SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported): September 2, 1998
IWI Holding Limited
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(Exact name of Registrant as specified in its charter)
0-25108
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(Commission file number)
B.V.I. None
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(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification Number)
1010 Executive Court, Suite 300, Westmont, IL 60559
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(Address of principal executive offices) (Zip code)
(630) 887-8288
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(Registrant's telephone number, including area code)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
In June 1998, Chan Mau Hing, a New York a resident loaned certain sums to
Rhine Investment Holding Company Limited ("Rhine") pursuant to a 60 day
promissory note. The collateral for this loan was 918,750 shares of common stock
of the Registrant and 3,644,880 shares of preferred stock of the Registrant.
Each share of common stock has one vote per share while each share of preferred
stock has one-half vote per share. Upon default of the loan by Rhine, the
collateral was foreclosed and sold to Bamberg Company Ltd., a British Virgin
Islands corporation. As a result of this purchase, Bamberg Company Ltd. now
controls approximately 62.6% of the voting power of the Registrant.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
On September 2, 1998 an Official Receiver was appointed as the Provisional
Liquidator for the ultimate
parent of the Registrant, Rhine Holdings Limited.
On September 3, 1998, Kennic Lai Hang Lui and Lauren Wu Lau, both of Kennic
L.H. Lui & Company, 5th Floor, Ho Lee Commercial Building, 38-44 D'Aguilar
Street, Central, Hong Kong, were appointed Joint and Several Agents of the
Official Receiver and the Provisional Liquidator of the Company.
On September 11, 1998, Kennic Lai Hang Lui and Lauren Wu Lau, both of
Kennic L.H. Lui & Company, 5th Floor, Ho Lee Commercial Building, 38-44
D'Aguilar Street, Central, Hong Kong, were appointed Joint and Several Special
Managers of the Company under an order of the Court issued on the same day.
ITEM 7. FINANCIAL STATEMENTS & EXHIBITS
(c) Exhibits
1. Report of the Joint and Several Managers at the First Meeting of
Creditors and Contributors.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
IWI HOLDING LIMITED
Date: October 19, 1998 By:/s/ Joseph K. Lau
---------------------------------
Joseph K. Lau, President
Rhine Holdings Limited (In Liquidation)
Companies Winding-up No. 510 of 1998
Report of the Joint and Several Special Managers
At the First Meeting of Creditors and Contributories
Held on Monday, 12 October 1998 at 9:30 a.m.
In the Official Receiver's Office, Queensway Government Offices
I. Background
Rhine Holdings Limited ("the Company") is principally engaged in the design,
manufacture, merchandising and distribution of fine jewellery. The Group
manufactures a comprehensive range of moderately priced jewellery products which
are typically made of diamonds, precious or semi-precious stones, pearls, karat
gold (excluding pure 24 karat gold) and silver. Its major market include the
United States ("US"), Western Europe and Asia.
The Company obtained a listing status on the Stock Exchange of Hong Kong in
1993. Trading of shares has been suspended since 10 July 1998 upon the request
of the directors of the Company.
The directors remained in the office were David Chui Fat Chuen, Lillian Chui Lau
Sau Chun, Shirley Lau Sau Far, Sherman Chui, Ng Kai Shing, Leung Sze Hoo, Wang
Ming Quang, Dong Yong Chi, Yu Rong Fang, Li Da Zheng and Liu Jun Yang.
Banque Nationale de Paris, representing a Syndicate Bank Group, presented a
petition for winding-up of the Company on 28 July 1998. A winding-up order
against the Company was then made by Master Lok in the Court of First Instance
of the High Court of Hong Kong on 2 September 1998.
II. Appointment
The Official Receiver was appointed the Provisional Liquidator of the Company on
2 September 1998 under an order of the Court.
On September 3, 1998, Kennic Lai Hang Lui and Lauren Wu Lau, both of Kennic L.H.
Lui & Company, 5th Floor, Ho Lee Commercial Building, 38-44 D'Aguilar Street,
Central, Hong Kong, were appointed Joint and Several Agents of the Official
Receiver and the Provisional Liquidator of the Company.
On September 11, 1998, Kennic Lai Hang Lui and Lauren Wu Lau, both of
Kennic L.H. Lui & Company, 5th Floor, Ho Lee Commercial Building, 38-44
D'Aguilar Street, Central, Hong Kong, were appointed Joint and Several Special
Managers of the Company under an order of the Court issued on the same day.
