FACULTY OF LAW AND INTERNATIONAL RELATIONS

Course Title : COMPANY LAW

Course Code : LLS 2123
Project : PROBLEM BASED LEARNING PROJECT (Group)
Marks : 20%
Assigning Date : 17 OCTOBER 2016
Submission Date : 10 NOVEMBER 2016
Instructions :
Directions : Students are required to answer the problem in Appendix A
according to your group. Your answer should reflect proper
application of laws in relation to this course.
Requirements : All submissions must :
o Be in hard copy AND soft copy in E-KELIP
o Be prepared in word document
o Be marked with page number
o Consists of front cover page (note: please include list of your
group members)
o Include table of contents
o Include references and footnotes
o Be typed in:
Arial font
Font size 11
1.5 spacing
Submission : All submissions must be made not later than 5.00pm on the
Submission Date at the lecturers room (for hardcopy) AND EKelip
(for softcopy). Late submission will be rejected.
Appendix A
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Background information:
Sentosa Sdn Bhd (the Company) is a private company. It adopted Table A of the Fourth
Schedule as its articles of association. The core businesses of the Company are the production,
processing and distribution of food. The Company traces its history back to 1970s when it was
first set up by three brothers who made and sold pineapple tart in a small bakery in Gong Badak.
The business was successful and expanded over years through the acquisition of other local
bakeries. Shares in the Company were held by the founders family until now. The Companys
issued capital consists of 80,000 ordinary fully paid shares and 20,000 preference shares. The
price of each ordinary and preference shares are RM1.00 and RM1.20 respectively. The current
shareholders are as follows:
Name(s)

Ordinary share(s)

Preference share(s)

Zaril

40%

Zainal

40%

Zarina

20%

Other members

100%

All of the ordinary shareholders sit in the Companys board of directors.

Problems:
Zainal would like the Companys memorandum and articles of association to provide that each
ordinary member is entitled to be a director of the Company, and cannot be removed against
their wishes. This would enable all ordinary members to participate in decision making process.
He would also like to include a provision that all business decisions involving expenditure of more
than RM7,000 must be agreed to by all directors.
In the meantime, the articles of association of the Company also contain the following clause in
addition to Table A: A member may transfer the members shares to any person but no share
shall be transferred to a person who is not a member unless it has first been offered to an
existing member who is willing to purchase the same at a fair value. Zainal plans to sell 5% of
his shares to his son without informing the existing members of his intention. Upon discovering
the plan, Zaril and Zarina wish to prevent the sale of the shares.

Appendix A
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Further, the Companys memorandum contains a clause limiting its object to food and beverage
retailing and related activities (including owning shares in companies that operate primarily in
food and beverage retailing). Recently, the Company entered into an agreement with another
company to buy a chain of bookstores. The directors of the Company now wish to revisit the
contract to see the effect or status of the contract.
Since last year, the Company has been operating at a loss and no dividend has been paid last
year.
Zarina proposed to the board to consider having amendment of its articles as follows:
replace the cumulative dividend to annual dividend; and
reduce the annual dividend in future years to four cents per unit.
The board inclined to consider the above proposal.
The board nevertheless are not over excited with the plan as they also foresee that the proposal
may not be readily accepted by all. As a backup, Zarina further proposed for the board to issue
new ordinary shares to preference shareholders who voted in favour of the dividend reduction for
the preference shares. Alternatively, the directors propose to alter the required percentage in
Article 4 to 50% instead of 75%.
In 2012, the Company borrowed RM30, 000 from Meibank. The loan was secured by a fixed and
floating charge over all of its assets and undertaking. When the charge was executed, neither the
Company nor Meibank registered the charge with the ROC. A year later, the Company obtained
another financing facility under government scheme for Bumiputra entrepreneurs. Under the
scheme, the Company was required to issue an undertaking, duly signed by all directors
pledging to full compliance of all obligations under the scheme. In 2015, Rimaubank agreed to
lend the Company RM20,000, secured by a charge. The Company executed a fixed and floating
charge in favour Rimaubank which was registered with the ROC accordingly. In September 2016,
the Company failed to observe several instalment payments and Rimaubank subsequently
declared for an event of default against the Company.
Advise the board of directors in respect of all issues arising in the above facts