special reason it thinks proper so to do, direct that the company shall, during such period, commencing on or at any time after the date of the order, as is specified in the order, add to its name as the last word thereof the words “and reduced” . . .’

Grand Court Rules, O.102, r.15(2): The relevant terms of this sub-rule are set out at para. 18.

Companies-reduction of share capital-confirmation by court-to direct hearing of petition to confirm share capital reduction if satisfied that (a) company has power to reduce capital; (b) valid resolution passed by shareholders; and (c) creditors adequately protected-to usually confirm reduction if (i) shareholders treated equitably; (ii) reduction proposal properly explained; (iii) creditors safeguarded; and (iv) for discernible purpose-not to be concerned with business sense of capital reduction but only whether generally for discernible purpose-wish to create capital reserve account to meet future needs satisfactory

Companies-reduction of share capital-settlement of list of creditors-requirement under Companies Law (2007 Revision), s.15(2) to settle list dispensed with if creditors otherwise adequately protected (e.g. if creditors provide written consent; petitioner has adequate funds to cover liabilities; and to provide undertaking at hearing of petition)

Companies-reduction of share capital-notice of hearing-advertisement to be directed to provide adequate notice to interested parties wishing to appear at hearing-necessary when object of reduction to pay capital to shareholders-only dispensed with in exceptional circumstances-not to include petitioner”s evidence of no known liabilities since purpose of advertisement to notify unknown creditors

Companies-reduction of share capital-indication in name-requirement for ‘and reduced’ to be added to company”s name as condition of confirming share capital reduction (under Companies Law, s.16(2)(a)) only enforced in exceptional circumstances-not justified if creditors adequately protected; petition widely publicized; and company plainly solvent-usually dispensed with if principal business conducted overseas or if likely to cause unnecessary concern in market

The petitioner sought an order confirming its shareholders” resolution to reduce share capital.

The petitioner was a Cayman company which principally carried on its business as an investment company in Hong Kong. The company held an extraordinary general meeting of its shareholders at which a resolution was passed, in accordance with the company”s articles of association and

the requirements of the Companies Law, to reduce the authorized share capital of the company. The reduction aimed to create a distributable reserve account to provide the petitioner with funds for its future needs.

The company had previously petitioned the court but it had provided insufficient evidence for the reduction to be approved. It now sought leave to withdraw the first petition, and proceed with a second petition seeking an order under s.16 of the Companies Law (2007 Revision) to confirm its reduction of share capital. The petitioner applied to dispense with the requirement to settle a list of creditors (under s.15) and for directions for the publication of notices and the fixing of a date for the hearing of the petition.

The petitioner submitted that (a) ample evidence had been presented showing that its creditors would be sufficiently protected and its shareholders had agreed to the capital reduction; (b) the court would not need to be concerned with the commercial motivations for it seeking the reduction; (c) the inquiry as to creditors, pursuant to s.15(2) of the Companies Law should be dispensed with because it was complex, onerous and time consuming; and (d) the requirement of the company to add the words ‘and reduced’ to its name (under s.16(2)) had never been enforced and there was no reason to now introduce this practice, especially since it could be harmful to the petitioner.

Held, directing the hearing of the petition and notice to be advertised:

(1) Before the hearing of the petition, the court would have to be satisfied that it had jurisdiction to confirm the reduction of share capital in that the company had the power to reduce its share capital, its shareholders had passed a valid resolution to do so and, further, that its creditors would be adequately protected. The court had a discretion to confirm the reduction and would normally do so if (a) the shareholders were treated equitably; (b) the reduction proposal was properly explained; (c) the creditors were safeguarded; and (d) the reduction was for a discernible purpose (para. 16; paras. 33–34).

(2) The court would dispense with an inquiry (under s.15(2) of the Companies Law (2007 Revision)) as to the company”s creditors when it was satisfied that an appropriate alternative had been put forward to ensure they were adequately protected. In the instant case, the actual and contingent creditors had provided written consent to the capital reduction, the petitioner had enough funds to cover its liabilities and it was prepared to provide an undertaking at the hearing of the petition. The court was therefore satisfied that the creditors of the petitioner were sufficiently protected and would exercise its power under s.15(3) to dispense with the inquiry. Further, the reduction proposals had been properly explained to the shareholders (through a published announcement of the reason for and effect of the reduction) and there were no issues as to any unequal treatment between them. Finally, being satisfied that the creditors were well-protected, the court would not be concerned with the business sense of the capital reduction, but only that it was generally for a discernible

purpose. The petitioner”s wish to create a distributable capital reserve...