THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS

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1 THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS International Qualifying Scheme Examination CORPORATE SECRETARYSHIP DECEMBER 2012 Time allowed 3 hours Section A Compulsory case study Section B 5 long questions (attempt any 3) DO NOT OPEN THIS PAPER UNTIL INSTRUCTED TO DO SO BY THE INVIGILATOR Important Note: Candidates are allowed 15 minutes reading time to read through the question paper before the commencement of the examination between 1:45p.m.-2:00p.m. During the reading time, all candidates must be silent and must not write or mark anything on their question papers or answer books. Candidates must close all their reference books, notes or other unauthorised materials and put these under their chairs. If any candidates write or make any marks during the reading time, or if they speak or in any other way communicate with anyone either in or outside the examination hall during this period or read any unauthorised materials, they will be disqualified from continuing this examination paper. Once candidates have opened the question paper, they are not allowed to leave the examination hall until 2:30p.m. Page 1 of 10

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3 SUBJECT NO 19M CORPORATE SECRETARYSHIP DECEMBER 2012 The examination paper is divided into TWO Sections. Section A is a case study with compulsory questions and carries 40 marks. Candidates should attempt THREE questions from Section B, all of which carry 20 marks each. You should allow yourself approximately 70 minutes in total to answer the questions in Section A, and 35 minutes for each of the questions attempted in Section B. Unless otherwise stated, $ denotes Hong Kong dollars and Table A applies. Friday afternoon 7 December 2012 Time allowed: 3 hours SECTION A (Compulsory answer ALL questions for this case study) 1. ABC Space Industries Limited (ABC) is a company incorporated in Hong Kong which shares are quoted on the main board of the Stock Exchange of Hong Kong Limited. The following is an extract from its audited consolidated financial statements for the year ended 30 September Authorised share capital $150 million divided into 1,500 million shares of $0.1 each Issued share capital $50 million divided into 500 million shares of $0.1 each Share premium account $32.5 million Retained earnings $52 million For some reason unknown to the directors of ABC, the company s share price has been experiencing frequent fluctuations and is sometimes well below the reasonable range of $0.95 to $1.20 per share, which the directors consider to be in line with the company s performance and future prospects. The directors are considering ways to protect the interests of the shareholders by purchasing the company s own shares. As the company secretary, you have advised that the company could repurchase its own shares when the market price is unreasonably low. You have proposed the inclusion of an ordinary resolution at the coming annual general meeting to seek shareholders permission to grant the directors a general mandate to repurchase the company s shares up to the maximum limit allowed by the Listing Rules. Your advice has been accepted by the directors. Page 3 of 10

4 Assume that the general mandate is given at the annual general meeting held on 28 January 2013, and between then and 30 September 2013, the directors repurchase a total of 30 million shares from the stock market at an average price of $0.80 per share. (a) Discuss critically: (1) the nature and purposes, and the pros and cons, for the action of purchasing a company s own shares, (2) the minimum requirements to be satisfied by a private company, a non-private company and a listed public company in Hong Kong in the repurchase of its own shares, and (3) The three most common methods, reasons for their choice and practice requirements of such share repurchases. (15 marks) (b) Write a memo to the directors of ABC reminding them of the points to be considered, explaining the pre-requisites of a share repurchase exercise and advising them of the necessary procedures to be followed. (12 marks) (c) Draft the necessary resolution to be included in the notice for the coming annual general meeting to be held on 28 January (8 marks) (d) What will the figures for authorised share capital, issued share capital, share premium account and retained earnings be as at 30 September 2013, assuming no other matters than the share repurchases affect these accounts during the year? Justify your answers with explanations or calculations. (5 marks) (Total: 40 marks) Page 4 of 10

5 SECTION B (Answer THREE questions from this section) 2. Simon Leung is a professional electronics engineer of high international repute for his ability to design state of the art consumer electronic products. Together with his wife, he set up a company in Hong Kong, Super Vision Industries Limited, which manufactures consumer video products for export to the United States. The 2008 global financial tsunami has hit SuperVision hard and changes in technology have rendered its products out-of-date. Mr. Leung sees there is no chance the present loss-making situation could be turned around. Mr. Leung has therefore decided to retire and have SuperVision terminated while the company is still solvent. Mr. Leung is the controlling shareholder of SuperVision, and his wife and two children are the minority shareholders. All the issued shares in SuperVision have been paid up. Mr. Leung and his wife are the only directors of the company. Creditors of SuperVision are mainly suppliers for payment of parts and employees for payment of wages. On your advice, Mr. Leung decides to terminate the company by way of members voluntary winding up. (a) Describe under what circumstances a company can be wound up voluntarily and discuss critically why you had advised Mr. Leung on the members voluntary winding up mode. (8 marks) (b) Describe in detail the steps to be taken by the directors, shareholders and liquidator(s) of SuperVision in the member s voluntary winding up. (12 marks) (Total: 20 marks) Page 5 of 10

