UKML 2013 Company Law

Revision
Directors, Directors Duties,
Share Capital, Loan Capital,
Company Meetings, Auditors,
Minority Protection
Topic 6, 4, 5, 8, 7, 9
(Slides)
Bachelor of Accounting (Hons)
1

UKML 2013 Company Law

Directors
Directors and Directors Duties
Topic 6
(Slides)
Bachelor of Accounting (Hons)

Emphasis
(Topic 3 Basic concepts on M&A like Table
A, ultra-vires, alteration of objects clause,
Rights in the capacity as a member,
Outsider capacity, Southern Foundaries)
Disqualification, Removal
Division of Powers Between Board of
Directors & General Meeting
Fiduciary Duties, Duty of skill, care and
diligence, statutory duties
3

Directors Duties
Fiduciary
Duty of skill
Duties
Care and
1. Act bona fide
Diligence
in best interest of
the Company
2. Exercise powers
for a proper purpose
3. Retain discretion
4. Avoid conflict of
interest

Other
Statutory
Duties

Other Statutory Duties

Duty of disclosure of interests
S 131 - Disclosure of interest in contracts, properties
and offices
S 131A - Interested Director not to participate or vote
S 135 - General duty to make disclosure of interest in
shares
Substantial Property Transactions
S 132C - Approval of Co required for disposal by
Directors of Cos undertaking or property.
S 132E - Substantial Property Transactions by
Director or substantial shareholder. S 132F Exception and definition.
Loans to directors and persons connected
S 133 - Loans to Directors
S 133A - Loan to persons connected to a Director

Differentiate
Issues on
fiduciary duties

Ethics
Integrity
Honesty
No personal
self-interest

A person can be very

capable or an expert,
and yet very dishonest
and lacks integrity

Issues on duty of
skill, care &
diligence

Competency
Qualification
Carefulness
Commitment
Hardworking

A person can be very

honest or upright, and
yet very careless or
hopeless in his work

Q1 Kevin Bob
Intro:
Whether breach FD, effect of breach
Law:
s.132(1), 132(2),
Common Law FD
2-3 cases: Regal Hastings, Walker v Wimborne
s.131, 131(7A), 131(7B), 131A, 135
132C, 132E, 132F,
130

Q1 Kevin Bob
Apply:
Purchase of Jaguar:
use their position in the Co, use Cos property,
s.132C
Singing competition:
Not act In the Cos best interest, use Cos
money,
s.131
Purchase of land from Nelson:
s.131, s.132E, s.132F
RM20,000 gift: Secret profit

Q1 Kevin Bob
Conclusion:
Breach FD and statutory duties,
Can be made liable
However, majority shareholding, impractical
Stuart and Gru seek relief under s.181.

Q2(a) Feasibility report

Intro:
Whether can rely on info prepared by a 3rd
party not engaged by BOD but by a director
acting in personal capacity
Law:
s.132(1A), s.132(1C), (1D)
Apply:
Cheng not fall within the categories of persons
in 132(1C), not professional/expert retained by
the Co

Q2(a) Feasibility report

Law:
Lily though a director, but was not the person
who prepared the report.
BOD must still make independent assessment
by.
Conclusion:
BOD cannot rely & instantly act on report by
Cheng

Q2(b) Losses from new

business
Intro:
Whether directors protected for wrong
business decisions which causes losses to Co
Law:
S.132(1A), 132(1B)
s.132(6) Business judgment
Comment again on 132(1B) Directors will be
protected if biz decision turn out to be wrong

Q2(b) Losses from new

business
Apply:
Proposal was for..
It is a new business
Directors must meet the criteria in s.132(1B):
a & d - .
b no material personal interest, i.e. ..
c is informed abt the subject matter.how
Conclude:
Meena was correct to say that if Co loss,
Directors cld be held liable for

Q2(c) Duty to creditors

Intro:
Law:
Common Law FD owed to creditors
Kuwait Asia Bank, Kinsela v Russell Kinsela, Hilton
International, Walker v Wimborne, Winkworth
In Msia there are statutory provisions in CA 1965
which impose duty to creditors:
s.303(3), 304, 305, 365(2)
Conclude:
Meena was correct to say that directors need to
consider creditors interest when.

