THE UNIVERSITY OF HONG KONG

SCHOOL OF BUSINESS

2007-2008 (SEMESTER 2) EXAMINATION

School of Business: BUSI0010B

Company Law

Instructor: Mr. David Woods

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

May 8, 2008

Answer Any THREE questions. All questions carry equal marks.

1. (a) "The Articles of Association are a statutory form of contract, though an usual
one". Using case authority, explain this statement.
(b) Goldies 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 1000 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.
(c) Can the Articles of Association always be altered?

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 $1 ~million and $1 ~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.

3. (a) "The decision in Re Brightlife Ltd (1986) may benefit holders of floating charges
but has the potential to damage other creditors." Discuss.
(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.
Three 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 in likely to
have priority.

4. (a) What is the difference between a compulsory winding up and a voluntary winding
up?
(b) In relation to winding up, explain the notion of commencement.
(c) "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.

5. (a) Under Section 168A 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?
(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.

6. (a) "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.
(b) Wu, Tu and Ku are the directors of Lucky Dragon Ltd, a company engaged in
selling computers and software in Hong Kong. During the last year the company
has employed Big Advertising Ltd to organize an advertising campaign to
promote the business of Lucky Dragon Ltd. Although business has increased, the
cost of the advertising promotion has been considerable and overall Lucky
Dragon Ltd. has lost money on the arrangement.
It now appears that Wu is the managing director of Big Advertising Ltd though he

did not disclose this to the general meeting of Lucky Dragon Ltd. at which the
advertising contract was approved. Neither Tu nor Ku were aware of Wu's
connection with Big Advertising Ltd; Tu because he left all the paperwork to Wu,
and Ku because he rarely bothered to attend board meetings.
Advise the parties.

7. (a) Given its considerable disadvantages, why should anyone wish to use a
partnership as a mode of business organization?
(b) "... 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?

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