PCLL Conversion Examination 30th June 2008

Examiner’s Comments Business Associations

General Comment Reiterating the view of a previous examiner in this subject, many candidates failed to pay sufficient attention to HK law and simply relied upon various Commonwealth textbooks. Candidates are expected to have a solid grasp of recent important HK statutory reform and case law developments.

Question 1 There are two aspects to this question. The first issue was done rather poorly, unlike the second which was done quite well. The first issue called for a discussion of CEL’s share issue power, majority rule and possible irregularity in the calling of a general meeting. Cases like Green Valley should have been discussed in connection with the consequences of improper notice in calling a shareholders’ meeting. A brief consideration of minority shareholder remedies (like unfair prejudice and the derivative suit) should have been included. The second issue concerns the fiduciary obligation of a retiring director when there is an alleged taking of a corporate opportunity. Cases like Regal Hastings, Canadian Aero, and Kishimoto should have mentioned in considering whether Luk took a maturing business opportunity.

Question 2 This question was popular, straightforward and generally quite well done. The lack of consistency in piercing the corporate veil pervades virtually all English-speaking jurisdictions.

Question 3 This was a popular question on partnership. In part (i), candidates should have discussed whether a partnership was formed and

whether Betty was bound by the contract Alan signed by virtue of s.7 of the PO. A basic understanding of s.7 was called for, including the possible relevance of provisos to the section. In part (ii), Betty clearly was not liable on the contract, while Alan was. Mention should have been made of s.32 of the CO.

Question 4 This question was not particularly well-answered. When Rob signed the contract of guarantee with HSBC, the issue of whether he remained a director, let alone managing director, arose by virtue of the rotation of directors provisions in Table A. In any event, whether he was managing director de jure or de facto, Rob was clearly in a serious conflict of interest in having RBL guarantee the loan to his own. There is also the question as to whether HSBC could rely upon Rob’s actual or ostensible authority, given his obvious involvement on both sides of the transaction.

Question 5 This question called for an overall understanding of the rules concerning prohibited financial assistance (s.47A et seq). The criticism of the law on prohibited financial assistance can be found in any suitable company law textbook. A good answer would have looked at either or both of the reform proposals put forward in the UK or in HK in recent years. This question was actually done quite well, perhaps in no small measure to the fact that financial assistance was a topic on the previous two examinations.