SCHEME OF ARRANGEMENT

Transcription

1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to the action that you should take, you should consult your legal or professional adviser without delay. In an endeavour to ensure that investment advisers are in a position to advise their clients, all advisers known to have placed business with CSA Absolute Return Fund Limited have been sent details of how to obtain a copy of this document. SCHEME OF ARRANGEMENT PURSUANT TO SECTION 166 OF THE COMPANIES ORDINANCE (CAP. 32) OF THE LAWS OF HONG KONG AND IN CONJUNCTION WITH A COMPANY CREDITORS ARRANGEMENT UNDER PART II OF DIVISION 2 OF THE INSOLVENCY ACT (2003) IN THE BRITISH VIRGIN ISLANDS BETWEEN CSA ABSOLUTE RETURN FUND LIMITED (IN LIQUIDATION) (INCORPORATED IN BRITISH VIRGIN ISLANDS) BVI COMPANY NO AND THE RESPECTIVE SCHEME CLAIMANTS (AS DEFINED IN THE SCHEME) The meetings of Scheme Claimants and CCA Creditors to consider the Scheme of Arrangement and CCA will be held at 26 Floor Edinburgh Tower, The Landmark, 15 Queen s Road Central, Hong Kong on 8 September 2005 at 10:00am (registration from 9:00am). Notices of the meetings are set out in Appendix 1 on page 61. The action required to be taken by you is set out on pages 2 and 13. Whether or not Scheme Claimants and CCA Creditors intend to be present at the meetings, they are requested to complete and return the relevant Proxy and Voting Form sent to them as soon as possible, and by no later than 5:00pm on 5 September 2005.

2 CONTACT DETAILS HONG KONG BRITISH VIRGIN ISLANDS The Liquidators Legal Advisers The Liquidators Legal Advisers Jan G W Blaauw John J Toohey Jan G W Blaauw John J Toohey Meade Malone* PricewaterhouseCoopers Dibb Lupton Alsop Meade Malone & Co* Walkers (BVI) 22/F Prince s Building 41/F Bank of China Tower Geneva Place The Mill Mall 10 Chater Road 1 Garden Road P.O. Box 3339 P.O. Box 92 Hong Kong Hong Kong Road Town, Tortola Road Town, Tortola British Virgin Islands British Virgin Islands Tel: (852) (852) (1 284) (1 284) Fax:(852) (852) (1 284) (1 284) Website:

3 CONTENTS The terms used in this document are fully defined on pages 17 to 22 and on page 49. Documents contained within this Document Page Key Dates, Timetable and Meeting Checklist 2 Important Notice to Scheme Claimants 3 PART 1 EXPLANATORY STATEMENT Introduction 5 Summary of Key Proposals and Structure of the Scheme 9 Financial Position as at 21 June PART 2 SCHEME OF ARRANGEMENT Definitions and Interpretation 17 The Scheme General 22 Treatment of the Company s Property under the Scheme 25 Determination of Admitted Liabilities and Payment of Dividends 26 The Scheme Administrators 33 The Scheme Adjudicator and Dispute Resolution Procedure 36 The Creditors Committee 38 Meetings of Scheme Claimants 42 Duration and Termination of the Scheme 44 Miscellaneous Provisions 45 PART 3 COMPANY CREDITORS ARRANGEMENT The CCA General 50 Treatment of the Company s Property under the CCA 53 Determination of CCA Creditor Claims and Payment of Dividends The Supervisors, Dispute Resolution Procedure and Creditors Committee 54 Meetings of CCA Creditors 58 Duration and Termination of the CCA Miscellaneous Provisions 59 PART 4 APPENDICES 1 Notices of Meetings of Scheme Claimants and CCA Creditors 61 2 Notes on completion of Proxy and Voting Forms (and Specimen Forms) 63 3 Notes to the Scheme Liability Form (and Specimen Form) 71 4 Notes to the Valuation Statement (and Specimen Statement) 73 5 Company Information, History and Operations 75 6 Explanation of Possible Scheme Claims 79 7 Financial Modelling 83 8 Receipts and Payments Account 86 9 Curricula Vitae of the Scheme Administrators Consents to Act Letter of Support from the Committees of Inspection List of Documents Available for Inspection Summary of Main Scheme Provisions Statutory Provisions 98 1

