topic 0 - revision slides

8/17/2019 Topic 0 - Revision Slides

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UKML 2013 Company Law

Revision

Directors, Directors’ Duties,Share Capital, Loan Capital,

, ,Minority Protection

Topic 6, 4, 5, 8, 7, 9

(Slides)Bachelor of Accounting (Hons)

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Directors

Directors and Directors Duties

To ic 6

(Slides)

Bachelor of Accounting (Hons)

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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 anddiligence, statutory duties

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Directors’ DutiesFiduciary Duty of skill Other

Duties Care and Statutory1. Act bona fide Diligence Duties

in best interest of

the Company

2. Exercise powers

for a proper purpose

3. Retain discretion

4. Avoid conflict of

interest4


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Other Statutory DutiesDuty 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 inshares

5

• S 132C - Approval of Co required for disposal by

Directors of Co’s 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


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Differentiate

Issues onfiduciary duties

Issues on duty ofskill, care &

diligence

• Ethics• Integrity

• Competency• Qualification

• Honesty• No personal

self-interest

• Carefulness• Commitment• Hardworking

A person can be veryhonest or upright, and

yet very careless or

hopeless in his work

A person can be very

capable or an expert,and yet very dishonest

and lacks integrity


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Q1 – Kevin Bob

Intro:

• Whether breach FD, effect of breach

Law:

• s.132(1), 132(2),

2-3 cases: Regal Hastings, Walker v Wimborne

• s.131, 131(7A), 131(7B), 131A, 135

• 132C, 132E, 132F,• 130


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Q1 – Kevin Bob

Apply:

• Purchase of Jaguar:

use their position in the Co, use Co’s property,

s.132C

Not act In the Co’s best interest, use Co’s

money,

s.131• Purchase of land from Nelson:

s.131, s.132E, s.132F

• RM20,000 gift: Secret profit


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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.


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Q2(a) Feasibility report

Intro:

• Whether can rely on info prepared by a 3rd

party not engaged by BOD but by a directoracting in personal capacity

aw:• s.132(1A), s.132(1C), (1D)

Apply:

• Cheng not fall within the categories of personsin 132(1C), not “professional/expert retained bythe Co”


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Q2(a) Feasibility report

Law:

• Lily though a director, but was not the personwho prepared the report.

• BOD must still make independent assessment

y….Conclusion:

• BOD cannot rely & instantly act on report by

Cheng


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Q2(b) Losses from new

businessIntro:

• 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


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Q2(b) Losses from new

businessApply:• 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…


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Q2(c) Duty to creditors

Intro:

Law:

• Common Law FD owed to creditors

Kuwait Asia Bank, Kinsela v Russell Kinsela, Hilton, ,

• In Msia there are statutory provisions in CA 1965which 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….


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Q3(a) Kwazai contract

Intro:

• Whether Comfortlife has breached s.132C, CA 1965

in relation to the Kwazai contract, i.e. acquisition ofa property of substantial value.

Law:

• S.132C – see which sub-sections are relevant, don’t jz write blindly everything. Also, penalty/offences

Apply:

• Kwazai is not a director, SS or PC.

• The SUV cost….Co’s issued share cap….exceed25%


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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 GMobtained…consequences….(mention who &who is liable for what)


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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

Law:

• S.69D – substantial shareholder

• S.132E – see which sub-sections are relevant,don’t jz write blindly everything. Also,penalty/offences

• S.132F – can keep brief


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Q3(b) BMW contract

Apply:

• Dato Farouk was a SS becos…

• Market value of BMW was….it was a non-cashasset of requisite value becos….

• o w n any excep ons n s.• Prior approval shd hv been obtained

Conclusion:

• BOD no power to pass a resolution

• A GM shd hv been held to…Dato’ Farouk cannotvote in that GM.


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Q3(b) BMW contract

Conclusion:

• Since no prior approval of GMobtained…consequences….(mention who &who is liable for what)

Dato Farouk – liable…..Which director who knowingly authorise -…..


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Q4 Sinar JayaIntro:

• Prohibition under s. 67 CA….financial

assistance for purchase of its own shares &consequences

• . ….

assistance to persons connected to a director& consequences

Law & Application:Divide into 2 sub-headings:

• Discussion on s.67

• Discussion on s.133A


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Q4 Sinar JayaLaw & 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 ins.133A(2)

Apply – prove s.133A(2) not applicable,

consequences


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Q4 Sinar JayaConclusion:

• BOD is advised against proceeding with…

• Co still liable on the security it is providing, i.e.the Sg Pendek land – Lori M’sia, CCB v Feyen

.

