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DEFINITION: Section 4 of CA - a share is share capital of a company and includes stock except where
distinction between stock and shares is expressed or implied.
Section 98 of CA this section sets out the legal nature of shares. Shares are movable property,
transferable in the manner provided by the articles and shall not be of the nature of immovable
property.
However, a better definition of shares is in the case of Borlands Trustees v Steel Bros & Co. Ltd - the
court stated that shares represent the interest of shareholders in the company measured by a sum of
money for the purpose of liability in the first place, but also consisting of a series of mutual covenants
entered into by all the shareholders inter se.
CLASSES OF SHARES
Companies may issue different types of shares with different rights attaching to it.
Section 18(1)(c) states that the companys MOA must state the amount of share capital with which the
company proposes to register and the classes of shares which the share capital will be divided into.
A company may issue three types of shares:
Ordinary shares.
Preference shares.
Founders shares
Ordinary shares.
Ordinary shares or sometimes referred to as equity shares are shares which are not given any
special rights, it carries all the rights of the ordinary member, namely:
Unlimited voting rights in GM, which give the power to influence the policies of the company.
Entitlement to any surplus assets of the company in winding up
Right of return of capital of winding up
Not entitled to a fixed rate of dividend
In a financial year, rights to dividend come after the preference shareholder.
If the company has a poor financial year, the ordinary shareholder will receive very little or nothing.
Preference shares.
Definition in Section 4 of CA; a share by whatever name called, which does not entitled the holder
thereof to the right to vote at a GM or to any right to participate beyond a specified amount in any
distribution whether by way of dividend, or on redemption, in a winding up, or otherwise.
Section 66 of CA if the company issues preference shares, the rights attaching to the shares must
be mentioned in either MOA or AOA.
The rights of preference shares are;
Right to fixed dividend (must be stated on MOA or AOA)
Right to return of capital upon winding up in priority.
Not entitled to any surplus assets of the company in the event of winding up.
No right to vote at GM.
A persons complete legal title to shares in a company cannot be acquired without registration.
The provisions for transfer of shares are contained in Section 103 107 of CA.
Section 103(1) provides that a company shall not register a transfer of shares unless proper
instrument of transfer in a prescribed form has been delivered to the company. This provision is
mandatory.
When the necessary papers for transfer were in order, the shares must be registered.
For public listed companies there is no share certificate where they operate through a script less
system and the shares ownership may be checked at the Central Depositary System.
Instrument of transfer can be found in Form 32A it, requires that it be signed by both transferor
and transferee in the presence of a witness. It also provides that the consideration for the transfer
to be stated.
In the case where the shares are jointly held by 2 or more persons, for an instrument of transfer
to be effective, it must be signed by all of the joint holders. If the signature of one or more joint
holders is forged, the transfer is void.
FORGED TRANSFER.
Definition: A forged transfer is a total nullity and the true owners name must be restored back to the
register of members.
The innocent purchaser who is without knowledge, in good faith and has provided valuable consideration
cannot acquire better title than the defective title of person who commits forgery.
This is mention in Section 27 of SOGA where it upholds the common law principle of nemo data rule.
Re Bahia v San Francisco Rail Company; the court held that
i. The true owners name must be restored back to the register of member. Forged transfer is a
total nullity.
ii. Innocent purchasers name should be removed from the register.
iii. The company is liable to pay damages because it was stopped from denying that the person
who forged the signature is the true owner.
iv. The company must demand indemnity from the immediate purchaser.
v. Immediate purchaser then may sue the forger of the owners signature.
Prohibit a company from giving financial assistance for the purchased of its own share.
Section 67(1).
- The company is prohibited from giving financial assistance o any person directly or indirectly for
the acquisition of its own shares/shares in its holding company except as is otherwise expressly
provided.
- The reason is to ensure that the rights of creditors who ultimately look to be the issued capital of
the company, are not prejudiced.
Wallesteirner v Moir
The main test used to ascertain if s67(1) has been breached is by looking at the companys money and
looking at the companys shares and who owns it. If the companys money has been used to finance the
purchase, it has breached s67(1).
Cheah Theam Swee v OU Bank
To breach s 67 the financial assistance must come from the company, not the shareholders.
Selangor United Rubber Estate v Craddock C wished to acquire the company, SURE. He made a
merchant bank to bid the shares for him which was accepted 79% of the companys stockholders. C, using
his puppet in SURE, makes the company lend money to a company called Woodstock. Woodlock then lend
the money to him. He paid to the bank to cover the cost of the bid. The net result was that the companys
money was lent to C through Woodstock in order to enable him to acquire share of the company. The
court held that the company was giving financial assistance to acquire the share.
(b) The release of a debt or obligation; if the effect of the release is to reduce the price payable for the
shares.
- Eh Dey Property Ltd v Dey Dey was a shareholder in a company together with 3 other directors. Mr.
Paul and his wife wished to purchase his shares and those of the other shareholders. An agreement was
made whereby it was deemed that Dey had repay the money that he owned to the company and the price
of his shares was reduced, so that Paul obtained Deys shares at a lower price than that payable for the
shares of the other shareholder. The court held that this amounted to giving financial assistance to Paul
to enable them to acquire the companys shares.
(c) Where a company purchased property from a person to enable him to purchase the companys
shares, even at fair price, was held to be a financial assistance.
- Belmont Finance Corporation Ltd v William Furniture Ltd B was a subsidiary of City Industrial Finance
Ltd. Grosscurth wished to acquire B. to do so he sold to B the entire shareholding of a company called
Maximum which he controlled. Using this money, G bought the shares of B from M. The net result was
that at the end of the series of transactions, G owned B which in term owned M, C, B and Bs entire fund.
Court of Appeal held that there was illegal financial assistance given to G I order to enable him to acquire
the share of B. the sale of M to B was not bona fide commercial transaction but a device to enable G to
use Bs own fund to acquire Bs share.
OTHER CASE ON PROHIBITION IN GIVING FINANCIAL ASSISTANCE
Armour Hicks Northern Ltd V Armour Trust Ltd
Two directors of P were also directors of its subsidiary company. The holding company owed one of its
shareholder. The directors of P managed to get the subsidiary company to pay debts of its holding
company and the shareholder then transferred shares in the holding company to the directors.
Held: without the directors arranging for the settlement of the debt to the shareholder, the shareholder
would not transferred the shares to the directors. This was financial assistance by a subsidiary for the
purpose of acquisition of shares in its holding company.
Section 181(2)(c).
A company by the court order, provide for the purchase of the shares or debentures of the company by
other members or holders of debentures of the company or the company itself.
Section 67A.
Allows a public company with a share capital to purchase its own shares if it is so authorized by its articles.
The purchase can only be made with the following conditions under Section 67A(2):
(a) The company is solvent at the time of the date of the purchase and will not become insolvent by
incurring the debts involved in the obligation to pay for the shares so purchased.
(b) The purchase is made through the Stock Exchange on which the shares of the company are quoted
and in accordance with the relevant rules of the Stock Exchange.
(c) The purchase is made in good faith and in the interest of the company.
Section 67A(3) the company may apply its share premium account to provide the consideration for the
purchase of its own shares.
Section 67A(3A) when the company had purchased its shares, the directors may:
(a) To cancel the shares.
(b) To retain the shares so purchased in treasury.