4 PROPOSED SCHEME OF ARRANGEMENT AND CCA Introduction KEY SCHEME MILESTONES Ascertainment Date 21 June 2004 Distribution of Scheme Documents and Scheme Liability Forms* 11 August 2005 Return Proxy Forms for Meeting 5 September 2005 Scheme and CCA Meetings 8 September 2005 Hearing to Sanction the Scheme 21 September 2005 Anticipated dates Effective Date: The later of the Scheme and the CCA coming into effect 30 September 2005 Scheme Liability Form becomes Binding if not objected to prior to this date* 12 October 2005 Distribution of Valuation Statements 14 October 2005 General Scheme Claimants first and final dividend 100% 11 November 2005 Investor Scheme Claimants first interim dividend 15% 2 December 2005 subsequent dividends 45%** **6-monthly review Final Claims Submission Date: the second anniversary of the Effective Date ***30 September 2007 The dates given above are indicative only. * Scheme Claimants are requested to notify any amendments to the Scheme Liability Form as soon as possible and in any event within 7 Business Days of the Effective Date. ** Subject to receipt of distributable amounts *** Please note that all Claims received after the Final Claims Submission Date will be Rejected. MEETING CHECKLIST Before 5 September 2005: check the information on the Scheme Liability Form to confirm that you agree with: the Agreed Claim amount(s); and the allocation to Class(es). check the amounts and classes on the Voting Form to confirm that they are the same as the data that appears on the Scheme Liability Form; notify the Liquidators of any data that you do not agree with. By no later than 5:00pm on 5 September 2005 Appointing a proxy check the data on the Proxy Form to confirm that it is the same as the Voting and Scheme Liability Forms; complete and lodge the original or fax copy of your Proxy Form and other required documents with the Liquidators in accordance with the notes and the General Guidelines in Appendix 2; if you have faxed your Proxy Form, the original must be received prior to the start of the meetings; give your blank voting form to your proxy, corporate representative or the Chairman to bring to the meetings for completion. At 10:00am on 8 September Attending the meetings bring the Voting Form to the meetings for completion; if you have sent your Proxy Form by fax, bring the original documents, and the relevant authorities; attend at 26/F Edinburgh Tower, The Landmark, 15 Queen s Road Central, Hong Kong. IF YOU HAVE ANY QUERIES ON THE DATA APPEARING ON ANY FORMS, OR THE COMPLETION OF THE VOTING PACK PLEASE CONTACT THE HOTLINE ON (852)

5 IMPORTANT NOTICE TO SCHEME CLAIMANTS Exclusion of Liability This document has been prepared in connection with CSA Absolute Return Fund Limited (in liquidation) (the Company ) and a proposed Scheme of Arrangement (Scheme) in Hong Kong and a Company Creditors Arrangement (CCA) in the British Virgin Islands (BVI) pursuant to section 166 of the Hong Kong Companies Ordinance and Part II Division 2 of the Insolvency Act 2003 in the BVI between the Company and its Scheme Claimants (as defined in the Scheme). Introduction The information contained in this document has been prepared from information obtained from the Company s records and third parties who maintained records on behalf of or in connection with the Company and its affairs. In reviewing the Company s affairs the Joint Liquidators have not performed an audit of the financial position and, accordingly, do not express an audit opinion. Although the Joint Liquidators have no reason to doubt the accuracy of that information there may be certain matters of which they have not been advised or are not aware, accordingly they make no representation or warranty that it, or any information prepared by a third party, is accurate nor in respect of the quantum and timing of any dividends. Estimates provided in this document are indicative only, there are many factors (including the effect of legal rights on insolvency) that are beyond the control of the Joint Liquidators and subsequently appointed Scheme Administrators and Supervisors that can affect these estimates. Events or circumstances could occur that may give rise to either an improvement or deterioration of these estimates and they should therefore be treated with caution in arriving at any decisions or actions based upon them. Unless otherwise indicated, the statements contained in this document are made as at 30 July 2005 and reflect the circumstances existing and the information which the Joint Liquidators were aware of at that time. Nothing in this Document is to be taken as an admission of liability by the Company or its Joint Liquidators. Any statement of a fact, matter or thing contained in this Document is made without prejudice to all rights of the Company against Scheme Claimants and others, which remain expressly reserved. Receipt of this document does not operate as any acknowledgement of a Scheme Claim or mean that if the Scheme is implemented, you will be able to participate in it. If the Scheme and CCA are approved and become binding and you make or have made a Scheme Claim in accordance therewith, then it will be processed in accordance with the terms of the Scheme. Admission of your claim for voting purposes by the Chairman of the relevant Scheme meetings is without prejudice to the Scheme Administrators right to reject the Scheme Claim in whole or in part for the purpose of calculating dividend payments under the Scheme. The Joint Liquidators have not authorised any person to make any representations concerning the Scheme and CCA which are inconsistent with the statements contained herein and if made, they may not be relied upon as having been so authorised. Scheme Claimants should not construe the contents of this document as legal, tax, financial or other professional advice. Each Scheme Claimant should take its own advice from professional advisers before taking any action in connection with the Scheme. None of the Joint Liquidators, their advisers or any of their representatives, partners, staff or agents shall incur any personal liability under, or in connection with the Scheme and CCA. No member of the committee of inspection referred to at Clause S30 of the Scheme is responsible for any statement of opinion or fact contained in this document. This document is important and requires your immediate attention. It contains extensive and detailed information and should be read in its entirety. If you are in any doubt as to the action you should take you should consult your legal or other professional adviser without delay. 3

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7 PART 1 Explanatory Statement SCHEME OF ARRANGEMENT PURSUANT TO SECTION 166 OF THE COMPANIES ORDINANCE (CAP. 32) OF THE LAWS OF HONG KONG AND IN CONJUNCTION WITH A COMPANY CREDITORS ARRANGEMENT UNDER PART II DIVISION 2 OF THE INSOLVENCY ACT, 2003 OF THE BRITISH VIRGIN ISLANDS BETWEEN CSA ABSOLUTE RETURN FUND LIMITED (IN LIQUIDATION) (INCORPORATED IN BRITISH VIRGIN ISLANDS) BVI COMPANY NO AND THE RESPECTIVE SCHEME CLAIMANTS (AS DEFINED IN THE SCHEME) Explanatory Statement 1 BACKGROUND AND OVERVIEW OF THE PROPOSAL FOR A SCHEME OF ARRANGEMENT 1.1 CSA Absolute Return Fund Limited CSA Absolute Return Fund Limited (the Company) was incorporated in the BVI on 26 October 2000 to operate a fund of funds hedge fund (the Fund) and ceased trading on or around 15 June 2004 when a restriction notice was issued by the Securities and Futures Commission of Hong Kong on Charles Schmitt and Associates Limited. The background to the Company, its history and operations are set out in Appendix The winding up petitions in Hong Kong and the British Virgin Islands ( BVI ) On 21 and 22 June 2004, winding up petitions were filed and provisional liquidators appointed in Hong Kong and the BVI respectively. The principal purpose of the provisional liquidation was to preserve and protect the assets and investigate the affairs of the Company pending the determination of the petitions. The winding up commenced on 13 December 2004 in the BVI, when liquidators were appointed. On 10 January 2005, a winding up order was made in Hong Kong and liquidators were appointed together with a committee of inspection on 1 March The liquidators in both jurisdictions are referred to as the Joint Liquidators. 5

