Company law share capital 2

1

Topic 4 - Shares Capital II

4.6 - Register of Members

Company has a duty to maintain register of

members - particulars as set out in s 158 CA.

- name, address etc.

Kept in registered office of company: s 159 CA.

Exceptions – may be kept elsewhere.

(1) The register of members and index, if any, shall be kept at the registered office of the company, but—

(a) if the work of making them up is done at another office of the company within Malaysia they may be kept at that other office; or

(b) if the company arranges with some other person to make up the register and index, if any, on its behalf they may be kept at the office of that other person at which the work is done if that office is within Malaysia.

Prima facie evidence of matters inserted

therein but not conclusive evidence: s 158(4)

CA.

(4) The register of members shall be prima

facie evidence of any matters inserted therein as

required or authorized by this Act.

Offence if non-compliance with s 158 CA: s

158(7) CA.

(7) If default is made in complying with this section the company and every officer of the company who is in default shall be guilty of an offence against this Act.

4.7- Rectification of Register

Application can be made for rectification of

register on the ground of wrongful entry or

wrongful omission or wrongful retention: s 162

CA.

(1) If—(a) the name of any person is without sufficient cause entered in or omitted from the register; or(b) default is made or unnecessary delay takes place in entering in the register the fact of any person having ceased to be a member,the person aggrieved or any member or the company may apply to the Court for rectification of the register, and the Court may refuse the application or may order rectification of the register and payment by the company of any damages sustained by any party to the application.

Mode of application Order 88 rule 2 Rules of Court 2012

- Originating Summon

- Originating Motion

Who can be an applicant?

s 162(1) CA - 'person aggrieved'

Nelfi Amiera MizanFOL, MMU 2016

2

Allied Properties Sdn Bhd v Semua Holdings Sdn

Bhd

Held that the beneficial owner of shares was a

'person aggrieved' and could apply for rectification

of the register.

Sing Eng (Pte) Ltd v PIC Property Ltd [1990]:

This means a person whose name is improperly

omitted or one whose name is left on the register

after he has ceased to be a member.

When an application for rectification can or

cannot be granted?

Sabah Penang Development Sdn Bhd v Yeng Hing

Enterprise Sdn Bhd

‘Held, dismissing the applicant's motion: The

jurisdiction of the court to grant the summary

remedy to rectify the register of members of a

company under s 162 of the Act is general but the

exercise of it is discretionary.

The discretion will only be exercised in favour of

the applicant where the case is clear and free from

difficulty or material doubt.

Where the case is complicated and there is doubt

as to the bona fides of the transaction, or where

the case involves complicated questions of law and

fact, the court will refuse to order rectification on a

motion but will leave the applicant to seek

rectification by way of an action.’

Central Securities (Holdings) Bhd v Haron bin

Mohadmed Zaid

‘an application for rectification cannot be granted

where there are serious disputes regarding title and

the issues cannot be properly decided in the

summary proceedings under the section. Delay is a

material consideration. In the present case, the

delay is almost 2 years.’

Pioneer Motor Service Co v Chin Cheng Hong Sdn

Bhd

Rectification was ordered in the Pioneer Motor

Service case, as the directors had approved a

transfer in disregard of articles conferring pre-

emptive rights on other members.

However, the fact that an allotment of shares is

irregular does not ipso facto mean that the register

will be rectified. The court still has discretion not to

rectify the register and may decline to do so if, for

instance, the applicant has acquiesced in regarding

the allottee as a member of the company

notwithstanding the invalid allotment: Re Asian

Organisation Ltd [1961] MLJ 295.


3

4.8- No Registration of Trust

s 163(4) CA - Except as provided in this section no notice of any trust expressed, implied or constructive shall be entered on a register or branch register or be receivable by the Registrar and no liabilities shall be affected by anything done in pursuance of subsection (1), (2) or (3) or pursuant to the law of any other place which corresponds to this section and the corporation concerned shall not be affected with notice of any trust by anything so done.

Table A, article 7. - Except as required by law, no person shall be recognized by the company as holding any share upon any trust, and the company shall not be bound by or be compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future, or partial interest in any share or unit of a share or (except only as by these regulations or by law otherwise provided) any other rights in respect of any share except an absolute right to the entirely thereof in the registered holder.

