THE UNIVERSITY OF HONG KONG

SCHOOL OF BUSINESS
2001-2002 (SEMESTER 2) EXAMINATION

School of Business: BUSIOOlOB Company Law

May 15, 2002

2:30pm-4:30pm

Answer any 3 questions only.

1.

All questions carry equal marks.

(a) In choosing a form of business organization what factors would you consider?
(b) Ming, Ling and Ting are partners in a firm of painters and decorators. The
following events have recently taken place and you are asked to advise the parties as
to their legal rights and duties:

2.

(i)

Whilst painting a ceiling, Ming carelessly dropped his can of paint which
struck the customer's son on the head and caused a severe cut. Furthermore,
the paint ruined an expensive Persian carpet. A legal action for the tort of
negligence is now pending.

(ii)

Ling has started up his own separate business as a decorator, though he is still
officially a partner. When a customer approaches him, he takes the work
hin1self and does not share any profit with Ming or Ting.

(iii)

Ting wishes to introduce his friend, Wong, as a new partner so that more
capital can be injected into the firm. Ming and Ling do not like Wong.

(iv)

Ming suggests that the firm should expand its business to include fitting out
bathrooms and kitchens.

(v)

Ling places an order for paint and paint brushes with Hung. When Ming and
Ting discover the price that Ling agreed to, they are very upset and suggest
that the firm should refuse to pay.

The articles of association of Saddam Ltd. provide, amongst other things, that Jim is
to be the company's sales director until 2004 and that the company's Singapore
representatives should be paid ten per cent commission on all business they
introduce to the company. J erry is named in the articles as one of those
representatives. There is an agreement between Jerry and the company that he may
appoint the other Singapore representatives. The agreement also provides that the
company shall not deprive Jerry of his appointment or amend the terms of his
comm1ss10n. J erry has appointed Bill as a Singapore representative. Tom has just
acquired eighty per cent of the shares of Saddam Ltd. and intends to alter the
company's articles to delete the clauses relating to Jim and Jerry, and to reduce the
commission payable to the Singapore representatives to five per cent. He also
intends to add an article whereby any member must sell his shares to a specified
person if a majority vote by the shareholders requires him to do so.
Discuss.

3.

(a) In what circumstances will an agent bind a company to a contract made with a third
party?
(b) "Directors owe duties to their company, not to individual shareholders.
consequence is that shareholders can never sue directors". Discuss.

4.

The

(a) "The problem of ultra vires has now been solved by the Companies (Amendment)
Ordinance 1997". Discuss.
(b) In Re Kingston Cotton Mill an auditor was characterized at a "watchdog", not a
"bloodhound". What did the judge mean by this?

5.

(a) "A floating charge has considerable disadvantages from the lender's point of view."
Discuss.
(b) Bush Ltd. created a floating charge over all its assets in favour of Tung which was
expressed to become fixed if Bush Ltd. purported to create a later floating charge
over some or all of the same property. This charge was validly registered. Two
months later Bush Ltd. created a second floating charge over its stock in trade in
favour of Sam. This too was validly registered. Bush has failed to pay Sam and
in accordance with the terms of the charge, Sam has appointed a receiver.
Advise the receiver as to his position in relation to the earlier floating charge and the
other creditors of the company.

6.

(a) "Section 168A Companies Ordinance gives significant protection to minority

shareholders, though it does not supplant the common law." Discuss.
(b) In relation to minority protection examine the significance of winding up on the 'just
and equitable" ground under section 177 Companies Ordinance.

7.

(a) Outline the powers and duties of a liquidator.

(b) Dragon Ltd. is in liquidation as insolvent.
with the liquidator:
(i)
(ii)
(iii)

(iv)
(v)

The following proofs have been lodged

a claim for damages from Terry relating to alleged negligence of one of the
company's employees;
a claim for two years unpaid profits tax;
a claim for $1 million from Peter who lent the money to the company two weeks
prior to liquidation. The money was used to pay the company's wage bill at the
time;
a claim in respect of $500,000 by John who was given a floating charge as
security six months prior to the commencement of the liquidation.
Other unsecured debts of $5 million.

Advise the liquidator as to the validity and priority of these proofs.

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