8 Having considered how to resolve the issues arising in the liquidation of the Company, the Joint Liquidators are of the opinion that the implementation of a scheme of arrangement (Scheme) in Hong Kong and a company creditor arrangement (CCA) in the BVI between the Company and its respective creditors and members will be in their best interests by simplifying matters, removing inherent legal uncertainties, allowing more efficient agreement of claims, earlier distribution of funds to creditors and Investors and earlier closure of the administration, resulting in cost savings. 1.3 What is a Scheme and CCA? The legal requirements of a Scheme and a CCA are set out in paragraph 3 below. Essentially, each procedure is a compromise or arrangement between a company and some or all of its creditors and/or members (as the case may be) and they are designed to operate through the Scheme in Hong Kong (references to the Scheme also include the CCA). If implemented, they will become final and binding as between the Company and its creditors and members. Each arrangement is tailored to the individual circumstances of the company in order to maximise the benefits it may produce. Pages 5 to 16 contain an explanation of the Scheme. The full Scheme and CCA begin at pages 17 and 49 respectively. Explanatory Statement 1.4 Why has the Scheme been proposed? The Company has been placed in liquidation in Hong Kong and the BVI. Liquidations of companies in two jurisdictions are complex, especially where the insolvency and other local laws in each place are different or inconsistent with each other. Additionally, in this case, the Company faces actual and potential claims which if dealt with in the ordinary course could take many years to resolve and would substantially delay any distribution to creditors and members. The proposed Scheme is a cost-effective and timely way of bringing finality to the claims against the Company, enabling distributions to be made in a shorter period of time than would be achievable on winding up. The general principle of payment in a winding up is for the creditors of a company to be paid before the shareholders. In the usual case, the shareholders are only entitled to receive a share of a company s assets after the expenses of the winding up have been met and the creditors have received payment in full. The position in relation to the Company is more complicated than the usual case, because the Company has two main types of creditor. The first type of creditor includes both those who applied for shares in the Company and did not receive them and other general trade creditors. These creditors are collectively defined in the Scheme as General Scheme Claimants. The second type of creditor includes those who applied for and were allotted shares in the Company. These creditors are defined in the Scheme as Investors. All Investors of the Company are shareholders in the Company. However, it is possible that, in addition to the right to receive an ultimate distribution as shareholders in the Company, Investors may also have a right to claim damages. These claims might potentially arise as a result of possible misrepresentations made by or on behalf of the Company about the Fund to Investors. These claims are defined in the Scheme as Investor Scheme Claims and are summarised in Appendix 6. The Joint Liquidators have identified that such possible claims for damages the Investors may have 6

9 broadly fall into two categories: i) Claims by Investors who may be eligible to assert various claims including possible common law claims for damages under section 40B of the Hong Kong Companies Ordinance ( section 40B Investor Scheme Claims ) and possible statutory claims for damages under section 16 of the Mutual Fund Act (1996) in the BVI ( MFA ), as limited by section 17 MFA ( section 16 Claims ). As a result, this class of Investor claims only includes those Investor claims relating to shares subscribed for by Investors on or after 12 December 2003; and ii) Investors claims relating to shares subscribed for before 12 December These Investors do not appear to be eligible to assert section 16 Claims. These Investors are limited to any other potential claims that such Investors may have (including section 40B Investor Scheme Claims). It is possible that all Investors may have claims that fall into one and/or other of the 2 categories set out above. As a result all Investors are potentially in a position to assert that they have claims for damages in the Hong Kong and/or BVI liquidations as if they were creditors, in addition to the claims of Investors as members of the Company. As is set out in Appendix 6, the legal nature of the claims potentially available to Investors is complex. It is difficult to predict what the outcome of any litigation to resolve these issues might be. If Investors pursued the individual claims that may be available to them, the following factors would delay and reduce the assets available for distribution by the Company: Such claims would almost certainly involve litigation in the courts of Hong Kong and the BVI and are likely to take time, somewhere between 2 and 7 years, before such claims could be resolved. Explanatory Statement Litigation would be expensive and would reduce the assets available for distribution from the Company s estate. The Joint Liquidators would be unable to distribute any dividend to creditors and members in the liquidations of the Company until the legal rights, quantum and relative priorities of the Investors had been established. If some Investors successfully made claims and it became clear that the legal position was that all, or a significant number of other Investors had similar rights to damages, the Liquidators might have to seek Court directions on whether to pay, or reserve for, similar claims to those which had been litigated. The likely consequences of a significant number of Investors being able to make such claims successfully would be to render the Company insolvent. A Scheme has been proposed as an alternative to liquidation in order to avoid the delays and costs that could result from the claims referred to above, by establishing a mechanism for settling the classes and priorities of creditors to assets without the need to test the claims in the courts at the Investors own cost, and enabling a distribution of the assets to be made as quickly as possible. It is important that Scheme Claimants give careful consideration to this section of the Explanatory Statement and Appendix 6 and take independent legal advice on its contents in order that they can properly assess whether or not to support the Scheme. 1.5 What is the effect of the Scheme and CCA proposals? 7

