THE UNIVERSITY OF HONG KONG

SCHOOL OF BUSINESS
2005-2006 (SEMESTER 1) EXAMINATION
School of Business : BUSI0010A Company Law
December 19, 2005

2:30p.m.- 4:30p.m.

Answer any THREE questions only. All questions carry equal marks.

1. (a) "The Articles of Association form a contract between a company and its members.
However, this contract is unusual in several respects." Discuss.
(b) The articles of M Ltd. provide as follows:
(i)

N, who is not a member of the company, is to be its solicitor for life.

(ii)

Any member wishing to sell his shares must first offer them to existing
members.

(iii)

On a resolution to remove a director the votes attached to any shares held

by that director are to be doubled.

0, a director of M Ltd., transferred some of his shares to N without complying with

the pre-emption clause in the articles. In response to this N has been sacked as the
company's solicitor and 0 was dismissed as a director by an Extraordinary Genetral
Meeting of M Ltd' s members. The chairman of the Extraordinary General Meeting
refused to acknowledge the validity of the "weighted votes" provision in the articles.
Furthermore the surviving directors or M Ltd are now refusing to register the transfer
of shares to N.

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Advise N and 0 as to their rights, if any.

2. (a) "A floating charge has considerable disadvantages from the view point of the
creditor." Discuss.
(b) Hong Ltd. created a floating charge over all its assets in favour of Heng Sang
Bank, which had provided a substantial loan to the company. This charge was
duly registered. Four months later Hong Ltd. created a fixed charge over its
factory in favour of Tung Ltd.
Before taking this charge, Tung Ltd. had made a search at the Companies Registry
and discovered the existence of the floating charge in favour of Heng Sang Bank.
More than twelve months after the charge in favour of Tung Ltd. was created,
Hong Ltd. went into liquidatiGn.
'

Explain the rules relating to

have priority.

~ority of charges and state which charge is likely to

1

3. (a) In what circumstances will an agent bind a company to a contract made with a
third party? What effect do the Memorandum and Articles of Association have on
the power of agents to bind companies to such contracts?
(b) "Directors are in a fiduciary position in relation to their company. The effect is
that they cannot make any profit from the exercise of their powers, irrespective of
fault or loss to the company." Discuss.

4. (a) The principle derived from Salomon v Salomon Co. Ltd. [1897] is viewed as
fundamental to company law. Outline the consequences of this principle and
explain the circumstances in which it may be ignored.
(b) Tang, a lecturer at the University of Pokfulam receives a housing allowance of
$20,000 per month as part of his remuneration package. By the terms of his
contract the housing allowance must be used only to rent accommodation, not to
purchase. Furthermore, lecturers receiving such allowance must show their lease
agreement to university authorities. It is also a condition that the landlord (lessor)
should not be "connected" in any way to the tenant (lessee), the lease agreement
excepted. The lecturer must be the tenant.
(i) How might Tang seek to circumvent the housing allowance rules?
(ii) Evaluate the likelihood of success of an attempted circumvention.

5. (a) "Partnership is a flexible though relatively risky mode of business organization."

Explain this statement. Would you assess the registered company in the same way?
(c) Explain the various ways by which a partnership may be ended.

6. (a) Give an account of the reasons why the private limited company is commonly
used as a means of business organization.
(b) Explain how the formation of a private limited company may be effected, giving a
brief account of the contents of the relevant documentation.
(c) Examine the significance of:
(i)
the Certificate of Incorporation;
(ii)
the Business Registration Certificate.

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