Tan Shang Wei LEB 110100

Company

Limited
Liability
Partnership
(LLP)
Partners
contribution

General
Partnership

Sole Proprietership

Partners
contribution

Own contribution

Capital
contributio
n
Owners

Share capital

Company
(members/
shareholders
according to
own shares)

LLP (partners
have a share in
the capital n
profits of the
LLP)

Partners

Sole Proprietor

Legal
status

Separate legal
entity

Separate legal
entity

Not a separate legal

entity

Party that
is liable for
debts of
the
business
Responsibi
lity for
manageme
nt of
business
Personal
liability

Company

LLP

Not a
separate legal
entity
Partners

Board of
directors

Partners

Partners

Sole Proprietor

Not personal
liability
Liabilities borne
r to extend of
unpaid shares
only

Not personal
liability, except
for own wrongful
act/ omission
Liabilities borne r
to extend of
unpaid share
capital only

Unlimited
liability

Unlimited liability

No. of
shareholde
rs/
partners

Min 2 n max 50
in private
company

Min 2 n no max
limit

2 to 20
partners
(except for
professional
practice with
no max limit)

Sole proprietor only

Sole Proprietor

Comparative chart between LLP n various other business

vehicles in Msia

Limited and Unlimited Companies

Limited
compan

ies

S4(1): a company limited by shares or by guarantee or both by shares or

guarantee
Member is not liable for the debts of the company
Creditors n public r advised to exercise caution, n require the company to
guarantee the performance
S18(1): must clearly state whether is limited or not

Unlimit
ed
compan

ies

S22(3): must have the word Berhad or Bhd

Minister can exempt the word if the company: (i) providing non-commercial
purpose; (ii) apply profits to promote its objects; (iii) not paying dividend to
its members
Company limited by shares: liability of its members r limited by
memorandum to the amount if any, unpaid on the shares respectively held
by them
Company limited by guarantee: liability is limited to the amount he agrees
to contribute in the event the company is wound up; max number of
members r stated in the articles
Company limited shares n guarantee: have limited liability
S4(1): a company formed on the principle of having no limit placed on the
liability of its members
Liable for all the debts of the company
Advantages: (i) enjoys separate legal entity from its members; (ii) have the
max number of members as prescribed in its articles

Private and Public Companies

Private S15(1): requirements of private company. Memorandum must contain:
compan 1st, having a share capital. A company limited by guarantee is not qualified
2nd, restriction on the right to transfer shares in the company
ies
3rd, number of members is limited to 50
4th, prohibits from inviting the public to subscribe in its shares or debentures
5th, prohibits from inviting the public to deposit money with the company
S22(4): must have the word Sendirian or Sdn
Exempt S4(1): shares of which no beneficial interest is held by any corporation n
private
which has not more than 20 members

None
of the members can hold shares on behalf of a corporation
compan
Is not prohibited from lending money to its directors or persons connected
ies
Is exempted from filing its audited profit n loss accounts n balance sheet
It must be solvent
Public Company other than a private company
compan It may be a limited/ unlimited company. N also may be limited by shares/
guarantee
ies
All companies limited by guarantee r public companies
Does not have the word Sdn
Further subdivided into 2 categories: (i) listed on Bursa Msia; (ii) shares r not
listed on the stock exchange

Related Companies

S6: companies r deemed to be related where a corporation: (i) is the holding company; (ii)
is a subsidiary of another corporation; (iii) is a subsidiary of the holding company

Holding
and
subsidia
ry
compan
ies
Ultimat
e
holding
compan
y
Wholly
owned
subsidia
ry

S5: a corporation (S) is deemed to be a subsidiary of another corporation (H)

if:
(i)
H controls the composition of the board of director of S
(ii)
H controls more than 50% of the voting power of S
(iii)
H holds more than 50% of the issued share capital
(iv)
S is a subsidiary of any corporation which is a subsidiary of H
S5A: ultimate holding company (UH) is where:
(i)
Another company is a subsidiary of UH
(ii)
UH is not a subsidiary of another corporation

S5B: a company (WOS) is deemed to be wholly owned subsidiary of another

company (H) if all the members r:
(i)
H
(ii)
A nominee of H
(iii)
A subsidiary of H
(iv)
A nominee of a subsidiary of H

Promoters
Who

Entrepreneurs may take or instruct others to take the steps required by

law to incorporate a company

In Twycross v Grant, a promoter is a person who undertakes to form a
company with reference to a given object n set it going n takes the
necessary steps to accomplish the purpose
Can be a natural person, or be a company
Duration
Owes fiduciary duties towards the company as long as he is a promoter,
thus duration as promoter is important to know
The duration is b4 the company is incorporated, as the promoter is to take
steps to incorporate it, n establishes its business
Re Cape Breton Co, the duty as promoter may arise even at the time he
purchases a property with the intention to sell it to the company he is
going to incorporate
Not end immediately after the company is incorporated
Erlanger v New Sombrero Phosphate Co, he may continue to be a
promoter after the company has been incorporated, for the purpose of
procuring capital for the company
May still owe duties to the company after the board of directors has been
appointed, because the directors may be acting in the promoters
interest, as they were nominated by the promoter
When the appointment as promoter ceases is a question of fact. He must
aware himself, as he must know his fiduciary relationship with the
company
Fiduciary
Has an obligation to act in good faith for the benefit of the company. He
duty
has a duty also to make full n flank disclosure to the company
He cannot: (i) make secret profit or any benefit at the expense of
company; (ii) exercise undue influence over company; (iii) have any
conflict of interest with the company
Erlanger v New Sombrero Phosphate Co
F: promoters purchased a land, n sold high price to the company they
incorporated through a nominee. The promoters who were the
companys 1st directors ratified the purchase
H: they breached their fiduciary duty as they did not make full n frank
disclosure of their interest in the contract to an independent board of
directors
If the promoter fails to declare his interest in the contract with the
company, the contract is voidable at the companys option
The promoter should make full n frank disclosure of the circumstances n
the benefits derived by him from the transaction
Some say that the disclosure to the companys independent board of
directors is difficult, as the promoters r usually appointed as directors,
or they nominated directors. Their independence is questionable
Thus, an alternative is to disclose to the members, existing n future. The
disclosure may be made in the companys memorandum n articles of
association or in the companys prospectus
Consequen In Erlanger case, the court held that the contract is voidable at the
ces of
companys option. It the contract is terminated, both parties r to return
breach of
the benefits received
The right of rescission can only be exercised, if:
fiduciary
1st, the company takes steps to rescind the contract after it has notice of
duty
the breach
2nd, the parties must be restored to their original position according to
s65 of the Contracts Act
In Lagunas Nitrate Co Ltd, the land was ady mined. Thus, the company

could no longer restore the land, n the rescission of the contract was not
allowed
Rescission also not allowed if a 3rd party has acquired rights over the
property for valuable consideration. Thus, if the land is sold to a third
party, rescission could not be ordered
When rescission is not possible, the court may order the promoter to pay
damages to the company. This was held in Re Leeds and Handley
Theatres of Variety
The company also can choose to recover the secret profit made by the
promoter
In Gluckstein v Barnes, the court held that the company could recover
the profit of L20,000 which was not disclosed in the companys
prospectus by the promoter
A company can rescind or affirm the contract, if there is a difference
between the sale n purchase price paid by the promoter for a property
which he earlier purchased without intention to sell it to a company he
is incorporating. This was held in Tracy v Mandaley
The promoter is deemed to be a constructive trustee of the company he is
promoting, thus he can be compelled to transfer the property to the
company
In Fairview Schools Bhd, the promoter applied for n was issued with a
permit to operate the school. As the company was incorporated to
manage a private school, the promoter was deemed to held the permit
in trust for the company
Reimburse s60(3): the money in the companys share premium account may be used
ment
to write off the preliminary expenses of the company
It does not require the company to reimburse the promoters if they have
incurred costs n expenses wen undertaking their duties to promote the
company
The promoter can only claim reimbursement if the company has agreed to
do so
If there is an agreement to the effect, it is enforceable although it is for
past consideration. S26(b) of Contracts Act has recognized past
consideration, n this was affirmed in Kepong Prospecting Ltd v
Schmidt