(c) To return part of the shares as treasury shares and cancel the remainder.
Section 61 - Redeemable preference shares.
The company may issue redeemable preference share upon terms that they may be redeemed at the
option of the company provided that the requirement of Section 61 are complied with.
- The issue of redeemable preference shares must be authorized by the AOA & redemption shall be
affected only on such terms and in such manner as provided by AOA.
- Re St James of Estate Ltd this section also only authorizes the issue of redeemable preference share,
and not to convert existing preference/equity shares into redeemable preference shares.
- Section 61(2) the redemption shall not be taken as reducing the amount of authorized share capital
of the company.
- Section 61(3)(b) the shares shall not be redeemed
(a) Except out of profits which would be otherwise be available for dividend, or out of the proceeds
of a fresh issue of shares made for the purposes of the redemption.
(b) Unless they are fully paid up.
MEANING OF PROFIT
The Act does not defined the word profit or state how profit is to be assessed.
In Lee v Neuchatel Asphalte Lindley LJ said that the matters are left to men of business.
The real question for determination is whether there are profits available for distribution is to be
answered according to circumstances of each case.
Segenhoe v Atkins-If the dividens has been improperly paid ans the shareholders knew or ought to have
known of that fact, the directors are liable to repay
Case: Re Doloswella Rubber & Tea Estate Ltd the company was incorporated with the object of
developing a rubber estate in Ceylon of about 8000 acres. Its issued capital was divided into 640 shares of
500 each on which 185 per shares had been paid. After its incorporation the company decided to limit
the area of cultivation to 4000 acres and consequently did not require the whole of its issued capital. In
other words each 500 shares was converted into a 300 shares and the amount paid up was apportioned
accordingly.
(2) Section 64(1)(b) a company may cancel any paid up share that is lost or is not represented by
available assets.
A company may pay off any paid-up share capital that is in excess of its needs.
Case: Re Fowlers Vacola Manufacturing Co Ltd in this case, because of intense competition in its food
canning business, the company abandoned this activity and consequently had capital in excess of its
needs. It resolved to reduce its capital and return the excess to its ordinary shareholders. This was done
by reducing the nominal value of ordinary shares from 10s each to 2/9 and returning 7/6 on respect of
each share.
Section 64(2) gives the opportunity to all creditors of the company to object to the reduction.
Section 64(4) provides that the court may make an order confirming the reduction on terms and
conditions as it thinks fit.
Section 64(6) further states that order of court is ineffective until lodged with Registrar.
Confirmation of court
Re Muexs Brewery Co - The court would not allow a reduction of share capital of the company if it
would discriminate the creditor in the sense that the companys liability to the creditor would not be
made.
Re Holder Investment Trust Other than the interest of creditor, the just and equitable treatment
of shareholders must also be considered by the court in order to allow confirmation for proposal to
reduce share capital.
1. Definition
Class rights are rights which are attached to a class of shares. Each types of class of shares issued
by the company will have their own particular right. Most commonly class rights are given in the
articles and are attached solely to the shares. However, in exceptional circumstance it is possible
for class right to be attached to the shareholder as opposed to the shares (Cumbrian Newspapers
Group Ltd v Cumberland & Westmorland Herald Newspaper & Printing Co. Ltd )
A variation of class right is the alteration, deletion, amendment or change which has already been
attached to a certain class of shareholders. These rights can generally be found in the MOA or AOA
of the company.
Section 65 (1) A variation of a class right is one which directly alters the right of a class of
shareholders.
Section 65(7) when the company alters MA or AA to affect the particular shareholders, then it is
considered as variation.
A distinction must be drawn between a variation of a class right and a mere variation of the
enjoyment. Thus, Cancellation of class right amounts to a variation however the issue of new shares
that affect the value of shares in a particular class or the enjoyment of rights attaching to shares in
that class is NOT SUFFICIENT to constitute a variation of class right.
In Greenhalgh v Ardene Cinemas, the company had issued ordinary shares of 1/ each as well
as preference shares of 20s each. All shares carried the right to one vote per share. The ordinary
shareholders passed a resolution to sub-divide their shares into 20s shares. The preference
shareholders objected to this claiming that there had been a variation of their class rights and
that the procedure for so doing had not been followed. The court held that there was no
variation of the rights of the preference shareholders as their rights remained the same as
before. At best it was only a variation of the enjoyment of their class rights.
In the case of Reid House Ltd v Beneke, the company has a building that is divided into six
residential units. Articles of association clause provide that states that the company's share
capital is divided into different classes. Holders of each class of shares have exclusive rights to
use the unit accommodation. There is a modification of the rights clauses included in the article,
namely:
"Approval of a majority of the class of shares is required when matters relating to the
rights holders of the class to make any changes."
When a resolution was passed to renovate the building, the pl did not agree. Renovations were
made, it affected the pls enjoyment to his unit as there was debris and sound disruptions thus he
objected. The ct however found that this alteration did not affect his class right but merely his
enjoyment to the class right and thus the pls plea was dismissed.
In White v Bristol Aeroplane Co Ltd [1953] this case was concerning new share issues that
diluted the voting power of the complaining preference shareholders and did but not change
the voting rights attached to the preference shares. In this case, the courts drew a distinction
between a variation of rights and a variation in the enjoyment of those rights, and held that the
share issues fell into the latter category.
EXECPTION:
1. PREFERENCE SHAREHOLDERS :
o S65(6) the issue of new preference shares ranking in pari passu with the existing preference
shares amount to variation of the existing preference shareholders rights.
o S66(1)The issue of new preferences shares with the same right as existing preferences shares is
allowed only if it is authorized/explicitly allowed in the MOA. Only in this situation will the new
preference shares not amount to variation.
2. ORDINARY SHAREHOLDERS:
o The issuing of new shares of equal voting power is not allowed only if there is an equilibrium
clause in the MOA or AOA which states that the voting power of shareholders must remain the
same.
MOA
Section 21 of CA; MOA of a company may be altered to the extent and in the manner provided
by this act but not otherwise.
However, Section 21(1A) provides that if a clause that should have been in AOA being put in
MOA, it can be altered by special resolution.
However, Section 21(1B) restricts the right under (1A) does not affect the class right.
Section 18 of CA; class right need not be placed undet he MOA but once in place, cannot be
ammended, and thus under this section, if the class right is being included in the MOA, there is
possibility that it can never be altered.
Shareholders agreement.
It can be altered by doing another agreement because every shareholder must agree.
4. Members right to oppose the variation.
It is necessary to protect the rights of the holders of particular classes of shares against any
attempt by other classes to vary/change those rights.
Section 63 of the CA sets out that a creditor, shareholder or the company itself may challenge
the issuance of the shares if they have been wrongly issued.
However, in the case o Kelapa Sawit (Teluk Anson) Sdn Bhd v Dr. Yeoh Kim Leng & Ors, for the
action to be successful, the issuer of the said shares must have had a locus standi to issue the
shares in the first place.
Section 65 (1) of CA provides that holders of not less than 10% of the issued shares of the class
whose rights have been varied, if any such application is made, the variation or abrogation shall
not have effect until confirmed by the Court.
Section 65(3) Such application may be made within one month after the variation, apply to
court to set aside the variation and must be made in writing.
