Chapter 4-6 - Company Law

Business Law All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T) 2010 Ch12: 1

CHAPTER 12
Company Law

OBJECTIVES
This chapter covers the fundamental principles of

company law including:
 the principle of the legal entity of a company
 the basic factors which distinguish a company from a
partnership and sole-proprietorship
 types of companies
 formation and dissolution
 a company’s powers of borrowing and providing security
 duties and responsibilities of company directors
 other such matters concerning corporate bodies

PREVIEW
 Introduction
 Legal Entity of a Company
 A Company and Its Members
 Lifting of the Corporate Veil
 Comparison and Distinction between a Company,
Partnership and Sole-proprietorship
 Types of Companies
 Formation of a Company
 Memorandum and Articles of Association
 A Company’s Powers of Borrowing and Providing
Security
 Liquidation
INTRODUCTION
 law relating to companies:

– Companies Act 1965
– Capital Markets and Services Act 2007
– Securities Commission Act 1993
– Companies Commission of Malaysia Act 2001
 parent legislation – Companies Act 1965

INTRODUCTION (cont.)
 subsidiary legislations:
– Companies Regulations 1966
– Companies (Winding-up) Rules 1972
– Companies (Reduction of Capital Rules) 1972
– Securities Commission (Shelf Registration Scheme
for Debentures) Regulation 2000
– Malaysian Code On Takeovers and Mergers 1998
– Capital Markets and Services Regulations 2007
– Guidelines on Regulation of Markets

INTRODUCTION (cont.)
 bodies that are responsible to regulate the activities

of companies:
– Companies Commission of Malaysia
– Bursa Malaysia Securities Berhad (Bursa)(formerly
known as Kuala Lumpur Stock Exchange)
– Securities Commission (SC)
– Pengurusan Danaharta Nasional Berhad

LEGAL ENTITY OF A COMPANY
 the effect of incorporation of a company is that the

company is vested with a corporate personality – a
company is treated as a legal person
 unlike a partnership or a sole-proprietorship, a company is
a corporate body and a legal person, which has status and
personality distinct and separate from that of the members
constituting it
 ‘company’ means a company incorporated pursuant to the
Companies Act 1965 or pursuant to any corresponding
previous enactment – section 4(1) of the Companies Act
1965, section 2(1) of the Securities Industry Act 1983,
section 2(1) of the Securities Commission Act 1993
(cont.)
 incorporation brings forth the following effects:

1. That the company is a body corporate with the powers of
an incorporated company
2. That it may sue and be sued in its own name
3. That is has perpetual succession
4. That it may own land
5. That the liability of its members may be limited
 thus, the whole scheme of the Companies Act 1965
is based upon the company’s separate existence

(cont.)
 the management powers are generally vested in the

board of directors – section 131B of the Companies
Act
 ‘company’ – implies an association of a number of
persons (at least two) with a common objective,
often, but not always, to carry on business for profit
 ‘person’ – to include a body of persons, corporate or
unincorporated: section 3 of the Interpretation Acts
of 1948 & 1967 (Consolidated and Revised) 1989

(cont.)
 section 4 of the Companies Act 1965 defines

‘corporation’ as ‘any body corporate formed or
incorporated or existing within Malaysia or outside
Malaysia and includes any foreign company’
 ‘corporation’ is wide enough to include a ‘company’
 main difference – ‘company’ must be one which is
registered under the Companies Act but not
necessary if it is a ‘corporation’, which may be a
branch of a foreign company set up in Malaysia

(cont.)
 the company and its members are two separate

bodies
 a corporation is an artificial legal person that exists
independently of the individuals who at any given time
are the members of the corporate body
 this principle was established by the House of Lords in
Salomon v Salomon & Co Ltd and applied in Sunrise
Sdn Bhd v First Profile (M) Sdn Bhd & Anor
 see Abdul Aziz bin Atan & 87 Ors v Ladang Rengo
Malay Estate Sdn Bhd, Abdul Mohd Khalid Hj Ali &
Ors v Dato’ Hj Mustapha Kamal & Anor
A COMPANY AND ITS MEMBERS
 essential distinction between a company and its

members was first established in Salomon v
Salomon & Co Ltd
 a company and its members are separate persons –
the veil of incorporation principle
 see Lee v Lee’s Air Farming Ltd, Macaura v
Northern Assurance Co, Sunrise Sdn Bhd v First
Profile (M) Sdn Bhd

