BCL
1
MIA QE/SEPT 2009
BUSINESS AND COMPANY LAW
SECTION A
Question 1
(a)
(i)
Definition of Proposal – S. 2 (a) Contracts Act, 1950
Definition of Acceptance – S. 2(b)
Ways by which acceptance may be made:
i.
S. 7(a)
ii.
S.7(b), S. 3, S. 4(2)(a)
iii.
S. 8
iv.
Case laws
(3 marks)
(ii)
Void contract – S. 11, contracts made by persons below the age of
majority, Mohori Bibee v Dhumordas Ghose, S. 66
(3 marks)
Valid contract – S. 69 Contracts Act, 1950, contracts for necessity,
Government of Malaysia v Gucharan Singh
(3 marks)
(b)
(i)
Main Objective: The general rule is that where there is a sale of goods
by a person who does not own them and who is not selling with the
authority and consent of the owner, then, title in them does not usually
pass.
(3 marks)
(ii)
Section 27(1) Sales of Goods Act, 1957.
Exceptions:
• Estoppel;
• Sale by a mercantile agent;
• Sale by a joint owner;
• Sale under a voidable contract;
• Sale by a seller in possession after sale;
• Sale by a buyer in possession.
(3 marks)
(c)
Section 3 (1) Civil Law Act, 1956 provides that:
Save so far as other provisions has been made or may hereafter be made
by any written law in force in Malaysia, the court shall:
In West Malaysia or any part therefore, apply the Common Law of
England and the rules of Equity as administered in England on the 7th day
of April, 1956;
In Sabah, apply the Common Law of England and the rules of Equity,
together with statutes of general application, as administered or in force
in England on the 1st day of December, 1951;
CONFIDENTIAL
BCL
2
-
MIA QE/SEPT 2009
In Sarawak, apply the Common Law of England and the rules of Equity,
together with statutes of general application, as administered or in force in
England on the 12th day of December, 1949.
The above dates are known as the “cut-off” dates. Any development or
changes in the English Common Law and Equity after the “cut-off” dates
do not become law in Malaysia.
(5 marks)
(Total : 20 marks)
QUESTION 2
(a) The term ‘ultra vires’ simply means ‘beyond the power’ or ‘lack of power’ in respect of
an act carried out by a person or body. A company may validly do in its capacity only
such things as are within its objects stated in the memorandum. Any departure from
its objects will render the transaction ultra vires and wholly void in common law. It is
sometimes used to describe unauthorized actions of directors. This approach was to
protect the shareholders and creditors.
The doctrine of ultra vires in company law may be traced to the leading case of
Ashbury Railway Carriage and Iron Co Ltd v Riche (1875), where the House of Lord
held that to carry on the business of mechanical engineers and general contractors
was not within the objects clause, thus it was ultra vires and wholly void and was not
capable of being ratified even by the unanimous assent of members of the company.
The rationale for this doctrine was that persons dealing with the company were taken
to have read and understood the contents of the company’s memorandum and
articles of association. However, it is not realistic to expect all parties dealing with a
company to examine the company’s memorandum. It would impose great
inconvenience and would hinder normal business practice.
The doctrine has been greatly modified in Malaysia and restricted by s 20(1) of the
Companies Act 1965 where it states that the company shall not be invalid by reason
only of the fact that the company was without capacity or power to do the act or to
take the conveyance or transfer. Hence the effect of the ultra vires doctrine as
understood in Ashbury Railway may no longer have the same far-reaching
significance in the light of s 20(1). The effect of this provision is that if a certain
transaction is otherwise valid, the fact that the company did not have the capacity to
enter into it is immaterial.
(5 marks)
(b)
(i) The types of meetings are as follows:
• Statutory meeting;
• Annual General Meetings;
• Extraordinary general meeting; and
• Class meetings.
(2 marks)
CONFIDENTIAL
BCL
3
MIA QE/SEPT 2009
(ii) In certain cases the members who wish to propose a resolution at a meeting
are required to give special notice of that resolution to the company. This is
necessary when it is desired to remove a director of a public company under
s 128. Pursuant to s 153, where special notice is required of a resolution
under the Act the following procedures are required to be observed:
i.
Notice of intention to move the proposed resolution must be given to
the company not less than 28 days before the meeting at which it is to
be moved; and
ii. The company must give notice of the proposed resolution to the
members at the same time and in the same manner as it gives notice
of the meeting. If that is not practicable, the company must give the
members notice in any manner allowed by the articles not less than
14 days before the meeting.
