Law of Association (Company Laws)

Akmal Marizalee Jamielyn Jimmy
Shares
What is Shares?
 Definition and nature of shares

- S4 (1) CA
a) Shares means share in the capital of a corporation.
b) It includes stock unless express or implied distinction is made between stock & shares.
- S98 CA
a) Shares are movable property.
b) It is transferable as per terms provided for in the manner under the articles.
- S2 Sales of Goods Act

a) Shares are goods within the meaning of S2 of SOGA.
- Farwell J in Borland’s Trustee v Steel Brothers

a) Shares is the interest of shareholders in the company measured by a sum of money.
b) The nature of interest of shares is for the purpose of liability, interest of the holders in
the company, and also as a series of mutual covenants entered into by all shareholders
inter se.
i. In the aspect of liability, for a company limited by shares, generally, shareholder
will be liable for the liabilities of the company to the extent of its/their shares.
E.g; S214 (2) (d) where a member does not need to contribute for liabilities of
companies upon winding up of the company, exceeding the amount of the
member’s unpaid shares.
ii. The nature of shares in the aspect of interest in the company can be best be
understood from the case of Prudential Assurance Co Ltd v Newman Industries
(No 2) where it was stated that shares can be said so as to confer a right of
participation to the shareholders in the company on the terms of AOA.
iii. In the aspect of mutual covenants inter se, this can be illustrated through the
strength of Section 33 of CA, whereby, shareholders within the terms of MOA &
AOA are bound by it as if they had entered into such covenants by each member
and will observe the terms of MOA & AOA. Each member have a right and
duties against each other, if the meaning of the Section 33 were to be simplified
in this aspect.
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c) In conclusion, it could be understood that shares may be regarded as a bundle of rights

and obligation.
i. Section 55 – voting rights
ii. Fourth Schedule; Article 98-105 – right of dividend
iii. Fourth Schedule; Article 112 – right to return of capital upon winding up of
companies subjects to MOA & AOA.
iv. Fourth Schedule; Article 13 – obligation of shareholders to pay the value of
unpaid share capital upon being called by the directors.
v. Section 214 – liabilities as contributories.
Characteristic of shares
 Rights to dividends
- Re Chelsea Waterworks Co & Metropolitan Water Board [1904]
a) In its ordinary meaning, dividends is a share of profits whether at a fixed rate or
otherwise, allocated to the holders of its shares in a company.
- Re Holben, Hubbard & Co [1983]

a) There is no obligation on a company to pay dividends when profits are available unless
the AOA provided otherwise. Thus, it can be said, the right to dividends does not
automatically comes with a subscription of shares unless provided otherwise by the
AOA & MOA.
 Rights to vote
- S55 (a) CA
a) The general rule is that each equity share shall come with the right to vote.
b) S4 provides that equity share is shares which are not preferences shares.
- S148 CA
a) Members generally have the right to attend meetings and vote on any resolution during
the meetings subject to restriction by the CA and the MOA/AOA.
 Rights of return for capital

- Fourth Schedule; Article 112
a) The liquidator may pass a resolution to divide the surplus of the assets upon the winding
up of the companies.
b) Find authorities
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 Liability to subscribe the due capital

- Fourth Schedule; Article 13, S214 CA
a) Outline the liability of shareholders to make payment of unpaid capital and until such
payment is made shall be liable for the amount of unpaid capital value upon cases such
as when the company wounds up.
 Rights of membership as found in the AOA

- Prudential Assurance Co Ltd v Newman Industries (No 2)
a) It was stated in this case that shares can be said so as to confer a right of participation to
the shareholders in the company on the terms of AOA.
Classes of Shares
From the wording of Art 2 Table A of Fourth Schedule and S4 of CA, it could be understood that there
are two types of shares, which is ordinary shares/equity shares and preferences shares. The classes of
shares may be provided for under the MOA or AOA.
However, there is no provision in CA that made it compulsory for the company to issue different classes
of shares.
In the case of Birch v Cropper; Re Bridgewater Navigation Co (1889), it was stated that in the absence
of express provision of the terms of any issue, MOA, AOA, there is a presumption of equality amongst all
the shareholders in respect of rights relating to dividends, return of capital, & voting. An express
preference in respect of any one of those right does not confer preference in respect of the other rights.
 Preference Shares (PS)

- S4
a) Defined PS as a share which does not entitle the holder the right to vote at general
meeting or to participate beyond a specified amount in any distribution whether by way
of dividend, redemption, winding up or otherwise.
b) It is wise to note that there is a slight difference with the England and Australian law in
relation to the definition of preference shares. The England/Australian law defined
preference share as a share that confers upon its holder some preference in relation to
payment of dividends or return of capital in a liquidation.
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 Rights of PS holder
- S66 (1)
a) Provides that a company, in issuing a PS must set out the rights attached to the PS either
in MOA or AOA. The rights attached to the PS must be specified in regard to
i. Its voting rights.
ii. Whether it comes with cumulative or non cumulative dividends.
iii. Priority of repayment of capital & dividend in relation to other shares
iv. Participation in surplus assets and profits
v. Repayment of capital
b) From the wording of S66, it should be noted that in certain circumstances, even the PS
holders may have the right to vote. This further strengthened the effect of S142 (2) that
stated PS holder may attend meeting and may vote in some circumstances, although
such rights may be suspended.
c) From here, it could be observed that there is an inconsistency between the definition of
PS set out in S4 and the rights that CA actually allowed PS holder to have by virtue of
S66 & S148.
d) This inconsistency was explained by Phillip N Pillai in his books that such inconsistency
was due to the fact that S66 of CA was borrowed from the Australian CA where in
Australian CA, there is no equivalent provision as regard to the definition of PS in
Malaysia, S4.
e) This provision is designed to make it easier to determine what are the rights attached to
PS.
- Re Hume Industries (FE) Ltd

a) This case is where it was stated by Tan Ah Tah J that there is a presumption that the
rights set out in MOA/AOA for PS are exhaustive.
b) If it is not stated in MOA/AOA, the PS holders are prima facie does not have such
rights.
- S66 (2)
a) If the PS is issued without the rights of its holder specified in MOA/AOA but only on the
term of the issued share, the officer in default shall be liable for a penalty.
b) Be that as it may, even if the S66 (1) is not complied with; nothing in CA provides that
the additional right not specified in MOA/AOA to be invalid. It perhaps is enforceable
under contract law.
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- Re Sheffield Manufacturing & Plating Co

a) This is because, as suggested by Roper CJ, the right of PS holder can be ascertained
from the MOA/AOA of company & also the terms upon which the preference shares
were issued.
- Walter Woon in his book suggested that such additional rights would be valid but the PS
holder shall be the one to bear the burden of proof to prove such rights does exist.
 Cumulative PS
- Cumulative PS holders are entitled to received a fixed cumulative dividend right.
- Birch v Cropper
a) If in any year PS holder did not received his dividend, the amount due shall be brought
to the next year as cumulative PS holder are entitled to the fixed dividend. The amount
brought forward will be added to the amount of dividend for the next year.
- Mosgiel v Mutual Life & Citizen Assurance

a) Until the deficiency of the dividends is paid in full, other shares holders, ordinary share
holders may receive no dividends.
 Non cumulative PS
- Non cumulative PS entitles the holder to a dividend at a fixed rate where dividend is
declared & paid. If the company fails to pay a dividend to non-cumulative PS holder, the
non-cumulative PS holder is not entitles to bring forward such due dividend for the next
year.
- If a company did not declare any dividend at that particular year, the holder cannot claim it
as rights. This law can be seen from the position of common law.
- Webb v Earle
a) It was held that PS is presumed to be issued with cumulative dividend right unless the
contrary is shown.
- S66 (1) & Re Hume Industries Ltd

a) The position in Malaysia is different as under the provision and the case law, the right
of a PS holder shall be presumed to be as exhaustive as what was provided under the
MOA/AOA. It is for the claimant to discharge such presumption.
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 Redeemable PS
- S61 (1)
a) Allows company with share capital, so long as authorized by the AOA, to issue a
redeemable PS.
- Re Dexine Patent Packing & Rubber Co Ltd

a) The wording of the provision stated that in order to issue such share, there must be a
provision in AOA to allow for such an act. Hence, MOA alone is not an adequate
authority to issue a redeemable PS.
b) It should be noted this authority is only persuasive in nature. It is not binding as it is a
foreign case.
- Re St James Court Estate Ltd

a) It was held that it is not possible to convert an existing class of shares which were
issued into redeemable PS.
- S66 (1)
a) Redeemable PS may be redeemed at a specified date or the company is given a right to
repay the capital within a specified period. In any case, the redemption must be done in
accordance to the provision of AOA that authorize the issuance of such shares.
 Rights that can be attached to PS

- S66 (1)
a) Right with respect to repayment of capital
b) Participation in surplus of assets and profits
c) Cumulative or non cumulative dividend right
d) Voting rights
e) Payment of capital & dividend in respect of other classes of shares.
 Construing PS & Ordinary shares

- Re London India Rubber Co
a) A preference on dividend does not imply preference to return of capital & vice versa. If
there is no express provision on the rights of class, there is a presumption of equality
with the holder of ordinary shares.
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- S66 (1) & Re Hume Industries Ltd

a) Rights of PS holders set out in MOA & AOA is exhaustive. If PS holders claim additional
rights other than what were stated in AOA/MOA, the burden of proof is on the
claimant.
b) If a statement is made about the right of PS holder, the statement is exhaustive as far
as the matter is concerned.
- Scottish Insurance v Wilson & Clyde Coal Co

a) If preferential right is given in relation to a return of capital, they are presumed to be
non-participating in surplus assets. The same goes in situation where if there is a fixed
rate of dividend set out for PS holder, they have no right to claim for further amount
than what was provided for in MOA/AOA.
 Ordinary Shares (OS)

- CA does not provide for definition of OS, S4 (1) vaguely defined the other types of shares
a) Any non-PS is an equity shares. Hence, OS can be said as an equity shares because it is a
non-PS.
- Re Isle of Thenet Electricity Supply Co Ltd

a) Holder of OS whom has paid up the value of the shares is entitled to the return of
capital in the event where the company wounds up only after all creditors have been
paid in full and any preferential share capital has been returned.
- Gower & Davies’ Principles of Modern Company Law

a) OS confer right in equity in the company. If the members can be said so as to own the
company, OS holder can be said to be the proprietors.
b) This is because, OS holder bear the highest risk among other class of shareholders, and
because of that, it is they whom should be entitled to the profit proportional to the risk
they bore.
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Variation of rights
In Birch v Cropper, the general rule is that all shares are presumed to be equal to one another in the
aspect of rights & liabilities unless the contrary is proven.
A company share capital may be divided into different classes. The classes of shares may be provided for
in AOA/MOA. However, it is not obligatory for a company to do so. S65 (1) impliedly allowed for a
company to issue or create different classes of shares.
Neasey J in Clements Marshall Consolidated v ENT Ltd stated that a class of shares refers to a category
of shares in the capital structures of a company which differs sufficiently in respect of rights, benefits,
disabilities, or other incidents so as to make it distinguishable from other category of shares.
 CA allowing for variation of rights

- Article 2 of Table A; Fourth Schedule
a) Directors may issue different classes of shares subject to the restriction by CA.
- S65 (1)
a) A company may provide for different classes of shares and varies it subject to the Act,
MOA/AOA.
 Variation of classes of share in MOA & AOA
- Class right contained in MOA appears to be unalterable unless if a procedure to vary the
class right is also provided for in the MOA.
a) S21 (1) provides that MOA of company may only be altered or modified in manner
consistent to the Act.
b) S21 (1A) extended the company’s power to amend its MOA though such power to
amend is restricted by S21 (1B).
c) S21 (1B) restrict alteration or deletion of a provision of the MOA that relates to rights
which only members of a specific class are entitled to.
- If the class right is provided for in AOA, it appears that it may be altered by passing a special
resolution.
a) S31 (1) provides that AOA may be altered by the passing of resolution by the members
of company in the meeting.
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 Variation of rights
- Clerk L.J in Re House of Fraser plc
a) Variation of right presupposes the existence of rights, the variation of such right, the
subsequent continued existence of the rights as varied.
- White v Bristol Airplane

a) Evershed M.R. made a sharp distinction between variation of the rights and variation of
the enjoyment of shareholders to make use of the rights attached to the share.
b) In this case;
i. AOA contain a variation of class right clause
ii. Class members of the affected class must pass an extraordinary resolution at a
separate meeting allowing the variation
iii. Variation clause applicable if the act purported to modify, vary, or abrogated,
affecting the current class member in any manner
iv. The board of directors (BOD) proposed to make bonus issue of PS to its OS
holder ranking equally with the current PS holder.
v. The current PS holder challenge the proposal
vi. Court held that there is no variation of class right
vii. The current PS holder is not affected in any manner except in the aspect of the
dilution of voting power, if any.
viii. To the current PS holder, their right remain intact, no changes.
ix. It is their enjoyment to exercise the rights as PS holders that are affected due to
the watering down by the company.
- Greenhlagh v Arderne
a) This case applies the same reasoning as in the case of Bristol.
i. There are two classes of OS holders.
ii. 10s & 2s OS ranking apri passu
iii. Greenhalgh hold the bulk of 2s shares, hen ce controlling the company.
iv. A resolution was passed to subdivide the 10s shares to 2s shares, each ranking
pari passu with the original 2s shares.
v. From the resolution, Greenhalgh voting power was watered down as the other
sharesholder voting power was increased by 5 times.
vi. Lord Greene MR applies the same reasoning, no variation of right. Outcome of
judgment will be different if the resolution is to grant the 10s shareholders five
votes per share.
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- S65 (6)
a) The principle in Bristol & Greenhalgh is not applicable under CA
b) The issue of PS ranking pari passu with the existing PS shall be deemed to be a variation
of rights
c) Unless if there is an authorization by the company’s AOA or by the terms of the existing
PS
- Case study – Re Saltdean estates; Re Mackenzie
 Procedure for variation of rights

