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

Transcription

1 THE HONG KONG INSTITUTE OF CHARTERED SECRETARIES THE INSTITUTE OF CHARTERED SECRETARIES AND ADMINISTRATORS International Qualifying Scheme Examination CORPORATE SECRETARYSHIP DECEMBER 2016 Suggested Answer The suggested answers are published for the purpose of assisting students in their understanding of the possible principles, analysis or arguments that may be identified in each question 1

2 SECTION A Leo and Paul are Taiwanese. They started a business in Hong Kong by setting up Leopaul Manufacturing Limited (LML), a private limited company incorporated in Hong Kong, on 1 September Leo and Paul hold 7,000 shares and 3,000 shares of LML respectively. Paul has been working in Hong Kong for more than 20 years and he is familiar with Hong Kong s business environment. In contrast, Leo spends more than two-thirds of his time in Taiwan, where he has his own business. Leo therefore relies entirely on Paul running LML s business in Hong Kong. At the first board meeting of LML held on 1 September 2015, board resolutions were passed approving, inter alia, the following agenda items: a) Appointment of Leo and Paul as the first directors. b) Appointment of Paul as the company secretary. 1. c) Appointment of Chung & Chee, C.P.A. Limited (Chung & Ch ee) as the auditor to hold office until the conclusion of the next annual general meeting at a fee to be agreed with the directors. However, the board missed an agenda item to discuss and approve the accounting reference date at this first board meeting. Since then, the accounting reference date has never been discussed and determined by Leo and Paul. Ms Chee is Paul s best friend and a director of Chung & Chee. Ivy Tong is the finance manager of LML. Recently, Ivy had a dispute with Ms Chee about the audit fee. Ivy asked Chung & Chee to resign as auditor of LML by tendering a resignation letter. However, Ms Chee has not taken any action and she wants to have a meeting to discuss the audit fee with Paul. Meanwhile, Ivy has proposed to Leo that Chung & Chee be removed and KooKao & Co., Certified Public Accounts (KooKao & Co) be engaged as auditor of LML to fill the causal vacancy after the removal. KooKao & Co is a well-established audit firm. Ivy is under consideration to be admitted as a partner of KooKao & Co. 2

3 In a recent conversation between Leo and Paul, Leo informed Paul about Ivy s proposal regarding the removal of Chung & Chee as auditor of LML. Paul told Leo that there was no provision in LML s articles of association for removal of auditor and thus, Chung & Chee could not be removed. Paul also told Leo that, due to personal reasons, he planned to quit his Hong Kong business in early Paul proposed selling all his shares in LML to Leo at a consideration to be determined in accordance with the net asset value of LML in its first financial statements (which should be laid at LML s first annual general meeting) and to resign as a director of LML. Paul also planned to resign as the company secretary of LML by filing a Form ND4 reporting his resignation as director and secretary of LML with the Companies Registry after the completion of the transfer of shares to Leo before leaving Hong Kong. REQUIRED: 1. (a) State concisely the following dates/periods for LML and how they are determined, despite the fact that they have not been determined by any directors resolution: (i) Primary accounting reference date. (3 marks) (ii) First accounting reference period. (2 marks) (iii) Last date of holding the first annual general meeting. (3 marks) Ans (a) Primary accounting reference date Pursuant to sections 369(5) to (7) of Companies Ordinance (Cap. 622) (CO), for a company formed under the CO, the primary accounting reference date is either: (i) a date specified by the directors that falls within 18 months after its 3

