THE UNIVERSITY OF HONG KONG

SCHOOL OF BUSINESS
2000-2001 (SEMESTER 2) EXAMINATION

School of Business:

BUSIOO 1OB Company Law

May 22, 2001

2:30pm-4:30pm

Answer any 3 questions. All questions carry equal marks.

1.

"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.

2.

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 of M Ltd are now refusing to register the transfer
of shares to N.
Advise N and 0 as to their rights.

3.

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 $1 YS million and $lh 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

4.

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

5.

"The board of directors of a company is an independent organ of the company in its

own right responsible for all management decisions of the company. The directors
owe their duties to the company itself and not to the shareholders personally."
Discuss with particular reference to the enforcement of directors' duties. How could
the relevant law be improved?

6.

"Company law now provides both minority shareholders and creditors with adequate
safeguards against the incompetent management of their company by the directors."
Discuss.

7. (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.
AND
(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.

'8. (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
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.

9.

In relation to the winding up process explain the significance of the following

provisions of the Companies Ordinance:
(a)
(b)
(c)
(d)

8275 -Fraudulent Trading;

S 177( 1) Winding up on the "just and equitable" ground;
S267- Floating Charges;
S266 - (As amended by the Bankruptcy (Amendment) Ordinance 1996) Unfair Preference.

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