THE UNIVERSITY OF HONG KONG

SCHOOL OF BUSINESS

2003-2004 (SEMESTER 2) EXAMINATION

School of Business:

BUSIOOlOB Company Law

May 13,2004 (Thursday)

Answer any THREE questions only.

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

All questions carry equal marks.

1. (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.

2.

(a) "A floating charge has considerable disadvantages from the view point of the
creditor". Discuss.
(b) Kong Ltd. created a floating charge over all its assets in favour of Tang Bank,
which had provided a substantial loan to the company. This charge was duly
registered. Four months later Kong Ltd. created a fixed charge over its factory
in favour of Hung Ltd.
Before taking this charge, Hung Ltd. had made a search at the Companies Registry and
discovered the existence of the floating charge in favour of Tang Bank.
More than twelve months after the charge in favour of Hung Ltd. was created, Kong Ltd.
went into liquidation.
Explain the rules relating to priority of charges and state which charge is likely to have
priority.

3.

(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. Mter 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.

4.

(a) A partnership has some significant advantages over a company. Why then are
companies the most significant means of organizing business activity?

(b) Ho, Lo, Kam and Tung are partners in a firm of painters and decorators.
the respective partners in the following unrelated situations:
(i)

Advise

Ho supplies his son, Wing, with details of customers of the firm. Wing has
managed to obtain some painting and re-decoration work as a consequence of
this.

(ii) Whilst performing painting work in Wong's flat, Lo carelessly dropped his
paint bucket on Wong's valuable Persian carpet. The carpet is ruined.
(iii) Kam wishes to introduce Ng as a new partner to the firm.
Lo have no objection, Tung does not like Ng.

Although Ho and

(iv) Tung places an order for paint and other materials with Wang Co. Ltd. When
Tung's fellow partners hear of the price Tung agreed to pay they are very
disappointed and object to the contract.

5.

(a) "It is appropriate to pierce the corporate veil only where special circumstances exist
indicating that it is a mere facade concealing the true facts." Discuss.
(b) James, 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.

6.

(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
permanence." What does this statement mean?
(b) "The problem of ultra vires has now been solved by the Companies (Amendment)
Ordinance 1997." Discuss.

7.

(a) Outline the functions and duties of a liquidator.

(b) "The Bankruptcy (Amendment) Ordinance 1996 amends the law relating to
personal insolvency (bankruptcy) but also makes a significant modification to the
Companies Ordinance. A new S266B deems any reference to a fraudulent
preference to mean unfair preference which is defined by S50 of the B(A)O. This
new provision makes it potentially easier to establish a preference." Explain this
statement.
(c) In relation to liquidation of a company, explain the notion of "commencement".

<<<END OF PAPER>>>
3