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NOTES ON COMPANY LAW

SPRING 2011

Table of Contents

A. B. C. D. E. F. G. H. I. J. K. L.

General Meetings ........................................................................................................................ 1 Company Secretary ..................................................................................................................... 3 Directors ...................................................................................................................................... 4 Majority Rule and Protection of Minority Shareholders .............................................................. 10 Protection of Outsiders .............................................................................................................. 10 Dividends ................................................................................................................................... 11 Auditors ..................................................................................................................................... 13 Reconstruction and Amalgamation ............................................................................................ 16 Fixed and Floating Charges....................................................................................................... 18 Winding-up by the Court ............................................................................................................ 19 Voluntary Winding Up ................................................................................................................ 20 .................................................................................................................................................. 22

NOTES ON COMPANY LAW

SPRING 2011

A. General Meetings
A company is compelled by law to conduct an annual general meeting of shareholders. Other general meetings, extraordinary general meetings, may be held at the request or by the direction of the directors, members, auditors, the court, the Official Receiver 1 (or other person acting as provisional liquidator2), and the company’s liquidator. 1. Annual General Meeting A company’s first AGM should be held within 18 months after its incorporation, but otherwise no more than 15 months may elapse between the date of one AGM and the next (unless the Registrar authorizes a longer period) (s 111 (1)). Thus, a company incorporated between July and December 2007 need not hold its first AGM until 2009, but thereafter an AGM must be held each calendar year at intervals of no more than 15 months. Table A, article 49, provides that the AGM will be held at the time and place decided by the directors. The AGM provides the shareholders with the opportunity of questioning the directors on any matter but in particular on the accounts and reports, which are usually presented at the meeting. The business of the AGM will include declaring a dividend, electing directors in place of those retiring, and appointing auditors. 2. Extraordinary General Meetings All general meetings other than the AGM are called extraordinary general meetings (EGMs) (Table A, article 50). An EGM may be convened3 at the request of directors, shareholders, auditors, liquidators, the Official Receiver, or by the court. Meetings Convened by the Directors The directors may convene an EGM whenever they think fit, and an individual director may convene such a meeting if there are insufficient directors in Hong Kong to form a quorum at a meeting of the board of directors (Table A, article 51). Meetings Requisitioned by the Shareholders On the requisition of members holding 5 per cent or more of the paid-up capital of the company which carries the right to vote at general meetings, the directors must convene an EGM (s 113 (1)). The requisition must state the objects of the meeting, be signed by the requisitionists, and be deposited at the registered office of the company (s 113 (2)). If the directors do not proceed to convene a meeting within 21 days from the deposit of the requisition, the requisitionists representing half of their total voting rights may convene a meeting themselves (s 113 (3)).

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破產管理署署長 臨時清盤人 3 召開

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In the case of one-member companies. f. Voting on a Show of Hands7 On a show of hands. Two members present in person 5 or by proxy shall be a quorum unless the articles otherwise provide (s 114A (1) (c)). Proceedings at Company Meetings a. every member shall have one vote for each share that he holds (article 64). c. 4 5 法定人數 親自出席 6 代表 7 以舉手方式表決 8 以投票方式表決 9 票數均等 2 . every member present in person has one vote (article 64). Voting No member is entitled to vote at any general meeting of the company if any call or other sum presently payable by him has not been paid (article 67). e. d.NOTES ON COMPANY LAW SPRING 2011 5. A proxy cannot usually vote on a show of hands. b. Proxy (Proxies)6 Any member of a company entitled to attend and vote at a meeting is entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of him. one member present in person or by proxy will be a quorum (s 114AA). whether on a show of hands or on a poll. the chairman of the meeting is entitled to a second or casting vote (article 62). The proxy also has the same right to speak at the meeting as the member who appoints him (s 114C (1)). The votes on a poll may be given personally or by proxy (article 69). Quorum4 A quorum is the minimum number of persons whose presence is necessary for the transaction of business. No business can be transacted (conducted) at a general meeting unless a quorum of members is present when the meeting proceeds to business and continues to be present until the conclusion of the meeting (article 55). Voting on a Poll8 On a poll. Chairman’s Casting Vote In the case of an equality of votes9.