LIFTING OF THE CORPORATE
VEIL
 as a consequence of incorporation, a company acquires

a personality of its own
 generally, the law will not go behind this veil of
incorporation to look at the membership of the company
 in exceptional cases – where upholding the rule in
Salomon would lead to injustice – the courts will ‘lift the
corporate veil’
 court to take action as if no entity separate from the
members existed. After that the court will make the
company, directors or managers liable for debts and
obligations
VEIL (cont.)
 these exceptions are described as cases of ‘lifting

the veil of incorporation’, and arise in the following
instances:
1. Number of members below two
2. Responsibility for fraudulent trading
3. Publication of name
4. Taxation and nationality rules
5. Holding and subsidiary companies
6. Evasion of legal obligations or abuse of legal rights
7. Other instances – such as to do justice where there is
fraud
VEIL (cont.)
 the courts have also recognized that it is not every

case involving a claim against a company that the
lifting of the corporate veil is warranted
 for example, the court will not lift the corporate veil
where the relief sought does not require the veil to
be lifted – see Sunrise Sdn Bhd v First Profile (M)
Sdn Bhd

COMPARISON AND DISTINCTION
BETWEEN A COMPANY, PARTNERSHIP
AND SOLE-PROPRIETORSHIP
 can be compared in the following areas:

a) Structure
b) Registration
c) Transferability
d) Management
e) Number of members
f) Constitution
g) Capital and liability
h) Borrowing powers
i) Security over assets
j) Rules, procedure and information to public
k) Dissolution
TYPES OF COMPANIES
 companies can be classified in the following ways:

a) companies can be unlimited, limited by shares or limited
by guarantee
b) companies can be private, exempt private or public
c) companies can be related companies – holding and
subsidiary or sister companies – or associate companies
d) companies can be local or foreign
 any two or more persons associated for any lawful
purpose may, by subscribing their names to a
memorandum and complying with the requirements
as to registration, form an incorporated company –
section 14(1) of the Companies Act 1965

TYPES OF COMPANIES (cont.)
 section 14(2) provides classifications of companies

 a company is limited by shares when the liability of
a member’s contribution to the company’s assets is
limited to the amount, if any, unpaid on his shares.
In general once the shares are fully paid up there is
no further liability
 this means that if the company becomes insolvent,
the members are not required to make any further
contributions to discharge its debts

1. Companies Limited by Shares

 a share is a right to participate in the profits made by
a company
 normal model used for business operations
 the liability of a member’s contribution to the
company’s assets is limited to the amount, if any,
unpaid on his shares
 if the company becomes insolvent, the members are
not required to make any further contributions to
discharge its debts

2. Companies Limited by Guarantee

 the liability of members is limited to such amount as
they have undertaken to contribute to the assets in
the event of its being wound up. That amount is
specified in the Memorandum of Association which is
part of the company’s constitution. If the company is
wound up, each person who is a member at that time
or has been a member within the preceding year may
be required to contribute up to the amount of his
guarantee towards payment of the debts and
liabilities of the company contracted before he
ceases to be a member – section 18(1)(e),
Companies Act 1965
 normally formed to incorporate trade or research

associations, charitable organizations, or non-profit
making organizations
 no company may now be formed or become a
company limited by guarantee with a share capital –
section 14A, Companies Act 1965
3. Private and Public Companies

 a company having a share capital may be
incorporated as a private company if its
Memorandum or Articles:
– Restricts the right to transfer its shares
– Limits the number of members to not more than fifty