1
<PAGE>
III. Financial position of the Company
1. Assets
According to the information available in the Company's accounting records, the
assets of the Company as at 2 September 1998 comprise the following:
HK$
Fixed assets 1,468,523
Investment in and amount due from subsidiaries 175,378,527
Rental and sundry deposits and Prepayments 553,235
Cash and bank balance 681,304
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178,081,589
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2. Fixed assets
Details of the fixed assets are summarized below:
<TABLE>
Leasehold Furniture & Equipment & Motor Total
Improvements Fixtures Machinery Vehicles
HK$ HK$ HK$ HK$ HK$
<S> <C> <C> <C> <C> <C>
Cost 2,004,944 766,383 16,653 1,461,329 4,249,309
Less: Depreciation (2,004,944) (327,380) (1,802) (446,660) (2,780,786)
----------- ----------- --------- ---------- ----------
Net book value - 439,003 14,851 1,014,669 1,468,523
=========== =========== ========= ========== ==========
</TABLE>
The Joint and Several Special Managers seized and secured the leasehold
improvements, furniture & fixtures and equipment & machinery with a total book
value of HK$453,854 and have instructed Henry Butcher (HK) Limited to make a
valuation thereon. Henry Butcher (HK) Limited value the fixed assets seized and
secured by the Joint and Several Special Managers at HK$53,860.
The Joint and Several Special Managers were advised by the directors of the
Company that the motor vehicle, a Mercedes Benz of model number S500L, owned by
the Company with a net book value of HK$1,014,669, was repossessed by the hire
purchases creditor, namely Avco Financial Limited. According to the accounting
records of the Company, the amount due to Avco Financial Limited as at 2
September 1998 was HK$1,063,582. The Joint and Several Special Managers have
contacted Avco Financial Limited but have not yet received a statement of
disposal from Avco Financial Limited and would follow up and investigate whether
there would be any surplus available for creditors upon disposal.
2
<PAGE>
3. Investment in and amounts due from subsidiaries
Based on information available, details of the investment in and amount due from
subsidiaries as at 2 September 1998 are summarized below:
<TABLE>
Cost of Amount due from Total
Investment
HK$ HK$ HK$
<S> <C> <C> <C>
Rhine Investment Holdings Company Limited 70,665,000 77,869,498 148,534,498
Rhine Jewellery Limited - 94,821,161 94,821,161
Liheng Investment (Shanghai) Company Limited - 65,563,576 65,563,576
Imperial World, Inc. 28,210,848 - 28,210,848
Lenten Enterprises Limited - 14,661,359 14,661,359
Haupia Corporation 794,914 4,592,431 5,387,345
Rhine Jewellery GmbH 225,500 30,371 285,871
Leon International Jewellery Limited - 30,371 285,871
Rainier Investment Holdings Corporation - 18,593 18,593
Coates-Bridge Limited - 17,640 17,640
Rhine Purchasing Company Limited - 10,400 10,400
Rhine Property Development Limited - 8,610 8,611
Rhine Sourcing - 7,303 7,303
Comtee Investment Limited - 4,290 4,290
Rhine Strategic Investment Limited 8 (15,683,493) (15,683,485)
----------- ----------- -----------
99 242,229,648 341,878,527
=========== ===========
Less: Provision for diminution in values (166,500,000)
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Net Book Value 175,378,527
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</TABLE>
A brief summary of work done on the various significant subsidiaries are set out
below:
3.1 Rhine Investment Holdings Company Limited ("RIHCL")
RIHCL, a wholly owned subsidiary of the Company, is incorporated in British
Virgin Islands.
According to the Company's records, RIHCL acts as an investment holding company
for interests in various subsidiaries. The principal subsidiaries include IWI
Holding Limited ("IWI"), Rhine Jewellery Limited ("RJL"), Rainier Investment
Holdings Corporation ("Rainier Holdings") and Lihend Investment (Shanghai)
Company Limited ("Liheng").
According to the management accounts of RIHCL as at 30 June 1998, the total
amount of assets of RIHCL was HK$156,509,347, out of which HK$78,687,360 was the
amount invested in IWI whilst HK$76,740,679 was due from Liheng. Details of IWI
and Liheng are summarized under Section 1.2.1.1 and 1.2.1.4. In view of the
financial position of both IWI and Liheng, it appears that a substantial amount
may probably be required to be made against the value of RIHCL's investment in
IWI and the amount due from Liheng.