a company secretary has become the chief administrative officer of the company. charges. 2. As in the case of directors. His department will deal with share and debenture transfers. 4. and used the cars for his own private purpose. or to have some other equivalent qualification or experience indicating that he is capable of discharging the functions of a company secretary. except in the case of a private company having one director. and will make proper minutes of the proceedings. and return of directors and company secretaries. a secretary. He will countersign every document to which the seal of the company is affixed. apparently for the purpose of meeting customers. chartered secretary (HKICS). lawyer. Once regarded as “a mere servant”. and will deliver documents and make necessary returns to the Registrar including the annual return. in the case of a listed company.NOTES ON COMPANY LAW SPRING 2011 B. may be one of the directors (s 154 (1)). Introduction The company secretary is an officer of the company (s 2). provides that the company secretary will be appointed by the directors for such term. with extensive duties and liabilities. the Stock Exchange requires him to be qualified as an accountant. and directors and secretaries. Duties of the Company Secretary     He will be present at all meetings of the company and the directors. he will issue all notices to members and other persons who are entitled. return of allotments 10. 3. Appointment of the Company Secretary Table A. and upon such conditions as they may think fit. In Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd (1971). 10 11 配股報告 偽稱 3 . He may also be removed by the directors. Company Secretary 1. at such remuneration. Power of the Company Secretary The position of the company secretary has changed a great deal in the last 100 years. purportedly11 on behalf of the company. fraudulently hired cars. However. Every company must have a company secretary who. the Companies Ordinance does not specify qualifications for holding the office of company secretary. debenture holders. will keep the books of the company including the registers of the members. Under the direction of the board. article 112. It was held that the secretary had apparent authority to enter into contracts for the hire of cars on behalf of the company and the company was liable to pay the hire charges.

be a director. or a majority of directors. Their duties are owed to the company. 2. The minimum age for a director is 18 years. Shadow Directors If a person gives instructions or directions and the directors. but a private company may have just one director (s 153).NOTES ON COMPANY LAW SPRING 2011 5. as a general rule. if there are two or more directors. Every company must have a secretary but a sole director may not be the secretary of the company. Generally Directors owe their duties qua (in the capacity of) directors and not qua shareholders. 12 13 包括以任何職稱擔任董事職位的人 但私人公司可以擔任董事,而該公司並非某個有上市公司為成員公司集團的成員 4 . for s 2 states that the term “officer” includes “a director. 3. but a private company which is not a member of a group of companies of which a listed company is a member may be a director (s 154A)13. 4. of a company customarily act accordingly. The articles of a company may use the term “governor” or “manager”. A corporate body may not. The Number of Directors Required Every public company must have at least two directors. Definition of a Director Section 2 (1) defines a director as including “any person occupying the position of director by whatever name called”12. but they do not usually specify a maximum. The company’s articles will often specify the minimum number of directors. not to the individual shareholders. Register of Directors and Company Secretaries Section 158 requires every company to keep a register of its directors and company secretaries. Of course. C. one of them may be the secretary. This is a definition based purely on function: a person is a director if he does whatever a director normally does. manager or secretary”. that person is a shadow director. Directors 1. A director is an officer of the company. Duties of Directors a.

such as balancing the interests of current members with those of future shareholders. iii. and iii. It was held that the issue of the shares was an improper exercise of the directors’ power to issue shares. a company owned a cinema in Hastings and wished to acquire two other cinemas there so that it could sell all three of them to a third party. The duty to act bona fide in the interests of the company Directors of a company must act bona fide in what they consider. i. to exercise their powers for their proper purpose. The directors later sold their own shares at a profit. in good faith) in the interests of the company ii. It was held by the House of Lords that the directors must account to the company for the profit which they had made. 5 . a company was in no further need of capital. The duty to exercise their powers for their proper purpose (Piercy v S Mills & Co Ltd) In Piercy v S Mills & Co Ltd. The duty not to allow any conflict between their duties as directors and their personal interests – the no-conflict rule Because a director owes a fiduciary duty to his company.e. he is liable to account for it to the company (Regal (Hastings). but the directors used their power to issue shares to themselves and their friends purely for the purpose of strengthening and maintaining control of the company. but had not enough money to do so and only took up 2 000 shares. Ltd v Gulliver). and a number of the other shares were taken up by the directors of the company. he must not make a secret profit out of his position. and not what the court may consider. So it formed a subsidiary company to purchase them. Fiduciary Duties These are like those of any other person in a fiduciary position. ii. The allotment was invalid and void. Thus. To act in the interests of the company means acting in the interests of the shareholders as a whole. not to allow any conflict between their duties as directors and their personal interests.NOTES ON COMPANY LAW SPRING 2011 b. If he does. to act bona fide (i. Ltd v Gulliver. is in the interests of the company. for they had acquired the shares by reason of their directorships in the company. In Regal (Hastings). The company originally intended to hold all the shares in the subsidiary company. The fiduciary duties of directors are: i. he must not allow his interest and duty to conflict.