Pre-Incorporation Procedure

A promoter stands in a fiduciary relationship with the company

A promoter must get approval from the relevant regulatory body if he wishes to use any
word of which usage is regulated by legislation/ government agency or professional body
The name will be reserved for 3 months after approval, he have to incorporate the
company within this time frame
Within 3 months, applicant must submit documents to ROC (memorandum, articles, Form
6, Form 48A)
After submitting the documents, fee must be paid to ROC
ROC will issue the Certificate of Incorporation upon completion of submitting of documents

Effects of Incorporation

A company if incorporated upon the issuance of the certificate of incorporation by the ROC
S16(5): the effects of incorporation

Perpetual
existence
and
separate
legal
entity
Sue and be
sued

Common
seal

Power to
hold land

Liability of
members

S16(6): The persons whose names appear in the companys register

shall be the members of the company
S16(5): the body corporate enjoys a separate legal entity. Members
come n members go, but the company continues to exist
S18(1)(a): companys name is required to be stated in the companys
memorandum
The company can sue for any wrongs committed against it. It can also
be sued for its wrongful act/ omission
Only the company can sue, n its members have no cause of action to
sue
However, there r now exceptions to this general rule upon the
happening of certain events
S121(1)(a): every company must have a common seal with its name n
company number appearing on it
It is affixed on share certificates, contracts with according to the
manner which is prescribed in the companys articles
Usually, it needs a board of directors resolution, n it may be affixed in
the presence of 1 director n secretary or another director
A company is entitled to hold land
S19(2): a company formed for the purpose of providing recreation
shall not acquire land unless it has obtained the approval of the
Minister
Members shall be liable to contribute to the assets of the company in
the event of being wound up
The liability depends on whether the company is a limited or unlimited

Separate Legal Entity

The principle of separate legal entity is enshrined in s16(5) n was 1 st established in
Salomon v Salomon & Co Ltd
Salomon v Salomon & Co Ltd
F: Mr Salomon incorporated a company n sold his business to the company. He held
20,001 of the 20,007 shares issued, n debentures of L10,000 issued in favour of him. The
company after that became insolvent. Action was brought against him to postpone his
priority under the debentures to rank
H: it is immaterial that the company bought over the business from its subscribers, n
operated it as b4, tat 3rd party dealt with the same personnel. The creditors can only look
to the company, not its members as this is accordance with the doctrine of privity. It is not
required that the subscribers to the memorandum should be independent or unconnected,
thus the fact that all shares r held for the benefit of one person will not affect the status of
company as separate legal entity. If a member lend money to company n the load is
secured, the member-creditor has priority over the proceeds from the secured assets
Lee v Lees Air Farming Ltd
F: Mr Lee held 2,999 of 3,000 of issued shares. He was the beneficial owner of all the
shares n managing director, n also was employed as a pilot of company. The company
effected a workers compensation insurance naming him as the employee. He was killed
whilst at work
H: the company was a separate legal entity from Mr Lee, n thus could enter into a contract
of employment with him. He was an employee n his widow could claim the compensation
Macaura v Northern Assurance Co Ltd
F: Mr Macaura owned all the shares in the company. He sold all the timber in his estate to
the company. Soon thereafter, the timber was destroyed in a fire. He claimed indemnity
from insurance company as he had insured the timber against fire
H: he had no more interest in the logs after he sold them to the company, as the company
were separate legal entity, thus the insurance policy was void. Even if a person is the
beneficial owner of all the shares in the company, he does not have any legal/ equitable
interest in the companys property
Foss v Harbottle
F: 2 minority out of 10 members of company instituted legal action against the other 8 for
causing the company to purchase properties at inflated prices from another company
controlled by them. Obviously, a wrong was committed against the buyer company

H: the members n the company were different entities. As the wrong was committed
against the company, only the company could institute the legal action. The members had
no cause of action against the wrongdoers as the wrong was not committed against them

Lifting the veils

There is a veil separating the company on one side, n its members n officers on the other
side
Both r separate legal entities, n the debts n obligation of one cannot be imputed on the
other. Therefore, the company, not its members n officers, is liable to pay its debts
The doctrine of privity n the concept of separate legal entity will not protect the
wrongdoers in the certain circumstances of statutory exceptions n common law, as the
circumstances will render the veil to be lifted

Statutory
Exceptions

Common
Law

S36: except the company is a wholly owned subsidiary, if the company

only has one member, he must transfer share to at least one more
person within 6 months
S67: the officers who authorized a prohibited transaction which is
purchasing the companys shares or the shares in its holding company
S121(2): the officer who has not ensure the name n number of
company in its documents
S169: the directors must ensure that the companys accounts n those
of its subsidiaries r consolidated
S199A: inspector with the consent of minister, can investigate the
affairs of a company
S303(3) n 304(2): officer contracted a debt during course of winding up
or during proceedings against company
S304(1): officer must responsible for fraudulent trading by a company
Fraud of improper purpose
Court may pierce its veil of incorporation if a company is used as a
mask to commit a fraudulent purpose
In Lim Kar Bee v Duofortis Properties (M) Sdn Bhd, the court held
that it has discretion to lift the veil of incorporation for the purpose of
discovering any illegal or improper purpose
In Re Buger Press Ltd, the court lifted the veil of incorporation as it
found that a new company was formed to take over the company,
which expropriated the minority shareholder
Avoidance of contractual obligations
Some will incorporate a company to avoid his contractual obligations
In Jones v Lipman, the court held that A Ltd n L must perform Ls
contract to sell Ls house, as A Ltd was formed by L to avoid specific
performance of the contract
Group of companies
Related companies all r separate legal entity according to The
Peoples Insurance Co (M) v The Peoples Insurance Co Ltd
However, there r instances where the court has held that the related
companies r indeed one legal entity
In DHN Food Distributors Ltd v London Borough of Towers
Hamlets, the court held that the companies operated as a single
economic unit n thus the company could recover the compensation due
to them under the law
In Hotel Jaya Puri Bhd v Hotel, Bar & Restaurant Workers,
although hotel claimed that the restaurant was run by its wholly owned

subsidiary company, the court still held that the hotel was liable to pay
termination benefits to the employees
Public policy
In Daimler Co v Continental Tyre and Rubber Co, the court looked
at the identities of the shareholders n held that although the company
was incorporated in England, it was an enemy company because its
shares were held by Germans. At that time, English govt issued a
decree that no business could be conducted with the enemy during the
1st World War