The total amount of liabilities of RIHCL, representing amount due to the
Company, was HK$77,869,498. The directors of RIHCL however have not provided an
estimation on the value of the assets as at 2 September 1998.
3
<PAGE>
3.1.1 IWI Holding Limited ("IWI")
IWI is a company incorporated in British Virgin Islands and listed on the
National Association of Securities Dealers, Inc., Automated Quotation
System/National Market System ("NASDAQ") market in U.S. IWI holds a wholly owned
subsidiary, Imperial World, Inc. ("Imperial"), which is engaged in the wholesale
business of Jewellery in U.S. The Joint and Several Special Manager were
investigating whether the Company's investment of HK$28,210,848 should be held
directly in Imperial World, Inc. or held indirectly through IWI.
According to the Company's records, RIHCL holds 918,750 shares of the ordinary
stock of IWI, which represents 35% of the total stock of this class, and
3,644,880 shares of the preferred stock of IWI, which represents 100% of the
stock of this class. The preferred shares have voting rights equivalent to
one-half vote per share, and a US$1 per share liquidation preference. According
to the information provided by the directors of the Company, the listing of
ordinary stock of IWI raised a total of US$11,800,000 from the initial public
offer by placing 1,727,500 shares between December 1994 and January 1995. The
average issued price per share of placement was approximately US$6.83.
The Joint and Several Special Managers were advised by a director that IWI was
no longer listed on NASDAQ as the price of its common stock had dropped below
the required level set by NASDAQ. The trading of the common stock of IWI is now
only available in the OTC (Over the Counter) market. The value of the common
stock of IWI per share as at 2 September 1998 was US$0.125, making the total
market value of common stock of IWI held by RIHCL US$114,844.
According to information available, Imperial incurred losses in the last 3
financial years. The losses for the years ended 31 December 1996 and 31 December
1997 were US$5,936,000 and US$7,834,000 respectively. According to the
management accounts of Imperial for the six months ended 30 June 1998, the loss
for the period was US$1,138,323. The directors represented that the reduction of
losses was the result of improved profit margin.
The management accounts of Imperial as at 30 June 1998 showed that the total
amount of assets and total amount of liabilities of Imperial as at that date
were US$8,277,134 and US$5,696,889 respectively, making shareholders' equity as
at 30 June 1998 of US$2,580,245. It was noted that the total amount of assets of
US$8,277,134 includes trade inventory of US$4,454,903. The directors that a
provision for diminution on the value of the inventory might be necessary. The
directors of the Company further advised that the losses of Imperial in recent
years were expected because of the over-stocking of trading inventories.
The directors of the Company advised that, in order to raise working capital for
the Rhine Group, all the IWI shares held by RIHCL were pledged to a Mr. Chan Mau
Hing ("Mr. Chan") on 1 July 1998 for a loan of US$230,000 provided by Mr. Chan
to RJL. The directors of the Company further advised that Mr. Chan is an
unconnected third party. This secured loan bears interest at 8.5% per annum and
is to be repaid by 1 September 1998 with a handling fee of 3% on the face value
of the loan. In case of default, the pledge, Mr. Chan, could enforce the pledge
10 days after a formal demand notice had been given. Mr. Chan gave the demand
notice to RIHCL on 2 September 1998 and the Joint and Several Special Managers
were advised that the pledge was enforced and disposed of at a consideration
US$145,000 on 24 September 1998. Mr. Chan further wrote to the Joint and Several
Special Managers claiming for the loan deficiency of US$101,506 after accrual of
interest expenses, handling fee and cost.
4
<PAGE>
The Joint and Several Special Managers have commenced investigation into the
details of this loan and pledge transaction and it is expected that the work
should be continued.
At the meantime, the Joint and Several Special Managers have written to the
share transfer agent in US to request that any share transfer to the IWI shares
be withheld pending the result of the investigations taken by the Joint and
Several Special Managers. The request has been acknowledged and accepted by the
share transfer agent.
The directors of the Company have not yet provided an estimated value of the
investment in IWI.
3.1.2 Rhine Jewellery Limited ("RJL")
RJL is a company incorporated in Hong Kong and is a wholly owned subsidiary of
RIHCL.