Disqualification of Directors14 The Companies Ordinance lays down certain restrictions on the persons who may be appointed as directors of a company. His duties are of an intermittent nature to be performed at periodical board meetings. Minimum Age Requirement The minimum age for a director is eighteen years. In Re City Equitable Fire Insurance Co Ltd. in the absence of grounds for suspicion. He is not. These restrictions are: a.NOTES ON COMPANY LAW SPRING 2011 c. Undischarged Bankrupts15 A person who is an undischarged bankrupt may only act as director of a company or take part in or be concerned directly or indirectly in the management of any company with the leave 16 of the court by which he was adjudged bankrupt.” This duty may need to be reconsidered in the case of directors who are employed by the company. Duties of Care and Skill A director’s duties of care and skill towards the company are not as onerous as the fiduciary duties. except where the bankruptcy order was made before 31 August 1984 and he has continuously acted as a director of a particular company since then (s 156 (1)). however. “In respect of all duties that may properly be left to some other official. 14 15 董事資格的取消 未解除債務的破產人 16 許可 17 擬申請法院許可的意向通知書 18 送達 6 . bound to attend all such meetings. Romer J said:  “A director need not.”   5. a director. who will oppose the grant of leave if he is of the opinion that it is contrary to the public interest (s 156 (2)). in the performance of his duties. The court will only grant leave if notice of intention to apply17 has been served18 on the Official Receiver. b. is justified in trusting that official to perform such duties honestly. exhibit a greater degree of skill than may reasonably be expected from a person of his knowledge and experience… does not guarantee that he has the skill of an actuary or of a physician. having regard to the needs of the business and the articles of the company.” “A director is not bound to give continuous attention to the affairs of his company. though he ought to attend whenever in the circumstances he is reasonably able to do.

If the director fails to obtain his qualification within the proper time. becomes of unsound mind20 ii. Table A. or such shorter time as may be fixed by the articles (s 155 (1)). formation or management of a company or has been guilty of fraudulent trading or of any fraud in relation to the company. notwithstanding anything in the memorandum. or in any agreement between the company and the director. he is liable to a fine. If a specified share qualification is imposed. a company may by ordinary resolution remove a director before the expiration of his period of office. has been absent for more than six months from meetings of the directors held during that period without permission of the directors.NOTES ON COMPANY LAW SPRING 2011 c. be a director. articles. 19 20 認股權證的持有人 精神不健全 21 董事的免任 7 . without leave of the court. resigns his office by notice in writing to the company. NB: A share qualification is a specified number of shares which a person must hold in the company to qualify him for appointment as a director of it. e. the court may make an order that such person shall not. Removal of Directors21 By section 157B (1). d. It should be noted that the bearer of a share warrant 19 shall not be deemed to be the holder of the shares specified in the warrant (s 155 (2)). In addition. Members are required to give the company special notice of a proposed resolution to remove a director or to appoint somebody in place of a director so removed at the same meeting. Qualification Shares (Share Qualification) A director need not be a member of the company unless the articles otherwise provide. a director not already qualified must obtain his qualification within two months after his appointment. Article 90 The office of director shall be vacated if the director: i. or iv. he vacates his office and is incapable of being re-appointed director of the company until he has obtained his qualification. becomes bankrupt iii. 6. Persons Disqualified under a Court Order Where a person has been convicted of an indictable offence in connection with the promotion.

with effect from 13 February 2004. article 104). article 82. It was held that B had not consented to the holding of the meeting and that the informal encounter between B and P could not be treated as a valid meeting. article 100).NOTES ON COMPANY LAW SPRING 2011 On receipt of the special notice of an intended resolution to remove a director. Powers of Directors The general powers of managing a company are usually vested in the directors. 7. At common law. they were not bound to obey resolutions passed by shareholders in general meeting. However. 22 23 申述 剝奪 24 若修訂的第 82 細則被採納,則以後可見分曉;留待以後去看 25 處理事務 26 以其他方式規管會議 8 . If the directors acted within the general powers given to them by article 82 (or by some similar articles). directors can only exercise their powers collectively by passing resolutions at a properly convened meeting of the board of directors. they have no power to act individually as agents for the company. adjourn. In Barron v Potter (1914). A director may at any time summon a meeting of the directors (Table A. article 82 provides that the directors are bound to follow any directions given by special resolution. a company’s articles will usually empower the board of directors to delegate its powers to individual directors or to committees of directors (Table A. A board meeting may be held informally. B’s only response was to object to P’s proposal and to saying anything at all to P. the company must send a copy to the director concerned. He is entitled to be heard on the resolution at the meeting and to have his written representations22 sent to the members. who were both directors of the company. provided that the directors could exercise all powers of the company not required by the ordinance or the articles to be exercised by the company in general meeting. B and P. One day they met by chance at Paddington station. Companies are not bound to adopt Table A as their articles and it remains to be seen if the revised article 82 will be adopted24. but it cannot be constituted on a casual encounter between the directors if one of them objects (Barron v Potter (1914)). and to a managing director (article 111). disliked each other and refused to meet at board meetings. and otherwise regulate their meetings26 as they think fit. Section 157B does not deprive23 a director of any compensation or damages payable to him in respect of termination. The directors may meet together to dispatch business25. Table A. whereupon P insisted on holding a board meeting on the spot. Previously. But. claiming that he had proposed a motion and carried it with his chairman’s casting vote.