Memorandum of Association

It is in the companys constitution, n is pertaining to the relationship between the

company n an outsider
S16(1): Every company must have a memorandum of association. It must be signed by at
least 2 persons who desire to incorporate the company. They r known as subscribers n
must agree to take up at least one share each in the company
S33(1): it binds the company n members as though they all have signed the document.
They r deemed to have agree to observe n be bound by the clauses n regulations
The memorandum is required to be lodged with ROC b4 the ROC issues it with its
Certificate of Incorporation
S18(1): It must be printed, divided into numbered paragraphs n dated. This section also
states the minimum information which must be contained in the memorandum

Alternation

S21: the memorandum may be altered to the extent n in the manner provided by this Act
but not otherwise
S21(1A): if a provision in the companys memorandum could lawfully have been contained
in its articles of association, the company may by special resolution alter the
memorandum; unless the memorandum itself prohibits the alternation

Objects Clause

Arab-Malaysian Finance Bhd v Meridien International Credit Corp Ltd London

defined it as the companys business activities

S18(1)(b): every companys memorandum must include a clause on its objects, as it may
important for 3rd parties to know the companys objects b4 they deal with the company or
subscribe in its shares
The courts have classified the objects clause into:
(i)
Independent objects main objects of a company, the business activities which the
company may expressly undertake
(ii)
Dependent objects additional activities, the court can interpret them widely to
avoid the likelihood of a transaction being void
(iii)
Power to achieve their objects. May be found in memorandum or be provided
certain implied powers by Act
Power imputed on a company by Act:
(i)
Have power to make donations for a patriotic or charitable purpose
(ii)
May acquire land if the company is formed with the intent of profit

Doctrine of Ultra Vires

Effects at common law
At common law, a companys transaction which is outside its objects clause is ultra vires n
consequently void. It was held in Ashbury Railway Carriage & Iron Co Ltd v Riche
The courts have classified the objects clauses into various categories to mitigate the
consequences of the doctrine of ultra vires
The hardness of this doctrine is to serve as a form of deterrence to both company n 3 rd
parties from entering into a transaction which is not permitted in the companys
memorandum
Investors invest in a company with the implicit understanding that their investment will be
used to carry on businesses which they have agreed on
Outsiders dealing with the company have constructive notice of the objects clause as it is
found in the memorandum. It is also available to public
In Re Introduction, the court held that as company had no power to borrow money for a
purpose which was beyond the companys objects clause n thus the loan could not be
recovered by the bank
In Rolled Steel Product (Holdings) Ltd, the court held that the 3rd party may enforce
the contract if he did not have actual notice of abuse of powers
In Grant v United Kingdom Switchback Ry Co, it was held that the act may be ratified
by the company in general meeting
Effects in Malaysia

S20(1): no act or purported act of a company shall be invalid by reason only of the fact
that the company was without capacity or power to do the act
Thus, a company cannot use the lack of capacity as a defence, as the contract is still a
valid contract. They have to perform their obligation under the contract
In Public Bank Bhd v Metro Construction Sdn Bhd, the court held that s20(1) strikes
down the absolute effect of the ultra vires doctrine. A transaction is not invalid by reason
only of the fact that the company was without the capacity or power to enter into the
transaction
There is no need to differentiate between dependent objects, independent objects n
powers of the company
Lack of capacity or power may still be asserted or relied upon by selected persons in
certain circumstances which r prescribed in s20(2). According to Pamaron Holdings Sdn
Bhd v Ganda Holdings Bhd, persons other than those listed in s20, cannot raise the
issue of ultra vires

Section

By whom

Against whom

Consequences

20(2)(a)

Member of
company n
floating chargee

Company

20(2)(b)

Company or
member of
company
Minister charged
with the
responsibility for
companies

Present or former
officer

20(2)(c)

Company

To restrain performance of act

Parties to the contract liable to
pay each other compensation
for loss n damage (not
anticipated profits)
Damages

Wind up the company

Alternation of Objects Clause

Objects clause may be altered by complying with the procedure laid down in s28
S28(1): by passing a special resolution. 21 days notice of the meeting must be given to:
(i) all members of the company; (ii) all trustees for holders of debentures issued by the
company
The notice of the meeting must specify the intention to propose the special resolution to
alter the objects clause
Must at least 75% of the members present vote in the resolution favour during the
meeting
The alternation only takes effect upon the lodgement of the special resolution with the
ROC. This can be done after the 21 days of passing of resolution
21 days is to allow holders of at least 10% of the companys issued capital or nominal
value of debentures who r not happy with the alternation to apply to the court for its
cancellation
If no application is made to court, then the company shall lodge the resolution with the
ROC not later than 14 days after the expiry of 21 days from the date of the resolution
If there is an application to the court, n court has affirmed the resolution, the company
shall lodge the resolution n the court order with the ROC within 14 days from the court
order

Articles of Association

It is also part of the company constitution. It contains the internal arrangement, rules n
regulations of the company. Thus including matters relating to the transfer of shares,
proceedings at general meetings, appointment of directors n secretary, powers of
directors n payment of dividends
A company limited by shares may adopt the regulations found in Table A of the Companies
Act. S30(2) regulates the company which does not register its articles or companies which
do not exclude the application of the said provisions in Table A
S33(1): articles bind the company n members as though they have signed the document.
they r deemed to agree to observe n be bound by the articles
If there is a conflict between memorandum n articles, the memorandum prevails

Contents

S29(1): a company may register its articles with the ROC

A company limited by shares need not register its articles, n s30(2) states that Table A
should be applied to form the companys articles. Even though it has registered its
articles, Table A still apply to the company, unless articles itself has excluded the
regulations contained in Table A

Requirement

1st, s29(2): it must be printed n divided into numbered paragraphs. It must also be signed
by each of the subscribers to the memorandum in the presence of at least one witness
(cannot be a subscriber)
2nd, s29(3): an unlimited company with a share capital, it must state its authorized share
capital n its division into shares of a fixed amount
3rd, s29(4): for companies other than share capital, they must state the max number of
members in the company
4th, s15(1): for a private company limited by shares, its memorandum or articles must
state the restriction on the transfer of its shares, not more than 50 members, no invitation
to public
5th, s122(3) n 139(1A): the names of companys first directors n first secretary must be
contained in memorandum or articles
6th, for a public listed company, articles must comply with the mandatory clauses
prescribed in the Listing Requirements