• Penalties/offences under s.133A


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Share Capital

Classification of Capital, Shares,

Topic 4

(Slides)

Bachelor of Accounting (Hons) 23


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Emphasis

• Substantial shareholder – s.69D

• Authority to issue shares – s.132D

• Prohibition on Co purchasing own shares orgiving Financial Assistance - s.67

• Prohibition on Reduction of Capital – s.64• Share issued at a discount – s.59

• Share Buy-back for Public listed Co’s – s.67A

• Other Rules on Capital Maintenance

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Share capital

a. 5 differences between ordinary shares and

preference shares

b. Difference between preference shares andredeemable preference shares

• ,

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


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Difference between Ordinary

shares and preference shares• Rate of dividend

• Priority of return/repayment of capital in awinding-up

• Right to vote at general meetings

• Liability or risks • Financial returns

• Priority of payment of dividend

• Right to participate in surplus profits afterpayment of dividends.

• Right to participate in distribution of surplus

assets in case of winding-up 26


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Loan Capital

Debenture, Charges, Registration of

arges, r or y o arges,Rights of Debenture Holders

Topic 5(Slides)



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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

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Shareholder c/f debenture holder

• Membership of Co

• Membership rights

• Large number of people in Co : Greaterimplications if large number of shareholders

• Enforcement of right : s.33(1) to enforceA/A

• Payment out of profits : distributable profits

• Payment out of capital : cannot out ofcapital

• Priority in payment in a liquidation 29


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Shareholder c/f debenture holder

• Whether can be convertible: Convertibledebenture can

• Issue of shares : Shareholders can challengeBOD if issue of shares for collateral purpose

•

share capital.

• Issue at a discount : Debentures can

• Repurchase/redemption : Cannot buy backshare shares unless comply with S.67

• Transfer of shares : Debenture holders can

freely 30


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Fixed Charges• Co cannot dispose (部署 melupuskan ) of the

property

- e.g sell, lease, transfer without Lender’sconsent

• Co is no longer free to deal with property.

固定抵押 Caj tetap

• ,charge (If owner sells off the property to apurchaser, the bank can still get order to sell theproperty when the loan is default)

• Properties/assets need not necessarily inexistence at the time of charge. (future property)

- capable of being ascertained or defined in the

instrument creating the charge 31


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Floating Charges

• Re Yorkshire Woolcombers Association Created over assets which change in their

ordinary course of business Company can dispose of the assets until

cr stallisation takes lace

浮动抵押 Caj terapung

• A charge that floats above specificcategories of assets.

• E.g. trading stocks, inventories, raw

materials, book debts, uncalled capital,other movable assets or current assets.

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What are Floating Charges?• Characteristics:

ambulatory and shifting in nature

Not related to any particular asset, but to aclass/category of assets

Present assets or future assets

Co may carry on its business as usual, using thecharged assets

• Upon the “crystallisation” event, floating charge

settles down and fasten on the class of assetswithin its grasp at that time.

• Co loses its right to deal with the assets from that

point onwards 33


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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


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Q3 EquinoxIntro:

• Validity of the 4 charges

• Priority of the 4 charges

• Define, 2 types

• Fix charge - ….

• Floating charge - ….• Crystalisation…..


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Q3 EquinoxLaw:

• Registration:

All charges must be registered, s.108 Within 30 days from creation

Rationale is to give Constructive Notice to….

Effect of non-registration

Co can apply for late registration


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Q3 EquinoxLaw:

• Priority of unregistered charges:

• Priority of registered charges:

….

Priority btw 2 floating charges:…

Priority btw a fixed charge and a floating

charge:….. Justification:

However, if NPC: …..C

Explain NPC


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Q3 EquinoxApply:

• OTF, there were 2 fixed charges…..

• OTF, there were 2 floating charges….

• As regards priority between ABC and

DEF:….DEF’s fixed charge has prioritybecause….

• As regards priority between GHI and

JKL:….GHI’s floating charge has prioritybecause….