withdraw31. They may revoke 30. The board of directors was entitled to do what it had done. participation in profits. provides that a managing director will receive such remuneration (whether by way of salary. Table A. b. The House of Lords held that the action failed. Holdsworth and Co (Wakefield) Ltd v Caddies (1955) In Holdsworth and Co (Wakefield) Ltd v Caddies (1955). article 109. Remuneration The articles usually provide for the remuneration of managing director. Managing Director a. but his appointment will automatically end if he ceases to be a director. His service agreement provided that he should perform the duties and exercise the powers in relation to the business of H Co and the businesses of its existing subsidiary companies which might from time to time be assigned to him by the board of directors.NOTES ON COMPANY LAW SPRING 2011 27 8. or a partly one way and partly another) as the directors may determine. provides that the board of directors may entrust29 any of the powers exercisable by them to the managing director upon such terms and conditions and subject to such restrictions as they may think fit. Powers and Duties The powers and duties of a managing director are determined by the articles and his contract of service. If the appointment of a managing director is void but he has performed services which are accepted by the company. he is entitled to claim reasonable remuneration. commission. C sued for damages for breach of contract. While holding the office of managing director. subject to the terms of any particular agreement. Appointment Table A. c. Later the board resolved that he should confine his attention to one of the subsidiary companies. the director is not subject to retirement by rotation 28 . provides that the directors may appoint one or more (but usually one) of the board of directors to the office of managing director for such period and on such terms as they think fit and. article 110. Table A. vary32 or alter33 all or any of such powers. 27 28 常務董事 不受輪換卸任限制 29 委託 30 撤銷 31 撤回 32 變更 33 更改 9 . article 111. C was appointed managing director of H Co. they may revoke such an appointment.

Hence. The wrong done to the company was one which could be ratified by the majority of the members. Protection of Outsiders 1. The board borrowed money from the bank on bond bearing the company’s seal. so that it is impossible for the company to bring an action in its own name. The Rule in Royal British Bank v Turguand (1856) In the case. Majority Rule and Protection of Minority Shareholders Directors owe their duties to the company. e. as authorized by an ordinary resolution of the company in general meeting. No such resolution was passed. However. In the absence of facts putting him on inquiry. It was held that the action could not be brought by the minority shareholders. Section 168A of the Companies Ordinance entitles any member of the company to seek relief if the company’s affairs are being or have been conducted in a manner unfairly prejudicial to the interests of the members.. not to individual shareholders. No individual shareholder can sue (Foss v Harbottle). It was held that the bond was binding on the company. the company’s constitution provided that the board of directors could borrow money on the company’s behalf on bond. there are a number of cases in which the court will allow an individual shareholder to sue. E. The lenders were entitled to assume that a resolution authorizing the borrowing had been passed. The company was the proper plaintiff. only the company can sue the directors for breach of their duties. 10 . The majority of the members should be left to decide whether to commence proceedings against the directors. He is not required to investigate to ensure that all internal regulations have been complied with. he is entitled to assume that all matters of internal management and procedure required by the articles have been complied with.NOTES ON COMPANY LAW SPRING 2011 D. the rule is sometimes called the indoor management rule. where the alleged wrongdoers are in control of the company. The situation is described as a fraud on the minority. the minority shareholders in a company brought an action against the directors.g. In Foss v Harbottle (1843). even if it had not been passed. alleging that they were responsible for losses which had been incurred. Thus. It should be noticed that the rule in Turguand’s case protects a person dealing with a company bona fide and without notice of the fact that the company’s internal management requirements have not been followed.

A dividend. Dividend and Interest Dividend must be distinguished from interest. and in accordance with their rights as shareholders. The person seeking to rely on the rule knows that the transaction is irregular because he is not an “outsider”. F. The document on which the person seeking to rely is a forgery. however.NOTES ON COMPANY LAW SPRING 2011 2. The rule ensures that the capital of the company is not returned to members but is maintained for the benefit of both creditors and members. Where the transaction requires the authority of a special resolution. d. and dividends cannot be declared out of the assets generally. 11 . 3. Interest is a debt which. Rules as to Payment of Dividends The important rules as to payment of dividends are: a. Definition Dividends are the profits of trading divided among the members in proportion to their shares. for in that case the person dealing with the directors could ascertain. b. c. is payable out of the company’s assets generally. they can only be paid out of the assets legally available for the purpose. since these amounted to an unauthorized reduction of capital. Where the person seeking to rely on the rule was put on inquiry and the irregularity would have been discovered if he had made inquiries. In Re Exchange Banking Co: Flitcroft’s case. 2. It was held that the directors were liable to refund dividends paid on their recommendation. is not a debt until it has been declared by the company. thus creating a fictitious profit. Dividends must be paid only out of profits. by inspecting the file at the Companies Registry. Dividends 1. the directors had allowed debts which they knew to be bad to be credited in the accounts. whether any such resolution had been passed. a. like all debts. Exceptions to the Rule in Turguand’s Case There are a number of exceptional cases in which the rule in Royal British Bank v Turguand does not apply.