(2 marks)
(iii) Proceedings in a meeting consist of the following:
• Quorum – unless the articles provide otherwise, a quorum is two
members personally present: s 147(1). The articles usually require a
quorum to be present at the commencement of the meeting in order to
transact business: Table A, Art 47.
• Chairman – The person in charge of the meeting, with responsibility for
ensuring that the meeting is properly conducted, is the chairman. Usually
the articles provide that the chairman of directors chairs the general
meeting. If there is no chairman of directors or the chairman is unwilling to
act in that capacity at the general meeting, or he or she is not present
within fifteen minutes after the appointed time the members present must
elect one of their number to be chairman: Table A, Art 49.
• Voting – Unless the articles provide otherwise, voting is by show of
hands, in the first instance. Table A Art 54 states the obvious, by
providing that on a show of hands, each member or representative of a
member has one vote. Proxy votes are usually not counted on a show of
hands.
• Proxies – A proxy is a person authorized to vote on behalf of the
appointing member. Members who are entitled to attend and vote at a
meeting of the company are entitled to appoint a proxy to attend and vote
in their stead. The proxy need not be a member: s 149(1).
• Resolutions – The will of a general meeting is expressed by the passing
of resolutions. Some resolutions only require a simple majority in order to
be passed. These are called ordinary resolutions. Ordinary resolutions
are passed by a majority of members who are present and voting at the
particular meeting. Certain resolutions must be lodged by the company
with the Registrar within one month of their passing. These include
special resolutions and resolutions or agreements which bind a class of
shareholders: s 154(1)
CONFIDENTIAL
BCL
4
•
MIA QE/SEPT 2009
Minutes – A company is required to keep minutes of all proceedings at
general meetings and meetings of directors and managers (if any). These
must be entered in minute books within 14 days of the meetings. The
minutes must be signed by the chairman of the meeting or by the
chairman of the next succeeding meeting: s 156(1).
(4 marks)
(c )
Mark may be advised that, as a general rule, there must be at least two members
personally present to constitute a meeting (s 147(1)(a)). Even if it is provided that
the members present shall constitute a quorum, there is no meeting if only one
member is present. See Re Salvage Engineers (1962). Hence, since Pandi is
representing himself and as proxy for Mark, based on the case of Re Salvage
Engineers, it can be argued that there had been no proper meeting of the
company. It is necessary for at least two members to be present throughout the
meeting.
(4 marks)
(d)
The interests of a ’new category of persons’ included by the amendment under s
131 where a director must disclose are the interest of a spouse and a child,
including adopted child and stepchild. The legal effect of any contract or
proposed contract entered into in contravention of s 131 is voidable at the
instance of the company.
(3 marks)
(Total: 20 marks)
SECTION B
QUESTION 3
(a)
General Rule: Agent cannot receive secret profit;
Meaning: Secret Profit – Extra payment, secret commission, financial
advantages;
Effect:
•
•
(b)
(i)
Principal knows and consents – agent entitled to keep the profit;
Principal disagrees/ did not know – he may:
repudiate the contract;
recover secret profit;
refuse to pay commission (Andrew v Ramsay & Co;
dismiss the agent (Boston Deep Sea Fishing & Ice Co
v Ansell);
sue agent or third party (Mahesan) initiate criminal
action against agent or third party
(5 marks)
Agency by necessity – S. 142
Situations when necessity may occur:
- Person claiming agent of necessity entrusted with property belonging
to another;
CONFIDENTIAL
BCL
5
-
(c)
MIA QE/SEPT 2009
There was an emergency situation;
Inability to communicate and obtain instructions from owner of goods;
Person claiming agent of necessity acted in good faith.
Case: Great Northern Railway v Swaffield
(3 marks)
(ii)
Apparent/ostensible authority:
• Section 190 – where a principal leads a third party to believe that his
agent has the authority to make contracts for him. This may be by
words or conduct of the principal.
• Where previously an agent had the authority to act, but the authority
was terminated by the principal and this was done without giving
notice to the third party. ( case: Graphic Lines Pte Ltd v Chai Chee
Mein & Ors (1987) Nov. Butterworth’s Digest.)