4 incorporation date; or (ii) if no date is specified by the directors, the last day of the month in which the first anniversary of the company s incorporation falls. As the primary accounting reference date has not been determined by directors, LML s primary accounting reference date should be 30 September 2016 (i.e., the last day of the month in which the first anniversary of the company s incorporation (LML s date of incorporation is 1 September 2015)). First accounting reference period Pursuant to section 368(2) of the CO, for a company formed under the CO, the first accounting reference period begins on its incorporation date and ends on its primary accounting reference date. The first accounting reference period of LML should be from 1 September 2015 to 30 September First annual general meeting Pursuant to section 610(2)(b) of the CO, for a private company that is not a subsidiary of a public company and when its first accounting reference period is longer than 12 months, the company must hold its AGM within the following periods, whichever is the later: (i) nine months after the first anniversary of the company s incorporation (i.e. 1 June 2017); or (ii) three months after the end of that accounting reference period (i.e. 31 December 2016). As LML is not a subsidiary of a public company, its first annual general meeting must be held on or before 1 June

5 1. (b) Advise Leo of the following matters: (i) Auditor s duties on preparing the auditor s report. (9 marks) (ii) Whether Chung & Chee may be removed and the rights/duties of Chung & Chee in relation to the removal. (9 marks) (iii) Whether KooKao & Co should be appointed as LML s auditor. (3 marks) Ans (b) (i) Auditor s duties on preparing the auditor s report 1. During the auditor s term of office, the auditor must prepare an auditor s report stating their opinion on the company s annual financial statements prepared by directors. A copy of the financial statements is laid before the company at its general meeting or is sent to the members. 2. In preparing an auditor s report, the auditor must carry out investigations that will enable the auditor to form an opinion as to whether: (i) the financial statements have been properly prepared in compliance with the CO; (ii) the financial statements give a true and fair view of the financial position and finance performance of the company; (iii) adequate accounting records have been kept by the company; (iv) the financial statements are in agreement with the accounting records; and (v) directors emoluments, retirement benefits, loans, material interests in transactions, etc., as specified in section 383(1) of the CO have been 5

6 contained in the financial statements. If the above-mentioned items are not satisfied, the auditor must state that fact in the auditor s report. 3. Further, if auditor is of the opinion that the information in a directors report is not consistent with the financial statements/accounting records, the auditor may bring that opinion to the members attention at a general meeting according to section 406(2)(b) of CO. 4. If the auditor fails to obtain all the information or explanations that are necessary and material for the purpose of audit, the auditor must state that fact in the auditor s report. (9 marks) (ii) Whether Chung & Chee may be removed Although Chung & Chee is appointed on an annual basis and holds office until the conclusion of the next annual general meeting and LML s articles of association do not have any provision for removal of auditor, Leo may make use of section 419 of the CO to remove Chung & Chee. LML may by an ordinary resolution passed at a general meeting remove Chung & Chee as auditor of LML (section 419(1)). Special notice is required for an ordinary resolution proposed for the purpose of removal of auditor (section 419(2)). On receipt of a special notice, LML must send a copy of the special notice to Chung & Chee (section 419(3)). If an ordinary resolution for the removal is passed, LML is required to deliver the Notice of Removal of Auditor (Form NA1) to the Registrar for registration within 15 days beginning on the date when the resolution is passed if an ordinary resolution 6

7 for the removal is passed (section 419(4)). Rights/duties of Chung & Chee in relation to the removal Chung & Chee has the right to be heard and make a written response in relation to the resolution and to attend the general meeting. Pursuant to section 425(1)(a) of the CO, Chung & Chee has the duty to make a statement of the circumstances connected with the removal of auditor if it considers that such circumstances should be brought to the attention of LML s members or creditors. A copy of the statement of circumstances is required to be delivered to the Registrar for registration within the period mentioned in sections 426(5) and 427(5). When Chung & Chee gives a statement to LML and there are no circumstances connected with removal of auditor that should be brought to the attention of the company s members or creditors, there is no requirement to deliver such a statement to the Registrar of Companies for registration. (iii) Whether KooKao & Co should be appointed as LML s auditor To ensure the independence of an auditor, any officer or employee of a company is disqualified from being appointed as auditor of the company according to section 393(2) of the CO. In addition, if an audit firm is appointed, by the firm name, as auditor of a company, the appointment is to be regarded as an appointment of those persons who are the partners in that firm from time to time according to section 399(a) of the CO. Ivy is the financial manager of LML. If she is admitted as a partner of KooKao & Co, Leo should not engage KooKao & Co as the auditor of LML. 1. (c) Upon the completion of the share transfer to Leo, discuss whether: 7

