END-OF-SEMESTER EXAMINATION SEMESTER I, 2006/2007 SESSION

AHMAD IBRAHIM KULLIYYAH OF LAWS

Programme : Bachelor of Laws Level of : Third Study

Reading Time : 3.00 p.m. – 3.15 p.m. Date : 10.11.2006 Duration : ( 15 minutes ) Answering Time : 3.15 p.m. – 6.15 p.m. Section(s) : All Sections Duration ( 3 hours ) Course Title : Company Law I Course Code : LAW 3210

This Question Paper Consists of 7 Printed Pages With 6 Questions.

INSTRUCTIONS TO CANDIDATES

DO NOT OPEN UNTIL YOU ARE ASKED TO DO SO. Answer FOUR (4) Questions only.

REFERENCE ALLOWED

Companies Act 1965

Any form of cheating or attempt to cheat is a serious offence which may lead to dismissal

Statutes should be free from any form of annotation.

APPROVED BY

2

QUESTION 1

(a) “The first principle is that in equity the promoters of a company stand in a fiduciary

relation to it and to those persons whom they induce to become shareholders in it,

and cannot in equity bind the company by any contract with themselves without

fully and fairly disclosing to the company all material facts which the company

ought to know”, per Lord Lindley M.R. in Lagunas Nitrate Co v Lagunas Syndicate

[1899] 2 Ch 392 at page 422.

Discuss the above statement in relation to the duties of a promoter and the remedies

for the breach of these duties with reference to decided cases. (8 marks)

(b) Senyum Bhd owns several restaurants. Six months ago it bought Bakar’s Malay

restaurant in Gombak for RM400,000. Bakar was paid an additional RM100,000 for

the goodwill. In the contract for the sale of the restaurant to Senyum Bhd, Bakar

agreed that he would not operate a similar restaurant in Gombak for three years.

Last month Senyum Bhd discovered that a new company Masak Kampung Bhd had

opened a Malay restaurant in Gombak. The shareholders of Masak Kampung Bhd

are Bakar and his son, Haikal.

Senyum Bhd would like to restrain Masak Kampung Bhd from operating the said

restaurant.

Advise Senyum Bhd. (7 marks)

3

QUESTION 2

(a) Middle Bhd, a company listed on the Stock Exchange, wants to return its capital to

the company’s preference shareholders. The company has called a meeting to

consider the proposal and has issued a notice to ordinary shareholders who are

entitled to vote and attend the meeting. However, some of the preference

shareholders were concerned that they were not given notice of the meeting. They

found out that some of the preference shareholders who were also ordinary

shareholders were allowed to vote and were promised additional ordinary shares if

the proposal was approved.

Can the preference shareholders challenge the proposal and if so, on what grounds?

(7 marks)

(b) The directors of Core Sdn Bhd are of the view that the high preferential dividend

has impeded the growth of the company and intend to reduce the preferential

dividend. Since the terms of issue are stated in the Articles of Association, they

convened a general meeting of shareholders and passed a special resolution altering

the articles. The directors also propose to alter the Articles of Association by

including a provision stating that any alteration in relation to class rights may be

passed by a simple majority of shareholders.

Advise the company as to the validity of the proposals.

(8 marks)

4

QUESTION 3

(a) Sponge Bhd plans to buy back its shares which are listed on the stock exchange to

boost its share price. However the company is worried that it may not have

sufficient funds to buy back the shares. The company also plans to subsequently

resell some of the shares bought back to Mr. Alam in a private sale agreement.

Advise the company on the proper procedure that the company has to comply with

and the legality of above proposals.

(7 marks)

(b) Rock Bhd is interested to expand its business and intends to do this by acquiring

some shares in Sand Bhd from Mr. Wan. To enable the acquisition of the shares to

take place, Rock Bhd obtained financing from CutuBank and charged the shares as

security. The loan was also secured by Dust Sdn Bhd, in which Sand Bhd owns

60% shareholding. Rock Bhd defaulted on the loan and seeks your advice as to the

enforceability of the security due to views that the transactions might be invalid as

being illegal financial assistance.

Advise the company.

(8 marks)

5

QUESTION 4

Section 33 of the Companies Act 1965 provides:

“Subject to this Act, the memorandum and articles shall when registered

bind the company and the members thereof to the same extent as if they

respectively had been signed and sealed by each member and contained

covenants on the part of each member to observe all the provisions of the

memorandum and of the articles.”

Explain the above section with reference to:

(a) the effect of the Articles of Association and Memorandum of Association; and

(9 marks)

(b) the general principles in relation to alteration of Articles of Association and

Memorandum of Association.

(6 marks)

QUESTION 5

Best Sdn Bhd (the company) is a palm oil manufacturing company which intends to

diversify its business. In January 2005, the company charged its freehold land in Gombak

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to secure a loan from Friendly Bank for RM100,000.00. However the charge was not

registered.

In March 2005, the company created a floating charge in favour of Gombak Bank over

its entire assets and undertaking. The floating charge has a restrictive clause which

provides that the company cannot create any subsequent charges ranking parri pasu or

equally with the floating charge. The charge and all its clauses including the restrictive

clause were duly registered.

The company also created a second floating charge on its entire assets and undertaking to

Cili Sdn Bhd in December 2005. Cili Sdn Bhd had failed to check the register and was

unaware of the restrictive clause.

In January 2006 the company ordered some materials from Mango Trading worth

RM100,000. The date for payment has passed but no payment has been made.

In May 2006 the company was wound up and the assets of the company was insufficient

to pay all the creditors. The company had also failed to pay the salary of its employees

for five months.

Advise the liquidator of the company on the priority of claims of the creditors.

(15 marks)

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QUESTION 6

“However, it is pertinent to note that relief under section 181 [Companies

Act 1965] is not exclusively and exhaustively confined to the protection of

minority members in a company. In appropriate circumstances, the statutory

protection can equally be applied to majority members or against wrong

doers who do not have a controlling interest in the company …” , Chan &

Koh, Malaysian Company Law , Principles & Practice, 2nd. Ed (2006) at

p.719.

Discuss the above statement with reference to decided cases.

(15 marks)