PA 304 COMPANY LAW

The doctrine of ultra vires

The matters contained in a memorandum of
registration is the clause related to the
purpose or object of the company was
founded.
An action or business of running but not
enforced or are not related to the object or
objects stated in the memorandum clause,
then it is called an ultra vires action.
The purpose of this doctrine are:
a) to protect investors in the company so that
they are aware of the company's objectives
and how their money will be used in the
company.
b) to protect the company money by
convincing lenders that their money is not
being used in illegal activities.
Ultra vires activity is any activity that is not
expressly permitted by clause implied
objective memorandum. It can not be
enforced by or against the company.
The basis of this doctrine is that a third party
dealing with a company recognized as having
knowledge of the contents of the
memorandum as it is a public document
available to the public from the Registrar of
Companies.
The doctrine of ultra vires in view of the
Common Law
1. A business / company ultra vires action is
not valid
ASHBURY RAILWAY CARRIAGE & IRON CO.
LTD VS Riche
The company was established with the aim to
make, sell, borrow or rent a railway carriage.
Companies can also act as a mechanical
engineer and contractor. Hand, the directors
of the company has made an agreement to
finance the construction of a railway line in
Belgium. The agreement was later confirmed
in a meeting of all members of the general.
Courts have held that the agreement was
ultra vires and void. States also can not
confirm the agreement in general meeting.

2. States can not be sued based on a contact
that is ultra vires.
RE JON BEAUFORTE
It is concerned with a company in which the
object of the company is doing business
clothes, make clothes and other matters that
are almost the same. The company has
started making "veneered panel's" the kind of
plywood. They have built a factory for new
business and have booked coal to the plant. A
coal suppliers were supplying coal on credit.
The Company subsequently failure and had to
be dissolved. The liquidator has rejected the
debt to the coal suppliers. The court ruled
that the coal supplier can not claim his debt
because he had adequate notice that coal
would be used for the purpose of ultra vires.
This is because the letter from the company's
coal reserve has been recorded with the word
"producer veneered panel's".

3. States also can not sue the other party of a
contract ultra vires.
4. Outsiders are acting in good faith can not
depend on the ground that he had no notice
of the absence of power. The law takes the
position that because the memorandum is
registered with the registrar of companies and
are open to inspection, the outsider is to have
constructive notice of the contents.


PA 304 COMPANY LAW

What position should the company do in
action jurisdiction but for unlawful
purposes?
RE LTD INTRODUCTION
The company has commenced the business of
providing travel services for the "Festival of
Britain" in 1951. During 1960, the company
has changed its business to business "pig
breeding". Memorandum does provide for a
clause that empowers the company to borrow
or raise money in such manner as deemed fit
by the company. The Company then borrow
money by way of collateral from a bank that
has a copy of the memorandum of the
company. Bank then to enforce the loan. The
court held that the loan was ultra vires.
Although the borrowing clause empowers the
company to borrow money, but power must
be used for a legitimate purpose or purposes.
The doctrine of ultra vires in view of the
Companies Act 1965
Section 20 (1) provides that "no action is
prosecuted as an act of ...... can be invalidated
by reason only of the fact that the company
does not have the ability or authority to act
......................"
This means that, if a company commits an
act beyond the power company (acting ultra
vires), the action is valid. This section seems
to set aside the doctrine of ultra vires under
the Common Law.
However, there are some sections that
touch on 3 situations where ultra vires
doctrine still apply in Malaysia.
1. Sections 20 (2) (a) - A member of the
company or where the company has issued
debentures which are available with a floating
charge, then the holders of any debentures or
the trustee for the debenture holders referred
to above may sue the company for blocking it
from taking any action that's is beyond the
power of the company. The ones mentioned
above may apply for an injunction to stop an
act ultra vires. Provision of this section only
covers the Prohibition laid against ultra vires
action is almost done (which is not perfect).

Hawkesbury LANDMARK DEVELOPMENT
FINANCE PTY LTD VS
H is the holder of all the shares in LF. LF has
Issued two debentures to United Dominion
Corp. (UDC). H asked the court to declare the
production of both debentures is as invalid as
it is ultra vires the objects of the company. H
that's also requested the court issue a
Prohibition against enforcing the UDC of
debentures, debenture. The question is, find
the H asked the court Issued a Prohibition
against UDC? The Court held, even if Standard
and Poor ultras vires action is, H will not be
asking the court to issue injunctive against
Because UDC is 3rd party while Section 20
(2)(a) may only be used by members to sue to
companies.
2. Sections 20 (2) (b) provides, "............ any
action by the company or any member of the
company against company officials present
and the past". This means the company or
other members of the company can prosecute
any officer or former officer of the company
who currently have committed an act ultra
vires. Ultra vires actions must be completed
or implemented. This contrasts with section
20 (2) (a) which says that action can only be
taken against the company entering the
business of ultra vires is still not perfect.
3. Sections 20 (2) (c) provides that the
minister may make a petition to the court to
wind up a company that has committed acts
ultra vires.

PA 304 COMPANY LAW

Amendment in the memorandum Object
According to the provisions of Section 21 (1)
of the Companies Act, 1965, "Memorandum
of a company may be amended to the extent
and in the manner provided by this Act but
not otherwise".
These provisions specify any changes in the
provisions of the memorandum must be in
accordance with the rules and procedures
prescribed in the Companies Act 1964.
Amendment means the company can cancel
or delete, add or modify any of the existing
provisions. If there are provisions in the Act
pertaining to the same epoch then it can not
be amended. Only 3 things can be amended
only that the clause name, capital, and objects
only.
States have the power to amend the terms
of the statute that the object clause as set out
in Section 28 of the Companies Act 1965. Yet
these amendments can not confirm an ultra
vires activities retrospectively but allows
adjustments to be made to avoid the
problems that may arise in future.
The procedures to be followed if a company
is to amend the object clause may be
summarized as follows:
i) Notice of the holding company for the
purpose of amending clause objects Shall be
meeting to all members of the company, if the
company issuing debentures, also notice Shall
be given to the trustee, to all holders of
debentures. This notice shall be sent by the
company for at least the next 21 days from
the date of the meeting.
ii) If any application for membership, to cancel
the amendment, then the application must be
made within 21 days after the date of the
resolution to amend the objects approved
company.
iii) Application as on the right made by
members holding at least 10% of the share
capital of a company limited by shares. While
the company no share capital, an application
may be made by at least 10% of the company.
iv) Upon application to strike out the
amendment, the amendment shall be
effective unless confirmed by the court.
v) The Court has the power to confirm or
cancel the proposed amendment.
vi) The amendments will be effective upon the
resolution of the amendments submitted to
the Registrar of Companies. Registrar of
Companies will make an issue of certificates
as proof that all regulations relating to the
amendment of the objects were observed.