Legal Question in Business Law in China

Hello

I am a student and my major is accounting. I need your help me to resove two questions.

Garfield was a businessman. He operated a textile factory in Kowloon under the name of Wonder Spin Ltd. The company had a share capital of HK$1m divided into 1 million ordinary shares of HK$1 each. Garfield owned 999,998 shares and his wife Rayveness held 1 share and his accountant also held 1 share, both as his nominees. On the further advice of his accountant, the additional working capital of HK$10m of the company was raised by way of 2 equal loans from 2 limited companies owned and controlled by Garfield. Both lender companies had 99.9% shareholding owned by Garfield and 0.1% held by his accountant. The securities for these loans were the fixed assets and the stock-in-trade of Wonder Spin.

Due to the financial tsunami, the market for Wonder Spin�s products had shrunk and there was a pressing liquidity problem for the company. The banks in Hong Kong all turned a cold shoulder to Wonder Spin. 10 days ago Garfield decided to sell the house in Deep Water Bay, Hong Kong which he owned in his name. Candace through the introduction of an estate agent inspected the house and liked it very much. She agreed with Garfield to buy it for HK$10m. They signed a preliminary contract for the sale and purchase of the house. Completion of the sale and purchase would be in 1 month.

3 days after Garfield signed the preliminary contract with Candace, the Hong Kong Government sold a plot of land in Deep Water Bay at a record price. According to the estate agent, the value of Garfield�s house would increase by 40%. Garfield immediately regretted having agreed to sell his house to Candace for HK$10m. His accountant advised him to transfer the house to a limited company wholly owned by him with one share held by Rayveness as a nominee. The idea was for Garfield to breach the contract with Candace and put the house beyond her reach. The transfer was completed 3 days ago. Candace found out about it and threatened to sue Garfield.

Yesterday one of Wonder Spin�s creditors applied to court for an order to wind up Wonder Spin.

Now Garfield needs your urgent legal advice on the 2 transactions.


Asked on 10/11/10, 9:41 am

1 Answer from Attorneys
Freda Liu

Sorry, I'm a lawyer licensed in Mainland China, I'm not familiar with Hongkong acts. My susgestion is to find a lawyer in Hongkong. AS to the house contract, you said preliminary contract, I don't know what does this mean? is it binding? what's the result of breach? My opinion is if Garfield wants to breach the contract, he should have successfully sought any buyer who will buy the house at a price higher than 10M plus the liuidation damage. otherwise, if he could find any buyer, even if the evaluated price is 14M, how can he realize it? Policy is policy, business is business.

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Answered on 10/11/10, 3:20 pm


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