CONFIDENTIAL
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16. CONTINGENCY RESERVE ACCOUNT
Balance brought forward
Note
1991 HK$ 000
1990 HK$ '000
378,147
510,001
(378,147)
(131,854)
378,147
Transfer to Accumulated
Surplus Account
13
Balance carried forward
PRE SER FOR SURE FOR FOR DE SUE
A contingency reserve of $3,500 million was provided against contingent liabilities arising out of a guarantee given pursuant
to section 3(1) of the Exchange Fund Ordinance to the China
International Trust and Investment Corporation (CITIC) in
connection with the Corporation's capital injection into The Ka
Wah Bank Limited. Up to 31 December 1990, $3,121.9 million of the contingency reserve had been utilized to pay CITIC/The Ka Wah
Bank Limited for the purchase of non-performing loans under the
guarantee and for claims of net worth deficiency in respect of
irrecoverable rental deposits. In light of the recent judgement
award (of about $110 million) to Ka Wah Bank against the Low
Brothers, and the estimated amount of injuncted assets both in
Hong Kong and Malaysia, it is anticipated that there will be
substantial recoveries which would be more than sufficient to
cover all outstanding claims and any contingent liabilities. Accordingly, the remaining balance of $378.1 million has been
written back.
In September 1991, the New York Court granted a motion to
dismiss, on "forum non-conveniens" grounds, the action filed by
the Royal Bank of Canada and PNC International Finance (Asia)
Limited (the Banks) in respect
in respect of Hang Lung Bank's alleged
involvement with Dollar Credit & Financing Limited in
check-kiting schemes. An appeal filed by the Banks against the
decision was also dismissed by the New York Court in
February 1992. Meanwhile, the Banks have commenced proceedings
in Hong Kong for which government is also responsible.
Government's legal advice, however, remains that the chance of
the Banks succeeding in their claims is not high. In the
circumstances, it has not been felt necessary to set aside any
funds in respect of the claim at this stage.
CONFIDENTIAL