(4 marks)
(i)
A quasi partner is not a partner of the firm but because of his words,
represent or knowingly allows himself to be represented as a partner. In
this situation, his liability for the debt of the firm is only to those who have
given credit top the firm based on the representation. (case: Bevan v The
National bank Ltd (1906) 23 TLR, 65.)
(3 marks)
(ii)
Dissolution of partnership – Section 34(c) – if the partnership is entered
into for an undefined period of time, any partner may dissolve the
partnership by giving notice. The date of the notice is regarded as the
date of dissolution.
Section 34(2) – if no date is stated on the note given, dissolution is
effective from the date of communication.
(5 marks)
(Total: 20 marks)
QUESTION 4
(a)
The legal principle established in the case of Salomon v Salomon is that when a
company is incorporated, it becomes a separate legal entity form its member.
This is also known as the doctrine of separate legal personality. In the eye of the
law, a company is an independent legal person, separate and distinct from the
individual members or directors. The principle is also known as the veil of
incorporation.
In Salomon v Salomon, S was a sole trader carrying on business as a boot
maker. He formed a limited company called Salomon & Co. He holds 2001 out of
2007 shares and also the debenture holder. The company was wound up after a
year of its formation. The creditor claimed priority over the debenture because
Salomon and the company is in fact the same person. The court held that
Salomon and the company were separate entities since it was validly formed and
therefore Salomon, as the debenture holder was entitled as the secured creditor.
CONFIDENTIAL
BCL
6
MIA QE/SEPT 2009
Hence, when a company becomes a separate legal entity from its members,
under s 16(5) of the Companies Act, the company can sue and being sued. In
addition, it has perpetual succession and a common seal and has power to hold
land/property.
(5 marks)
(b) (i) As to whether Lone Credit can refund the sum of RM300,000 to Setia Biotech,
the general rule is that the return of assets to the company’s members is
prohibited under the common law since the effect of such a return of capital
would be to reduce the assets that are available for distribution to the creditors
should Lone Credit go into liquidation. See N Sinnasamy v Hup Aik Omnibus
[1952], where the court held that a company has no power to refund to its
members the money that they paid for their shares. Once company has received
money in payment for its shares, it cannot refund that money without getting the
court’s leave to reduce capital. See Merchant Credit v Industrial & Commercial
Realty [1983].
(5 marks)
(ii)
As to the mode of reducing capital, the Companies Act 1965 provides that a
company may reduce its share capital in any way. In particular, it may extinguish
or reduce the unpaid capital, cancel any paid up capital which is lost or
unrepresented by assets or pay off any paid up capital which is in excess of the
needs of the company (s 64(1)).
The actual reduction may be accomplished by cancelling shares or reducing the
nominal value. E.g., suppose that a company’s issued and paid up capital is RM1
million, but this is represented by only RM500,000 worth of assets (the deficiency
would probably be reflected as ‘accumulated losses’ on the balance sheet). The
company could cancel one out of every two shares to wipe out the accumulated
losses, or it could halve the nominal value of its shares.
To effect a reduction of capital three things are required in all cases: first, the
reduction must be authorized by the company’s articles; secondly, a special
resolution for the reduction must be passed; and thirdly, the reduction must be
confirmed by the court.
(5 marks)
(c)
Mutu may be advised that according to s 67(1), a company may not give financial
assistance to any person whether directly or indirectly for the purpose of:
i.
The acquisition or proposed acquisition of shares in the company
or units of such shares; or
ii.
The acquisition or proposed acquisition of shares in its holding
company or units of such shares.
Giving financial assistance has the same detrimental effect on the company’s
financial position as self-acquisition and can be seen to indirectly infringe the
capital maintenance doctrine in Trevor v Whitworth. In Chung Khiaw Bank Ltd v
Hotel Rasa Sayang Sdn Bhd & Anor [1990], the Supreme Court held that s 67 of
the Companies Act prohibits any financial assistance whether directly or
indirectly.
CONFIDENTIAL
BCL
7
MIA QE/SEPT 2009
In the case of Ah Keong, Poly Sdn Bhd’s money was lent to him through Lims
Engineering in order to enable him to acquire the shares of the Company. This
transaction undoubtedly amounts to an indirect financial assistance. This is
clearly a breach of the provisions in s 67(1) prohibiting financial assistance for
the purpose of acquisition of shares. See the case of Selangor United Rubber
Estates Ltd v Craddock [1968].