Yeng Hing Enterprise Sdn Bhd v Liow Su Fah

A company is not bound to take notice of trusts of

its shares.

Sing Eng (Pte) Ltd v PIC Property Ltd [1990]:

an attempt to register shares in the name of a

nominee may be rejected.

Referring to Yeng Hing Enterprise Sdn Bhd v

Liow Su Fah, the Court of Appeal in Hi-Summit

Construction Sdn Bhd v Konsortium Lapangan

Terjaya Sdn Bhd & Ors [2015] 2 MLJ 247 held

that a beneficial majority shareholder under a

trust in respect of the shares (who, in this case,

attempted to exercise rights under the shares

ie non-interest to pursue the appellant's writ

action) was not in the position to exercise any

rights under the shares at all.

Consequence of this rule:Simpson v Molson’s Bank

Company treats every person whose name is on the

register as owner of the shares and will therefore

not be liable to beneficiaries of the trust if a sale is

in breach of the trust.


4

The exceptions to this rule:(a) s 163(1) and s 163(2) CA

(1) Any trustee executor or administrator of the estate of any deceased person who was registered in a register or branch register kept in Malaysia as the holder of a share in any corporation may become registered as the holder of that share as trustee executor or administrator of that estate and shall in respect of that share be subject to the same liabilities and no more as he would have been subject to if the share had remained registered in the name of the deceased person.

(2) Any trustee executor or administrator of the estate of any deceased person who was beneficially entitled to a share in any corporation being a share registered in a register or branch register kept in Malaysia may with the consent of the corporation and of the registered holder of that share become registered as the holder of that share as trustee executor or administrator of that estate and shall in respect of the share be subject to the same liabilities and no more as he would have been subject to if the share had been registered in the name of the deceased person.

Re LY Swee & Co Ltd

(b) s 163(3) CA.

- Company affected by notice of the rights of

third parties

(3) Shares in a corporation registered in a register or branch register kept in Malaysia and held by a trustee in respect of a particular trust may with the consent of the corporation be marked in the register or branch register in such a way as to identify them as being held in respect of the trust.

Chung Khiaw Bank Ltd v Four Seas

Communications Bank Ltd

The fact that a company is not obliged to take

notice of trusts does not mean that it can ignore

the fact that third parties have equitable interests

in its shares. Thus, where a company claims a lien

over its shares, it may be affected by equitable

interests of which it has notice, notwithstanding

that such interests have not been notified on the

register.

Similarly, the fact that the company can ignore

equitable interests does not mean that such

equitable interests are invalid.

Jin Sen Hong (1971) Sdn Bhd v Khiing Sie

Khuo [1988]:

where a charging order was postponed to an earlier

equitable mortgage of shares.


5

4.9 - Share Certificate

Shares listed in Stock Exchange – share

certificates are deposited in Central Depository

(technically holder of share certificates).

Transfer of shares are scriptless and by book

entry.

s 107C CA - The transfer of any securities or class of securities of a company whose securities or any class of whose securities have been deposited with a central depository shall be by way of book entry by the central depository in accordance with the rules of the central depository. Notwithstanding s. 103 & 104.

Companies which do not come under Central Depository System must issue share certificate to each member.

Companies which do not come under Central

Depository System must issue share certificate to

each member.

Statutory requirements s 100(2) CA - (2)Every share certificate shall be

under the common seal of the company or (in the case of a share certificate relating to shares on a branch register) the common or official seal of the company and shall state as at the date of the issue of the certificate-

a) the name of the company and the authority under which the company is constituted;

b) the address of the registered office of the company in Malaysia, or where the certificate is issued by a branch office, the address of that branch office; and

c) the nominal value and the class of the shares and the extent to which the shares are paid up.

Obligation to issue Share Certificates

Company’s duty to issue share certificate and

time frame: s 107(1) CA.

Every company shall within two months after the allotment of any of its shares or debentures, and within one month after the date on which a transfer (other than such a transfer as the company is for any reason entitled to refuse to register and does not register) of any of its shares or debentures is lodged with the company, complete and have ready for delivery all the appropriate certificates and debentures in connection with the allotment or transfer.