- Art 2 of Table A
a) It is possible for directors to issue different classes of shares subject to a resolution of
the company. This power of directors is subject to AOA.
b) If class rights are attached to the company MOA, there cannot be a variation except in
accordance to the procedure set out in the MOA itself.
- Crumpton v Morrine Hall

a) The company provides for a variation of right clause in its AOA. The clause requires the
consent of majority of the holders of the class right.
b) Plaintiff did not consent to the modification of rights. Jacobs J stated that if such
modification of rights clause exists, it must be complied with, otherwise, modification is
ineffective.
- S65 (1)
a) Even if the procedure of the CA is complied with, CA under this provision provides for a
statutory protection to minority shareholders. For this section to apply, statutory
condition that have to be fulfilled and the effect of the application are;
i. Must be applied by shareholder/s of at least 10% of that class
ii. Application is made to cancel the variation of rights
iii. The variation of rights shall not be effective until confirmed by the court.
- Re Holders Investment Trust

a) The court in this case disallow the variation of right because;
i. Majority of PS holder are also OS holder
ii. The variation would greatly benefit the OS holder
iii. Court decline to confirm the variation as it unfairly prejudice the shareholders of
PS class as a whole.
- S65 (4)
a) This provision granted the court discretionary power to allow or disallow the variation if
an application is made under S65.
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Capital Maintenance
Meaning of share capital
Share capital of a company allocates three basic elements of enterprise, the risk of loss, powers of
control, and participation in profits.
 Share capital under CA

- CA uses few different expressions in relation to the words capital
a) S18 – authorized/nominal capital
b) S48 – issued capital
c) S54 – paid up capital
d) S60 & S61 – reserve capital
 Types of capital
- Nominal/authorized capotal
a) A company limited by shares is required to register a fixed amount of nominal shares in
its MOA.
b) Re Scandinavian Bank Group

i. Nominal capital is the maximum amount of capital which a company is
authorized to raise by issuing its shares.
ii. The nominal capital is measured in term of what is called the par value.
iii. Par value of the shares is the face value of the shares which denotes the limit of
shareholders’ liability.
c) Second Schedule CA (pg 313 CA)

i. The registration fee of a proposed company varies with the amount of the
nominal capital proposed to be registered.
d) S62
i. Company may alter its share capital from time to time
e) Bank of Hindustan, China and Japan v Allison

i. Any issue of shares by a company in excess of its nominal capital is void. The
allottees are entitled to have any sum paid for such allotment to be refunded.
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- Issued capital
a) Re Swan Brewery Co
i. Issued capital is the part of authorized capital which has been issued to its
members
b) Mills v Mills
i. A share is said to be issued if the name of shareholders has been registered in
the register of members in respect of those shares.
- Allotted capital
a) Raja Khairulzaman Shah v Zaman Indah
i. An allotted capital is that part of nominal capital which has been allotted to the
members.
ii. Shares are deemed to have been allotted when the person acquires the
unconditional right to be included in the company register of members in
respect of those shares
iii. This case also distinguished the meaning between issue and allotment.
- Paid up capital
a) Paid up capital is the part of the issued capital which has been fully paid up by the
shareholders.
- Unpaid capital
a) The part of the issued capital which has yet to be paid up by the members. Directors can
call up for the payment of unpaid capital in accordance to AOA or the term of the
shares.
- Reserve capital
a) Reserve capital is the part of the uncalled capital which a limited company, by special
resolution, determined that it is not capable of being called up except in the event of
the company winding up.
b) Barlett v Mayfair Property

i. A company has no power to pledge or dispose of its reserve capital for other
purpose except as provided in the Act; S56 (2), for to do so in contrary is to miss
the meaning of the legislature as expressed in the language used.
ii. The object of this section is to preserve intact the amount of that capital for the
general creditors in the event of winding up.
c) Re Midland Railway Carriage & Wagon

i. Once the reserve capital is created, it appears that it may not be nullified or
cancelled except by way of reduction of capital.
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 The concept of capital maintenance

- Ooregum Gold Mining Co of India v Ropper
a) The concept of capital maintenance is geared substantially towards the protection of
creditors of the company who, in the eyes of law, have an interest in the paid up share
capital and other assets of the company.
b) The capital is fixed; certain and every creditor of the company is entitled to look to that
capital as his security.
- Trevor v Whitworth
a) Also designed to prevent the company from returning the capital to its members leaving
the company a worthless corporate shell and hence, prejudicing the right of the
creditor.
- Fairview School v Indrani Rajaratnam

a) Unless controlled by law, there is nothing to prevent the company from returning all of
its share capital and assets to its member rendering it a worthless shell.
b) It is cardinal principle of company law that the capital of accompany once raised must
be maintained.
c) Be that as it may, the capital may still be liable to be spent or lost in carrying on the
business of the company. But the principle still stand, no part of it can be returned to a
member.
- Re Exchange Banking (Flitcroft’s Case)

a) A company owes a duty to its creditor to preserve its assets for the payment of its debt
and may not dissipate them by applying it for improper purpose.
 Provision designed to prevent watering down of capital as it comes into company

- Underwriting Commission
a) There is no express statutory provision for the underwriting of shares. Underwriting
usually means agreeing to subscribe the number of shares specified in an underwriting
agreement. Usually done in case where the public did not subscribe for the shares
before the deadline.
i. Re Consort Deep Level Gold Mines ex p Stark
 Underwriting agreement is an offer and it becomes a binding contract
when it is accepted by the company and notice of its acceptance is given
to the underwriter.
ii. Arnison v Smith

 Subscribing means entering into agreement to take shares by means of
formal application under which there is a liability to pay.
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iii. S58 (1)

 It is lawful for a company to pay a commission to any person in
consideration of his subscribing or agreeing to subscribe, or procuring or
agreeing to procure subscription for the company shares subject to the
condition in the CA.
b) Condition
i. S58 (2)
 Unless the condition and procedure in this section is complied with, the
capital money or shares can’t be applied for directly or indirectly for the
payment if any commission.
ii. S58 (1) (a)

 AOA must authorize the payment of commission
iii. S58 (1) (b)

 Shall not exceed 10% of the price of the shares or the amount
authorized by AOA, whichever is less
iv. S58 (1) (c)

 The rate of commission must be disclosed in the prospectus or circular
inviting the public to subscribe to its share,
v. S58 (1) (d)

 The number of shares that had beend agreed to be subscribed for
commission is also disclosed.
- Issue of shares at discount

a) Ooregum Gold Mining Co of India v Ropper
i. The general rule is that company must receive full nominal value of its shares
upon issue of subsequently. A company may issue partly paid up shares, but
when it does so, the liability to pay of the unpaid portion remains in existence.
ii. This case formally established the rule of common law that prohibits the issue of
shares at discount because it constitutes a reduction of share capital.
iii. Besides that, it is also unfair to the existing members if the new/other members
obtain shares at a discount but is guaranteed with the same right. This is called
the Ooregum principle.
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b) Welton v Saffery
i. This rule cannot be dispensed with by anything in the MoA or AoA or resolution
by the company or contract between members of company or with outsider.
c) S59
i. This provision of CA modified the Ooregume principle to a certain extent. This
provision allows company to issue shares at a discount subject to restriction of
the Act.
ii. S59 (1)

 The shares must be a shares of a class already issued. Young J in Re
Globite Australia in his dictum stated that the rational of this pre-
condition is unclear.
iii. S59 (1) (a)

 The issue of shares at discount must be authorized by resolution passed
in general meeting subject to confirmation by court.
iv. S59 (1) (b)

 Resolution specifies the maximum rate of discount
v. S59 (1) (c)

 After the passing of 1 year of the date which the company is entitled to
commence business. Only then can issue shares at discount.
vi. S59 (1) (d)

 Issued within 1 month after the confirmation of court in (a).
d) S59 (2)
i. Granted the discretionary power to court whether to make an order confirming
the issue of shares at discount or not.
e) Re Esmeralda Exploration
i. French J stated there are two main guidelines for court in exercising the
discretionary power.
 The proposal for issue of shares at discount is bona fide and is for the
best of interest of the company from the commercial perspectives
 No one is prejudiced by the issuance of shares at discount.
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f) Mallina Holdings v Biala

i. Disclosure of facts to voting shareholders during the general meeting to pass
the resolution for issue of shares at discount also plays prominent role.
ii. If the disclosure is unsatisfactory, court may refuse to confirm the resolution.
g) Additional restriction
i. S59 (4)
 The shares must be offered to the existing shareholders of that class
proportionately to the number of shares that each holds. This is the
statutory right of pre-emption that exist notwithstanding any contrary
provision in AOA or MOA.
ii. Ooregum Gold Mining Co of India v Ropper

 If shares are issued at discount without following statutory
requirement, holders of the shares are liable to pay the difference of
the amount
iii. Hirsche v Sims

 Similarly, if the directors are the one to issue shares at a discount
without complying to the statutory provision, they are considered to be
in breach of duty. They may be made accountable to pay for the amount
of discount given.
h) Circumventing the rule against discount in practice

i. S54 (3) & (5)
 May pay for shares in consideration of other than cash (service, goods)
consideration value may be less than the nominal value of share issued.
ii. Ooregum
 If the BOD honestly regards the consideration represent the nominal
value, court will not interfere.
iii. S58
 Permits company to pay commission to its subscriber
iv. S58 & Keatinge v Paringa

 The section permits the company to pay commission to its subscriber.
 The power to pay for commission must be exercised bona fide. If it is
used as a device to issue shares at discount, court may consider such
issuance as colorable.
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- Issue of shares at premium

a) Issuing shares at premium means issuing shares at value that exceeds its nominal value.
b) S60 (2)
i. If company issue shares at premium, it must create a share premium account.
ii. The premium must be reflected in the share premium account. For example,
share’s nominal value is RM1, shares issued at premium RM1.50. the total
shares issued is 10 (nominal value of RM 10 and premium RM5). The share
premium account must be RM5.
iii. Even if the consideration is not in form of cash, share premium account must be
created. The section allows for consideration other than in cash form.
iv. The Company Act of reduction of capital provision shall apply the same to share
premium account.
c) Shearer v Bearcain
i. A company may issue shares at premium although there is no obligation to do
so.
ii. The directors are duty bound to value assets before acquisition if the assets are
to be used as consideration for shares
iii. It is not open to the company to decide arbitrarily what valuation to put on the
assets. If the values of the assets are above nominal value, share premium
account must be created.
d) Re Hume Industries
i. Formerly, it was possible to pay dividends out of the premiums but this position
has been modified by S60 (3) (c) where the dividends out of premium account
may only be applied in the form of shares, not cash.
ii. This case also held that premium account is not divisible profit. It could not be
applied to pay for cumulative preferential dividends.
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 Provision designed to prevent capital flowing out of the company

- Prohibition on company purchasing their own shares
a) S67 (1)
i. Laid down the general prohibition that except as provided by CA, company shall
not whether directly or indirectly acquire shares in its holding company. The
reason for this prohibition is that this would amount to a return of capital to the
members. This rule may be said so as to originate from the common law
position.
b) Trevor v Whitworth
i. Purchase by company of its own shares will be void even though the purchase
may be authorized by its AOA, or passed as resolution in the general meeting.
The purchase would amount to diminution of capital/reduction of capital which
would be invalid unless affirmed by the court. This rule was applied in the case
of Mookapillai v Liquidator Sri Saringgit.
c) S67A
i. This provision is one of the two exceptions to the prohibition of company buying
its own shares.
ii. This provision may only be applicable to

 S67A (1) – a public company with share capital
 S67A (2)(a) – solvent and will not be solvent by such purchase
 S67A (2) (b) – the purchase is made through stock exchange
 S67A (2) (c) – the purchase is made in good faith and in the interest of
company.
d) Redeemable PS
i. Second exception to company buying back its own shares. Company may not
buy back its own shares but it may issue redeemable PS, which they may be
redeemed at the option of the company if S61 are complied with.
ii. S61 (1)

 The issue of such shares must be authorized by AOA and the issuance
must complied with the statutory provision.
iii. S61 (2)

 Redemption of redeemable PS does not reduce the capital of the
company.
iv. Re St James’ Court Estate

 Existing PS or OS may not be converted to redeemable PS.
18
v. S61 (3)
 Statutory condition for redemption are
o Redeemed using the profits of the company
o Or through the proceeds of new shares issued for the purpose
to redeem such shares, and must created a capital redemption
reserve as under S61 (5).
o Can only be redeeming if they are fully paid up.
e) Obligation to redeem
i. The obligation to redeem is based on the term of redeemable PS, and upon
notice by the shareholders to have the company to redeem it in accordance to
the terms.
ii. Commissioner of Taxation v Coppleson