– Prohibits any invitation to the public to subscribe for any
shares in or debentures of the company
– Prohibits any invitation to the public to deposit money
with the company for fixed periods or payable at call
whether bearing or not bearing interest
 a public company is a company other than a private
company
 in Malaysia, a public limited company has ‘Berhad’
(Bhd) as part or at the end of its name
 a private limited company has the words ‘Sendirian
Berhad’ (Sdn Bhd) as part of or at the end of its name
 a private unlimited company has the word ‘Sendirian’ (Sdn)

at the end of its name
4. Exempt Private Companies
 a private company in the shares of which no beneficial
interest is held directly or indirectly by any corporation
and which has not more than twenty members, none of
whom is a corporation
 need not file its accounts at the Companies Registry
for the information of the public, provided the company
files a certificate, signed by a director, the secretary
and the auditor of the company, that the company is
able to meet its liabilities as and when they fall due
 suits a business organization which usually consists of

family members but wishes to avoid the consequences
of being a partnership
 has certain privileges under the Companies Act 1965
 sometimes referred to as an ‘incorporated partnership’
5. Foreign Company
 a company incorporated outside Malaysia, which has a
place of business or is carrying on business within
Malaysia

 a foreign company establishing a place of business or

to carry on business within Malaysia must lodge with
ROC for registration:
a) a certified copy of the certificate of its incorporation, or
registration in its place of incorporation or origin, or a
document of similar effect
b) a certified copy of its charter, statute or memorandum
and articles or other instrument constituting or defining
its constitution
c) a list of its directors containing similar particulars to
those required by section 141 of the Companies Act
1965

d) where the list includes directors resident in Malaysia

who are members of the local board of directors, a
memorandum duly executed by or on behalf of the
foreign company stating the powers of the local directors
e) a memorandum of appointment or power of attorney
under the seal of the foreign company or executed on its
behalf in such manner as to be binding on the company
f) a statutory declaration in the prescribed form made by
the agent of the Company
6. Investment Companies
 a public company declared by proclamation of the
Minister published in the Government Gazette to be
an investment company
 section 319, Companies Act 1965:

 restrictions imposed by Companies Act 1965 –
investment companies cannot:
a) have outstanding borrowings in excess of twice its net
tangible assets – section 320
b) invest an amount more than 10% of its net tangible assets in
one corporation, and the amount invested in the ordinary
shares of one corporation cannot be more than 10% of the
subscribed ordinary share capital of the corporation – section
321(1)(2)
c) underwrite any issue of authorized or non-authorized
securities to an amount exceeding 40% or 20% respectively
of its net tangible assets – section 322(1)(2)

d) issue a prospectus or permit a prospectus to be issued on

its behalf unless the prospectus specifies the type of
security in which it is among the objects of the company
to invest; moreover, the prospectus must specify whether
it is among the objects of the company to invest within
Malaysia or outside Malaysia or both – section 323
e) purchase any other investment company or any
corporation overseas which is a proclaimed investment
company, and if it holds such investments at the time of
its being proclaimed an investment company, it has a
three-year grace period to comply – section 324
f) buy or sell or deal in any raw materials or manufactured
goods for the purpose of profit – section 325
FORMATION OF A COMPANY
 procedures involved:
a) obtaining approval for the proposed company name
b) lodging with the Registrar of Companies Commission of
Malaysia certain documents, including:
– the Memorandum and Articles of Association
– statutory declarations b (e) a statement of the allotment of
shares to the subscribers to the Memorandum (Form 24)
c) payment of registration fees
 the Registrar examines the documents, and if
complete, issues a certificate of incorporation
Memorandum of Association
MEMORANDUM AND ARTICLES
OF ASSOCIATION
1. Memorandum of Association
 defines the essential components of the structure of
the company, in particular, the objects with which it
was formed
 may only be altered to the extent and in the manner
as provided for by the Companies Act 1965
2. Articles of Association
 a set of regulations for management of the company
 may adopt all or any of the regulations contained in
Table A of the Fourth Schedule, Companies Act 1965
OF ASSOCIATION (cont.)
 the Memorandum and Articles are a contract under seal
binding both the members and the company – see Pender
v Lushington, Hickman v Kent or Romney Marsh
Sheepbreeders’ Association, Lim Beng Hui & Ors v Ling
Beng Sung, Tan Kok Tong v Hoe Hong Trading Co
Sdn Bhd
 Articles of Association represent the contract (terms)
binding both the company and its shareholders (members)
– see Eley v Positive Government Security Life Assurance
Co
 the Article also operate as a contract between individual
members in their capacity as members – see Rayfield v
Hands
OF ASSOCIATION (cont.)
3. The Ultra Vires Doctrine

