15
provisions of Section 42 of the U.K. Companies Act 1981 are extremely
complex and in some areas difficult to apply and for that reason
there is much to be said for a more straightforward approach in
Hong Kong.
1.21
The Members of the Standing Committee have no doubt that
the existing Section 48 is seriously outdated and requires amendment. In particular we feel that the terms of the section may catch innocent transactions where the parties have no idea that they are commiting an
offence. It is true that the fine for a breach of the section is a
trivial $2000, but the civil consequences could be disastrous in some
cases e.g. contracts could become unenforceable and the directors could
be called upon to compensate the company.
1.22
However, the new British provisions do not seem to be entirely
practical. No less an authority than Professor Pennington, the author of the standard text-book "Pennington's Company Law" has commented in an
article in "The Company Lawyer":
financial assistance
....
"The conditions which a private company must fulfil in order to give
are likely to make it little used in practice".
"The reluctance of auditors to give forecasts of the continuing solvency
of companies in view of the recent sharpening of judicial views about
their liability for negligence, makes it unlikely that even optimistic
directors willing to face the prospect of prosecution if it turns out
that their opinion about the company's solvency lacked a reasonable basis (s. 44(7)), will be able to make the necessary statutory declaration
for the special exemption to apply. When the stringent timetable for the
making of the declarations, the passing of the requisite special resolutions,
and the giving of the financial assistance is also taken into account,
together with the possibility that minority shareholders may apply to
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