Q3(a) Kwazai contract

Intro:
Whether Comfortlife has breached s.132C, CA 1965
in relation to the Kwazai contract, i.e. acquisition of
a property of substantial value.
Law:
S.132C see which sub-sections are relevant, dont
jz write blindly everything. Also, penalty/offences
Apply:
Kwazai is not a director, SS or PC.
The SUV cost.Cos issued share cap.exceed
25%

Q3(a) Kwazai contract

Apply:

Not within any exceptions in s.132C(4)

Prior approval shd hv been obtained
Conclusion:
BOD no power to enter
A GM shd hv been held.
Since no prior approval of GM
obtainedconsequences.(mention who &
who is liable for what)

Q3(b) BMW contract

Intro:
Whether Comfortlife has breached s.132E, CA
1965 in relation to the BMW contract, i.e.
acquisition of a non-cash asset of requisite value
from a SS.
Law:
S.69D substantial shareholder
S.132E see which sub-sections are relevant,
dont jz write blindly everything. Also,
penalty/offences
S.132F can keep brief

Q3(b) BMW contract

Apply:
Dato Farouk was a SS becos
Market value of BMW was.it was a non-cash
asset of requisite value becos.
Not within any exceptions in s.132F
Prior approval shd hv been obtained
Conclusion:
BOD no power to pass a resolution
A GM shd hv been held toDato Farouk cannot
vote in that GM.

Q3(b) BMW contract

Conclusion:
Since no prior approval of GM
obtainedconsequences.(mention who &
who is liable for what)
Dato Farouk liable..
Which director who knowingly authorise ..

Q4 Sinar Jaya
Intro:
Prohibition under s. 67 CA.financial
assistance for purchase of its own shares &
consequences
Prohibition under s. 133A CA.financial
assistance to persons connected to a director
& consequences
Law & Application:
Divide into 2 sub-headings:
Discussion on s.67
Discussion on s.133A

Q4 Sinar Jaya
Law & Application:
Discussion on s.67 which provisions relevant,
Financial Assistance, consequences of breach,
exceptions in s.67(2)
Apply prove s.67(2) not applicable,
consequences
Discussion on s.133A which provisions relevant,
persons connected (s.122A), exceptions in
s.133A(2)
Apply prove s.133A(2) not applicable,
consequences

Q4 Sinar Jaya
Conclusion:
BOD is advised against proceeding with
Co still liable on the security it is providing, i.e.
the Sg Pendek land Lori Msia, CCB v Feyen
Penalties/offences under s.67
Penalties/offences under s.133A

UKML 2013 Company Law

Share Capital
Classification of Capital, Shares,
Capital Maintenance Doctrine
Topic 4
(Slides)
Bachelor of Accounting (Hons)
23

Emphasis
Substantial shareholder s.69D
Authority to issue shares s.132D
Prohibition on Co purchasing own shares or
giving Financial Assistance - s.67
Prohibition on Reduction of Capital s.64
Share issued at a discount s.59
Share Buy-back for Public listed Cos
s.67A
Other Rules on Capital Maintenance
24

Share capital
a. 5 differences between ordinary shares and
preference shares
b. Difference between preference shares and
redeemable preference shares
Have a general idea of the requirements,
conditions on: Share issued at a discount
s.59
Substantial shareholder s.69D, Financial
Assistance - s.67, Share Buy-back for PLC
s.67A
Reduction of Capital s.64
Other Rules on Capital Maintenance

Difference between Ordinary

shares and preference shares
Rate of dividend
Priority of return/repayment of capital in a
winding-up
Right to vote at general meetings
Liability or risks
Financial returns
Priority of payment of dividend
Right to participate in surplus profits after
payment of dividends.
Right to participate in distribution of surplus
assets in case of winding-up

26

UKML 2013 Company Law

Loan Capital
Debenture, Charges, Registration of
Charges, Priority of Charges,
Rights of Debenture Holders
Topic 5
(Slides)
Bachelor of Accounting (Hons)
27

Emphasis
Differences between shareholder and debenture
holder
Fixed charge and floating charge
Advantages and disadvantages of floating charge
Requirement for Registration of charges
Crystallisation of Floating charge
Priority of charges
Negative Pledge clause

