Paper 2.2(MYS) Corporate and Business Law (Malaysia) PART 2 TUESDAY 6 JUNE 2006 QUESTION PAPER. Time allowed 3 hours

Transcription

1 Corporate and Business Law (Malaysia) PART 2 TUESDAY 6 JUNE 2006 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A Section B SIX questions ONLY to be answered TWO questions ONLY to be answered Paper 2.2(MYS) Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall The Association of Chartered Certified Accountants

2 Section A SIX questions ONLY to be attempted 1 In relation to the Malaysian legal system, explain the doctrine of binding judicial precedent and discuss its importance and operation. 2 (a) Define agency by ratification, in the context of the law of agency. (2 marks) State what are the requirements that have to be fulfilled in order for an agency by ratification to arise. (8 marks) 3 In the context of partnership law: (a) Define a partnership. (2 marks) Explain the main legally necessary elements of a partnership. (8 marks) 4 The general rule is that contracts without consideration are void, although the Contracts Act 1950 provides for several exceptions to this rule. In this context, define consideration and explain those exceptions. 5 With reference to the Contracts Act 1950, explain the ways in which a proposal (offer) may be revoked. 6 In the context of company law: (a) State what is meant by the doctrine of ultra vires and explain its purpose. (4 marks) Explain the extent to which the doctrine of ultra vires is applicable in Malaysia in view of s.20 of the Companies Act (6 marks) 7 A company is absolutely prohibited from giving loans to its directors or providing guarantees or security in respect of loans given to its directors by some other party. Discuss this statement. 8 In the context of employment law: (a) Explain what constitutes wages under the Employment Act State the situations in which a contract of service may be terminated by either party without notice under the Employment Act

3 Section B TWO questions ONLY to be attempted 9 Jason and Khalid, who were childhood friends, started a fast food business in By the year 2000, the business became very profitable and they decided to convert their partnership into a limited company. Makan-Makan Sdn Bhd, a company limited by shares, was incorporated. Jason and Khalid became equal shareholders of the company, which had an issued and paid up capital of RM100,000 made up of 100,000 RM 1 00 shares. They were its directors with equal powers of management. The company prospered. Sometime in mid 2004, Khalid s son, Malek, was admitted as a member and 5,000 shares were issued to him. Soon after Malek became a member, Khalid s attitude changed. He began to question Jason on minor matters and cast doubts as to Jason s sincerity in the conduct of the business. He made decisions on his own without consulting Jason. He began using company funds for his personal matters and took frequent trips overseas, supposedly to secure business deals on behalf of the company. In fact no such business deal had ever been successfully concluded on behalf of the company. Soon, matters came to a head and they stopped communicating with each other. However, the company continued to be profitable. Last week, Jason was removed as a director pursuant to a resolution of the company in general meeting, passed by Khalid and his son, Malek. Jason, who is thoroughly disgusted with this situation, wishes to: (i) (ii) obtain a remedy for oppression under s.181 of the Companies Act 1965 or, alternatively, have the company wound up on the ground that it is just and equitable to do so, under s.218(1)(i) of the Companies Act Advise Jason, explaining clearly the scope of the remedy for oppression as well as the various circumstances under which the courts would consider it just and equitable to wind up the company. 3 [P.T.O.