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Q3 EquinoxApply:

• As regards priority between GHI’s floating

charge and DEF’s fixed charge: The General rule is that…..DEF

’,

contained a NPC…..GHI


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Q3 EquinoxConclude:

• The order of priority of chargees: GHI, DEF, JKL

and ABC. Reasons: GHI’s floating charge is in priority over

’ ’

DEF’s fixed charge is in priority over

ABC’s fixed charge and JKL’s floating charge

JKL’s floating charge is in priority overABC’s fixed charge


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Company Meetings

Types of Company Meetings,

Resolutions,

Topic 8

(Slides)


E h i


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Emphasis• Who has the authority to convene

meetings?

• AGM, EGM,• s.144, s.145

• ee ngs y e ec ron c means an mo erntechnology,

• Proxies, Corporate Representative,

• Voting by show of hands, Voting by poll

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Q1 – who can convene Co Meetings• A meeting convened by persons with proper

authority/entitled to summon it• BOD meeting – Chairman, a director

–

BOD

Individual director

Members may requisition – s.144 Members may convene – s.145

Court may convene – s.150

Q2 BOD


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Q2 – was BOD correct

Intro:

• Whether there were other categories of persons

apart from the BOD that has the power toconvene meetings

Law:

2 sub-headings:• Explanation on meeting requisitioned by

members under s.144

• Explanation on meeting convened by membersunder s.145

Q2 BOD t


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Q2 – was BOD correct

Application & conclusion:

• OTF, the BOD was correct over BOD meeting,

but not GM, because there are other categoriesof people…

• Members can convene meetin under s.144 after

BOD refuses to comply with its requisition, andunder s.145, members may directly convene…..

• OTF, KMS held….PM held….

• Under s.144, KMS….PM…..• Under s.145, KMS…PM…

Q3 GM t diff t


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Q3 – GM at different venues

• Intro:

• s.145A CA…...held at any place in M’sia, at more

than one venue, reasonable opportunity toparticipate.

• OTF Hand son ma 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


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Q4 – 2 ways for Corporate Shareholder to

be representedIntro:

• May be represented by a CR or a Proxy

Law:

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)



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be representedLaw:

• Proxy:

Define How appointed

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

(a)

(b)(c)



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Q4 2 ways for Corporate Shareholder to

be representedApply:

• More advantageous to appoint a CR because:

Personally present No need proxy form

Background of CR not important because not

subject to restrictions in s.149(1)

Conclusion:


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Members’ Remedies

Majority control and Minority

Topic 9

(Slides)

Bachelor of Accounting (Hons)

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Emphasis


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Emphasis

• The Rule in Foss v Harbottle

• Derivative action

• Remedy in case of oppression – s.181• Statutory derivative action under s.181A to

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Q1 Setbacks in bringing deri ati e action


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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 legallybinding on the company and consequently, on the

.

• 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 overly-

technical and time consuming.52

Q1: Setbacks in bringing derivative action


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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 failsin his action, he is potentially liable to pay thecosts of the majority.

• At the same time, if the wrong-doers are held tobe liable, the minority shareholder has not

corresponding right to share the damages.

• In most cases, the minority shareholder who is notpart of the management may be unable to obtain

the relevant information to adequately support his

case. 53

Q3: New Amendments S 181A-181E to


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

what extent hv the setbacks been resolved

• S.181A – complainant may with leave of court, bringaction on behalf of Co, category of “complainants”wider

• S.181B – Court take into account whetheromp a nan n goo a …

• Complainant to give 30 days’ notice to dierctors, andwhere leave is granted, to initiate legal action within30 days.

• S.181C – cannot be discontinued without leave of Ct

• S.181D - ratification or approval does not prevent anyperson from bringing action

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S.181E - Powers of the Court


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S 8 o e s o t e Cou t

S.181E(1) - In granting leave, Court may make orders:

(c) for any person to provide assistance and informationto the complainant, including to allow inspection of

company's books;

(d) requiring Company to pay reasonable legal fees anddisbursements incurred by the Complainant in

connection with the application or action or pendingthe grant of the leave or pending the grant of anyinjunction; or

(e) the costs of the Complainant, the Company or anyother person for proceedings taken under this section,including an order of indemnification for costs.

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UKML 2013 Company LawAuditors

Qualification, Disqualification,Appointment, Removal, Statutory

g s, u es o u ors, ua ePrivilege, Whistle-blowing Protection

Topic 7(Slides)


Emphasis


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Emphasis• Disqualification

• Resignation

• Removal of Auditor

• Duty of Auditors to report breach or non-observance of the CA 1965

• Duty to report serious offence of fraud &dishonesty

• Qualified Privilege and Whistle-blowing Protection

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topic 0 - revision slides

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