8 (i) It is sufficient and appropriate for Paul just to file a Form ND4 with the Companies Registry reporting his resignation as company secretary of LML. (7 marks) (ii) Leo can be appointed as LML s company secretary. (4 marks) Ans (c) (i) Whether it is sufficient and appropriate for Paul just to file a Form ND4 with the Companies Registry reporting his resignation as company secretary of LML General speaking, the company secretary is an officer and employee of a company. There should be an employment contract between the company and the company secretary. The company secretary may resign at any time in accordance with the procedure/requirement set out in the company s articles of association and/or employment contract. The requisite procedure/requirement normally includes: 1. Serve notice of resignation to the company; and 2. Sign a letter of resignation and send it to the company. Upon receipt of the notice of resignation tendered by the company secretary, the board of directors should consider whether to accept it or not. If the resignation is accepted, the directors should: 1. Approve it at a board meeting or by way of directors resolutions in writing. Such minutes/resolutions must be properly recorded and, together with the signed resignation letter, be inserted in the minute book; 2. Update the register of secretaries; and 3. Deliver the Notice of Change of Company Secretary and Director (Form ND2A) to the Companies Registry within 15 days after the resignation. 8

9 Discussion and conclusion Section 477(5) of CO specifies that if notice of resignation of a company secretary is required under the articles of association and/or the employment contract, the resignation does not have effect unless the company secretary gives notice in writing of the resignation in one of the following ways: 1. In accordance with the requisite requirement 2. By leaving it at the registered office of the company 3. By sending it to the company in hard copy or in electronic form Paul should check LML s articles of association and/or employment contract to see whether there is any provision governing the resignation of the company secretary. If there is a requirement to serve notice of resignation and send the signed letter of resignation to LML, failure to do so means the resignation will not have legal effect. Moreover, Paul may file Form ND4 with the Companies Registry only when he has reasonable grounds for believing that LML will not deliver Form ND2A for the change of company secretary (pursuant to 477(3) of CO). Thus, simply filing Form ND4 with the Companies Registry does not mean that Paul has duly resigned as the company secretary of LML. (ii) Whether it is valid to appoint Leo as LML s company secretary Pursuant to section 474(4) of CO, a private limited company must appoint the following person/entity as its company secretary: (i) an individual who ordinarily resides in Hong Kong; or (ii) a corporation which has its registered office or place of business in Hong Kong. As Leo does not ordinarily reside in Hong Kong, he may not be appointed as the 9

10 company secretary of LML. Moreover, after the completion of Paul s proposal, Leo will become the sole shareholder and sole director of LML. Pursuant to section 475(2) of CO, the sole director of a private company must not also be the company secretary. Thus, Leo may not be appointed as the company secretary of LML. 10

11 SECTION B 2. Goodfood Manufacturing Limited is a limited company incorporated in the Cayman Islands and its shares are listed on the Main Board of Hong Kong Stock Exchange. The company mainly engages in food manufacturing and processing. Steven Sun, an executive director of the company, plans to diversify the company s business by opening a chain of coffee shops in Hong Kong. The board of directors discussed Mr Sun s plan at their latest meeting and unanimously agreed to implement the plan. In addition, the board of directors proposed changing the company s name to Goodfood Holdings Limited. REQUIRED: 2. (a) Discuss whether the proposed company name is acceptable to the Registrar of Companies (Registrar) with reference to the name requirements as stated in the Companies Ordinance (Cap. 622). Discuss the consequences if the proposed name is unacceptable to the Registrar. (6 marks) Ans (a) Whether the proposed company name is acceptable by the Registrar of Companies and the consequences if the proposed name is unacceptable 1. Part 16 of the Companies Ordinance contains provisions on the regulation of use of corporate names by registered non-hong Kong companies. Normally, the Registrar of Companies (th e Registrar) will approve the new company name (i.e. Goodfood Holdings Limited) unless the Registrar is satisfied that the new company name: (i) is the same as or is too like a name that appears, or should have appeared, in the Registrar's index of company names; or (ii) gives so misleading an indication of the nature of its activities in Hong Kong as to be likely to cause harm to the public. 2. If the new company name is not approved by the Registrar for any of the above reasons, the Registrar may, within six months of the date on which 11