Section 65(4) The court may make the order if it is satisfied that the variation would unfairly
prejudice the members of the class. (Test of unfair prejudice) The decision made by the court
is final
Section 181 provides a remedy to the situation whereby if the court is satisfied that there has
been oppression, unfairly discriminates or prejudice, relief can be granted in virtue of S181(1)(b)
where the court under S181 (2)(b) can choose to prohibit, cancel or vary the resolution and also
supervise future actions of the company to ensure the problem will no longer occur.
MEETINGS
The will of the company is generally expressed through resolutions passed at the general meeting.
General meeting involved all members of a company.
CONVOCATION OF MEETING
Notice of Meetings:
A meeting of a company other than for the passing of a special resolution shall be called by notice in
writing of not less than 14 days or such longer period as is provided in the AOA Section 145(2)
Therefore the AOA shall not contain a provision for a period of notice for a meeting of a company
which is less than 14 days.
The notice is to be given to every member and the auditor of the company. And in the case of a listed
company, a copy of the notice must also be given to the Bursa Malaysia.
In the case of a meeting called for the passing of a special resolution, notice of 21 days is required:
Section 152
For public companies, the AGM must be convened by 21 days notice Section 145(2A)
The 14-day or 21-day notice as referred to above shall be clear days notice if the AOA are silent on
this matter. Clear days notice means both the day of service and the day of the meeting are excluded.
Section 145(3) provides that a meeting however, may be called by notice shorter than is required (i.e.
either 14 days or 21days as the case may be) if it is so agreed:
By all the members entitled to attend and vote thereat in the case of an AGM, or
By a majority in number of the members having a right to attend and vote thereat and
together holding not less than 90% in normal value of shares giving a right to attend and vote
(and for a company not having a share capital, by a majority of not less than 95% of the total
voting rights of all members)
No proceeding shall be invalidated by defect or irregularity of notice or time unless substantial
injustice has been done which cannot be remedied Sec 355(2)
Meetings may be restricted if notice/ explainatory notes sent to shareholders are misleading
(Chequepoint Securities v Claremont Petroleum)
What is misleading is the view of the ordinary man in commerce or ordinary investor who scans the
document quickly (Deveraux Holdings v Pelsart Resources)
Accidental omission of notice of meetings to a person entitled to attend will not invalidate a meeting-
S145(5)
CONDUCT OF MEETING
1. QUORUM
Unless the AOA provide otherwise, a quorum is two members personally present Section 147(1)
Therefore in the absence of authorization in the AOA, a meeting cannot be constituted by one member
and any resolution purported to be passed at such a meeting are invalid. (United Investment & Finance
Ltd v Tee Chin Yong & Ors)
Sum Hong Kum v Li Pin Furniture Industries Pte Ltd
The AOA of a company provided that no business could be transacted unless a quorum was present. The
plaintiff was removed as a director at a meeting convened without the requisite quorum. The Singapore
High Court granted a declaration that the meeting was invalid. The court held that the procedural
irregularity in the meeting caused substantial injustice to the plaintiff and could not be validated.
Where a person is present at the commencement of meeting, but leaves before the business is
transacted, leaving the meeting with less than the required quorum, it is a matter of construction of
the AOA as to whether the meeting is valid/invalid.
Tan Guan Eng v BH Low Holdings Sdn Bhd & Ors
o the High Court construed the relevant AOA to mean that a quorum was required only at the
time when the meeting proceeded to business. Given that there was a quorum present when
the meeting proceeded business, ie the continued meeting with the presence of only the
holder of a valid proxy was a valid meeting. Therefore the resolution passed was a valid
resolution.
For the purpose of determining whether a quorum is present, a person attending as a proxy or as a
representative of a member corporation is usually deemed to be a member: Table A article 47
However, if the AOA authorizes one person meeting, a quorum of two is required. A meeting where
one person present but holds a proxy from another member of the company is invalid - Re Salvage
Engineers Limited
A corporation that is a member of a company may, by resolution of its directors, authorize a person
to act as its representative at meetings of the company. That person is entitled to exercise the same
powers as the member corporation would have been entitled to exercise: Section 147(3)
The AOA usually require a quorum to be present WITHIN HOUR at the commencement of the
meeting in order to transact business or the meeting will be dissolved and adjourned to a later date
determined by the directors: Table A article 47
If a quorum is not present within half an hour after the appointed time of a requisitioned meeting,
the meeting is dissolved and adjourned to the time and place determined by the directors.
If no determination, the meeting is adjourned to the following week at the same time and place.
The court may order that a meeting be convened and it may direct that one member present be
deemed to constitute a quorum: Section 150 (1)
2. CHAIRMAN:
Any member present at the meeting may be elected to chair the meeting, Section 147(1)
Normally the chairman of the Board of Directors shall also act as chairman at every general meetings.
The chairmans duty is to direct the meeting and to preserve order and ensure that the proceeding are
conducted in a proper manner.
3. VOTING
The power to vote is not a fiduciary power and a shareholder owes no duty to anybody as to how he
or she will exercise their vote: Tuan Haji Ishak bin Ismail & Ors v Leong Hup Holding Bhd
Unless the AOA provide otherwise, voting is by show of hands, in the first instance.
Table A art 54 states that, by providing 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.
In Bin Hee Heng v Management Corp Strata Title No 647, it was held that the term show of hands
included a voice vote
In cases involving disputed questions, members can demand a poll: Table A article 51.
On a poll, every member present in person or by proxy or attorney usually has one vote for each share
held: Table A, article 54. Because of this, only a poll can give an accurate indication of the will of the
meeting.
Members have the right to demand a poll at a general meeting on any question or matter other than
the election of the chairman of the meeting or the adjournment of the meeting.
Any provision in the AOA excluding this rights is void: Section 146(1)
In some cases, the chairman and certain categories of members may demand a poll where a resolution
has been defeated on a show of hands: Table A, article 51.
Section 149(1)(a): A Proxy is entitled to vote only on a poll, unless the AOA provides otherwise.
Members are generally entitled to exercise their voting rights in their own interest. This is subject to
qualification that they do not commit a fraud on the minority.
4. PROXIES
A proxy is a person authorized to vote on behalf of the appointing member. It also describes the
instrument of appointment.
Members who are entitled to attend and vote at meeting of the company are entitled to appoint a
proxy to attend and vote in their stead.
Section 149(1) - The proxy need not be a member.
Section 149(2) - Notice convening meetings of companies must state prominently that members are
entitled to appoint one or two proxies who need not be members.
Section 149(1)(a): A proxy has the same right to speak at a meeting as the appointing member, but
can only vote on poll, unless the AOA allows the proxy to vote on a show of hands.
AOA cannot exclude the statutory right to appoint a proxy
Table A, article 59 requires the instrument appointing the proxy to be deposited with the company
not less than 48 hours before the meeting at which the proxy purposes to vote, or not less than 24
hours before the taking of a poll.
A member who appoints a proxy may still elect to attend a meeting and vote in a person. The proxy
then does not have vote at that meeting but may still vote at later meetings when the appointing
member does not attend (Ansett v Butler Air Transport Ltd)
5. MOTIONS
A motion is a proposal which is being put forward at a meeting for discussion before it is formally accepted,
passed or adopted. A motion is moved by a mover or proposer and unless it is a formal motion, it does
not require a seconder unless the AOA so provide. The manner in which a motion may be adopted or
rejected is by way of a vote by those present at the meeting and entitled to vote. The commonly used
methods are:
i) by voice
ii) by show of hands
iii) by poll
iv) by ballot
6. RESOLUTION
A resolution is a motion or proposal that has been accepted or passed by the necessary majority at a
meeting duly convened and held.
