⚖️ Hong Kong Law and the Companies Ordinance

1. Which ONE of the following statements about Article 8 of the Basic Law is CORRECT?

1. The common law and rules of equity are maintained, unless they contravene the Basic Law
2. The ordinances previously in force are maintained but the common law no longer applies
3. Previous laws are maintained, and the legislature of the Region may not amend them
4. Previous laws are maintained after the Standing Committee has re-enacted them

Article 8 maintains the laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and customary law, except any that contravene the Basic Law, and “subject to any amendment by the legislature of the Hong Kong Special Administrative Region”. The common law therefore continues, the local legislature can amend previous laws, and no re-enactment by the Standing Committee is needed.

2. Which ONE of the following best describes the standard of proof in a civil case?

1. The plaintiff must prove its case with documentary evidence alone
2. The plaintiff must prove its case beyond reasonable doubt
3. The plaintiff must show that its case is more likely than not
4. The defendant must disprove the claim beyond reasonable doubt

In civil proceedings the plaintiff bears the burden of proof and must establish its case on the balance of probabilities, that is, that it is more likely than not. Proof beyond reasonable doubt is the higher standard that the prosecution must meet in a criminal case. No rule limits civil proof to documents, and the burden does not generally fall on the defendant.

3. Which ONE of the following best describes arbitration as a method of resolving disputes?

1. A judge of the High Court hears the dispute and gives judgment in court
2. A mediator helps the parties to settle without imposing any decision
3. A neutral arbitrator chosen by the parties makes a binding decision
4. A statutory tribunal reviews a decision previously made by a regulator

In arbitration the parties agree to refer their dispute to a neutral arbitrator whose decision (the award) binds them. A judge giving judgment in court is litigation, a mediator who helps the parties settle without imposing a decision is mediation, and a statutory tribunal reviewing a regulator’s decision is a specialised tribunal, not arbitration.

4. Under Article 158 of the Basic Law, before making a final judgment that cannot be appealed, a court of the Region that needs to interpret a provision concerning affairs for which the Central People’s Government is responsible, where the interpretation will affect the judgment, must:

1. ask the Chief Executive in Council to give a binding interpretation of it
2. seek an interpretation from the Standing Committee through the Court of Final Appeal
3. refer the question to the Legislative Council for a binding resolution
4. decide the question itself and report to the Standing Committee afterwards

Article 158 vests the power of interpretation in the Standing Committee of the National People’s Congress (NPCSC), and requires the courts of the Region in these circumstances to “seek an interpretation of the relevant provisions from the Standing Committee of the National People’s Congress” through the Court of Final Appeal. Neither the Chief Executive in Council nor the Legislative Council can give a binding interpretation, and the court may not decide the question itself first.

5. Which ONE of the following statements about the courts of Hong Kong is INCORRECT?

1. The Court of Final Appeal may invite judges from other common law jurisdictions
2. The High Court comprises the Court of Appeal and the Court of First Instance
3. The courts may refer to precedents of other common law jurisdictions
4. The Court of Appeal exercises the power of final adjudication of the Region

Article 82 of the Basic Law vests the power of final adjudication in the Court of Final Appeal, not the Court of Appeal, so the statement is incorrect. The other statements are correct: the High Court comprises the Court of Appeal and the Court of First Instance (Article 81), the courts may refer to precedents of other common law jurisdictions (Article 84), and the Court of Final Appeal may invite judges from other common law jurisdictions to sit (Article 82).

6. Which of the following statements about the judiciary of the Hong Kong Special Administrative Region under the Basic Law are CORRECT? I. The courts have jurisdiction over acts of state such as defence and foreign affairs. II. The courts exercise judicial power independently, free from any interference. III. Members of the judiciary are immune from legal action in the performance of their judicial functions. IV. The courts may refer to precedents of other common law jurisdictions.

1. I and II only
2. I and III only
3. II, III and IV only
4. I, II and IV only

Article 85 of the Basic Law provides that the courts exercise judicial power independently, free from any interference, and that members of the judiciary are immune from legal action in the performance of their judicial functions, and Article 84 allows the courts to refer to precedents of other common law jurisdictions, so II, III and IV are correct. Statement I is wrong: under Article 19 the courts have no jurisdiction over acts of state such as defence and foreign affairs.

7. Under section 9 of the Companies Ordinance (Cap. 622), which ONE of the following describes a company limited by guarantee?