10 In the absence of the Scheme and CCA, the Company s assets would be administered by the Joint Liquidators by way of the liquidations in accordance with the laws of both BVI and Hong Kong jurisdictions. These laws are fundamentally based upon United Kingdom legislation and the underlying principles are similar, though a series of amendments to the BVI legislation in 2003 means that a number of previously similar mechanisms are now different. The proposals set out in this document are for parallel and interlocking arrangements for the Company in the BVI and Hong Kong, the effect of which is to introduce a structure to simplify the liquidation of the Company. The main features of the Scheme include: A mechanism for the assessment and payment of claims which is, so far as practicable, consistent with the principles and rules of winding-up in both the BVI and Hong Kong; Paying General Scheme Creditors in full, apart from claims for interest which are excluded; Explanatory Statement Barring all contingent claims by Investors, including but not limited to those under section 16 of the MFA, and excluding any claims for interest, in place of which Investors Scheme Claims will be valued at the original subscription amount; Facility for the early, interim payment of Agreed Claims in order to return assets to Scheme Claimants as expeditiously as possible. The distribution of available assets would be in the following order of priority: Expenses and any preferential claims, in full; then General Scheme Claims, in full; then Investor Scheme Claims, pari passu; and then Shareholders, if at the end of the Scheme, a surplus remains after all Scheme Claimants have been paid in full and the Scheme has terminated in accordance with its terms, the surplus will be transferred to the BVI Liquidators to be distributed to members in accordance with BVI law. The Joint Liquidators make no representation or warranty in respect of the quantum and timing of any dividends. The estimated dividends shown below to each class of Scheme Claimant are based on the parallel schemes being accepted as they are currently proposed and are provided for illustrative purposes only. A comparison of the projected outcomes for the Scheme and on liquidation is set out in the Financial Modelling in Appendix 7. General Scheme Claimants 100% Investor Scheme Claimants 60-72% It is proposed that the Scheme will be administered by the Hong Kong Liquidators as the Scheme Administrators whose investigatory and recovery powers will not be affected. The Joint Liquidators consider that the implementation of the Scheme between the Company and its respective creditors and members will be in the best interests of the Scheme Claimants of the Company. 1.6 Why you have received this document 8

11 In proposing the Scheme and the CCA, the Joint Liquidators have sought to identify and notify all known and potential creditors and members of the Company that will be bound by the arrangements, should they proceed. Please refer to paragraph 3 below in respect of the Scheme Meetings and Voting procedures. You have received this document either as: a General Scheme Claimant; or an Investor Scheme Claimant. The receipt of this Document does not mean that you are currently owed, or that you will ever be owed, any money by the Company. Nothing in this Document is to be taken as an admission of liability by the Company or its Joint Liquidators. If the Scheme is implemented and you make or have made a Scheme Claim it will be processed in accordance with the terms of the Scheme. Admission of your claim for voting purposes by the Chairman of the relevant Scheme meetings is without prejudice to the Scheme Administrators right to reject the Scheme Claim in whole or in part for the purpose of calculating a dividend payment under the Scheme. 2 THE SCHEME S KEY PROPOSALS 2.1 Key proposal early payment of Scheme Claims without litigation The core proposal of the Scheme is to pay Scheme Claimants as quickly as possible, by avoiding litigating the potential future claims of various groups of Scheme Claimants with differing interests. The Scheme seeks to resolve the general and legislative complexities resulting from the Company being wound up in two different jurisdictions, each of which has a different statutory right to recover damages for misrepresentation. The Scheme does so by providing a consistent set of rules for dealing with claims which will operate in both jurisdictions. Explanatory Statement The Scheme recognises the rights of Scheme Claimants in a manner which: preserves the relative creditor/shareholder priorities; treats all Investors in the same way; values Investor Scheme Claims at the subscription amount paid; equalises the difference between Class A and Class B shareholders so that no commissions or charges are levied; and avoids the substantial costs and delays of litigation, with a view to early distribution to creditors and shareholders. 2.2 Compromises consequent upon the Scheme The specific adjustments that each class of claimant will be compromising if the Scheme becomes effective are as follows: General Scheme Claimants will forego all claims to interest. It is estimated that if the claims for damages were successful, then they would render the Company insolvent and accordingly interest would not be payable in any event. Investor Scheme Claimants with possible claims relating to the period after 12 December