Effect of Articles of Association

Contract
between
company and
members

Contract
between
members

Position of
outsiders

S33(1): articles bind the company n members as if they have

signed the document
They r deemed to have agreed that they will observe all the
provisions in the articles
S33(1) is a codification of the common law principles that the
articles is a contract between the company n its members
In Hickman, the articles of company stated the any dispute
must be referred to an arbitrator. Mr Hickman instead go to court,
thus the court held that the dispute must be referred to
arbitration
In Quins & Axtens Ltd, the articles provided that certain
contracts must be approved by Salmon n Axtens. Salmon refused
to consent in one instant. EGM was called to approve the
transaction. The court granted an injunction to restrain the
company from acting on the members resolution. Alteration of
the articles must be taken 1st
S33(1): is a contract between the members as if each of them
has signed on it. They r bound by it
In Wong Kim Fatt v Leong & Co Sdn Bhd articles state that
majority shareholder can require minority shareholder to sell his
shares to the former. The court held that the articles was a
contractual obligation, thus the minority shareholder could not
refuse the requisitioning of purchase of majority shareholder
The doctrine of privity does not permit an outsider to enforce an
article even where the article purportedly confers a right on him
In Reffles Hotel Ltd v Malayan Banking Bhd, the hotels
articles provided for the appointment of the banks
representative to be on its board of directors. The court held that
articles was not a contract between the hotel n bank, thus it did

not confer any enforceable rights on the bank

The articles will not confer other rights on members in another
capacity. This is confirmed in several cases
In Eley v Positive Assurance, the companys articles provided
Eley would be the companys solicitor. After some times, he was
stopped given legal work. The court held that the articles did not
create any contract between the company n Eley as solicitor
In Beattie v E & F Beattie Ltd, articles said that if any dispute
must be referred to an arbitration. A director n company arose a
dispute. The director who was also a member insists to go for an
arbitration, the court refused as he was sued in his capacity as a
director, n not as a member
To resolve the rights of the 3rd party, he should enter into an
independent contact with the company n incorporate the
relevant articles into the said contract. Thus in the event of
default, he could sue under the separate contact

Alternation of articles of association

S31(1): a companys articles can be amended by special resolution unless restricted by

the companys memorandum or the Companies Act

Restriction

Effects

According Peters American Delicacy v Health, any agreement or

article attempting to restrict the alternation of articles is of no effect
Only two ways to restrict: memorandum n Companies Act
S33(3): any alternation to increase the liability of an existing member
or which requires an existing member to increase his holding will not
bind him unless he has given his written consent. It only effective
against new members
Although only one restriction found in Act, any alternation is subject to
the underlying principle that it must be made for the benefit of the
company as a whole
In Greenhalgh v Ardene Cinemas, the companys share capital was
divided into 2 classes made up of 10s shares n 2s shares. Most of 2s
shares were held by Greenhalgh. A resolution was passed to subdivide
each of 10s shares into five 2s. Greenhalghs voting power was diluted.
Nevertheless, the court confirmed the resolution
In Allen v Gold Reefs of West Africa Ltd, Allen held both fully paidup n partially paid-up shares. He failed to pay up despite repeated calls.
The company alter the articles that if a member fails to pay the calls on
partially paid-up shares, the company would have a lien on the fully
paid-up shares as well. The court held that the alternation was doe
bona fide for the benefit of the company as a whole, thus it was valid
S31(2): the effectiveness will start on the day the resolution is passed
or a later date mentioned in the resolution itself although it must be
lodged with the ROC
A company may alter its articles pertaining to its relationship with
outsiders, if there is a separate contract between the company n the 3 rd
party, n the company acts on the altered articles
In Southern Foundries Ltd v Shirlaw, the court held that a company
cannot be precluded from altering its articles thereby giving itself
power to act upon the provision of the altered articles but so to act
may nevertheless be a breach of contract if it is contrary to a

stipulation in a contract validly made b4 the alternation

Assuming the separate contact states Mr B shall be appointed the
companys solicitor in accordance with the articles of company, then
the company alters the articles, by reducing the retained fee. According
to Swabey v Port Darwin Gold Mining Co, the alternation will affect
the contract from the effective date of the alternation. Thus, the
company still need to pay the arrears b4 the alternation

Directors: Duties

A company consists of 2 organs, namely the board of directors n the members at the
general meeting. Their duties r prescribed in the companys articles
The directors r agents of the company n thus owe a fiduciary duty towards the company, it
is also stated in the Companies Act
A director is a person who is appointed as a director following the procedure laid down in
the companys articles. Further, s4(1) also defines director as:
(i)
A de facto director: a person occupies the position of director even though he was
not appointed or his appointment was defective
(ii)
A shadow director: a person in accordance with whose directions or instructions the
directors of a corporation r accustomed to act
(iii)
An alternate/ substitute director: a person nominated by another director to attend
meetings or perform duties on his behalf
In Mistmorn Pty Ltd (in liq) v Yassen, the court held that whether a person is a director
or not, does not depend on the title ascribed to him. It is a question in every case of what
his powers, duties n functions r in relation to a particular company

Directors Duties

S131B: to power to manage the companys business is usually vested in the board of
directors
In Great Eastern Ry v Turner, it was said that directors r the mere trustees or agents of
the company, trustees of the companys money n property, agents in the transactions
which they enter into on behalf of the company
Thus, they owe a fiduciary duties to company. They r to act honestly, in good faith for the
benefit of the company. They r not to abuse their power or position. They should also avoid
any conflict or interest. These r codified in s132(1) n (1A)
S132(6) extends these duties to other officers beside of directors. They r persons who r
appointed as directors as employees of the majority shareholders. They r known as
nominee directors. S132(1E) provides that a nominee director has to act in the best
interest of the company which prevails over that to the person who nominated him

S132(1)
Good faith

Proper
purpose

He must consider the interests of the company n no one else, including

his personal interest
In Re W & M Roith Ltd, a director who owned a substantial portion of
shares in the company was terminally ill. The court held that the
contract to provide a pension for the directors wife was void because
the board of directors did not act in the best interest of the company
S132(2) gives some illustrations that a director or officer shall not
without the consent or ratification of general meeting, to do the
illustrated act, to gain a benefit for himself or any other person, or
cause detriment to the company
Thus, the scope of s132(2) is wide, as it covers a wide range of the
wrongdoer n wrongdoing
In Regal Hastings Ltd, the company had the subsidiary company
which intended to purchase 2 cinemas. The holding company had no
money to increase the paid-up capital which was required by the seller.
The directors of the holding company took up the balance. After that,
the shares were sold at a profit. The court held that a director is
accountable for the profit if the information came to him in his capacity
as director

Thus, it is immaterial that the company is no able to use the

information, or the director is in good faith n good intention
In IDC v Cooley, Cooley was the director of IDC. IDC tendered one
project but did not get it. Subsequently, the project was offered to
Cooley. Thus, he resigned from IDC n accepted the offer. The court held
that Cooley had put himself in a position where his duty to the company
conflicted with his own interest. Thus, he was accountable to IDC for
the profit as he breached his duty
To avoid the breach of duty, a director should obtain the prior consent
of the members at a general meeting b4 acting on the information
according to s132(2). If he ady acted on the information, he should
obtain the members ratification at a general meeting
If he fails to obtain the approval, he will be liable if he make use of the
corporate assests according to s132(3). It is immaterial that he resigns
from his position prior to using the corporate assests

S132(1A)

In Re City Equitable Fire Insurance Co and Re Brazilian Rubber Plantation &

Estate Ltd, the courts held that the directors did not need to have any skill or
qualification suitable for his office, thus he did not have to exhibit in the performance of
his duties a greater degree of skill might reasonably be expected from a person of his
knowledge n experience
Case law in Malaysia has yet to revise the standard in Re City Equitable Fire Insurance.
Other jurisdictions have revised it, the Australian COA case of Daniels v AWA Ltd
In the case of Daniels v AWA, A director must acquire a basic understanding of the
business of the company and must be familiar with the fundamentals of the companys
business;
Directors are under a continuing obligation to keep informed about the activities of the
company.
Detailed inspection of day to day activities is not required but what is required is a general
monitoring of the companys business affairs. Accordingly, a director should attend board
meetings regularly.
While directors are not required to audit the companys books they should maintain
familiarity with the financial status of the company by a regular review of financial
statements.
In Norman v Theodore, the court held that an executive director was to exercise the
knowledge, skill n experience which he actually had n which a person carrying his function
should be expected to have
S132(1A) codifies the principles in Norman, n applicable to all directors irrespective he is
an employee or not an employee of the company
Thus, it requires a director to have knowledge, skill n experience which: (i) he actually has;
(ii) a person carrying his function should be expected to have