 Obligation to redeem depended upon the availability of profits or the
proceeds of the fresh issue of shares for the purpose of redemption. If
such profits or proceeds is not available, then the company would not in
breach of its obligation even if notice had been given.
iii. Re Holders Investment Trust

 Megarry J stated that company is in breach of its contractual obligation
to redeem even if profit or proceeds is not available
iv. Re Marra Development

 Redeemable PS holder may enforce his right to petition to have the
company wound up. The basis of liability would most likely be on the
ground of just and equitable as the company failed to honor its
obligation.
- Lending money on the security of its own shares

a) S67 (1) prohibits company to directly or indirectly to lend money on the security of its
own shares.
b) Chung Kiaw Bank v Hotel Rasa Sayang

i. Based on the principle established in this case, it is suggested that lending
money made in contravention of S67 be void for illegality under Contract Act.
c) S67 (6)
i. Provides that company may recover any amount of load made in contravention
of the section even though the contract was void. Otherwise, the loss which the
law is designed to prevent from occurring, would occur as a result of void
transaction.
19
- Prohibition on company to provide financial assistance for acquisition of shares

a) Trevor v Whiteworth
i. The rule in this case is that a company may not purchase its own shares has now
been extended in S67 (1) to include prohibition on giving financial assistance to
persons to acquire its own shares.
b) Re VGM Holdings
i. Whether to subscribe or to purchase. Do not that there is a difference between
subscribing and purchase.
c) S67 (1)
i. There must be financial assistance or otherwise
ii. Given for the purpose or in the connection to purchase or subscribe shares
iii. Whether directly or indirectly.
d) EH Dey PTY v Dey

i. The word otherwise shall not be given ejusdem generis interpretation for there
are various ways of giving financial assistance.
e) Example of financial assistance

i. Selangor United Rubber Estate v Craddock
 Craddock through a puppet in the company’s BOD cause the company
to lend money to his company.
 His company then lends the money to him. He then used a bank to bid
the bidding of the Companys’ shares. The money he obtained from the
loan was used to cover the cost of the takeover.
 Court held that this amount to financial assistance.
ii. Yap Sing Hock v PP

 When company gives guarantee or security for loan to a person to
enable him to acquire the company shares, this amounted to giving
financial assistance for the purpose of this section.
 It may be argued that if the guarantee or security is provided personally
by the member of the company, it might not be a contravention of this
provision.
iii. EH Dey v Dey

 Release of debt or obligation may amount to financial assistance if the
effect of the release effectively reduces the price payable for the shares.
20
iv. Belmont Finance v Williams Furniture

 The man sold to Belmont his company. The proceeds of sale was used to
purchase Belmont’s shares.
 At the end of the transaction, he owned Belmont and in turn, also
owned his original company. It was held that this transaction is not a
bona fide commercial transaction and amount to illegal assistance.
v. Kidurong Land v Lim Gaik Hua

 The company asset being used to finance the creation of consideration
for the transfer of shares also amount to illegal financial assistance.
vi. Chung Kiaw Bank v Hotel Rasa Sayang

 Transactions in contravention of S67 are null and void.
- Excluded transaction
a) Foreign companies
i. Refer to the wording of S67 the definition of companies in S2.
b) Lending of money is part of its ordinary business

i. Steen v Law
 Court will adopt a restrictive approach to interpret.
 The company carrying on business selling automatic vending machine
 Not in ordinary course of business to provide loan.
c) Share ownership scheme
d) Financial assistance to employee other than directors.

i. Commissioner for Corporate Affairs v Wynyard
 Just because a person is an employee, does not mean he is employee
bona fide as it may be abused to circumvent the prohibition on financial
assistance. It is a must to prove employer-employee relationship.
21
- Payment of dividends
a) S365
i. The general rule is that member of company may not get money from the
company except in form of dividend.
ii. The section provides that dividend is only payable in form of profits, or pursuant
to S60; the share premium account.
b) Re Holben, Hubbard & Co

i. A member has no unconditional right to receive dividends. Similarly, company
also has no obligation to pay for dividends.
ii. This remains true even when there are profits remain available, unless there is a
specific provision to contrary in AOA or MOA that provides for condition that
company must pay dividends.
c) Re Marra Development
i. Once a dividend has been validly declared, it is a debt owed by the company to
its members. The declaration cannot be revoked or cancelled nor can the
amount of dividend be reduced.
ii. The unavailability of profits during the time to pay the dividends is immaterial.
What is important is the availability of profits during the declaration to pay
dividends.
 Reduction of share capital

- Merchant Credit v Industrial & Commercial Realty
a) A company has no power to refund to its member the money the paid for their shares.
The company also cannot convert its capital into loan and purport to repay its member.
- S64
a) Aside from that company also cannot reduce or return the share premium account or
the capital redemption reserve except for the purpose specified in the respective
provision or in accordance to the provision under S64 to reduce the capital. All
reduction of share capital must be made in accordance to S64.
b) S62 (2)
i. Provides that the shares that has not been taken up or have been forfeited can
be cancelled and such cancellation does not amount to capital reduction.
c) S60 (3) (e)

i. The application of share premium account to pay expenses of premiums shares
and subscription process also isn’t considered as reduction of capital.
22
d) S181
i. The cancellation of shares by order of court is also not considered as reduction
of capital.
- Example of reduction of capital

a) Merchant Credit v Industrial & Commercial Realty
i. Refund of money subscribed for shares or conversion of capital to loan to
members for the purpose to pay it to the members.
b) Jenkins v Harbour View Court

i. The return of company’s asset to its member. In this case, the company asset
was leased to member without payment in consideration.
c) Holmes v Newcastle-upon- Tyne

i. Sale of company assets and division of proceeds between members.
d) S64 (1) (a)

i. The reduction or extinction of a member’s liability to pay the amount unpaid on
his shares.
- Procedure to reduce the capital

a) All the procedure is provided for under S64.
i. Authorization by the company AOA
ii. Special resolution for the reduction
iii. Confirmation by the court.
b) S64 also provides that

i. A creditor may object to the diminution of capital if company is returning the
assets to its member, where he can prove that he is entitled to it if the company
wounds up.
ii. Creditor may still object even if there is no return of assets to the member of
company.
iii. A creditor that did not object (due to his ignorance of the nature of proceeding),
and the capital was subsequently reduced
iv. If the claim is disputed, the court shall have the jurisdiction to adjudicate the
claim.
23
- Confirmation by court
a) Court have to consider few factor before making an order allowing for capital reduction
i. Ex p Westburn Sugar Refineries
 Whether the interest of present or future creditors are prejudiced by
the reduction
 The court may also consider the public interest at stake.
ii. Poole v National Bank of China

 Whether it is fair among the members inter se.
 The court does not need to consider whether such reduction is wise
from the business point of view or not.
b) S 64 (4)
i. Before confirming the order, the court must be satisfied that all creditor who
are entitled to object
 Have given consent
 Or his claim has been discharged or secured
24
Directors
Introduction
In Ferguson v Wilson, it was stated that company being a fictitious persona cannot act in its own person
for it has no person. Being a persona ficta, it may only act through the agency of natural person.
This is illustrated in Table A, Art 73, where it can be seen that typically, AOA entrust the business of a
company to be managed by a body of person called the directors.
 Type of Director
- S4 (1) state that directors include
a) Person who occupy the position of director by whatever name called
b) Person whose direction/instruction, the directors of corporation are accustomed to
act/often followed.
c) An alternate/substitute director
- Chan & Koh

a) The definition is very wide and is not restricted to a director properly so called & duly
appointed to such office.
b) It concentrates on the person who occupies the position of director and is able to
influence the management of the company.
- Mason J in Corporate Affairs Commission v Drydale

a) The person who holds a position denotes the lawful holder of the office.
b) S4 emphasizes on occupation rather than holding of the position.
- There are 5 identifiable sub-species of director.

a) Executive director (ED)
i. ED is a person who works for the company on a more or less full time basis,
possibly under a contract of service.
ii. ED is usually involves directly in the management of the company
b) Non-executive director (NED)

i. NED is a director who does not work for the full time company in a full time
capacity.
ii. Usually, NED is nominees of major shareholders. Their job is not to run the
company, but to keep a close eyes on the managers & ED in order to safeguard
the major shareholder’s investment.
25
c) Alternate director (AD)

i. AD is a person who represent the principal director when is unable to present
by himself for his duty.
d) Informal/ De Facto Director (DFD)

i. DFD is a person who act or discharge the function as a director although was not
validly appointed as such.
ii. DFD usually are directors whose procedure of ap[appointment is not followed
properly and hence, invalid appointment.
iii. However, still a director under S4.
e) Shadow Director (SD)

i. Harman J in Re Unisoft Group (NO 3)
 SD must be, in effect, the puppet controlling the action of the board.
 The directors must be under the direction of the SD.
 The board of directors/director must ac on direction or instruction of
the SD as a matter of regular practice.
 The term regular practice refers to acts over a period of time, and as a
regular course of conduct, as opposed to act on one individual occasion.
f) Re Hydrodam
i. Millet J stated that the difference between DFD & SD is that
 DFD held out as a director by the company, claims and purport to be
director although was never validly appointed.
 SD does not claim to be directors. He instead, hide behind the others,
and claims that they are the directors of the company to the exclusion
of himself.
 The company also did not held him out as the director. In order to prove
a person is SD, there are 4 matters that need to be prove
 Who are the directors of the company, de jure or de facto, both of them
 The de facto or de jure directors is directed by the alleged SD on how to
act
 Those directors followed the direction
 On regular basis.
26
g) Selangor United Rubber Estate v Craddock

 Prohibition of financial assistance to director
 Craddock through a puppet in the company’s BOD cause the company
to lend money to his company.
 His company then lends the money to him. He then used a bank to bid
the bidding of the Companys’ shares. The money he obtained from the
loan was used to cover the cost of the takeover.
 Court held that this amount to financial assistance.
 Classic case of shadow director
- Consent to act as directors

a) Hedges v NSW Harness Racing Club
i. The appointment of a person as a director in a company should not be imposed
on any person without his consent as directors and bears significant statutory
and fiduciary obligation.
b) S123 (4)
i. A person is required to make and lodge a statutory declaration stating that he
consent to the appointment.
c) Yap Sing Hock v PP

i. The non filing of SD is merely an irregularity and the person can still be held as
director by virtue of S4 as de factor director.
Appointment of director
 First Director and subsequent director

- S122
a) The Act requires the first director of a company be named in its Moa or AoA by virue of
S123 (3).
b) S122 (1) provides that there must be two person registered as the first director.
- Number of directors
a) S122 (1)
i. Ac company must have at least 2 directors, where both of have a residence
status in Malaysia.
27
b) Fong Poh Yoke v The Central Construction

i. The word residence in the context of taxation law must be applicable for the
company law purpose.
ii. Residence connotes a degree of continuity not taking account
accidental/temporary absence in Malaysia.
iii. Whether a person is a resident or not is a question of fact.
- Harman v Energy Research Group

a) If AOA or MOA did not provide for the method of appointment of first director, it is
implied that the director could be appointed at the general meeting of members.
- Resolution to appoint directors

a) S126 (1)
i. In case of a public company, the appointment of two directors or more shall not
be made by a single resolution.
ii. The exception is only if the member passes a previous resolution that allow for
simultaneous appointment of directors by a single resolution.
iii. The previous resolution however must be made unanimously at a general
meeting.
b) S126 (2)
i. A resolution passed in contravention of this provision is void.
- Power to appoint given to outsider

a) Raffles Hotel v Malaysian Banking
i. AOA may provide power to appoint director to outsider.
ii. However, such article will not be enforceable by a person who is not a member
of company.
iii. Because AOA is binding amongst member and between member and company
only.
b) British Murach Syndicate v Alperton Rubber

i. The power to appoint director is only enforceable by outsider if there is a
contract outside the AOA and may be enforced via specific performance.
- Subsequent appointment
a) The power to appoint subsequent director is usually contained in the AOA and
exercisable during the general meeting.
i. Table, Art 63-72 for example contained such provision.
ii. AOA usually allow the board to appoint new director to fill casual vacancy or to
the appointment of additional director.
iii. E.g Table A, Art 68.
28
b) Goh Kim Hai Edward v Pacific Can Investment