12 (the possible section 16 Claims) will receive a dividend which recognises part of the benefit they would be entitled to without incurring the cost of establishing that claim. Investor Scheme Claimants with claims relating to the period before 12 December 2003 (the claims which do not include possible section 16 Claims) will receive the same return on their invested amount. Those who have prospective section 16 Claims invested later than those Investors whose claims would be based on other grounds. By valuing all Investors claims at the amount that each group paid for their shares, whenever purchased, is intended to give a fairer return to Investors, more accurately reflecting their loss. If each type of Investor claim were litigated it is hard to predict the possible outcome and therefore it is not possible to make an accurate comparison between the Scheme and the relative position of Investors claims in a liquidation. Overall, all classes will receive an improved return as a result of avoiding the costs and delays of litigation. 2.3 Advantages of a Scheme Explanatory Statement Accelerated payments to Scheme Claimants The statutory framework in liquidation permits creditors to file, revise or submit new information in support of their claims at any time prior to the final distribution of assets. In the case of the Company there are significant legal uncertainties for Investors to assert claims. There are also questions as to the relative priorities of such claims, even if successful as referred to in Appendix 6. As a result of these complex issues, it would be impossible to make any distributions to creditors or Investors until all claims and priorities were determined with the required degree of legal certainty through expensive Court applications in order to declare a final dividend. By contrast, the Scheme will permit the valuation of Scheme Claims followed by a distribution to Scheme Claimants earlier than would be the case in liquidation. Barring Scheme Claims The Scheme will enable the legal uncertainties inherent in the liquidation to be resolved in the absence of litigation, by barring all Proceedings. No Scheme Claimant will be able to commence Proceedings in respect of their Scheme Claim during the period of the Scheme or after the Scheme has terminated. Certainty in Valuation of Investor Scheme Claims Investor Scheme Claims will be valued at the amount paid to the Company. This mechanism provides certainty in determining Investor Scheme Claimants rights, quantum and relative priorities. In liquidation, assessing the value of each Investor s potential damages claim would be an enormous and difficult task and would take significant time. If a Scheme Claimant objects to the valuation of his Scheme Claim, the right to relief from the Court is replaced by an appeal to a Scheme Adjudicator who is an independent barrister of more than 10 years calling and whose decision in a dispute will be final and binding. This procedure will reduce the time that would be spent in a liquidation in finally adjudicating Scheme Claims. Cost Savings The Joint Liquidators consider that significant, substantial cost savings are likely by avoiding time delays: of Court applications to resolve the legal rights of creditors and Investors; by adopting the mechanism for adjudicating Scheme Claims; and through substitution of a dispute resolution procedure by a Scheme Adjudicator in place of an 10

13 appeal to a court streamlining the claims adjudication process. Consequences of these advantages The Scheme Administrators duties can be focused on collection of assets, pursuit of third party claims and making additional distributions on a timely basis, as opposed to becoming embroiled in highly technical litigation. To proceed with the liquidation of the Company for an extended period would not, in the view of the Joint Liquidators, be in the best interests of Scheme Claimants as a whole and would lead to the erosion of the assets through an escalation in costs generated by complex multi-jurisdictional litigation. 2.4 Disadvantages of the Scheme The Joint Liquidators consider that the possible disadvantages in implementing the Scheme, compared to liquidation of the Company are that: General Scheme Claimants will forego their right to claim interest on their claims in return for a more expedient distribution; Scheme Claimants will lose the right to commence Proceedings and to appeal to the court in respect of the adjudication of their Scheme Claims. Although this might be seen as a significant disadvantage, the Joint Liquidators consider that this will result in time and cost savings which will benefit all Scheme Claimants; and Scheme Claimants will not be entitled to make or amend their Scheme Claims after the relevant cut-off dates (subject to any extension of that date under the terms of the Scheme). Explanatory Statement 3 STRUCTURE OF SCHEME AND WHAT YOU SHOULD DO 3.1 Schemes of Arrangement in Hong Kong In Hong Kong, a scheme of arrangement becomes binding on all those creditors and members affected by it when: a) a majority in number, representing at least 75% in value of each class of those creditors (or members) entitled to do so, vote in person or by proxy in favour of the scheme at a specially convened meeting ( Scheme meetings ); b) the Hong Kong Court subsequently makes an order approving the scheme; and c) an office copy of that order is delivered to the Registrar of Companies in Hong Kong for registration. Scheme Claimants should appreciate that if the majorities prescribed above are obtained and the Scheme is sanctioned by the Court, it will become binding on ALL creditors and members of the Company, whether or not they received notice of or voted in favour of the Scheme. 3.2 Company Creditors Arrangements in the BVI 11

14 A CCA is a compromise or arrangement between a company and its creditors (not members), governed by Part II Division 2 of the BVI Insolvency Act. A CCA becomes binding on all creditors with notice and members of the Company if a majority in excess of 75% in value of the creditors present, in person or by proxy, at a specially convened meeting, resolve to adopt the CCA Proposal and appoint supervisors to administer the CCA. Scheme Claimants should appreciate that if the majority prescribed above for the CCA Proposal is obtained, it will bind all Scheme Claimants who received notice of the CCA. 3.3 Entry into force of the Scheme and conditions precedent Explanatory Statement As the timing and procedures for the Scheme and the CCA to become effective are different, they will only come into force if and when they are both approved. The Scheme will not become effective unless the CCA becomes binding and vice versa. The Scheme Meetings will be held concurrently on 8 September 2005, but the Effective Date is likely to be the filing date of the order approving the Scheme with the Hong Kong Companies Registry. A summary of the terms of the Scheme are at Appendix Classes of Scheme Claimants Meetings of creditors and/or members or classes of them, affected by the proposals are required, in order to decide whether to adopt the Scheme. Whether a Scheme Claimant belongs to a particular class depends on the similarity or dissimilarity of their rights. The Hong Kong Liquidators view is that there are 3 classes of Scheme Claimants and accordingly meetings of each of these classes, and one of shareholders, are required. On 21 July 2005 the Hong Kong Court approved that the Scheme meetings be convened concurrently with the meeting of creditors required in the CCA. The 4 classes of Scheme Claimants which are proposed are as follows: i) General Creditors: those who subscribed for, but did not receive shares in the Company and any other creditors other than in respect of a claim falling within sub-paragraphs (ii) and (iii) below; ii) Investors who became registered shareholders of the Company on or after 12 December 2003; iii) iv) Investors who became registered shareholders of the Company before 12 December 2003; and Shareholders (as shareholders). If the requisite majorities are obtained at each of the Scheme meetings, and (1) it is sanctioned by the Hong Kong Court and that order is filed, and (2) the CCA becomes effective, the Scheme will bind all Scheme Claimants. Under the CCA, there are no class voting requirements and members are automatically bound. Therefore there will only be one Meeting of CCA Creditors. If the requisite majority of CCA Creditors with notice vote in favour of the proposal, the CCA will become effective subject to its terms. 12

