THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES
THE INSTITUTE OF CHARTERED SECRETARIES AND
ADMINISTRATORS
International Qualifying Scheme Examination
HONG KONG CORPORATE LAW
DECEMBER 2008
Time allowed – 3 hours
Section A – 10 short questions (compulsory)
Section B – 5 long questions (attempt any 3)
DO NOT OPEN THIS PAPER UNTIL
INSTRUCTED TO DO SO BY THE INVIGILATOR
Important Note: Candidates are allowed 15 minutes reading time to read through the
question paper before the commencement of the examination between 9:15am9:30am. During the reading time, all candidates must be silent and must not write or
mark anything on their question papers or answer books. Candidates must close all
their reference books, notes or other unauthorised materials and put these under their
chairs. If any candidates write or make any marks during the reading time, or if they
speak or in any other way communicate with anyone either in or outside the
examination hall during this period or read any unauthorised materials, they will be
disqualified from continuing this examination paper. Once candidates have opened the
question paper, they are not allowed to leave the examination hall until 10:00am.
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Case list for candidates’ reference
1. Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656
2. Brown v British Abrasive Wheel Company [1919] Ch 123
3. Canadian Aero Services v O'Malley [1974] SCR 592
4. Caparo Industries plc v Dickman [1990] 2 AC 605
5. Donaldson Investment v Anglo Transvaal [1979] 3 SA 713
6. Freeman Lockyer v Buckhurst Park [1964] 1 All ER 630,
7. Galoo Ltd v Bright Grahame Murray [1994] 2 BCLC 492
8. Gilford Motor Co v Horne [1933] Ch.935
9. Greenhalgh v Arderne Cinemas [1950] Ch 286 CA
10. Hedley Byrne and Co Ltd v Heller and Partners Ltd [1963] 3 WLR 101
11. Hely-Hutchinson v Brayhead [1968] 1 QB 549
12. HKSAR v Leung Yat Ming [1999] 2 HKLRD 402
13. Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443
14. Mandarin Resources Corp Ltd v Cheng Heng Soon (1988) HK Civ App No. 146 of 1987
(unreported)
15. Peso Silver v Cropper (1966) 58 DLR (2d) 1
16. Re New York Taxicab Co [1913] 1 Ch 1
17. Re Taiwan Land Investment Co Ltd [1981] HKLR 297
18. Re Tai Lap Investments [1999] 3 HKC 660 CA
19. Re Tilt Cove Copper Co [1913] 2 Ch 588
20. Royal British Bank v Turquand (1856) 6 E & B 327
21. Salomon v Salomon & Co [1897] AC 22
22. Sidebottom v Kershaw [1920] 1 Ch 154
23. The Great China Hotel Ltd v Wo Hing Co Ltd [1947] HKLR 36
24. Yick Hok Wing v Chan Yook Ming [1997] 1 HKC 49
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SUBJECT NO 12M
HONG KONG CORPORATE LAW
DECEMBER 2008
The examination paper is divided into TWO Sections. Section A is compulsory and
carries 40 marks. Candidates should attempt THREE questions from Section B, all of
which carry 20 marks each.
You should allow yourself approximately 70 minutes in total to answer the questions in
Section A, and 35 minutes for each of the questions attempted in Section B.
Unless otherwise stated, $ denotes Hong Kong dollars and Table A applies.
Wednesday 3 December morning
Time allowed: 3 hours
SECTION A
(Compulsory – answer ALL questions in this section)
1.
(a)
Section 47A(1) of the Companies Ordinance generally prohibits a company from
providing financial assistance to acquire its own shares.
Explain the definition of financial assistance under the Companies Ordinance.
(4 marks)
(b)
Section 47A(1) of the Companies Ordinance generally prohibits a company from
providing financial assistance to acquire its own shares. However, there are some
relaxations to this rule for unlisted companies.
Explain how an unlisted company may provide financial assistance to acquire
its own shares under the Companies Ordinance.
(4 marks)
(c)
ABC Ltd is a private company incorporated in Hong Kong and it has adopted Table A
as its articles of association. Albert is the managing director of the company. Albert
would like to allot 100,000 shares in the company to his friend, Peter, at $0.80, while
the par value of the company’s shares is $1.00.
Advise Albert of the procedures under which he can allot these 100,000 shares
to Peter at $0.80.
(4 marks)
(d)
Explain how a company may remove its auditor.
(4 marks)
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(e)
Explain the circumstances under which a receiver may be appointed.
(4 marks)
(f)
Explain the general legal requirements of a company regarding the keeping of
its books of account.
(4 marks)
(g)
Explain the information that has to be contained in a company’s register of
members and the language that should be used in this register.
(4 marks)
(h)
Albert is a shareholder of ABC Ltd. He owns 5% of the issued shares in the company.
Albert is very unhappy with one of the directors of the company, Peter, and would like
to have Peter removed from being a director of the company.
Advise Albert how he may have Peter removed from being a director of the
company.
(4 marks)
(i)
ABC Ltd is a private company incorporated in Hong Kong and has adopted Table A
as its articles of association. Alex is the company secretary. In a general meeting, it
was found that the quorum for the meeting was not formed at the scheduled time.
Advise Alex of the procedures he should follow if the quorum for a general
meeting is not formed at the scheduled time.
(4 marks)
(j)
Andy is a shareholder of ABC Ltd. He has not attended any of the company’s
meetings and would like to inspect the company’s minute books.
Advise Andy whether he has the right to inspect the company’s minute books.