12 new company name is registered, serve a notice to that effect on the company. 3. If the company is served with such a notice, it must not, after the end of two months after the date of serving such notice, carry on business in Hong Kong under the new company name (i.e. Goodfood Holdings Limited). 4. The company may either cause its company name (i.e. Goodfood Holdings Limited) to be changed in the Cayman Islands, the place of its incorporation, or apply, in writing, to the Registrar for approval of another name in substitution of Goodfood Holdings Limited under which it is to carry on business in Hong Kong. 5. If the Registrar approves another name, the company may deliver to the Registrar for registration a Form NN12, specifying the name so approved. The Registrar will enter the approved name in the Companies Register and issue a fresh Certificate of Registration of Alteration of Name of Registered Non-Hong Kong Company. 2. (b) Advise Mr Sun of the formalities that must take place to change the company s name and what follow-up actions the company should take after the change of name. (14 marks) (Total: 20 marks) Ans (b) Formalities to change of company name 1. Conduct a company search to ensure no identical or similar names are already registered with the Cayman Companies Registry and the Hong Kong Companies Registry. 2. Obtain confirmation from the board of directors that there is nothing unusual about the proposed change of company name and obtain the board s approval for the issue of an announcement, circular and notice of extraordinary meeting (EGM). 3. Inform the Stock Exchange of the change of name and the proposed effective date of change. Meanwhile, submit a specimen of the new share certificate bearing the company s new name to the Stock Exchange for approval. 4. The company must publish an announcement in regard to the proposed 12

13 change of company name as soon as practicable, and despatch the circular and notice of the EGM to shareholders and upload the same at least 10 clear business days prior to the date of the EGM on the company s and Stock Exchange s websites. 5. Upon obtaining at least 75% of the shareholders approval at the EGM, post an announcement of the poll results of the EGM at least 30 minutes before the commencement of the morning session on the following business day on the company s and Stock Exchange s websites. 6. File the special resolution sanctioning the change of company name with the Cayman Companies Registry. 7. Upon obtaining the Cayman Companies Registry s approval, publish an announcement of the new company name when it becomes effective on the company s and Stock Exchange s websites. 8. File with the Hong Kong Companies Registry a Form NN10 within one month after the date of change. Follow-up actions the company should take after the change of name 1. Obtain the board s approval for the adoption of the new common seal. 2. Liaise with the branch share registrar in Hong Kong and the principal share registrar in Cayman Islands to print new share certificates, engrave the new common seal and issue the share certificates. 3. Within one month after the change to the company s name, inform both the Inland Revenue Department and the Business Registration Office of the change so that a new business registration certificate can be issued bearing the new company name. 4. Insert the new company name in the memorandum and articles of association and arrange for these to be published on the company s and Stock Exchange s websites. 5. Arrange for a new name plate to be placed at the registered place of business in Hong Kong. 6. Amend all statutory documents, such as the company s letterhead and any other corporate communication documents, and the company s website, to bear the new company name as required by the Companies Ordinance. 13