1. A company whose members' liability is limited to the unpaid amount on their shares
2. A company with no share capital whose members undertake a sum on winding up
3. A company whose members have no limit placed on their liability in a winding up
4. A company with a share capital whose membership is restricted to 50 persons

Section 9(1) of the Companies Ordinance defines a company limited by guarantee as one that has no share capital and whose members' liability is limited by the articles to the amount they undertake to contribute on a winding up. A company whose liability is limited to the unpaid amount on shares is a company limited by shares; a company with no limit on members' liability is an unlimited company (section 10); the 50-member limit belongs to the private company test in section 11.

8. Under section 12 of the Companies Ordinance, a company is a public company if:

1. it is limited by shares and has issued shares to its members
2. it is unlimited, has a share capital and has at least 2 members
3. it has at least 2 directors and a resident company secretary
4. it is not a private company and not limited by guarantee

Section 12 of the Companies Ordinance provides that a company is a public company if it is not a private company and is not a company limited by guarantee. Being limited by shares, being unlimited with a share capital, or having 2 directors and a secretary does not decide the point, because private companies can have all of those features.

9. Under section 563 of the Companies Ordinance, an ordinary resolution of the members of a company is a resolution that is passed by:

1. a majority of at least 75% of votes
2. a majority of at least two-thirds
3. a simple majority of the votes cast
4. unanimous approval of the members

Section 563(1) of the Companies Ordinance defines an ordinary resolution as one passed by a simple majority. A majority of at least 75% is the test for a special resolution under section 564(1); a two-thirds majority is not a test in the Ordinance; unanimity is the test for a written resolution under section 556(1) and for a resolution to dispense with annual general meetings under section 613(3).

10. Which ONE of the following statements about the limit of 50 members in the definition of a private company in section 11 of the Companies Ordinance is CORRECT?

1. A member that is a body corporate is not counted
2. Persons who hold shares jointly are each counted as a member
3. A former employee who remains a member is counted
4. A member who is an employee of the company is not counted

Under section 11(2) of the Companies Ordinance, a member who is an employee, or who remains a member after ceasing to be an employee, is excluded from the 50-member limit. Under section 11(3), joint holders are regarded as one member, not several, and section 11 contains no exclusion for members that are bodies corporate.

11. Section 66 of the Companies Ordinance lists the only types of company that may be formed under that Ordinance. Which ONE of the following may NOT be formed?

1. A public company limited by shares, with 2 directors
2. A private unlimited company with a share capital
3. A private company limited by guarantee, without shares
4. A company limited by guarantee without a share capital

Section 66 of the Companies Ordinance allows only a public or private company limited by shares, a public or private unlimited company with a share capital, and a company limited by guarantee without a share capital. A company limited by guarantee is neither private nor public (sections 11(1)(b) and 12(b)), so a private company limited by guarantee is not on the list. The other three are listed in section 66.

12. Under section 135 of the Companies Ordinance, shares in a company:

1. carry a nominal value in a public company
2. must carry the same nominal value as one another
3. have no nominal value, whenever they were issued
4. keep a nominal value if issued before commencement

Section 135(1) of the Companies Ordinance says that shares in a company have no nominal value, and section 135(2) applies this to shares issued before the section commenced as well as to later shares. The other statements therefore do not reflect the Ordinance, which does not distinguish public from private companies on this point.

13. Harbourview Properties Limited wishes to alter its articles of association, other than the maximum number of shares it may issue. Under section 88 of the Companies Ordinance, which ONE of the following is required?

1. An ordinary resolution of the members
2. A resolution of the board of directors
3. The approval of the Registrar of Companies
4. A special resolution of the members

Section 88(2) of the Companies Ordinance provides that, subject to other provisions of the Ordinance, a company may alter its articles only by special resolution (at least 75%). Only an alteration to the maximum number of shares the company may issue can be made by ordinary resolution (section 88(3)), which is not the case here. A directors' resolution or Registrar approval does not replace the members' resolution; the Registrar receives notice of the alteration within 15 days (section 88(5)).

14. Under section 170 of the Companies Ordinance, a limited company may alter its share capital by: I. allotting and issuing bonus shares. II. cancelling issued shares that are fully paid up, by a resolution of the directors. III. converting all or any of its shares into a larger or smaller number of shares. IV. reducing its share capital by returning paid-up capital to members.

1. I and III only
2. I and II only
3. II and IV only
4. I, III and IV only

Section 170(2)(d) of the Companies Ordinance permits a limited company to allot and issue bonus shares (I), and section 170(2)(e) permits it to convert all or any of its shares into a larger or smaller number of shares, by resolution of the company under section 170(3) (III). II is wrong: cancellation under section 170(2)(f) covers only shares not taken or agreed to be taken and forfeited shares, not issued fully paid shares, and requires a resolution of the company rather than of the directors. IV is wrong: returning paid-up capital to members is a reduction of share capital under Part 5, not an alteration permitted by section 170.

