Mr and Mrs Yeung are shareholders and directors of Japan Travel Limited, a company incorporated in Hong Kong. They are organizing sightseeing tours to Japan. The company adopts the Model Articles.

Required:

a. Three years ago, in order to expand the business, Japan Travel Limited issued preference shares with a right to receive a fixed rate of dividend (e.g. 5% per annum) to their friend, Helen. Their business has been successful.

Last week, Mr and Mrs Yeung no longer wanted to give 5% dividend to Helen. They as directors resolved that the dividend of the preference shares be reduced from 5% to 3%.

Is it proper for Japan Travel Limited to reduce the rate of dividend of the preference shares from 5% to 3%? If so, what should be the proper procedure? If not, why not?

b. Japan Travel Limited has been partnering with Car Rental Limited, a company owned by Ivan, a cousin of Mr Yeung, offering car rental service to customers in Hong Kong who want to rent cars for use in Japan. In order to better cooperate with each other, Ivan is considering investing in Japan Travel Limited by subscribing for some ordinary shares for HK$300,000. In order to finance the acquisition of the shares, Car Rental Limited intends to obtain a bank loan. The bank offers a loan on the condition that a corporate guarantee be given. In response to the bank’s request, Japan Travel Limited offers to provide a corporate guarantee in favour of the bank.

Is it proper for Japan Travel Limited to grant a corporate guarantee in favour of the bank to secure a loan to be granted by the bank to Car Rental Limited for acquisition of the shares in Japan Travel Limited? If so, what should be the proper procedure? If not, why not?