14 3. Carrie and Jessie are directors of Cassie Jewellery Limited, a private company incorporated in Hong Kong. Jessie is a famous jewellery designer and needs to travel frequently. Due to her busy work schedule, Jessie is always unable to schedule her time to attend the company s board meetings. Even though the company s articles of association allow her to participate in board meetings by video/telephone conference, Jessie still finds it difficult to schedule these meetings in. One of Jessie s friends has advised Jessie that she may appoint her husband either as a reserve director or an alternate director to represent her at all board meetings. REQUIRED: 3. (a) Distinguish between a reserve director and an alternate director. (15 marks) Ans (a) Differences between a reserve director and an alternate director are as follows; Type of company Reserve director: Alternate director: Pursuant to section 455 of the Companies Ordinance (CO), a private company limited by shares incorporated in Hong Kong, of which the sole director is also the sole member, may appoint a reserve director. All following types of companies provide in their articles of association to allow for the appointment of an alternate director: 1. A private company limited by shares and listed company 2. A public company limited by shares 3. A company limited by guarantee Governing laws/constitution documents Reserve director: Alternate director: The CO specifies that if a private company has only one member and that member is the sole director of the company, the company may, despite anything in its articles, nominate a reserve director. The right to appoint an alternate director would have to be provided for in the articles of association of a company. In the absence of such an express right in the articles, the directors may not be able 14

15 to appoint an alternate director. Purpose of appointment Reserve director: Alternate director: If a sole director/member unexpectedly dies, then the company will not have any director to exercise its powers and manage the company s affairs. A reserve director will act in place of the sole director in the event of his/her death. An alternate director is deemed to be an agent of the director he represents (appointer). An alternate director may exercise the powers and carry out the responsibilities of his appointer in the absence of his appointer. Rights and responsibilities Reserve director: Alternate director: In the event of the death of the director, the reserve director is to be regarded as a director of the company for all purposes. An alternate director has the same rights as his appointer in relation to any decision taken by the directors. Unless the articles specify otherwise, an alternate director is deemed to be a director for all purposes. Nomination/appointment Reserve director: Alternate director: A company which satisfies the criteria set out in section 455 of the CO may, by a resolution passed at a general meeting, nominate a reserve director at any time. The procedure for appointment an alternate director is set out in the articles of association. Normally, a director (appointer) may appoint any other director / person as his alternate by a resolution passed by the directors. Circumstances in which the nomination / appointment become lapse Reserve director: The nomination of the reserve director ceases to have effect if: a. Before the death of the sole director: i. The reserve director tenders his resignation; or 15

16 ii. The company at a general meeting revokes the nomination; or b. The director ceases to be the sole member and sole director of the company for any reason other than the death of that director. Alternate director: The appointment of the alternate director terminates: a. If the appointer revokes / terminates his alternate s appointment by giving a notice to the company; or b. The alternate s appointer ceases to be a director of the company. Notification to Registrar of Companies (Registrar) Reserve director: Alternate director: The company must submit a Notice of Change of Reserve Director (Nomination/Cessation) (Form ND5) to notify the Registrar within 15 days after the nomination/cessation of the appointment of the reserve director. The company must submit a Notice of Change of Company Secretary and Director (Appointment/Cessation) (F orm ND2A) to notify the Registrar within 15 days after the appointment/cessation of appointment of the alternate director. 3. (b) Discuss to what extent the following advice is correct and evaluate which type of director (i.e. reserve director or alternate director) Jessie should appoint: Jessie may appoint her husband either as a reserve director or an alternate director to represent her at all board meetings (5 marks) (Total: 20 marks) Ans (b) As long as Cassie Jewellery Limited has more than one director, section 455 of the CO does not apply to this company. Thus, the advice to appoint Jessie s husband as reserve director is incorrect. 16

17 The right to appoint an alternate director is governed by each company s articles of association. Thus, the advice to appoint Jessie s husband as alternate director is correct provided that such an appointment is allowed in the company s articles of association. As Cassie Jewellery Limited does not satisfy the criteria set out in section 455 of the CO and the main purpose is to find someone to replace Jessie attending and voting at the board meeting, Jessie should appoint an alternate director. 17