For a resolution to be validly passed or adopted we have to consider several other aspects such as:
the contents and duration of any notice required to be given.
the majority required for adopting the motion as a resolution.
the persons affected by the resolution.
the proper person having been in the chair.
the presence of a quorum.
Ordinary resolutions are passed by a simple majority of those present and voting.
Special resolutions are resolutions passed at meetings requiring written notice of at least 21 days and the
approval of a majority of of such members of the company present at the meeting and voting in person
or by proxy Section 152
Resolution Requiring Special Notice means at least 28 days notice has been given Section 153
Bypass of special resolution
S.152A- If ALL (100%) members vote at a general meeting in favour of a resolution duly passed,
where relevant, as a special resolution so passed will be valid.
S.152(2)- A special resolution will still be valid at a meeting even though it was proposed less than
21 days notice will be valid if it gains not less than ninety-five per centum of the total voting
rights.
7. MINUTES
Minutes are records of proceedings and resolutions passed at the meetings.
Under Section 145(1),minutes of all proceedings of the general meetings and of meetings of directors
and of managers (if any) must be entered or recorded in books kept for that purpose within 14 days
after the meeting was held.
The minutes is to be signed by the Chairman of the meeting at which the proceedings were had or by
the Chairman of the next succeeding meeting.
The minutes that have been signed and entered in the record are conclusive evidence that a meeting
has been duly held and convened that all appointments of officers shall be deemed to be valid and
that all proceedings were duly conducted.
The minutes book shall be kept at the registered office and any member could inspect them without
charge.
EFFECT OR IRREGULARITIES
Irregularity will not affect the validity of the meeting. S.355 allows court to make orders where the
rights of members or creditors are interfered with.
Before declaring the proceedings as invalid or not, the court will weigh between the harm done to a
member as against the harm done to the company and the other members in the company. Where
the court may remedy the situation by making an order, the court will declare the proceedings as
valid.
S.355(2)- Lack of quorum and deficiency of notice cannot invalidate meeting but substantial injustice
that cannot be remedied by court which can declare proceedings invalid
Order validating irregularity will not be made where there is injustice to members who did not attend.
( Hup Seng v Chin Yin)
DUTIES OF DIRECTORS
Directors are those who are entrusted to manage a company. Since they are given broad power in the
management of a company, law imposes certain duties upon them, in the interest of the public good and
for the protection of those who invest money in the company. Breach of these duties or negligence in
performing them on the part of a director entitles the company to sue the directors for any damage which
has been suffered by the company as a result of the breach or negligence. There are 3 main duties of
director namely, fiduciary duties, duty of skill, care and diligence and statutory duties. Often fiduciary
duties and duty of skill, care and diligence overlapped with statutory duty.
1. FIDUCIARY DUTIES
The Board of Trustees of the Sabah Foundation v Datuk Syed Kechik bin Syed Mohamed a fiduciary is
someone who has undertaken to act for or on behalf of another in a particular matter, in circumstances
which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the
obligation of loyalty.
The best known fiduciary relationship are those between trustee and beneficiary.
Promoters and directors of a company is also regarded as fiduciaries with respect to the company.
Because of the trust placed in fiduciary, the courts have formulated strict principles governing
their duties and they will normally owe duties of good faith and the avoidance of conflict of
interest.
The fiduciary duty of the director is owed to the company and not to individual shareholder.
Percival v. Wright [1902] 1 Ch 421, the plaintiff had approached a company indicating their intention to
dispose of their shares in the company. The chairman, who was also director of the company, agreed to
purchase the shares from the plaintiff at the price of 12 5s per share asked by the plaintiffs. The shares
were transferred to the chairman and two other directors of the company. During the negotiations for
the sale of the plaintiffs shares, the chairman and the board were approached by one Holden with a view
to the purchase of the entire undertaking of the company at a price considerably over 12 5s per share.
The negotiation with Holden, however, ultimately proved abortive. The plaintiff brought an action against
the chairman and the other directors, as defendants, asking for the sale to be set aside on the ground that
the defendants as directors had failed to disclose the negotiations with Holden when treating for the
purchase of the plaintiffs shares.
Held: the purchasing directors were under no obligation to disclose information to their vendor
shareholders the negotiations which ultimately proved abortive and directors do not have any fiduciary
duty to the shareholders. it shows that the directors owed no fiduciary duty to the shareholders.
The directors occupy a fiduciary position and must therefore exercise their power in good faith and in the
best interest of the company as a whole.
Section 132(1) - "A director shall at all times exercise his powers for proper purpose and in good faith in
the best interest of the company."
Section 132(1A)(a) provides that a director of a company shall exercise reasonable care, skill and diligence
with the knowledge, skill and experience which may reasonably be expected of a director having the same
responsibilities. Section 132(1B) of the Companies Act 1965, a director who makes a business judgment
is deemed to meet the requirements when he;
(i) makes the business judgment in good faith for a proper purpose;
(ii) does not have a material personal interest in the subject matter of the business judgment;
(iii) is informed about the subject matter of the business judgment to the extent the director reasonably
believes to be appropriate under the circumstances; and
(iv) reasonably believes that the business judgment is in the best interest of the company.
DUTY TO ACT IN THE BEST INTEREST OF THE COMPANY
Re Smith & Fawcett Ltd
They must exercise their discretion bona fide in what they consider and not what the court may consider
to be in the interest of the company, and not for any collateral purpose.
Mills v Mills
In the ultimate analysis of what is in the best interest of the company is actually what is fair among the
shareholders. Directors are not expected to live in an unreal world of aetruism. But when making
decisions, he must apply his mind to the best interest of the company.
In the case Re W & M Roith Ltd [1967] 1 All ER 427 where Roith was the controlling spirit of what is
commonly referred to as a one-man company. He owned the majority of the companys shares and ran
the companys business. He was one of the three directors. Roith wanted to make provision for his wife
in the event of his death. He therefore entered into a contract with the company, under which his wife
would be paid a pension if he died. Of course, there was no problem in having this agreement adopted by
the company, as he controlled it. Roith duly died. His executors put in a claim for the widows pension.
The liquidator of the company rejected the claim. The court held that the liquidator was right to do so.
The reason was this: when the directors of the company agreed to make contract they were not
considering the best interest of the company. Roith considered the interest of his wife; a perfectly
laudable sentiment, but in law an impermissible factor to consider when exercising a directors power.
In the case of Parke v Daily News Ltd [1962] Ch 927 the directors of a newspaper company was going out
of business proposed to distribute a large sum of money to the companys employees out of philanthropy.
The judge held that the distribution was benefit the employees rather than the company and the
resolution to make payment were set aside.
b. duty of care
A director owes duty of care to the company of which he is a director. The standard is that of reasonable
care in that he must take care in the affairs of the company as he would reasonably take in his own affairs.
Re Brazilian Rubber Plantation & Estate Ltd Such reasonable care must be measured by the care an
ordinary man might be expected to take in the same circumstances on his own behalf
c. duty to be diligent
Re Forest of Dean Coal Mining Co Director are bound to use reasonable diligence having regard to their
position, though probably an ordinary director, who only attends at the board meeting occasionally,
cannot be expected to devote as much time and attention to the business as the sole managing partner
of an ordinary partnership, but they are bound to use fair and reasonable diligence in the management of
companys affairs and to act honestly.