Business judgment

S132(1B): in making a business judgment, if a director has met the requirement of duty
under s132(1A), then he cannot be sued for breach of his duty
S132(1B) also defines that if the director make the decision: (i) in good faith for a proper
purpose; (ii) does not have material personal interest; (iii) based on information given
which is reasonably believes to be appropriate; (iv) reasonably believes the decision is in
the best interest of the company. Then he is deemed to make a business judgment

Delegation

S132(1F) allows the board of directors to delegate any power of the board to unless
such delegation is prohibited by: (i) Companies Act; (ii) memorandum or articles; (iii)
members resolution
Directors are entitled, subject to the AOA , to delegate particular functions to those below
them in the management chain, and to trust..
their competence and integrity to a reasonable extent. However the exercise of the power
of delegation does not absolve a director from the duty to supervise the discharge of the
delegated function
Whether or not the duty above has been discharged depends on the facts of each case,
including the directors role in the management of the company

Duty to avoid conflict of interests

Contract
involving
Directors

Secret
Profits

Competiti
on with

own
company/
rival
company

In Arbedeen Ry v Blaikie, the court defined the classic meaning this

duty encompasses. It held that the company can avoid the contract even
though the terms are fair. The test is whether a reasonable man looking at
the facts would think that there was a real sensible possibility of conflict
S131 reduces the effect of Aberdeens case by the Director making a
declaration. The details of making the declaration are highlighted in s
131(4).
The director is abstaining from voting in certain circumstances in s131A
(prohibition from voting, does not apply to a private company), if
contravened the contract is voidable except bona fide parties giving
valuable consideration and having no actual notice of contravention.
S 132(2) also reduces the effect of Arbedeens case:
The director shall not without the consent or ratification of a General
Meeting..(a)-(e)
Without the consent of the General Meeting, the circular resolution is void.
It was held in Cook v Deeks that the director being in a fiduciary position
is accountable to the company for any secret profit which he has made by
reason of that position.
In Regal Hastings v Gulliver, even the company did not have the
financial resources to pursue the investment, the directors might still
refrain from exerting their best efforts on behalf of the companySimilarly in IDC v Cooley, C resigned as director to take up the offer. The
court said that it was clear that the companys opportunity or information
came to him in a capacity as a director. Thus he was clearly liable for the
profit made.
In PJTV Denson v Roxy, the company could not complete the purchase
of the land because of lack of funds, and as such, the land was purchased
by 2 of the Companys directors. The court held that the land belonged to
the company.
S 132(2) very clear that the General Meeting must consent or ratify
whether the director can make profits based on the information
Depends on whether he is an executive or non-executive director.
An executive director is a salaried employee so an employee cannot
compete with his employer.
London v Marsholand: a non executive director can compete with the
company, a non-executive director can also be a director in a rival
company

Corporate Transactions

A company is a separate legal entity from its shareholders/directors ; however being an

artificial entity it has to act through humans

Pre-incorporation Contract

Pre-incorporation contract is entered into b4 the company is incorporated. It may be

necessary to enable the promoter to get the company ready for operation after its
operation
At common law, it does not bind on the company. This is different with Malaysias position
S35(1) n (2): any contract or transaction entered prior to its formation by any person on
behalf of a company may be ratified by the company after its formation n thereupon the
company shall be bound by the contract as if at the date of the contract. The person acts
on behalf of the company shall be personally bound by the contract
S35(1) provides that the contract need not to be entered by the promoter only
S150 of Contracts Act: ratification may be expressed or may be implied in the conduct of
the person on whose behalf the acts r done
Express ratification could be by passing a resolution by the directors or the company itself
For implied ratification, the example case is Chung Yoke Onn v CS Khin Development
Sdn Bhd, although neither board nor the members passed a resolution to adopt the
drawing agreement which was agreed in pre-incorporation stage, the company used the
plan to build a buildings. The court held that it was implied ratification

After
ratification

Before
ratification

S35(1): if the company ratifies the pre-incorporation contract after

it is incorporated, the company is bound
The ratification is backdated to the date when the contract is
entered into
S35(2): until the company ratifies, the person purportedly acted on
behalf of the company shall be personally bound
If the person does not want to personably bound, he should have
expressly excluded his liability; or cause the company to ratify the
contract

Contracting by Companies

S35(4): the contract can be made:

(a) In writing under the common seal of company

(b) In writing by any person acting under the expressed or implied authority of the
company
(c) Orally by any person acting under the expressed or implied authority of the company

Company can contract in 2 ways:

(a) Directly by the company affixing the seal/without the seal
(b) Indirectly, Agent-authorised by the company

Common Seal

Under common law, only common seal is recognized for a company to enter into a
contract
Under the Companies Act, affixation of the common seal on the document is only one of
the ways
A resolution by BOD that the company will enter a particular transaction
A resolution authorising the affixing of the common seal , attested by authorised officers.
( see A 96 Table A)
See s121, name and (former name-12 months ss(1A) shall appear on seal ; if not ss(2)
officer/person is personally liable unless company pays.

Agent
Actual
authority

It is the authority that is conferred by the principal on the agent

It can be expressed or implied (s139)
Expressed actual authority
It is the authority given to the agent by agreement orally or in writing
For example, the person appointed as managing director will be
stated in resolution. He is acted as an agent of the company, n if he
acts within the scope of his expressed actual authority, the company
is bound
Implied actual authority
No all agreements would have listed all the terms of appointment n
the powers of the agent
There r some powers which can be implied from: the customary n
usual scope of that position; the conduct of parties n the
circumstances of the case
The general rule is what a person appointed to that position would
usually be authorized to do
The company would also be bound by an act of the agent if such act
could be implied from the previous conduct of the parties
In Hely-Hutchinson v Brayhead Ltd & Anor, Richard decided on
the financial matters. It was the norm that he negotiated n signed
contracts on behalf of the company. He gave guarantee to P, then P
brought the case to the court. The court held that Richard had actual
authority to give the guarantee to P, as such authority could be
implied from the previous conduct of the board n also from the
circumstances of the case
If company has limited the agents actual authority, it is still bound
unless the 3rd party knows that the agent is acting in excess of his
actual authority
In Watteau v Fenwick, D appointed a manager n expressly
prohibited him from buying cigars on credit. The manager disregarded
the prohibition n bought cigars on credit from P. The court held that D

