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SECTION A
ANSWER 1
(a)
(i)
Sec 21 of the Contracts Act 1959 provides; where both parties to an
agreement are under a mistake as to a matter of fact essential to the
agreement, the agreement is void.
(3 marks)
(ii)
Answer requires application of section 17 and 18 of the Contracts Act
1950 which provides for misrepresentation. Followed by the consequence
of misrepresentation as provided in section 19.
(5 marks)
(i)
Application of section 16 (1) (a) and (b) which provides; in a sale of goods
contract, goods bought must be of merchantable quality i.e. fit for its
purposes. If the goods bought are sale by description, goods must fit for
the described purpose
(5 marks)
(ii)
Application of section 62 of the Sale of Goods Act which provides that
parties to a contract of sales may exclude terms with mutual agreement.
(b)
(3 marks)
(c)
The answer requires explanation of;
judicial precedent
declaratory precedent
original precedent
(4 marks)
(Total : 20 marks)
ANSWER 2
(a)
(i)
Composition of the audit committee:
The audit committee should consist of at least three directors, a majority
of whom are independent directors. The Chairman of the audit committee
should be an independent non-executive director. The terms of reference,
duties and authority of the audit committee should be clearly stated.
(ii)
Composition of the board of directors:
Every listed company should be headed by an effective board of directors
which should lead and control the company.
The board should include a balance of executive directors and nonexecutive directors (including independent non-executives) such that no
one individual or small group of individuals can dominate the board's
decision making.
(5 marks)
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(b)
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The other three exceptions to section 132G are provided by section 132G(6) and
they include the following:
Subscription of new shares for cash
Transactions between wholly-owned subsidiaries and between a holding
company and its wholly-owned subsidiaries
Acquisition of an asset where the sale is in the ordinary course of
business.
(5 marks)
Announcement :
The section 2 (b) of the Question 2 was inadvertently included as part of the
Question 2 and it was recognised that the question was no longer relevant in
view of the removal of Section 132G of the Companies Act 1965. The
Examination Body after a lengthy discussion has agreed to allocate the full marks
for that particular section of the question to all candidates who attempted
Question 2 whether or not they answered the Q 2(b). However, no marks will be
given to all candidates who did not attempt the Question 2 at all.
(c)
(i)
The parties who are required under the Companies Act 1965 to disclose
their interests in shares of a company include:a.
b.
(ii)
Section 6A(6) states that a person is deemed to have an interest in
shares where he:a.
b.
c.
d.
(d)
A substantial shareholder under section 69E;
Directors of a company who hold shares in the company under
section 131 read together with section 135.
(3 marks)
has entered into a contract to purchase a share; or
has a right to have a share transferred to himself; or
has the right to acquire share or an interest in a share under an
option; or
is entitled to exercise or control the exercise of a right attached to
a share, not being a share of which he is the registered holder.
(3 marks)
Shareholders' Agreement - supplement to the Memorandum and Articles of
Association of the Company and are concerned with the running of the company,
as to rights of shareholder or voting or certain issues at company meetings.
Three advantages are:
Individual have a power of veto over any proposal which is contrary to the
terms of the agreement. This is to protect minority shareholder from any
major decision of the majority.
The terms may be enforced more easily than the articles.
The terms are secret/hidden whereas the articles are open to public
inspection.
(4 marks)
(Total : 20 marks)
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SECTION B
ANSWER 3
(a)
Elaborate on the five ways in which an agency may arise or be created;
by express appointment, section 139
by implied appointment, section 139
by ratification, section 149
by necessity, section 142
by the doctrine of estoppel or holding out
(5 marks)
(b)
Exceptions to the general rule that an agent cannot delegate his duties;
where the principal approves to the delegation of authority
where it is presumed form the conduct of the parties that the agent shall
have the authority to delegate.
Where customs or practice allows delegation
Where delegation is necessary to complete the business
Delegation is purely ministerial/clerical
In case of an unforeseen emergency/necessity
(5 marks)
(c)
i.
Section 32 of the Contracts Act 1950 states; every partner is under a duty
not to compete with the firm in business of the same nature without
consent of the other partners. If he, without consent, opens a competing
business, he must account for and pay over to the firm all profits made by
him in that business.
Applying the law to the facts of the question, Jin’s partnership business
with his brother is of different nature altogether. As such Tom and Lam
cannot make Jin account for and pay to the firm all profits made by him in
the pub.
(5 marks)
ii.
Notice of retirement must be given to all customers of partnership. There
must be public notification; advertisement in the local press, gazette or by
a circular letter along with express notification to old clients/ customers.