18 4. Willy and Faddy are directors and shareholders of Wafad Investment Limited, a limited company incorporated in Hong Kong. In order to implement the company s three-year business plan, Willy plans to borrow HK$200 million from a local bank or potential lender by creating charges on the following assets of the company. Assets to be pledged under the charges Office premises situated in Hong Kong (the office is currently used by the company as its registered office and place of business) A piece of land situated in the Philippines (the land has not been used by the company since the company bought it in 2014) Book value $ (million) An aircraft (the company owns a 50% interest in the aircraft) 50 An amount/instalment due from Faddy, but not yet paid, on the issue price of shares (Faddy subscribed for 5,000 shares in June 2014) An amount/deposit of money maintained with Faddy (the company has a right to call for repayment from Faddy at any time) 8 12 REQUIRED: 4. (a) Advise Willy whether the company can create charges on any of the above assets and whether the charges must be registered with the Companies Registry under the Companies Ordinance (Cap. 622). (5 marks) Ans (a) Not all charges need to be registered with the Companies Registry. Only those charges which are required to be registered under section 334 of the Companies Ordinance (Cap. 622) need to be registered with the Companies Registry. 1. A charge on an office premises situated in Hong Kong is a registrable charge (section 334(1)(c)). 2. A charge on land situated in Philippines is a registrable charge (section 334(1)(c)). 18

19 3. A charge on an aircraft or any share in an aircraft is a registrable charge (section 334(1)(h)). 4. A charge on installments due, but not paid, on the issue price of shares is a registrable charge (section 334(1)(f)). 5. A charge on the company s right to repayment of money maintained with another person is not regarded as a charge on the book debts of a company. Thus, it is not a registrable charge (section 334(3)(b)). 4. (b) State precisely the following matters: (i) The procedure for registration of a charge. (6 marks) (ii) The feasibility of an extension of time for the registration and the effect of non-registration of a registrable charge. (4 marks) (iii) The procedure for release of a charge. (5 marks) (Total: 20 marks) Ans (b) (i) Procedure for registration of a charge Both the company and the chargee / mortgagee can deliver the following to the Registrar of Companies (the Registrar) for registration: i. A certified copy of the instrument creating or evidencing the charge (sections 335, 336 and 338 to 340); ii. A duly completed Statement of Particulars of Charge (Form NM1); and iii. A filing fee of HK$

20 The original charge instrument should not be delivered for registration. If it is erroneously delivered, the Registrar will not be responsible for any damage to the original document or for the safe return of the original charge instrument. The certified copy of the charge instrument and Form NM1 must be delivered for registration within one month after the date of creation of the charge or, where the charge is created outside Hong Kong and is over property situated outside Hong Kong, one month after the date on which a certified copy of the said instrument could have been received in Hong Kong in due course of post. If the Registrar is satisfied that the particulars entered on the Form NM1 are correct and fit for registration, a certificate of registration will be issued. (ii) Feasibility of extension of time for registration and the effect of non-registration of a registrable charge The Registrar has no power to grant an extension of time for late delivery of a charge under the Companies Ordinance. If the company is unable to deliver the charge to the Registrar for registration by the prescribed time period, a court order extending the time for registration of the charge is required under section 346 of the Companies Ordinance. In case of non-registration of a registrable charge, the registrable charge will become void against the liquidator and any creditor because they cease to be preferential creditors. However, the obligation to repay the loan is not prejudiced, and the money lent and secured by the charge becomes immediately repayable. (iii) Procedure for release of a charge The company or the chargee / mortgagee may deliver the following to the Registrar for the release of a charge: 20

21 i. A certified copy of any instrument for the purpose of evidencing the payment, satisfaction, release or cessation; ii. A duly completed Notification of Payment/Satisfaction of Debt, Release from Charge, etc. (Form NM2); and iii. A filing fee of HK$190. There is no statutory time limit for the delivery of a Form NM2. The company or the chargee / mortgagee can deliver a Form NM2 any time after the charge has been discharged. Entries should be made in the company s register of charges to record the details of the charge (i.e. when it is registered and discharged). 21

