COMPANY LAW

ZCZB 6013(SET 1)
BUSINESS LAW AND ETHICS
-1965
Q1: What is the Ultra Vires
Doctrine in company
SARMILA HUSAIN
ZP 00750
law?
Q2: What is its effect in
Malaysia?
 COMPANY NOT ACTS accordance with MA & AS,
the DOCTRINE of ULTRA VIRES will apply.

• Name & Address Company

• Object clause (purpose of the business)
• Limitation of liability clause
• Share capital clause

• Division of powers
• Shares
• Directors
• Dividends
• Obligation of members
• Table A: 4th Schedule is
the Model Articles
 Latin Phase ‘Ultra’ – beyond &
‘Vires’ – powers
MEANS - an act beyond powers/
capacity
 Case: Attorney General Vs Mersey
Railway Co(1907) 1 Ch. 81

 Ultra Vires Transaction – Contract beyond object clause

 Ultra Vires Borrowings – Borrowing beyond the power of company
• Common Law
The company cannot make it valid, even if every member of the company
assents to it.

ASHBURY RAILWAY CARRIAGE AND IRON CO. LTD V RICHE (1875]

 Completed
Transactions
 Uncompleted
transaction

Sec. 20(2) – Exceptions

Under the law, any such lack of power may be relied upon only
3 circumstances :-
Sec. 20(2)
(a): in proceeding against the company by member of the
company or debenture holder to restrain the company from
doing any ultra vires act, or conveyance or transfer of any
property to or by the company.
(b):in proceedings by the company or any member against the
present or former officers of the company, and
(c):in any petition by the minister to wind up the company.
Uncompleted
transaction
• The company obtain an injunction to
stop the ultra vires transaction.
• may allow compensation to the
company or other party for loss
suffered as a result of granting the
injunction
 The rule of Ultra Vires is to protect the
shareholders & creditors of the company.
 Third parties/ creditors protected under
Sec. 20(1), which completed transactions
the defense of ultra vires does not reply.
 Uncompleted transactions may be stopped
thru an injunction by members.
 The present and former officers of the
company may be made liable to the
company for the ultra vires transactions.
Ultra Vires borrowings does not
create the relationship of
creditor and debtor.
The company may also be
wound up by the minister.
An Act not consider as Ultra Vires IF:
 Case: Attorney general vs mersey railway co (1907)
Fact: There was company & it was incorporated for
carrying on hotel business. It entered into a contract
with some 3rd parties for purchasing furniture, hire
servants and for maintaining omnibus. Object clause
not mention to purchase furniture or hire servants. So
Whether the transaction was ultra vires?
Held: A company incorporated for carrying on hotel
business can purchase furniture, hire servants and
maintain omnibus to attend at the railway station to
receive the attending guest because these are
reasonable necessary to effectuate the purpose for
which the company has been incorporated.
Section 20(3):
 Case: Hawkesbury Dev. Co Ltd vs Landmar5k
Finance Ltd(1969) Australia
Fact: Hawkesbury the sole share holder in
Landmark Finance, sought a declaration that
certain debentures granted by Landmark Finance
to UDC were void on the ground of Ultra vires and
that UDC should not restrained from enforcing
them.
Held: In order for Hawkesbury to succeed, it had to
demonstrate that some relief was being sought
against the company. As it was in effect, seeking
relief against UDC & not Landmark Finance, so the
application must fail.

Section 20(3):
 Case: Pamaron Holding Sdn Bhd Vs Ganda Holding Berhad (1988)
Fact: A puchaser of shares attempted to rely on Sec 20(3) to argue that the transaction being
ultra vires, the seller should not granted summary judgments for the purchase price.
Held: The court rejected the argument on the ground that was not a person contempletedIn order for
Hawkesbury to succeed, it had to demonstrate that some relief was being sought against the under
the subsection.