THE UNIVERSITY OF HONG KONG

SCHOOL OF BUSINESS
2004-2005 (SEMESTER 1) EXAMINATION

School of Business: BUSI0010A Company Law

December 14, 2004

2:30 p.m. - 4:30 p.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. This contract is, however, an unusual one, limited in both its scope
and permancence."
(b) Goldies Ltd., a Hong Kong registered company, has the following provisions
within its Articles of Association:
(i) "James Wong shall be appointed as the company's solicitor for life and
shall receive annual remuneration of $1 million."
(ii) "On a motion to remove any director, that director, if a shareholder, shall
have three times the normal voting rights."
(iii)"A person must hold at least 1000 ordinary shares in the company to
qualify as a director of the company."
(iv)"Directors may be removed from office by an ordinary resolution of
general meeting."
Advise on the legality of these articles.

2. (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) lames, a full time lecturer in the School of Business at the University of
Pokfulam, has recently been offered some lucrative consultancy work with
various Hong Kong companies. James is very keen to earn extra money in
this way but his contract with the University provides that outside practice,
including consultancy work, is subject to restriction. His contract provides
that the University must give permission to do this work and that employees
must forfeit 50% of their outside practice income.
(i) How might James attempt to circumvent this rule?
(ii) Give an assessment of the likelihood of success in the circumvention.
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3. (a) "The Partnership Ordinance provides a largely voluntary structure for the
creation of business organizations." In the light of this statement consider the
merits and weaknesses of partnership.
(b) Ming, Ling and Ting are partners in a firm of painters and decorators. The
following events have recently taken place and you are asked to advise the
parties as to their legal rights and duties:
(i) Whilst painting a ceiling, Ming carelessly dropped his can of paint which
struck the customer's son on the head and caused a severe cut.
Furthermore, the paint ruined an expensive Persian carpet. A claim for
damages is now pending.
(ii) Ling has started up his own separate business as a decorator, though he is
still officially a partner. When a customer approaches him, he takes the
work himself and does not share any profit with Ming or Ting.
(iii)Ting wishes to introduce his friend, Wong, as a new partner so that more
capital can be injected into the firm. Ming and Ling do not like Wong.
(iv)Ming suggests that the firm should expand its business to include fitting
out bathrooms and kitchens.
(v) Ling places an order for paint and paint brushes with Hung. When Ming
and Ting discover the price that Ling agreed to, they are very upset and
suggest that the firm should refuse to pay.
4. (a) "The floating charge has considerable advantages for the company, but many
potential drawbacks from the viewpoint of the creditors." Discuss.
(b) On the 151 February 1999 Dragon Ltd. created a floating charge over all its
assets in favour of Tiger Ltd. The charge was given in respect of credit of $5
million provided by Tiger Ltd. Within the document, Dragon Ltd. promised
not to create any further charges, fixed or floating, over some or all of the
same property. This charge was registered on the 2nd March 1999. On the 5th
March 1999, Dragon Ltd. created a fixed charge over its factory in favour of
Rabbit Ltd. On the 261h April 1999, a petition to wind up Dragon Ltd. was
submitted to the court.
Explain the rules relating to priority of these charges and examine the factors
which may be relevant as to whether Tiger Ltd. and Rabbit Ltd. receive
satisfaction in this matter

5. (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.
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6. (a) Discuss the meaning of 'unfair prejudice' within s168A of the Companies
Ordinance.
(b) Tin incorporated Booze Company Ltd in 1980 as a private company to import
and sell beer in Hong Kong. Tin held 90% of the shares, with the remaining
shares being held by Jim, Tin's accountant. The articles named Tin and Jim as
the directors and Jim as company secretary for life. When Tin died in 1992,
his shares were inherited equally by his two sons, Mike and Ike. After
inheriting the shares and becoming directors, the sons proposed changes to
various clauses in the Memorandum and Articles of Association which would
allow the company to begin manufacturing beer and liquor in China. When
Jim objected to the proposal, Mike and Ike announced that he would be
removed as director and company secretary. They also announced that they
were going to propose that the Articles be changed so that directors would
have the power to force shareholders to transfer their shares back to the
company, where, in the opinion of the directors, their conduct is detrimental to
company interests. Advise Jim.

7. (a) "The Companies (Amendment) Ordinance 1997 has finally ended the
problems caused by the objects clause within the constitution of a company."
Discuss.

(b) Explain the significance of the following provisions of the Companies

Ordinance:
(i) S275- Fraudulent Trading;
(ii) S 177(1)- Winding up on the "just and equitable" ground;

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