it was held that shareholders were not entitled to claim payment of the interim dividend which had been declared. the directors may subsequently vary or rescind the dividend. It should be noticed that the shareholders cannot insist on the company declaring a dividend. they may declare a dividend part of the way through the year (article 116). It is the directors who control the management and financial policy of the company. both existing and future. so that while the shareholders can reduce the amount of the dividend. The company in general meeting may declare dividends. No dividend shall bear interest against the company38 (article 123). Under the articles of most companies. debentures. it is the company in general meeting which declares the dividend. Special Rules for Interim Dividends When the directors can see39 that the company is going to make a sufficient profit by the end of the financial year. Dividends may be paid wholly or in part by the distribution36 of paid-up shares. but if any share is issued on specific terms as to payment those terms must be followed. Directors may deduct all sums presently payable on account of calls 34 or otherwise35 from the dividend (article 120). d. in Lagunas Nitrate Co v Schroeder. Even if an interim dividend is declared. g. they cannot increase it. Dividend cannot be paid out of capital. The declaration of such a dividend does not give rise to a debt binding on the company. The articles usually provide that the dividend shall not exceed the amount recommended by the directors and Table A. even though the profits are amply sufficient. 4. c. Thus. or debenture stock37 of another company (article 121). article 115. Dividends will be declared and paid according to the amount paid on the shares. but the directors who recommend its amount. for this is a matter which is at the discretion of the directors. Such a declaration does not require the sanction (approval) of the general meeting. and it is they who recommend the amount of dividend to be paid. e. Capital is the fund that creditors of the company ultimately look to payment of debts and it is a fundamental principle of company law that a company must maintain its capital for the protection of creditors. 34 35 催繳股款 其他原因 36 派發 37 債權股證 38 公司的任何股息均不產生利息 39 見到 12 . but no dividend shall exceed the amount recommended by the directors (article 115).NOTES ON COMPANY LAW SPRING 2011 b. f. does this.

Appointment of the First Auditors The first auditors of a company may be appointed by the directors at any time before the first annual general meeting. Such auditors will hold office from the conclusion of that meeting until the conclusion of the next annual general meeting. 40 41 不合法分發的後果 結轉 42 撥出 43 運用 44 董事的職位和職責 13 . If a distribution is made by a company in breach of the statutory provisions and the member receiving the distribution knows or has reasonable grounds for believing that it is in breach. the general meeting may appoint the first auditors (s 131 (4)). employed in the business of the company. G.NOTES ON COMPANY LAW SPRING 2011 40 5. Auditors 1. 3. Introduction An audit is carried out primarily for the shareholders of a company as a check on the directors’ stewardship 44. The Creation of Reserves Even though the company has made a sufficient profit. 2. If the directors do not exercise their power of appointment. Appointment of Subsequent Auditors Subsequent auditors will be appointed at the company’s annual general meeting. Consequences of Unlawful Distribution (s 79M) Dividends may be paid only out of profits available for distribution. The company’s accounts are an internal check on the company’s financial position and the audit is the external. any member of the company may apply to the court for an appointment (ss 131 (1) and (2)). the directors are not bound to recommend a dividend. the directors or the company in general meeting may make an appointment to fill the vacancy (s 131 (5)). removal. 6. article 118). Profits may be carried forward 41 and set aside42 as a reserve to be invested. independent check. or resignation of the auditors before the end of their period of office. or applied for43 any purpose to which profits may be applied (Table A. If the meeting fails to appoint auditors. 4. Appointment of Auditors to Fill Casual Vacancies Where a casual vacancy arises on the disqualification. and they will hold office until the conclusion of that meeting (s 131 (3)). he is liable to repay it to the company.

The auditors are entitled to attend any general meeting of the company and to receive all notices and other communications which any member of the company is entitled to receive.NOTES ON COMPANY LAW SPRING 2011 5. c. 7. Resignation of Auditors An auditor may resign his office at any time by depositing notice in writing at the registered office of the company. para 15). The notice is effective on the date of deposit or a later date as specified in the notice (s 140A (1)). The amount of remuneration must be shown under a separate heading in the company’s profit and loss account and it must include all sums paid by way of expenses (Sch 10. a statement to the effect that there are no circumstances connected with his resignation which he considers should be brought to the notice of members or creditors of the company45. a statement of any such circumstances46 (s 140A (2)). and if the court makes an appointment. Every auditor has a right of access47 at all times to the books. Otherwise. or b. b. Remuneration of Auditors If the directors appoint an auditor. The notice must contain either: a. They are entitled to be heard49 at any meeting on any part of the business which concerns them as auditors50 (s 141 (7)). they may fix his remuneration. it may fix the remuneration. If the auditors fail to obtain all the information and explanations which are necessary for the purpose of their audit. accounts and vouchers48 of the company and is entitled to require from officers of the company such information and explanations as he thinks necessary for the performance of his duties (s 141 (5)). 45 46 一項陳述,意思是表示其本人認為並無任何與其辭職有關的情況是應當通知公司的成員或債權人的 一項關於前述任何此等情況的陳述 47 有權取用 48 單據 49 陳詞 50 有權在出席的任何大會上,就該大會所討論與其作為核數師的事務有關的部分陳詞 14 . 6. they must state that fact in their report (s 141 (6)). Powers (Rights) of Auditors a. the remuneration will be fixed by the company in general meeting or in such manner as the company in general meeting may determine (s 131 (8)).