Section 132C(1) Directors shall not acquire or dispose companys undertaking or property of a
substantial value or portion unless approved by the company in general meeting
Meaning of substantial value or substantial portion - Section 132C (1A) and (1B)
For public listed companies listing requirements of the Stock Exchange under Securities Industry
Act 1983 shall be applicable to determine what is substantial value or substantial portion - Section
132C (1A)
Section 132C(1B) applicable to other than public listed companies substantial value or portion
means if the value exceeds 25% of the companys
a. Total assets; or
b. Total net profits; or
c. Issued share capital
whichever is higher
Director who contravenes the section shall be guilty of an offence and shall be liable to imprisonment for
five years or RM30,000 or both Section 132C(5)
Notwithstanding anything in MOA or AOA, directors shall not issue shares without the prior approval
of company in general meeting Section 132D(1)
However, prior approval shall not be required if the said shares is to be issued as consideration for
acquisition of shares or assets by the company and the members have been notified of the intention
to issue shares 14 days before that date of issue of shares Section 132D(6A)
Members of the company are deemed to be notified if a copy of the notification has been sent to the
last known address according to register of members and advertised in national language and English
language newspaper Section 132D(6B)
OTHER STATUTORY DUTIES
Section 142 directors of public company to hold statutory meeting
Section 144 powers to convene AGM and EGM
Section 154 Registration of resolutions and agreements
Section 156 Recording minutes of meetings
Section 167 Keeping a proper accounting records
Section 169 tabling of profit and loss accounts, balance sheet and directors report at the AGM
REMEDIES
FOSS V HARBOTTLE
It is clear law that in order to redress a wrong done to the company, the action should prima facie be
brought by the company itself. This cardinal principle has been laid down in the case of Foss v. Harbottle
The Corporation should sue in its own name and in its corporate character, or in the name of someone
whom the law has appointed to be its representative.
2. where the act complained of infringes personal rights (member personal right)
Where an individual members right have been infringed they may bring an action against the company.
These membership rights arise from the Act, articles or separate shareholders agreement.
Among the example of act that infringe the members personal rights are:
(i) when co breach contractual rights in Sec33(1) which provides the M&A constitutes contractual
relationship between members & the company & members inter se.
(ii) co does not comply with the provision in Sec65, for instance the co alter the provision in contrast
with AOA that vary the right of shareholders
When personal rights of shareholders have been affected, members are not bound by the rule in Foss v
Harbottle which disable them to take action on behalf of the company. Instead, they can bring the action
themselves. This is simply because the alleged wrong is done to the members themselves.
In Pender v Lushingston (1877) 6 ChD 70; where the co want to alter article, 60% shareholder want to
alter but another 40% do not want to alter. The resolution has passed and the minority shareholder has
no right to sue. This case concerned the right to have members vote recorded.
In Wood v Odessa Waterworks Co. (1889)42 Ch D 636; where it was the right to have dividends paid in
cash as the articles so specify.
3. where a special resolution was needed but the company acted in breach of it
Certain transactions of a co may require certain procedures be complied with. Either the Companies Act
may require the passing of a special resolution, or the articles may specify a particular procedure. If the
requirement of a particular procedure has not been complied with, an individual shareholder may bring
action to ratify them.
In the case of Edwards v Halliwel (1950) 2 AER 1064; 2 members of a trade union successfully restrained
an attempt by the delegate meeting to increase the members contribution without obtaining 2/3 majority
acquired under their rule.
DERIVATIVE ACTION
Therefore in order to bring action on behalf of the company, the statutory derivative action under
Companies Act (Amendment) Act 2007 were introduced.
In Chio Tan Seng v Chong Chai Huat, Abdul Malik Ishah J stated that a derivative action is an action
where a member is not suing to enforce his own rights but that of the co. Any rights which the member
has derive from the co.
The effects of this action are:
(1) if the action is successful, compensation is paid to the co, not to the individual member
(2) action is expensive, minority shareholder may not be reimbursed
(3) minority shareholders must prove preliminary issues for instance fraud on minority
(4) time consuming
(That is why statutory derivative action is rarely applied)
Therefore Sec 181A-181E were introduced to simplify actions brought on behalf of the co. these sections
can be regarded as new statutory derivative action to allow a complainant to apply for leave of the Court
to bring an action on behalf of the co.
Sec 181A allows the complainant to bring an action on behalf of the company if he is a member of a
company, or a person who is entitled to be registered as member of the company, any former member of
the co if the application relates to circumstances in which the member ceased to be member, any director
of the company and the Registrar.
Sec 181B requires a complainant to seek leave of the court to bring a derivative action in the name of
the company. However in order for the court to grant a leave the complainant must acting in good faith
and it appears to be in the best interest of the company.
Sec 181C provides proceeding brought, intervened in or defended under Sec 181A may be settled only
with leave of the Court. This provision allow the court to reject the settlement of action if it considerers
the terms unfair or unjust.
Sec 181D provides that the fact that the alleged wrong to the company may be approved or ratified by
the members is not by itself sufficient for a stay or dismissal of the action. The directors having breached
their duties to the company may have their liabilities excused by the general meeting by the process of
ratification.
In granting leave, Sec 181E of the Act may grants the Court wide ranging the powers in making such orders
as it thinks appropriate. Aside from authorising the complainant or some other person to control the
conduct of the proceeding, Sec 181E (1)(a) provides some other orders the Court may grant includes
(i) Sec 181E(1)(b)- the Court is able to grant specific directions for the conduct of the proceeding
(ii) Sec181E(1)(c)- Access to information
(iii)Sec181E (1)(d) & (e)- these provisions allow the Court to relieve the burden of costs on the complainant
by allowing both payment by the co of reasonable legal fees and disbursements incurred by the
complainant, and also a wider order for the indemnity for all the costs incurred.
3. FIDUCIARY DUTIES
The Board of Trustees of the Sabah Foundation v Datuk Syed Kechik bin Syed Mohamed a fiduciary is
someone who has undertaken to act for or on behalf of another in a particular matter, in circumstances
which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the
obligation of loyalty.
The best known fiduciary relationship are those between trustee and beneficiary.
Promoters and directors of a company is also regarded as fiduciaries with respect to the company.
Because of the trust placed in fiduciary, the courts have formulated strict principles governing
their duties and they will normally owe duties of good faith and the avoidance of conflict of
interest.
The fiduciary duty of the director is owed to the company and not to individual shareholder.
Percival v. Wright [1902] 1 Ch 421, the plaintiff had approached a company indicating their intention to
dispose of their shares in the company. The chairman, who was also director of the company, agreed to
purchase the shares from the plaintiff at the price of 12 5s per share asked by the plaintiffs. The shares
were transferred to the chairman and two other directors of the company. During the negotiations for
the sale of the plaintiffs shares, the chairman and the board were approached by one Holden with a view
to the purchase of the entire undertaking of the company at a price considerably over 12 5s per share.
The negotiation with Holden, however, ultimately proved abortive. The plaintiff brought an action against
the chairman and the other directors, as defendants, asking for the sale to be set aside on the ground that
the defendants as directors had failed to disclose the negotiations with Holden when treating for the
purchase of the plaintiffs shares.
