THE UNIVERSITY OF HONG KONG

SCHOOL OF BUSINESS
2002-2003 (SEMESTER 2) EXAMINATION
School of Business: BUSIOO 1OB Company Law
May 20, 2003

9:30 a.m. - 11 :30 a.m.

Answer any THREE questions.

l. (a)

All questions carry equal marks.

A partnership has some significant advantages over a company. \Vhy then

are companies the most significant means of organizing business activity?
AND

(b)

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

(ii)

(iii)
(iv)

2.

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

"It is essential to distinguish between corporate actions which are ultra vires

regarding the company and those which are ultra vires regarding the
directors." Discuss.

3. (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."
AND

(b) Goldies Ltd., a Hong Kong registered company, has the following provisions
within its Articles of Association:
(i)
(ii)
(iii)
(iv)

"James Wong shall be appointed as the company's solicitor for life and
shall receive annual remuneration of $1 million."
"On a motion to remove any director, that director, if a shareholder,
shall have three times the normal voting rights."
"A person must hold at least 1000 ordinary shares in the company to
qualifY as a director of the company."
"Directors may be removed from office by an ordinary resolution of
general meeting."

Advise on the legality of these articles.

4.

"Directors are in a fiduciary position in relation to their company, though no

duty is owed to individual shareholders. The consequence is that directors
may not profit from the exercise of their powers, irrespective of fault or loss to
their company." Discuss.

5. (a) "It is appropriate to pierce the corporate veil only where special circumstances
exist indicating that it is a mere fac;ade concealing the true facts." Discuss.
AND

(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. J ames 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)
(ii)

How might J ames attempt to circumvent this rule?

Give an assessment of the likelihood of success in the circumvention.

6.

Mad Ltd. is a long established trading company having been formed in 1965
when, as partners, Li, Ko, So and Ma decided to incorporate their clothing
business. Li, Ko and So are the directors and each holds 30% of the issued
share capital. Ma owns the remaining 10%. Recently Ma. has become
concerned about a number of events relating to the affairs of the company.
(i)

(ii)

(iii)

(iv)

The board of directors have recently voted to approve an increase by

100% in their own remuneration though the company has made only
very modest profits during the last few years.
The board of directors have just approved the sale of a plot of land to
Bad Ltd. for $50 million. Ma believes that Bad Ltd. is controlled by
Ko through nominees and that the true market value of the land was
close to $60 million.
The board of directors have consistently refused to show the company
accounts to Ma. The accounts have not been submitted to the
Companies Registry.
The business activity of Mad Ltd. is stated in the Memorandum of
Association as clothing merchants. Recently the board resolved to
expand the scope of the business to include the sale of computers and
related equipment.

Advise Ma.

7. (a)

Outline the main legal differences between shares and debentures.

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 ofDaz. 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.

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