RJL, acting as the trading arm of the Rhine Group, distributed the jewellery
manufactured in China to the customers all around the world. A substantial
amount of RJL's sales were made to Imperial.
The directors advised that RJL operated a factory, namely Rhine Jewellery Pun Yu
Factory ("Rhine Pun Yu"), in Pun Yu, People's Republic of China ("PRC"). The
directors of the Company advised that Rhine Pun Yu operated at a loss in recent
years and therefore had ceased production. According to the management accounts
of Rhine Pun Yu as at 30 April 1998, the total amount of assets was
HK$11,802,302 whilst the total amount of liabilities was HK$30,582,572.
RJL was also put into compulsory liquidation under a court order made on the
same date of the liquidation of the Company. The Official Receiver was appointed
as the Provisional Liquidator of RJL whilst Kennic Lai Hang Lui and Lauren Wu
Lau were initially appointed as the Joint and Several Agents of the Official
Receiver and Provisional Liquidator and subsequently as the Joint and Several
Special Managers of RJL.
According to the accounting records of RJL, as at the date of liquidation, the
total amount of liabilities of RJL was HK$156,561,988, out of which
HK$94,821,161 was due to the Company. The total amount of assets of RJL was
HK$101,810,572, out of which HK$13,368,717 was due from IWI. The amount of funds
available for distribution to creditors as dividends would depend on the amount
of funds realized from the assets after the cost of liquidation.
5
<PAGE>
The directors of RJL have not yet lodged the Statement of Affairs and no
information in respect of the estimated realizable amount is available.
3.1.3 Rainier Investment Holdings Corporation ("Rainier Holdings")
Rainier Holdings is incorporated in British Virgin Islands and is a wholly owned
subsidiary of RIHCL. According to the management accounts of the Rainier
Holdings as at 30 June 1998, the total amount of assets was HK$8 whilst the
total amount of liabilities was HK$23,785.
Rainier Holdings has a wholly owned subsidiary, Rainier Jewellery Manufacturing
Limited ("Rainier Manufacturing") which owns an industrial premises in Pun Yu,
PRC and a 60% owned subsidiary, Leader Jewellery Limited ("Leader") which
operates a factory in Foshan, PRC.
The industrial premises was used by Rhine Pun Yu, a factory manufacturing
jewelleries as a subcontractor for export and was operated under RJL. The
directors estimated that the value of the industrial premises to be
approximately RMB20,000,000. The premises was pledged to China Merchant Bank,
Guangzhou Branch to secure a banking facility granted to Leader. The Joint and
Several Special Managers were also advised that China Merchant Bank has taken
legal proceedings against Rainier Manufacturing in demanding repayment of the
outstanding indebtedness of approximately RMB19,000,000.
The directors advised that China Merchant Bank has a principle agreed to take
possession of the industrial premises for full settlement of the indebtedness.
The directors also advised that, in view of the inactive second market of the
industrial premises in PRC, the arrangement would be beneficial to Rainier
Manufacturing. If China Merchant Bank decided to take possession of the
industrial premises owned by Rainier Manufacturing as settlement of the
outstanding indebtedness owe by Leader, Rainier Manufacturing should take action
to recover the amount from Leader.
According to the management accounts of the Rainier Manufacturing as at 30 June
1998, the total amount of assets was HK$21,1354,434 whilst the total amount of
liabilities was HK$22,519,898.
Leader, a factory operation located in Foshan, operated a Jewellery
manufacturing and retailing business in PRC. It was a Joint Venture between
Rainier Manufacturing and Foshan Articraft Factory ("Foshan Articraft"), and the
business was ceased in 1996 due to lack of working capital. According to the
management accounts of Leader as at 31 December 1997, the total amount of assets
was RMB22,412,776, out of which RMB20,722,194 represents accounts receivable. In
view of the current position of Leader, the directors of the Company considered
that a significant amount of provision on the recoverability of the accounts
receivable was required. Accordingly the value of Leader may be greatly reduced.
The total amount of liabilities was RMB10,304,169 and Leader has a shareholders'
equity as at 31 December 1997 of RMB12,108,607.