Held: the purchasing directors were under no obligation to disclose information to their vendor
shareholders the negotiations which ultimately proved abortive and directors do not have any fiduciary
duty to the shareholders. it shows that the directors owed no fiduciary duty to the shareholders.
The directors occupy a fiduciary position and must therefore exercise their power in good faith and in the
best interest of the company as a whole.
Section 132(1) - "A director shall at all times exercise his powers for proper purpose and in good faith in
the best interest of the company."
Section 132(1A)(a) provides that a director of a company shall exercise reasonable care, skill and diligence
with the knowledge, skill and experience which may reasonably be expected of a director having the same
responsibilities. Section 132(1B) of the Companies Act 1965, a director who makes a business judgment
is deemed to meet the requirements when he;
(i) makes the business judgment in good faith for a proper purpose;
(ii) does not have a material personal interest in the subject matter of the business judgment;
(iii) is informed about the subject matter of the business judgment to the extent the director reasonably
believes to be appropriate under the circumstances; and
(iv) reasonably believes that the business judgment is in the best interest of the company.
In the case Re W & M Roith Ltd [1967] 1 All ER 427 where Roith was the controlling spirit of what is
commonly referred to as a one-man company. He owned the majority of the companys shares and ran
the companys business. He was one of the three directors. Roith wanted to make provision for his wife
in the event of his death. He therefore entered into a contract with the company, under which his wife
would be paid a pension if he died. Of course, there was no problem in having this agreement adopted by
the company, as he controlled it. Roith duly died. His executors put in a claim for the widows pension.
The liquidator of the company rejected the claim. The court held that the liquidator was right to do so.
The reason was this: when the directors of the company agreed to make contract they were not
considering the best interest of the company. Roith considered the interest of his wife; a perfectly
laudable sentiment, but in law an impermissible factor to consider when exercising a directors power.
In the case of Parke v Daily News Ltd [1962] Ch 927 the directors of a newspaper company was going out
of business proposed to distribute a large sum of money to the companys employees out of philanthropy.
The judge held that the distribution was benefit the employees rather than the company and the
resolution to make payment were set aside.
DUTY TO ACT FOR PROPER PURPOSES
A director might be acting honestly in what he considers to be the company's interest and yet still be in
breach of his fiduciary duties. This would occur if he misapplies the companys assets or if he uses the
powers he is delegated for the wrong purpose. If a director misapplies the company's assets he is in breach
of his duty to the company. It does not matter whether he is acting honestly, or in what he considers the
interest of the company.
Howard Smith v Ampol
In this case, Millers (Company) had a mob of shareholders with majority shareholdings, and another lot
of shareholders trying to buy shares in Millers. Millers board did not want them to have majority (because
then they might be replaced), so the board sold more shares out. As a result, the voting power of the two
biggest shareholders became diluted. There were two motives: (1) to dilute the power of majority and (2)
make money for company. Court held that if self-interest is involved, directors can assert that their action
was bona fide in the interest of the company. However, self-interest is only motive it is an instance of
improper motive. In determining whether a power was exercised for a proper purpose, the court should:
(i) identify the power whose exercise is in question;
(ii) identify the proper purpose for which the power was vested in the directors;
(iii) identify the substantial purpose for which the power was in fact exercised; and
(iv) decide whether that purpose was proper.
The court in addressing this came up with a a two-stage test:
(i) to consider the power exercised by the directors, including the nature of this power and any limits
within which it may be exercised and
(ii) to examine the substantial/primary purpose for which that action was taken and to reach a conclusion
whether that purpose was proper or not.
In this case, the court found that the D has used their fiduciary power solely and primarily for the purpose
of shifting the power to decide to whom and at what price shares are to be sold and thus cannot be related
to any purpose for which the power over the share capital was conferred upon them. Here, the Directors
were held to have contravened the duty.
Mills v Mills
Here, to determine motive the court must look at the ulterior purpose by using the but-for test if not for
the ulterior motive, would the director still have acted as he did? Dixon J expressed this by saying But if,
except for some ulterior and illegitimate object, the power would not have been exercise, that which has
been attempted as an ostensible exercise of the power will be void, notwithstanding that the Ds may
incidentally bring about result which is within purpose of power and which they consider desirable:
Whitehouse v Carlton ltd Pty
The court was of the view that the mere existence of the impermissible purpose is not sufficient to render
the exercise of the fiduciary power to alot shares voidable. In this case, the test in Mills v Mills was
followed by looking at whether the improper purposes had been the dominant (the substantial object,
the moving cause) cause for the act done.
Hogg v Cramphorn Ltd
In this case the directors were invested with the power to issue shares. In exercise of that power the
directors issued shares to trustees for the benefit of employees. The purpose of the issue was to prevent
a takeover bid. The directors feared that they would lose their position as directors should the takeover
bid be successful. The court held that the directors had acted for an improper purpose as the issuance of
new shares ulterior motive was to prevent the directors from losing their position and and the share issue
was set aside.
Ngurli Ltd v McCann
courts are relatively reluctant to meddle in the affairs of the company unless absolutely necessary. In this
case the court agreed that the proper purpose test should not be strict as it is impossible for directors to
not want to further their interests as they have an interest as a shareholder. If the defendants truly and
reasonably believed at the time that what they did was for the interest of the company, they are not
chargeable with a breach of trust merely because in promoting the interest of the company they were
also promoting their own interests.
In Bamford v Bamford [1970] Ch 212 provides the general rule that if directors have exercised their power
irregularly, or acted without proper authority or acted from improper motives, they can by full and frank
disclosure to the members obtain absolution and forgiveness of their sins and the members of a company
have a general power to ratify breaches of directors duties.
b. duty of care
A director owes duty of care to the company of which he is a director. The standard is that of reasonable
care in that he must take care in the affairs of the company as he would reasonably take in his own affairs.
Re Brazilian Rubber Plantation & Estate Ltd Such reasonable care must be measured by the care an
ordinary man might be expected to take in the same circumstances on his own behalf
c. duty to be diligent
Re Forest of Dean Coal Mining Co Director are bound to use reasonable diligence having regard to their
position, though probably an ordinary director, who only attends at the board meeting occasionally,
cannot be expected to devote as much time and attention to the business as the sole managing partner
of an ordinary partnership, but they are bound to use fair and reasonable diligence in the management of
companys affairs and to act honestly.
Director who contravenes the section shall be guilty of an offence and shall be liable to imprisonment for
five years or RM30,000 or both Section 132C(5)
REMEDIES
FOSS V HARBOTTLE
It is clear law that in order to redress a wrong done to the company, the action should prima facie be
brought by the company itself. This cardinal principle has been laid down in the case of Foss v. Harbottle
The Corporation should sue in its own name and in its corporate character, or in the name of someone
whom the law has appointed to be its representative.
The proper plaintiff rule
The proper plaintiff rule lay down that any wrong done to the company is suffered by the company. The
company must be the proper plaintiff to seek legal remedy against the wrongdoers.
Majority rule
On the other hand the majority rule states that the company must be run in accordance with the wishes
of the majority.
