COMPANY LAW -1965

ZCZB 6013(SET 1) BUSINESS LAW AND ETHICS

SARMILA HUSAIN ZP 00750

Q1: What is the Ultra Vires Doctrine in company law?

Q2: What is its effect in Malaysia?

COMPANY NOT ACTS accordance with MA & AS, the DOCTRINE of ULTRA VIRES will apply.

Name & Address Company Object clause (purpose of the business) Limitation of liability clause Share capital clause

Division of powers Shares Directors Dividends Obligation of members Table A: 4th Schedule is the Model Articles

Latin Phase Ultra beyond & Vires powers MEANS - an act beyond powers/ capacity

Being artificial legal persons, company may only engage in activities listed in their MA.

Any transaction related to any ultra vires action is deemed void in law and does not bind the company.

Neither the company nor the other contracting party can sue on it.

Within the main purpose

Within the special powers expressly given by the statute to effectuate the main purpose

Incidental to or consequential upon the main purpose and things reasonably done for effectuating the main purpose

Case: Attorney General Vs Mersey Railway Co(1907) 1 Ch. 81

Ultra

Vires Transaction Contract beyond object clause Ultra Vires Borrowings Borrowing beyond the power of company

Common Law The company cannot make it valid, even if every member of the company assents to it.
ASHBURY RAILWAY CARRIAGE AND IRON CO. LTD V RICHE (1875]

Ashbury cos memorandum stated: to make, sell or lend on hire carriages and wagons and all kinds of railway plant, fittings, machinery and rolling stock; and to carry on the business of mechanical engineers and general contractors. The directors entered into a contract for the purchase of a concession for the construction of a railway. The company then refused to go through with the contract. The vendor of the concession filed a claim for breach of contract.

The contract was ultra vires and void as the purchase and construction of a railway was not within the stated objects of the company.

Facts

Held

Completed Transactions

Sec. 20(1)
No act or purported act of a company, and no transfer of property to or by a company shall be invalid by reason only that it is ultra vires.

Ultra vires transactions which have been completed cannot be invalidated anymore. Case Mahima Singh V Baldev Singh. Third parties/ creditors protected under this section. Case refer: Executive Aids Sdn.Bhd v Kuala Lumpur Finance Bhd. [1992).

Uncompleted transaction

Sec. 20(2) Exceptions

Under the law, any such lack of power may be relied upon only 3 circumstances :Sec. 20(2) (a): in proceeding against the company by member of the company or debenture holder to restrain the company from doing any ultra vires act, or conveyance or transfer of any property to or by the company. (b):in proceedings by the company or any member against the present or former officers of the company, and (c):in any petition by the minister to wind up the company.

Uncompleted transaction
Case: Hawkesbury Dev. Co. Ltd Vs Landmark Finance Ltd (1969) 2 NSWR, Australia

The company obtain an injunction to stop the ultra vires transaction. may allow compensation to the company or other party for loss suffered as a result of granting the injunction

Who entitled to apply under this section? Case:Pamaron Holding Sdn Bhd Vs Ganda Holdings Bhd (1988)MSCLC 90.

Sec. 20(3)
provides that the court may allow compensation to the company or other party for loss suffered as a result of granting the injunction.

 The

rule of Ultra Vires is to protect the shareholders & creditors of the company. Third parties/ creditors protected under Sec. 20(1), which completed transactions the defense of ultra vires does not reply. Uncompleted transactions may be stopped thru an injunction by members. The present and former officers of the company may be made liable to the company for the ultra vires transactions.

Ultra

Vires borrowings does not create the relationship of creditor and debtor. The company may also be wound up by the minister.

An Act not consider as Ultra Vires IF:

Section 20(3):

Case: Attorney general vs mersey railway co (1907) There was company & it was incorporated for carrying on hotel business. It entered into a contract with some 3rd parties for purchasing furniture, hire servants and for maintaining omnibus. Object clause not mention to purchase furniture or hire servants. So Whether the transaction was ultra vires?

Fact:

Case: Hawkesbury Dev. Co Ltd vs Landmar5k Finance Ltd(1969) Australia Hawkesbury the sole share holder in Landmark Finance, sought a declaration that certain debentures granted by Landmark Finance to UDC were void on the ground of Ultra vires and that UDC should not restrained from enforcing them.

Fact:

Held: A company incorporated for carrying on hotel business can purchase furniture, hire servants and maintain omnibus to attend at the railway station to receive the attending guest because these are reasonable necessary to effectuate the purpose for which the company has been incorporated. Section 20(3):

Held: In order for Hawkesbury to succeed, it had to demonstrate that some relief was being sought against the company. As it was in effect, seeking relief against UDC & not Landmark Finance, so the application must fail.

Case: Pamaron Holding Sdn Bhd Vs Ganda Holding Berhad (1988) A puchaser of shares attempted to rely on Sec 20(3) to argue that the transaction being ultra vires, the seller should not granted summary judgments for the purchase price.

Fact:

Held: The court rejected the argument on the ground that was not a person contempletedIn order for Hawkesbury to succeed, it had to demonstrate that some relief was being sought against the under the subsection.