THE UNIVERSITY OF HONG KONG

SCHOOL OF BUSINESS
2003-2004 (SEMESTER 1) EXAMINATION

School of Business:

BUSIOOlOA Company Law

December 29, 2003

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

Answer any THREE questions only. All questions carry equal marks.
1.

The articles of M Ltd. provide as follows:

a) N, who is not a member of the company, is to be its solicitor for life.
b) Any member wishing to sell his shares must first offer them to existing
members.
c) On a resolution to remove a director the votes attached to any shares held by
him 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 General
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.
Advise N and 0 as to their rights.

2.

The articles of Dalhousie Ltd. include a provision that "all transactions of $1 million
or more must be approved at a board meeting of the company."
Clive is appointed as the Financial Controller of Dalhousie but he is not made a
director. However the directors of Dalhousie tell him that he will have overall
responsibility for the financial affairs of Dalhousie.
Dalhousie needs to raise finance of $2 million to develop its business and Clive
approaches Lutyens Bank and Fairlawn Finance Co to arrange this. The negotiator
for Lutyens Bank queries Clive's authority. Clive says that he does have authority
because he is the Financial Controller. Clive signs Loan Agreements with Lutyens
Bank and Fairlawn Finance for $11;2 million and $1;2 million respectively.
The board of directors of Dalhousie have decided that they do not want to proceed
with the two loans. They claim that Clive acted without authority and that neither
loan is therefore binding on Dalhousie.
Advise Lutyens Bank and Fairlawn Finance.
1

3.

a)

"The decision in Re Brightlife Ltd (1986) may benefit holders of floating

charges but has the potential to damage other creditors." Discuss.
AND

b)

Joy Ltd. created a floating charge over all its assets in favour of Weng Sang
Bank, which had provided a substantial loan to the company. This charge was
duly registered. Four months later Joy Ltd. created a fixed charge over its
factory in favour of Daz Ltd.
Before taking this charge, Daz Ltd. had made a search at the Companies
Registry and discovered the existence of the floating charge in favour of Weng
Sang Bank.
More than twelve months after the charge in favour of Daz Ltd. was created,
Joy Ltd. went into liquidation.
Explain the rules relating to priority of charges and state which charge is likely
to have priority.

4.

"
it seems to me impossible to dispute that once the company is legally
incorporated it must be treated like any other independent person with its rights and
liabilities appropriate to itself, and that the motives of those who took part in the
promotion of the company are absolutely irrelevant in discussing what those rights
and liabilities are ...
Either the limited company was a legal entity or it was not. If it was, the business
belonged to it and not to Mr. Salomon. If it was not, there was no person and
nothing to be an agent at all; and it is impossible to say at the same time there is a
company and there is not." (Per Lord Halsbury LC in SALOMON v SALOMON
& CO LTD [1897] AC22)
.
In what circumstances may the separate legal personality of the registered company
be disregarded?

5.

a)

What is the difference between a compulsory winding up and a voluntary

winding up?
AND

b) "In the process of winding up, the liquidator has considerable powers to avoid
certain transactions made on behalf of the company prior to commencement."
Discuss.

6.

a)

Under S168A of the Companies Ordinance any member may apply to the court
for relief against conduct which is unfairly prejudicial in relation to the running
of the company. What does this mean and what types of relief may be given if
it is established?
AND

7.

b)

"The fraudulent trading provisions of section 275 of the Companies Ordinance

are broad in scope, as they are not limited to directors, but narrow in application
as they are only relevant for insolvent companies." Comment on this statement.

a)

Why should anyone wish to operate in business by using a partnership when a

company could be used instead?
AND

b)

How may a partnership be dissolved?

<<<End of Paper>>>