If proper accounting records have not been kept or they do not show a true and fair view of the company’s affairs. He is not concerned with policy or management. b. but he does not guarantee that the books do show the company’s true position. breach of the duty. the company’s chairman persuaded them not to express the view that no dividend should be declared and they merely said that the value of assets was dependent upon realization. It was held that the auditors were liable to make good the dividend paid out of capital. the auditors made a confidential report to the directors stating that the company’s security for loans was insufficient and that there were difficulties in realizing certain securities.” d. 51 錯誤陳述 15 . but not a bloodhound. c. Auditors’ Liability for Misstatement51 in Report The auditors will be liable to their client in both contract and tort if they act in breach of duty of care. A dividend of 7 per cent was declared and paid out of capital. In Re London and General Bank (No 2). 9. He must show the true financial position as shown by the books. They may also be liable in tort to other persons who rely upon their report. The person who alleges a breach of duty of care must establish: a. and also stating that in their opinion no dividend should be paid for the year. A watchdog but not a bloodhound Lopes L J said that “An auditor is not bound to be a detective. He is a watchdog.NOTES ON COMPANY LAW SPRING 2011 8. the existence of a duty b. Duties of Auditors a. In their report to the shareholders. that the loss arises as a result of the breach. An auditor is liable to the company for any loss occasioned to it by his fraud or negligence in the performance of his duties. he must state that fact in his report and even refuse to certify the accounts and resign. He must be honest and exercise reasonable care and skill in making enquiries and investigations. and c.

H. the court thinks that. or with its members or any of them without going into liquidation. A reconstruction or amalgamation. if the company is being wound up. it may relieve him from liability on such terms as it thinks fit (s 358). Under section 166. orders a meeting of the creditors or class of creditors. it is impossible for an auditor to limit or exclude liability for negligence by the terms of his contract. or of the members or class of members. however. Scheme of Arrangement under Section 166 By the term “arrangement” is meant a scheme whereby the rights of a company’s members or creditors (or of a class of members or creditors) are altered. “Amalgamation” implies the combination of two or more companies or the businesses of two or more companies into one company or into the control of one company. 52 53 寛免責任 失責 54 失職 55 違反信託行為 56 債務償還安排 57 視屬何情況而定 58 妥協 59 債權人或任何類別債權人 60 召集 16 . liability for negligence. Thus. the auditor has acted honestly and reasonably. to be summoned60. or indemnifying them against.NOTES ON COMPANY LAW SPRING 2011 52 10. Section 166 provides that the compromise or arrangement will be binding on the company and the creditors or members. a company can enter into a compromise58 or arrangement with its creditors or any class of them59. Relief from Liability Section 165 applies not only to officers of the company but also to auditors. or breach of trust 55 towards the company is void. can be effected by a scheme of arrangement under section 166 of the Companies Ordinance. as the case may be. default 53. Reconstruction and Amalgamation The terms “reconstruction” and “amalgamation” do not have a precise legal meaning. “Reconstruction” occurs when a company transfers the whole of its undertaking and property to a new company under an arrangement56 by which the shareholders of the old company are entitled to receive shares or other similar interests in the new company. on the application of the company or of any creditor or member of the company (or. 1. The section states that any provision in the articles or in any contract exempting them from. The court. If. of the liquidator). if a. as the case may be 57 . though liable. breach of duty54.

