Hong Kong company Law

1
Hong Kong company Law

• Group 5
• Choi Ka Hei s00110302
• Lam kai Lung S00110311

2
Context List

• Corporate veil and Salomon v Salomon and Co Ltd
• Promoter responsibilities and company ordinance
  32 A
• legal adviser or accountant when a company is
  incorporated not regarded as a promoter
• Ultra vires

3
Corporate veil

• separates the personality of an organization
• protect them from being liable from the firms
  debt and obligation
• its called the corporate shield
• shield the owner of the corporation of their
  liability

4
Relevant case law applies

• Macaura v Northern co Ltd (1925),uk
• Good profit Development Ltd v Leung Hoi (1993)
• Lee v Lees Air Farming Ltd (1961)

5
Macaura v Northern co Ltd (1925),uk

• Macaura was own timber estate
• Sold all the timber to a sawmill company in
  consideration of the allotment to him of42,000
  fully paid 1 share
• Macaura have buy insurance policies in the timber
  
• After two weak, all the timber was destroyed by
  fire.
• Court said
• Macaura disallow to claim timber was owned by
  the company
• Because Macaura and company has separate, so
  macaura does not agent company to buy fire
  insurance

6
Salomon v Salomon and Co Ltd

• Saloman had sold company building to the company
  for 39,000
• Which is 9000 cash and 20,000 share allocation
  to the subscribers as fully paid at 1 each, the
  balance of 10,000 was treated as a loan by
  saloman to the company
• After depression, the company want into
  liquidation , the company debt by creditor.
  Debenture been paid, creditor debt amounting
  7000 not paid
• Court said
• saloman and saloman co Ltd is separate
• Saloman already settle this amount, which is the
  amount is 10,000.
• Saloman was not an agent or trustee
• Saloman had not defrauded the creditor or the
  shareholder and any profit he maake by sell this
  business and fully disclosed

7
Salomon v Salomon and Co Ltd

• a company is a separate legal entity and
  Salomons company is just another person
  different from Salomon himself
• "Either the limited company was a legal entity or
  it was not. If it were, the business belonged to
  it and not to Mr Salomon. If it was not, there
  was no person and no thing to be an agent of at
  all and it is impossible to say at the same time
  that there is a company and there is not."

8
Consequence flowing

• Applied in many, many cases ever since.
• Criticism that it allowed more director to use
  the company structure to work with no liability.
• They dont have to be accountable for their
  mistake.
• Various exceptional circumstances that a court
  will disregard this principle, known as lift the
  corporate veil, to stop people from using this

9
Promoter

• The one who undertake to form a company, to set
  it going, taken necessary steps to accomplish the
  purpose.
• Responsibilities
• stand in fiduciary position towards the company
  he is promoting even before it comes to existence
• work in the interest of the company, and cannot
  conflict his own personal interest into it
• disclose all material facts concerning his
  interest

10
Promoter

• The old version legal section 40(5a) said that
  who was prepared prospectus or of the portion
  thereof containing the untrue statement
• The old version legal section 40(1a) every person
  who is a director of the company at the time of
  the issue of the prospectus.
• The old version legal section 40(1b) every person
  who has authorized himself to be name and is name
  in the prospectus as a director or as having
  agree to become a director either immediately or
  after an interval of time
• The old version legal section 40(1c) every person
  being a promoter of the company
• The old version legal section 40(1d) every person
  who has authorized the issue of the prospectus

11
explain the purpose of s 32A of the Companies
Ordinance

• Provide that a contract can be made on behalf of
  a company at a time when the company has not been
  incorporated.
• Sometimes the promoter want to enter into
  contract before the company is formally
  registered to enable it begin business operations
  as soon as possible after incorporation. In 32A
  it suggests the contract is binding on the one
  who act for the company, which means promoter is
  being liable for this contract.

12
Relevant Case Law application

• Phonogram Ltd v Lane (1981) uk
• Kelner v Baxter (1866) uk
• Natal Land and Colonization co v pauline colliery
  and development syndicate (1904) pc
• Re Northumberland Avenue hotel co (1886)

13
Phonogram Ltd v Lane (1981) uk

• FM Ltd wanted to be formed to run a pop group
• Lane negotiated for finance
• P Ltd agreed to provide a loan before FM Ltd
  incorporation
• FM Ltd never formed
• Court said
• Lane was liable to pay the loan
• A contract can be made on behalf of a
  company, even though the company is not formed
  yet
• The liability of the contract will go to the
  one act on behalf of FM Ltd

14
the legal adviser or accountant when a company is
incorporated not regarded as a promoter

• There is no definition of who is the promoter,
  although in Companies Ordinance s.40 5a it stated
  the expression "promoter" means a promoter who
  was a party to the preparation of the prospectus,
  or of the portion thereof containing the untrue
  statement, but does not include any person by
  reason of his acting in a professional capacity
  for persons engaged in procuring the formation of
  the company and the expression "expert" has the
  same meaning as in section 38C.

15
the legal adviser or accountant when a company is
incorporated not regarded as a promoter

• Usually promoter regarded as the one who takes
  the procedure, steps and actions to prepare the
  formation of a company, before it incorporated,
  but the Ordinance stated clear it des not include
  anyone acting in professional capacity to advise
  the company or the promoter.

16
the legal adviser or accountant when a company is
incorporated not regarded as a promoter

• Legal advisor and accountant are all professional
  or expert in their area but they cannot be
  regarded as promoter because of this.

17
Ultra vires

• The ultra vires rule and its consequences were
  make clear by the House of Lords(uk) even before
  section 1.1
• If a company acted outside its objects as stated
  in the memorandum the transaction was described
  as ultra vires. It basically means work beyond
  its power. Such action or contract could not be
  enforced by either parties and couldnt be
  ratified by the company in general meeting.
•  The concept of ultra vires is that the asset can
  only be used for the purpose stated in the object
  clauses or reasonably incidental to those
  objects, so it can maintain the company capital.
  It can also protect the creditor to look for
  payment back from company. Its also said to
  protect the companys going concern

18
Case Law applies

• Ashbury Railway carriage and Iron co Ltd v
  Riche(1875) uk
• Attorney General v Great Eastern Railway(1880)uk
• Re German Date coffee co (1882) uk

19
Ashbury Railway carriage and Iron co Ltd v
Riche(1875)

• Ashbury Railway carriage and Iron co Ltd
  memorandum, clause 3, said its objects were to
  make and sell, or lend on hire,
  railway-carriages
• But the company agreed to give Riche and his
  brother a loan to build a railway in Belgium.
• Later, the company rejected the agreement. Riche
  sued, and the company pleaded the action was
  ultra vires
• The court said
• company pursues objects beyond the scope of the
  memorandum of association
• the company's actions are ultra vires
• The contract could not have been ratified

20
Re German Date coffee co (1882)

• Three objects included in the memorandum, but
  object a was specific in that it was to make
  coffee from dates using a German patent.
• Object b and c allowed them to do anything
  outside the area set in object a
• The patent was never granted and coffee was made
  with a Swedish patent.
• The company was solvent and the majority of
  shareholders wanted it to continue.
• However two shareholders petitioned for a winding
  up on the grounds that its objects had failed.

21
Re German Date coffee co (1882)

• The court said
• The main object had failed as it was impossible
  to carry out the objects for which the company
  was formed
• The other two clause were just subordinate of
  main object

22

• The End