6
<PAGE>
It is noted that Foshan Articraft is demanding repayment of loan of RMB7,102,520
advanced to Rainier Manufacturing. The Joint and Several Special Managers were
looking into the details of the claims. They have also visited Foshan Articraft
and discussed with its director to explore the opportunity of realizing Rainier
Manufacturing's 60% equity in Leader.
3.1.4 Liheng Investment (Shanghai) Company Limited ("Liheng")
Liheng, a company incorporated in the British Virgin Islands, is an indirectly
wholly owned subsidiary of RIHCL.
According to information available, Liheng has 70% interest in Shanghai Lai Xing
Real Estate Development Company Limited ("Shanghai Lai Xing"), a company
incorporated in Shanghai, PRC.
According to the management accounts of Liheng as at 30 June 1998, the total
amount of assets of Liheng was HK$141,585,974, representing investment in the
amount due from Shanghahi Lai Xing. The total amount of liabilities of Liheng
was HK$143,062,617, out of which HK$65,563,576 was due to the Company.
According to the directors, the main assets of Shanghai Lai Xing are properties
under development, namely Laixing Garden and Rhine Plaza in Shanghai. Laixing
Garden is developed for residential purpose with an area of 10,762 square meter.
The Joint and Several Special Managers were advised that 94 units, representing
73% of the units in Laixing Garden, had been sold for RMB44M and there were
still 34 unsold units. Rhine Plaza is developed for commercial purpose with an
area of 31,119 square meter. The Joint and Several Special Managers were advised
that 3,800 square meter representing 12.2% had been sold. It comprises of 10
floors of retail space and 17 floors of office units. The unaudited construction
cost of work in progress up to December 1997 was approximately HK$234 million.
The Rhine Plaza is approximately 75% completed and Shanghai Lai Xing is looking
for further finance in PRC to complete the construction work. The directors
estimated that the cost to complete the construction to be RMB76 million.
A company in Xiamen commenced legal proceedings in PRC on 18 June 1998 to claim
a total of RMB55,080,000 against Ningbo Dili Group Company Limited ("Dili") and
Shanghai Lai Xing under a Mortgage Agreement signed by Wang Ming Qiang, the
chairman and managing director of the Company. The Joint and Several Special
Managers were advised that Wang Ming Qiang was the president of Dili and owned
30% of its interest. The company in Xiamen also obtained a court order dated 26
June 1998 to freeze the assets of Dili and Shanghai Lai Xing up to a sum of
RMB6,480,000.
The Duty Free Commodity Corporation Xiamen Special Economic Zone ("Duty Free")
also commenced legal proceedings in PRC on 2 July 1998 to claim a total sum of
RMB14,300,016 against Dili and Shanghai Lai Xing under a Mortgage Agreement
signed by Wang Ming Qiang. Duty Free also obtained a court order dated 22 July
1998 to freeze the assets of Dili and Shanghai Lai Xing up to a sum of
RMB14,300,016. In addition, a PRC court order dated 21 July 1998 to freeze 4,000
square meter of Rhine Plaza was received by Shanghai Lai Xing.
7
<PAGE>
The other directors of the Company claimed that Wang Ming Qiang signed the
Mortgage Agreements without the authority of the board of directors of the
Company and the signing of the mortgage was not for the benefit of the Rhine
Group but for the benefit of Dili.
The Joint and Several Special Managers were advised that on 20 September 1998,
the Civil Court of Xiamen, Fujian had taken possession from Shanghai Lai Xing of
21 units of Rhine Plaza with a total value of approximately RMB19m.
The Joint and Several Special Managers had a meeting with the joint venture
partner of Shanghai Lai Xing in respect of the liquidation of the Company and
its implication on Shanghai Lai Xing. The Joint and Several Special Managers
have also been contacting the lawyers previously engaged by Shanghai Lai Xing to
handle the dispute arisen and the litigation against Wang Ming Qiang. However,
the lawyers appeared to be passive and unhelpful.
The Joint and Several Special Managers were not able to obtain legal advice to
date on whether the judgement orders made against Shanghai Lai Xing could be
resinded. Due to lack of information, the financial damages suffered by Shanghai
Lai Xing cannot yet be ascertained. In view of the current situation, it appears
that Shanghai Lai Xing is facing difficulties in regard to continuous source of
funds and various legal actions.
3.2 Rhine Strategic Investment Limited ("RSIL")
RSIL,a wholly owned subsidiary of the Company, is incorporated in the British
Virgin Islands.