22 5. Xandra Jewellery Holdings Limited (XJHL) is incorporated in the Cayman Islands and its shares are listed on the main board of Hong Kong Stock Exchange. The following diagram illustrates the group structure of XJHL: XJHL 100% Mr Au Xandra Limited Mr Bai 70% 30% 40% 30% 70% JVA Limited JVC Limited JVB Limited Mr Au and Mr Bai are shareholders of JVA Limited and JVB Limited respectively and they do not have any relationship with XJHL and its subsidiaries (XJHL Group) or with any connected persons of XJHL Group. Xandra Limited and each of Mr Au and Mr Bai reach the following agreements separately: 1. JVA Limited will open three jewellery shops in Malaysia and borrow $180 million (JVA Loan) from GGK Bank; XJHL / Xandra Limited and Mr Au will act as the guarantors in proportion to their shareholding interests in JVA Limited; and 2. JVB Limited will open two jewellery shops in Singapore and borrow $120 million (JVB Loan) from GGK Bank; XJHL / Xandra Limited and Mr Bai will act as the guarantors in proportion to their shareholding interests in JVB Limited. The following information is extracted from XJHL s latest financial statements: $ million Non-current assets 580 Current assets 530 Total assets 1,110 REQUIRED: 22

23 5. (a) (i) Briefly explain what an affiliated company is and identify the affiliated companies of XJHL in the above diagram. (4 marks) (ii) Critically analyse whether XJHL will trigger any disclosure obligation if XJHL acts as a guarantor for the JVA Loan and/or the JVB Loan. (10 marks) Ans (a) (i) Chapter 13 Rule 13.11(2)(a) stipulates that an affiliated company refers to an associated company and a jointly controlled entity in accordance with Hong Kong Reporting Standards. Thus, the following companies are affiliated companies of XJHL: i. JVA Limited; ii. JVB Limited; and iii. JVC Limited. (ii) Rule stipulates that a guarantee to an affiliated company should be viewed on a group basis. Xandra Limited is a wholly-owned subsidiary of XJHL. Thus, any guarantee from Xandra Limited to its affiliated companies is deemed to be a guarantee from XJHL to its affiliated companies. According to rule of the Listing Rules, if guarantees given for facilities granted to affiliated companies of a listed company together in aggregate exceed 8% under the assets ratio as defined under rule 14.07(1), the listed company must as soon as reasonably practicable publish an announcement. JVA Loan Amount guaranteed by XJHL = $180 million x 30% = $54 million 23

24 Assets ratio: Amount guaranteed by XJHL XJHL total assets $54 million $1,110 million = 4.86% Because the assets ratio does not exceed 8%, XJHL acting as a guarantor for the JVA Loan will not trigger any disclosure obligation under Chapter 13 of the Listing Rules. JVB Loan Amount guaranteed by XJHL = $120 million x 30% = $36 million Assets ratio: Amount guaranteed by XJHL XJHL total assets $36 million $1,110 million = 3.24% Because the assets ratio does not exceed 8%, XJHL acting as a guarantor for JVB Loan will not trigger any disclosure obligation under Chapter 13 of the Listing Rules. JVA Loan and JVB Loan Assets ratios for JVA Loan + JVB Loan = 4.86% % = 8.1% When XJHL acts as a guarantor for the JVA Loan and JVB Loan simultaneously, this will trigger the disclosure obligation according to rule of the Listing 24

25 Rules because the assets ratio together in aggregate exceeds 8%. 5. (b) State concisely what disclosure obligation will be triggered based on your analysis in part (a) above. (6 marks) (Total: 20 marks) Ans (b) If the guarantees granted to the affiliated companies together in aggregate exceed 8% under the assets ratio, XJHL must publish an announcement containing the following information as soon as reasonably practicable upon signing the guarantee agreements: (1) XJHL s analysis on the amount of guarantees for bank loans granted to the affiliated companies; (2) the terms of the guarantees, including the interest rates, methods of repayment, maturity dates, and the security therefor; (3) the source of funding to repay the committed amount of guarantees if such guarantees become payable by XJHL; and (4) bank loans utilised by the affiliated companies which are guaranteed by XJHL. According to rule of the Listing Rules, if the above guarantees continue to exist at XJHL s interim period-end or annual financial year-end, XJHL s interim or annual report must include a combined balance sheet of JVA Limited and JVB Limited as at the latest practicable date. 25