Common Law Exceptions
As a result of the unsatisfactory effect of the rule, there are several CL exceptions to the rule in Foss v
Harbottle. A minority member can bring an action against the company or its controllers where:
(1) the act of the company ultra vires or illegal
(2) where the act complained of infringes personal rights (member personal right)
(3) where a special resolution was needed but the company acted in breach of it
(4) where the act amount to a fraud on the minority
(5) where justice requires that the court should intervene to assist an otherwise helpless minority
(the interest of justice requires)
2. where the act complained of infringes personal rights (member personal right)
Where an individual members right have been infringed they may bring an action against the company.
These membership rights arise from the Act, articles or separate shareholders agreement.
Among the example of act that infringe the members personal rights are:
(i) when co breach contractual rights in Sec33(1) which provides the M&A constitutes contractual
relationship between members & the company & members inter se.
(ii) co does not comply with the provision in Sec65, for instance the co alter the provision in contrast
with AOA that vary the right of shareholders
When personal rights of shareholders have been affected, members are not bound by the rule in Foss v
Harbottle which disable them to take action on behalf of the company. Instead, they can bring the action
themselves. This is simply because the alleged wrong is done to the members themselves.
In Pender v Lushingston (1877) 6 ChD 70; where the co want to alter article, 60% shareholder want to
alter but another 40% do not want to alter. The resolution has passed and the minority shareholder has
no right to sue. This case concerned the right to have members vote recorded.
In Wood v Odessa Waterworks Co. (1889)42 Ch D 636; where it was the right to have dividends paid in
cash as the articles so specify.
3. where a special resolution was needed but the company acted in breach of it
Certain transactions of a co may require certain procedures be complied with. Either the Companies Act
may require the passing of a special resolution, or the articles may specify a particular procedure. If the
requirement of a particular procedure has not been complied with, an individual shareholder may bring
action to ratify them.
In the case of Edwards v Halliwel (1950) 2 AER 1064; 2 members of a trade union successfully restrained
an attempt by the delegate meeting to increase the members contribution without obtaining 2/3 majority
acquired under their rule.
i) Fraud includes abuse or misuse of power whereby the majority obtains an unfair gain at the expense of
the minority. The term minority may refer to the co itself. Where the co is the injured party, the action is
derivative in nature. Fraud on minority coves:
1. Appropriation of corporate property or opportunities
In Cook v Deeks(1916) AC 554; there are four directors with equal share. 3 of them do not like the 4 th
fellow. The 3 out of four build a new co and brought the money to the new co. then they called up for the
meeting and ratify what they did. So this is fraud because the 4th fellow was unhappy.
2. Ratification of directors breach of duty
3. Majority obtaining a benefit at the expense of the minority
4. Preventing an action from being brought
In Estmanco (Kilner House) Ltd. V Greater London Council (1982) 1 AIIER 437; the court held that the
decision of the co to discontinue proceedings against the Council amounted to a fraud on minority.
Sec 181A allows the complainant to bring an action on behalf of the company if he is a member of a
company, or a person who is entitled to be registered as member of the company, any former member of
the co if the application relates to circumstances in which the member ceased to be member, any director
of the company and the Registrar.
Sec 181B requires a complainant to seek leave of the court to bring a derivative action in the name of
the company. However in order for the court to grant a leave the complainant must acting in good faith
and it appears to be in the best interest of the company.
Sec 181C provides proceeding brought, intervened in or defended under Sec 181A may be settled only
with leave of the Court. This provision allow the court to reject the settlement of action if it considerers
the terms unfair or unjust.
Sec 181D provides that the fact that the alleged wrong to the company may be approved or ratified by
the members is not by itself sufficient for a stay or dismissal of the action. The directors having breached
their duties to the company may have their liabilities excused by the general meeting by the process of
ratification.
In granting leave, Sec 181E of the Act may grants the Court wide ranging the powers in making such orders
as it thinks appropriate. Aside from authorising the complainant or some other person to control the
conduct of the proceeding, Sec 181E (1)(a) provides some other orders the Court may grant includes
(i) Sec 181E(1)(b)- the Court is able to grant specific directions for the conduct of the proceeding
(ii) Sec181E(1)(c)- Access to information
(iii)Sec181E (1)(d) & (e)- these provisions allow the Court to relieve the burden of costs on the complainant
by allowing both payment by the co of reasonable legal fees and disbursements incurred by the
complainant, and also a wider order for the indemnity for all the costs incurred.
SACKING OF DIRECTORS
1. Disqualification under section 130
The disqualified person under section 130 is not allowed to be appointed as director or remains as
director, without the leave of the Court. The persons who are disqualified are:
A person who is convicted for any offence in connection with the promotion, formation or
management of a corporation
A person who is convicted for any fraud or dishonesty punishable on conviction with imprisonment
for three months or more
A person who is convicted of any offence involving
o Section 132 - breach of duty and making improper use of company's information
o Section 132A - dealing by officers in securities
o Section 303 - not keeping proper accounts
The disqualification period will be for a period of five years after conviction or after release from prison.
The person must apply to the court if he wishes to be appointed as director or remain as a director of a
company. Failure to obtain leave of court is an offence. There is no automatic vacation from office unless
the company's Articles of Association provides so [Table A, 4TH Schedule, Art 72].
WINDING UP
Winding-up is synonymous with liquidation. One of the ways to bring to an end a cos existence. As a
co. is a creation of the law, it can only be dissolved and have its name removed from the Register of
Companies when the proper legal procedure has been complied with.
MODES OF WINDING UP
COMPULSARY WINDING UP
VOLUNTARY WINDING UP
When is a company said to be unable to pay its debts? Section 218 (2)
A company is deemed to be unable to pay its debts if any of the following three circumstances is shown
to exist:
a) The petitioner has delivered to the company at its registered office, a written demand for
payment of all debt owing to him of at least RM500 and within the ensuing three weeks, the
company has neither paid the debt nor given security for the payment; or
b) A judgment has been obtained against the company for the debt and an attempt to obtain
payment out of the companys assets remain unsatisfied; or
c) The court is satisfied that the company is unable to pay its debt.
A contingent creditor is a person to whom a debt is owed, payment of which is only due on the
occurrence of some future event.
A prospective creditor is a creditor to whom a debt is due but not immediately payable. For
example, a person who sells goods on the basis of payment within 30 days after delivery is a
prospective creditor of the buyer for the debt due during the 30 days period.
Community development pte ltd v Engwirda construction co
the High Court of Australia held that a builder whose debt only became payable on the outcome of
arbitration proceedings is a contingent creditor and is therefore capable of filing a winding up
application. This is so even though it was uncertain whether the builder would be successful in the
arbitration.
The question of a persons standing as a creditor usually arises when the company disputes the existence
of the debt. The question of disputed debts also arises in the context of determining whether a company
is deemed to be unable to pay its debt or whether it has failed to meet a statutory demand made pursuant
to section 218 (2)(a).
Under Section 214, past members may also be liable to contribute to the assets of a company if they were
members within one year of the commencement of winding up and the present members are unable to
satisfy the full extent of their liabilities. Exceptions to this rule are set out in Section 214(1). E.g past
member ceased to be a member for one or more years before the commencement of the winding up [(a)
till (g)]
A deceased contributorys personal representative is by virtue of Section 216 also liable to contribute to
the assets of the company on a winding up. Accordingly, the personal representative is also included
within the definition of contributory even though not registered as a member.
