Q1 Gilbert is the managing director of LCD Limited ("LCD").

Gilbert is principally responsible for the development of LCD's business which includes liquid crystal display market, in which Gilbert is particularly knowledgeable. In December 2008, Gilbert on behalf of LCD, has discussions with a Malaysian company called Good Faith Limited ("Good Faith") for contracts regarding the development of liquid crystal display market in Malaysia. In February 2009, Gilbert tenders his resignation and leaves LCD at the end of May 2009. In June 2009, Gilbert, together with his friends, sets up their own company, Friends Limited ("Friends"). In August 2009, Friends enters into contracts with Good faith whereby Friends will supply crystal display equipment to Good Faith. Advise LCD. Question 1 In Hong Kong, the general duties of directors are mainly found in case law, leaving aside certain specific obligations imposed by the Companies Ordinance, and by the memorandum and articles of association of a company. Directors duties can be classified into two broad categories: fiduciary duties, and duties of skill and care. Directors duties are owed only to the company itself, but not to any individual shareholders (Percival v Wright (1902) 2 Ch 421). Generally, only owe a duty to the company itself but not to any individual shareholder of the company, regardless of whether he is a majority shareholder or minority shareholder in the company. However, if the directors have actively made themselves agents of any individual shareholder, in this exceptional circumstance, directors may owe a duty to that particular shareholder. The fiduciary duties of directors, which are generally based on equitable principles, mainly include: Duty to act in good faith in the interests of the Company; Duty to exercise powers for proper purpose; and Duty to avoid conflicts of duty and interest. Duties of skill and care differ from more set fiduciary duties as they require directors to exercise reasonable care and skill in the performance of their functions and the exercise of their power. These duties are derived form the common law principles of negligence. These existing duties are typically portrayed as relatively lenient, especially when matched against the more onerous and rigorously enforced matrix of fiduciary duties owed by company

directors. A traditional laxity of application and a benevolent, sometimes almost indulgent judicial attitude has done nothing to contradict this image. In Re City Equitable Fire Insurance Co Ltd (1925) Ch 407, Romer J formulated three propositions by which to measure a company directors skill and care; in doing so, he established the superstructure of the modern law in this sphere: A director needs not, in performance of his duties, exhibit a greater degree of skill than may reasonably be expected of a person of his knowledge and experience. A director is not bound to give continuous attention to the affairs of his company. His duties are of an intermittent nature to be performed at periodical board meetings and at meetings of any committee of the board upon which he happens to be placed. He is not, however, bound to attend all such meetings, though he ought to attend whenever in the circumstances he is reasonably able to do so. In respect of all duties that may properly be left to some other official, having regard to the exigencies of the business and the articles of the company, a director, in the absence of grounds for suspicion, is justified in trusting that official to perform such duties honestly. In the draft Companies Bill proposed by the FSTB, the common law directors duty of card has been codified. Whilst Romer Js formulation of directors duty of care is purely subjective (i.e. a director need only exhibit a degree of skill reasonable expected of a person of his knowledge and experience), the proposed statutory duty to exercise reasonable care, skill and diligence is both subjective and objective. Under the proposals, the reasonable care, skill and diligence which must be exercised by directors is the card skill and diligence that would be exercised by a reasonably diligent period with (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company; and (b) the general knowledge, skill and experience that the director actually has. In this case, Gilbert sets up his company with his friends in June 2009 which is after his resignation in February 2009 and leaves LCD Limited (the Company) at the end of May 2009. He already completed his fiduciary duties in the Company. The company should provide the all directors to read these guidelines which are also readily accessible on the websites of the Companies Registry, the Hong Kong Stock Exchange, the Securities and Futures Commission, the Official Receivers office and the Hong Kong Monetary Authority. Hard copies are also available at their offices. Companies should give a copy of these guidelines to new directors irrespective of whether they organize induction training for directors. In addition, directors are

also encouraged to refer to more detailed reviews of the role and duties of directors in law.

Q2 Divide and Conquer Ltd. ("DCL") is a private company limited by shares and was incorporated from an existing partnership three years ago. It has four shareholders, A, B, C and D. They were originally partners. DCL has adopted Table A as its articles of association. A, B and C are directors but D is not. B complains of the following matters: i) exclusion of B by A and C from participation in the company's affairs by failure to give B notice of board meetings; ii) A and C by the negligent conduct of the affairs of DCL have caused the value of his shares to drop; iii) A, C and D have refused to purchase B's shares at a reasonable price; iv) a refusal by A and C to register a transfer of B's shares to a person outside the company. v) A, C and D intended to remove B from office as a director. Discuss the remedies that may be available to B. Question 2 According to the Company Ordinance Sec.111 Annual General Meeting 1 Every company shall in each year hold a general meeting as its annual general meeting in addition to any other meetings in that year, and shall specify the meeting as such in the notices calling it; and not more than 15 months, or such longer period as the Registrar may in any particular case authorize in writing, shall elapse between the date of one annual general meeting of the company and the text: Provided that, so long as the company holds its first annual general meeting within 18 months of its incorporation, it need not hold it in the year of its incorporation year. 2 If default is mad in holding a meeting of the company in accordance with subsection (1), the court may, on the application of any member of the company, call, or direct the calling of, a general meeting of the company and give such ancillary or consequential directions as the court thinks expedient, including directions modifying or supplementing, in relation to the calling, holding and conduction of the meeting, the operation of the companys articles, and including a direction that 1 member of the company present in person or by proxy shall be deemed to constitute a meeting.

