Corporate Secretaryship (Hong Kong) November2004

Transcription

1 Corporate Secretaryship (Hong Kong) November2004 Suggested answers: Question 1 (a) A rights issue is an issue of rights by a company to its existing shareholders to subscribe for new shares on a pro rata basis to be issued by the company at a pre-determined price. As this will not affect the voting powers of the present shareholders, it does not need the approval of a general meeting of the company but needs a resolution of the board of directors. (b) A preferential share entitles the holder the right to a fixed dividend in priority to holders of other types of shares, but normally enjoys less or no voting power. A deferred share holder s right to dividend will be deferred until holders of the other types of shares have obtained their dividends but will be entitled to all the remainder of the profits, and may enjoy better voting powers than the holders of other types of shares. (c) A corporate member may appoint an authorized representative, or a proxy, to vote at a general meeting of the company. The authorization should be in writing and approved by the board of directors. (d) The procedures for increasing the share capital of a company are: (1) Hold a board meeting to authorize the convening of a general meeting to approve the increase of share capital. (2) Pass an ordinary resolution, or special resolution if so required by the company s articles of association, to approve the increase of share capital. (3) File a copy of the resolution and form SC4 with the Companies Registry. (e) A director may be appointed Managing Director by the company at a general meeting, or by a meeting of the board of directors if so authorized by the company s articles of association. A Managing Director may be removed as any director by an ordinary resolution of the company at a general meeting with special notice of the meeting. 1

2 (f) A company can be made dormant by passing a special resolution (a) declaring that the company will become dormant either as from the date of delivery of the special resolution to the Registrar or as from a later date as is specified in the special resolution; (b) authorizing the directors of the company to deliver to the Registrar the special resolution; and (c) declaring that prior to the company ceasing to be dormant, the directors of the company shall deliver to the Registrar a further special resolution, declaring that the company intends to enter into a relevant accounting transaction. (g) De-registration of a company means striking off the name of a company from the register of companies kept by the Registrar of Companies. The procedures to be taken by a company for de-registration are: (1) Obtain approval of all members of the company for de-registration. (2) Obtain a letter of no objection from the Commissioner of Inland Revenue. (3) Submit an application on the prescribed form to the Companies Registry together with the letter of no objection of the CIR, a deed of waiver of debts if applicable, the name and address of a person to be given notice of the de-registration and the filing fee. (h) A warrant other than a derivative warrant is a right given to its holder to subscribe for a specified number of new shares to be issued by a company at a specified price during a specified period. A derivative warrant is a right given to its holder to subscribe for a specified number of issued shares in a company from the issuer of the derivative warrant at a specified price during a specified period. (i) Private placing is an issue of shares by a listed company to investors who may be any persons including existing shareholders, or to stockbrokers, who then place the shares to their clients or to persons selected by them. A public placing is an issue of new shares to members of the Stock Exchange who then place or sell the 2

3 shares to their clients or to the public. (j) A resolution in writing is a written resolution signed by or on behalf of all the members entitled to attend and vote at a general meeting of a company as an alternative to holding a physical meeting and is as effective as a resolution duly passed at a physical meeting. A resolution in writing is allowed by the Companies Ordinance for any type of general meeting of a company and may be allowed by the articles of association of a company for a meeting of the board directors. 3

4 SECTION B Question 2 (a) Mr Kwong should be advised as follows: Annual General Meeting. A company, other than a newly incorporated one, should hold an annual general meeting in each calendar year and on a date not later than 15 months after the last AGM. As the last AGM in this case was held on 15 Sep 03, the latest date for the 2004 AGM would be 15 December 04. But, an AGM requires at least 21 clear days notice. Even if the notice of the meeting is sent out on 1 Dec 04, there is insufficient time for the notice. Therefore, either agreement to accept shorter notice to be signed by all shareholders to be obtained, or written resolutions to be signed by all shareholders should be obtained instead of a physical meeting. The agenda of the meeting should include approval of a final dividend in script form and a bonus issue of shares. Bonus issue. As it is to be issued as a final dividend, it should be approved by an ordinary resolution as an ordinary business at the coming AGM, or by a written resolution signed by all shareholders. Non-pro-rata new issue of shares to Mr Lung. This should be approved by an ordinary resolution at the coming AGM or by a written resolution signed by all shareholders, since it is not a pro rata issue. No change of directors. Table A requires 1/3, or nearest to 1/3, of the directors longest in service to retire at each AGM and provides that the retiring directors are eligible for re-election. In this case, therefore, Mr Ning should retire and be re-elected as a director of the company by an ordinary resolution as an ordinary business at the coming AGM or by a written resolution signed by all shareholders. No change of auditor. The Company s present auditor can be re-appointed by an ordinary resolution at the coming AGM or by a written resolution signed by all shareholders, and his remuneration can be authorized by the meeting to be fixed by the Directors. 4