Section 215 states that a contributorys liability is that of a specialty debt. This diminishes the effect of
the statute of Limitations as a specialty debt can be enforced within 20 years of the liquidator making the
call. The debt accrues from the contributory at the time that he or she is liable and becomes payable at
the time when calls are made to enforce that liability.
VOLUNTARY WINDING UP
Section 254 provides circumstances where a company may be wound up voluntarily.
Under the section, a company may be wound up voluntarily if:
1) The period (if any) for the duration of the company in MOA or AOA expires( through ordinary
resolution); or The event (if any) occurs, on the occurrence of which the MOA or AOA provide that
the company is to be dissolve; If the company so resolves by special resolution.
2) The w/up must be lodged w the Registrar
The GM then will appoint a liquidator for the purpose of winding up the affairs and distributing the
companys assets and may fix the liquidators remuneration & the members shall have supervisory powers
over the liquidators conduct of the liquidation. Section 258(1) . if it is solvent the company will wind
up. If the liquidators discover the company to be insolvent, section 259(1) will ensue where the members
winding up will be cnverted into the creditors winding up. Form 65A will be lodged as under Section 255(1)
by way of statutory declaration, signed by a magistrate or a comissioner of oath and provisional liquidator
is to be appointed (Section 255(6)A)
When F65A is lodged, a creditors meeting will be called under (s.260) and the company has 7 days to call
the creditors (S.260(2)(a))
No declaration of solvency
If the members have taken steps to wind up the company voluntarily, but the directors do not make
and lodge declaration of solvency, the liquidation proceed as creditors voluntary winding up.
The company is required to convene a meeting of its creditors for the day, or the next day, on which
the resolution for voluntary winding up is proposed.
Appointment
Members voluntary winding up, the liquidator is appointed:
At the GM of the co where the decision to wind up the co up is resolved - s.258,
Members appoint the liquidator after he had given his consent in writing before that GM. - s.10(4).
Creditors Voluntary Winding Up, a liquidator appointed depending on the circumstances as to how
the liquidation takes place:
When the liquidator appointed by the members MVWU forms the opinion that the co. is not capable
of paying their debts, he will call for a meeting of the creditors s.259. or
Where the directors do not file a declaration of solvency, the company convenes a creditors meeting
s.260
DISSOLUTION
Winding up : s.218 & s. 254
s.178 : court empowered to make order in reconstruction and amalgamation scheme:
-dissolve transferor comp.
-transfer property/liability from one comp to another.
s.308 : registrar strike off comp register-dysfunctional company.
TAKEOVERS
Assets of a target co will come under the control of the bidder or offeror co.
The consideration for the shares would be cash, shares or debentures of co A. Where a takeover bid
is made by one co (A) for some or all of the shares of co (B), the standard and normal procedure is
to get 90% acceptance, which is essential. Then they have to go on and acquire the shares of the
non-accepting minority merely by serving on them a notice as provided under s.180(1).
MERGERS
Where the assets and liabilities of one co are acquired by another co.
Reconstruction generally entails some change of the companys structure or of the classes and rights of
the share or loan capital of one or more companies. It is usually a merger of undertakings or businesses
rather than companies.
Often assets and liabilities of one company within a group are transferred to another company within the
same group. This will often result in one company taking over another company and their operations are
merged.
The court has powers to facilitate reconsideration under s.176(10).
FIXED CHARGE
Definition: is one that is intended by the parties to attach to a particular or specific item of property (such
as land or a piece of equipment) in such a way that a co cannot dispose of the property without the
consent of the lender. A fixed charge creates an immediate interest in the charge or in the case of future
property at the point of acquisition of the property by the co.
Re Keenan Bros Ltd
Every time consent of charge is needed, it is a fixed charge
UMB Bhd v Aluminex
Subsequent fixed charge took precedence over prior floating charges
FLOATING CHARGE
Definition: Charge made on assests present/future that can change from time to time in the ordinary
course of business which the company can deal w until some future step is taken by those w interest over
the charge (Re Yorkshire Woolcombers)
Gove Stock Investment v Manila Railway
Floating charge is an equitable charge of a going concern which attaches to the assets charged and
remains dormant until the charge intervenes.
Stein v Saywell
The company may dispose feely the assets subject to a floating charge in the ordinary course of
business
The Crystallization of floating charge will convert the floating charge into a fixed charge.
Types of crystallization;
1. Automatic/ self-generating
2. Semi-automatic
3. Implied
Automatic crystallization
The charge instrument contains a clause which specifies an event that crystallizes the floating charge upon
occurrence of that event- no further action is required on the part of the chargee.
Silverstone Marketing v Hock Ban Hin
The concept of automatic crystallization is accepted in Malaysia.
Fire Nymph Products v The Heating Centre
The essence of crystallization is tht the charge fixes on a certain property and the right of th charger to
deal with the property ends
Implied crystallization
Occurs when the company is wound up,
the creditor takes possession of the assets subject to the charge,
the charger ceases to carry on business,
the charger disposes the assets/ undertaking of the company with the intention to stop business, or
a receiver is appointed by the ct/creditor to tender the floating charge
Semi-Automatic crystallization
The charge instrument contains a semi-automatic clause where upon the happening of a specified even
or at will, the charge can give notice to crystallize the charge. (Re Woodroffes Musical Instrument ltd)
PIORITY OF CHARGES
Registration of a charge protects chargees priority over later registrable charges. Generally speaking, a
charge that is registered earlier than another charge will have priority over it, even if the 2nd mentioned
charge was created before it.
CA does not have any provisions on the priority of charge. Thus, the common law principles on priorities
of competing charges are applicable in Malaysia.
To determine the priority of charges, the following issues should be considered:
Whether the charges was registered
Whether the charge is fixed charge or floating charge
Where the charge is a floating, whether it crystallized on commencement of winding up or prior to
that
Whether there are any preferential creditors
Re Benjamin Cope & Co (1911);it was held that a co cant create a subsequent floating charge making in
paripassu with an earlier floating charge unless the earlier floating charge permitted it.
Re Automatic Bottlemakers (1926); it was held that the principle in Re Benjamin Cope will only apply
where the asset comprise in both the charges are the same. However the asset comprise in the
subsequent floating charge form only a smaller part of the asset comprise in the earlier floating charge
then the 2nd floating charge can be given that priority.
Wilson v Kelland (1910);if the co(borrower) still give the charge over its asset, subsequent charge will be
able to enforce the charge if took the charge without the notice of pledge and for value. However, if
subsequent charge had actual notice, he will be bound by the restrictions of the prior charge. Mere notice
of the existence of floating charge is not sufficient to constitute requisite knowledge.
In Malaysia position, United Malayan Banking Corp Bhd v Aluminex (M) Sdn Bhd [1993] 2 AMR laid down
that there the first respondent, Aluminex had between 1982 and 1984 issued two debentures to the
second respondent, United Asia Bank, creating floating charges over all Aluminexs property, present and
future. Both debentures contained a restrictive clause. The debentures were duly registered. Later in1986,
Aluminex executed another assignment with UMBC and the assignment was registered. Aluminex
defaulted on the debentures and AUB appointed receiver and manager under the debenture, thereby
causing the floating charges to crystallize. The court held that notice of debenture creating a floating
charge does not constitute notice of the term thereof, including restrictive clauses forbidding the creation
of later charges ranking in priority with the charge containing the clause.