THE UNIVERSITY OF HONG KONG

SCHOOL OF BUSINESS
2002-2003 (SEMESTER 1) EXAMINATION
School ofBusiness:BUSI0010A Company Law

December 16, 2002

Answer any 3 questions only.

9:30 am- 11:30 am

All questions carry equal marks.

1. (a) Au, Ko and Li, who run a business buying and selling antiques, have been advised to
form a private company. They seek your advice on the major differences between
their present partnership and the proposed company.
AND

(b) Ng, Fung and Hung are the directors of Golden Star Ltd, a company engaged in
selling computers and software in Hong Kong. During the last year the company has
employed Bigsell Advertising Ltd to organize an advertising campaign to promote the
business of Golden Star Ltd. Although business has increased, the cost of the
advertising promotion has been considerable and overall Golden Star Ltd has lost
money on the arrangement.
It now appears that Ng is the managing director ofBigsell Advertising Ltd, though he

did not disclose this to the general meeting of Golden Star Ltd at which the
advertising contract was approved. Neither Fung nor Hung were aware of Ng's
connection with Bigsell Advertising Ltd; Fung because he left all the paperwork to
N g, and Hung because he rarely bothered to attend board meetings.
Advise the parties.

2. (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."
What does this statement mean?
AND

(b) "The problem of ultra vires has now been solved by the Companies (Amendment)
Ordinance 1997". Discuss.

3. (a) "The floating charge has considerable advantages for the company, but many potential
drawbacks from the viewpoint of the. creditors." Discuss.
AND

(b) On the 1st February 1999 Dragon Ltd. created a floating charge over all its assets in
favour of Tiger Ltd. The charge was given in respect of credit of $5 million
provided by Tiger Ltd. Within the document, Dragon Ltd. promised not to create
any further charges, fixed or floating, over some or all of the same property. This
charge was registered on the 2nd March 1999. On the 5th March 1999, Dragon Ltd
created a fixed charge over its factory in favour of Rabbit Ltd. On the 26th April
1999, a petition to wind up Dragon Ltd was submitted to the court.
Explain the rules relating to priority of these charges and examine the factors which
may be relevant as to whether Tiger Ltd and Rabbit Ltd receive satisfaction in this
matter.
4. (a) Outline the functions and duties of a liquidator.
AND

(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.
AND

(c) In relation to liquidation of a company, explain the notion of "commencement".

5. (a) Outline the circumstances in which the courts may lift the veil of incorporation.
(b) In 2003, land prices are once again rising rapidly. In order to reduce speculation in
the Hong Kong property market, a government regulation is implemented which
prevents flat buyers from selling their flats within six months of the purchase. Mr.
Lo and his wife subsequently incorporate XYZ Ltd. for the purpose of purchasing a
flat as an investment. Mr. and Mrs. Lo are the only shareholders of XYZ Ltd.
When the market price rises dramatically just weeks after XYZ Ltd. bought a flat, Mr.
Lo and his wife sell the company to Mr. Yuen for cash. The flat is the company's
only asset. It is now alleged that the Lo's contravened the regulation. Discuss.

6.

"Company law now provides both minority shareholders and creditors with adequate
protection against incompetent management and dishonesty by the directors of
companies." Discuss.

7.

Examine the legal significance of the following:

(a) S275 Companies Ordinance- Fraudulent Trading;
(b) S 177( 1) Companies Ordinance - Winding up on the ')ust and equitable" ground;
(c) S267 Companies Ordinance- Floating Charges;
(d) The decision in Re Brightlife Ltd (1986).

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