Question 1
Advise Wong on the following unrelated situations:
(a) Cheung owns all the issued shares of company A. Company A owns a restaurant and Wong wants to acquire the restaurant. Wong and Cheung have already signed the Formal Sale and Purchase Agreement for the sale of all the issued shares of Company A. Does it mean Wong will certainly acquire the restaurant?
In your answer, you should explain the legal significance of:
i) Formal Agreement for Sale and Purchase of the shares of Company A; and
ii) Completion of the transaction;
(8 marks)
(b) Wong is only going to acquire 80% (instead of 100%) of the issued shares of Company B from Poon. What should Wong pay attention as he only acquires part of the issued shares of Company B. (6 marks)
(c) Wong and Lee have already signed the Letter of Intent to acquire all the issued shares of Company C. (reach by vickychau01 at yahoo dot com dot hk or by whats app at +85296299980) Should Wong conduct the due diligence before or after the signing of the Formal Sale and Purchase Agreement? (6 marks)
Question 2
Mr. Lee owns 70 percent of the issued share capital of a private company and his wife and other family members own the remaining 30 percent. The main business of the company is operating thirty chain stores in Hong Kong. It is a very successful business making a total profit of HK$80 million in the past three years and HK$30 million for the most recent financial year comprising 12 months. Mr. Lee wants to expand his business by setting up two thousand chain stores in Mainland China and Asia. Mr. Lee also wants to realize his investment and use the proceeds to set up a charitable trust for education and culture. Financial advisers have told Mr. Lee that his company should go public. However, Mr. Lee is quite worried that he may breach the listing rules when the company goes public. Mr. Lee always make unusual business decision and do not feel comfortable to explain his business decisions to the public. However, the wife of Mr. Lee always wants the company to be listed as it will also enhance her social status. It will enable her children to have better prospect in future.
Give detailed advice to Mr. Lee about whether or not his company can become publicly listed on the Hong Kong Stock Exchange. In your advice you should also advise him fully about the advantages and disadvantages of being a listed company.
(20 marks)
Question 3
Find Chapter 622 Part 11 Division 2 Loan, Quasi- loan and Credit Transaction (ss.491-515) and consider whether any section would be contravened under the following situations:
a. Macy borrows $2,000,000 from a finance company for investment this year. She asks Elton Company to guarantee the loan.
b. Elton Company sells a car to Macy at the price of $600,000 by hire purchase agreement. Macy only has to pay $600,000 by 12 equal monthly instalments of $50,000 each.
c. Macy borrows $2,000,000 from Elton Company. The value of Elton Company’s net assets is $ 60 million.
d. Macy is sued by a bank for negligence in performing the director’s duty. Macy borrows $3,000,000 from Elton Company as legal costs for the legal action with the bank.
e. Macy borrows $5,000,000 from Elton Company to buy a house in Yuen Long.
In the above questions, Elton Company is a private company limited by shares and Macy is a director of Elton Company.
(20 marks)
Question 4
Find Chapter 14A of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong (“the Listing Rules”) and answer the following questions:
a) Consider whether the followings are connected transactions-
i. Listed Company A sells an apartment to Jacky. Jacky was the director of a subsidiary of Listed Company A but Jacky resigned from the position of director of the subsidiary fifteen months ago.
ii. Listed Company B sells a car parking space to Nancy. Nancy is the director of a subsidiary of Listed Company B but the total assets, profits and revenue of that subsidiary compared to that of Listed Company B and all its subsidiaries are 8 % under the percentage ratios for the latest financial year.
iii. Listed Company C acquires a tuition center owned by Brentwood Company. Brentwood Company is 40% owned by the daughter of a director of a wholly owned subsidiary of Listed Company C.
iv. Listed Company D retains Preston Company to provide cleaning service. 20% of the total issued shares of Preston Company are owned by the wife of a director of Listed Company D.
(20 marks)
b) Consider whether the following transactions amount to exemptions from the connected transaction requirements under R14A.73 of the Listing Rules:
i. Listed Company E is a bank. It has just provided a personal loan to one of its directors. The interest rate is two percent lower than that charged to other borrowers.
ii. A subsidiary of Listed Company F is running a drug store. A director of Listed Company F always buys drugs from that drug store.
iii. A subsidiary of Listed Company G has borrowed money from Beacons Company at an annual interest rate of 15%. Beacons Company is 40% owned by one of the directors of Listed Company G.
iv. A subsidiary of Listed Company H (that subsidiary) has a vacant carparking space in an industrial building. The wife of a director of that subsidiary uses the car parking space for her own business. She only pays $500 per month as license fee for that car parking space.
(20 marks)
[Total: 100 marks]
Remember:
1. Do not exceed the 2,000 word limit. If you exceed this word limit, you may be penalized.
2. Check all the annotation in this file before you start.
