THE UNIVERSITY OF HONG KONG

SCHOOL OF BUSINESS

2008-2009(SEMESTER1) EXAMINATION

School of Business: BUSIOOlOA

Company Law

December 10, 2008

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

Answer Any THREE questions. All questions carry equal marks.

1) (a)

Discuss the meaning of 'unfair prejudice' within S168A of the Companies

Ordinance.

(b)

Tin incorporated Booze Company Ltd in 1995 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 2002 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.

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.
Six 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)

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".

4) (a)

Edward, a director of Fine Coaches Ltd. (a coach building company),

learned from George, his accountant, that Happy Travel Ltd., a company to
which George is also the accountant, was to be the subject of a takeover by
Jet Holidays Ltd. Edward immediately purchased $50,000 worth of shares in
Happy Travel Ltd. by means of a temporary loan from Fine Coaches Ltd
which was not formally disclosed in the accounts.
Edward's shares increased substantially in value as a result of the takeover
of Happy Travel Ltd. by Jet Holidays. Ltd. In addition, Edward received
various shareholder benefits, such as holidays and travel at reduced rates and
discounts on the purchase of his new car. He never informed Fine Coaches
Ltd. of his involvement with the other companies.
Advise Edward and George as to their liabilities.

(b)

"The standard of care required of directors' involves both objective and

subjective elements." Discuss.

5) Examine the legal significance of the following:

(a)

S275 Companies Ordinance - Fraudulent Trading;

(b)

S 177(1) Companies Ordinance - Winding up on the "just and equitable"

ground;

(c)

S267 Companies Ordinance - Floating Charges;

(d)

The decision in Re Brightlife Ltd (1986).

6) (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.
Advise the respective partners in the following unrelated situations;
(i)

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. Although Ho

and Lo have no objection, Tung does not like Ng.
(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.

7. (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."

(b)

Doday 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 1OOO ordinary shares in the company to
qualify as a director of the company."
(iv) "Directors may be removed from office by a special resolution of
general meeting."
Advise on the legality of these articles.

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