6 3. Hong Kong Aircraft Limited, which is listed on the main board of the Hong Kong Stock Exchange, is a company incorporated in Hong Kong. It adopts Table A of the First Schedule of the Companies Ordinance as its articles of association. The following is the information regarding its board of directors as of 7 December Executive directors Date joined Last retired at the board general meeting Dr. Ambrose Chan Chairman 1 Jan AGM Ms. Beth Lee Chief 2 Feb AGM Executive Mr. Chris Cheung 3 Mar AGM Independent non-executive directors Dr. Douglas Wong 4 Apr AGM Mr. Ernest Ho 5 May AGM Ms. Florence Au 6 July 2012 The company has just received a letter from Ernest Ho saying that he wishes to resign from the board due to ill health and on the advice of his doctor. The board wishes to appoint Joseph Yam to fill the vacancy left by Mr. Ho. (a) As company secretary of Hong Kong Aircraft Limited, write a memorandum to the board advising on the necessary actions to be taken on the resignation of Mr. Ho and the appointment of Mr. Yam and the formalities involved. (10 marks) (b)(i) Discuss the spirit behind for the need for directors to retire by rotation and stand for re-election. (5 marks) (ii) By the time the company holds its annual general meeting early May 2013, which of the directors will be required to retire and stand for re-election, and why? (5 marks) (Total: 20 marks) Page 6 of 10

7 4. Diversity Creations is a graphic design partnership formed by artists A, B, C and D, who all have an equal share in the partnership profits and losses. Over the past five years, the partnership has not only grown fast but has also expanded into large and complex property design projects which are getting beyond the expertise of the partners as graphic artists. The partners feel that they are overly exposed to uncertainties and begin to plan for the sustained growth of the firm and to protect their individual fortunes. They have decided to convert the partnership into a company limited by shares. (a) Discuss critically (i) whether, in your opinion, the partners of Diversity Creations have made the right decision, (ii) the pros and cons of incorporation, and (iii) whether incorporating will achieve the wish of the partners. (10 marks) (b) Advise the partners of the planning that needs be done for the registration and initial formalities, such as matters to be confirmed at the first directors meeting and in respect to complying with the laws in Hong Kong. (10 marks) (Total: 20 marks) Page 7 of 10

8 5. Mason Company Limited is a company incorporated in the Cayman Islands and is in the business of supply of building material and hardware. One of its products is a special kind of marble stone for which Mason is the sole agent in China. The shares of Mason are quoted on the main board of the Hong Kong Stock Exchange. The following are extracts from Mason s latest annual report: Year ended 30 June 2012 ($ 000) Issued share capital 10,600 Total assets 254,000 Net assets 4,350 Revenue 178,200 Gross profit 18,100 Net profit 6,800 The 60% indirect controlling shareholder of Mason is a property development conglomerate Shangri-La Realty Limited, which, through its other subsidiaries, builds and refurbishes properties for sale and for other clients. One of these subsidiaries, Oasis Rich Construction Co. Limited, which is also 60% indirectly owned by Shangri-La, needs the special marble for one of its projects from Mason. A sales and purchase contract is about to be signed between Mason and Oasis for the amount of $8,900,000, from which Mason will realise a gross profit of approximately 12%. (a) (b) Discuss what you understand from the nature of the proposed transaction between Mason Company Limited and Oasis Rich Construction Company Ltd. to be the requirements of the Listing Rules in connection with the transaction, and how you propose to satisfy these requirements. (8 marks) Draft the necessary announcement to be published. (Note: the proper format of the announcement ready for publication is required. Candidate may create necessary fictitious data and information for this purpose.) (12 marks) (Total: 20 marks) Page 8 of 10

9 6. The market consultation conducted by the Hong Kong Stock Exchange on corporate governance started in December 2010 and concluded in October The consultation conclusions have brought about substantive changes in the Listing Rules and the Corporate Governance Code (the CG Code) regarding the company secretary, viz. (a) his position in the company, (b) the qualification and requirements of the company secretary, and (c) his role and responsibilities. The consultation conclusions have also brought substantive changes to the Listing Rules and the CG Code regarding directors. Some of the changes cover directors responsibilities and their time commitment in discharging their duties as directors of the company. (a) Discuss the changes in the Listing Rules and CG Code regarding the company secretary as published in the consultation conclusions published by the Hong Kong Stock Exchange in October (10 marks) (b) Discuss the changes in the Listing Rules and CG Code regarding directors duties, responsibilities, time commitment and in respective of independent non-executive directors as published in the consultation conclusions published by the Stock Exchange in October (10 marks) (Total: 20 marks) End of Examination Paper Page 9 of 10

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