Your World of Legal Intelligence
 Hong Kong | 1-800-335-6202

Re Allied Properties (H.k.) Ltd

Judgment Cited authorities 4 Cited in 1 Precedent Map Related
Vincent
Judgment Date27 November 2020
Neutral Citation[2020] HKCA 973
Judgement NumberCACV560/2020
Citation[2020] 5 HKLRD 766
Year2020
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV560/2020 RE ALLIED PROPERTIES (H.K.) LTD

CACV 560 /2020

[2020] HKCA 973

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 560 OF 2020

(ON APPEAL FROM HCMP NO 1033 OF 2020)

________________________

IN THE MATTER of Allied Properties (H.K.) Limited (聯合地產(香港)有限公司)
and
IN THE MATTER of Sections 670 and 671 of the Companies Ordinance, Chapter 622 of the Laws of Hong Kong

________________________

Before: Hon Kwan VP, Yuen JA and Barma JA in Court

Date of Hearing: 23 November 2020

Date of Judgment: 23 November 2020

Date of Reasons for Judgment: 27 November 2020

____________________

REASONS FOR JUDGMENT

____________________

Hon Kwan VP (giving the Reasons for Judgment of the Court):

1. This appeal is brought by the petitioner, Allied Properties (H.K.) Limited (“the Company”), against the dismissal by Linda Chan J on 9 October 2020 of its petition for the sanctioning of a scheme of arrangement (“the Scheme”) approved at the court meeting on 15 July 2020 (“the Court Meeting”). The judge exercised her discretion under section 673(2) of Companies Ordinance, Cap 622[1] to refuse to sanction the Scheme for two main reasons. First, she had concerns that the headcount test in section 674(1)(c)(ii) might not have been met[2]. Second, she took the view that the Scheme document did not provide sufficient information to the Scheme Shareholders to enable them to make an informed decision as to how to vote at the Court Meeting[3].

2. At the conclusion of the appeal, we allowed the appeal, sanctioned the Scheme and confirmed the reduction of capital. These are the reasons of the court for allowing the appeal.

Background

3. The relevant background matters are taken largely from the Judgment and may be stated as follows.

4. The Company was incorporated in Hong Kong on 18 July 1960 and its shares have been listed on the Main Board of the Stock Exchange of Hong Kong Limited (“HKEx”) since 9 January 1981. Allied Group Limited (“AGL”), also a listed company in Hong Kong, is its holding company.

5. The Company with its subsidiaries and associates (“the Group”) are engaged in the business of property investment and development, hospitality related services and provision of finance and investments in listed and unlisted securities.

6. On 9 April 2020, Sunhill Investments Limited (a direct wholly-owned subsidiary of AGL; “the Offeror”) put forward a proposal to the Scheme Shareholders (ie holders of shares in the Company other than those held by the Offeror and the “Offeror Concert Parties”, being AGL and two of its direct wholly-owned subsidiaries) which involves (1) privatisation of the Company by way of the Scheme and (2) payment by the Company of a dividend to all the shareholders. This was subsequently announced on 20 April 2020 by the Offeror, the Company and AGL.

7. The reasons for putting forward the Scheme, as stated in the petition[4], are: (1) the shares have for over two years been trading at a substantial discount ranging from 66.7% to 77.4% of the net consolidated assets of the Group, and “the Company has not been able to raise equity capital lest diluting the interests of shareholders of the Company”; (2) the listing status has become ineffective and is costly to maintain; (3) “the listing status has prevented the Company from pursuing various investments that may benefit the Company”; (4) the pessimistic view on the economy which will have a negative impact on the value of the shares in the open market, and that the Scheme provides an opportunity for the Scheme Shareholders to realise their shares at a premium over the current market price.

8. As at 16 June 2020, being the latest practicable date prior to the printing of the Composite Document[5], the Company had issued share capital of HK$4,250,636,343.76 divided into 6,812,201,460 shares, of which 74.996% were held by AGL and its 3 wholly owned subsidiaries. The remaining 25.004% were held by the Scheme Shareholders.

9. On 22 May 2020, the Company issued an ex parte Originating Summons in HCMP 657/2020 for directions (“OS”) to convene a single meeting of the Scheme Shareholders for the purpose of considering and, if thought fit, approving the Scheme.

