Hong kong company law
Instructions: Answer ALL questions below.
Question 1 (20 marks)
Joe Proctor is the owner of Proctor & Co. and Joe & Partners. Proctor & Co. runs a trading business specializing in textile trade. Joe & Partners is a small local accounting firm. For years, Joe would like to involve his eldest son, Edward Proctor, in his textile trading business. Joe would like Edward to eventually take over Proctor & Co. one day. Joe’s youngest son, Tom Proctor, is very good with numbers. Tom recently got qualified as an accountant in Hong Kong. Joe wanted Tom to join Joe & Partners as soon as possible.
Joe came to you for assistance in respect of the prospective transfer of business interests in Proctor & Co. and Joe & Partners. He said, “I want to make Edward a director. He will be the chairman one day. I want to transfer some shares to him as well. As for little Tom, I will just hire him as an accountant now, but will transfer the practice to him in 9 months time if he performs well.”
Advise Joe Proctor on the prospective transfer of business interest. Question 2 (30 marks)
Jeremy Choy is the owner of a teahouse in Kennedy Town. He inherited this business from his father, Melvin Choy. Jeremy recalls his father telling him, “Please keep these share transfers and contract notes in a safe place. I am giving the company to you now. You will be the owner of the teahouse.”
On 1 June 2016, twenty customers fell ill after consuming tea at Jeremy’s teahouse. They reported the incident to the public health authorities and an investigation revealed that the tea was contaminated by e-coli. After a nine-month legal battle between the twenty customers and Jeremy’s company, judgment was entered in favour of the customers. The aggregate damages amounted to HK$500,000.
Jeremy has come to you for advice: He said: “I don’t think there is enough assets under the teahouse to pay for the judgment debt. I can probably sell the expensive 50- year old Puer Tea for HK$200,000. For private assets, I do own a car with probably a secondhand value of HK$200,000. I also own a very nice antique vase from the Ming Dynasty, probably valued at HK$100,000.”
Advise Jeremy if he needs to sell his personal assets to satisfy the judgment debt.
Question 3 (50 marks)
Andrew Hart is the owner of a bakery, Maximus Cakes & Scones Limited, in Wan Chai (“Maximus”). Maximus is well known for its traditional Chinese crispy cakes (“Crispy Cakes”), egg tarts, scones and coffee. To produce the Crispy Cakes, a very special oven, that has an internal flipping mechanism (that flips the trays 20 times per minute) and that preheats at 300 degrees Celsius, is required.
The oven for making Crispy Cakes broke down one morning. Andrew decided to purchase a new one. He contacted Tricky Ovens Limited (“TOL”). Moses Long, the senior sales representative of TOL, introduced Andrew to Model X, a special purpose oven designed for high-end bakeries. Moses reassured Andrew that Model X, which they distribute, is the latest product from Israel and meets all Andrew’s requirements. Moses added that Model X captured 30 different industrial accolades, including “the Best Global Professional Oven in 2017”. Andrew was impressed and ordered the Model X for HK$2,000,000 on behalf of Maximus.
The Model X was installed. But soon afterwards, Andrew regretted his decision. Not only did the Model X failed to preheat at 300 degrees Celsius (it could only preheat at 200 degrees Celsius), the internal flipping mechanism did not work at all. The cakes that came out of the oven were soggy, not crispy! Andrew lost many customers as a result. He had to replace the Model X with another oven that costs HK$3,000,000.
Andrew later discovered that Model X was not even produced in Israel (it was produced in Vietnam) and it never received any industrial accolade.
Advise Andrew Hart whether Maximus has a claim against TOL.