6

Offence if non-compliance with s 107 CA: s

107(2) CA

If default is made in complying with this section the company and every officer of the company who is in default shall be guilty of an offence against this Act.Penalty: One thousand ringgit. Default penalty.

Prima facie evidence of title s 100(1) CA - A certificate under the common

or official seal of a company specifying any shares held by any member of the company shall be prima facie evidence of the title of the member to the shares.

Kelapa Sawit (Teluk Anson) Sdn Bhd v Dr Yeoh Kim

Leng

In the present case since the company had

succeeded in establishing that the resolution was

invalid and the seal of the company was affixed

without authority, in both cases in flagrant violation

of Art. 54 and 55, respectively, s. 100 does not

apply in much the same way and for the same

reasons estoppel does not avail the respondents.

What the company never did and what is not

attributed to the company does not in law bind the

company.

Effect of Share Certificate: Estoppel

Estoppel against the company

A share certificate contains two statements of

importance:

i. the name of the holder of the shares, and

ii. the amount to which the shares are paid up.

Both these statements amount to

representations by the company and will estop

the company from denying their truth vis-à-vis

any person who has relied on such statements

to his detriment.

Burkinshaw v Nicholls

where a company was also estopped from denying

that shares stated to be fully paid up were so in

fact.

Estoppel can also provide a remedy for a person

relying to his or her detriment on a share certificate

where the problem is not one of ownership of the

shares but of how much has actually been paid up

on them.


7

Kelapa Sawit (Teluk Anson) Sdn Bhd v Dr Yeoh Kim

Leng & Ors

Liability of company for issue of incorrect share

certificate

Re Bahia and San Francisco Railway Co

In a proper case the company may be liable to

pay damages to a person who suffers loss in

reliance on these statements. Such loss might

arise where the company issues a share

certificate to a person who does not have a

valid title to the shares and a subsequent

purchaser purchases the shares on the faith of

the certificate.

Liability of company for issue of incorrect share

certificate

Re Bahia and San Francisco Railway Co (1868) :

good faith purchasers of shares relied on share

certificates which had been mistakenly issued

to the vendors because of the latters’

submission to the company of a forged transfer

of the shares. The purchasers were duly

registered as members and issued with their

own certificates but the register was rectified in

favour of the person who was originally

entitled. It was held that the purchasers could

claim damages from the company since, by

issuing the certificate to the vendors, it had

represented to the purchasers that the vendors

were the true owners.


8

Estoppel and Transfer of Shares

Stanley Yeung Kai Yung & Anor v Hong Kong and

Shanghai Banking Corporation

The shareholder had had his share certificates

stolen.

The thief lodged forged transfers with

stockbrokers, who in good faith sent the share

certificates and transfer deeds to the bank for

registration and transfer, which was done.

The transferee thus came to be registered and

he then sold the shares. The innocent

shareholder asked for his name to be restored

to the register and for related relief.

The bank brought third party proceedings

against the stockbrokers.

The original shareholder succeeded against the

bank. As between the bank and the

stockbrokers, at first instance and in the Hong

Kong Court of Appeal the Judges relied on the

Barclay implied indemnity and found the

stockbrokers liable to indemnify the bank. The

stockbrokers appealed to the Privy Council.

Held: The decision in Barclay was upheld.

No estoppel if forged certificate

Ruben v Great Fingall Consolidated

The company secretary, to pursue a fraudulent

objective of his own, presented to innocent lenders

a share certificate appearing to be that of the

company and appearing to be signed by two

directors as well as by the secretary. However, the

seal had been affixed by the secretary fraudulently

and the secretary had forged the two signatures of

the directors.

Lord Macnaghten said: ‘The thing put forward as the foundation of their claim is a piece of paper which purports to be a certificate of shares in the company. This paper is false and fraudulent from beginning to end. The representation of the company’s seal which appears upon it, though made by the impression of the real seal of the company, is counterfeit, and no better than a forgery. The signatures of the two directors which purport to authenticate the sealing are forgeries pure and simple. Every statement in the document is a lie. The only thing real about it is the signature of the secretary of the company, who was the sole author and perpetrator of the fraud. No one would suggest that this fraudulent certificate could of itself give rise to any right or bind or affect the company in any way. It is not the company’s deed, and there is nothing to prevent the company from saying so.