A general meeting held in pursuance of subsection (2) shall, subject to any directions of the court, be deemed to be an annual general meeting of the company; but, where a meeting so held is not held in the year in which the default in holding the companys annual general meeting occurred, the meeting so held shall not be treated as the annual general meeting for the year in which it is held unless at that meeting the company resolves that it shall be so treated. Where a company resolves that a meeting shall be so treated, a copy of the resolution shall, within 15 days after the passing thereof, be forwarded to the Registrar and recorded by him. (Amended by 7 of 1990) if default is made in holding a meeting of the company in accordance with subsection (1), or in complying with any direction under subsection (2), the company and every officer of the company who is in default shall be liable to a fine; and if default is made in complying with subsection (4), the company and every officer of the company who is in default shall be liable to a find and, for continued default, a daily default fine. (Added by 46 of 2000) A company is not required to hold a meeting accordance with subsection (1) if: (a) everything that is required or intended to be done at meeting (by resolution or otherwise) is done by a resolution or resolutions in accordance with section 116B; and (b) a copy of each document (including and accounts or records) which under this Ordinance would be required to be laid before the company at the meeting or other wise produced at the meeting is provided to each member of the company: (i) by whom or on whose behalf the resolution or resolutions, as the case may be, is or are required to be signed under that section; and (ii) before or at the same time as the resolution or resolutions, as the case may be, is or are provided to the member

and, according to the Company Ordinance Sec.119 Minutes of proceedings of meetings and directors 1 Every company shall cause minutes of all proceedings at general meetings and at meetings of its directors to be entered in books kept for that purpose. 2 Any such minute if purporting to be signed by the chairman of the meetings at which the proceedings were had, or by the chairman of the next succeeding meeting, shall evidence of the proceedings.

Where minutes have been made in accordance with the provisions of this section of the proceedings at any general meeting of the company or meeting of directors or managers, then, until the contrary is proved, the meeting shall be deemed to have been duly held and convened, and all proceedings had thereat to have been duly had, and all appointments of directors, managers, or liquidators, shall be deemed to be valid. If a company fails to comply with subsection (1), the company and every officer of the company who is in default shall be liable to a fine and, for continued default, to a daily default fine.

And also, according to the Company Ordinance Sec.114 Length of notice for calling meetings 1 Any provision of the companys articles shall be void in so far as it provides for the calling of a meeting of the company (other than an adjourned meeting) by a shorter notice than: (a) in the case of the annual general meeting, 21 days notice in writing; and (b) (Amended by 30 of 1999) in the case of a meeting which is neither an annual general meeting nor a meeting for the passing of a special resolution, 14 days notice in writing in the case of a company other than an unlimited company and 7 days notice in writing in the case of an unlimited company. 2 Save in so far as the articles of a company make other provisions in that behalf (not being a provision avoided by subsection (1)) a meeting of the company (other than an adjourned meeting) may be called: (a) in the case of the annual general meeting, by 21 days notice in writing; and (b) (Amended by 30 of 1999) in the case of a meeting which is neither an annual general meeting nor a meeting for the passing of a special resolution, 14 days notice in writing in the case of a company other than an unlimited company and 7 days notice in writing in the case of an unlimited company.

A meeting of a company shall, notwithstanding that it is called by shorter notice than that specified in subsection (2) or in the companys articles, as the case may be, be deemed to have been duly called if it is so agreed: (a) in the case of a meeting called as the annual general meeting, by all the members having the right to attend and vote thereat; and (b) in the case of any other meeting, by a majority in number of the members having the right to attend and vote at the meeting, being a majority together holding not less than 95% in no nominal value of the shares giving a right to attend and vote at the meeting of all the members.

In this case, the director B of the Divide and Conquer Ltd. B only can ask the director A, C and D to remedy under Section 114 and 119. The director A. C and D breach to their director duty of the following: (1) they are failed to inform the director B about the meeting and they did not implement their director responsibility which lead to the Companys value of their shares to drop. The court may not take any action and we can see the following: Under the rule in Foss V Harbottle (1842) z Hre 461: - Facts: A shareholder (Foss) sued the directors of the company on the grounds that the directors had cheated the company by selling land to it at the exorbitant price - results; the court dismissed the action and that the company should deal with the matters through general meeting rather than court proceedings - Principles illustrated 1 An action by a single shareholder on behalf of the company is ineffective. 2 As the company is a legal person, it should be the proper plaintiff 3 To prevent multiplicity of actions brought by different members 4 If the court order could be overturned by the majority of members, litigation is a waste of time.