i. Power to appoint is a fiduciary power and director must act in the best interest
of the company.
ii. Company is entitled to dismiss a director if he is appointed to further the
interest of the appointee or appointer rather than the interest of the company
iii. Prakash J held obiter that a person is under duty to disclose the facts that might
affect their deliberation when he is considered to be appointed as director.
iv. Failure to do so might induce breach of fiduciary duty.
 Qualification of director
- S122 (2)
a) CA only provides two positive qualification in order for a person to be a director of a
company
i. Human
ii. Full age
- Table A; Art 71
a) Company may by AOA provide the shareholding qualification to qualify as directors.
b) S124 (4) &(1) - The person must obtain his qualification within 2 months.
c) S124 (3) - Failure to so, the person must vacate his office.
d) S127 - The act of such director during that period are valid. Will be held as de facto
director.
e) Archer’s Case
i. Lindley J stated that the purpose of shareholding qualification is to impose upon
the director a personal interest in the company so that he will attend to the
company’s affair as different as compared to when he has no interest in the
company.
f) Bainbridge v Smith
i. Nothing in the Act provides that the share qualification is where the director
must posses the company’s share in his own right.
ii. Hence, it is possible for a director to hold qualification shares as trustee for
another
iii. the purpose of a director’s shareholding is to abide by the qualification article.
29
- Age qualification
a) S122 (1)
i. A director must be of full age. Age of Majority Act provides that 18 years old is
the majority age.
ii. Applicable for PUBLIC COMPANY ONLY.
iii. A person aged of 70 years old or more cannot be appointed as director of a
public company, or director to any company subsidiary to the public company,
even if the MOA or AOA expressly allow for it.
b) S129 (2)
i. After he attains the age of 70, come the next AGM, his office shall be deemed
vacant.
ii. S129 (4) stated that his vacation of the office shall not be subject to automatic
reappointment.
iii. S129 (5) if the vacation of the office is not filled during the AGM which the old
director vacate his office, it may be filled as a casual vacancy.
c) S129 (6)
i. Provides for the exception to public company.
ii. A person aged 70 or more may be appointed as the director of a public company
or company subsidiary to a public company.
iii. The appointment must be made by the members of the company at a general
meeting.
iv. The notice to such meeting must be at least 21 days prior to it, or may be longer
as provided by AOA/MOA.
v. The resolution passed to appoint the old director must be approved by ¾ of the
members
vi. The resolution to appoint or to authorize the old director to act as director only
last until the next AGM.
 Defective appointment
- S127
a) Act of director shall be valid and binding on company notwithstanding any defect
discovered in his appointment or qualification.
30
b) Morris v Kanssen
i. The word qualification is not confined to the share qualification only.
ii. It can be any qualification set as condition for appointment.
iii. Lord Simonds differentiate the application of this section, defective
appointment and usurping of powers.
iv. He stated that where a persona acts as director, either without being appointed,
or in pursuance of a purported appointment made by a person/body not
authorized to make an appointment, the section shall not operate to validate
the action of such directors.
v. It is envisaged that Section 127 is designed to apply where there has been a
purported appointment, albeit an ineffective appointment.
vi. It does not apply to situation where appointment is by fraudulent usurpation of
authority.
c) Re Bridgeport Old Brewery

i. An outsider having notice of the irregularity of defect of the appointment
cannot avail himself the advantage of S127.
ii. The outsider must act in good faith, which honestly does not appreciate or did
not know the legal consequence of the fact giving rise to defective appointment
in order to rely on such statutory protection.
Disqualification of Directors
 Undischarged bankrupt
- S125
a) Prohibited undischarged bankrupt, unless with the leave of court,
i. to be directly or indirectly involved with the management o the company,
unless with the leave of the court or,
ii. acting as a director.
- Walter Woon
a) Nothing in Companies Act states that undischarged bankrupt lack the capacity to be a
director. An analogy to a driver whose driving license is revoked is made by him. He
stated that such driver is prohibited from driving, but he can still actually drive.
b) For such reason, he states that S125 only penalize the undischarged bankrupt as an
offence.
c) S127 further provides that such an act by the director shall be valid notwithstanding the
prohibition for undischarged bankrupt to act as a director.
31
- Re Altim Pty
a) The disqualification is not meant as punishment but as protection to the company.
b) As there is a presumption that a bankrupt cant properly handle his own financial affairs.
 Disqualification by conviction of crime.

- S130 (1)
a) Provides that a person convicted of the offence below shall be disqualified as a director
i. Any offence in connection with the promotion, formation or management of
corporation;
ii. Any offence involving fraud or dishonesty;
iii. Or any offence under S132 (breach of fiduciary duty, duty of skill and care, or
statutory duty) or under S303 (duty of bookkeeping).
iv. The prohibition last for five years, after the date of his conviction, or the release
from prison, whichever is applicable.
b) Walter Woon
i. Stated that there is no definitive list of the offence.
ii. He opined that any offence under CA is the offence under S130 (1) (a).
iii. The wording of the section state the word conviction. Meaning, even if the
element of fraud or dishonesty is proven, if the person is not convicted, he shall
not be disqualified.
iv. Further stated that S130 caused an automatic disqualification, as opposed to
S130A, disqualification by application.
v. The aim of this disqualification is not to punish the person,
 Disqualification by involvement in insolvent companies

- S130A (1) (a)
a) Court upon application may disqualify a person from acting as a director or to take part
in the management of a corporation directly or indirectly.
b) The duration of prohibition is under the discretion of the court but may not exceed 5
years.
c) The criteria that the court has to consider is
i. Is or has been a director of a company (Company A) which has gone into
liquidation while he is the director or subsequently appointed as such; and
ii. Is or has been a director of another company (Company B) which has gone into
liquidation while he is the director or subsequently appointed as such, within
five years of the liquidation of Company A; and
iii. That his conduct makes him unfit to be concerned in the management of the
company.
32
- S130A (10)
a) A company goes into liquidation under this section means
i. Company wound up by order of court
ii. Voluntarily wound up.
- S130A (3) & (2)

a) The application is made the official receiver (OR).
b) OR is defined under S4.
c) OR shall then served a notice to the person intended to be disqualified.
d) Who is OR?
i. The general nature of OR is as an independent, impartial party appointed by a
bankruptcy court as an interim receiver and manager of the property to which
debt is charged.
ii. He or she presides over the creditors' meetings in examination of the property
in receivership and often, when winding-up order is issued by the court, serves
as a provisional liquidator.
- S130A (4)
a) OR must be made parties to the proceeding.
- S130A (7)
a) OR may require information.
33
Remuneration and Vacation of Office

Remuneration
Unlike the Singapore’s CA, Malaysian CA is silent on director’s remuneration issue. Hence, by virtue of S5
CLA, reference to common law is applicable.
 Right to remuneration
- Boulting v Association of Cinematograph
a) Director is not ipso facto an employee of the company. Consequently, he is not entitled
to remuneration by virtue of his office.
- Craven-Ellis v Canons
a) Director cause of action to recover the remuneration is not based on the rights of a
member but rather, a separate contract to pay remuneration.
b) Because the MOA & AOA constitute binding contract between member in respect to the
right as member only.
c) A director however, may recover any sum due to him when he provides his services on
the basis of quantum meruit, provided if the contract of remuneration is a null and void,
or when there is no provision of remuneration.
- Art 70, Table A

a) Director’s remuneration shall be determined by the company in general meeting.
 Payment for loss of office

- S137
a) Particulars of proposal for payment must be disclosed to members of Company and
approved during GM.
b) Otherwise, any payment made is illegal, and the receiver shall held in trust for the
company.
34
Vacation of office
 Resignation
- AOA may provide for method of resignation.
a) Example is under Art 72 (e), resignation by notice in writing.
- Glossop v Glossop
a) Director is entitled to relinquish his office at any time by a proper notice.
b) Company are in no position to refuse resignation, even if there is a contract. It is general
principle of law that the court will not enforce personal service contract.
c) However, liabilities for breach of contract may still be incurred.
- S122 (6)
a) Resignation is not allowed if the number of director is less than 2.
- Khoo Choon Yam v Gan Miew Chee

a) Resignation under duress is void.
b) In this case, the director was held to have been made to resign under duress.
c) This is because, the resignation is by undated resignation letter which was held by the
Board of Director.
d) The director was able to proof that there is an element of udress.
 Retirement
- AOA may also provide for retirement of directors, except for public company.
a) Art 63 Table A - All directors shall retire at the first AGM.
b) Art 64 Table A – retiring directors are eligible for re-election
c) Art 65 Table A – during the subsequent year, the most senior director shall retire. The
word senior refers to the duration of holding the post. If there are two directors,
retirement shall be by agreement between such directors or by drawing a lot.
 Automatic vacation
- Solaiappan v Lim Yoke Fan
a) AOA may provides for automatic vacation of office if certain facts has happened.
b) In such case, there is no need to pass a resolution to have the director vacate the
position.
c) Example of such facts is provided for under Art 72 Table A.
35
 Removal
- S128 (1)
a) A director of public company may be removed by ordinary resolution notwithstanding
anything in MOA/AOA.
- Tuan Haji Ishak v Leong Hup Holding

a) S128 override the AOA/MOA. Ordinary resolution is sufficient.
- S128 (2)
a) Special notice must be given to the director.
b) Pursuant to S153, special notice must require expiration of 21 days before conducting
the general meeting.
- Bushell v Faith
a) It is possible to circumvent the effect of s128.
b) By weighted voting system
c) Weighted voting system is a system where one share may carry more vote.
d) For example, resolution to remove director, the director’s share will carry the right to
three votes power share instead of one vote per share as usual.
e) CA does not restrict this practice. Freedom of company set the rules of the voting
system.
- Tien Ik Sdn Bhd v Peter Kuok

a) S128 only applies to removal by resolution.
b) if AOA provides for removal by notice, S128 shall not apply.
c) The procedure of removal shall then be by AOA.
36
Duties of Director
Intro
S132 (1) provides for statutory statement of the director’s fiduciary duties. The duties outline under
S132 (1) is duty to act for a proper purpose, duty to act in a good faith, and duty to act for the best
interest of the company.
S132 (1A) – (1C) on the other hand embodies the director’s duties of skill and care. The breach of these
duties may warrant an action of negligence
The result of the breach of this duty will entail not only liability for breach of fiduciary duty/duty of skill
& care, but also statutory liability as these duties has been entrenched under the Act.
However, it can be understood that by virtue of S132 (5), S132 and its subsection is not exhaustive as it
was stated that this section is not a derogation of any law in respect of director’s fiduciary duty and duty
of skill and care or any other duty and liability. It merely is an addition to it.
Accordingly, by virtue of S5 of CLA, the English law shall be applicable for director’s fiduciary duty and
his duty of skill and care.
Fiduciary duty
 Nature of fiduciary duty

- Aberdeen Railway v Blaikie Bros
a) Lord Selborne stated that directors can be the trustee or the agent of company.
Director’s dual capacity is said to be when he is taking care of the company’s property
and money, he is a trustee, when he is representing the transaction or making a
transaction on behalf of the company, he is the agent.
- Hospital Products v United States Surgical Corps

a) Director are imposed with fiduciary duty because he is entrusted with discretionary
power where he can exercise to the detriment of the company.
b) Such power is vulnerable to abuse.
c) Because of such fact, the director stands in the fiduciary position in exercising their
power as a director, with the ultimate aim, to benefit the company.
37
 To whom does the fiduciary duty is owed?

- Percival v Wright
a) Plaintiff (shareholder) approached the directors to sell his share at 125 s. the directors
then purchase the shares for himself.
b) During negotiation with plaintiff, directors were approached by an interested buyer,
offering to him to buy the shares at more than 125 s per share. The negotiation with the
interested buyer however fails.
c) The plaintiff the take action to set aside the sale, by claiming that the directors breach
the fiduciary duty to disclose to the individual shareholder, the offer to buy shares at
more than 125 s.
d) Court held that director have no duty to disclose premature negotiation to individual
shareholders as it might be against the best interest of the company.
e) The judge further justifies the decision by stating that there is no question of unfair
dealings. This is because, it is the plaintiff that approach the director and states the price
he wish to sell it, of which the director agree.
f) Decision might be different if the director is the one that approach plaintiff and state
the price.
i. Chan & Koh stated this case however does not laid down the principles that
directors can never have fiduciary duty to individual shareholders.
ii. it was argued that this case should be confined to its facts.
- Allen v Hyatt
a) Directors have fiduciary duty to individual shareholders if they are representing them as
an agent, and is in position to induce them to act for the directors benefit to the
detriment of individual shareholders.
b) In agency situation.
- Coleman v Myers
a) Court held that in the absence of agency situation, director may have fiduciary duty to
individual shareholders in terms of representing to the shareholders the value of their
shares. The court in this case take into account the family character of a company where
i. Director stands in a dominant position.
ii. Directors degree of inside knowledge.
iii. The fact that shareholders habitually looked to directors for business advice and
information affecting the true value of the shares.
- Foss v Harbottle
a) However, it is obvious that director’s fiduciary duties to company override the duty to
any individual shareholders.
b) What is best for the individual shareholders might not coincide with what is best for the
company.
c) Such is the origin of the rule of Foss v Harbottle.
38
- Greenhalgh v Arderne Cinemas

a) Collective interest of members of company may properly be regarded as the interest of
the company.
- Mills v Mills
a) In the event of clash between interest of faction of shareholders, it is no longer a
question of director’s fiduciary duty and to whom it is owed, but the question of fairness
between the variation/different classes of shares.
- Intraco v Multi-Pak Singapore

a) Interest of group of companies as a whole may be considered, but not at the expense of
another companies in the group.
b) This is because, companies, although in the same group, but may have a different set of
shareholders and creditors.
- Kinsela v Russel Kinsela

a) It is emerging principle that directors also owed fiduciary duty to creditors when the
company is insolvent or nearing insolvency.
b) When solvent, directors owe no fiduciary duty to creditors.
c) This is because, in practical sense, when the company is insolvent or nearing insolvency,
the company’s property is primarily creditors’ property, to be used to satisfy the
company’s debt.
39
 Scope of duties
- Duty to act honestly
a) S132 (1)
i. Shall at all times act in good faith
b) Marchesi v Barness & Keogh

i. Act honestly refers to acting in good faith for the interest of the company.
ii. Hence duty of good faith is duty to act honestly.
c) Intraco v – Multi Pak Singapore

i. Duty to act honestly include duty to act in the best interest of company. The test
to be used is an objective test.
ii. Whether an honest and intelligent man in the same position taking into account
the facts as a whole, believes that transaction is for the benefit of the company
or not.
- Duty to act in the best interest of the company

a) S132 (1)
i. At all times for the best interest of company.
b) Re W & M Roith
i. The act by director must be for the best interest of the company.
ii. It is not necessary to prove dishonesty or mala fide.
iii. In this case, the act is morally laudable, to make a contract with the company
for the benefit of his wife, in the event of his death.
iv. However, such an act is not for the benefit of the company, thus, the contract is
not binding on the company as the director has breached the duty to act for the
best interest of the company.
v. Other’s interest must not be made paramount at the expense of the company’s
interest.
c) Intraco v – Multi Pak Singapore

i. In acting for the best interest of the company, director may take a long view in
business dealing that is to run some risk.
ii. Even if the decision results in loss, there will be no breach of duty if the
transaction is commercially justifiable.
40
- Duty to act for a proper purpose

a) S132 (1)
i. Shall at all time exercise his power for a proper purpose.
b) Howard Smith v Ampol Petroleum

i. Any discretionary power of director must be exercised for a proper purpse.
ii. To see whether the act is exercised properly or not, the court shall look into the
purpose of such power being conferred.
iii. The ultimate purpose is for the best interest of the company.
iv. For example, AOA may provide power to director to issue shares.
v. If director issue new shares, for the purpose of allowing foreign takeover, it can
be considered as an improper purpose.
vi. Court in this case declined to comment on the exact bound of act that director
should not do given the variety of practice in industry.
 Duty not to place himself in the position of conflict