Apparent or
ostensible
authority

was liable as the manager usually have such authority. D should have
made known the prohibition to P
There r also cases where a person has not been appointed as an
agent but held himself out as an agent. Whether his acts binds the
person on whose behalf he acted?
Freeman & Lockyear v Buckhurst Park Properties Ltd, 4
conditions need to be fulfilled:
a. There was representation that the agent had the authority to
enter the contract
b. The representation was made by person who has actual quthority
c. The outsider relied on the representation n enter the contract
d. The company was not prohibited to enter the contract or delegate
the authority to that person
Thus, the agents must have representation from the person who had
actual authority, n has the support by the action of the principal
Chew Hock San v Connaught Housing Development Sdn Bhd
F: D was a housing developer. P gave deposit to Ds secretary
although the project was not launch
H: D did not represent to P that the clerk was authorized, thus D was
not bound by the clerks act
Now, the four conditions are codified in s20(1)
In the 4th condition, if the delegation of authority is contrary to the
memorandum or articles, then doctrine of constructive notice applies,
n the agent act cannot bind the principal

Doctrine of Constructive Notice

As companys memorandum n articles r lodged with the ROC, they r made available for
inspection by public
3rd party dealing with the company r deemed to have read n understood the contents of
the companys memorandum n articles, following the doctrine of constructive notice
3rd party r deemed to know of any restriction to the capacity n powers of the company, its
agents, directors n members
If a person enters into an agreement on behalf of company which is contrary to the
companys constitution, the company is not bound; unless the contract is beyond the
companys object s clause according to s20(1), then the company is still bound

The Rule in Turquands Case

Royal British Bank v Turquand
F: the companys articles provided that the directors could borrow up to an amount
approved by the members at the general meeting. The member did pass a resolution to
authorize the directors to borrow, but the max amount had not been stated. The directors
borrowed from the bank, n the company failed to pay up. The company claimed that the
directors exceeded their authority
H: the company was liable becos the bank could assume that the resolution included the
max borrowings n the directors did not exceed it
The principle laid down: if an agent has apparent authority to do an act n in the absence of
suspicious circumstances, the 3rd party is entitled to assume that all matters of internal
management n procedure prescribed in the articles have been complied with
There is no need for the outsider to make any enquiry regarding the internal procedures of
the company unless there r suspicious circumstances
This protects the outsider, as the company is barred from stating that the agent does not
have the authority due to failure to comply with some internal procedure

Exceptions to the Rule in Turquands Case:

1. Conflict with public documents cannot claim that the person has apparent authority if
it is contrary to public documents
2. Insider an insider of the company cannot rely on this rule
3. Put on enquiry if a reasonable man put on enquiry, he cannot assume that all internal
procedures of company have been complied with
4. Fraud a company is not bound by a forged document
5. S127 the acts of a director/ manager/ secretary shall be valid notwithstanding any
defect that may afterwards be discovered in his appointment or qualification

Outsider: If the contract is defective can he still enforce it?

The doctrine of constructive notice- an outsider dealing with the company is deemed to
have constructive notice of its public documents lodged with the Registrar; whether you
actually read it or not.
Outsiders can be saved by the common law principles just discussed on contracts by
agents or purported agents that do not have express authority or limited express authority
by stating the law on:
1. Implied actual authority
2. Apparent/ ostensible authority
Next, the Turquand Rule / Indoor Management Rule also mitigates the harsh effect of the
constructive notice doctrine.

Loan Capital

A company needs funding, n usually from two sources: issuing shares n borrowings

Issuing shares (shareholders)

Members of the company
Receive dividends for their shares
Dividends are paid subject to profit n cannot
be derived from the capital
Generally issued at its nominal value

Borrowings (debenture holders)

Creditors of the company
Receive interest on their loans
Are entitled to receive interest, irrespective
whether the company is profitable or paid out
of capital
Can easily be issued at a discount

As security for the loan, the lender will usually require the company to create charges over
its assets in favour of the lender, n the charge can be fixed or floating

Power to Borrow

Every company has the power to borrow according to s19(1)(c), unless it does not have
the word Berhad as part of its name; or the said power has been excluded by the
companys constitution
A trading company has implied power to borrow for the purpose of its business
It is important to determine:
i.
Whether the company has the power to borrow. If the borrowing is outside objects
clause, it is still enforceable, s20(1)

ii.

Whether the power to borrow is vested in the directors or members

Debentures

S4(1): debenture includes stocks, bonds, notes n any other securities of a corporation
whether constituting a charge on the assets of the corporation or not
According to Bensa Sdn Bhd v Malayan Banking Berhad, debenture includes any
obligation, covenant or acknowledgement of debt. Thus including a loan agreement
The rights of dentures holders include:
(a) Restrain Ultra Vires transaction of the company
(b) Object to the alternation of object clause
(c) Against oppression
(d) Sue for repayment of the loan
(e) Take possession of assets charged
(f) Appoint receiver and/ or manager

Company Charges

A trading company has implied power to borrow n charge its assets as securities
The lender has resource to sell the assets to settle the loan, if the company fails to repay
the loan
S4(1): charge includes a mortgage n any agreement to give or execute a charge or
mortgage whether upon demand or otherwise. It may be legal or equitable
The charges created by a company may be classified as a fixed charge n a floating charge

Fixed Charge

It is a charge which attaches to specific assets owned by the company

As the fixed charge is attached to the assets, the company cannot deal with the assets
unless with the prior consent of the lender. If without prior consent, the lender still can
trace the assets, n exercise its powers
It will be cumbersome to create a fixed charge over the current assets of the company. Eg,
stock in trade. Thus, the current assets r charged to the lender by way of a floating charge

Floating Charge

It is a charge usually over a class of assets present n future

The assets may change from time to time in the ordinary course of business
Until the charge crystallises, the company can deal with the assets in the ordinary course
of its business
On occurrence of certain events, the charge will attach n become fixed
Eg, a company created a floating charge above its stock in favour of a bank. At the time
the floating charge was created, it had 30 cars in its stock. Today, there r 50 cars in its
stock. The charge floats over all the assets in that class, n it now floats over all the 50 cars
Disadvantages of a floating charge:
a. Risk of dissipation
b. Subsequent fixed charge
c. Execution proceedings
d. Distress proceedings
e. Distribution of proceeds
Advantages of a floating charge:
a. May apply to court to restrain the performance of an ultra vires transaction by the
company
b. It is not feasible for certain types of assets to be subjected to a fixed charge
c. Allows the company to deal with the charged assets in its ordinary course of business
d. Lender may require clauses, such as automatic crystallization clause n negative pledge
clause to be incorporated

Crystallization of floating charge

Re Woodroffes Ltd in the event the company ceases to carry on business, the floating
charge crystallises
UMBC v Official Receiver and Liquidator of Soon Hup Seng Sdn Bhd the floating
charge also crystallises if the company is wound-up n when a receiver/ manager is
appointed
Most lenders will negotiate for the crystallization of the floating service upon service of
notice on the company when certain specified events has happened:
(i)
default in the repayment of the loan
(ii)
breach of covenants on the charge document
(iii)
the value of assets declined to a certain amount
(iv)
other creditors have instituted proceedings against the company
The floating charge only crystallises upon notice from the lender to the company. Thus, the
company still has the freedom to deal with the assets pending the notice
Some lenders have included an automatic crystallization clause, as if the specified event
has occurred, then the floating charge crystallises immediately without the neeed of notice
The problem arises: when the clause triggers without the knowledge of both company n
lender, the issue of competing priorities between the lender n the 3 rd party will arise as the
company continues to deal with the charged assets

Negative pledge clause

The lender may require the company to give an undertaking not to create any further
charges over the assets in favour of another lender, unless the company has obtained the
prior consent of the lender
It is binding on the company. The lender may enforce the charge if there is the breach of
the pledge
It is a contractual promise not a form of security, but entitles the chargee to immediately
recall the loan upon breach of the clause

