Re HannSpree Inc.

• Jurisdiction: Cayman Islands
• Judge: (Levers, J.)
• Judgment Date: 15 February 2008
• Court: Grand Court (Cayman Islands)
• Date: 15 February 2008

Grand Court

(Levers, J.)

IN THE MATTER OF HANNSPREE INCORPORATED

C.D. McKie and C.P. Lynch for the petitioner.

Cases cited:

(1) Biala Pty Ltd. v. Mallina Holdings Ltd., [1997] FCA 165; (1997), 144 ALR 24, applied.

(2) Esmeralda Exploration Ltd., Re, [1991] FCA 625; (1991), 105 ALR 239; 33 FCR 192, applied.

(3) First Technology Intl. (HK) Co. Ltd., Re, [2005] HKCFI 1091, not followed.

(4) Tony Barlow Australia Ltd., Re(1997), 23 ACSR 303, followed.

Legislation construed:

Companies Law (2007 Revision), s.35(1): The relevant terms of this sub-section are set out at para. 5.

s.35(2): The relevant terms of this sub-section are set out at para. 7.

Grand Court Rules 1995, O.102, r.4(b): The relevant terms of this paragraph are set out at para. 21.

O.102, r.6(1): The relevant terms of this paragraph are set out at para. 20.

Companies-shares-issue at discount-may increase capital by issuing new shares of same class at discount provided for commercially justified, proper and discernible purpose-factors for consideration listed-court may impose conditions regarding further information and notice to shareholders, even though resolution validly passed

The petitioner company sought the court”s sanction to issue shares at a discount, pursuant to the Companies Law (2007 Revision), s.35(2).

The company, a holding company for a subsidiary incorporated in Taiwan, applied for the court”s sanction, pursuant to the Companies Law (2007 Revision), s.35(2), for the issue of 1,061,007,957.5596 of its shares at a discount of US$99.9246 each (which represented the difference between the par value of each share and the value according to the company”s net asset value), with the intention of raising US$80m. to invest in its subsidiary. An extraordinary general meeting had been held to consider the proposed discounted allotment, at which 25 shareholders, representing 90% of the total shareholding, passed an ordinary resolution to the effect that the company should apply to the court for its sanctioning of the proposal, as required by the company”s articles of association. The company also issued a summons for directions in respect of the discounted allotment, pursuant to the Grand Court Rules, O.106, r.6(1).

The petitioner submitted that (a) it had satisfied the requirements of the Companies Law (2007 Revision), s.35(1), which set out when the issue of shares at a discount could be sanctioned by the court, in accordance with s.35(2); (b) a quorum had been present at the extraordinary general meeting held to discuss the issue of the discounted allotment, and an ordinary resolution had therefore been validly passed, entitling the company to submit an application to the court in respect of that issue, pursuant to its articles of association; and (c) notice of the proposed discounted allotment and the application to the court had been given to the shareholders of the company, also in accordance with the articles of association.

Held, allowing the application:

(1) The application would be granted. Although a quorum had been present at the extraordinary general meeting and notice of the ordinary resolution had been given to the other shareholders, the court had reservations as to the lack of information provided with that notice. The

discounted allotment would therefore be approved subject to certain conditions: (i) that within 28 days the company should dispatch a circular describing the purpose to which it intended to put the proceeds of the discounted allotment, audited financial statements for the company for the period ending June 30th, 2007, and this order; (ii) not earlier than 17 days after dispatching those documents it should file an affidavit verifying the dispatch of the documents and identifying whether or not it had received any objections from its shareholders as to the discounted allotment; (iii) pursuant to the Companies Law (2007 Revision), s.35(2), the discounted allotment would be sanctioned, provided that on or before the date upon which the company filed the affidavit it had not received any objections from its shareholders and that the discounted shares were issued within one month of the filing of the affidavit; (iv) if the company did receive any objections from its shareholders as to the discounted allotment it would be at liberty to restore its petition; and (v) any shareholder of the company would be at liberty to apply to set aside or vary the terms of the order, provided that any such application was made not later than 17 days after the company dispatched the documents previously referred to (para. 19).

(2) In the absence of Cayman or UK authority, the test previously established by the Australian courts would be adopted in a modified form. The question to be asked was whether the application was being made for a proper and discernible purpose (the inclusion of the word ‘discernible’ being a modification of this court) and whether it was commercially justified; it was not necessary to ask whether it was objectively in the best interests of the company. In answering that question, the following factors had to be considered: (a) the public interest in ensuring that prospective shareholders and creditors were not misled by a nominal capital figure exceeding the true capital of the company; (b) the effect of the proposal upon the interests of actual or prospective shareholders and creditors; (c) the extent to which...