10. The principal features of the Scheme are as follows:

(1) all the shares held by the Scheme Shareholders will be cancelled in exchange for payment of HK$1.92 per share in cash. Of this amount, HK$0.42 per share is payable by the Offeror as consideration for cancellation of the Scheme Shares (“Scheme Consideration”), while HK$1.50 per share is a special dividend to be declared by the Company and payable to all the shareholders (“Special Dividend”) (but the Offeror and the Offeror Concert Parties have irrevocably and unconditionally agreed to waive and surrender their entitlements to the Special Dividend (“AGL Waiver”)). The proposal for the privatisation of the Company (“Proposal”) is defined in the Composite Document as comprising the Scheme and the Special Dividend;

(2) the share capital of the Company will be reduced by the amount paid-up on the Scheme Shares which have been cancelled (“Reduction of Capital”);

(3) immediately after cancellation of the Scheme Shares, the share capital of the Company will be increased to its former amount by issuing the same number of shares which have been cancelled to the Offeror, and applying the credit arising from the Reduction of Capital to pay up the amount payable on the new shares issued; and

(4) the Offeror and the Offeror Concert Parties will thenceforth become the only shareholders of the Company. The Company will apply to HKEx to withdraw the listing of its shares.

11. The Scheme and the Reduction of Capital are the subject matters of the petition in HCMP 1033/2020.

The OS in HCMP 657/2020

12. The ex parte OS was an application for a Court Meeting to be convened for the Scheme Shareholders to consider the Scheme. The judge was rightly critical of the Company’s legal advisers for having failed to scrutinise the preparation of the draft Composite Document or to provide meaningful assistance to the Court at the hearing of the OS[6].

13. At the directions hearing of the OS on 1 June 2020, the judge raised a number of concerns with Mr Richard Leung, who was then appearing for the Company, and reminded him to go through the draft Composite Document carefully to ensure that its contents meet all the regulatory and statutory requirements, in particular the requirement that the Explanatory Statement must explain the effect of the Scheme fairly and accurately. One of these concerns was the HK$1.92 per share proposed to be paid to the Scheme Shareholders described at the time as “cash consideration required to effect the Proposal”, of which HK$1.50 per share was stated to be paid by the Company in the form of a dividend. The judge noted there was no explanation as to why such dividend should be treated as part of the cash consideration, and if the Company considered it appropriate to use its own fund to assist the Offeror to acquire the Scheme Shares from the Scheme Shareholders, it should explain why the arrangement would not fall foul of the principle that a company cannot provide financial assistance for acquisition of its own shares. The judge adjourned the OS sine die for the Company to address the concerns raised[7].

14. When the Company sought to restore the OS by writing to the court on 4 June 2020, the judge did not think the concerns raised had been addressed in the revised draft documents and counsel’s submissions. To avoid having to adjourn the OS again, the judge’s clerk wrote to the Company’s solicitors on 9 June 2020 setting out the concerns that should be addressed. Among them were the following:

(1) The judge found it misleading to define the dividend (HK$1.50 per share) proposed to be declared and paid upon the Scheme becoming effective as “Scheme Dividend”, as it gave the impression to the Scheme Shareholders that such payment formed part of the consideration for the Scheme Shares when, in fact, only HK$0.42 per share would be paid by the Offeror as such consideration. As observed by the judge at the hearing on 1 June 2020, the special dividend is to be paid out of the reserves belonging to the Company. The judge suggested that the Company should consider changing the definition of “Scheme Dividend” to “Special Dividend” and mentioning in the Letter from the Board and the Explanatory Statement that such payment is not part of the “Scheme Consideration” but comes from the reserves of the Company (“the Dividend Issue”).

(2) Counsel sought to rely on the “exceptions” under the Ordinance which enabled the Company to finance acquisition of its own shares, but failed to identify which exception the Company relied on or explain why such exception is applicable to the Scheme (“the Buy Back Issue”).

15. In an attempt to address the Dividend Issue, the Company revised the draft Composite Document in the manner as suggested by the judge. The OS was restored for hearing on 15 June 2020, during which the judge reiterated it is the responsibility of the Company to ensure that the Explanatory Statement complies with all regulatory and statutory requirements, which will be one of the issues considered at the sanction stage, should the Scheme be approved by the requisite majority at the Court Meeting. On that basis, directions were given for the Company to convene the Court Meeting[8].

16. As the judge had made clear, it is not the role of the court at the OS stage to scrutinise the preparation of the draft Composite Document to ensure compliance with the statutory requirements in all respects before ordering a Court Meeting to be convened to vote on a scheme of arrangement. As the judge had put it:

“It is the responsibility of the company (and those advising the...

To continue reading

Request your trial
1 firm's commentaries
  • Back on track – Court of Appeal allows privatization rejected by lower court
    • Hong Kong
    • JD Supra Hong Kong
    • 7 December 2020
    ...explanation for the scheme and questioning whether the results of member votes had been properly accounted for. In the appeal, [2020] HKCA 973, the Honorable Madam Justices Kwan and Yuen, and the Honorable Mr. Justice Barma, said that whilst the company could be faulted for the information ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT