- 2011.01 NEW CITY (CHINA)
Company Name: New City (China) Development LimitedStock Code: 00456Year end: December 31, 2009
Basis of disclaimer opinion: Fundamental uncertainty relating to the going concern basis
In forming their opinion, the auditors have considered the adequacy of the disclosures made in the financial statements concerning the liquidity position of the Group and the Company and the adoption of the going concern basis in the preparation of the financial statements. The financial statements have been prepared on the going concern basis, the validity of which depends on the results of the Group’s debt rescheduling future funding being available and the success of the Group’s future operations.
The Group incurred a loss of approximately HK$30,103,000 for the year ended 31 December 2009 and the Group also had net current liabilities and deficiency in assets of approximately HK$61,990,000 and HK$118,148,000, respectively, as at 31 December 2009. As further detailed in notes to the financial statements, the Group had overdue trade payables, other payables and accruals, interest-bearing bank borrowings, other borrowings, tax payable, preferred dividend payable and provisions amounting to approximately HK$892,996,000, most of which have been default for settlement and became repayable on demand. Subsequent to the end of the reporting period on 16 December 2010, the Company received demand letters from a minority shareholder (“Starry Joy”) of Tong Sun Limited (“Tong Sun”), a subsidiary of the Company, regarding the repayment of the loans and accrued interest indebted by the Company and Tong Sun amounting to approximately HK$268,695,000 as at 31 December 2009. As the Group and the Company did not possess the financial liquidity of repaying the loans and accrued interest, the Company had no alternative but to surrender the secured 51% interest held by the Company in Tong Sun to Starry Joy with effect from 29 December 2010. The above indicates the existence of a material uncertainty which may cast significant doubt on the Group and the Company’s ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business. After the auditors deliberated considerations on the financial position of the Group and the Company, the capability for repaying such overdue liabilities depends on the results of the Group’s debt rescheduling, future funding being available and the success of the acquisition and operation of a profitable project. The auditors consider that appropriate disclosures have been made. However, the auditors consider this fundamental uncertainty is significant and pervasive to the financial statements and therefore the auditors have disclaimed their opinion in respect of the appropriateness of adopting the going concern basis for the preparation of the financial statements.
Basis of disclaimer opinion: Scope limitation on trade payables and related property construction cost
As detailed in auditors’ report, the auditors noted during the course of their audit that Beijing Zhong Zheng Real Estate Development Company Limited (“BJZZ”, a subsidiary of Tong Sun) was a defendant in a litigation in respect of a dishonour cheque (the “Cheque”) in the amount of RMB19,000,000 (the “Amount”) payable to a contractor, 北京城建四有限公司 (“Beijing Cheng Jian Si”), of the China Securities Plaza, a property developed by BJZZ, which was further endorsed by Beijing Cheng Jian Si to a third party during the year ended 31 December 2008. Except for an amount of approximately RMB6,708,000 (equivalent to approximately HK$7,453,000) included in the trade payables as at 31 December 2009, the Group did not provide for the Amount in the financial statements. The auditors were advised that the Cheque was issued by BJZZ as a proof of its ability to settle the construction cost of the China Securities Plaza which has to be agreed between the Group and Beijing Cheng Jian Si upon the finalisation of the project cost calculation which has yet to be completed as at the date of the auditors’ report. The auditors have not been provided with sufficient and appropriate explanation and evidences for their verification of the possible outcome and implication of the litigation as at 31 December 2009, the accuracy, completeness and valuation of the construction cost of the China Securities Plaza, which has been disposed of during the year ended 31 December 2007 and the accuracy, completeness and valuation of the trade payables relating to the construction cost of the China Securities Plaza, as at 31 December 2009. The auditors were unable to carry out alternative audit procedures they considered necessary to satisfy themselves as to whether the trade payables and the related construction cost of the China Securities Plaza were free from material misstatement and were fairly stated as at 31 December 2009. Any adjustments found to be necessary would affect the net liabilities of the Group as at 31 December 2009 and have a consequential effect on its loss and cash flows for the year then ended and the related disclosure thereof in the financial statements.
Disclaimer of opinion: Disclaimer on view given by financial statements
Because of the significance of the matters described in the basis for disclaimer of opinion paragraph, the auditors do not express an opinion on the financial statements as to whether they give a true and fair view of the state of the Group’s and Company’s affairs as at 31 December 2009 and of the Group’s loss and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards. In all other respects, in the auditors’ opinion, the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.