 the Memorandum of Association must state the
objects of the company. The purpose of the objects
clause is to define and limit the activities which the
company is permitted to undertake
 anything exceeding these limits is ultra vires (beyond
the powers of) the company, and may be void
 see Section 20 of the Companies Act 1965

A COMPANY’S POWERS OF
BORROWING AND PROVIDING
SECURITY
 companies act via their directors who are vested with the
responsibility of the management of the company’s
affairs
 these persons are individually called directors and are
collectively called the board of directors or the board –
Article 73 Table A
 a company comprises two main organs:
1. The board of directors
2. Members in general meeting

SECURITY (cont.)
 a ‘director’:
– any person occupying the position of director of a
corporation by whatever name called and includes a
person in accordance with whose directions or
instructions the directors of a corporation are
accustomed to act and an alternate or substitute
director – section 4(1)
– falls within the definition of an ‘officer’ of the company
– under section 4(1) of the Companies Act:
a) is also liable to the prescribed penalties director
b) is an ‘officer’ of the company and includes any person
occupying the position of director of a corporation by
whatever name called
SECURITY (cont.)
– includes an alternate or substitute director
– stands in a fiduciary relationship with the company
– owes to the company a duty to act in good faith for the
benefit of the company
– owes certain duties and responsibilities towards the
company – see HL Bolton (Engineering) Co Ltd v
Graham & Sons Ltd
 directors have the following duties:

– to act in bona fide in the interests of the company
– to exercise powers for their proper purpose

SECURITY (cont.)
– to retain their discretionary powers
– to avoid conflicts of interests [‘no conflict’ rule and
‘no-profit’ rule]
– to exercise care, skill, and diligence
1. Duty to Act bona fide in the Interests of the

Company
 directors must always act in good faith in all matters
that relate to the company – see Re Smith & Fawcett
Ltd

SECURITY (cont.)
2. Duty to Exercise Powers for Their Proper
Purpose
 directors must act for the benefit of the company and
not in their own interests – see Re Micropack
Industries Sdn Bhd, Mills v Mills
3. Duty to Retain Discretion

 directors should not restrict the exercise of their
discretionary powers in the future – see Thornby v
Goldberg
 directors may not fetter their discretion by a contract
with an outsider – see Kregor v Hollins
SECURITY (cont.)
4. Duty to Avoid Conflict of Interests
 directors must not allow a situation to come where their
duties to the persons for whose benefits they are
required to act and their personal interests are in
conflict – see Aberdeen Railway Co v Blaikei Bros
 directors are accountable to the company for any secret
profit – see Cook v Deeks, IDC v Cooley, Peso–Silver
Mines Ltd v Cropper, Queensland Mines Ltd v Hudson
 generally directors are not permitted to enter into
competition with the persons for whom they act – see
Bell v Lever Bros, London & Mashonaland Exploration
Co
SECURITY (cont.)
5. Duties to Act with Care, Skill and Diligence
 directors owe a fiduciary duty to the company to act in
the interest of the company and also to put the
interest of the company foremost – see Re City
Equitable Fire Insurance Co Ltd, AWA Ltd v Daniels,
Re City Equitable Fire Insurance Co Ltd
 a director is expected to show following qualities in
exercise of his fiduciary duties:
– skill and diligence
– duty not to delegate
– care
SECURITY (cont.)
Skill and Diligence
 the director must generally exhibit the following:
a) general understanding of the company business
b) some knowledge on investment of money
c) some knowledge on the administration of company
Duty not to delegate (delegatus non-protest
delegatore)
 however, in the following circumstances a director was
allowed to delegate:
a) where allowed by the Companies Act