(5 marks)
(Total: 20 marks)
QUESTION 5
(a) (i) Corporate disclosure in a prospectus in relation to a public issue can serve as
essential material to aid public investors in making an informed investment
judgment before deciding whether or not to accept the offer. A prospectus is
defined by s 4(1) of the Companies Act to mean:
Any prospectus, notice, circular, advertisement or invitation inviting applications
or offers from the public to subscribe for or purchase or offering to the public for
subscription or purchase any shares in or debentures of or any units of shares in
or units of debentures of a corporation or proposed corporation.
The prospectus provisions in sections 37-47 of the Companies Act regulate the
investment in shares and debentures by the public. The central prohibitions are
that application forms for shares and debentures may not be issued unless
accompanied by a registered prospectus: s 37(1) and those corporations may not
invite the public to lend money unless a prospectus has already been registered:
s 38(1). The aim of the prospectus provisions is to balance the needs of investor
protection with an efficient and credible capital market. The investor protection
objective of the prospectus provisions aims to ensure that a minimum degree of
disclosure of relevant, accurate information is provided by the company to
potential investors so as to enable them to make an informed decision as to
whether or not to invest. For this reason the prospectus provisions specify the
type of information which must be provided and investments can only be made
on application forms attached to a prospectus.
(5 marks)
(ii)
In Raja Khairulzaman Shah bin Raja Aziddin v Zaman Indah Sdn Bhd [1979], it
was said that an ‘allotment’ was the ‘appropriation to a person of a certain
number of shares, but not necessarily of any specific shares.’ There are
restrictions imposed on a public company in relation to its liberty to allot shares or
debentures under s 50 of the Companies Act. It provides that a public company
having a share capital which does not issue a prospectus on or with reference to
its formation must not allot any of its shares or debentures unless at least three
days before the first allotment of either shares or debentures there has been
lodged with the Registrar a statement in lieu of prospectus. If there is default in
complying with the section, the company and every officer of the company in
default shall be guilty of an offence under the Act (s 51(1)).
Section 48 prohibits the allotment of shares offered to the public unless the
minimum subscription is obtained and the sum payable on application for the
CONFIDENTIAL
BCL
8
MIA QE/SEPT 2009
shares is received by the company. ‘Minimum subscription’ is defined in s 4(1) as
the minimum amount that, in the opinion of the directors, must be raised by the
issue of shares to get the company started. The purpose of s 48 is to protect
early subscribers where the company is unable to raise sufficient funds to be a
viable concern. The minimum subscription is deemed to include any premiums
paid but excludes payments other than cash: s 48(2). See Re The Producers
Real Estate & Finance Co Ltd (1932).
Section 49 reinforces s 48 by requiring the company to hold application money in
trust for applicants until allotment. The company cannot treat this money as its
own and ensures that applicants get their money back if the minimum
subscription is not reached. S 49 only applies if there has been an ‘offer to the
public’.
(5 marks)
(iii)
Debenture is defined in s 4(1) to include any debenture stock, bonds, notes and
any other securities of a corporation, whether constituting a charge on assets of
the corporation or not. According to s 38 of the Companies Act, to ensure that
whenever a company seeks to borrow money from the public, it complies with
certain provisions applicable to debentures which are aimed at protecting the
investing public. See s 38(1) and (2). Section 38(4) enables a company to
describe the document acknowledging the debt as a mortgage debenture only if
there is included in the prospectus a statement to the effect that the loan is
secured by a first mortgage over land held by the company. Section 74(1)
requires a corporation that invites or offers the public to take debentures, to make
provision in a trust deed for the appointment of a trustee corporation for
debenture holders.
Where a corporation invites or offers the public to take up debentures issued by
it, the trust deed must contain certain provisions in accordance with s 76(1). The
trustee for debenture holders is subject to the duties set out in s 78(1). Section
70(1) a company that issues debentures is required to keep a register of
debenture holders.
(5 marks)
(b)
Reconstruction is transferring of assets and liabilities from one of the group
companies to another. On occasion, one company takes over another company
and their operations are merged. Both group reconstructions and mergers may
be effected through a scheme of arrangement under section 176. The court may
order the transfer of a company’s undertaking, property and liabilities to another
company (178(1)(c)), provide that legal proceedings be continued by or against
the transferee company and order that the transferor company be dissolved
without the necessity of a winding-up (s 178(1)(d)). These powers are extremely
useful in cutting short the complications that might otherwise arise upon a group
reconstruction or merger of two companies.