- Contract with company
a) Abeerdeen Railway v Blaikie Bros
i. Company being a persona ficta can only act through its agent. It is settled that
such agent, directors; have the duty to promote the interest of the principal,
company; they are protecting.
ii. Hence, such agent has fiduciary duty and should not be allowed to enter into
contract with one whose interest he is bound to protect.
iii. He must also not enter into any engagement which may or can result in the
conflict of interest.
iv. This principle should be strictly adhered to and no question of fairness or
unfairness shall be raised.
b) S131
i. Modification of the non-conflict rule
ii. Under the section, director is not prevented from entering into a contract with
the company even if he has interest in such engagement, provided that S131 are
complied with.
iii. S131 requires director to disclose such interest to the meeting of directors, be it
direct or indirect.
iv. Such declaration may be made as soon as practicable when all the relevant fact
have come to the knowledge of the interested director.
v. S131 (6) stated declaration shall be made when either he become a director or
after when he has acquire the property/hold the office.
41
c) Art 81 , Table A
i. AOA may prohibit director from voting on contract which he has interest.
d) Art 72, Table A

i. AOA may provide for automatic vacation of office for failure to disclose interest.
e) Mercantile Credit Association v Coleman

i. Disclosure must be sufficiently disclosed to ensure the other director are
informed of the real state of affairs.
f) Tneu Beh v Tanjong Kelapa Sawit

i. Disclosure however is unnecessary if other director is already aware of the
nature of interest.
ii. Purpose of S131 is to ensure others are informed.
iii. In such cases, it is merely an unnecessary formality.
g) S131 (2) & (3)

i. Type of interest which need not be disclosed.
ii. Immaterial interest
iii. Director acting as guarantor
h) Tan Bok Seong v Sin Bee Seng

i. Failure to disclose, contract is void at the option of the company.
ii. If the company didn’t rescind, will be an estoppels to be relied by the director in
breach.
- Duty not to compete with the Company

a) Bell v Lever Brothers
i. In the absence of express agreement, or restriction from AOA/MOA, a person is
free to become a director event to a rival company.
ii. However he still owe fiduciary duty to both company and must not priorities a
company’s interest at the expense of another.
iii. In such case, he is walking a thin line.
b) S131 (5)
i. Allow director to hold position in other company.
ii. But modify the position of common law.
iii. Must declare his position, direct or indirect, that might conflict with his duty as
director in the current company.
42
- Duty not to make a secret profit

a) Regal (Hasting) v Gulliver
i. Director in fiduciary position,, he must not obtain profit out of corporate assets
or opportunities.
ii. There is no need to proof mala fide in this duty, as it is sufficient to prove that
director had made a profit, and the profit obtained is due to the corporate
assets or corporate properties.
b) Boardman v Phipps
i. Information can also be regarded as company’s assets.
c) Canadian Aero Service v O’malley

i. Corporate opportunities is the act of usurping or diverting a business
opportunity which his company is interested in;
ii. To himself, other person, or companies he is associated with.
iii. This duty not to appropriate corporate opportunities extend event after his
resignation.
d) Boston Deep Sea Fishing v Ansell

i. The argument that the company itself would not be able to obtain such profits
is irrelevant.
e) PJTV Denson v Roxy Malaysia

i. Apply the common law.
ii. Also held in this case, unless the director disclose the profit to the shareholders
in general meeting, and obtained their approval, they hold such profits in trust
for the company, or the company may sue them for breach of duties.
f) S132 (2)
a) CA also entrenched prohibition of the use of company’s assets, or corporate
opportunities without approval by the members in general meeting.
43
Duty of Skills, Care & Diligence
Walter Woon in his book stated that duty to display skill is conceptually different from duty to take care,
which is again different form the duty to be diligent, although interrelated. However, there is a general
tendency to lump these three duties into the general categories of negligence.
S132 (1A) entrenched the duty to take reasonable scare, duty of skills, and duty of diligence.
 Duty to be skilful
- S132 (1A) (a) & (b)
a) sets the standard of the duty to display skills.
b) These standard may be said so as to derive from the position of the common law
- Re City Equitable Fire Insurance

a) A director need not display a greater degree of skills that may reasonably be expected
from a person of his knowledge and experience.
- Re Brazilian Rubber Plantation

a) Both CA and common law did not prescribe minimum qualification before a person can
become a director.
b) If the director has special knowledge, only then, he must act within the standard of the
person possessing the same special knowledge.
c) Hence, action alleging the director is in breach of duty for lack of skills is most likely to
fail as it is the fault of the company itself for appointing such a director.
 Duty to take reasonable care

- Re Brazilian Rubber Plantation
a) This duty is closely related to the duty to display the skill. If a person professes a special
expertise, he must act within the standard of care that may be reasonably expected of
the same person with the same expertise.
b) If he has no special skills, he must take reasonable care of conducting the affairs of the
business as he would his own.
c) The test applied is an objective test that he should take care of the affairs of the
company as if he would reasonably take his own affairs.
- Lagunas Nitrate v Lagunas Syndicate

a) Director must exercise care of an ordinary man of the same position of his own.
b) If he has taken such care, even if the decision had proven to be detrimental to the
company, he will not be liable for error in judgment.
c) This position is now entrenched in S132 (1B).
44
- Steen v Law
a) However, director is under obligation to discover and familiarize himself with his right
and obligation under the AOA and the law.
b) This is because the ignorance of the law is no excuse.
c) He cannot except directorship and emoluments(perks such as salary) that come with it
and then plead he knew nothing of the AOA & the law.
- Huckerby v Elliot
a) However, a director may entrust other director or officials of the company to run the
business.
b) If there is any breach by the delegatee (other director or officials), he is not to be liable
for breach of duty.
c) This is only applicable if the delegation of power is done to person, where there is no
reason to distrust the delegatee.
d) If there is a reasonable suspicion, he may not delegate power to such person, otherwise,
may be liable for breach to take reasonable care.
e) This position has now been entrenched under S131 (1C).
 Duty to be diligence
- Re City Equitable Fire Insurance
a) Duty of directors are of intermitted nature. This means that, the director is not required
to attend all board meeting.
b) However so, continuous absence from the board meeting may be a proof of dereliction
of duty.
45
Statutory Duty
 S131 & S135 – general duty of disclosure

- Entrenched the duty to disclose and declare the interest of directors that might affects his
duty as directors.
a) This overlap with fiduciary duty.
- PJTV Denson v Roxy Malaysia

a) After disclosure and approval, directors may protect themselves from any action to
recover the secret profit or any action for damages for breaches of duty.
b) Failure to disclose and obtain approval, director shall hold the profit on trust for the
company, or the company may take an action to sue for damages.
 S132C – power of director to dispose company’s property/assets

- Restriction of director’s power of making substantial arrangement.
a) Director must obtain approval from the company in general meeting
i. Before acquiring property or disposing property
ii. Of substantial value
b) S132C (1B)
i. Substantial value is when it exceeds 25% of
ii. Total asset of company
iii. Or net profit
iv. Or total issued share capital, whichever is the highest
c) S132C (2)
i. Upon application by any member of company, court may restrain the director
from entering into such transaction
d) S132C (3)
i. Effect of transaction in contravention of this section, the contract made as such
is void
ii. Except in case where the person provides valuable consideration in entering the
transaction with the co, and have no notice of the contravention.
 S132D – restriction on director’s power to issue shares

- Director may only issue share with the approval of the company in general meeting
- Art 2, Table A
a) Power of director to issue share is subject by the resolution of the company.
46
 S132E – restriction on transaction of properties involving director/substantial shareholders

- S132E (1)
a) This restriction extends to person connected to director/substantial shareholders.
b) It can be shares or any non cash assets which is defined in its subsection.
c) The transaction can be transaction to, or from the company.
- S132E (2)
a) The transaction in contravention of this section is void unless approved by company in
general meeting.
- S122A (1)
a) Defined the word person connected to direction
- S132E (5)
a) Upon application by any member of company, court may restrain the director from
entering into such transaction
- S132E (4)
a) If the transaction has been carried out, director is liable for any loss incurred or to
account to company for any profit made.
- S132F
a) Provides for the exception to this restriction.
 S133 & S133A – restriction to give loan

- One applies to director and the other section applies to person connected to directors. The
prohibition are
a) Company shall not make a loan to director/person connected to director of the
company, or the subsidiary company
b) Is also prohibited to provide guarantee or security for such person’s loan transaction.
- S133 (5)
a) Nothing in the section shall operate to prevent the company from recovering the
loan/security.
b) The issue is that since such transaction attract criminal liability, it is by implication such
transaction is illegal, and hence, illegal contract are void and unenforceable.
c) Applies to loan to director. Can also be found in subsection of S133A. Applicable mutatis
mutandis.
47
- Koperasi Rakyat v Harta Empat

a) S133 (5) is designed to protect the company from losing its resources or capital. The
loan might be illegal, but if the general rule of contract is allowed to operate, the
purpose of S133 (5) will be defeated.
b) Hence, this provision saves the contract from its illegality.
c) Also applies to S133A.
- Exception to S133 & S133A

a) S133 & S133A
i. Not applicable to exempt private company (EPC).
ii. EPC is defined under S4 as company with less than 20 members, where no
corporation hold the share in it, directly or indirectly.
b) S133 (1) (c) & S133A (2) (c) (ii)

i. Does not apply if the loan is made under loan giving scheme of the company
ii. Where the director/person connected to him have full time employment in the
company.
iii. Made accordance the scheme
c) S133 (1) (b) & S133A (2) (c) (i)

i. To loan to purchase home
ii. Condition, must be in full time employment.
iii. To director, subject to S133(2), must obtain approval from company
d) S133 (1)
i. To directors only
ii. Loan approve under S133 (1) (a) & (b) must be subject to S133 (2) which is to
obtain approval by the company at the general meeting.
iii. If there is no approval, S133 (3) applies where directors authorizing the loan,
and directors taking the loan is liable to indemnify the company.
e) S133A (2) (a)

i. Applies to person connected to directors only
ii. Does not apply if the person provides sufficient security or guarantee to the
loans.
48
Effect of breaches by Directors
 Regal Hasting v Gulliver

- Full disclosure does not absolve the director from his liability. Any profit made is still
accountable to the company and for any loss incurred.
- If there is full disclosure, company have two option, either to take action or to approve or
ratify the breach.
- If company did not take action, director may rely on it as an estoppels to stop the companys
action later on.
Directors and members in General Meeting
 Automatic Self-Cleansing Filter Syndicate v Cunninghane

- Members cannot usurp on directors discretionary power on managing the company where
such power is vested on him by AOA or MOA.
- This is because he must take into account the minority interest of shareholders and the best
interest of the company, or in some time, duty to creditors.
- If members are not satisfied, they may either remove the directors by procedure under AOA
or alter the AOA/MOA themselves.
49
Proper Plaintiff Rule

Intro
On and from the date of incorporation, by virtue of S16 (5), company is capable of suing and being sued
in its own name. This statutory provision contain a separate rule that if the company suffers an injury or
damage, it is the company alone that can be a proper party to commence or maintain an action for
relief. This rule is commonly known as the proper plaintiff rule or rule in Foss v Harbottle.
Rule in Foss v Harbottle
 Foh Pong Yoke v Central Construction

- The rule of Foss v Harbottle precludes the court from enquiring into the wisdom of the acts
of those in control or managing the company affairs.
- From here, it could be understood that the rule of Foss v Harbottle embody two distinct but
interrelated concepts. The concepts being said is
a) Proper plaintiff rule
i. Proper plaintiff rule as in company is the right plaintiff to commence an action
for its injury
b) Internal management rule

i. Where the majority may decide to sue or may decide to ratify the breach or may
decide to take action for the injury or wrong done to the company.
 Chan & Koh