SECURITY (cont.)
b) if authorized by the articles of association of the company
c) where a director is authorized to delegate certain powers
by a board resolution
 some matters which cannot be delegated:
a) laying down company policy where the Companies Act
requires the board to make decision
b) where the articles of association require the board to
decide
 the law relating to authority of directors to delegate their

work in Malaysia is provided in sections 132(1F) and
(1G) of the Companies Act
SECURITY (cont.)
Care
 a director is expected to discharges his duties with
reasonable care and not to act negligently but he does
owe to his company the duty to take all possible care to
act with best care – see Re Cardiff Savings Bank, the
Marqus of Bute’s case
6. Borrowing Powers
 the Memorandum and Articles of Association of a
company usually include in their objects clause an
express power to borrow
SECURITY (cont.)
 whether a loan to a corporation is ultra vires or merely
beyond the directors’ powers, the lender may still be
able to enforce against the corporation by reason of
section 20 of the Companies Act 1965
 however, any such lack of capacity or power may be
asserted or relied upon only in:
1. Proceedings against the company by any member of
the company or the holder of any of the debentures
secured on a floating charge on the company’s property
2. Any proceedings by the company or by any member of
the company against the present or former officers of
the company
SECURITY (cont.)
3. Any petition by the Minister of Trade and Industry to wind-
up the company—section 20(2), Companies Act 1965
 clause 74 of Table A of the Companies Acts 1965 gives
power to the directors to borrow
 rule in Turquand’s case – a third party dealing with a
company is not bound to ensure that all the internal
regulations of the company have in fact been complied
with as regards the exercise and delegation of authority
 however, there are exceptions to this rule; one of these
is that if a document purporting to be sealed by or signed
on behalf of the company is proved to be a forgery, it
does not bind the company
SECURITY (cont.)
 section 67 provides that that no company shall give any
financial assistance for the purpose of any dealing by a
company in its own shares
 ‘financial assistance’ includes giving of:
– a loan
– a guarantee
– the provision of security or otherwise, any financial
assistance
for the purpose of or in connection with a purchase or
subscription of any shares in the company or its holding
company, or in any way purchase, deal in or lend money on
its own shares – section 67(1) of the Companies Act
SECURITY (cont.)
 the rationale of prohibiting financial assistance is to
restrict companies from dissipating its own assets and
return capital to its members to the detriment of its
creditors
 Co-operative Central Bank Ltd (In receivership) v Feyen
Development Sdn
1. The general rule is that where a contract is prohibited by
statute expressly or by implication, and the statute
stipulates for penalties for those entering into it, the
contract shall be void and unenforceable, unless saved by
the statute itself or if there are contrary intentions which
can reasonably be read from the statute
SECURITY (cont.)
2. Section 133 does not state that a guarantee entered into
or any security given in contravention thereof is to be void,
although criminal liability would be imposed on the official
of the company concerned, and on the company itself, by
virtue of sections 369(1)(a) and 369(2)
3. Section 133(5) which states that a company may recover
the loan amount or any amount for which it becomes
liable under any guarantee or security given contrary to
the section, implies that notwithstanding that a guarantee
or security may have contravened section 133(1)

SECURITY (cont.)
4. Section 133 was designed for the protection of the
company, its shareholders and creditors from unlawful
dissipation of its assets for the benefit of its directors and
their associates. The court would not aid a company which
sought to rely on its own breach to escape its obligations,
unless that was what the clear language of the statute
required
5. In this case, it was clear that the loan had been received by
the chargor company and that its assets were not being
depleted through misuse. In reality, the chargor company
was seeking to avoid repayment of the loan and to get back
its land free of the charges