On the other hand, scheme of arrangement is rearrange of rights of the creditors
and the members. Section 176(11) defines ‘arrangement’ to include a
reorganization of share capital of a company by the consolidation of different
CONFIDENTIAL
BCL
9
MIA QE/SEPT 2009
classes of shares or by the division of shares into different classes or by both of
these methods.
Most of these rights will have arisen on a contract. Section 176 provides for
schemes of arrangement to be binding on creditors and members alike after the
requisite approval by the specified majority and upon confirmation by the court.
This section obviates the need for a messy and complicated series of
negotiations with a view to obtaining the unanimous approval of the members or
creditors to a novation or assignment or other variation of their rights. A scheme
of arrangement may be proposed where it is desired to adjust members’ or
creditors’ rights inter se or to reorganise the share capital of the company, or in
the case of a group reconstruction or merger.
(5 marks)
(Total: 20 marks)
QUESTION 6
(a) (i) According to s 182(1) of the Companies Act 1965, the following persons are not
qualified to be appointed or act as receivers:
i.
A corporation;
ii.
An undischarged bankrupt; and
iii.
A mortgagee of any property of the company, an auditor of the
company or any officer of the company or of any corporation
which is a mortgagee of the property of the company; and
iv.
Any person who is not an approved liquidator or the official
receiver.
In advising Vicky, Jack as an officer of Along Bank cannot be appointed as a
receiver because he is an officer of the bank which is a mortgagee of the
property of Data Sdn Bhd for the purposes of the definition of ‘officer’ under s
182(1) mentioned above.
(5 marks)
(ii)
A receiver can be defined as a person appointed to take into his possession the
property of the company which is the subject of a charge and to deal with it
primarily for the benefit of the holder of the charge. Receivers may be appointed
by the High Court (see Rules of the High Court 1980, Order 30) or a secured
creditor who wishes to enforce their security (where as is usually the case, the
instrument of charge gives the secured creditor the power to appoint a receiver).
The receiver’s main duties under the Companies Act 1965 are:
i.
a.
b.
c.
The lodgment of his accounts with the Registrar under s 190:
Receipts and payment during the relevant periods;
The aggregate amount of those receipts and payments during all
preceding periods since his appointments;
Where a receiver has been appointed pursuant to the powers contained
in any instrument, the amount owing under that instrument during the
relevant periods, and his estimate of the total value of all assets of the
company or other corporation which are subject to the instrument; and
CONFIDENTIAL
BCL
10
d.
e.
MIA QE/SEPT 2009
The accounts must be lodged by the receiver within 1 month after the
expiration of the period of 6 months from the date of his appointment and
of every subsequent period of 6 months and within.
According to s 191, a receiver appointed on behalf of holders of
debentures secured by a floating charge has a duty to pay certain
preferential debts and these have to be paid first before any payments
are made on the floating charge.
(5 marks)
(b) The liabilities of a receiver/manager under the Companies Act 1965 are:
i. Under s 183(1) of the Companies Act 1965, a receiver, whether or not
appointed as agent for the company, is liable for certain debts incurred by him
in the course of his receivership and if a company is leasing a property, and it
then goes into receivership, the receiver can become personally liable for the
rent if the company continues to use or occupy the property.
ii. In the event the receiver is found to be guilty of any misfeasance, breach of
trust or duty, by virtue of s 192(2), the court may order that he or she
compensates the company.
(5 marks)
(c) The Types of winding up are:
i. Voluntary winding up
a. Members’ voluntary winding up; and
b. Creditor’s voluntary winding up. See ss 258 and 259.
ii.
Compulsory winding up; s 217(1). It is initiated by application to the court by
any of the persons listed in s 218 (1).
The persons specified in s 271(1) who can apply to the court to have a
company compulsory wound up are:
a. The company
b. A creditor, including a contingent or prospective creditor, of the company
c. A contributory or any person who is the representative of a deceased
contributory or the trustee in bankruptcy or the Official Assignee of the
estate of a bankrupt contributory;
d. A liquidator appointed in a voluntary winding up;
e. The Minister pursuant to ss 205 or 218 (1) (d) and the
f. Central Bank in the cases of banks and finance companies.
(5 marks)
(Total: 20 marks)
CONFIDENTIAL