Company Law in HK

Topic: Incorporation and Separate Legal Personality

1. Peggy runs a gift shop in Central. She works hard and is friendly to her customers. Her business is becoming more and more successful and she decides to expand her business and opens two more gift shops in Kowloon and the New Territories. To do this Peggy will need to raise finance and she is a little concerned about the risks associated with taking loans. Her cousin, June, told her that it might be an idea for Peggy to incorporate her business.

Peggy seeks advice on: (a) whether she can incorporate her business and remain as the sole person in control of the business; (b) the way in which a company can be incorporated in Hong Kong; (c) the consequences of incorporation; and (d) how her business can be transferred to the company.

2. Peter Lai commenced a business of manufacturing and distributing orange juice on Hong Kong Island. The trade name of the company is Orange Juice HK (OJHK). OJHK was formed in June 2020. Prior to this, Peter was one of three directors in Fresh Juice Ltd (FJL). FJL manufactured and distributed orange juice in the New Territories. On leaving the company, Peter sold his shares in FJL to the other two shareholders cum directors, Anna and Bob.

Clause 5 of the agreement executed by Peter, Anna, Bob and FJL provides as follows: Peter agrees that for a period of three years from the date of this agreement, he will not engage in business that involves: (a) Manufacturing orange juice in New Territories and Shenzhen; and (b) Distributing orange juice to wholesalers, retailers or selling to any customers, where distribution or sale takes place in the Territory or Shenzhen. Peter will not breach this clause if he carries on a business outside the New Territories and Shenzhen.

On 1 August 2021 Peter incorporated Sweet Apple Ltd (SAL) to take over the business of OJHK. Peter needs your advice on two matters. First, he says that two friends, Cecil and David, have proposed the following deal. A company, Orange Crush Ltd (OCL) will be formed. Peter, Cecil and David will be shareholders and directors. SAL will supply orange juice to OCL. OCL will then distribute the orange juice to in the New Territories and Shen Zhen. Peter wants to know whether he can participate in the deal. (You may assume that clause 5 in the above agreement will not be regarded by the courts as unenforceable restraint of trade clauses).

Second, he says that he has learnt from Messrs Lee & Leung, a solicitors' firm, which acts for the estate of Christopher Chung, that expert evidence suggests that Christopher Chung died after drinking a certain quantity of juice produced by SAL. Expert evidence also suggests that orange juice produced by SAL during the second week of August 2021 contained a poisonous substance used in manufacturing the juice. Peter tells you that SAL has transferred all its assets to a company that he formed on 15 September 2021 called Cunningham Ltd. Assume that SAL is liable to Christopher Chung's estate.

How can we Advise Peter whether the estate will be able to sue Cunningham Ltd?