Fixed Charge or Floating Charge

Due to the advantage enjoyed by fixed charge, some lenders may name the charge given
as a fixed charge even though it has all the characteristics of a floating charge
Re Brightlife
F: the company purportedly created a fixed charge over its book debts in favour of the
lender. It still continued to have the freedom to deal with the proceeds
H: it was a floating charge. The name given to the charge is not conclusive. The court will
determine n construe the charge to see whether it is a fixed/ floating charge
National Westminster Bank: it is important that the lender had control over the book
debts proceeds
Thus, it is important for a lender taking a fixed charge over the companys current assets
to have control over the movement of charged assets. If not, it would render the charge to
be a floating charge notwithstanding the name given

Priority of Charges

If there r same assets subjected to different charges in favour of different lenders, n the
proceeds r insufficient, then the lenders need to compete priority to get back the money

Fixed charge v
Fixed charge
Floating charge v
Floating charge
Fixed charge v

The 1st charge in time of creation will have priority

The 1st charge in time of creation will have priority
The fixed charge which is also the 1st in time or creation will have

Floating charge
Floating charge v
Fixed charge

priority
The fixed charge even though it is 2nd in time, will have priority
This is due to the nature of the floating charge, which enables ordinary
course of business of the assets, n including the right to charge the
assets as securities
If there is a negative pledge clause in the floating charge document,
the outcome may be different, as it is an undertaking by the company
which enables the lender of floating charge to recall the loan in the
event of breaching
UMBC v Aluminex Sdn Bhd: the floating charge will have priority if:
(i) it contains a negative pledge clause; (ii) the holder of the fixed
charge has actual notice of the negative pledge clause

Registration of Charge

S108: requires details of charges created by a company to be registered with ROC, to

protect the companys creditors n person dealing with the company
S108(1): the particulars of a charge must be registered with the ROC within 30 days of
creation
If the charge is required to be registered with another authority for it to be effective, then
the timeframe will take effect from the date of the registration with the said authority
S114: the company or any person interested may apply to court for extension of time or
rectification of the details, however no one should be prejudiced by the extension of time
Upon the registration of the details of the charge with the ROC, the ROC will issue
Certificate of Registration in Form 40
S111(2): the Certificate of Registration shall be conclusive evidence that the requirements
as to registration have been complied with (MIMB v Chocolate and Confectionary Sdn
Bhd)
So even if the particulars given were out of time, and the certificate issued, it cannot be
challenged
However the certificate cannot make an invalid charge to be valid. It only relates to lack of
registration or non- compliance to statutory requirements for registration

Members Statutory Remedy

A company consists of 2 organs: board of directors n the members at the general meeting
The board of directors is given power to manage the companys business pursuant to the
articles n s131B
Sometimes, the directors vision n conduct r not aligned with the wishes of the members,
n the members r not in control of company, they r not allowed to effect any of the changes
So long as the wrongdoers r in control, no action will be taken against them as the virtue
of the doctrine of separate legal entity n doctrine of privity

The Proper Plaintiff Rule

If a wrong has been committed against the company, only the company can take legal
action against the wrongdoers
A derivative action is a company bringing an action on behalf of the company, for a breach
of duty owed to the company
It is opposed to a members statutory right or a personal right where his personal right is
infringed.
2 reasons of the rule:
a) To avoid multiplicity of suits
b) The company is in a better position to decide

This rule is derived in Foss v Harbottle

F: 2 shareholders brought an action against the companys directors and other personsalleged directors misapplied companys property and caused certain transactions to be
entered improperly.
H: Court: The conduct of the defendants was not an injury to the pffs exclusively, it was an
injury to the company as a whole. The company and the members are not the same,
therefore the action cannot be maintained by members.

This rule is a disadvantage especially when the BOD are controlled by irresponsible
persons, as the wrongdoer will not proceed with the action against himself

Exceptions to the PP Rule: Fraud on the minority

General principle: holders of powers should not abuse their power, n this is codified in
s132 which a director should exercise his powers for a proper purpose
The court relax the rule in Foss v Harbottle n allow action to be taken by a member on
behalf of the company against the wrongdoer who r in control of the company
Allen v Gold Reefs of West Africa: the majority must exercise their voting powers bona
fide for the benefit of the company as a whole
Two elements need to be proven:
(i)
Fraud

Abdul Rahin b Aki v Krubong Industrial Park (Melaka) Sdn Bhd.-Gopal Sri Ram JCA
laid down these propositions:
a. The expression is a term of art and has nothing to do with actual fraud or deception at
common law
b. It is not necessary to prove dishonesty before the minority may claim relief under this
doctrine
c. It is sufficient for P to prove that the wrongdoers abused their powers n they r still in
control of the company

The P in the action must show that the majority had abused the powers vested in them ,
they have used the powers for another purpose and not the true purpose for which power
is entrusted to them by the MOA, statutes or general law

For example: expropriation of corporate property, self-serving negligence, expropriation of

minoritys property

(ii)

Wrongdoers in control:

The wrong doer who is in control of the company has obtained benefit at the companys
expense

The wrongdoer has or will exercise his majority votes so as to prevent the company from
suing the wrongdoer.

Tan Guan Eng v Ng Kweng Hee: the control can be determined from the shareholding

Ting Chong Maa v Chor Sek Choon: the court went behind the apparent ownership of
the shares in order to determine whether the wrongdoers do in fact control the company.
In this case, although P n D had equal shares, D was the managing director, thus he was in
control

OPPRESSION

Applicable to all types of companies.but research has shown that generally used by
members in small private companies-issues of management & termination as an officer;
restriction on the sale of their shares unlike a public company

S181: Statutory Remedies available to members: the oppression remedy

S218(1)(f ) and S218(1)(i)- winding up the company because it is just and equitable to do
so or because the directors of the company are acting in their own interest.

Soh Jiun Jen V Advance Colour Laboratory Sdn Bhd: Ps benefits as a Director was
removed, and he alleged oppression, s181. It was held that oppression is only applicable if
his rights as a member is infringed, not his privileges as a Director.

S181(1)(a): allows the court to provide remedy to a member where: the affairs of the
company are being conducted; or the powers of the directors are being exercised; either
(i) in an oppressive manner to one of the members including the petitioner; or (ii) in
disregard of the member or other members interests
S181(1)(b): allows the court to provide remedy to a member where: an actual or proposed
act by or on behalf of the company; or a resolution, or a proposed resolution, of members ,
debenture holders or a class of members of the company; is either (i) unfairly
discriminatory to a member or members, shareholders or debenture holders including the
petitioner; or (ii) prejudicial to , a member or members, shareholders or debenture holders
including the petitioner
4 main elements emerge from s181(1): (a) oppression; (b) disregard of interests; (c) unfair
discrimination; (d) prejudice

Origins of s181
Re Kong Thai Sawmill: to strengthen the position of minority shareholders in limited
companies
Owen Sim Liang Khui v Piasau Jaya Sdn Bhd: the powers of our Malaysian statute to
grant relief to shareholders are wider than in UK, Australia, New Zealand and even
Canada. The decisions of the courts of these countries upon pieces of such legislation,
though often helpful, especially in the absence of local authority, must be applied with
caution
4 main elements:
(a) (b) Oppression & Disregard

Oppression: burdensome , harsh and wrongful : Diversion of business opportunity

SCWS v Meyer (HOL) parent controlling subsidiary, nominee directors of subsidiary ,

also directors in parent company acting in manner detrimental to minority shareholders in
subsidiary company. They destroyed the subsidiary company producing rayon. SCWS was
ordered to purchase the shares of the 2 members at a price decide by the court.

