CO129-613-4 Transfer of registration of China Companies from the United Kingdom to Hong Kong 16-4-1946 - 3-2-1948 — Page 139

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5.

Against a rate being fixed it is argued that where

part of the Companies' assets have been lost or destroyed a

conversion at the fixed rate might require, to set the Companies'

finances in order, a subsequent application for a reduction of

capital even though the conversion and reduction in capital

constituted in the final result an increase in capital in view

of the present low value of the Chinese dollar. Further, it

is pointed out that so long as the conversion constitutes

virtually an increase and not in fact a reduction of capital

there is no justifiable reason for interfering with the

Company's own discretion as to the extent to which its capital

should be increased. To do otherwise, in fact, would be to

encourage Companies to give their shareholders and the general

public a false impression as to their Companies' accounts and

finances. It has accordingly been suggested that a Company'

should be allowed to convert its capital so long as such

conversion will not in fact amount to a reduction and provided

that the Company produces and files a certificate by the Directors

and the Company's auditors to the effect that a conversion at

the rate proposed is justified by the assets and liabilities of

the Company as existing at the date of the conversion.

advised that with the exceptions referred to in paragraph 8 of

this despatch, this suggestion is reasonable. If, however,

you are still of the opinion that a rate should be fixed, I am

advised that it would be sufficient to prescribe that the rate

should be one not less advantageous to the value of the Chinese

dollar than that prevailing on the date of the conversion.

6.

I am

In those cases where ordinary shares only have been

issued by the Company, it would not appear unreasonable that

the conversion should take place at such rate as the Directors

themselves by resolution appoint without the necessity of

calling formal meetings of shareholders at an extraordinary

meeting. It is felt that so long as the conversion does not

amount to a reduction, creditors and shareholders of the Company