15. Harbourview Holdings Limited, a public company limited by shares, is being formed with Mr Chan as its only director. Which ONE of the following statements is CORRECT?

1. It complies, because a company is required to have one director at least
2. It does not comply, as a public company must have at least 2 directors
3. It complies, provided Mr Chan is also appointed as the company secretary
4. It complies, provided Mr Chan holds more than half of the issued shares

Section 453(2) of the Companies Ordinance requires a public company (and a company limited by guarantee) to have at least 2 directors. Only a private company may have a single director (section 454(1)). Neither holding the office of company secretary nor a majority shareholding changes the minimum number of directors for a public company.

16. Harbourview Securities Limited is a public company. Its members wish to appoint Northgate Nominees Limited, a body corporate, as a director. Which ONE of the following statements is CORRECT?

1. The appointment is void, as a public company cannot appoint a body corporate
2. The appointment is valid if the body corporate is incorporated in Hong Kong
3. The appointment is valid if the members approve it by special resolution
4. The appointment is valid, but a natural person must be named to act for it

Section 456(2) of the Companies Ordinance provides that a body corporate must not be appointed a director of a public company (nor of a company limited by guarantee, nor of a private company in a group that includes a listed company), and section 456(3) makes a contravening appointment void. No special resolution, place of incorporation or nominated natural person cures the defect.

17. Under section 465 of the Companies Ordinance, the care, skill and diligence that a director must exercise is that of a reasonably diligent person with:

1. the general knowledge, skill and experience expected of the role, and also the director's own
2. the knowledge, skill and experience the director personally has, ignoring the role
3. the general knowledge and skill expected of the role performed, ignoring the director's own
4. the knowledge and skill of a licensed professional working in the same industry

Section 465(2) of the Companies Ordinance sets a combined test: the general knowledge, skill and experience that may reasonably be expected of a person carrying out the director's functions (objective), and the general knowledge, skill and experience the director actually has (subjective). A test that ignores either the role or the director's own knowledge, skill and experience applies only one limb and misstates section 465(2); no professional-licence standard appears in the section.

18. Under section 474 of the Companies Ordinance, a company secretary who is a natural person must:

1. ordinarily reside in the Hong Kong SAR
2. be a permanent resident of Hong Kong
3. hold a professional qualification
4. also be a director of the company

Section 474(4)(a) of the Companies Ordinance requires a company secretary who is a natural person to ordinarily reside in Hong Kong (a body corporate secretary must have its registered office or a place of business in Hong Kong). The section does not require permanent residence, a professional qualification, or a directorship; section 475(1) merely permits a director to be secretary, subject to its limits.

19. Mr Chan is the sole director of Harbourview Advisory Limited, a private company. He proposes to appoint himself as its company secretary as well. Which ONE of the following statements is CORRECT?

1. He may do so, as a director may act as company secretary of the company
2. He may do so, if the members approve the appointment by special resolution
3. He must not, as a sole director of a private company cannot be its secretary
4. He may do so, if he ordinarily resides in Hong Kong and is a natural person

Section 475(1) of the Companies Ordinance lets a director be company secretary, but section 475(2) provides that the director of a private company having one director must not also be its company secretary. Neither a special resolution nor Hong Kong residence (section 474(4)) removes this prohibition.

20. Harbourview Securities Limited is a wholly owned subsidiary of Harbourview Group Limited, a company incorporated in Hong Kong. Harbourview Securities proposes to make a loan to Ms Lam, who is a director of Harbourview Group Limited but not of Harbourview Securities. Under section 500 of the Companies Ordinance, which ONE of the following is required?

1. Only the prescribed approval of the members of Harbourview Group Limited
2. The prescribed approval of the members of Harbourview Securities Limited alone
3. The prescribed approval of the members of both Harbourview companies, together
4. No approval at all, as Ms Lam is not a director of the lending company

Section 500(2) of the Companies Ordinance generally requires the prescribed approval of the members of both the lending company and its holding company for a loan to a director of the holding company. Section 500(3)(b), however, requires only the holding company's members' approval where the lender is a wholly owned subsidiary of a holding company incorporated in Hong Kong, as here. Approval is still needed even though Ms Lam is not a director of the lending company, because she is a director of its holding company.

21. For a resolution passed at a general meeting to be a special resolution under section 564 of the Companies Ordinance, the notice of the meeting must:

1. be given to the company by a member at least 28 days before the meeting is held
2. include the text of the resolution and say it is proposed as a special resolution
3. be sent first to the members holding at least 5% of the voting rights in the company
4. be approved by the Registrar of Companies before it is sent out to the members

Section 564(4) of the Companies Ordinance provides that a resolution is not a special resolution unless the notice of the meeting included its text and specified the intention to propose it as a special resolution. The 28-day requirement belongs to special notice under section 578, and neither Registrar approval nor a 5% group has any role in section 564.

