United States
Hong KongHKSI Paper 1 Topic 2: Hong Kong law and the Companies Ordinance
Topic 2 has just two syllabus headings: an outline of Hong Kong's legal system, and the Companies Ordinance. It is the smallest topic on Paper 1. Learn the court hierarchy, the sources of law, company types, resolution thresholds and the three winding-up routes, then stop.
Two headings. That is the whole of Topic 2, and it makes this the smallest block on the paper by a clear margin. The temptation, if you have a law background, is to enjoy it. The temptation, if you do not, is to panic at the word ordinance and spend a weekend on it. Both are mistakes, in opposite directions.
- Syllabus headings
- 2 of 66
- Headings
- Outline of Hong Kong's legal system; Companies Ordinance and related matters
- Our estimate of questions
- 2
- Study time we would spend
- One session, not one weekend
- Highest-yield content
- Court hierarchy, resolution thresholds, winding-up routes
What the two headings actually contain
| Heading | What you need to be able to do |
|---|---|
| Outline of Hong Kong's legal system | Name the sources of law in order of authority, place the courts in hierarchy, explain binding precedent, and separate courts from tribunals |
| Companies Ordinance and related matters | Distinguish company types, state resolution thresholds, describe directors' duties, name the minority shareholder remedies, and separate the three winding-up routes |
The legal system half
Hong Kong is a common law jurisdiction and the Basic Law expressly preserves the common law, the rules of equity, ordinances, subsidiary legislation and customary law previously in force. Sources of law, in descending authority: the Basic Law, then ordinances enacted by the Legislative Council, then subsidiary legislation made under them, then common law and equity developed by the courts.
Precedent binds downwards. A lower court must follow the ratio of a higher one, which is why a single Court of Appeal ruling on something like the standard of proof at a tribunal settles the question for everyone beneath it. We go through the hierarchy and the reasoning in Hong Kong's common law system for HKSI candidates.
The Market Misconduct Tribunal and the Securities and Futures Appeals Tribunal sit outside the court hierarchy. Both are chaired by a judge, which is what makes the distinction slippery. Arbitration sits outside the system entirely: it is private and consensual.
The Companies Ordinance half
This is where the marks are, and it is almost entirely definitional. A company may be limited by shares, limited by guarantee, or unlimited, and separately public or private. A private company must, by its articles, restrict the transfer of its shares, limit its members to 50 excluding employee members, and prohibit invitations to the public to subscribe. All three restrictions must be present. Lose one and the company is not private.
Resolutions are the other reliable source of items. An ordinary resolution needs a simple majority of the votes cast. A special resolution needs a supermajority and is what constitutional changes require, such as altering the articles or changing the company name. A written resolution is passed without a meeting and generally requires unanimity of the members entitled to vote. The exact percentage attaching to a special resolution is in the Companies Ordinance itself, and it is worth confirming from the current text rather than from a revision card.
Hong Kong also runs a no par value regime. Authorised share capital was abolished and shares have no nominal value. That change is old enough now that most candidates have never seen the alternative, which oddly makes it easier to remember.
Directors, shareholders and winding up
Directors owe fiduciary duties at common law: to act in good faith in the company's interests, for a proper purpose, and to avoid unauthorised conflicts and profits. The Companies Ordinance layers on a statutory duty of reasonable care, skill and diligence measured on a mixed test, combining what could reasonably be expected of someone in that role with any greater knowledge the particular director actually has. Minority shareholders have two principal routes: the unfair prejudice petition, and the derivative action brought with the court's leave.
Winding up comes in three forms and the exam wants the initiator, not the mechanics.
- Compulsory winding up - ordered by the court, most commonly on a creditor's petition that the company cannot pay its debts.
- Members' voluntary winding up - initiated by the members, with the directors making a statutory declaration of solvency.
- Creditors' voluntary winding up - initiated by the members where no declaration of solvency is made, so control passes to the creditors.
The line between the two voluntary routes is the declaration of solvency. It is not who calls the first meeting, and it is not who appoints the liquidator. If a stem mentions solvency, it is telling you the answer.
A Topic 2 question
The members of a company resolve to wind it up. The directors do not make a statutory declaration of solvency. What follows?
- A compulsory winding up ordered by the Court of First Instance
- A members' voluntary winding up
- A creditors' voluntary winding up
- The resolution is void and the company continues to trade
How much of your study time this deserves
Very little, and that is the opinion. On our estimate Topic 2 is worth around 2 of the 60 questions, and a candidate who knows the court hierarchy, the three private company restrictions, the two resolution types and the three winding-up routes has most of what is available. Reading a company law textbook for this paper is a way of feeling productive while learning things that will not be asked.
The concession: it is a small topic, so the variance around our estimate is proportionally large. If a particular sitting happens to pull three or four items from Topic 2, a candidate who skipped it entirely will feel that. Do the session. Just do not do the weekend. If you want the arithmetic behind how we split study time, we set it out in Paper 1 time allocation by topic.
Common questions
How big is Topic 2 on HKSI Paper 1?
It is the smallest topic on the paper, with only two second-level headings out of 66. Our own estimate, which scales heading counts to 60 questions, puts it at around 2 questions. HKSI does not publish the actual split, so treat that as a study-time guide rather than a fact.
Do I need to know Hong Kong company law in depth for Paper 1?
No. The examinable content is definitional: types of company, the three restrictions that make a company private, resolution types and thresholds, directors' duties in outline, minority shareholder remedies by name, and the three winding-up routes. Anything deeper belongs to a company law course, not this paper.
What are the three types of winding up?
Compulsory winding up, ordered by the court and usually on a creditor's petition; members' voluntary winding up, where the directors make a statutory declaration of solvency; and creditors' voluntary winding up, where no declaration is made and control passes to the creditors. The declaration of solvency separates the two voluntary routes.
Are the Market Misconduct Tribunal and the courts the same thing?
No. The MMT and the Securities and Futures Appeals Tribunal are statutory tribunals sitting outside the court hierarchy, although each is chaired by a judge. Courts run from the Magistrates' Courts through the District Court and High Court to the Court of Final Appeal. Arbitration is private and outside both.
Which resolution is needed to change a company's articles?
A special resolution, which requires a supermajority of the votes cast rather than the simple majority an ordinary resolution needs. Changing the company's name works the same way. Confirm the exact percentage from the current text of the Companies Ordinance before relying on a revision note.