Recall : s 132(1E)-nominee directors duty

Lack of probity or fair dealing

Re Harmer Ltd: company formed to conduct the long established philatelic business of
Mr Harmer , then aged 77 years. Shares owned by senior Mr Harmer his wife and their 2
sons and their wives. Senior Mr Harmer owned 78.6 % of voting shares ( 10 % of the share
capital)when petition was heard, Mr Harmer, 88 years , very deaf, difficulty
comprehending words put to him during hearing-often acted against Boards wishes to the

detriment of the company and acted foolishly, because of his advancing age. The court
ruled that Mr Hamer is lack of probity or fair dealing

Re Kong Thai Saw Mill: there must be a visible departure from the standards of fair
dealing and a violation of the conditions of fair play which a shareholder is entitled to
expect before a case of oppression can be made. Disregard means something more than
a failure to take into account of the minoritys interest: there must be awareness of that
interest and an evident decision to override it or brush it aside or to set at naught the
proper company procedure.

Failure of Directors to act in the interests of the Company.(connect with breach of

directors fiduciary duty)

Ng Chee Keong v Ng Teong Kiat Highlands Plantation Ltd: The companys assets
consisted of a tea plantation-the directors neglected the plantation & as a result the state
government indicated that the property will be forfeited. The court held that there was
oppression because the directors had conducted the affairs of the company in disregard of
members interest.

Unfairly restricting dividends

The companys decision not to declare dividends in itself is not oppressive unless it is
accompanied by acts done by the directors for improper purpose or not in the best interest
of the company.

Re Coliseum Stand Car Service Ltd: the Director managed the business himself and
did not consult the shareholders or the other directors in the company. There was no
declaration of dividends even though the company had profits. He authorised loans by the
company to himself and his son. The court held that there was Oppression and disregard
of members interest.
(c) Unfair Discrimination or Prejudice

unfairly Discriminate: to make or constitute a difference in or between ; to

differentiate.

Prejudicial: causing prejudice detrimental, damaging (to rights, interest etc) or to cause
detriment to some rights or interests)

The word unfair is missing before the word prejudicial; in the English Act requires it to
be unfairly prejudicial.

J Norma Yaakob in Jaya Medical Consultants Sdn Bhd v Island & Peninsular Bhd &
Ors- the essence of the wrong done to the member is unfairness of discrimination or
prejudice..mere discrimination or prejudice is not sufficient.

In the same case, J Norma Yaakob examined the test to be used for unfairness, it is an
objective test..

The court must determine whether reasonable directors possessing any special skill,
knowledge or acumen possessed by the directors and having in mind the importance of
furthering the corporate object on one hand and the disadvantage, disability or burden
which their decision will impose on a member on the other, would have decided that it
was unfair to make that decision.

In the eyes of the commercial bystander test-is this what reasonable directors would
do?????

Unfairly Prejudicial Conduct

Mismanagement of the Company managerial decisions;

TB- p745- The court will normally be reluctant to accept that managerial decisions can
amount to unfairly prejudicial conduct. However more recent cases, have demonstrated
that in cases where what is shown is mismanagement, rather than disagreement in
managerial decisions, and the mismanagement is sufficiently serious, it may constitute
conduct which is unfairly prejudicial to the interest of the members for the purposes of s
181.Reason: when members acquire shares, its value to some extent depends on
competent management. See also S132(1B)- business judgment

However disagreeing with policy of management is not a sufficient ground-see cases in

course outline.

A strict interpretation of S 181(1)(a) would mean that the petitioner must prove that the
conduct complained of exists and continuing when the petition was filed usually easier
when it is a continuing state of affairs. This does not mean that past conduct cannot be
relied on for oppression.

On the other hand, the wording of S 181(b) deals with future or threatened conduct that
may amount to acts which unfairly discriminate or unfairly prejudice members

S 181 should not be grammatically interpreted literally. What is important is that the effect
of the conduct persists at the date of presentation (Kong Thai Sawmill)

Kong Thai Sawmill: The company was a family business where the elder brothers were
the majority shareholders, and directors. It was alleged they abused their powers as
directors when they withdrew company funds for private purposes. It was also alleged that
there was oppression because they gave donations to political parties and advanced
company funds for investment purposes. However all the transactions were duly
authorised by board meetings and the sum taken from the company funds were treated as
loan and was repaid. There was no oppression.

Once a case has been made out under either paragraph (a) or (b) of subsection (1) of
section 181, the High Court may grand appropriate relief as mentioned in section 181 (2).

The High Court may make such orders as it thinks fit:

a) Direct of prohibit any act/cancel/vary any transaction or resolution;
b) Regulate the conduct of the affairs of the company in future;
c) Provide for the purchase of the shares or debentures of the company by other
members of holders of debentures of the company or by the company itself;
d) In the case of a purchase of shares by the company provide for a reduction accordingly
of the companys capital;
e) Provide for the company be wound up.

Voluntary Winding-Up

A member can apply to have the company compulsorily wound up where:

It is just and equitable to do so , S218(1)(i)

The directors are acting in their own interest rather than in the companys interests or are
acting in a way that is unfair or unjust to members, S 218(1)(f)

Since the facts for an application under S 181 and S218 sometimes overlap, there have
been some instances where the petitioner brought 2 action simultaneously.

Oon Ah Baa, Dato @Boon Pak Leong v Eagle & Pagoda Brand Teck Aun Medical
Factory Sdn Bhd - The application to wind up the company on allegation of oppression.

Cannot roll up both the actions. (Lai Kim Lois case)

Hendrick International Hotels and Resorts Pte Ltd v YTL Hotels & Properties Sdn Bhd

However if a winding up order has been made under S218, an application under s 181
cannot be

Joint venture between H and YTL. Hedrick wanted YTL to purchase shares in this company,
the petition for oppression presented before winding up petition. Trial judge made an error
thinking oppression was filed after winding up and struck off oppression
petition.company in liquidation. Hedrick appealed to COA.

COA: Oppression order cannot be heard when a winding up order is already made.

Both the sections-does the petitioner have clean hands, based on the concept of fairness
and justice.

S 218 (i)-just and equitable

Deadlock-dispute unlikely to be resolved (small company)

Fraud or misconduct-Loch v John Blackwood [1924] AC 783- the minority members were
not given financial reports because those in control wanted to buy their shares below
market value.

Failure of substratum- Re Tivoli (corporate raiding instead of entertainment business)

Breakdown in mutual trust-lack of confidence in management of companys affairs,

members denied to take part in companys management- Ebrahimis case, Indrani
Rajaratnam v Fairview Schools, COA decision (did not involve an Ebrahimi type of
relationship, there was no restriction on the right to transfer shares in the MOA , no
evidence that the new board obtained any personal or secret profit)

Tahansans case- Chairman of BOD removed, there was a legitimate expectation that all
directors be involved in the management of the company.