22. A written resolution is circulated to the members of Harbourview Properties Limited on 1 March 2027, and the company's articles specify no period for passing it. Under section 558 of the Companies Ordinance, the resolution lapses if it is not passed within a period, beginning on the circulation date, of:

1. 28 days
2. 21 days
3. 14 days
4. 42 days

Section 558(1) of the Companies Ordinance provides that a proposed written resolution lapses if it is not passed before the end of the period specified in the articles or, if none is specified, the period of 28 days beginning on the circulation date. Under section 556(1) it is passed only when all eligible members have signified agreement. The periods of 14 and 21 days (the latter is the AGM notice period in section 571) and 42 days do not apply.

23. Members holding 6% of the voting rights of Harbourview Properties Limited ask the directors in writing to call a general meeting. The directors do not call it as required. Which ONE of the following statements is CORRECT?

1. The Court, not the members, has the power to order the meeting to be called
2. The request was ineffective, as at least 10% of the voting rights is required
3. The members must wait for the next annual general meeting to raise the matter
4. The requesting members may call it themselves, at the company's expense

Under section 566(2) of the Companies Ordinance the directors must call a meeting on requests from members representing at least 5% of the voting rights, so 6% is enough. If the directors do not call it within 21 days as section 567(1) requires, section 568 lets the requesting members call it themselves (within 3 months) and section 568(6) requires the company to reimburse their reasonable expenses.

24. Under section 184 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), where a company is wound up by the court and no resolution for voluntary winding up was passed beforehand, the winding up is deemed to commence at the time of:

1. the making of the winding-up order by the Court
2. the presentation of the petition for winding up
3. the appointment of the liquidator by the Court
4. the first meeting of the creditors of the company

Section 184(2) of Cap. 32 deems a winding up by the court to commence at the time of the presentation of the petition, in any case where no voluntary winding-up resolution was passed before the petition (section 184(1)). The date of the order, the appointment of a liquidator and a creditors' meeting are later events and do not fix the commencement.

25. Harbourview Properties Limited is a limited company whose articles require no longer notice than the Companies Ordinance. Its directors are calling an annual general meeting and, separately, another general meeting. Under section 571, what is the minimum notice for each?

1. 21 days for the AGM, 14 days for the other
2. 21 days for each of the two meetings
3. 14 days for each of the two meetings
4. 28 days for the AGM, 14 days for the other

Section 571(1) of the Companies Ordinance requires at least 21 days' notice for an annual general meeting and, for any other general meeting of a limited company, at least 14 days' notice (7 days for an unlimited company). Longer notice applies only if the articles require it (section 571(2)). The other combinations misstate one or both periods, and 28 days is the period for special notice under section 578, not for an AGM.

26. Under section 578 of the Companies Ordinance, where special notice of a resolution is required, the resolution is not effective unless notice of the intention to move it has been given to the company at least how long before the meeting?

1. 28 days
2. 14 days
3. 21 days
4. 7 days

Section 578(1) of the Companies Ordinance provides that a resolution requiring special notice is not effective unless notice of the intention to move it was given to the company at least 28 days before the meeting. The 14 days in section 578(3) is the later deadline for notifying members by advertisement if that is not practicable, and 21 days is the AGM notice period in section 571(1)(a); 7 days applies to a general meeting of an unlimited company.

27. Harbourview Trading Limited is a private company that is not a subsidiary of a public company. The accounting reference period for one of its financial years, which is neither its first nor a shortened period, ends on 31 December 2027. Under section 610 of the Companies Ordinance, by which date must it hold its annual general meeting for that year?

1. 31 March 2028
2. 30 June 2028
3. 31 December 2028
4. 30 September 2028

Under section 610(1)(a) of the Companies Ordinance, a private company (or a company limited by guarantee) must hold its annual general meeting within 9 months after the end of the accounting reference period, which gives 30 September 2028; section 610(4) would exclude a private company that is a subsidiary of a public company, which is not the case here. 30 June 2028 would be the 6-month period for other companies under section 610(1)(b); 31 March 2028 and 31 December 2028 do not match either period.

28. Under the Companies Ordinance, a company is not required to hold an annual general meeting under section 610 if: I. everything intended to be done at the meeting is done by written resolution and the documents are provided to each member. II. the company has a single member. III. the directors resolve by a simple majority that no meeting is needed. IV. all of its members are also directors of the company.