- The rule prevent a multiplicity of suits
- It also eliminate frivolous and oppressive litigation by minority members whose intention is
only to harass or to embarrass the company.
50
Statutory Derivative Action
 Right to bring a derivative action

- S181A (1)
a) Complainant may with the leave of court, may bring an action on behalf of the
company.
- S181A (4)
a) List down the type of person that may be a complainant
b) Individual members of the company is also included as a complainant.
- S181A (3)
- S181B (4)
a) The derivative action is by leave of the court. in deciding whether to grant leave or not,
the court must consider whether the complainant himself is acting in good faith or not,
and that it must be prima facie for the best interest of the company that such leave be
granted.
b) S181A (3)
i. Expressly stated that the right of complainant to bring a derivative action under
common law is not abrogated.
ii. Meaning, if can’t take statutory derivative action, may still take derivative action
under the common law.
- Mohd Shuaib v Celcom

a) Must satisfy both elements, good faith, and prima facie best interest of the company
b) Good faith means, the derivative action is taken with the primary purpose to safeguard
the interest of the company instead of one’s own interest
c) While in determining whether it is prima facie best interest of the company, the court
should looked into the fact whether the company stands to gain a substantial benefit
from the possible outcome of the case or not. The action to claim RM100 may be
meritorious, but the company only wastes its time and resources to recover such a small
amount.
d) It could also be the fact that the company does not want to purse the claim because it
does not want to generate adverse publicity, or to damage relationship. These are all
genuine commercial consideration. Hence, court must look whether there is a prima
facie advantage for the company or not in allowing the derivative action.
51
Common Law Derivative Action
 Introduction
- Prudential Assurance v Newman Industries
a) Derivative action is an exception to the elementary principle of the rule in Foss v
Harbottle.
b) The rule of Foss v Harbottle being the rule that A cant sue B for the injury done to C by
B.
- Edwards V Halliwell
a) Jenkins LJ conveniently list out 5 circumstances in which the right to take derivative
action may exist.
i. U/V act
ii. Fraud on minority
iii. Special Majority
iv. Personal Right
v. Where Justice so requires
- Strict application of the proper plaintiff rule will place the majority in a formidable position
to infringe the right of minority by benefitting from their wrongs. If applied rigidly, the
minority will be left with no remedies if the wrong does not concern their personal right as a
member. This is because the power to vote in general meeting is not accompanied with
fiduciary duty. This is due to the fact, that the right to vote derived from the ownership of
shares, which is considered as a property, where person have the right to use it as how they
want it to be.
52
 Ultra vires Act – first exception

- Ashbury Railway v Riche
a) When the act is u/v, the rule in Foss v Harbottle have no application because such an act
is wholly void and cannot be ratified even by the majority of members.
- Company Act itself allows any member to bring such an action for u/v act
a) Most notable example is under S20 (2), where to be more specific, S20 (2) (a). there are
also other similar provision such as in S133 and its subsection where members may
apply to court to prevent the company from entering into transaction which is
prohibited by the Act.
 Fraud on Minority- second exception

- There are two elements to be established in order to bring a derivative action under this
exception.
a) Fraud
b) Wrongdoers are in control of the company, and prevent the company from bringing an
action in its own name
- Fraud
a) Abdul Rahim v Krubong Industrial Park
i. Gopal Srim Ram JCA stated that fraud in this context is a term of art.
ii. it has nothing to do with actual fraud or deception at common law.
iii. it is not necessary to prove dishonesty
iv. it is sufficient for plaintiff to show that the majority abuse their power for
collateral purpose and not for the true purpose for which the power was
entrusted to them either by the MOA/AOA or by statute or general law.
- Wrongdoers in control
a) Tan Guan Eng v Ng Kweng Hee
i. Easiest way is to determine who is in control by looking at their shareholding.
ii. But modern practice has developed where it is a common practice to hold the
share (that comes with it the right to vote) for the interest of another person.
iii. Thus, a person may hide behind the others.
iv. In such cases, court should go behind the apparent ownership of shares to
determine who is in de facto control.
v. The wrongdoers must be the one in de facto control.
53
 Special majority – third exception

- Edwards v Halliwell
a) This is applicable in circumstances where the majority pass a resolution to override the
effect of provision that requires special resolution to be passed before effecting such
transaction or acts.
b) E.g under AOA, appointment of subsequent director require special resolution
c) The company passed a resolution to the effect that special resolution is not required to
appoint subsequent director.
d) Similarly, this is also applicable where there is insufficient notice is given prior to passing
the special resolution.
 Personal Rights – fourth exception

- Ling Beng Hui v Ling Beng Seng
a) Individual members have rights to bring an action for themselves if their personal right
has a member has been infringed.
b) The remedies obtained is confined to the members that participate in the action if the
action is taken by enforcing the AOA as contract;S33 provides that AOA is a contract
between company and member and also a contract amongst member inter se.
c) If taken under derivative action, remedies granted are to the companies as whole, not
individual members only.
d) If taken personally, the rule of Foss v Harbottle has no application at all.
 Justice so requires – fifth exception

- Biala v Malina Holdings
a) The development of modern commercial practice has made it difficult for minorities to
bring themselves to bring their case within the established exception. Many methods to
circumvent the established exception has been attempted.
b) Hence, this is a useful door left open, when justice clearly demands such claims be
allowed.
- Abdul Rahim v Krubong Industrial Park

a) Malaysian court is inclined to agree with the decision in Biala.
54
Statutory Remedies for Minorities

Shareholders
Alteration of MOA
 S28 (5)
- Derivative action may be taken to cancel alteration made via application o court
- This right is only available to holder/or holders with shares or combined shares not less than
10%.
 S28 (7)
- The factors court is to consider is
a) The right and interest of the other members and creditors of the company
b) In making an order pursuant to this section the court may make an order to
i. Have the company to purchase the shares of the dissentient members
ii. Or to make direction by cancelling/confirming the alteration so made.
Variation of rights of classes of share
 S65 (1)
- Shareholders holding not less than 10% shares may apply to court to cancel the
variation/abrogation of rights.
 S65 (4)
- The court may, if satisfied, that the variation is unfairly prejudicial, may order the variation
of rights to be cancelled.
- If not satisfied as such, may allow the variation.
Remedies for oppressive or prejudicial act under S181
This remedy is open to many parties, not exclusive to only minorities, despite the fact that many
application of this provision involves minorities’ action.
55
 S181 (1)
- This remedies is open to all member of company.
 Elements to be established
- There are two grounds available, under S181 (1) (a) and S181 (1) (b)
- S181 (1) (a) entails three elements to be established

a) Oppressive act or disregard act; interest as members; affairs of the company
b) Oppressive ; or
i. Re Kong Thai Sawmill
 Oppressive is when there is a visible departure from standard of fair
dealings or violation of fair play
 Which the members are entitled to expect
ii. Kumagai Gumi Case

 What is oppressive has been summarise in this case to include
 Unfair act
 Burdensome, harsh and wrongful act
iii. Owen Sim v Piasau Jaya

 Oppressive act may take form of omission or inaction
 Apply the case of Holben & Hubbard, didn’t declare dividend when
profit is abundant.
iv. Jaya Medical Consultant Case

 Each case must be examined in light of its own fact
 Decided cases only illustrated particular type of conduct considered by
court to be oppressive.
c) Disregard
i. Re Kong Thai Sawmill
 Disregard means more than merely a failure to consider minority’s
interest.
 There must be awareness of such interest, and the decision to set aside
such interest.
56
d) Interest of members
i. Re HR Harmer
 The act so complained must effect the interest of the complainant in
their capacity as a member or creditor as the case may be.
 The act may be considered to be oppressive/or disregarding
complainant’s interest when it is detrimental to their financial interest.
e) The affairs of the company

i. Scottish Co-operative Society
 It can be considered to be about the affairs of the company when it
covers the trading activities of the company
 What amounts to affairs of company may be wider and hence, is a
question of facts
 May involve the question of AOA/MOA.
- S181 (1) (b)

a) There is only two elements to be proved under this ground
i. Act is done by company (when resolution is passed by members, or directors
acting on their management power, considered as the act of company)
ii. Unfair discrimination or prejudicial
b) Unfair discrimination or prejudicial

i. Jaya Medical Consultant
 The discriminatory act must also be prejudicial. It is possible to have a
discriminatory act which is not prejudicial.
 Whether it is unfairly prejudicial or not is a question of fact
 The test of unfairness is objective (reasonable director) and the
standard applied is commercial bystander standard
 Whether reasonable director in making corporate decision to advance
the company’s object consider it in his mind that the proposed act is
unfair or not and disproportionate to the advancement of the
company’s object
 The commercial bystander consider such an act unfairly prejudicial or
not.
 Remedies
- Chan & Koh (Baca S181 (2) and fahamkan)
a) Upon proving either ground, court may grant remedies under S181 (2). All the remedies
are of the same ranking, and the court may use its discretion to grant the remedies
based on the need of circumstances,
57
Debentures & Charges

Borrowing powers
At common law, commercial company prima facie has the right to borrow to an extent which is
reasonable unless restricted by MOA/AOA. By implication, company also has the power to give security
for loan when creating charges.
CA under S19 (1) (c) expressly provides for commercial company’s right to borrow under MOA, unless
excluded or modified.
Debentures
S4 includes debenture stock, bond, notes, any other securities of a company.
 Definition of debenture
- Bensa Sn Bhd v Malayan Banking
a) stated that debenture is a term without any precise definition either in law or
commerce
b) However, citing Chitty J, debentures means an acknowledgment of debts.
c) Debenture can take many forms without anyone being able to say it is incorrect.
d) But this much can be said, debentures is an instrument that imports the obligation or
covenant to pay debts.
e) It is a security granted by the company and is capable of being registered as a charge
under S108 (3) (a).
f) In light of modern commercial practice, a more liberal view on what is debentures must
be taken as it can be in any form.
 Nature of debenture
- Walter Woon
a) Liability of company is regarded as a liability to pay annuity rather than as liability to
repay loan.
b) Debenture stock is not borrowing at all, it is the sale to person, an offer to receive the
right of perpetual annuity which may be redeemed by the company in exchange of
consideration, in providing the company, a sum of money.
c) Debenture stocks and debenture is of the same relationship with share and stock.
d) In case of bankruptcy, debenture holders are considered as general creditors.
58
 Type of debenture
- There are two types of debenture as stated by Walter Woon
a) Debenture
i. Defined in S4. Nature isfurther be elaborated in S70 (a)
ii. Other than bearer debenture
iii. A registered debenture
iv. Registered with the office of the company
v. Company may provide that transfer can only be done by registration
b) Bearer debenture
i. Debenture where title passes by delivery
ii. Similar as money. Money, title passes by delivery
iii. Bearer debenture is a negotiable instrument but not a legal tender.
iv. Money is negotiable instrument and also legal tender. (obligation to accept)
 Redemption of debentures
- Debenture represents a loan to company, hence company may redeem debentures by
repaying the money owed. Redemption may be made at the co’s option, or at a fixed date
agreed.
- S73
a) Co may reissue redeemed debentures.
b) Reissued redeemed debenture holder under S73 (2) states that they have the same right
as normal debenture holder.
- S72
a) It is possible to issue a debenture where it will not be redeemed on the occurrence of a
certain event or the expiry of debentures.
b) E.g. co is relieved from the obligation to redeem when it is wound up.
- S77
a) Power bestowed under S72 is subject to power of court. court may make order for the
co to redeemed it even though the terms of debenture specifies it otherwise.
 Right & Remedies of debenture holders

- S74 (1)
a) If debentures are offered to public, it is mandatory to appoint a trustee for debenture
holders.
b) Trustee will act as a watchdog to ensure their right are protected and may enforced
their right whenever necessary.
59
- Common law
a) To be strictly accurate, debenture stock holders are not creditors but rather,
beneficiaries under trust. This may affect their right to petition for winding up, but no
other right is affected.
- S20 (2) (a)

a) Debenture holder secured by a floating charged has the same right as a member to
apply to court to restrain ultra vires act of the company.
- S28 (3) & (5)

a) Debentures holder are entitled to notice to any meeting where it is proposed to alter
the object in MOA.
b) Debenture holder with not less than 10% nominal value of co’s debenture may apply to
court to cancel proposed alteration.
c) This right extends to all debenture holder. There is no need for him to be secured by
floating charge.
- S181
a) Walter Woon
i. Argued that remedies under S181 is also applicable to debenture holder
- Debenture holder have no right to vote