SECURITY (cont.)
6. Although the charge transactions did breach section
133(1) of the Companies Act 1965, no civil
consequences flowed therefrom, i.e. no voidness or
unenforceability attached to the loan or the charges,
having regard to the context and purpose of section
133(1), and especially the principle underlying section
133(5) of the Companies Act 1965
7. In short, the landmark Federal Court decisions in the
Feyen and Lori cases made it clear that section 24 of the
Contracts Act 1950 will not operate to render void any
contract entered in breach of sections 67, 133 or 133A,
of the Companies Act 1965

SECURITY (cont.)
7. Providing Security
 ‘securities’
– means debentures, stocks or bonds issued or
proposed to be issued by any government
– also includes shares in or debentures of, a body
corporate or an unincorporated body
– include unit trusts or prescribed investments and
include any right, option or interest in respect thereof
– do not merely mean shares (equity capital) but it is
wide enough to cover debenture (debt capital)

SECURITY (cont.)
 ‘debenture’
– is basically a loan agreement which may or may not
incorporate a fixed and floating charge or a fixed charge or a
floating charge
– defined in section 4(1) – “... ‘debenture’ includes debenture
stock, bonds, notes and any other securities of a corporation
whether constituting a charge on the assets of the corporation
or not”
– property in priority to subsequent claimants
 a fixed charge may be created over assets of the
company including land and machinery

SECURITY (cont.)
 a floating charge does not attach to the property until the
charge crystallizes. Until crystallization of the charge, the
company is free to deal with and dispose of the assets
subject to it. Thus, pending crystallization, the debenture
holder does not have priority over subsequent claimants
 a floating charge:
1. Is a charge on a class of assets present and future
2. The class of assets will change from time to time in the ordinary
course of the company’s business
3. The company may carry on its business and dispose of the
assets in the course of business until the charge crystallizes
 see Re Yorkshire Woolcombers Association, Ltd
SECURITY (cont.)
 a floating charge crystallizes:
1. If an event occurs which by the terms of the loan or debenture
causes the floating charge to crystallize
2. If a receiver is appointed of the company’s assets either by the
court or under the terms of the debenture or other powers
3. If the company commences to be wound up (and possibly if it
ceases to carry on its business)
 in Zeno Ltd v Prefabricated Construction Co (Malaya) Ltd &
Anor, a charge which is not registered with the Land Office
is void due to non-compliance with the law (National Land
Code 1965). However, since a charge is distinct from a lien,
although the charge is avoided, the lien is still valid. See
Paramoo v Zeno Ltd
SECURITY (cont.)
8. Company Lending to Directors and Related

Persons and Other Prohibitions
 the general rule is that the company should not
give loan to any of its directors. Reason – if the
loan is freely allowed, it will amount to reduction of
capital
 section 133(1) prohibits a company from making a
loan to its directors or to directors of companies
which are deemed to be related corporations

SECURITY (cont.)
 companies are also prohibited for giving a guarantee
or security in connection with such a loan. The
Companies Act prohibits a company to make a loan
even to persons connected with a director such as
director’s spouse or children (whether adopted or
natural), or give a guarantee or security in connection
with such a loan – sections 133A and 122A
 the above prohibition does not apply in the following
cases: an exempt private company and a foreign
company