1. I and II only
2. I and III only
3. II and IV only
4. I, III and IV only

Section 612(1) of the Companies Ordinance exempts a company that does everything intended for the meeting by written resolution and provides the documents to each member (I), and section 612(2)(a) exempts a company that has only one member (II). A resolution of the directors cannot dispense with the meeting: section 613(3) requires a resolution passed by all members entitled to vote (III is wrong), and the Ordinance gives no exemption merely because members are directors (IV).

29. Under section 724 of the Companies Ordinance, on a petition by a member, the Court may make an order for relief if it considers that the company's affairs are being or have been conducted:

1. with the result that no dividend was declared in two consecutive years
2. contrary to the commercial judgement of a majority of the directors
3. in a manner unfairly prejudicial to the interests of some members
4. without the prior written consent of the Financial Secretary

Section 724(1)(a) of the Companies Ordinance allows the Court to act, on a member's petition, where the company's affairs are being or have been conducted in a manner unfairly prejudicial to the interests of the members generally or of one or more members; section 725 lets the Court make any order it thinks fit. Absence of dividends, directors' commercial disagreement and lack of the Financial Secretary's consent are not grounds in section 724.

30. Which ONE of the following statements about a statutory derivative action under section 732 of the Companies Ordinance is INCORRECT?

1. A member of an associated company may also bring proceedings
2. The Court's leave is required before the proceedings are brought
3. The member sues in his own name and keeps any damages awarded
4. The cause of action is vested in the company, not the member

Under section 732 of the Companies Ordinance, a member (or a member of an associated company) may, with the leave of the Court, bring proceedings on behalf of the company for misconduct committed against it. Under section 732(4) the cause of action is vested in the company, the proceedings are brought in its name, and relief is sought on its behalf, so the member does not keep the damages.

31. Under Part 19 of the Companies Ordinance, an inspector may be appointed to investigate a company's affairs: I. on application by at least 10 members of a company that has a share capital. II. on application by the company, if it has declared by special resolution that its affairs ought to be investigated. III. if it appears that its affairs have been conducted with intent to defraud its creditors, and it is in the public interest. IV. if the Court by order declares that the company's affairs ought to be investigated.

1. I and II only
2. III and IV only
3. I, II and III only
4. II, III and IV only

Under sections 840(1) and 841 of the Companies Ordinance, the Financial Secretary may appoint an inspector on the company's application after a special resolution (II), where circumstances suggest a fraud on creditors and it is in the public interest (III, section 841(2)(b)(ii) and (3)), and must do so where the Court by order declares that the affairs ought to be investigated (IV, section 841(1)). For a company with a share capital, members must apply as at least 100 members or members holding at least 10% of the issued shares (section 840(2)(a)); 10 members is not enough, so I is wrong.

32. Under section 177 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), a company may be wound up by the court if: I. the company has by special resolution resolved that it be wound up by the court. II. the company has not paid a dividend for 5 consecutive years. III. the company suspends its business for a continuous period of 1 year. IV. the court is of opinion that it is just and equitable that the company should be wound up.

1. I and II only
2. I, III and IV only
3. II and III only
4. I, II, III and IV

Section 177(1) of Cap. 32 lists, among the circumstances for a winding up by the court, a special resolution to that effect (paragraph (a)), suspension of business for a continuous period of 1 year, counted after the specified date defined in section 177(7) (paragraph (b)), and the court's opinion that it is just and equitable (paragraph (f)). Failure to pay a dividend for 5 years is not a ground in section 177, so II is wrong.

33. Harbourview Trading Limited owes Mr Wong a sum then due that exceeds the specified amount. On 7 June 2027, Mr Wong serves a written demand in the prescribed form by leaving it at the company's registered office. By 17 June 2027 the company has neither paid, secured nor compounded for the sum. Under section 178 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), is the company deemed on 17 June 2027 to be unable to pay its debts?

1. No, as a period of 3 weeks after service of the demand has not passed
2. Yes, as a period of 7 days after service of the demand has passed
3. Yes, as service at the registered office is sufficient by itself
4. No, as a period of 28 days after service of the demand has not passed

Under section 178(1)(a) of Cap. 32, a company is deemed unable to pay its debts if a creditor owed a sum then due that equals or exceeds the specified amount has served a written demand in the prescribed form by leaving it at the registered office and the company has, for 3 weeks after service, neglected to pay, secure or compound for the sum. Only 10 days have passed by 17 June 2027, so the deeming has not yet arisen. A 7-day period is too short, 28 days is not the statutory period, and service of the demand is not enough by itself without the 3-week period.