SEMESTER I, 2006/2007 SESSION
AHMAD IBRAHIM KULLIYYAH OF LAWS
Programme : Bachelor of Laws Level of : Third
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.
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.
(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
 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
Advise Senyum Bhd. (7 marks)
(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?
(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.
(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.
(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.
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
(b) the general principles in relation to alteration of Articles of Association and
Memorandum of Association.
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
to secure a loan from Friendly Bank for RM100,000.00. However the charge was not
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.
“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
Discuss the above statement with reference to decided cases.