5 (b) Name of company Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting of the Company will be held at (specify address) on 15 December 2004 at 10 a.m. for the following purposes: As ordinary business, 1. to consider and adopt the Company s financial statements for the last financial period and the reports of the Directors and the Auditor; 2. to re-elect Mr Ning, who is due under the Company s articles of association to retire at the Annual General Meeting, as a director of the Company,; 3. a. to approve a final dividend in script form of HK$ per share. b. a bonus share for every 5 shares held by members. 4. to re-appoint (name of auditor) to be the Company s auditor with a remuneration to be fixed by the Directors of the Company. (1 mark x 4 = 4 marks for ordinary business) As special business, To consider and, if thought fit, to pass the following resolution as an ordinary resolution : THAT the Directors of the Company be and are hereby authorized to issue one million new shares of $1 each in the Company at par to Mr Lung, such shares ranking pari passu in all respects with all other existing shares in the Company. By order of the Board, Signed Company Secretary 1 Dec

6 Question 3 The procedures to be followed are: Change of director. The Co should file Form D2 as soon as possible with the Companies Registry to notify the cessation of Mr Deng to be a director of the Company and update its register of directors. Advise Helen to obtain a probate appointing Helen to be the executrix of Mr Deng s estate. Helen, then, should submit the original grant of the probate to the Company for certification with a request that her late husband s shares be transferred to her name. Hold a board meeting to note the probate and to approve the transfer of the late Mr Deng s shares to Helen. Receive from Helen the old share certificates concerned and cancel them, and issue to Helen a new share certificate for 500,000 shares in name of Helen. Update register of members. Hold a board meeting to convene an EGM to pass a special resolution, or to authorize a written resolution to be signed by Fung, Gao and Helen, to alter the provisions of the Articles of Association to the effect that the Company s authorized share capital consists of 500,000 Class A shares of $1 each with one vote per share, and 500,000 Class B shares of $1 each with no voting powers. Hold the EGM to pass the special resolution as described above, or obtain the signatures of all shareholders on the written resolution as mentioned above, and file the resolution within 15 days with the Companies Registry. Attach a copy of the resolution to every copy of the Company s Memorandum and Articles of Association and reprint the Company s Articles of Association. Obtain a written agreement of Helen to convert her shares to Class B shares with no voting powers. 6

7 Cancel the share certificates received from Helen and issue to Helen a new share certificate for 500,000 Class B shares of $1 with the clear statement Non Voting on the face of the share certificate. Update Register of Members. Hold a board meeting to approve the transfer of Helen s non-voting shares to Irene. Receive the share certificate from Helen and cancel it and issue a new share certificate to Irene for the same amount of shares. Arrange for the Instrument of Transfer and the Bought and Sold Notes signed by Helen and Irene to be stamped. Arrange for the affixing of the common seal to the new share certificate and update the Company s register of members. 7

8 Question 4 The Co s qualifications for listing on the Main Board are discussed as follows: (a) Profit test: A trading record of not less than three financial years during which the profit attributable to shareholders must, in respect of the most recent year, be not less than HK$20 million and, in respect of the two preceding years, be in aggregate not less than HK$30 million. The profit mentioned above should exclude any income or loss of the issuer, or its group, generated by activities outside the ordinary and usual course of its business. The Co meets this qualification. (b) Public interests: The Exchange must be satisfied that there will be sufficient public interest in the business of the issuer and in the securities for which listing is sought. This normally means that: (1) at least 25% of the issuer's total issued share capital must at all times be held by the public, having an expected market capitalisation at the time of listing of not less than HK$50 million. The Co meets the $50 million but does not meet the 25% requirement. (3) The Exchange may, at its discretion, accept a lower percentage of between 15% and 25% in the case of issuers with an expected market capitalization at the time of listing of over HK$10,000 million. However, this does not apply to the Co as its expected market capitalization does not exceed HK$10,000 m. (c) Market Capitalization: (1) The expected market capitalization held by the public at the time of listing must be at least HK$50 million. (2) The expected market capitalization of a new applicant at the time of listing must be at least HK$200 million. 8

