LW3902 Law Relating to Companies School of Law

City University of Hong Kong

Tutorial Questions for Week 5: Corporate Constitution

John is a qualified accountant and a shareholder in Best Cleaner Ltd (BL), a small private company
in the business of manufacturing cleaning chemicals which was established one year ago. The
company has four directors. The company’s articles provides:

‘7. John shall be employed as the company’s accountant and shall not be removed from
office except for misconduct.’

‘8. Where a shareholder intends to sell her shareholding in the company, the shareholder
must inform the directors, who must acquire the shares in equal proportions at a fair price.’

John has since worked as the accountant of the company. A recent auditing of the books of the
company detected some errors in the company’s financial statement and that they were due to
John’s negligence. However, there is no evidence that John has engaged in any intentional
misconduct.

The board of directors of BL has recently made a decision to relieve John from his position as the
company accountant.

The directors, who were also majority shareholders, passed a special resolution in a recent General
Meeting to alter the effect of Clause 8, which now reads:

‘8. (new) Where a shareholder intends to sell her shareholding in the company, the
shareholder must inform the directors, who must acquire the shares in equal proportions at
a price to be determined by the directors in their absolute discretion.’

Advise John on:

(a) whether the board is bound by Clause 7; and
(b) whether John can challenge the alteration of Clause 8 under the common law.