According to information available in the Company's records, RSIL acts as an
investment holding company for interests in various subsidiaries and associated
companies. The principal subsidiaries include Lenten Enterprises Limited
("Lenten") and Team Time Limited ("Team Time")
According to the management accounts of RSIL as at 30 June 1998, the total
amount of assets of RIHCL was HK$22,959,225 whilst the total amount of
liabilities was HK$22,975,368, out of which HK$21,900,000 was an amount due to
Mr. Wang Ming Qiang, a director of the Company.
The majority of assets of RSIL represented an amount due from the Company of
HK$15,683,493 and an amount due from RJL of HK$6,200,000. After reviewing the
accounts of RSIL, it was noted that these two inter-company balances were the
result of certain journal entries being put through the books. Further
investigation work would be required in order to ascertain the validity of the
various transactions recorded in the books.
8
<PAGE>
3.2.1 Lenten Enterprises Limited ("Lenten")
Lenten, a wholly owned subsidiary of RSIL, is incorporated in the British Virgin
Islands.
According to information available in the Company's records, Lenten holds 50%
equity of Studio International (Far East) Limited ("Studio"), a company
incorporated in Hong Kong The directors represented that the principal business
of Studio was garments trading in Hong Kong and Zhuhai, PRC. The directors
advised that Studio had suffered significant losses and trading was ceased. The
directors further advised that Studio still have some stock on hand located both
in Hong Kong and Zhuhai. The Joint and Several Special Managers were unable to
locate the management accounts of Studio in the Company's records.
According to the management accounts of Lenten as at 30 June 1998, the total
amount of assets was HK$25,042,125, represented the investment in and amount due
from Studio. The total amount of liabilities was HK$25,093,823, out of which
HK$14,661,359 was amount due to the Company.
3.2.2 Team Time Limited ("Team Time")
From the investigation to date, it appears that RSIL may have an interest in
Team Time. The directors represented that RSIL had entered into an agreement
with a third party to dispose of its 62% equity in Team Time during 1995 and its
remaining 38% equity in Team Time during 1996. These two transactions had been
disclosed in the Company's Annual Report for the respective years. One of the
directors however represented that the agreements were later cancelled and Team
Time was still a wholly owned subsidiary of RSIL. The Joint and Several Special
Managers have not been able to obtain any documents evidencing the cancellation
of the agreements.
Team Time acquired 49% of the Dong Guan New World Crystal Manufacture Company
Limited ("New World Crystal") at RMB18.52 million.
Team Time entered into an agreement with Tianjin Standard International Building
Materials Industrial Company Limited ("Standard International), a company
incorporated in Tianjin, in 1996 whereby Team Time agreed to sell its 49%
interest in New World Crystal to Standard International for RMB18.52 million.
The first installment of RMB9.02 million was to be paid before 30 June 1996 and
the second installment of RMB9.5 million was to be paid before 30 June 1997.
Standard International had only paid the first installment.
9
<PAGE>
Team Time had engaged a collection agent to recover the default payment of
RMB9.5 million on 15 July 1998. The Joint and Several Special Managers had a
meeting and various discussions with the collection agent and it is uncertain at
this point in time that the outstanding debt will be recoverable.
The Joint and Several Special Managers are in the opinion that further
investigation work is required on Team Time to confirm whether the Company or
RSIL, still has any interest in Team Time before taking steps in recovering the
amount due from Standard International.
3.3 Rhine Jewellery GmbH ("RG")
RG, a company incorporated in Germany, is a wholly owned subsidiary of the
Company.
RG operates a show room in Germany with the objective to increase the market
exposure of the Company's business in Europe. The directors of the Company
however were not satisfied with the sales performance. A turnover of only
DM60,275 (approximately HK$289,320) was recorded for the year ended 30 June
1998.
According to the accounting records of RG, the total amount of assets and the
total amount of shareholders' deficiency of RG as at 30 June 1998 were DM695,106
(approximately HK$3,336,509) and DM1,646,071 (approximately HK$7,901,141)
respectively. The major asset is inventory. It was noted that the amount due by
RG to RJL, a fellow subsidiary of RG, as at 30 June 1998 amounted to DM1,450,570
(approximately HK$6,962,736).