Section 39 of the Partnership Act 1961
(5 marks)
(Total : 20 marks)
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ANSWER 4
a)
This is a pre incorporation contract. The validity of pre incorporation contracts in
Malaysia is governed by section 35(1) and (2) of the Companies Act 1965. By
section 35(1), a company may after its incorporation ratify the pre-incorporation
contract. Once ratified the contract becomes valid and binding between the
parties. Both the company and other party will be able to enforce it. By section
35(2), before the contract is ratified, it will be regarded as personally binding
between the third party and the person who acted on behalf of the future
company, unless there is an express agreement to the contrary.
Applying the law to the question, it can be concluded that Moon Sdn Bhd will not
be legally bound by the pre-incorporation contract unless it ratifies the contract.
(10 marks)
b)
This question tests the candidates on the corporate personality of a company
upon incorporation as established in Salomon v Salomon & Co Ltd (1897).
The answer must:
Firstly, explain the meaning of veil of incorporation and the legal consequences
of incorporation with relevant cases;
i)
that the debts of the company are the responsibility of the company and not
its members
ii)
that a company can enter into contracts
iii)
that the company may sue or be sued in its name
iv) that the company can own assets and that the shareholders have no
proprietary interest in those assets.
Cases:-
Lee v Lee’s Air Farming Ltd. (1960)
Macaura v Northern Assurance Co (1925)
AND
Secondly, state the circumstances when the veil of incorporation will be lifted with
statutory examples and case law examples;v)
Lifting the veil by statute – section 67(3), 304(2) read with 303(3), 169, 36,
304(1), 121(2).
vi) Lifting the veil at common law;
where an element of fraud exists or where there is an abuse of separate
entity principle
when it is necessary to give effect to the true intentions of the parties to
an agreement
where the group entity is essentially a single unit
where the veil is merely a mask to defeat justice
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Cases:-
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Yap Sing Hock & Anor v Public Prosecutor (1992)
Sunrise Sdn Bhd v First Profile (M) Sdn Bhd & Anor (1996)
Aspatra Sdn Bhd & Ors v Bank Bumiputra Malaysia Bhd (1988)
(10 marks)
(Total : 20 marks)
ANSWER 5
(a)
A director shall at all times act honestly and use reasonable diligence in the
discharge of the duties of his office.
The director shall not make improper use of any information acquired by virtue of
his position to gain directly or indirectly an advantage for himself or for any other
person or to cause detriment to the company.
Section 140 of the Companies Act 1965 prohibits any provision, whether
contained in the articles or in any contract with the company, for exempting a
director or indemnifying him against any liability for a breach of duty which he is
guilty of. Allen is advised that the only way to obtain an indemnity is from court
under section 354 of the Companies Act 1965 which states that the court can
grant relief to a director if he has acted honestly and having regard to all the
circumstances of the case, such director ought to be excused for his breach duty
or negligence.
(6 marks)
(b)
A related party means a director, major shareholder or person connected with
such director or major shareholder. A major shareholder means a person who
has an interest or interests in one or more voting shares in a company and the
nominal amount of that share, or the aggregate of the nominal amounts of those
shares, is not less than 5% of the aggregate of the nominal amounts of all the
voting shares in the company. A person connected to a director or a major
shareholder means such person who falls under any of the following categories:
•
•
•
•
•
A member of the director's or major shareholder's family such as the spouse,
child, parent, brother, sister, and the spouse of the child, brother or sister
(see section 122A of the Companies Act 1965);
A trustee of a trust under which the director, or major shareholder or a
member of the director's or major shareholder's family is the sole beneficiary;
A partner of the director, major shareholder or a partner of a person
connected with that director or major shareholder;
A person who is accustomed or under an obligation, whether formal or
informal, to act in accordance with the directions, instructions or wishes of the
director or major shareholder;
A person in accordance with whose directions, instructions, or wishes the
director or major shareholder is accustomed or is under an obligation,
whether formal or informal to act.
(4 marks)
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(c)
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(i)
Section 131(1) of the Companies Act 1965 states that every director of a
company who is in any way, whether directly or indirectly, interested in a
contract with the company shall declare the nature of his interest to his
board of directors. However, in order for directors to be in breach of their
duty, they must have a material interest in the contract with the company.
This is recognized in section 131(2). It is submitted that since Lee only
has 100 shares in Boom Bhd which has an issued paid up capital of
1000,000,000 shares, his interest is not material. His failure to disclose is
not a breach of his fiduciary duty. By virtue of clause 81 of Table A, a
director shall not vote in respect of any contract with the company in
which he is interested. Lee did not abstain from the board's deliberation
but since it is submitted earlier that his interest is immaterial, it is further
submitted that so long as he acted in good faith and not for his own
personal interest, he is not guilty of committing a breach of his fiduciary
duty. Moreover, the facts stated that the Oxley Bhd entered into an arm's
length agreement suggesting therefore that there was an absence of any
improprieties. (Candidates are free to argue whether Lee breach S 131
(1) and 131(2)
(3 marks)
(ii)
To set aside the transaction because of some invalidating reasons on the
part of directors e.g. breach of fiduciary duty, knowledge of the
invalidating reason must be known by the other contracting party.