28

Shareholder c/f debenture holder

Membership of Co
Membership rights
Large number of people in Co: Greater
implications if large number of shareholders
Enforcement of rights: s.33(1) to enforce
A/A
Payment out of profits: distributable profits
Payment out of capital: cannot out of
capital
Priority in payment in a liquidation
29

Shareholder c/f debenture holder

Whether can be convertible: Convertible
debenture can
Issue of shares: Shareholders can challenge
BOD if issue of shares for collateral purpose
Limitation on issue: subject to authorised
share capital.
Issue at a discount: Debentures can
Repurchase/redemption: Cannot buy back
share shares unless comply with S.67
Transfer of shares: Debenture holders can
freely
30

Fixed Charges

Caj tetap

Co cannot dispose ( melupuskan) of the

property
- e.g sell, lease, transfer without Lenders
consent
Co is no longer free to deal with property.
Even if property is disposed, still subject to the
charge (If owner sells off the property to a
purchaser, the bank can still get order to sell the
property when the loan is default)
Properties/assets need not necessarily in
existence at the time of charge. (future property)
- capable of being ascertained or defined in the
instrument creating the charge
31

31

Floating Charges Caj terapung

Re Yorkshire Woolcombers Association

Created over assets which change in their
ordinary course of business

Company can dispose of the assets until
crystallisation takes place
A charge that floats above specific
categories of assets.
E.g. trading stocks, inventories, raw
materials, book debts, uncalled capital,
other movable assets or current assets.
32

What are Floating Charges?

Characteristics:
 ambulatory and shifting in nature
 Not related to any particular asset, but to a
class/category of assets
 Present assets or future assets
 Assets may change from time to time
 Co may carry on its business as usual, using the
charged assets
Upon the crystallisation event, floating charge
settles down and fasten on the class of assets
within its grasp at that time.
Co loses its right to deal with the assets from that
point onwards
33

Q3 Equinox

Previously, Floating, GHI, registered, NPC

1.5, Fixed, ABC, Not registered
10.5, Fixed, DEF, Registered
1.6, Floating, JKL, Registered, Refuse
see

Q3 Equinox
Intro:
Validity of the 4 charges
Priority of the 4 charges
Law:
Define, 2 types
Fix charge - .
Floating charge - .
Crystalisation..

Q3 Equinox
Law:
Registration:

All charges must be registered, s.108

Within 30 days from creation

By Co or creditor or any interested person

Rationale is to give Constructive Notice to.

Effect of non-registration

Co can apply for late registration

Q3 Equinox
Law:
Priority of unregistered charges:
Priority of registered charges:

Priority btw 2 fixed charges:.

Priority btw 2 floating charges:

Priority btw a fixed charge and a floating
charge:..

Justification:

However, if NPC: ..C

Explain NPC

Q3 Equinox
Apply:
OTF, there were 2 fixed charges..
OTF, there were 2 floating charges.
As regards priority between ABC and
DEF:.DEFs fixed charge has priority
because.
As regards priority between GHI and
JKL:.GHIs floating charge has priority
because.

Q3 Equinox
Apply:
As regards priority between GHIs floating
charge and DEFs fixed charge:

The General rule is that..DEF

However, since GHIs floating charge
contained a NPC..GHI

Q3 Equinox
Conclude:
The order of priority of chargees: GHI, DEF, JKL
and ABC. Reasons:

GHIs floating charge is in priority over
JKLs floating charge and DEFs fixed charge

DEFs fixed charge is in priority over
ABCs fixed charge and JKLs floating charge

JKLs floating charge is in priority over
ABCs fixed charge

UKML 2013 Company Law

Company Meetings
Types of Company Meetings,
Proxies, Voting, Types of
Resolutions,
Topic 8
(Slides)
Bachelor of Accounting (Hons)
41

Emphasis
Who has the authority to convene
meetings?
AGM, EGM,
s.144, s.145
Meetings by electronic means and modern
technology,
Proxies, Corporate Representative,
Voting by show of hands, Voting by poll

42

Q1 who can convene Co Meetings

A meeting convened by persons with proper
authority/entitled to summon it
BOD meeting Chairman, a director
General meeting