26 6. Flora Mo is / was a director of the following companies: Name Type of company Nature of business Albine Investment Limited (AIL) A private limited company incorporated in Hong Kong Owner of the office premises in Hong Kong which is used by BTL under a lease Benoit Trading Limited (BTL) A private limited company incorporated in the British Virgin Islands and registered as a non-hong Kong company under Part 16 of the Companies Ordinance Carry out trading business in Hong Kong Catalan Limited (CL) A private limited company incorporated in Hong Kong Dissolved by members voluntary winding up Dado Limited (DL) A private limited company incorporated in Hong Kong Dissolved by deregistration Flora recently found that both AIL and BTL had been dissolved by the Registrar of Companies for failing to file their annual returns. The companies names have been struck off the Companies Register. Flora is aware that the administrative restoration procedure under Part 15 of the Companies Ordinance (Cap. 622) is in force. She is wondering whether the above companies may be restored by application for administrative restoration. REQUIRED: 6. (a) State precisely what administrative restoration is and discuss whether AIL, BTL, CL and DL are eligible to apply for administrative restoration. (12 marks) Ans (a) The Companies Ordinance (Cap. 622) (CO) introduces the administrative restoration procedure, which is a process to administratively restore a dissolved company to the Companies Register by the Registrar of Companies (the Registrar) without the need for recourse to the Court of First Instance. 26

27 Administrative restoration of AIL A local company dissolved pursuant to striking off action by the Registrar may apply for administrative restoration if the following conditions set out under section 761 of the CO are met: a. The company was in operation or carrying on business at the time its name was struck off the Companies Register; b. The company has any immovable property situated in Hong Kong which has become vested in the Government as bona vacantia and the Government has confirmed that it has no objection to the restoration; and c. The applicant must bring the company s records kept by the Registrar up to date. If AIL meets the above conditions, any director or member of the company may make an application to the Registrar for the restoration of the company within 20 years after the date of dissolution. Administrative restoration of BTL A non-hong Kong company whose name has been struck off the Companies Register may also apply for administrative restoration. Section 800 sets out the conditions for administrative restoration: a. The company had a place of business in Hong Kong at the time of the application and at any time within the period of six months before its name was struck off the Companies Register; and b. The applicant must bring the company s records kept by the Registrar up to date. If BTL meets the above conditions, any director or member of the company may 27

28 make an application to Registrar for the restoration of the company within six years after the date of dissolution. Administrative restoration of CL The procedure for administrative restoration does not apply to a local company which was dissolved by way of winding up. Administrative restoration of DL The procedure for administrative restoration does not apply to a local company which was dissolved by way of deregistration. 6. (b) Advise Flora on the formalities for application for administrative restoration of a local company. (8 marks) (Total: 20 marks) Ans (b) Formalities of application for administrative restoration of a local company 1. Submit a written application, which confirms that the company holds immovable property, to the Registrar. 2. Provide the Registrar with the land search record issued by the Land Registry showing the title to or ownership of the property. 3. Provide the Registrar with documents that are necessary to bring the company s records kept by the Registrar up-to-date. These include all outstanding annual returns and the payment of the annual return registration fee. 4. Provide the Registrar with copies of the written authorisations of all members, duly certified by the applicant or a solicitor practising in Hong Kong. 28

29 5. If the applicant is unable to obtain the written authorisation of all members, provide the Registrar with a statement giving the circumstances leading to and the reasons for making the application, together with certified written authorisations of those members who have authorised the application. 6. The application must include a HK$2,700 administration fee. The fee paid will not be refunded if the application is not granted. 7. The Registrar must notify the applicant of the decision on the application for administrative restoration. If the Registrar grants the application, the company is restored to the Companies Register on the date on which notification is given. 8. The Registrar will register the notification and publish a notice of the restoration in the Gazette. END 29