Notes:
- As instructed on page 1 of the exam paper, you should choose the BEST
answer.
- The number in ( ) after each choice indicates the percentage of students
who have chosen that option.
- The correct answer is underlined. Explanations follow each question.
1. Which of the following is NOT a reason for lifting the corporate veil of ABC
Limited?
A. Using ABC Limited to evade an existing obligation. (0.5%)
B. ABC Limited is a member of a corporate group. (30.2%)
C. ABC Limited is being completely controlled by another company. (47.4%)
D. All of the above are reasons for lifting ABC Limited’s corporate veil.
(21.9%)
EXPLANATION: You may refer to the diagram on p.1 in Topic 1 Materials.
Lifting the veil includes mere façade concealing true facts and corporate
groups. DHN case is still good law, so it is still possible for the court to lift the
veil due to corporate group reasons although the circumstances would be
highly limited. On the other hand, the agency principle never involves lifting
the corporate veil because we need two separate parties in order to apply the
principle. So, choice (C) is the answer.
2. ABC Limited wants to hold an annual general meeting (“AGM”). On 1 May
2017 at 2 p.m., ABC Limited gives notices of the AGM to shareholders. When
is the earliest time that ABC Limited can hold a valid AGM?
A. On 23 May 2017 at 2 p.m. (32.8%)
B. On 23 May 2017 at midnight. (46.4%)
C. On 22 May 2017 at 2 p.m. (18.2%)
D. On 22 May 2017 at midnight. (2.6%)
EXPLANATION: AGM requires 21 clear days’ notice. 1 May 2017 does not
count as a clear day. So, 2 May 2017 is the 1 st clear day. Then, 22 May 2017 is
the 21st clear day. As soon as it is no longer 22 May 2017 (i.e., 23 May 2017
00:00am or midnight), a valid AGM can be held.
3. ABC Limited owes XYZ Limited $5,000 which is overdue. XYZ Limited wants to
apply to the court to wind up ABC Limited on the basis that ABC Limited is
unable to pay its debts. Which of the following statement is correct?
A. ABC Limited shall be deemed to be unable to pay its debt if XYZ Limited
serves a demand on ABC Limited requiring ABC Limited to pay the sum
so due and ABC Limited has for 3 weeks thereafter neglected to pay it.
(17.2%)
B. XYZ Limited shall be required to prove to the satisfaction of the court that
ABC Limited is unable to pay its debts. (30.2%)
C. XYZ Limited shall be required to prove to the satisfaction of the court that
it is just and equitable to wind up ABC Limited. (3.1%)
D. XYZ Limited is unable to apply to the court to wind up ABC Limited
because the debt is too small (“de minimis”). (49.0%)
EXPLANATION: Under Cap.32, s.177(1)(d), a company may be wound up by
the court if the company is unable to pay its debt. Under s.178(1)(a), a
company is deemed to be unable to pay its debt if the creditor has served a
demand, provided the debt is at least $10,000. Here, the debt is $5,000 so it
does not apply. Choice (A) is incorrect. Alternatively, under s.178(1)(c), the
creditor has to provide evidence to the court to show that the company cannot
pay its debt. This provision can be applied without regard to the amount of the
debt. Therefore, choice (B) is correct. There is no such thing as a de minimis
exception so choice (D) is also incorrect.
4. On 1 January 2016, ABC Limited granted a floating charge (with an automatic
crystallization clause which provides that the charge will crystallize when the
debtor creates another charge on the same asset) on its cash balance to S
Bank. On 1 March 2016, ABC Limited granted a fixed charge on its cash
balance to T Bank. Assuming all charges are duly registered, does S Bank or T
Bank have priority to claim the cash of ABC Limited to satisfy the outstanding
amounts on the loans given by ABC Limited?
A. S Bank, because the floating charge was created first in time. (1.0%)
B. S Bank, because the floating charge has crystallized before the fixed
charge to T Bank was created. (56.8%)
C. T Bank, because a fixed charge has priority over a floating charge. (5.2%)
D. S Bank and T Bank will share the cash. (37.0%)
EXPLANATION: Here, the automatic crystallization clause provides that the
charge will crystallize WHEN THE DEBTOR CREATES ANOTHER CHARGE.
They did not use the word “attempt”, so the floating charge does NOT
crystallize before the fixed charge was created. So, choice (B) is incorrect. In
this case, the floating charge crystallizes AT THE SAME TIME when the fixed
charge is created. We have two fixed charges that are created at the same
time. They have equal priority, so S Bank and T Bank will share the charged
asset. Choice (D) is correct.
5. The shareholders of ABC Limited requested for a shareholders’ meeting. The
directors duly organized one. At the shareholders’ meeting, there was no
quorum. A quorum is unlikely to present in future shareholders’ meetings. ABC
Limited has adopted the Model Articles. Which of the following statements is
correct?
A. It is not possible for the shareholders to have a valid meeting. (25.5%)
B. The shareholders will have to apply to the court for a valid meeting to be
held. (43.2%)
C. The meeting is valid as long as notice of the meeting was properly given to
all shareholders. (3.6%)
D. The meeting will be adjourned for one week and whoever present will
constitute a quorum. (27.6%)
EXPLANATION: According to the Model Articles, if the meeting is called on
the request of members, the meeting will be dissolved if there is no quorum
within half an hour. See Topic 4 Materials (Part 2), p.9. This is a meeting
requested by the members. So, the meeting will be dissolved. Choice (D) is
incorrect. In order to have a valid meeting, the shareholders would have to
apply to the court for help. So, choice (B) is correct.
