Alex set up a new company, Beswick Ltd (the Company) which manufactures medical masks and other sanitation preparations. The Company was incorporated on 1 March 2020. In February 2020, Alex bought a factory for the Company for HK$3 million and signed the contract for and on behalf of Beswick Ltd. At the first board meeting of the Company, Alex and his wife, Alice being directors of the Company ratified the contract. Calvin is an accountant and is also a director of the Company. When Calvin was conducting an annual review of the accounting statements of the Company, he found out about the purchase of the factory. Overall, Calvin thought that the factory did not worth HK$3 million because the factory is located at a remote site. Calvin intends to increase the Companys cash capital by allotting new shares to Doris, his friend, because Calvin wants the Company to develop a new line of business selling desserts and pastries. However, Calvin does not want the issued capital of the Company to be increased permanently. He intends to reduce the issued capital back to the position before allotment once there is sufficient cash flow or distributable profits available for running the dessert and pastry business. LAW B333F Assignment 2 (2020 Autumn) Page 2 of 8 Ethan, another shareholder of the Company, recently encounters financial difficulties because of the COVID 19 pandemic and wants the Company to buy back his shares (he owns 20% of the shares of the Company) with payment to be made from the Companys issued share capital. Calvin does not agree to the buy-back proposal since he believes that it is illegal. On the other hand, Full Bank (Full) has agreed to allow the Company an overdraft on the Companys bank account by creating a charge over the book debts of the Company. Under the said charge, the Company is prohibited from charging or assigning debts, and is required to pay the proceeds of collection into an account in Full. But there are no restrictions on the Companys operation of the account. The Companys account is always overdrawn but it uses the proceeds of the debts as and when it is necessary. The said charge was executed on 1 June 2020. The company secretary of Full meant to register the charge but forgot to do so. The failure to register the charge was discovered on 1 November 2020. Grace Ltd (Grace) is a company limited by shares incorporated in Hong Kong and is wholly owned by the Company. Hugo, Ian and Jack are the directors. Grace runs the business of manufacturing fabric for making reusable masks. Unknown to Ian and Jack, Hugo is one of the two directors and a majority shareholder in another company registered under the name of Kone Ltd (Kone) which carries on the same business as Grace. Grace had been negotiating a high-valued contract with a major client. Hugo knew all the proposed contract terms. The contract, if entered into, would bring in a lot of profits to Grace. Hugo secretly transmitted all the details about the negotiations of the contract to Luke, the other director of Kone. Luke then negotiated on behalf of Kone, with the same major client for the same high-valued contract. Kone then obtained the contract with that major client. Ian and Jack later discovered what Hugo had done and were very angry with him.

QUESTION: By reference to the relevant case law and/or legislation, advise Calvin on how the Company could buy back Ethans 20% shares. (11 marks)