9

4.10- Transfer of Shares

s 98 CA. The shares or other interest of any

member in a company shall be movable

property, transferable in the manner provided

by the articles, and shall not be of the nature of

immovable property.

Transfer of shares in accordance with the

articles

A shareholder who desires to transfer his shares

must conform with the provisions relating to

transfer in the articles of association.

If he fails to do so, the company is entitled to refuse

to register the transfer and in such a case the court

will decline to interfere: Re Fraser & Neave

Ltd [1967]

Procedure for Transfer Companies that do not come under the Central

Depository System:

Every transfer must be executed on instrument

of transfer as prescribed by CA ie. Form 32A.

s 103(1) CA - ‘Notwithstanding anything in its articles a company shall not register a transfer of shares or debentures unless a proper instrument of transfer in the prescribed form has been delivered to the company, but this subsection shall not prejudice any power to register as a shareholder or debenture holder any person to whom the right to any shares in or debentures of the company has been transmitted by operation of law.’

Relevant provisions: ss 103 – 107 CA; Table A,

arts 20 - 23

103 Instrument of transfer

104 Registration of transfer at request of

transferor

105 Notice of refusal to register transfer

106 Certification of transfers

107. Duties of company with respect to issue of

certificates


10

Restriction of Transfer Shareholder has a prima facie right to transfer

his shares. Directors have no discretion to

refuse to register a transfer of shares unless

the articles so provide:

Re Smith, Knight & Co, Westons Case

Shareholder has a prima facie right to transfer his

shares. Directors have no discretion to refuse to

register a transfer of shares unless the articles so

provide.

Re Fraser & Neave Ltd [1967]

The MOA or AOA of a company may provide for

certain conditions to be fulfilled before a share can

be transferred and such restrictions are binding on

the registered owner of shares.

Ontario Jockey Club Ltd v McBride [1927]

Share transfer restrictions may also be imposed by

contract.

Position for private company : s.15(1)(a) CA

'restricts the right to transfer its shares'

The Act does not prescribe the manner in which the

right to transfer shares is to be restricted.

Commonly, the AOA will require that shares be

offered to the existing members before an outsider

may purchase them.

Position for public company : Chapter 7 of

Listing Requirements of Bursa Malaysia

Securities Berhad

Notice of refusal to register transfer: s 105(1)

CA.

If a company refuses to register a transfer of any

share or other interests in the company, it must,

within one month from the date on which the

transfer was lodged with it, send to the transferor

and to the transferee notice of the refusal.

Failure to do so will entail a penalty.

Offence if non-compliance/default: s 105(2).

Offence if non-compliance/default: s 105(2) -max

penalty of a fine of RM1,000 and a default penalty.


11

Pre-Emptive Rights Meaning of “pre-emptive clause” or a

“director’s power of veto” clause

- Directors may be given discretion to refuse to

register transfers of shares, thus enabling them to

exclude an undesirable outsider.

This discretion is subject to common law and

statutory rules.

Re Smith & Fawcett Ltd [1942]

For example, the discretion must be exercised in

good faith for the benefit of the company and not

for any collateral purpose:

- Further the company has a primary obligation

to register transfers at the transferor's request: s

104.

- If registration of a transfer is to be refused, the

applicant must be notified of the refusal within one

month of his applying for registration: s 105

Effect of pre-emptive clause.

Effect of breach

Mahima Singh & Ors v Balde v Singh

The Seremban Town Service Sendirian Bhd. had resolved at its AGM to allot shares to bumiputras. The directors of the company subsequently decided to issue shares to Malay employees. No offer or notice was given to the respondent and other shareholders in accordance with article 46 of the Articles of Association of the company.

The respondent applied for a declaration that the acts of the appellants, the directors of the company, in issuing the shares was ultra vires the AOA of the company.

The learned trial judge allowed the application, as he held that the act of the appellants in alloting the shares was contrary to the resolution passed at the AGM.

The appellants appealed.

Held, dismissing the appeal: the acts of the appellants were ultra vires the articles of association as the appellants had failed to offer the shares or give notice to the respondent and other shareholders as required by the articles of association of the company.