The directors advised that RG had ceased trading. The Joint and Several Special
Managers are of the opinion that RG should be put into liquidation in order to
secure the inventory remained in the hands of RG's manager in Germany.
3.4 Haupia Corporation ("Haupia")
Haupia, a company incorporated in the British Virgin Islands, is a wholly owned
subsidiary of the Company.
According to the management accounts of Haupia as at 30 June 1998, the total
amount of assets was HK$33 whilst the total amount of liabilities was
HK$3,905,395, out of which HK$1,155,150 was due to group companies.
Haupia was previously engaged in Jewellery retail business in Beijing. The
business was unsuccessful and therefore trading was terminated. During the time
of the business in operation, Haupia acquired 4 properties in Beijing, two of
which were commercial units whilst two of which were residential units. The
registered owner of the properties was however not Haupia but Hung Chow Lai Xing
("Manna Chow"), the manager of Haupia. Manna Chow signed an affidavit in April
1995 confirming that the said properties were in fact the assets of Haupia and
did not belong to her.
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<PAGE>
In May 1997, RJL entered into an agreement with Manna Chow whereby the said
properties were sold to her for RMB3.86 million. The first payment of RMB1
million is to be made on or before 31 May 1997, second payment of RMB1m to be
made on or before 30 June 1997 and the final payment of RMB1.86 million is to be
made on or before 31 July 1997. Manna Chow defaulted in making all of the
payments.
Haupia had engaged a collection agent to recover the default payment of RMB3.86
million on 15 July 1998. The Joint and Several Special Managers had a meeting
and various discussions with the collection agent an it is uncertain at this
point in time that the outstanding debt will be recoverable.
4. Rental and sundry deposits and Prepayments
Details of the rental and sundry deposits as at 2 September 1998 are summarized
below:
HK$
Prepayment of Stock Exchange Listing Fees 9/98 to 12/98 68,333
Convertible Note issuing expenses 226,882
Rental deposits (2 months) 209,536
Prepaid Insurance 16,359
Maintenance fees 7,309
Other miscellaneous deposits 24,816
---------
553,235
=========
The Joint and Several Special Managers have reviewed the above items and
considered the Stock Exchange Listing Fees of HK$68,333 and the Convertible Note
issuing expenses of HK$226,882 have no realizable value.
The Company has two months rental charges unpaid as at 2 September 1998 and
therefore it would be unlikely that any balance of the rental deposits could be
refundable.
The Joint and Several Special Managers would arrange for the refund of various
deposits totalling HK$48,484, if refundable.
5. Bank balance
Details of the bank balances as at 2 September 1998 are summarized below:
Name of banker HK$
Hongkong and Shanghai Banking Corporation Limited 655,977
Standard Charter Bank 9,432
China & South Sea Bank 8,899
Bank of China 1,100
Hua Chiao Bank 5,896
--------
681,304
========
The above balances only represent the amounts shown in the accounting records of
the Company. The balances may be before unrepresented cheque and may have been
used as securities of any bank indebtedness due by the Company or its
subsidiaries and therefore be subject to any claim made by the banks.
6. Liabilities
According to the information available in the Company's accounting records as at
2 September 1998, the liabilities of the Company comprise of the following:
HK$
Secured
Hire purchase creditors 1,063,582
----------
Unsecured
Accrued charges and accounts payable 17,949,465
Bank overdraft 700,305
Convertible Notes (redemption premium included) 184,748,266
-----------
203,398,036
-----------
Total indebtedness 204,461,618
===========
6.1 Secured creditors
The amount of hire purchase creditors due to Avco Financial Limited has been
discussed in the section "Fixed Assets" and the Joint and Several Managers are
awaiting to received the statement of disposal of the motor vehicle. It is
likely that the amount due would be reduced.
6.2 Unsecured creditors
Accrued charges and accounts payable represent the amount due to various
professionals and suppliers. Details of the amount are attached at Appendix I.
Bank overdraft represents the overdraft balance due to Sin Hua Bank Limited. The
directors advise the Joint and Several Managers that the overdraft was unsecured
and not guaranteed by any directors of officers.
Convertible Notes represent the amount due to the holders of the Company's
USD/CHF Convertible Notes 1994/1998, including the redemption premium. The issue
value of the Convertible Notes was CHF30,000,000 whilst the outstanding face
value of the Convertible Notes is CHF29,950,000, or HK$157,161,379. The
redemption premium shown in the accounting records is HK$27,586,887. The Joint
and Several Managers understand that Bank von Ernst ("the Notes Manager"), a
bank with operations in Switzerland, is the manager of the Convertible Notes.
