april 2010 part c, question 1

7/31/2019 April 2010 Part C, Question 1

1/12

April 2010 Part C, Question 1.

Cempaka Sdn. Bhd.

1.Shazwani Ghani

2.Firdaus Hamzah3.Faisal Aziz


2/12

a)

I. whether the directors had use the fund of

company in proper purpose.

Director duties developed under

common law:

1. Duty of Care, Skill and Diligence2. Duty of Loyalty and Good Faith


3/12

The director has the fiduciary duties owed to the company.Under the duty of loyalty and good faith, the director mustact for proper purpose for the best interest of the company.

Based on the case ofHoward Smith v Ampol Petroleum, itstated two steps where the court will determine whether,the act of directors is for the proper purpose or not. Thefirst step is in ascertain the actual purpose for the directorswhen they excercised the power. If the actual purpose isnot within the lawful purpose, therefore, the act exercisedfor improper purpose.

In the case ofAdvance Bank of Australia v FAI Insurances,the directors use the company funds for the campaign tore-elect director, thus the court held the directors act wasimproper purpose

As stated in section 132(1) of Companies Act 1965 that thedirector shall exercise his powers for a proper purpose andin good faith in the best interest of the company.


4/12

Application

The purchase of a luxury yacht at the cost of RM 1.5

million = not within the ordinary course of business. The purchase of a holiday bungalow at Frasers Hill at

a cost of RM 2 million = not within the ordinary

course of business.

The taking of unwarranted overseas trips under the

guise of negotiating lucrative contracts on behalf of

the company= improper use of companys fund.

The consistent withdrawal for personal use = not forthe benefit of the company.

The directors had use the fund, it is an improper

purpose act, as it breached the duty of the directors.


5/12

II. Whether granting the loan to Marie is valid

Loan to person connected to the director.

section 133 A

Marle who as the director granted anintrest free loan to marie, his sister to the

tune of 1 million, under section 133 A, the

loan was invalid due to the fact, the connection

between the director prevent the loan beinggranted, where it not within the ordinary course

of business.


6/12

b)

I. whether Remy, Martin and Cherrie (minority

shareholder) can obtain remedies for the

breaches made by the directors.


7/12

Foss v Harbottle, two minority shareholders of

Victoria Park Co. attempted to sue the

directors who were alleged to have

mismanaged the company and defrauded it of

its property. Wigram VC said:

The corporation should sue in its own name and it its name andin its corporate character, or in the name of someone whom

the law has appointed to be its representative

The action was dismissed on proceduralgrounds and 2 propositions were laid down.

They were:


8/12

1. The proper plaintiff rule.

In recognition of the company being a separate legalentity from its members, any wrong done to the

company is suffered by the company. The companymust be the proper plaintiff to seek legal remedyagainst the wrongdoers.

2. The internal management rule.

Where certain matters may be ratified by an ordinaryresolution passed by the members in the generalmeeting, the court is normally reluctant to interferewith the internal with the internal irregularities of a

company. Where the majority does not wish thecompany to sue, the court will not generally permitthe minority to sue on its behalf.


9/12

Section 181 (1) allows derivative action over wider area than the

common law. It covers cases of fraud on the minority and allows

for just and equitable grounds to have a company wound up. The

applicant under this section may initiate action whose the affairs

of the company, or the power of the directors are being

conducted or exercised; or some act of the co or some

resolution of the members has been done, or merely proposed.

Remedy under Section 181 may be sought against any person who

controls any respect of the companys affairs. It could be anyoneholding dominant power, not necessarily hold the majority of the

votes. He could be conferred powers under the articles having

control of proxy votes, or have personal influence over the

majority and as such have control over their votes. The range ofconduct that may be the basis for a minority member to take

derivative action is extensive. The term oppression, unfairly

discriminates and otherwise prejudicial as meant under

Section 181 will need some clarification.


10/12

Oppression under Section 181(1)(a) has not beendefined under the Act. It was defined as burdensome,

harsh, and wrongful by Viscount Simonds in Scottish

Co-operative Wholesale Society Ltd v Meyer. In Re Kong Thai Sawmill (Miri) Sdn. Bhd; Lord

Wilberforce said,

these must be a visible departure from the standards of

far dealing, and a violation of conditions of far playwhich a shareholder is entitled to expect before a caseof oppression can be madedisregard involves

something more than a failure to take account of the

minority interest: these must be awareness of thatinterest and to set at naught the proper companyprocedure.


11/12

In applying to the situation, Remy, Martin and Cherriewere confronted by Mick and Merle about thetransaction made they were told that it was within the

powers of the directors to run the business of thecompany. Furthermore, they also being told that it wasprerogative of directors whether to recommenddividend or not and that being minority, shareholdershave to accept the majority rule.

This shows that this is an oppression towards theminority shareholder. Besides, Mick and Merle alsoindicated to them that according to the companys

articles of association, they can be expelled if the

caused trouble. This shows that Mick and Merle havepersonal influence over the minority.


12/12

In conclusion, Remy, Martin and Cherrie can

obtain remedies under Section 181 of

Companies Act 1965

april 2010 part c, question 1

Documents