Hong Kong company Law Group 5 Choi Ka Hei s Lam kai Lung S

Context List Corporate veil and Salomon v Salomon and Co Ltd Promoter responsibilities and company ordinance 32 A legal adviser or accountant when a company is incorporated not regarded as a promoter Ultra vires

Corporate veil separates the personality of an organization protect them from being liable from the firm’s debt and obligation it’s called the corporate shield shield the owner of the corporation of their liability

Relevant case law applies Macaura v Northern co Ltd (1925),uk Good profit Development Ltd v Leung Hoi (1993) Lee v Lee’s Air Farming Ltd (1961)

Macaura v Northern co Ltd (1925),uk Macaura was own timber estate Sold all the timber to a sawmill company in consideration of the allotment to him of42,000 fully paid $1 share Macaura have buy insurance policies in the timber After two weak, all the timber was destroyed by fire. Court said Macaura disallow to claim timber was owned by the company Because Macaura and company has separate, so macaura does not agent company to buy fire insurance

Salomon v Salomon and Co Ltd Saloman had sold company building to the company for $39,000 Which is $9000 cash and 20,000 share allocation to the subscribers as fully paid at $ 1 each, the balance of $10,000 was treated as a loan by saloman to the company After depression, the company want into liquidation, the company debt by creditor. Debenture been paid, creditor debt amounting $7000 not paid Court said saloman and saloman co Ltd is separate Saloman already settle this amount, which is the amount is 10,000. Saloman was not an agent or trustee Saloman had not defrauded the creditor or the shareholder and any profit he maake by sell this business and fully disclosed

Salomon v Salomon and Co Ltd a company is a separate legal entity and Salomon’s company is just another person different from Salomon himself "Either the limited company was a legal entity or it was not. If it were, the business belonged to it and not to Mr Salomon. If it was not, there was no person and no thing to be an agent [of] at all; and it is impossible to say at the same time that there is a company and there is not."

Consequence flowing Applied in many, many cases ever since. Criticism that it allowed more director to use the company structure to work with no liability. They don’t have to be accountable for their mistake. Various exceptional circumstances that a court will disregard this principle, known as lift the corporate veil, to stop people from using this

Promoter The one who undertake to form a company, to set it going, taken necessary steps to accomplish the purpose. Responsibilities stand in fiduciary position towards the company he is promoting even before it comes to existence work in the interest of the company, and cannot conflict his own personal interest into it disclose all material facts concerning his interest

Promoter The old version legal section 40(5a) said that who was prepared prospectus or of the portion thereof containing the untrue statement The old version legal section 40(1a) every person who is a director of the company at the time of the issue of the prospectus. The old version legal section 40(1b) every person who has authorized himself to be name and is name in the prospectus as a director or as having agree to become a director either immediately or after an interval of time The old version legal section 40(1c) every person being a promoter of the company The old version legal section 40(1d) every person who has authorized the issue of the prospectus

explain the purpose of s 32A of the Companies Ordinance Provide that a contract can be made on behalf of a company at a time when the company has not been incorporated. Sometimes the promoter want to enter into contract before the company is formally registered to enable it begin business operations as soon as possible after incorporation. In 32A it suggests the contract is binding on the one who act for the company, which means promoter is being liable for this contract.

Relevant Case Law application Phonogram Ltd v Lane (1981) uk Kelner v Baxter (1866) uk Natal Land and Colonization co v pauline colliery and development syndicate (1904) pc Re Northumberland Avenue hotel co (1886)

Phonogram Ltd v Lane (1981) uk FM Ltd wanted to be formed to run a pop group Lane negotiated for finance P Ltd agreed to provide a loan before FM Ltd incorporation FM Ltd never formed Court said Lane was liable to pay the loan A contract can be made on behalf of a company, even though the company is not formed yet The liability of the contract will go to the one act on behalf of FM Ltd

the legal adviser or accountant when a company is incorporated not regarded as a promoter There is no definition of who is the promoter, although in Companies Ordinance s.40 5a it stated “the expression "promoter" means a promoter who was a party to the preparation of the prospectus, or of the portion thereof containing the untrue statement, but does not include any person by reason of his acting in a professional capacity for persons engaged in procuring the formation of the company; and the expression "expert" has the same meaning as in section 38C.”

the legal adviser or accountant when a company is incorporated not regarded as a promoter Usually promoter regarded as the one who takes the procedure, steps and actions to prepare the formation of a company, before it incorporated, but the Ordinance stated clear it des not include anyone acting in professional capacity to advise the company or the promoter.

the legal adviser or accountant when a company is incorporated not regarded as a promoter Legal advisor and accountant are all professional or expert in their area but they cannot be regarded as promoter because of this.

Ultra vires The ultra vires rule and its consequences were make clear by the House of Lords(uk) even before section 1.1 If a company acted outside its objects as stated in the memorandum the transaction was described as ultra vires. It basically means work beyond its power. Such action or contract could not be enforced by either parties and couldn’t be ratified by the company in general meeting. The concept of ultra vires is that the asset can only be used for the purpose stated in the object clauses or reasonably incidental to those objects, so it can maintain the company capital. It can also protect the creditor to look for payment back from company. It’s also said to protect the company’s going concern

Case Law applies Ashbury Railway carriage and Iron co Ltd v Riche(1875) uk Attorney General v Great Eastern Railway(1880)uk Re German Date coffee co (1882) uk

Ashbury Railway carriage and Iron co Ltd v Riche(1875) Ashbury Railway carriage and Iron co Ltd memorandum, clause 3, said its objects were ‘to make and sell, or lend on hire, railway-carriages…’ But the company agreed to give Riche and his brother a loan to build a railway in Belgium. Later, the company rejected the agreement. Riche sued, and the company pleaded the action was ultra vires The court said company pursues objects beyond the scope of the memorandum of association the company's actions are ultra vires The contract could not have been ratified

Re German Date coffee co (1882) Three objects included in the memorandum, but object a was specific in that it was to make coffee from dates using a German patent. Object b and c allowed them to do anything outside the area set in object a The patent was never granted and coffee was made with a Swedish patent. The company was solvent and the majority of shareholders wanted it to continue. However two shareholders petitioned for a winding up on the grounds that its objects had failed.

Re German Date coffee co (1882) The court said The main object had failed as it was impossible to carry out the objects for which the company was formed The other two clause were just subordinate of main object

The End