15 3.5 Scheme Liability Forms which have been sent with details of Scheme Claims Many Scheme Claimants have previously submitted their claims when requested to complete proofs of debt forms or contributory verification forms for the purposes of the first meetings of creditors and members of the Company or, subsequently, for the claims adjudication process in the liquidation. Other Scheme Claimants will not have made any claims to date but may do so in the future. Information already received by the Joint Liquidators about Scheme Claims has been set out on a Scheme Liability Form enclosed with this Document. If you have received this Form the information on it represents the amount which will be accepted as your Agreed Claim. The contents of the Scheme Liability Form will become binding upon you and the Company 7 Business Days after the Effective Date unless you amend or add to the form and return it so that it is received by the Joint Liquidators prior to the Effective Date, or within 7 Business Days after the Effective Date. Blank Scheme Liability Forms Scheme Claimants receiving this Document without a Scheme Liability Form and who have Scheme Claims should complete a copy of the blank Scheme Liability Form at Appendix 3, and send it to PricewaterhouseCoopers, 22nd Floor, Prince s Building, 10 Chater Road, Central, Hong Kong (Ref: JGWB/JOJT/JAAK). Additional copies of Scheme Liability Forms can be requested from PwC at the same address or by telephone (852) or downloaded from (the website). The final deadline for Scheme Claims to be submitted is the second anniversary of the Effective Date defined in the Scheme as the Final Claims Submission Date. Provisions for estimated claims will be reserved until this date and thereafter distributed in accordance with the Scheme. 3.6 Voting Explanatory Statement All Scheme Claimants are entitled to vote on the Scheme, either in person or by proxy, at the relevant Scheme and CCA meetings to be held on 8 September Attached at Appendix 1 is a copy of the notice convening the Scheme meetings, approved by the Hong Kong Court. Enclosed with this Document, for the meetings, are: a Scheme Liability Form (referred to in paragraph 3.5 above); a Voting Form; a Proxy Form; and a Corporate Representative Form. At Appendix 2 is an explanation of how your claim against the Company is to be valued for voting purposes and guidance notes and instructions for the completion of the forms. If you intend to attend and vote at the Scheme meetings please bring the Voting form and complete and return it at the meetings. If someone is attending on your behalf, you must complete a proxy and/or a corporate representative form. Before completing the appropriate proxy form you should carefully read the guidance notes and instructions for their completion. Failure to validly complete the forms may affect your right to vote. 13

16 Please return these forms as soon as possible to the Joint Liquidators, CSA Absolute Return Fund Limited (in liquidation) at 22nd Floor, Prince s Building, 10 Chater Road, Central, Hong Kong, and at the latest by 5:00pm (Hong Kong time) on 5 September Forms not so returned may be handed in on the day of the Scheme meetings provided that a faxed copy is received prior to the aforesaid time. Faxed forms may be sent to Fax No: (852) , but you should ensure that the originals are dispatched by post to allow enough time to ensure that they are received prior to the Scheme meetings. Scheme Claims for the subscription of shares will be admitted for voting purposes at the amount paid to the Company in respect of the subscription. Scheme Claims that do not arise out of the subscription for shares must be supported by appropriate evidence and will be given an estimated amount for voting purposes by the Chairman. Explanatory Statement The Chairman will have discretion to reject a Scheme Claim in whole or in part if he considers that it has been made for an amount that is not fair and reasonable. The Chairman s decision will be notified to the creditor concerned who may ask the Court to review the decision at the hearing to sanction the Scheme. Scheme Claims admitted for voting purposes will not constitute an admission of the existence and amount of a Scheme Claim for the purposes of calculating a dividend payment under the Scheme. 3.7 The Chairman of the meetings At the direction of the Hong Kong and BVI Courts Jan G W Blaauw, or failing him, John J Toohey of PwC, being one of the Joint Liquidators, will act as Chairman of the Scheme and CCA Creditors Meetings. 3.8 Appointment of Scheme Administrators Upon the Scheme and CCA becoming effective, the Hong Kong Liquidators will be appointed as Scheme Administrators and, together with Mr Malone, will be appointed as the Supervisors of the CCA. The Scheme Administrators will then take control of all the assets of the Company in the capacity of co-trustees and oversee the operation of the Scheme in accordance with its terms. They will adjudicate all Scheme Claims and make the first dividend distributions as soon as practicable, thereafter. 3.9 How your interests will be protected The Scheme provides for a Creditors Committee to fulfil a role comparable to that carried out by the committee of inspection and will initially comprise the same members. The Creditors Committee will have powers to monitor the progress of the Scheme and supervise certain activities of the Scheme Administrators. 4 SUMMARY OF THE COMPANY S FINANCIAL POSITION 4.1 Financial position The directors of the Company were requested to prepare a Statement of Affairs for the Company but have not done so. The most recent audited financial statements of the Company prior to the appointment of Provisional Liquidators were as at 31 December