BOD

Individual director

Members may requisition s.144

Members may convene s.145

Court may convene s.150

Q2 was BOD correct

Intro:
Whether there were other categories of persons
apart from the BOD that has the power to
convene meetings
Law:
2 sub-headings:
Explanation on meeting requisitioned by
members under s.144
Explanation on meeting convened by members
under s.145

Q2 was BOD correct

Application & conclusion:
OTF, the BOD was correct over BOD meeting,
but not GM, because there are other categories
of people
Members can convene meeting under s.144 after
BOD refuses to comply with its requisition, and
under s.145, members may directly convene..
OTF, KMS held.PM held.
Under s.144, KMS.PM..
Under s.145, KMSPM

Q3 GM at different venues
Intro:
s.145A CA...held at any place in Msia, at more
than one venue, reasonable opportunity to
participate.
OTF, Handyson may hold its AGM at.
It provided video conferencing..
Thus, there was adequate audio visual link to
allow reasonable opportunity to participate.

Q4 2 ways for Corporate Shareholder to

be represented
Intro:
May be represented by a CR or a Proxy
Law:
Corporate Representative:

Define

How appointed

Powers/rights

Not subject to restrictions applicable to a
proxy. He can..show of hands, no need
within the category of persons in s.149(1)(b)

Q4 2 ways for Corporate Shareholder to

be represented
Law:
Proxy:

Define

How appointed

Rights

He is subject to restrictions in s.149(1)
(a)
(b)
(c)

Q4 2 ways for Corporate Shareholder to

be represented
Apply:
More advantageous to appoint a CR because:

Personally present

No need proxy form

Can vote on a show of hands

Background of CR not important because not
subject to restrictions in s.149(1)
Conclusion:

UKML 2013 Company Law

Members Remedies
Majority control and Minority
Protection
Topic 9
(Slides)
Bachelor of Accounting (Hons)
50

Emphasis

The Rule in Foss v Harbottle

Derivative action
Remedy in case of oppression s.181
Statutory derivative action under s.181A to
181E

51

Q1: Setbacks in bringing derivative action,

winding-up petitions or s.181
The resolution of the majority of the directors or
shareholders duly convened and passed is legally
binding on the company and consequently, on the
minority.
The majority is usually in a formidable position,
and they may choose not to commence an action
in the name of the company on wrongs from which
they have benefited.
Common law derivative action can be overlytechnical and time consuming.
52

Q1: Setbacks in bringing derivative action,

winding-up petitions or s.181
The legal fees and costs elements are always an
important factor. If the minority shareholder fails
in his action, he is potentially liable to pay the
costs of the majority.
At the same time, if the wrong-doers are held to
be liable, the minority shareholder has not
corresponding right to share the damages.
In most cases, the minority shareholder who is not
part of the management may be unable to obtain
the relevant information to adequately support his
case.

53

Q3: New Amendments S.181A-181E, to

what extent hv the setbacks been resolved
S.181A complainant may with leave of court, bring
action on behalf of Co, category of complainants
wider
S.181B Court take into account whether
Complainant in good faith
Complainant to give 30 days notice to dierctors, and
where leave is granted, to initiate legal action within
30 days.
S.181C cannot be discontinued without leave of Ct
S.181D - ratification or approval does not prevent any
person from bringing action
54

S.181E - Powers of the Court

S.181E(1) - In granting leave, Court may make orders:
(c) for any person to provide assistance and information
to the complainant, including to allow inspection of
company's books;
(d) requiring Company to pay reasonable legal fees and
disbursements incurred by the Complainant in
connection with the application or action or pending
the grant of the leave or pending the grant of any
injunction; or
(e) the costs of the Complainant, the Company or any
other person for proceedings taken under this section,
including an order of indemnification for costs.
55

UKML 2013 Company Law

Auditors
Qualification, Disqualification,
Appointment, Removal, Statutory
Rights, Duties of Auditors, Qualified
Privilege, Whistle-blowing Protection
Topic 7
(Slides)
Bachelor of Accounting (Hons)

56

Emphasis

Disqualification
Resignation
Removal of Auditor
Duty of Auditors to report breach or nonobservance of the CA 1965
Duty to report serious offence of fraud &
dishonesty
Qualified Privilege and Whistle-blowing Protection

57