Persons whose rights are sufficiently similar that they can consult together with a view to their common interest should be summoned to a single meeting. as the case may be. the court is not bound to do so. not on similarity or dissimilarity of interests not derived from such legal rights. objection should be taken on the application for sanction and the company bears the risk that the application will be dismissed. 61 62 以價值計算 法定權利;合法權利 63 免除 17 . The court has no jurisdiction to sanction a scheme which does not have the approval of the requisite majority of creditors voting at meetings properly constituted in accordance with these principles.NOTES ON COMPANY LAW SPRING 2011 b. c. the Court of Final Appeal laid down the following principles which are relevant to scheme of arrangement meetings: a. Even if it has jurisdiction to sanction a scheme. To this end it may discount or disregard altogether the votes of those who have such personal or special interests in supporting the proposals that their views cannot be regarded as fairly representative of the class in question. b. Persons whose rights are so dissimilar that they cannot sensibly consult together with a view to their common interest must be given separate meetings. 2. d. If the meeting or meetings are improperly constituted. not only that the meetings were properly constituted and that the proposals were approved by the requisite majorities. UDL Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin FACV In this case. The question is whether the rights which are to be released63 or varied under the scheme or the new rights which the scheme gives in their place are so different that that scheme must be treated as a compromise or arrangement with more than one class. e. It is the responsibility of the company putting forward the scheme to decide whether to summon a single meeting or more than one meeting. The compromise or arrangement is agreed to by a majority in number representing threefourths in value61 of the creditors or class of creditors. f. however. The test is based on similarity or dissimilarity of legal rights against the company. The court will decline to sanction a scheme unless it is satisfied. The fact that individuals may hold divergent views based on their private interests not derived from their legal rights62 against the company is not a ground for calling separate meetings. present and voting either in person or by proxy at the meeting. or members or class of members. It should be noticed that the compromise or arrangement is sanctioned by the court. but also that the result of each meeting fairly reflected the views of the creditors concerned.

A floating crystallizes and becomes fixed when the company ceases to carry on business or when it is wound up. A fixed charge is a charge on some ascertained67 and definite68 property. any person acquires. e. The Hong Kong Codes on Takeovers and Mergers and Share Repurchases 64 require the making of a mandatory offer to all shareholders of the company in the following cases: a. a floating charge does not attach69 any definite property but is an equitable charge on property which is constantly charging. I. the company’s undertaking or its stock-intrade. In the case of winding-up. land (land includes buildings and houses) or heavy machinery.. Fixed and Floating Charges Charges given as security to debenture holders may be either fixed (or specific) or floating charges. and which can be realized by the company in the ordinary course of its business without the consent of the holders of the charge. and prevents the company from realizing that property without the consent of the holders of the charge.NOTES ON COMPANY LAW SPRING 2011 3. two or more persons who act in concert65 hold less than 30% of the voting rights any one or more of them acquire voting rights and have the effect of increasing their holding of voting rights to 30% or more of the voting rights c. any person who holds 30% to 50% of the voting rights and acquires additional shares66 carrying more than 2% of the voting rights in the 12 month period. or d. e.g. two or more persons who act in concert hold 30% to 50% of the voting rights and acquire additional shares carrying more than 2% of the voting rights in the 12 month period.g. 30% or more of the voting rights b. A fixed charge may be either legal or equitable. Until crystallization. whether by a series of transactions over a period of time or not. 64 65 購回再買 合作 66 另加的股票 67 確定 68 明確 69 繫於;附於 18 . a fixed charge need not prove the debt and wait for payment with other unsecured creditors and it has priority over preferential creditors.

d. taking into account its contingent72 and prospective73 liabilities. 2. the company’s creditors have the power of appointment and will exercise general control over the liquidation. a creditor for $10 000 or more has served on the company. e. Winding-up by the Court 1. it is proved to the court’s satisfaction that the company is unable to pay its debts. The company has by special resolution resolved that the company be wound up by the court. A company is deemed to be unable to pay its debts if: i. ii. iii. The memorandum or articles provide that it is to be dissolved74 on the occurrence of an event and the event occurs. or suspends its business for a whole year70. at its registered office. a written demand for payment and the debt is not paid within three weeks execution is unsatisfied71. The winding-up of a company may be by the court or voluntary. who is appointed by the court.NOTES ON COMPANY LAW SPRING 2011 J. can only act under its direction and control. The company is unable to pay its debts. b. When the court orders a winding-up. it is said to be compulsory: the liquidator. Grounds on which a Company may be Wound Up by the Court S 177 (1) of the Companies Ordinance specifies six grounds on which a company may be wound up by the court: a. otherwise. The company does not commence its business within a year from its incorporation. the liquidator is appointed by the shareholders if the directors are able to certify that the company is solvent. 70 71 停業一整年 勝訴的判決未獲履行 72 或有 73 預期 74 解散 19 . In a voluntary winding-up. Introduction The process of winding-up brings the life of a company to an end. c. The company has no members.

