LEGL 203 HONG KONG COMPANY LAW

TUTORIAL QUESTIONS

Set out below are the tutorial questions for students to discuss in class with the tutor.

The tutor is not there to give you the answers but guide you in determining the issues and coming to conclusion.

Each student will be required to present in class their own answer to a tutorial question.

The students’ presentation and participation in the tutorials sessions will be marked out of 10.

Students may work in groups of 2-3 allocated by the tutor in answering the questions.

Each week one student from each group will then present their answer to the class.

The tutorial questions will be an indication of the areas that will be covered in the final examination.

Formation of companies

1.  Please discuss the concept of the corporate veil and the principle from the case of Salomon v Salomon. What are some of the consequences flowing from the fact that a company is a separate entity with an existence separate from its shareholders, directors, employees etc?

2.  What is the responsibility of the promoter and explain the purpose of s 32A of the Companies Ordinance?

3.  Why is the legal adviser or accountant when a company is incorporated not regarded as a promoter?

4.  What is the concept of ultra vires?

Share Capital:

1.  What are the rights of pre-emption and how do they impact on a minority shareholder?

2.  Cha Yep Ltd was a company incorporated in Victoria Australia. It wanted to establish a company in Hong Kong to sell tea.

What are the requirements for a non Hong Kong company to operate in Hong Kong?

Please explain the legislation requirements in the Companies Ordinance that Cha Yep Ltd must meet.

3. Indian Traders Ltd is a long established company in Hong Kong. The company’s long term development plans indicate that it will need additional capital to undertake major property development work in the New Territories. The directors wish to ensure that any capital raised does not alter the balance of power among existing shareholders. The directors have asked you to advise the board.

Required:

Explain to the directors the benefits and problems associated with raising capital by each of the following issues:

By debentures,

By issuing ordinary shares,

If the shares are issued, what happens if they are issued at a premium?

Can they be issued at a discount?

Directors and Officers

1. Winnie and Sidney floated a company to purchase a piece of land, subdivide it into lots and dispose of it piece by piece. The board of directors consisted of Winnie and Sidney and their nominees. There was no managing director appointed but Winnie with the full knowledge of the board acted as managing director and entered into transactions on behalf of the company. Winnie gave instructions to a firm of architects and land surveyors. When the company was sued by the architects and land surveyors, the company denied the claim on the basis that Winnie was not authorized to bind the company.

Please discuss whether the company is bound by Winnie’s actions and that the architectural firm can sue to recover the proceeds. Please refer to any relevant provisions in the Companies Ordinance.

2. Frederick Tak Fai Tsui is the CEO of FTFT Ltd an engineering company. The minutes of the board meeting indicate that the board resolved that the IT services of the company should be outsourced. The company is prepared to pay $1m per year for a period not exceeding three years. Frederick starts negotiations and signs a contract on behalf of the company at $900,000 per annum for a three year period. The IT company was also represented by its CEO.

Is this a valid contract and if so why?

What if Frederick concluded a contract without further consultation with the board for $1.2m per year for a 4 year period?

Will the company be bound by the contract?

What if the memorandum and articles of association of the company contained a clause that all contracts exceeding $1m must be approved by the board of directors and that the company can only conclude contracts directly related to the purchase of mining property.

Will the company be bound by the contract with the IT company?

3. Explain the application of the rule in the case of Royal British Bank v. Turquand (1856) 6 E & B 327 and give an example of the application of the rule.

External Regulators:

Please discuss the role, relevance and importance of the following bodies:

•  The Hong Kong Stock Exchange

•  The Securities and Futures Commission

•  The HK Monetary Authority

•  The Insurance Authority

Receivership and Winding Up

1. Mei Ling and Laurence Sau Fuk Law are non executive directors of Golden Horse Ltd. In their positions both Laurence and Mei Ling have access to information not generally available to the public? They come across a particularly exciting piece of information during a board meeting and decide to establish a separate company called Platinum Gardenias Ltd. This new company was set up to take advantage of the opportunity in the market suggested by the information they obtained. Soon after setting up the company Laurence decides that because of his other commitments he will reduce his involvement with Platinum Gardenias Ltd but still remains a director.

Six months later Laurence receives a phone call from an angry creditor demanding payment. Laurence contacts Mei Ling and finds out that Platinum Gardenias Ltd is not performing well and may have run out of money.

Advise Mei Ling and Laurence of their duties as directors to both companies.

Have they breached any legal principles or any provision of the Companies Ordinance in relation to Golden Horse Ltd?

What is their liability if they continue trading if and when Platinum Gardenias Ltd becomes insolvent?