The Convertible Notes bear interest at 2% per annum for the year between 1994
and 1998 and a 19% premium would be levied on the face value of the notes upon
redemption. The Convertible Notes are bearer notes and accordingly the Notes
Manager do not have a list of Note Holders.
11
<PAGE>
The accounting records of the Company did not provide for the amount due to the
petitioning creditors totalling HK$6,294,932 as the Company did not directly
borrow from the petitioning creditors. The amount due was the result of default
payment by RJL to which the Company has provided a corporate guarantee. However
it is noted that, according to the accounting records of RJL, the amount due to
the petitioning creditors was HK$5,751,542 as detailed in Appendix II.
6.3 Preferential Creditors
It is noted from the Company information that as at 2 September 1998, the
Company had an accrual of directors remuneration and outstanding salaries
totalling HK$3,956,063 included in Accrued charges and accounts payable. The
preferential portion is to be assessed.
IV. Other work performed by the Joint and Several Managers/Agents
1. General duties
1.1 Writing to the directors of the Company to advise them of the winding up
order and the appointment of the Provisional Liquidation of his agent, and
advising the directors of the Company of their cessation of power to manage
the Company.
1.2 Writing to the auditors and solicitors of the Company to advise them of the
winding up order and the appointment of the Provisional Liquidator and his
agent.
1.3 Writing to the Stock Exchange Hong Kong to advise them of the winding up
order and the appointment of the Provisional Liquidator and his agent.
1.4 Writing to the subsidiaries of the Company of the winding up order and the
appointment of the Provisional Liquidator and his agent.
1.5 Meetings with the directors of the Company, whoever are available, and
enquiring into the affairs of the Company and its subsidiaries.
1.6 Reviewing the statutory records of the Company.
1.7 Hiring 3 ex-employees of the Group to assist the Provisional Liquidator an
his Agents in updated the accounting records.
1.8 Arranging for the computer network of the Company to be removed from the
Company's premises and reinstalled.
1.9 Providing assistance to the directors of the Company in preparing the
Statement of Affairs by providing the updated management accounts of the
Company as at the date of the winding up.
12
<PAGE>
1.10 Arranging for the packing and storage of the Company's records and
preparing an inventory of the packed records thereto.
1.11 Arranging to vacant the Company's leased premises.
2. Assets
2.1 Securing the Company's premises by replacing locks
2.2 Opening a bank account in Hong Kong
2.3 Arranging for the insurance of the seized physical assets
2.4 Establishing the inter-company balances of the group companies
2.5 Investigating and assessing if there were any assets vested in the
subsidiaries
2.6 Looking into the possibilities in disposing of the Company's equity in the
subsidiaries
2.7 Assessing the value of the Company as a listed shell
2.8 Meeting with various personnel, relating to the affairs of the subsidiaries
with a view to maximize the benefits to the creditors of the Company.
3. Creditors
3.1 Preparing a list of creditors for the Provisional Liquidator
3.2 Writing to the petitioning creditor and contacting the solicitors
representing the petitioning creditor.
V. Receipts and Payments of the Joint and Several Managers
The Receipts and Payments Accounts of the Joint and Several Managers for the
period from 2 September 1998 to 9 October 1998 are as follows:
HK$ HK$
Receipts: Refund of deposits 150.00
Petty cash 6,066.21
---------
6,216.21
Payments: Removal and re-installation of computer
equipment 4,380.00
--------
Balance held by the Joint and Several Managers 1,836.21
---------
VI. Receipts and Payments of the Official Receiver and Provisional Liquidator
The Receipts and Payments Accounts of the Official Receiver and Provisional
Liquidator for the period from 2 September 1998 to 9 October 1998 are as
follows:
HK$ HK$
Receipts: Bank balance 672,173.18
Repayment for termination of
Insurance 249,904.16
Interest 1,788.87
Petitioner's deposit 12,150.00
----------
936,016.21
Payments: Traveling & transportation charges 35.60
Sundry expenses 102.00
Official Receiver's costs 120.00
----------- 257.60
Balance held by the Official Receiver and ----------
Provisional Liquidator
935,758.61
==========