(4 marks)
(Total: 40 marks)
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SECTION B
(Answer THREE questions from this section)
ABC Ltd is a private company incorporated in Hong Kong and has adopted Table A
as its articles of association, except that any contract exceeding $1 million has to be
approved by the board of directors. Without the authority of the board of directors,
Peter, the managing director, entered into a contract on behalf of ABC Ltd to
subscribe for 1 million shares in XYZ Ltd, which had no knowledge of the contents of
the articles of association of ABC Ltd. Peter had previously signed a few contracts
exceeding $1 million without the approval of the board of directors. The other
directors knew about these; however, all these contracts turned out to be profitable
and no directors complained. However, when other directors of ABC Ltd found out
about the share subscription contract with XYZ Ltd, they argued that Peter had no
power to sign the contract and refused to perform it.
2.
REQUIRED:
(a)
Advise XYZ Ltd whether it can enforce the share subscription contract against
ABC Ltd. (Assume that all internal procedures of XYZ Ltd for signing this share
subscription contract have been followed.)
(14 marks)
(b)
It was later found that XYZ Ltd had paid $100,000 commission to Peter to sign the
share subscription contract.
Advise the board of ABC Ltd whether it can take any legal action against Peter.
(6 marks)
(Total: 20 marks)
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3.
ABC Ltd is a private company incorporated in Hong Kong. At its recent annual general
meeting, the audited accounts prepared by its auditor, Alex, were tabled and adopted.
A profit of $10 million was reported and was declared as dividends to its shareholders.
Peter and David, two potential investors, read the audited accounts and decided they
wanted to buy some shares in the company. On the next day, Peter bought 10,000
shares in the company.
David and Alex are good friends. David called Alex to confirm the accuracy of the
accounts. After Alex confirmed the accuracy of the accounts, David bought 100,000
shares in the company.
Two weeks later, it was discovered that there was a major error in the accounts and
that the company had in fact suffered a huge loss and there was no profit available for
distribution of dividends. The dividends had been declared out of capital.
REQUIRED:
(a) Advise the shareholders whether they have to return the dividends to the
company since the dividends were declared out of capital.
(6 marks)
(b) Advise Peter whether he can take any legal action against Alex, the
company’s auditor.
(7 marks)
(c) Advise David whether he can take any legal action against Alex, the
company’s auditor.
(7 marks)
(Total: 20 marks)
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ABC Ltd is a private company incorporated in Hong Kong and has adopted Table A
as its articles of association, except that the quorum for the board of directors’
meeting is three. Alex, Benny, Calvin, Danny and Peter are the five directors of the
company. Each of them owns 20% of the issued shares of the company. Peter is also
the chairman of the board of directors. Peter wanted to appoint his brother, Benny, to
be the managing director. However, he knew that Calvin and Danny did not like
Benny and would vote against the resolution. Peter decided to call a board of
directors’ meeting by short notice, when he knew that Calvin and Danny were in
Shenzhen. Peter called the meeting in the morning and convened the meeting in the
afternoon of the same day. Only Benny and Peter attended the meeting and Benny
was then appointed as the managing director.
4.
REQUIRED:
(a)
Explain the roles of the chairman of the board of directors and the managing
director of a company.
(5 marks)
(b)
Advise Calvin whether he may challenge the appointment of Benny as the
managing director of the company.
(10 marks)
(c)
Assuming Peter’s appointment is valid, Calvin would like to remove Peter from his
role as chairman of the board of directors.
Explain to Calvin how he may remove Peter from his role as the chairman of the
board.
(5 marks)
(Total: 20 marks)
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Albert was employed as the managing director of ABC Ltd, which provided
consultancy services for gas companies. Kowloon Gas Ltd offered a consultancy
contract to ABC Ltd but the offer was rejected by ABC Ltd’s board as the directors
believed that ABC Ltd was too busy with other contracts. Albert believed that Kowloon
Gas Ltd’s offer was lucrative and decided to take the contract himself. Albert told ABC
Ltd that he was sick, and ABC Ltd allowed him to terminate his contract at short
notice. Albert then obtained the contract with Kowloon Gas Ltd in his own name and
made a huge profit on it.
5.
REQUIRED:
(a)
Advise the board of directors of ABC Ltd whether it can take any legal action
against Albert.
(10 marks)
(b)
Assume that Albert did not take the contract in his own name, but he set up a
company, Albert Ltd, to take the contract in the company’s name.
Advise the board of directors of ABC Ltd whether it can take any legal action
against Albert and/or Albert Ltd.
(10 marks)
(Total: 20 marks)
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ABC Ltd is a private company selling dog food in Hong Kong. The company has
adopted Table A as its articles of association. Albert, who owns 80% of the issued
shares of the company, has recently realised that one of the company’s shareholders,
Peter, who owns 5% of the issued shares of the company, has set up a partnership
with his friends to sell cat food in Hong Kong. Albert was very worried that Peter might
have obtained sales information on ABC Ltd’s clients for his own use in his new
partnership. Albert decided to alter the articles of association of ABC Ltd by inserting
a clause to give the directors of the company the power to buy the shareholding of
any member who competes with the company’s business at a fair price.
6.
REQUIRED:
(a)
Advise Peter whether he may challenge the alteration of the articles of
association.
(10 marks)
(b)
Assume that the alteration is approved in the company’s general meeting and the
board of directors forces Peter to sell his shareholding.
Advise Peter whether he may apply for unfairly prejudicial act under section
168A of the Companies Ordinance.
(10 marks)
(Total: 20 marks)
End of Examination Paper
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