4 10 (a) Siti was appointed as a director of Golden Era Sdn Bhd about two and a half months ago. The articles of association of the company stipulates that all directors are required to acquire and hold a minimum of 5,000 shares in the company within three months of appointment as director. To date Siti has not acquired any shares. Yesterday, she entered into a contract on behalf of the company, with Konstruk Bhd for the renovation of the office premises. Ali, a member, who is unhappy with this extravagant expenditure, wishes to know whether Siti is qualified to continue as a director and whether the validity of the contract can be challenged in the event she is disqualified as a director. Advise Siti. (c) (d) The articles of association of Sinaran Sdn Bhd state, among other things, that preference shareholders have the right to a fixed dividend of 10% per annum as well as the right to participate in surplus profits. In other respects, the articles are in the form of Table A of the fourth schedule to the Companies Act The ordinary shareholders have just passed a resolution at a general meeting altering the article to remove the right of preference shareholders to participate in surplus profits. Bujang, the only preference shareholder in the company, strongly opposes the resolution and wishes to challenge its validity. Advise Bujang on his chances of success. Abang was appointed as a director of Sang Suria Bhd last year. He has never got along well with his fellow directors on the board and has been quick with his criticism of any improper conduct of any of the directors. This morning he received a letter from the chairman of the board of directors to the effect that he had been removed as a director with immediate effect, pursuant to a resolution of the board of directors. He wishes to know whether he could challenge the legality of his removal as director. Advise Abang. Rama and Seng Chai are the directors of Teko Sdn Bhd. They are also shareholders of the company, each holding 20% of the company s issued shares. Recently, there has been a rumour that another company, Predator Bhd, is planning to make a take over offer to Teko Sdn Bhd s shareholders. Fearing that such a takeover would result in them losing their directorships, they issued 1,000,000 shares to Trusto, the trustee of the company s employee share scheme, on the understanding that Trusto would vote against any takeover of the company. Fras, a member, wishes to challenge the validity of the issue of shares to Trusto. Advise Fras on his chances of success. 4

5 11 (a) Joseph, who owned a durian farm, could not find sufficient time to look after and maintain it properly. He then decided to grant a lease of the property to his friend, Samy. The period of the lease was stipulated as, for as long as Samy wishes. Joseph now has second thoughts about granting the lease. He wishes to know if the validity of the lease could be challenged on any ground. Advise Joseph, with reference to the law of contract. (4 marks) (c) Thamby, aged 16, agreed to buy a computer from Mr Richie, for RM2,000 as he needed it to facilitate his studies at college. When he asked his father for the money to pay for the computer, his father told him that he did not have sufficient money and advised him not to buy the computer. Thamby wishes to know whether Mr Richie could sue him for breach of contract if he refuses to proceed with the purchase. Advise Thamby. (6 marks) Shumakay, a famous racing driver, agreed to sell his racing car, the Zoomakar, to Carmen for RM500,000. Although the price was very high, Carmen was willing to pay it because there were only ten such cars which were ever produced by the manufacturer, and also because it had been used for racing by such a celebrity. She paid a deposit of RM50,000. The car was to be delivered to her next week. However, she has just been informed by Shumakay that he has changed his mind about selling the car and that the deposit of RM50,000 would be refunded. Carmen is unhappy about this. It would be almost impossible to buy a similar car elsewhere. She wishes to sue Shumakay for breach of contract. Explain to Carmen the remedies available to her against Shumakay for breach of contract and advise her as to which of those remedies is most suitable for her. 12 Tufftimes Bhd, a company dealing in the manufacture of furniture, has been suffering losses for the past few years. In June 2005, the company took a loan of RM10 million from Fasloan Finance Bhd. This loan was secured by a fixed charge on the company s factory building. In October 2005, the company borrowed a further RM5 million from Lenmore Bank. This loan was secured by a fixed charge over the company s plant and machinery as well as a floating charge over all the other assets and undertaking of the company. In December 2005, the company borrowed RM2,000,000 from Kwik Kredit Sdn Bhd on the security of a floating charge on the company s book debts. One of the terms of this charge was that the company was prohibited from creating any other charge ranking in priority to or in pari passu with it. Another term of this charge was that it was to have priority over all other existing floating charges. In February, 2006, when the company was hopelessly insolvent, Jujur, a director of the company, who had previously given an unsecured interest-free loan of RM200,000 to the company, demanded security. The company then created a floating charge over all its assets and undertaking in favour of Jujur as security for that loan. A winding up order against the company was made by the court last week and a liquidator has been appointed. He has discovered that the fixed charge in favour of Fasloan Finance Bhd was not registered as required by the Companies Act He now seeks your advice on the order of priority in which the various creditors above ought to be paid. Advise the liquidator. End of Question Paper 5