LW4656/LW5656 Company Law I City University of Hong Kong

A/Y 2021-2021, Semester A School of Law

Tutorial Questions for

Week 8
8-1 Kaiyuen Restaurants Ltd (KYL) is a company formed by various joint venturers to
operate a chain of restaurants in Hong Kong under the Kaiyuen brand. The company adopts
the model articles of association for private companies limited by shares prescribed by the
Companies (Model Articles) Notice (cap. 622H). The ordinary shares in the company are held
in the following manner: Raymond (50%), Sammy (20%), and Tristan (30%). All three
shareholders are directors. The shareholders also vote in Jimmy and Gino as additional
directors. Raymond is appointed the Chairman of the board and the Chief Executive Officer.
Sammy accepts the offer to be a director on the board of Lohan Seafood Supplies Ltd, a
company which supplies seafood to Kaiyuen restaurants.
Golden Harvest (Australia) Pty Ltd (GH) is an Australian company which owns two Cantonese
restaurants in Sydney Chinatown. The family which owns GH is impressed by Raymond’s
expertise and insights; it seeks Raymond’s involvement in GH as a director to help improve on
its branding and to expand its operations in New South Wales. Raymond is also offered 5% of
the ordinary shares of the company. After conferring with Sammy, Raymond accepts the offer.
Raymond increase the profits of GH by some 18%.
Tristan falls out with the other joint venturers, whom he regards as insufficiently faithful to the
venture. He threatens to sue Sammy and Raymond on behalf of the company.
Advise KYL.
(Adapted from Examination A/Y 2017-18)
8-2 Margaret is a director of Abacus Ltd and is in breach of a duty owed to Abacus Ltd that
falls within the ambit of CO s. 473. Consider whether the votes of the following members
Abacus Ltd may count toward a vote to ratify Margaret’s breach and absolve her from liability
to the company.
(a) Naomi (Margaret’s mother) who holds 2% of the shares in Abacus Ltd.
(b) Ken who holds 3% of the shares in Abacus Ltd. Ken and Margaret’s husband, Henry, are
both partners in the law firm, Bartholomew Solicitors, which has 25 partners.
(c) Peter is trustee of a trust holding 3% of shares in Abacus Ltd. The beneficiaries are
Margaret’s 30 year-old son, Quentin and 25 year-old daughter, Natalie and their children.
(d) Bothie Ltd holds 10% of shares in Abacus Ltd. The shareholders of Bothie Ltd are:
Margaret (25%), her husband Henry (20%), and a long time business partner, Romanov (55%).
(e) Carlyle Ltd holds 12% of shares in Abacus Ltd. The shareholders of Carlyle Ltd are
Dairyland Ltd (60%) and Margaret’s brother (40%). All the shares of Dairyland are held by
Henry.

Week 9
9-1 Yurame Ltd (YL) is a consumer technology company founded by four university
friends: Peter, Amelia, Jack and Hugo. Peter’s uncle, Cecil, has provided almost all the finance
for the ventures from the inception of the company; this explains why Cecil holds 52% of the

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shares. The remaining shares are held in the following proportions: Peter (8%), Amelia (10%),
Jack (10%) and Hugo (20%). The board of directors consists of Amelia, Jack and Peter. Jack
is the chairman of the board and the chief executive officer. Peter oversees product innovation
and development, while Amelia is in charge of marketing and sales. Three years ago, Hugo
took up a job in Silicon Valley and left the active management of the company to his friends.
The company has a promising product - the glide-board. This is a handy transportation device
the size of a small surf-board that moves the user to her programmed destination on a device-
generated air-stream. News of the product leaks to the media; analysts project that the device
will be the best seller next Christmas. The pressure is on the company to get the product to the
market by the Christmas sale season. The normal barrage of product reliability tests involves
some four to six months. To have the product manufactured in time for the Christmas season
would involve a testing period of no more than three months. At a family dinner, Cecil tells
Peter than it would be ideal if the product can make it to the shelves by the Christmas sales
period, as the company needs the cash-flow to pay off a bank loan due three months after
Christmas. Peter asks his team to ensure that the glide-board makes it in time for the Christmas
sales. His product engineers simplify some testing procedures and the glide-board makes it to
the shelves in time for Christmas. As expected, the sales are good. Quantum Capital (QC), a
private equity firm, acquires the shares of Cecil, Peter, Amelia and Jack. As Hugo is not
contactable, he is left out of the deal.

Reports soon arrive of a few of the heavier users losing balance when the glide-board navigates
turns and tilts at a larger than expected angle. The company carries out a product recall and
incurs a loss of some $20 million. YL (now controlled by QC) seeks to sue all the former
directors and shareholders of the company for this loss.

Advise YL and QC.

9-2 Alan, Basil, Cecil, Dorothy and Ethan are shareholders in Lotham Petroleum Pte Ltd
(“LPPL”), a medium-sized private company which imports petroleum products and owns
several petrol stations. Alan holds 42% of the issued shares of the company; Basil, Cecil and
Dorothy each hold 16% while Ethan holds 10% of the shares. Basil, Cecil and Dorothy are the
directors of the company.

A major petrol company is negotiating with Alan to purchase his shares. The directors fear a
possible takeover. At the previous AGM, the shareholders conferred on the directors a general
mandate to allot shares pursuant to Companies Ordinance (Cap. 622) s 141(2). Exercising this
mandate, the board allots shares to Fabian, who provides a capital contribution of $30 million.
This helps with funding the board’s intended new investment project. Alan’s shareholding is
diluted to 24%. Alan contests the allotment. At an extraordinary general meeting of the
company, Basil, Cecil, Dorothy and Fabian vote to ratify the allotment. Ethan is absent as he
is away on a work trip in Brazil. Alan protests to no avail.

Advise Alan.

Professor Alexander Loke