If Oxley wants to set aside transaction with Boom Bhd, Boom Bhd should
have knowledge of Lee's breach of duty. It is not for Boom to inquire
Oxley whether its own directors have disclosed any potential conflicts to
Oxley. Reason for wanting to avoid transaction is due to market condition
and not due to Lee's breach, if any. Candidates should discuss this point.
(3 marks)
(d)
Section 133(1) of the Companies Act 1965, does not permit a company to make
loans to its directors subject to the exceptions therein. The prohibition is against
“company”. Section 4 of the Companies Act 1965 defines “company” as that
incorporated under the Companies Act 1965 or any corresponding previous
enactment. This prohibition does not apply to a foreign company. Furthermore,
the laws of Greenland allow a company to give loans to its directors. Therefore,
Vince may be permitted to take a loan from the Company. (There is no issue of
exempt private as the company is incorporated in Greenland).
(4 marks)
(Total : 20 marks)
ANSWER 6
(a)
(i)
An auditor may be removed under section 172(4) by an ordinary
resolution coupled with a special notice.* Immediately after Chan's
removal, notice in writing must be given to the Registrar.
* Where a special notice has been received by the company, a copy of
the notice must be sent to Chan and the Registrar.
(3 marks)
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(ii)
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An auditor has the duty to report to the members on the accounts and
state whether the accounts give a true and fair view of the company's
affairs. - Section 174(1). In satisfying this duty, he has to exercise
reasonable care and skill. In Pacific Acceptance Corp Ltd v Forsyth
(1970) it was held that this includes taking such steps as were reasonable
to vouch and verify material items in the balance sheet and also in the
profit and loss account. If fraud is uncovered or suspected, the auditor is
under a duty to report the matter to the management as well as in his
report to the shareholders.
Chan can enjoy qualified privilege under section 174A. So long as the
statements in his report were made without malice on his part.
(5 marks)
(b)
(i)
Three methods by which a company seeking listing on Bursa Malaysia
may issue securities include the following:
Public issue - this is an offer to the public for subscription or
purchase by or on behalf of an issuer of its own securities;
An offer for sale - this is an offer to the public by, or on behalf of,
the holders or allottees of securities, usually the existing
shareholders, already in issue or agreed to be subscribed;
Placement - this is a procurement of subscription for, or the sale
of, securities by an issuer primarily from or to persons selected.
Placements are normally made to dispose of securities before
commencement of trading in order to comply with the minimum
requirements of securities which must be held by the public.
(3 marks)
(ii)
A moratorium refers to the imposition on promoters of certain applicant
companies on the Main Board involved in sections such as property
development, construction; specialised activities, and those in the Second
Board. The imposition is the prevention of them from selling out all shares
held by them the moment the shares are listed. The effect of the
moratorium is that usually in the first year, affected promoters are only
allowed to sell, transfer or assign their shareholdings amounting to a
certain percentage (maybe 45%) of the nominal issued and paid up
capital for 1 year from the date of admission of the company to listing.
Thereafter they are allowed to sell, transfer or assign only up to a
maximum of perhaps one-third per annum of their respective
shareholdings under moratorium. If the promoter is a private holding
company, every shareholder of the company is similarly affected by the
undertaking.
(4 marks)
(iii)
Persons are regarding as 'acting in concert' if such persons pursuant to
an agreement or arrangement or understanding agree to co-operate to
acquire jointly or severally the voting shares of a company or to act
together or separately for the purpose of obtaining or exercising control.
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The agreement or arrangement or understanding may be informal or
formal, written or oral, express or implied or without or without legal or
equitable force.
Situations in which parties are presumed to be 'acting in concert' include
the following:
A corporation and its related and associate corporation;
A corporation and any of its directors, or the parent, child, brother
or sister of any of its directors, or the spouse of any such director
or any such relative or any related trusts;
A corporation and any pension fund established by it;
A person and any investment company, unit trust or other fund
whose investments such person manages on a discretionary
basis;
A financial adviser and its client which is a corporation, where the
financial adviser manages on a discretionary basis the
corporation's funds and controls 10% or more of the voting shares
in that corporation;
A person who controls 20% or more of the voting shares of a
corporation and any parent, child, brother, sister of such person, or
the spouse of such person or any such relative, or any related
trust.
(Chose any TWO situations)
(5 marks)
(Total : 20 marks)
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