17 The reason for the liquidation of the Company was that it was being operated in a manner prejudicial to investors interests and not that it was insolvent. However, if the legal uncertainties were resolved in favour of one class of Investor, then this could render the Company insolvent. 4.2 Financial position as at 21 June 2004 Note: The amounts shown in the Joint Liquidators Estimated Financial Position set out below are estimates of total assets and total liabilities. The estimated book values at 21 June 2004 are provided for comparative purposes. Please refer to the Receipts and Payments Account in Appendix 8 for a summary of the realisations and administrative expenses to date. CSA Absolute Return Fund Limited (in liquidation) Estimated Joint Liquidators Book Value Estimated Financial as at Position Summary Financial Position 21 June June 2004 US$m US$m Assets Investments and other assets Cash and deposits Total Assets Liabilities Creditors (Unallotted Subscribers) Other liabilities Explanatory Statement Total Liabilities Share capital and share premium Net Surplus (Deficiency) 5.4 (38.6) The Joint Liquidators have not performed an audit of the financial position and, accordingly, do not express an audit opinion. All information has been reviewed for reasonableness, however there are many factors (including the effect of legal rights on insolvency) that are beyond the control of the Joint Liquidators and subsequently appointed Scheme Administrators that can affect these estimates. Estimates provided in this document are indicative only. Events or circumstances could occur that may give rise to either an improvement or deterioration of these estimates and they should therefore be treated with caution in arriving at any decisions or actions based upon them. 5 SCHEME ADMINISTRATORS, SUPERVISOR AND JOINT LIQUIDATORS Once the Scheme and the CCA become effective, the role of the Scheme Administrators and the Supervisors is to collect in and distribute the Company s assets to its creditors and Investors in accordance with the terms of the Scheme and CCA. The Joint Liquidators in Hong Kong and the BVI will remain in place. None of the Scheme Administrators, the Supervisors, the Joint Liquidators and their advisers, nor any of their representatives, advisers, partners, staff or agents shall incur any personal liability under or in relation to the Scheme or otherwise. 15

18 6 TAXATION Scheme Claimants, whether in Hong Kong or in other jurisdictions, are recommended to consult their professional advisers if they are in any doubt as to the taxation implications of any amounts claimed or received under the Scheme. It is emphasised that the taxation implications of the Scheme are personal matters for Scheme Claimants themselves. 7 DOCUMENTS AVAILABLE FOR INSPECTION The documents listed in Appendix 12 are available for inspection between the hours of 10:00am and 4:00pm on any Business Day until 7 September 2005 at PricewaterhouseCoopers, 22nd Floor, Prince s Building, 10 Chater Road, Central, Hong Kong (ref: JGWB/JOJT/JAAK). 8 CONCLUSION Explanatory Statement If the proposed Scheme and CCA are not approved, the Company will continue in liquidation with the result that Scheme Claimants lose the prospect of an early resolution of the affairs of the Company. The Committees of Inspection have reviewed the information contained in this document. On the basis of this information and having considered the advantages of the Scheme for Scheme Claimants, each member of the Committees of Inspection has confirmed to the Joint Liquidators that it is in favour of the Scheme and CCA. The Liquidators are satisfied that the Scheme and CCA are in the best interests of the Scheme Claimants and accordingly recommend that Scheme Claimants vote in favour of the Scheme. Date: 30 July

19 PART 2 The Scheme SCHEME OF ARRANGEMENT PURSUANT TO SECTION 166 OF THE COMPANIES ORDINANCE (CAP. 32) OF THE LAWS OF HONG KONG BETWEEN CSA ABSOLUTE RETURN FUND LIMITED (IN LIQUIDATION) (INCORPORATED IN BRITISH VIRGIN ISLANDS) BVI COMPANY NO AND PRELIMINARY S1. Definitions THE RESPECTIVE SCHEME CLAIMANTS (AS DEFINED IN THE SCHEME) 1.1 In this Scheme, unless inconsistent with the subject or context, the following words shall have the following meanings: Admitted Claim Agreed Claim Ascertainment Date the sum, if any, due from the Company to a Scheme Claimant following the application of set-off to that Scheme Claimant s Agreed Claim(s) in accordance with Clause S15; the amount of a Debt established as being due in relation to a Scheme Claim in accordance with Clause S13; 21 June 2004, being the date on which the winding up petition was presented in respect of the Company in Hong Kong; Available Distributable Amount the amount determined in accordance with Clause S16; Binding Data any information relating to one or more Scheme Claims which is inserted into a Scheme Liability Form by the Hong Kong Liquidators to a Scheme Claimant; The Scheme Business Day BVI BVI Court any day (other than Saturday, Sunday and days on which a tropical cyclone warning No. 8 or above, or a black rainstorm warning signal is hoisted in Hong Kong at any time between 9:00am and 5:00pm) on which banks are open in Hong Kong for general banking business; the British Virgin Islands; the Eastern Caribbean Supreme Court in the BVI; 17

