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  1. 1. 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. 2. 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. 3. 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. 4. 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. 5. 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
  6. 6. 6 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)
  7. 7. 7 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)