- Perpetual annuity is not dividend. Amount may be fixed by the instrument. Contractual
obligation. May or may not be increasing with profit. Vice versa with loss. Depends on the
terms.
60
Charges
There are two types of charges in company law. Fixed charges and floating charges.
 Type of Charges
- Fixed charges
a) The most common form of fix charges is property charges involving land. This type of
charges is also recognized by the NLC if registered under it.
- Floating charges
a) Floating charges is a type of equitable charges where the substance of property being
charge is not specific. It can be created against all the property of the co, whether
present or future.
- Legal charges
a) Charges that are registered and recognized under the law. includes equitable charges
- Equitable charges
a) Equitable charge refers to a security interest in property granted by a chargor.
b) When a charger shows intention to offer the property as a security for the loan, and a
loan is advanced in connection of such security, equitable charge is created.
c) Not registered under the law yet.
 Floating charges
- S108 (3) (a)
a) This section allows for the creation of floating charges.
- Re Yorkshire Woolcombers
a) Floating charges generally have three characteristic
i. Charge on a class of co’s asset, whether present or future
ii. The charge of that class of assets is capable of changing from time to time.
iii. Until steps id taken to crystalise the charge, co are free to dispose the assets in
the ordinary course of business.
- Zeno v Prefabricated Construction

a) Floating charge is a type of equitable charge.
b) It is not for a future security.
c) It is a present security that affects the company’s assets, present and future,
d) which the company intended for it to be included in the class of affected assets.
61
- Illingworth Case
a) Distinction between floating charge and fixed charge
i. Fixed charge, the property being charged is capable of being ascertained and is
definite in nature
ii. Floating charge, ambulatory and shifting in nature, incapable of being
ascertained prior crystalisation.
- Re Bonds
a) In construing whether a charge is a fixed charge or floating charge is dependent on the
construction of the instrument of charge
i. Whether the subject matter is definite and capable of being ascertained or not,
if not, probably a floating charge.
ii. Whether charger is at liberty to dispose the assets being charged in the ordinary
course of business or not. If the co is at liberty, there is a strong indication that
the charge created is a floating charge.
 Crystallization of floating charge

- Fixed legal charge may enforce the right automatically when the chargor is in default. Unlike
fixed legal charges, floating charge requires it to be crystallized in order to be enforced.
- Desdner Bank v Ho Mun-Tuke

a) If the floating charge is void for non registration, it is argued that the charge, upon
crystallization would also be void.
b) This is because, upon crystallizing the floating charges, no new charges is created. It
merely changed form.
c) Crystallization of charges is when the unspecific identity property being charged is being
made definite and ascertained.
 When crystallization occurs

- Re Panama
a) Provides two situation
i. When company goes into liquidation
ii. Upon appointment of receiver as this denotes insolvency and liquidation of
com.

a) Provides another two situation
i. When chargee take steps to enforce or to take possession of the property.
ii. Upon cessation of the co’s business as the sole purpose of floating charges is to
enable the company to conduct business in its ordinary course.
62
- Re Brightlife
a) Another situation
i. At the option of the creditor
ii. If provided under the charge instrument
iii. May also convert the floating charge to specific charge by notice.
 Negative Pledge Clause

- Floating charges usually provides for a case where the co are at liberty to deal with its
property in its ordinary course of business.
- Negative pledge clause is a clause in the instrument of charge

a) That provides for the chargor
b) To undertake the obligation not to engage in transaction involving its property
c) Without written consent by the floating charge
d) Ranking parri passu with the current floating charge.
- The recent development and the amendment of the Companies Act has made the position
of negative pledge clause to be unclear.
i. However, the form under Companies Act when registering for charges also provides
for clause similar to negative pledge clause
ii. Chan & Koh argues that this clause constitute some legal significance especially to
subsequent charges so created.
 Registration of charges
- S108 (1)
a) Imposed obligation to register charges within 30 days of its creation.
- S108 (3)
a) A list of charge which may be created.
- S109 (1)
a) Company or person interested in the document has the obligation to register the
charges.
b) However, if there is a failure to register, only company and its officer that will be liable.
- Zeno v Prefabricated Construction

a) Raja Azlan Shah stated that charge is only secured upon registration. Unregistered
charge will have no priority over registered charge.
63
 Effect of non-registration
- S108 (1)
a) Charge will be void if fail to register within 30 days.

a) Charge that is not registered within 30 days become void and loses its status as secured
charge.
b) The chargee will becomes creditor ranking parri passu with unsecured creditor in the
event the co is wound up.
- Re Monolithic
a) S108 only mentioned that it shall becomes void against liquidator or other creditor.
b) Hence, if the charge becomes void when the company is a going concern, and there is
no liquidator or other creditor that dispute the priority of charges, instrument of charge
may remains effective.
- S108 (2)
a) Even if charge is void, nothing prevents the charge to recover the amount of the loan
b) The right is loss over the security, not the debt
c) If company fails or refuse to pay, charge may take action in court to claim the debt.
d) Court can order co to pay or if co refuse or unable to pay, make charging order under
Rules of High Court
e) Inability to pay debt, will give rise to a ground to a petition to wound up the co.
- United Asian Bank v Kwong Yik

a) If the particulars of the charge is already sent to registrar within the 30 days, but the
registrar did not register it, the charge will not become void.
b) It is valid even if unregistered
c) Because they have done all that they can.
64
 Extension of time
- S114
a) Court may exercise its discretion to grant extension of time to register the instrument of
charge or to make rectification to it when
i. Accidental event
ii. Due to inadvertence (ignorance)
iii. Other sufficient cause
iv. When it is not prejudicial to the position of other shareholders and creditors
v. Just and equitable
- Re Public Bank
a) In exercising its discretion under S114, court must consider the strict requirement of the
statute.
b) Should only be allowed if the interest of other party is not affected by the order.
 Priorities
- Walter Woon
a) The priorities of charges may be determined by the general principles of property law.
- The general law is

a) Legal charge prevails over equitable charge
b) Equitable charge have no priority over legal charge unless if it is created earlier and the
latter have notice of its existence.
c) Between registered charged, fixed legal charge have priority over registered floating
charge( because floating charge only encumber the property upon crystallization).
d) Between fixed legal charge, priority is by the date and time of registration
e) Between equitable charge, the first one in time (being created) shall prevail.
- It is important to note, such priority is only applicable to charge that is not declared void
under S108 (1).
i. Charge that is not registered within 30 days, unless allowed an extension by court,
shall be void.
 Disadvantages of floating charges

- Floating charges, although registered earlier, may not have priority over fixed charge that is
registered subsequent to it. Because it only encumber the property upon crystallization.
- S294
a) Floating charge may not be created 6 months before the co wounds up unless it could
be shown that the company is solvent, during the time of the creation of the charge.
b) Otherwise, the charge is void.
65
Winding up of the Company

Intro
S211 provides for two modes of winding up, which are either by court or voluntarily.
Application for voluntary winding up may be made under S254. Under S254 it can be made by the
company under two situations;
The first situation being when it is provided under the MOA/AOA, that the company shall be wound up
by the occurrence of certain events, or upon reaching a fixed date. The second situation is by the special
resolution of the company.
In application for voluntary winding up, a few procedural requirements must be observed. First, by
virtue of S257, a declaration of solvency under the provision must be made. Apart from that, prior to the
application to voluntary winding up, S260 require for a meeting of creditors.
However, the main focus is a compulsory winding up by the order of courts pursuant to S218.
Winding up by court; Petitioners
 Who can apply

- S217 list down list of parties that may make such petition. Chan & Koh argued that this list
of persons/parties are exhaustive
a) Company itself
b) Member of company
c) Creditor
d) Liquidator, etc.
 Application by company
- There are a conflict of judicial views
a) Miharja Development v Datuk Loy Hean
i. Director may make a petition for the company by himself
ii. No provision in S127 stated that company’s resolution is a condition precedent
to make the petition.
iii. It is merely one of the ground.
b) Tan Yar Joo v Sin Yee Estate

i. Director has no locus standi to petition pursuant to S218 (1) (i)
ii. Require special resolution
66
c) In my opinion, I tend to agree with the decision in Tan Yar Joo

i. Director as an agent cannot act beyond the limit of his power.
ii. Furthermore, if director is also a shareholder, he may make the petition under
his capacity as a shareholder, not director.
iii. However, it may be argued that to make such petition is also in the best interest
of the company.
iv. But if he makes the petition under his capacity as a director, he must justify that
it is for the best interest of the company.
 Application by creditors
- Ganda Holdings v Paramount Holdings
a) Siti Norma J
b) The following creditor has the right to petition for the company to wound up
i. Assignee of a debt, if assignment is not made during the creditor’s petition.
ii. Secured creditor
iii. Judgment creditor
iv. Holder of debenture
v. Any creditor whose debt is not genuinely disputed by the company due to the
substantial facts.
 Contributories
- S4
a) Contributory is a person liable to contribute assets in the event the company is liable to
be wound up.
i. Include member of company limited by guarantee and holder of shares which
has not paid the value of the share to the company yet
b) And the holder of fully paid shares
c) Basically, member of company
- Re Peveril
a) Any provision in AOA to deprive the member of the right to petition is void.
67
Winding up by court; Ground to be relied on
 S218 (1) (a)

- By special resolution
a) Company that has satisfy the requirement of passing the special resolution under
S152/153 may resolve for the company to wound up.
b) The issue whether the company is solvent or not is irrelevant.
 S218 (1) (b)

- Failure to lodge statutory report or to hold statutory meeting
- Re Home Remedies
a) Court may instead make order to have the statutory report be lodged or to have the
company to hold the statutory meeting
b) May take into account the wishes of other creditors and member that doesn’t want the
company to be wound up.
 S218 (1) (c)

- When company doesn’t commence the business
- Re Tomlin
a) The test to be applied is to determine whether there is an intention to no longer carry
on with the business; or
b) There is inability of the company to carry the main objects of the company
c) If company has several objects, abandonment of its collateral object is not a sufficient
ground to make the petition.
 S218 (1) (d)

- Prima facie to make the petition where the company member is reduced below two
- Statutory requirement under S36, must have at least two members
- This however is not applicable where the shares are held by a holding company.
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 S218 (1) (e)

- Petition to the inability to pay debt
- S218 (2)
a) Provides for statutory presumption of inability to pay debts
b) Minimum amount of debt is RM 500
- Seri Hartamas Development v MBF Finance

a) This is a rebuttable presumption
b) Company must satisfy the court that it is able to pay the debts.
c) This is because, in some cases, such as this, the company is have the estimate value of
RM500 million, but is unable to satisfy a claim of RM5 million.
 S218 (1) (f)

- Directors acting in their interest rather than the members as a whole. the elements to be
proved is
a) Director acting for his own interest or any other manners which is unfair and unjust
b) Rather than the interest of members as a whole
- Foo Yin Shung v Foo Nyit Tse

a) Director may act for self interest, and the alleged self interest may coincide with the
interest of majority.
b) Even then, it is still open to challenge his act if it can be proven that the director, in his
mind, only prioritises his interest, disregarding the interest of the members as a whole.
c) The question of unfairness and unjust is not a technical terms of law.
d) It is a question of facts.
 S218 (1) (i)

- Just and equitable grounds. Chan & Koh stated that;
a) This ground is of wide significance and does not limit the jurisdiction of court to any
particular ground.
b) What is just and equitable is a question of facts.
69
 Circumstances where it is just and equitable to grant the order

- Failure of company’s object
a) Re Kitson
i. Distinction of types of company and its object
ii. Some company have specific objects and other objects are only ancillary objects
iii. Some company have wide and comprehensive object, and may be interpreted
widely.
b) Re German Date Coffe

i. If company has specific object, failure to carry it out may give rise to a petition
to have it wound up under the ground of just and equitable.
ii. This is so notwithstanding the fact that it can still carry out ancillary object.
iii. In determining whether there is failure or not to carry the main object, the court
may look at the content of MOA.
- When business is carried in fraudulent manner

a) This is when the purpose of the company or the way the business being conducted is in
a manner that can be said to be fraudulent to others, the public, the members and the
creditors.
- When members can no longer work in association

a) Re Semantan Estate
i. Exist in deadlock situation
ii. E.g. two factions/members holding equal shares.
iii. Where differences between member cant be resolved. Such as, when the two
faction of shareholders hold equal shares, they will be unable to make a
decision as no resolution can be passed.
iv. Hence, winding up will be the last resort.
v. If there is any other mechanism to resolve the dispute, the court may order for
the company to exhaust the mechanism first before making a petition to wound
up.
70
- Where members has justifiably lost confident in management

a) Loch v John Blackwood
i. Lost of confidence must be grounded on the directors conduct, in relation the
company’s business, not their personal and private life.
ii. The lost of confidence must not be a result of dissatisfaction on being outvoted
on business affairs.
iii. It must be due to the lack of probity/integrity in the conduct of company’s
affair.
b) Ebrahimi v Westborne Galleries

i. The petitioner must not be the one that is the author (source) of the breakdown
of the confidence.
ii. This is because this application is under the ground of just and equitable.
iii. Basic principles of equity, he who comes to equity ,must come with a clean
hands.
71
Meetings
- The will of the members of a company generally expressed through resolutions passed at general
meetings
Types of General Meetings
1. Statutory meeting
- Only public limited companies by shares need hold a statutory meeting
- Only held once at the beginning of the company’s life
- Section 142(1)
ι must be hold not less than one month and not more than 3 months after the date which
it is entitled to commence business
- Section 52(3)
ι The date upon which a public company with a share capital is entitled to commence
business will be found in the certificate issued by the Registrar
- Section 142
ι The directors are responsible for convening the statutory meeting; any director who
fails to take all reasonable steps to ensure that the statutory meeting is held guilty of an
offence
ι The directors of the company are required to forward a statutory report, certified by at
least two directors to every member of the company and lodge a copy of the report
with the Registrar at least 7 days before the meeting is held
ι The statutory report must set out the matters in Section 142(3)
ι At the meeting, the members present may discuss any matter relating to the formation
of the company or arising out from the statutory report
- Section 53
ι A company may not vary the terms of a contract referred to in a prospectus or
statement in lieu of prospectus unless the variation is approved by the members at the
statutory meeting
- Section 218(1)(b)
ι The failure to hold the statutory meeting or lodge the statutory report is a ground upon
which a petition to wind the company up may be presented
72
2. Annual general meeting