Mohamed Yahya v M S Ally Sdn Bhd


12

Gan Sin Tuan v Chew Kian Kor

Loh Eng Leong & Ors v Lo Mu Sen & Sons (Sdn) Bhd

Pioneer Motor Service Company Sdn Bhd v Chin

Cheng Hong Sdn Bhd

Rules on restrictions on transfer

Shares are freely transferable - directors have

no power to refuse to register unless such

power is given under the Articles of

Association.

Director’s power to refuse the transfer and how

it should be exercised.

Re Smith and Fawcett Ltd


13

Kwality Textiles (Malaysia) Sdn Bhd v

Arunachalam

In this case the respondents had applied to have their names registered as owners of certain shares which had been transferred to them. At the time of the transfer of the shares the respondents were already owners of other shares in the company and were therefore members of the company. The directors of the company refused to register the transfer in exercise of their discretion under art 44(1) of the AOA of the company. Held, allowing the appeal: In this case the discretion given by the article is by its language absolute. The court should not interfere with the proper exercise of discretion by the board of directors conferred by the AOA to refuse registration for the well-being of the company. Indeed the court should be slow to question the exercise of the discretion in the absence of evidence that the board of directors had acted mala fide.

Must the board of directors give reason for the

refusal?

- If the articles state that the directors are

entitled to reject the registration on certain

grounds only:

In re Bede Steam Shipping Company, Limited

Lim Ow Goik & Anor v Sungei Merah Bus Company

Ltd

In this case the second applicant had sold 15 shares

in the company to the first applicant and sent a

notice to the directors.

The directors informed the second applicant that

his application for disposing of his shares to the first

applicant could not be approved, but it could be

considered for approval provided he gave the pre-

emption right equally to all the existing

shareholders.

The AOA of the company provide that the directors

may decline to register any transfer of shares to a

person of whom they do not approve and may also

decline to register any transfer of shares in which

the company has a lien.

Held:

(1) although if the directors had simply expressed

their opinion it would not be for the court to

examine or to inquire into the ground on which

they had formed their opinion, in this case, the

directors had exercised their power for a reason not

empowered by the articles of the company and

therefore this was an improper exercise by the

directors of the powers vested in them;

(2) the second applicant had therefore a legal right

in favour of his claim and the court must give effect

to it by ordering the company to register the

transfer.


14

If directors are not required to give reason but

go forward to give reason:

Kesar Singh v Sepang Omnibus Co Ltd

Where directors of a company are given by the AOA

an absolute and uncontrolled discretion with regard

to registering a transfer of shares the only

limitation on the directors' discretion is that it

should be exercised bona fide in the interests of the

company.

Mohan a/l Paramsivam v Sepang Omnibus

Company Sdn Bhd

Re Hackney Pavilion Ltd [1924] 1 CH 276.

Decision to reject must be made at the board

meeting. If directors are equally divided and no

decision is made, then the company must register

the transfer

Decision must be made within 1 month from

the transfer was lodged unless there are

reasonable grounds why the meeting will not

be held.

s 105(1) CA - If a company refuses to register a

transfer of any share, debentures or other

interests in the company it shall, within one

month after the date on which the transfer was

lodged with it, send to the transferor and to

the transferee notice of the refusal.

s 105(2) CA:

Consequence of default in complying with s 105 CA

Royal Trust Nominees Ltd v Sri Hartamas

Development Sdn Bhd

David Hey v New Kok Ann Realty Sdn Bhd

Allied Properties Sdn Bhd v Semua Holdings Sdn

Bhd


15

4.11- Transfer of Shares in a scripless trading

environment

ss 107A, 107B, 107C, 107D, 107E and 107F into

CA.

4.12 - Transmission of Shares

Meaning of transmission of shares.

Proof of the personal representative’s status -

document evidencing a grant of probate or

letters of administration: s 103(3) CA.

A transfer of the shares, debentures or other

interest of a deceased person made by his

personal representative shall be valid as if he

had been such a member at the time of the

execution of the instrument of transfer: s

103(2) CA.

Provisions as contained in Table A regarding

transmission of shares are stipulated in arts 24-27.


Law

Company law share capital 2