20 BVI Liquidators BVI Members Committee CCA Jan G W Blaauw and John J Toohey of PwC and Meade Malone of Meade Malone & Co; the Members Committee established pursuant to the order of the BVI Court made on 20 April 2005; the Company Creditors Arrangement proposed between the Company and the Scheme Claimants in the BVI; CCA Expenses the expenses referred to in Clause C7; Claimants Resolution Committee Member Companies Ordinance a resolution passed in accordance with Clause S36 read with Clause S37; a duly appointed member of the Creditors Committee; the Companies Ordinance (Cap 32) Laws of Hong Kong as amended and in force at the Ascertainment Date; Company CSA Absolute Return Fund Limited, BVI Company Number ; Creditors Committee the Creditors Committee established pursuant to Clause S30; Custodian Debt Bermuda Trust (Far East) Limited, a company incorporated in Hong Kong; any of the following: (a) (b) any debt or liability to which the Company is subject at the Ascertainment Date; any debt or liability to which the Company may become subject after the Ascertainment Date by reason of any obligation incurred before that Date. The Scheme In relation to both (a) and (b) above: (i) it is immaterial whether the debt or liability is present or future, whether it is certain or contingent, or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; (ii) liability means (subject to (i) above) a liability to pay money or money s worth, including without limitation any liability under any enactment, any liability for breach of trust, any liability in contract, tort or bailment, and any liability arising out of an obligation to make restitution; 18

21 (iii) (iv) (v) in determining whether any liability in tort is a Debt, the Company is deemed to become subject to that liability by reason of an obligation incurred at the time when the cause of action accrued; debt or liability does not include a debt or liability which would be statute barred at the Ascertainment Date; for the avoidance of doubt Debt does not include a Scheme Expense; Dispute Resolution Procedure the procedure for the resolution of disputes set out in Clause S29; Disputed Scheme Claim Effective Date a Scheme Claim in respect of which there is a dispute between the Company or the Scheme Administrators and a Scheme Claimant; the later of: (i) (ii) the date on which an office copy of the order of the Hong Kong Court sanctioning the Scheme shall be delivered for registration to the Hong Kong Registrar of Companies and the resolution to approve the proposal set out in the Scheme as a CCA by a majority in excess of three quarters in value of the Scheme Claimants present in person or by proxy and voting on the resolution to approve it, is passed; Explanatory Statement Final Claims Submission Date the explanatory statement forming part of the Scheme Document and provided in accordance with section 166A of the Companies Ordinance in relation to this Scheme; mid-day in Hong Kong on the second anniversary of the Effective Date; General Scheme Claim General Scheme Claim Amount any claim whatsoever without limitation for a Debt (including but not limited to claims based on fraud or dishonesty) against the Company which is not an Investor Scheme Claim in respect of which the Agreed Claim has not yet been established; the amount which the Scheme Administrators determine from time to time is their prudent estimate of the maximum possible aggregate value of Admitted Claims arising out of General Scheme Claims, including any amount which the Scheme Administrators determine, in their absolute discretion, is necessary to take into account claims not yet notified to them; The Scheme General Scheme Claim Dividend Rate Hong Kong the rate determined pursuant to Clause S18.2 payable in respect of Agreed Claims arising in respect of General Scheme Claims; the Hong Kong Special Administrative Region of the People s Republic of China; 19

22 Hong Kong Court Hong Kong Liquidators Insolvency Rules Investor Investor Claim Amount Investor Dividend Rate Investor Scheme Claim Joint Liquidators Net Debt the High Court of Hong Kong; Jan G W Blaauw and John J Toohey of PwC or any others appointed additionally or in their stead from time to time as liquidators of the Company in Hong Kong; the BVI Insolvency Rules under the Insolvency Act 2003 of the BVI and in the absence of such relevant rules, the United Kingdom Insolvency Rules 1986; a natural or legal person who has purchased and been registered as a holder of shares in the Company; the amount which the Scheme Administrators determine from time to time is their prudent estimate of the maximum possible aggregate value of Agreed Claims arising out of Investor Scheme Claims, including any amount which the Scheme Administrators determine, in their absolute discretion, is necessary to take into account claims not yet notified to them; the rate determined pursuant to Clause S18.3 payable in respect of Agreed Claims arising in respect of Investor Scheme Claims; any claim whatsoever without limitation for a Debt (including but not limited to claims based on fraud or dishonesty) against the Company made by an Investor in his capacity as an Investor in respect of which the Agreed Claim has not yet been established; the Hong Kong Liquidators and the BVI Liquidators in their capacity as liquidators of the Company in the BVI and Hong Kong or if different, such others as are liquidators of the Company; any amount found pursuant to the terms of the Scheme to be due to the Company from a Scheme Claimant in respect of a Debt following the application of set-off in accordance with Clause S6; The Scheme Net Debtor Nominated Representative any person liable to pay a Net Debt pursuant to Clause S6.3; any individual nominated by a Committee Member to act as its representative on the Creditors Committee; Post Preferential Debt Proceedings first class post or air mail or a generally recognised commercial courier service; any Debt which is preferential under section 265 of the Companies Ordinance or section 215 of the Insolvency Act 2003 of the BVI; any form of proceedings in any jurisdiction or forum including without limitation any demand, legal proceedings, arbitration, alternative dispute resolution, adjudication, mediation, seizure, distraint, forfeiture, re-entry, execution or enforcement of judgment or any step taken for the purpose of creating or enforcing a lien; 20