- Section 143(1)
ι Every company must hold an annual general meeting once every calendar year
ι Exceptionally, a company need not hold an annual general meeting in the year of its
incorporation or the following year, as long as its first annual general meeting is held
within eight months of its incorporation
- Section 143(2)
ι Not more than 15 months may elapse between general meetings, subject to the
Registrar’s power to extend time limit
- Section 143(4)(b)
ι The responsibility of convening the annual general meeting usually rests with the
directors
ι however the court may in application of any member order the annual general meeting
to be called
ι this is an important right, as a member cannot usually require any other meetings to be
called unless he controls a substantial fraction of the votes in the company
ι Thus the AGM is the only certain opportunity that a member will have to meet and
query the directors on matters pertaining to the running of the company
- Section 172(2)
ι Appointment of auditors must be done at the company’s general meeting
- Section 129(6)
ι In the case of a public company or a subsidiary of a public company, the reappointment
of directors who are over the age of seventy will also usually be done at AGM
- Section 132D
ι General approval for the issue of shares may also be given during AGM
- Any other matters that usually occur during AGM which governed by the Article
i. Retirement and elections of directors
ii. Declaration of dividends
iii. Fixing of auditors’ remuneration
iv. Consideration of the company’s accounts
73
3. Extraordinary general meeting

- Table A, Art 4
ι Any general meeting than the annual general meeting is an extraordinary general
meeting
- Section 145(1)
ι Two or more members holding not less than one-tenth of the company’s issued share
capital may call a meeting of the company
ι Where the company does not have a share capital, not less than 5% of the members
may call a general meeting
- Table A, Art 44
ι General meetings may also be convened in accordance with the articles of association
by the directors
- Section 144
ι The directors must convene a general meeting if required to do so by requisition,
notwithstanding anything in the company’s articles
ι A requisition is a written notice to the directors requiring that a meeting be called
ι This course is often preferred as the members seldom have the means or the inclination
to call a meeting themselves
ι A meeting may be requisitioned by any members holding not less than 10% of such
paid-up capital of the company as carries voting rights, or in the case of a company
without a share capital, by members representing 10% of the total voting rights
ι The requisition must state the objects of the meeting and must be signed by the
requisitionists and deposited at the registered office of the company
ι The directors must convene a meeting to be held as soon as practicable within 2 months
after the receipt of the requisition by the company
ι If the directors do not convene a meeting within 21 days after receipt of the requisition,
the requisitionists may convene the meeting themselves
ι In this case, the meeting must be held within 3 months of the date of the deposit of the
requisition
ι Any reasonable expenses incurred by the requisitionists in calling the meeting are to be
paid by the company, which may reimburse itself out of any sums due to the defaulting
directors by way of fees or other remuneration
74
- Section 150
ι If it is impracticable to call a meeting in accordance with the Act or the articles, the
court may order a meeting to be called and may make such orders necessary to provide
for its conduct
ι Re El Sombrero
ι This might be done by the court of its own motion, or on the application of any director,
member who is entitled to vote or personal representative of such a member
ι The word ‘impracticable’ is not synonymous with “impossible”
ι Leong Ah Hong v Hup Seng
ι The question to be asked is whether as a practical matter the desired meeting can be
conducted. It is for the applicant to satisfy the court that it is impracticable to call a
meeting of the company in any manner in which meetings of the company may be
called, or to conduct the meeting in the manner prescribed by the articles or the Act
ι Re Totex-Adon Pty Ltd
ι It is ‘impracticable’ to call a meeting within the meaning of Section 150 if on the facts
there is no power in the Act or the articles can be used to call the desired meeting e.g. it
would be impracticable to call a meeting if all the directors and shareholders of a
company were dead
ι Re El Sombrero
ι The court may also exercise its power under section 150 if the meeting cannot be
conducted properly, even though it can be called
ι Tay Say Geok v Tay Ek Seng Co
ι The power to call meetings under section 150 does not extend to calling meetings of
directors
Class Meetings
- On occasion it may be necessary to call a meeting only of a certain class of members and not a
general meeting of all the members of a company
- This might occur in the case of variation of class rights (Table A, Art 4) or in the case of
compromise or arrangement under section 176
75
Notice of Meetings
- Notice of meetings must be given by the company to certain persons

- Section 148(1)
ι Every member is entitled to attend and speak at meetings
ι This implies that every member is entitled to notice of meetings
- Section 174(7)
ι Company’s auditor is also entitled to notice of meetings
- Table A, Art 111

ι The articles may provide that other persons are entitled to received notice of meetings
- Section 145
ι At least 14 days’ notice must be given other than a meeting to pass a special resolution
– cross refer with Section 152(1)
ι AGM may be called at short notice only with the unanimous consent of all the members
entitled to attend and vote
ι Any other meeting may be called at short notice but with only with the agreement of
members holding at least 95% in nominal value of the company’s voting shares or in the
case of a company without a share capital, 95% of the total voting rights of all the
members at the meeting
ι Notice of meetings is served in accordance with the articles
ι If the articles make no provision in this respect notice is served in the manner provided
in Table A, Art 108 i.e. by handing it to the member personally or sending it either to his
registered address that he has supplied to the company for the giving notices
ι Hup Seng Co Ltd v Chin Yin
ι The non-receipt of notice of a meeting by any member does not automatically invalidate
proceedings at a meeting
ι However, notice must be a proper notice and if there is an irregularity in the notice the
court will be more inclined to avoid the meeting
ι It should be shown that all reasonable steps were taken to ensure that every member is
served with notice of the meeting
76
Contents of notices of Meetings
- Section 151
ι Circulation of members’ resolutions (at their own expense) by the company upon
requisition
ι In order to requisition the circulation of resolutions and circulars, the requisitionists
must hold at least 1/20 of the total voting rights or there must be at least 100 members
holding shares on which there has been paid up an average sum, per sum, of not less
than RM500
- The notice calling a meeting must contain sufficient information to enable a prudent member to
decide whether or not he will attend the meeting
- If a member decides to absent himself from a meeting, he must be content to accept the
decision of those who attend
- A member may properly leave matter in which he takes no personal interest to the decision of
the majority; but in that case he is bound by the decision of the majority
- The law does not protect a person who chooses not to attend meetings of the company,
knowing full well what is to occur.
- However, if a material fact is not disclosed in the notice calling the meeting, any resolutions
passed may be invalidated as against a member who did not attend
- The test whether or not the member had fair warning of what was to be done at the meeting
ι Tiessen v Henderson
ι The company was in difficulties and a scheme of reconstruction was proposed. This
scheme was put before the members. The directors stood to benefit from the scheme,
but this fact was not disclosed in the notice calling the meeting. This omission was not
dishonest
ι Kekewich J held that the resolutions passed at the meeting did not bind a member who
did not attend the meeting. the person that court was protecting was not the
dissentient, but the absent shareholder
ι The man who was absent because having received and read the circular sent out, he
came to conclusion that he would not oppose the scheme but would leave it to the
majority. Such a man should have been given the opportunity to consider the matter in
the light of all facts
77
- Hup Seng v Chin Yin

ι The text of the resolutions sought to be passed must be set out. The failure to do so may
invalidate the proceedings at the meeting
- The notice and accompanying circulars must be sufficiently clear so that the members may get a
fair and reasonable intimation of what is actually proposed to be done without the necessity of
painstaking reading
- There is no actual legal requirement that an explanatory circular be sent out
- However, where public companies are concerned, an explanatory circular is necessary.
- Re Dorman Long
ι Such circular must be perfectly fair and must give all the information reasonably
necessary to enable the recipients to determine how to vote
- David Lau Tai Bek v Lau Ek Ching Sdn Bhd

ι If all the members entitled to vote attend an irregularly-called meeting and vote
unanimously in favour of a resolution, they are taken to have waived any irregularities
and the resolution, they are taken to have waived any irregularities and the resolution is
as effective as if it had been passed at a duly-convened meeting
- Section 355
ι A defect of notice does not invalidate a meeting unless substantial injustice is caused
- Section 149(2)
ι In all notices calling meetings of a company or of a class of members there must be a
statement of a member’s right to appoint a proxy to attend and vote on his behalf
Special Notice of Resolutions
- Members who wish to propose a resolution at a meeting are required to give a special notice of
the resolution to the company
- This is necessary when it is desired to remove a director of a public company under section 128
or to remove the company’s auditors before their term office expires (section 172(4))
- The provisions regarding special notice are all to be found in Section 153
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Quorums and Minimum Attendance at Meetings
- Section 147(1)(a)
ι Two members personally present constitute a quorum
- Re Hartley Baird Ltd

ι A quorum need only be present at the commencement of a meeting and not
throughout
- See also Section 355 – irregularities
- Re Salvage Engineers
ι Having a quorum present is one thing; whether there is a meeting at all is something
else. The general rule is that there must be at least two members personally present to
constitute a meeting
Chairman and conduct of meetings
- Section 147(1)(b)
ι In the absence if provisions in the articles, any member elected by the members present
at a meeting may be the chairman
- Section 146(1)(a)
ι It may provided in the articles that a chairman may be elected on a show of hands and
that no poll will be required
Minutes of General Meeting
- Section 156(1)
ι Every company must keep minutes of all general meetings
ι The minutes are evidence of the proceedings to which they relate
ι Where the minutes have been signed and entered, they are prima facie evidence that
the meeting has been duly held and convened, that all appointments are valid and that
the proceedings were duly conducted
- Section 157(1)
ι The minutes books may be inspected by any member of the company without charge
79
Resolutions
Types of resolutions
1. Ordinary resolutions
- A resolution passed by a simple majority of those present and voting
2. Special Resolutions
- Section 152
- usually required for important matters e.g. amendments to the company’s constitutional
documents or a resolution to reduce the capital of the company or to wind the company up
- Unless the Act specifies that a special resolution is needed, an ordinary resolution would suffice
- Must be passed by a ¾ majority of those present and voting at a meeting of which 21 days’
written notice has been given
3. Hybrid Resolutions
- A hybrid resolutions may be provided for in the Act or in the articles
- Section 129(6)
- it is provided that a resolution to re-appoint an over aged director of a public company must be
passed by a ¾ majority
- this is not a special resolution because it does not requires 21 days notice nor it is an ordinary
resolution
- but it nevertheless requires the notice to be given prior to the passing of the resolution to be
the same as the notice for special resolution.
- it is possible for the articles to specify special majorities for the passing of certain types of
resolutions
80

Law of Association (Company Laws)

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Law of Association (Company Laws)

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Akmal Marizalee Jamielyn Jimmy

 Definition and nature of shares

- S2 Sales of Goods Act

- Farwell J in Borland’s Trustee v Steel Brothers

c) In conclusion, it could be understood that shares may be regarded as a bundle of rights

- Re Holben, Hubbard & Co [1983]

 Rights of return for capital

 Liability to subscribe the due capital

 Rights of membership as found in the AOA

 Preference Shares (PS)

- Re Hume Industries (FE) Ltd

- Re Sheffield Manufacturing & Plating Co

- Mosgiel v Mutual Life & Citizen Assurance

- S66 (1) & Re Hume Industries Ltd

- Re Dexine Patent Packing & Rubber Co Ltd

- Re St James Court Estate Ltd

 Rights that can be attached to PS

 Construing PS & Ordinary shares

- S66 (1) & Re Hume Industries Ltd

- Scottish Insurance v Wilson & Clyde Coal Co

 Ordinary Shares (OS)

- Re Isle of Thenet Electricity Supply Co Ltd

- Gower & Davies’ Principles of Modern Company Law

 CA allowing for variation of rights

 Variation of classes of share in MOA & AOA

- White v Bristol Airplane

- Case study – Re Saltdean estates; Re Mackenzie

 Procedure for variation of rights

- Crumpton v Morrine Hall

- Re Holders Investment Trust

 Share capital under CA

b) Re Scandinavian Bank Group

c) Second Schedule CA (pg 313 CA)

e) Bank of Hindustan, China and Japan v Allison

b) Barlett v Mayfair Property

c) Re Midland Railway Carriage & Wagon

 The concept of capital maintenance

- Fairview School v Indrani Rajaratnam

- Re Exchange Banking (Flitcroft’s Case)

 Provision designed to prevent watering down of capital as it comes into company

ii. Arnison v Smith

iii. S58 (1)

ii. S58 (1) (a)

iii. S58 (1) (b)

iv. S58 (1) (c)

v. S58 (1) (d)

- Issue of shares at discount

ii. S59 (1)

iii. S59 (1) (a)

iv. S59 (1) (b)

v. S59 (1) (c)

vi. S59 (1) (d)

f) Mallina Holdings v Biala

ii. Ooregum Gold Mining Co of India v Ropper

iii. Hirsche v Sims

h) Circumventing the rule against discount in practice

iv. S58 & Keatinge v Paringa

- Issue of shares at premium

 Provision designed to prevent capital flowing out of the company

ii. This provision may only be applicable to

ii. S61 (1)

iii. S61 (2)

iv. Re St James’ Court Estate

ii. Commissioner of Taxation v Coppleson