9 The Co s expected total market capitalization is 100 m x $2 = $ 200 m, and 30 m x $2 = $60 m in the public. It meets the above requirements. (d) Directorship. To ensure a sufficient presence of management in Hong Kong the Listing Rules require a listed company to have at least 3 independent non-executive directors who have no interests in the business of the company. A holding of not more than 1% shares in the company may be accepted as independent. To ensure adequate representation of the interests of the general body of shareholders, the Listing Rules also require a listed company to have at least 2 executive directors who are ordinarily resident in Hong Kong. The numbers may be increased as decided by the Exchange taking into account of the conditions of the company. The Co does not have any independent non-executive directors although it meets the resident executive requirement. (e) Controlling shareholder s interest in competing business. Where a new applicant has a controlling shareholder with an interest in a business apart from the applicant s business which competes or is likely to compete, either directly or indirectly, with the applicant s business (the excluded business ), the applicant s listing document must disclose the following: (i) reasons for the exclusion of the excluded business; (ii) a description of the excluded business and its management; (iii) facts demonstrating that the applicant is capable of carrying on its business independently of, and at arms length from, the excluded business. (iv) whether the controlling shareholder intends to inject the excluded business into the applicant in future, together with the timeframe during which the controlling shareholder intends to or does not intend to inject the excluded business. [Listing rules 8.10(1)] The Co appears to have a major shareholder who is likely to compete with the Co in business. It therefore has to comply with the above requirements. 9

10 Question 5 (a) If the company chooses to repurchase some of its issued shares, it probably has to pay a premium on the shares. Its issued shares will be reduced and its share capital will also be reduced, but the paid up amount of each of the remaining shares will remain unchanged. Those shareholders who accept the company s offers will get their capital back and will surrender their shares to the company for cancellation. The other shareholders who do not accept the company s offers are not affected by the repurchase. If the company chooses to reduce its paid up share capital, the company s paid up share capital will be reduced; the paid up amount, and so the face value, of the shares will be reduced, but the number of issued shares remain the same. This procedure will affect all shareholders as the paid up amount of all shares is reduced, whereby all shareholders will get a refund of capital. (b) The procedures for repurchase of shares by a private company will be: (1) Ensure that the repurchase is authorized by the company s articles of association. (2) Draft a repurchase contract. (3) Convene a board meeting to approve the draft repurchase contract and to authorize the convening of a general meeting to consider the repurchase. (4) Send out the notice of the general meeting. (5) Hold the general meeting to pass a special resolution to approve the repurchase. (6) Execute the repurchase contract and proceed with the buy back scheme. (7) Stamp the transfer documents and update the register of members. (8) Submit a certified copy of the special resolution to the Companies Registry for registration within 15 days Form SC2 within 14 days. (9) If the company has insufficient distributable profits for the repurchase, the shares will be repurchased wholly or partly out of capital, in which case in addition to the above procedures, a declaration of solvency executed by all 10

11 directors stating the permissible capital payment and that the company will be able, after the repurchase, to pay its debts within 12 months should be filed with the Companies Registry. An auditors report confirming the amount of permissible capital payment should be annexed to the declaration. Question 6 (a) If DL appoints a receiver to takeover ST, it has the advantage in this case to authorize the receiver to continue the business of ST as ST s business is profitable, so that profits can be accumulated to pay the debts due from ST. The disadvantage for this action would be that there is a risk in the carrying on of ST s business. The advantage of forcing ST to wind up is that DL incurs no risk in the action and DL has no responsibility for the liquidation which is in the hands of the liquidator. A disadvantage of this action is that the liquidation of ST would be out of the control of DL. DL, therefore, would have to weigh the above advantages and disadvantages before it makes a decision. The procedure for appointing a receiver would be for DL to appoint a person qualified for doing insolvency work to be the receiver who will serve, or will appoint a solicitor to serve, a notice of appointment of receiver on the company. (b) When ST is taken over by a receiver, its directors will have the obligation to hand over the assets of the company to the receiver; prepare a statement of affairs for submission to the receiver; and to assist the receiver in any way in connection with the affairs of the company. As ST is solvent, the mode of winding up to follow would be Members Voluntary Winding Up. The procedures would be 11

12 (1) To convene a board meeting to authorize the execution of a statement of solvency stating that the company will be able to pay its debts in full within 12 months by a majority of the directors to be filed with the Companies Registry, and to authorize the convening of a general meeting of the company. (2) Convene and hold a general meeting to pass a special resolution for winding up the company as a Members Voluntary Winding Up. (3) Appoint a liquidator by an ordinary resolution or by the same resolution mentioned at (2) above, of the general meeting. (4) File with the Companies Registry a copy of the said resolutions and notice of the appointment of liquidator within 15 days and 21 days respectively. E N D 12