SECURITY (cont.)
 funds may be provided to the directors when:
1. Advances to a director to provide him with funds to meet
expenditure incurred or to be incurred by him as a director
for the purposes of the company or for the purpose of
enabling him to properly perform his duties as an officer of
the company – section 133(1)(a)
2. Funds may be provided to a director who is engaged in the
full-time employment of the company or its holding company
3. Loans may be provided to a director who is engaged in the
full time employment of the company or its holding company
4. A loan made in the ordinary course of business by a bank,
finance company or insurance company to a director would
also be permissible
SECURITY (cont.)
Loans to Persons Related to Directors
 a company is generally prohibited from making loans to
persons connected with its directors or to persons
connected to directors of its holding company – sections
133A
 companies are also prohibited from entering into any
guarantee or to provide any security in connection with a
loan made to such person by any other person
 by section 133A(2) loans to ‘connected persons’ are
allowed where:
a) loans and related transactions are entered into by
companies for the benefit of their related companies
SECURITY (cont.)
b) companies which are in the business of lending of money
or the giving of guarantee in connection with loans by
banks, finance companies or insurance companies
c) home purchase loans and loans under an approved
scheme
 under section 122A, a person is deemed to be
connected with a director if he is:
a) a member of that director’s family
b) a body corporate which is associated with the director
c) a trustee of a trust under which that director or a member of
his family is a beneficiary
d) a partner of that director or a partner of a person connected
with that director
SECURITY (cont.)
 under section 122A(2) a member of that director’s family
includes his spouse, parent, child (including adopted
child and step-child), brother, sister and the spouse of
his child, brother, sister and the spouse of his child,
brother or sister
 under section 122A(3), a body corporate is deemed to
be associated with the director:
a) if the body corporate or its directors are accustomed to act
in accordance with the directions, instructions or wishes of
that director
b) if that director has a controlling interest in the body
corporate
SECURITY (cont.)
c) if that director or persons connected with him, or that
director and persons connected with him, are entitled to
exercise, or control the exercise of, not less than 15%
of the votes attached to voting shares in the body
corporate
Prohibitions of Transactions under Section 132C

 where under an arrangement or transaction, the
directors of a company either acquire or dispose of a
substantial portion of the company’s undertaking or
property

SECURITY (cont.)
 the term “substantial value” or “substantial portion” is
defined under subsections (1A) and (1B) according to
the types of company involved. In the case of listed
company, the term “substantial value” or “substantial
portion” shall mean the same value prescribed by the
provisions in the listing requirements of the exchange:
a) which relates to acquisition or disposals by a company or
its subsidiaries to which such provision applied
b) which would require the approval of shareholders at a
general meeting in accordance with the provisions of such
listing requirements

SECURITY (cont.)
Substantial Property Transactions Involving

Directors: Section 132E
 to prevent asset stripping – see Hely Hutchinson
v Brayhead Ltd, Tan Bok Seong v Sin Bee Seng
& Co (Port Weld) Sdn Bhd & Ors

LIQUIDATION
 a company can be dissolved in the following ways:

1. By the Registrar of Companies striking off the register
summarily a company which appears to be defunct –
section 308
2. The court, in approving a scheme of arrangement,
may order the immediate dissolution of a company –
section 178
3. By voluntary liquidation – the members of the
company may pass a resolution to wind up or through
winding up by creditors
4. By compulsory liquidation – by court order
LIQUIDATION (cont.)
 under section 217(1), the following persons may

petition for the winding up of a company under an
order of the court:
a) the company
b) any creditor of the company
c) a contributory
d) the liquidator
e) the Minister pursuant to section 205 or on the ground of
section 218(1)(d)
f) in relation to banks, financial institutions, scheduled and
non-scheduled institutions under the Banking and
Financial Institutions Act 1989, Bank Negara Malaysia
LIQUIDATION (cont.)
g) in relation to insurance companies, Bank Negara

Malaysia
h) the Registrar of Companies on the ground specified in
section 218(1)(m) or (n) of the Companies Act 1965
 under section 218(1), grounds in which a company

may be wound-up by the court:
a) the company has by special resolution resolved that it
be wound-up by the court
b) default is made by the company in lodging the statutory
report or in holding the statutory meeting

LIQUIDATION (cont.)
c) the company does not commence business within a

year from its incorporation or suspends its business for
a whole year
d) the number of members is reduced to below two
e) the company is unable to pay its debts
f) the directors have acted in the affairs of the company in
their own interests rather than in the interests of the
members as a whole, or in any other manner
whatsoever which appears to be unfair or unjust to
other members
g) an inspector appointed under Part IX has reported that
the company should be wound up
LIQUIDATION (cont.)
h) the period fixed for the duration of the company by the