make and deliver to the Registrar a winding-up statement under s 228A. if the company resolves by special resolution to be wound up voluntarily c. 3.  Where the whole object of the company is fraudulent (Re T E Brinsmead & Sons). Circumstances in which a Company may be Wound Up Voluntarily Section 228 (1) provides that a company may be wound up voluntarily: a. 2. in the case of a company having more than two directors. It never has any business and property. when the period (if any) fixed by the articles for the duration of the company expires. The vast majority of liquidations are voluntary liquidations. K.  Where the company is a mere bubble (Re London and County Coal Co).NOTES ON COMPANY LAW 75 SPRING 2011 f. or an event which determines its existence occurs. Any appointment made in contravention of this section shall be void. Disqualification for Appointment as Liquidator76 (s 278) There is no statutory requirement as to his qualification. and d. Introduction A voluntary winding up has many advantages over a compulsory winding up..g. 75 76 公平公正 無資格獲委任為清盤人 77 適宜清盤 20 . produce accounts or pay dividends (Loch v John Blackwood Ltd). the majority of the directors.  Where a director has voting control and refuses to hold meetings. and the company resolves (by ordinary resolution) to be wound up voluntarily b. No person being an undischarged bankrupt and no body corporate shall be qualified for appointment as liquidator of a company. the main one being that there are not as many formalities to be complied with. The court is of the opinion that it is just and equitable that it should be wound up. e. This is a wide ground and might be used in a number of cases. understanding. if the company resolves by special resolution that it cannot by reason of its liabilities continue its business and that it is advisable to wind up77. if the directors of the company or.  Where the members have formed a company on the basis of a relationship involving mutual trust.  Where the main object of the company has failed (Re German Date Coffee Co). Voluntary Winding Up 1. and confidence which no longer exists (Re Yenidje Tobacco Co Ltd).

the person nominated by the creditors is the liquidator subject to any order made by the court.NOTES ON COMPANY LAW SPRING 2011 3. Section 233 (4) provides that when such a certificate is issued and delivered. It must contain a statement of the company’s assets and liabilities. the directors (or a majority of them if there are more than two) may. then the company’s nominee becomes the liquidator (s 242). for it determines the nature of the winding up. The Importance of the Certificate of Solvency When a voluntary liquidation in proposed. 5. If they nominate different persons. When it is not issued and delivered. The certificate of solvency must be delivered to the Registrar for registration. 21 . the winding up is a members’ voluntary winding up. at a board meeting. Appointment of Liquidator in Creditors’ Voluntary Winding Up Both the creditors and the company at their respective meetings may nominate a liquidator. Appointment of Liquidator in Members’ Voluntary Winding Up The liquidator is appointed by the company in general meeting (s 235 (1)). The certificate of solvency is extremely important. If the creditors do not make a nomination. issue a certificate of solvency stating that they have made a full inquiry into the company’s affairs and have formed the opinion that it will be able to pay its debts in full within twelve months from the passing of a resolution for voluntary winding-up (s 233 (1)). 4. the winding up in a creditors’ voluntary winding up.

assisting in the risk management process by monitoring exceptional concentrations in positions and unusual price fluctuation d. liaison with the insurance industry in promoting self-regulation by the industry with the aim of enhancing the protection of policy holders.NOTES ON COMPANY LAW SPRING 2011 L. and e. 1. regulation of insurers to ensure the financial soundness and integrity of the insurance market c. Duties of the OCI: a. including the handling of disputes in relation to trading matters. and e. interaction with market participants. cross-market surveillance of the users of the Hong Kong Exchanges and Clearing Limited. It is the regulatory authority of the insurance industry in Hong Kong. enforcement of trading and clearing rules and detection of trading malpractices81 by users b. The Hong Kong Exchanges and Clearing Limited The Hong Kong Exchanges and Clearing Limited focuses on trading operations and risk management in the following ways: a. reviewing regularly the guidelines and regulations developed within the system to ensure that they are in keeping with market development and provide adequate protection to the insuring public. 2. authorization of insurers to carry on insurance business in or from Hong Kong b. 78 79 保險業監理處 保險經紀 80 業務守則 81 不當行為 22 . A contract of insurance can be in any form but in practice it is embodied in a written document called a policy. The Office of the Commissioner of Insurance The Office of the Commissioner of Insurance78 was established in 1992. regulation of insurance intermediaries to ensure an insurance agent79 is properly appointed by an insurer and registered with the Insurance Registration Board in accordance with the Code of Practice80 for the Administration of Insurance Agents d. maintenance of market transparency by monitoring price and turnover movements on a real basis and requiring prompt disclosure of price sensitive information c.

educating investors on markets. and c. other agencies and complaints from the public. The Securities and Futures Commission acts as the oversight regulators to detect market malpractices in the following ways: a. conducting investigations of possible statutory offences 84 that fall within its jurisdiction. investment advisors and fund managers c. authorizing offering documents of investment products to be offered to the public e. scrutinizing83 market activities to detect potential breaches of laws relating to the securities and futures market b.NOTES ON COMPANY LAW SPRING 2011 3. supervising market operators including exchanges. licensing and supervising participant such as brokers. including those commenced on referral from the Hong Kong Exchanges and Clearing Limited. automated trading services and clearing houses d. and f. investment products and their risks. overseeing82 corporate activities of listed companies under the Codes on Takeovers and Mergers and Share Repurchases. setting and enforcing market regulations b. 82 83 監察 徹底檢查 84 法定罪行 23 . The Securities and Futures Commission The Securities and Futures Commission maintains market order and protects investors in the following ways: a. overseeing the surveilling actions undertaken by the Hong Kong Exchanges and Clearing Limited and performing cross-market surveillance of activities between HKEx and nonHKEx markets.