Jersey Unreported Judgments

[2010]JRC114

royal court

(Samedi Division)

15^th June 2010

IN THE MATTER OF ET-CHINA.COM INTERNATIONAL HOLDINGS LIMITED

AND IN THE MATTER OF ARTICLES 63 AND 125 OF THE COMPANIES (JERSEY) LAW 1991.

Advocate R. J. MacRae for the Representor.

Advocate B. G. Lincoln for the Bidder.

judgment

the deputy bailiff:

1.        This is an application by ET-China.com International Holdings Limited, the ultimate purpose of which is for the approval of a scheme which will involve, in addition the reduction of capital of the company.  The purpose of the application today is simply to set those arrangements in motion and to ask the Court to convene a Court meeting as being the next stage in this process. 

2.        I remind myself that, taking a citation from the case of Re Hawk Insurance Company Limited [2001] BCLC 480 and the judgment of L.J. Chadwick at paragraph 11:-

"There are, as I sought to point out in Re BTR Plc when this court refused permission to appeal from the order made by Justice Jonathan Parker, three stages in the process by which a compromise or arrangement becomes binding on the company and all its creditors.  First, there must be an application to the Court under Section 425(1) of Act for an order that a meeting or meetings be summoned, it is at that stage that a decision needs to be taken as to whether or not more than one meeting, if so who should be summoned to which meeting; second, a scheme of proposals are put to the meeting or meetings held in accordance with the order that has been made and are approved or not by the requisite majority number and value of those present and voting in person or by proxy; third, if approved at the meeting or meetings, there must be further application to the Court on Section 425(2) of the Act to obtain the Court's sanction to the compromise or arrangement.  At paragraph 12 it can be seen that each of those stages serves a distinct purpose.  At the first stage the Court directs how the meeting or meetings are to be summoned, it is concerned at that stage to ensure that those who are to be affected by the compromise or arrangement proposed have a proper opportunity of being present in person or by proxy at the meeting or meetings, at which the proposals are to be considered and voted upon."

And the learned judge then went on to consider the second and third stages. 

3.        The application that is made today is not in respect of creditors but in respect of shareholders but the same principles apply and it is at the first stage that we have to decide on who should be summoned. 

4.        The only matter which has been of any concern to the Court on reading the papers in advance was the position in relation to the A shareholders.  As is set out in the affidavit of Mr Matthew Ng, there are 547,501 A ordinary shareholders in the company.  These shareholders have no rights to vote, no rights to participate in capital or dividends, but their shares are re-designated into fully paid ordinary shares of the company, apparently over a four year period, and of course once re-designated, becoming ordinary shares, they then will be entitled to the rights of ordinary shareholders.  The proposal is that the scheme will, if adopted, result in the A shareholders receiving 115 pence per share, the same amount per share as is payable under the scheme and the effect therefore of the scheme, as far as the A shareholders are concerned, is that their rights to participate in the future of the company under the present arrangements are, in effect, being exchanged for a right to 115 pence per share.  It appears to us that they are people who are therefore affected by the scheme proposal. 

5.        Mr MacRae pointed us to the case of Re CPA [2010] JRC 011 where the court was faced with a similar difficulty in relation to that scheme, which insofar as it was concerned, raised issues of capital reduction and the question there was whether or not the interests of the annuitants of the company, as creditors, should be taken into account.  The way the court dealt with that particular issue was at paragraph 15 of its judgment:-

"The Court accepted that the capital reduction did not involve either a diminution of liability in respect of any amount unpaid on a share or the payment to the shareholders of any paid up capital but was concerned that, taking a wider view of the scheme as a whole, the interests of the annuitants, as creditors, might potentially be affected.  The Court therefore directed that the annuitants should be informed of the scheme and be given the right to be heard when the Court sits to sanction the scheme." 

6.        As is set out in paragraph 21 of the affidavit of Mr Ng, the proposal here is that the A shareholders will be sent a copy of the scheme, although his affidavit sets out that it will be for information.  We are told there are 4 A shareholders.  While we have given consideration as to whether or not it is necessary for there to be a class meeting of those shareholders, we do not take the view that that is necessary.  We do however direct that they should not only be informed of the scheme, which is what is suggested by paragraph 21, but also that they should be informed that they have the right to be heard when the Court sits to sanction the scheme and we give that direction accordingly. 

7.        Mr MacRae has taken the Court through the difference between the circular which was given to the Court in the preliminary papers and that which it is now proposed to despatch and I note, just for record purposes, that he has drawn to our attention what he says are the significant changes which are at paragraph 2 on page 12 (and a similar change at paragraph 17), which now includes the statement that the independent directors are not employees of Kuoni nor do they have any interest in the shares of Kuoni.  He refers to page 13, under paragraph 5, there is now a statement inserted in relation to Kuoni's conversion notice in respect of its ET-China convertible bonds.  He has referred us to paragraph 11 on page 24 which also deals with the ET-China convertible bonds; to page 30 where there is a similar statement at sub-paragraph (e) and to page 43 where there will be a footnote to make it plain that the identity of the independent directors is established and that they do not include Maria Ng.  Mr MacRae has also confirmed that Maria Ng is not the wife of Mr Matthew Ng. 

8.        So we now come to the orders which we are asked to make, a draft order has been submitted to the Court and the Court is willing to make all of those draft orders subject only to the direction which we have given earlier in relation to the specific notice which must be given to the A shareholders. 

9.        In addition the Court directs that Article 62(3) to 62(5) of the Companies (Jersey) Law 1991 shall not apply to the reduction of capital which comprises part of the scheme. 

Authorities

Re Hawk Insurance Company Limited [2001] BCLC 480.

Representation of CPA [2010] JRC011.

Companies (Jersey) Law 1991.