memorandum or articles, if any, has expired
i) the court is of the opinion that it is just and equitable that
the company be wound up
j) in relation to banks, financial institutions and other
institutions licensed under the BAFIA 1989 or the Islamic
Banking Act 1983, if its banking licence has been revoked
or surrendered
k) the company has carried on Islamic banking business,
licensed business or scheduled business, or it has
accepted, received or taken deposits in Malaysia in
contravention of the Islamic Banking Act 1983 or the
Banking and Financial Institutions Act 1989, as the case
may be
LIQUIDATION (cont.)
l) the insurance company’s licence has been revoked or

wound-up or had an order made against it under section
59(4)(b) of the Insurance Act 1996
m) the company is being used for unlawful purposes or any
purpose prejudicial to or incompatible with peace, welfare,
security, public order, good order or morality in Malaysia
n) the company is being used for any person prejudicial to
national security or public interest
 the ground used by bankers when petitioning for the
winding-up of company – debtors is that the company
is unable to pay its debts, that is, under section
218(1)(e)
LIQUIDATION (cont.)
 see Securicor (M) Sdn Bhd v Universal Cars Sdn Bhd,

Malaysia Air Charter Company Sdn Bhd v Petronas
Dagangan Sdn Bhd
 the meaning and scope of the phrase ‘unable to pay
its debts’ in section 218(1)(e) – see Hotel Royal Sdn
Bhd v Tina Travel & Agencies Sdn Bhd, Teck Yow
Brothers Hand-Bag Trading Co v Maharani
Supermarket Sdn Bhd
 the presentation of a winding-up petition may be
restrained by injunction where its presentation would
amount to an abuse of the process of the court
LIQUIDATION (cont.)
 this injunction whereby an intended winding-up petition

is sought to be restrained is known as the “Fortuna
injunction”, named after the case Fortuna Holdings Pty
Ltd v The Deputy Commissioner of Taxation
 for section 293 to apply and for the transaction to be
rendered as an undue preference, the transaction
must meet all five elements in section 53(1) of the
Bankruptcy Act 1967, viz:
a) that the transaction in question took place within six
months prior to the commencement of the winding up
b) that it satisfied the description of one of the types of
transaction mentioned in section 53(1) of the Bankruptcy
Act
LIQUIDATION (cont.)
c) that it took place at the time when the company was

insolvent
d) that the person in whose favour the transaction was
effected stood in the relation of creditor to the company
e) the effect of the transaction was to confer on that person
preference, priority or advantage over the other creditors
in the winding up
 see Sime Diamond Leasing (M) Sdn Bhd v JB

Precision Moulding Industries Sdn Bhd (In
Liquidation)
REVIEW
 Introduction
 Legal Entity of a Company
 A Company and Its Members
 Lifting of the Corporate Veil
 Comparison and Distinction between a Company, Partnership
and Sole-proprietorship
 Types of Companies
 Formation of a Company
 Memorandum and Articles of Association
 A Company’s Powers of Borrowing and Providing Security
 Liquidation

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Business Law All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2010 Ch12: 1

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This chapter covers the fundamental principles of

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 law relating to companies:

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 bodies that are responsible to regulate the activities

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 the effect of incorporation of a company is that the

 incorporation brings forth the following effects:

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 the management powers are generally vested in the

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 section 4 of the Companies Act 1965 defines

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 the company and its members are two separate

 essential distinction between a company and its

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 as a consequence of incorporation, a company acquires

 these exceptions are described as cases of ‘lifting

 the courts have also recognized that it is not every

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 can be compared in the following areas:

 companies can be classified in the following ways:

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 section 14(2) provides classifications of companies

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1. Companies Limited by Shares

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2. Companies Limited by Guarantee

 normally formed to incorporate trade or research

3. Private and Public Companies

– Limits the number of members to not more than fifty

 a private unlimited company has the word ‘Sendirian’ (Sdn)

 suits a business organization which usually consists of

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 a foreign company establishing a place of business or

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d) where the list includes directors resident in Malaysia

 section 319, Companies Act 1965:

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d) issue a prospectus or permit a prospectus to be issued on

3. The Ultra Vires Doctrine

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 directors have the following duties:

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1. Duty to Act bona fide in the Interests of the

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3. Duty to Retain Discretion

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 the law relating to authority of directors to delegate their

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